FINANCIAL CRIME DIGEST August 2015
MAKE INFORMED DECISIONS
FINANCIAL CRIME DIGEST Welcome to the August 2015 edition of the Financial Crime Digest. In this edition, we cover various topics associated with financial crime, anti-money laundering and sanctions, including: FATF/APG’s report on risks and vulnerabilities associated with gold; the Basel Committee’s consultation on its revised general guide to account opening; a questionnaire on cyber-security sent to insurers by the PRA; and the manipulation of LIBOR. We also highlight recent media news relating to money laundering, bribery & corruption, sanctions, and terrorist financing.
TECHNICAL AND REGULATORY UPDATES General guide to account opening - Basel Committee publishes consultation paper The Basel Committee for Banking Supervision has published for consultation a proposed revised version of its general guide to account opening. When finalised, it will be added as an annex to the Committee’s ‘Sound management of risks related to money laundering and financing of terrorism’, published in January 2014. The proposed guide expands on, and should be read in conjunction with, the 2014 guidelines. In particular, the proposed guide expands on the discussion in Section II.3 (paragraphs 35–41 in particular) of the guidelines, entitled “Customer and beneficial owner identification, verification and risk profiling”. It aims to support banks in implementing the FATF standards and guidance. The consultation period closes on 22 October 2015. The proposed guide is HERE The press release is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
FATF and APG publish joint report on risks
nature, source and scope of gold production,
and vulnerabilities associated with gold
markets and trade, in order to assist practitioners to recognise the common ‘predicate’ offences
The Financial Action Task Force (FATF) and the
(such as theft, smuggling, fraud, illegal schemes
Asia Pacific Group on Money Laundering (APG)
and tax evasion) that occur in the gold market.
have published a joint report on the money
Chapter 4 sets out a library of ‘red flag’ indicators
laundering and terrorist financing vulnerabilities
that could assist designated non-financial
associated with gold.
businesses and professions (DNFBPs), financial
Chapter 2 identifies the features of gold that make it attractive to criminal organisations as a mechanism to move value. Chapter 3 maps the
institutions and others in identifying and reporting suspicious activities associated with money laundering and terrorist financing in the gold sector.
The report’s key findings are: l Gold is an extremely attractive vehicle for laundering money. It provides a mechanism for organised crime groups to convert illicit cash into a stable, anonymous, transformable and easily exchangeable asset to realise, or to reinvest, the profits of their criminal activities; l Understanding the various stages of the gold market continuum, and the types of predicate offending that can occur in each stage, is critical to identifying money laundering and terrorist financing risks emanating from this industry; and l Further research is required to establish the impact of regulation on detecting and discouraging criminal activities in the gold market, and the potential links between the gold market and terrorist financing.
The report is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES Cyber resilience - PRA sends questionnaire to insurers The Prudential Regulation Authority (PRA) has written to insurance firms asking them to complete a questionnaire that has been designed to help them to better understand the current policies and capabilities of firms in relation to cyber resilience, an initiative announced by the PRA in July 2015. The questionnaire consists of three main sections: cyber security and resilience capabilities, cyber insurance, and conduct. The ‘conduct’ section of the questionnaire has been developed by the FCA and is intended to ascertain what confidential customer information firms receive (in relation to both cyber-insurance products and more generally) and how this is handled and stored. Responses must be submitted by 16 October 2015. The questionnaire is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES RECENT JUDGEMENTS LIBOR - R v Tom Hayes,
LIBOR - FCA bans Rabobank trader
Southwark Crown Court
from UK financial services industry
Mr Tom Hayes, a former derivatives
The FCA has prohibited Mr Lee Stewart, a former trader at
trader at UBS and Citigroup, has
Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.
become the first person in the UK to be
(Rabobank), from performing any regulated activity for any
convicted in connection with the
regulated firm, on the basis that he lacks honesty and
manipulation of LIBOR. He was
integrity, following a criminal conviction for fraud in the
convicted on eight counts of conspiracy
United States. In March 2015, Mr Stewart pleaded guilty in
to defraud, and sentenced to a total of
the United States for his role in a conspiracy to manipulate
14 years imprisonment. Confiscation
Rabobank’s US Dollar LIBOR submissions.
proceedings have been adjourned to a later date.
