FINANCIAL CRIME DIGEST June 2015
MAKE INFORMED DECISIONS
FINANCIAL CRIME DIGEST Welcome to the June 2015 edition of the Financial Crime Digest, which covers updates from May 2015. In this edition, we cover information regarding the implementation of the EU fourth money laundering directive, the British Banker’s Association coverage of a World Bank survey on de-risking, Transparency International’s discussion document on ‘unexplained wealth orders’, recent judgements, and regulatory actions as well as news and updates relating to money laundering, bribery and corruption, sanctions, and terrorist financing.
TECHNICAL AND REGULATORY UPDATES Fourth Money Laundering Directive and Wire Transfer Regulation published in the Official Journal The Fourth Money Laundering Directive (2015/849/EU) has been published in the Official Journal of the European Union and came into force on 25 June 2015. Article 67 states that ‘Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 26 June 2017’. The Directive brings about significant changes in the definition of Politically Exposed Persons, the Beneficial Ownership requirement and the Penalties regime. The Wire Transfer Regulation also came into force on the same date. The Regulation lays down rules for payment service providers, who are now required to send information, not only on the payer, but also on the payee. The text for the Fourth Money Laundering Directive is HERE The text for the Wire Transfer Regulation is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
Empowering the UK to recover corrupt assets- Transparency International UK publishes discussion paper Transparency International UK has published a discussion paper suggesting that a new ‘Unexplained Wealth Order’ (UWO) power be conferred on UK law enforcement. It advocates that suspects issued with a UWO would have to explain legitimate and legal sources of wealth for suspicious UK assets or transactions, provided there was sufficient suspicion of criminality. If the trigger for a UWO is a suspicious activity report, then the 31-day timeframe for refused consent would be paused while the UWO is being responded to. The task force found, after talking with law enforcement and legal experts, that the 31-day time period is insufficient for investigating complex corruption cases. Failure to respond to a UWO, or an inadequate response, together with the initial grounds for suspicion, may then be used to facilitate a civil recovery process against the asset. Transparency International further recommends that an appropriate governing body, such as the Law Commission or a Parliamentary Committee, considers this paper as the basis for a wide-ranging review of powers to tackle corruption and money laundering associated with corruption in the UK. The discussion paper is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES Swedish banks fined over lax anti-money laundering controls Sweden's financial regulator has fined the two biggest banking groups, Nordea and Handelsbanken for breaching laws on money laundering and terrorism financing. The Financial Supervisory Authority (FSA) said Nordea had lacked an effective system to detect and prevent money laundering for several years, whether identifying high-risk individuals, suspicious transactions and counterparts in tax havens, or countries linked to terrorism. With regard to Handelsbanken, the FSA said the deficiencies were significant and meant the bank ‘ran a high risk of being used by people to launder money or finance terrorism’. Nordea Bank was given a warning and the maximum administrative fine of 50 million kronor (USD 6 million), and Svenska Handelsbanken AB was fined 35 million kronor. The press release is HERE
De-risking - BBA publicises World Bank Group’s survey The British Bankers’ Association (BBA) is publicising a survey by the World Bank Group, which has been launched to collect data from banks on the key drivers and consequences of de-risking. The survey is divided into a set of common questions, with a secondary section geared to each participant’s particular sector. The results of the survey will have extremely high visibility, and will feed into the production of a report for the G20, which will include the perspectives of money transfer operators, banks, and national governments worldwide. The findings will further shape wider discussions taking place in a range of international fora, including the FATF and Financial Stability Board. The deadline for responses is the end of June, and the BBA encourages all banks to respond. The press release is HERE The survey on de-risking is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
Recent judgements - Bank Mellat v HM Treasury [2015] EWHC 1258 (Comm) This judgement follows the UK Supreme Court’s decision in June 2013, which held that the UK Treasury had unlawfully applied sanctions against Bank Mellat. This decision is significant in that it establishes that the UK can be held financially liable for sanctions
Forex - FCA fines Barclays GBP 284 million The Financial Conduct Authority (FCA) has imposed a financial penalty of GBP 284,432,000 on Barclays Bank Plc (Barclays) for failing to control business practices in its foreign exchange (FX) business in London. This is the largest financial penalty ever imposed by the FCA or its predecessor, the Financial Services Authority (FSA).