The FCA’s final notice states that the seriousness of the misconduct was aggravated by the fact that:
In his sentencing remarks, Cooke J commented that “the conduct involved here must be marked out as dishonest and wrong and a message sent to the world of banking accordingly”. He noted that the maximum sentence of 10 years’ imprisonment for a count of
l Mr Stewart was an experienced employee of Rabobank and was an approved person, holding the CF30 (customer) function; l Mr Stewart engaged in this improper activity over a prolonged period of time; and l LIBOR is of central importance to the operation of UK and
conspiracy was “generally recognised
worldwide financial markets, and doubts about the
as too low”.
integrity of LIBOR threaten confidence in those markets.
The sentencing remarks of Mr Justice Cooke are HERE A press release issued by the Serious Fraud Office is HERE.
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This action follows the recent ban of Mr Paul Robson, another former trader at Rabobank. 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) has issued a Geographic Targeting Order (GTO) for check cashiers in South Florida. The GTO follows a dramatic increase in instances of identity theft and fraud committed against the U.S. Internal Revenue Services. Identity thieves have been found to have filed false income tax returns to the federal government, in order to cash tax refund checks. The GTO, in place in MiamiDade and Broward Counties, will require individuals cashing checks over USD 1,000 to submit a copy of identification, a digital photograph taken of the customer at the time of transaction, a copy of address and phone number, as well as a thumbprint. The scheme will remain in place from 3 August to 30 January 2016.
FinCEN has severed the Federal Bank of the Middle East’s (FBME) ties to the U.S. financial system. In 2014 FinCEN designated FBME, one of the largest commercial banks in Tanzania, as a foreign financial institution of primary money laundering concern, and proposed the imposition of special measure 5 under the U.S. Patriot Act. In addition to facilitating money laundering, FBME was also accused of facilitating transnational crime, terrorism financing, fraud, sanctions evasion and other illicit activities. FinCEN’s decision is final, and FBME has been debarred from the U.S. financial system due to its status as a compromised foreign bank. Although headquartered in Tanzania, much of FBME’s activities are conducted through Cyprus. In 2013, a bailout for Cyprus by the European Union was delayed over money laundering concerns centred around the activities of FBME. 5
The Hong Kong Central Bank has penalised the State Bank of India’s Hong Kong branch over violations of local antimoney laundering and terrorist financing laws. The Hong Kong Monetary Authority (HKMA) found that SBI had failed to carry out customer due diligence and KYC checks before entering business relations. Additionally, SBI had also failed to monitor business relations with existing clients, and had failed to verify whether its customers were politically exposed persons. Despite the internal control failures at SBI, neither the HKMA nor external auditors identified problem accounts or suspicious transactions. As a result of the proceedings, SBI was fined USD 1 million.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING The Bank of Italy has released its 2014 report by
Romanian Prime Minister Victor Ponta has been
its Financial Information Unit (Uif). The Uif found
charged with forgery and serving as an accessory
that reports of suspicious transactions in 2014
to money laundering. Mr Ponta was first formally
increased to 71,700, 7,000 more than in 2013. The
called in for questioning on 5 June; however, he left
Bank of Italy commented that “the threat of money
Romania for knee surgery. Since then, the
laundering in Italy is considerable, because of the
Romanian political opposition has tried to have his
widening and pervasive organised crime,
parliamentary immunity revoked. Mr Ponta has
corruption and tax evasion”. The bank noted that
survived this and a vote of no confidence. Because
organised crime needed “less and less to use
Mr Ponta’s diplomatic immunity was upheld, he
threat and violence, as it aims to become part of
can only be investigated for crimes committed
institutions, weakening them from within”. The
prior to joining parliament. Mr Ponta is alleged to
public sector was considered to be particularly
have fabricated documents for payments of EUR
susceptible to money laundering, given a lack of
40,000 to close associate and later Transport
activity to tackle the threat.
Minister Dan Sova. He is officially charged with document forgery and money laundering.
The Swiss Office of the Attorney General has announced that it has received additional reports of money laundering in connection with Russia and Qatar’s bids for the 2018 and 2022 FIFA World Cups. This comes against the backdrop of the arrest of 14 FIFA officials in June on corruption and money laundering charges. Attorney General spokesperson Andre Marty confirmed 81 reports of suspicious activity being reported to the Money Laundering Reporting Office of Switzerland (MROS).