measures that are unlawfully applied against an entity. The UK Financial Restrictions (Iran) Order 2009 (which was introduced by the Treasury under powers conferred upon it by Schedule 7 of the CounterTerrorism Act 2008), came into force on 12 October 2009, and was part of the UK’s efforts to curtail the financing of Iran’s nuclear weapons
The FCA found that between 1 January 2008
programme. Under the 2009 Order, all
and 15 October 2013, Barclays’ systems and
persons operating in the UK financial
controls over its FX business were inadequate.
sector were banned from entering
These failings gave traders in those businesses
into or continuing any transactions
the opportunity to engage in behaviours that put
or business relationships with certain
Barclays’ interests ahead of those of its clients,
entities associated with Iran. Bank
other market participants, and the wider UK
Mellat, one of Iran’s largest private
financial system. These behaviours included
commercial banks, and its branches
inappropriately sharing information about
were subject to these sanctions.
clients’ activities and attempting to manipulate spot FX currency rates, including doing so in
The judgement is HERE
collusion with traders at other firms, in a way that could disadvantage those clients and the market. The final notice is HERE The press release is HERE
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FINANCIAL CRIME DIGEST
PRESS AND MEDIA: MONEY LAUNDERING
The U.S. Financial Crimes Enforcement Network (FinCEN) assessed a USD 700,000 civil money penalty against Ripple Labs, Inc. and its wholly-owned subsidiary XRP II, LLP for wilful violations of several requirements of the U.S. Bank Secrecy Act, by acting as a money services business and selling its virtual currency, known as XRP, without registering with FinCEN, and by failing to implement and maintain an adequate anti-money laundering programme. FinCEN Director Jennifer Shasky Calvery said ‘innovation is laudable, but only as long as wit does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.’
Finma, the Swiss financial market regulator, said that virtual currency Bitcoin should be treated as a serious medium for illicit activity, such as money laundering. The comments were reported to be a sign of a widening acceptance and use of the digital payments system. Bitcoin’s ability to be used anonymously and internationally increases the risk it could play a role in terrorist financing. Finma completed a two-month consultation in April 2015, and will incorporate feedback into its revised Anti-Money Laundering Ordinance.
State Street Corp. has said that it expects to face enforcement by the Federal Reserve and the Massachusetts Division of Banks, after it failed to comply with the Bank Secrecy Act, anti-money laundering rules and U.S. economic sanctions. In a regulatory filing, the bank said that, as part of a ‘written agreement’, it expects to be required to improve its compliance programme, and to retain an independent company to review account and transaction data.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING The Vatican’s Financial Intelligence Unit (AIF), formed by Pope Benedict in 2010 to help set up a regulatory system to combat money laundering within the Vatican Bank, has presented its first report on the bank’s progress. The AIF said the bank, formally known as the Institute for Religious Works (IOR), has toughened regulatory standards and closed thousands of accounts. It found the bank has made good progress on improving transparency, but needs more changes to consolidate anti-money laundering reforms. The Vatican Bank is seeking to repair its public image following a series of financial scandals, and has been undergoing massive reforms over the last three years.
Jennifer Shasky Calvery, director of the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), stated in a recent speech that she expected a greater focus on money laundering activities through the real estate sector. She said this type of money laundering ‘is not a new issue’ – however, she added that ‘FinCEN continues to see the use of shell companies by international corrupt politicians, drug traffickers and other criminals to
A foundation established by former Nigerian President Olusegun Obasanjo has sacked its London-based Chief Executive Officer, after video evidence emerged showing that she had been involved in money laundering activities for many years. Video footage shot discreetly by a participant at a London meeting in December 2014 showed Anne Welsh, the former CEO, had plotted a USD 4.9 million scheme to exploit the deadly Ebola virus tragedy in West Africa, by helping a group of ‘Lebanese businessmen’ who wished to donate some money to the Olusegun Obasanjo Foundation for work in Sierra Leone. The group said it would donate USD 2 million if the foundation arranged to launder the balance of USD 2.9 million.
purchase luxury residential real estate in cash.’ Her speech follows a series of articles published by The New York Times in February 2015, which uncovered the use of shell companies to purchase high-value real estate at The Time Warner Center in New York City.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING
An ex-director of Petroleo Brasileiro SA (Petrobras), Brazil’s state-owned oil company, was sentenced to five years in prison, in the latest development in the multi-billion dollar corruption investigation. According to a document published by a court in Curitiba, Brazil, Nestor Cervero, who left Petrobras in 2014, set up a front company in Uruguay to purchase an apartment in an upscale Rio de Janeiro neighbourhood with illicit funds. Cervero is the second former director of Petrobras to be convicted in relation to the corruption case, the first being Paul Roberto Costa, the company’s former head of refining, who is due to serve two years under house arrest after turning state’s witness in the case.
Plus500, a London-
Deutsche Bank announced
listed trading platform,
that it had launched an
announced that its UK
internal investigation into its
arm had been subject to an external review
investment division in Russia. The statement
by the Financial Conduct Authority at the
followed a report in a German weekly magazine,
beginning of the year. Following the review,
which stated that several of the bank’s
Plus500 agreed with the FCA to halt all client
employees in Russia were suspected of
transactions until customers could provide
laundering important sums of dubious origins
proof of their status. Plus500 said that it had
for Russian clients, by carrying out complex
frozen about 55% of its client accounts while
transactions on the derivatives market.
it assesses their status under anti-money
Deutsche Bank said in a statement: ‘We are
laundering regulations. The firm said that
committed to participating in international
new customers could still sign up through its
efforts to detect and combat suspicious
Cypriot subsidiary, and was working to resolve
activities, and we take strong action where
the issues within as short a time as possible.
we find evidence of misconduct’.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING
U.S. authorities are reportedly investigating Venezuela’s powerful parliamentary head, Diosdado Cabello, and other senior officials, for possible cocaine trafficking and money laundering. The Wall Street Journal reported that federal prosecutors in New York and Miami, and a Drug Enforcement Administration unit, were gathering evidence from former cocaine traffickers, Venezuelan military defectors, and people once close to top Venezuelan government officials. Cabello has repeatedly denied allegations that he has been involved in drug trafficking.
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Caesars Entertainment Corp., owner of Caesars Palace casino in Las Vegas, announced in a quarterly filing that it was in discussion with U.S. federal authorities to settle allegations of money laundering at Caesars Palace, and the casino company could pay a fine of between USD 12 million and USD 20 million. Caesars said it had met with federal government officials to discuss ‘in general terms the results of their investigations, and had proposed a range of potential settlement outcomes.’ FinCEN was investigating Caesars for potential violations of the U.S. Bank Secrecy Act. In recent years, FinCEN has focused on anti-money laundering procedures and policies, and has taken a particular interest in the gaming industry.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY AND CORRUPTION Press reporting has been dominated by coverage of the FIFA bribery scandal. At the instigation of the U.S. Department of Justice, Swiss police arrested seven officials from FIFA. Swiss officials later opened a parallel investigation concerning the bidding process for the 2018 Russia World Cup and the 2022 Qatar World Cup. In the first investigation, the U.S. Department of Justice alleges that sports marketing executives paid USD 150 million in bribes to FIFA officials to secure broadcasting rights. Nine football officials and five sports executives were charged. Former FIFA official Chuck Blazer, acting as an informant, admitted taking bribes in exchange for awarding the 1998 World Cup to France and the 2010 World Cup to South Africa. In a second investigation, Swiss authorities are investigating bribery during the bidding process for the 2018 and 2022 World Cups. In response, FIFA president Sepp Blatter abruptly announced his resignation. A number of banks in the UK have reportedly launched reviews into whether corrupt payments were processed through their accounts. They were named in the U.S. Department of Justice indictment, which does not alleged wrongdoing on their part.
Following an investigation by the The Serious Fraud Office (SFO) and the City of London Police into the awarding of contracts in a series of high-value infrastructure projects, Graham Marchment pleaded guilty and was sentenced to 2.5 years imprisonment for his role in the conspiracy. Between 2004 and 2008, Marchment conspired with his co-defendants, Andrew Rybak, Ronald Saunders, Philip Hammond, and others, to obtain payments by supplying confidential information in relation to oil and gas engineering projects in Egypt, Russia and Singapore. Marchment worked as a procurement engineer, and deliberately leaked confidential information to bidders in exchange for payments disguised as commission. The contracts that Marchment was involved in were worth around GBP 40 million.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY AND CORRUPTION
The U.S. Securities and Exchange Commission (SEC) has charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA), when it sponsored the attendance of foreign government officials at the Summer Olympics. BHP Billiton agreed to pay a USD 25 million penalty to settle the SEC’s charges. An SEC investigation found that BHP Billiton failed to devise and maintain sufficient internal controls over its global hospitality program connected to the company’s sponsorship of the 2008 Summer Olympic Games in Beijing. BHP Billiton invited 176 government officials and employees of stateowned enterprises to attend the Games at the company’s expense, and ultimately paid for 60 such guests, as well as some spouses, and others who attended along with them. Sponsored guests
The SFO has brought further charges as part of its ongoing investigation of Alstom Network UK Limited. In addition to the charges that were announced as part of phase three of its investigation into Alstom in April, the SFO has charged Jean-Daniel Lainé, and he appeared, together with Michael John Anderson, and representatives of Alstom Network UK Ltd, at Westminster Magistrates’ Court. The matter has been sent for trial at Southwark Crown Court.
were primarily from countries in Africa and Asia, and they enjoyed three- and four-day hospitality packages that included event tickets, luxury hotel accommodations, and sightseeing excursions valued at USD 12,000 to USD 16,000 per package.
China Telecom Corp Ltd, the third largest mobile telecoms company in China, said in a statement that it had taken action against 31 executives involved in extravagant banquets and prostitution. It said that the executives had spent RMB 79,500 (around USD 12,800) of public funds on lavish banquets and entertainment in a restaurant in Hebei province. Executives were punished for holding ‘small coffers’, a common practice amongst government agencies and state-owned enterprises, to keep certain public funds off the books, to fund their banquets and related ‘recreational’ activities.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: SANCTIONS The Canadian Senate has adopted the Magnitsky sanctions motion, and condemned those involved in the cover-up of the USD 230 million corruption exposed by Sergei Magnitsky. Senator Andreychuk, who introduced the motion in the Senate of Canada, said: ‘Joining with parliaments around the world, the Senate’s adoption of this motion expresses our commitment to accountability for foreign nationals who commit the most serious violations of human rights.’ The Resolution encourages sanctions against any foreign nationals who were responsible for the detention, torture or death of Sergei Magnitsky, or who have been involved in covering up the crimes he exposed. Comparable resolutions, motions and acts have been adopted by the European Parliament, U.S. authorities took punitive measures
the British House of Commons, the Dutch
against an Iraqi airline and a Syrian
Parliament, the Organisation for Security and
businessman relating to the sale of aircraft to
Cooperation in Europe, and others.
Iran’s Mahan Air, a sanctioned Iranian airline. The Financial Times reported that Western governments suspect Iraq-based Al-Naser
Russia has blacklisted 89 prominent individuals from
Airlines to have been a front for Mahan Air to
the European Union who will not be allowed to enter
acquire the planes. A U.S. official said that
the country. The EU condemned the move, which
Mahan Air took delivery of nine Airbus aircraft
came after a number of EU politicians were recently
early in May. The U.S. has imposed sanctions
denied entry when arriving in Russia, with authorities
on Mahan Air three times since 2011 for alleg-
saying their names were on a confidential ‘stop list’.
edly shipping arms to the Syrian government;
The EU did not confirm who was on the list, nor did
transporting members of Iran’s elite Quds
Russia’s embassy in the EU. However, Jacek Saryusz-
Force of the Islamic Revolutionary Guards
Wolski, a Polish member of the European Parliament,
Corp; and providing transport for Hezbollah,
tweeted a list of 89 names that included himself.
the Lebanese militia, which Washington designated as a terrorist organisation. The U.S. Treasury Department said that the nine aircraft have been designated as ‘blockable’ interests, increasing the risk for Mahan Air to fly them on international routes.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: TERRORIST FINANCING
The U.S. Department of Treasury Office of Foreign Assets Control (OFAC) has issued its 23rd Terrorist Assets Report, covering the year to December 2014. During the year, terrorist assets blocked in the United States totalled USD 21.8 million. These blocked funds belong to, or are controlled by, terror groups including Al-Qaeda, Hamas and Hezbollah. The report also identified blocked funds and non-blocked funds relating to Iran, Cuba, Syria and Sudan, which the report identifies as ‘state sponsors of terrorism.’ OFAC identified around USD 2.3 billion in assets in the United States as belonging to state sponsors of terrorism, most of which belong to Iran. Blocked Iranian cash and assets in the United States are valued at around USD 1.9 billion. This includes eleven diplomatic and consular properties.
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