Victor Ponta
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING
His Holiness the 17th Gyalwa Karmapa,
UK Prime Minister David Cameron announced in a
Urgyen Trinley, a Tibetan monk seen as a
speech in Singapore that he would introduce a central
possible successor to HH the Dalai Lama,
land registry of foreign companies, disclosing the
is being prosecuted for money laundering
property they hold in the UK. One in ten properties in
offences. Himachal Pradesh High Court
the City of Westminster are estimated to be owned by
in India has issued an order to reopen
entities registered in offshore secrecy jurisdictions. Mr
proceedings against the Karmapa,
Cameron’s move was widely reported to be a
following the seizure of US 1 million in
significant step towards combatting money laundering
cash in 2011. The assets seized by Indian
and the purchase of property through anonymous
police in 2011 were made up of currency
overseas shell companies.
from 26 countries, including GBP 65,000 worth of Chinese Yuan. The case was initially thrown out by an Indian court in 2012, but has since been reopened. The Karmapa is seen as having a high profile in the Karma Kagyu school of Buddhism, and is widely believed to be endorsed by both the current Dalai Lama and the PRC Government as the next Dalai Lama. There are suggestions that the allegations against the Karmapa are politically motivated.
A Federal High Court in Lagos, Nigeria has discharged and acquitted Femi FaniKayode, the former Minister of Aviation, of money laundering charges. Mr FaniKayode, whose trial began in 2008, was accused by the Economic and Financial
The U.S. Federal Reserve has told China Construction
Crimes Commission (EFCC) of having
Bank Corp to improve its anti-money laundering
laundered around NGN 100 million while
framework, which represents the first enforcement
he was the Minister of Culture and
action by the U.S. central bank against one of China’s
Tourism, and subsequently Aviation
four largest state-owned banks. The Federal Reserve
Minister. Justice Ofili-Ajumogobia
has given China Construction Bank 60 days to submit
described the EFCC case as “feeble” and
plans for anti-money laundering controls, customer due
discharged Mr Fani-Kayode in the
diligence programmes, and methods for identifying
absence of “copious evidence”.
suspicious transactions.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
The U.S. Department of Justice (DOJ) has received a second guilty plea for charges of corruption against the U.S. Army’s relief efforts in Afghanistan. Sgt Ramiro Pena, of the U.S. Army Humanitarian Assistance Yard at Bagram has admitted accepting bribes worth USD 100,000 along with fellow coconspirator Army Master Sergeant Jimmy W. Dennis. Mr Dennis likewise pleaded guilty to all charges, and was sentenced to 41 months in prison. Mr Pena was further ordered to forfeit USD 115,000. The bribes took place between 2008 and 2009, when Mr Pena and his co-conspirator purchased humanitarian aid for an estimated USD 30 million. The bribes were paid by local vendors in the form of cash and jewellery.
The UK Serious Fraud Office announced that it has
The Russian Duma has passed a law on
opened a criminal investigation into Soma Oil & Gas
internet privacy concerning the “right to be
Holdings Ltd, Soma Oil & Gas Exploration Limited, Soma
forgotten”. Modelled on an EU court
Management Limited, and others, in relation to
decision (Google Spain vs. Mario Costeja
allegations of corruption in Somalia. The allegations
Gonzalez), the Russian pronouncement will
centre on claims that Soma had offered payments to
allow recent judgements regarding an
Petroleum Regimes Advisory (PRA), an independent
individual’s background or criminal history
advisory group advising the Somali government. This has
to be removed from internet search engines,
raised serious questions concerning PRA and conflicts of
such as Google and Yandex. If these search
interest. Soma denies the allegations, saying that funds
engines refuse, requests can be enforced by
paid to PRA were made at the request of the Somali
Russian district courts. The new bill will
government, as a means of financial assistance.
enter into effect on 1 January 2016.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
The U.S. SEC announced that Mead Johnson Nutrition has agreed to settle allegations of violating the U.S. Foreign Corrupt Practices Act. Mead Johnson Nutrition has agreed to pay a civil penalty of USD 12 million, in response to allegations that its Chinese subsidiary made improper payments to healthcare officials in local hospitals in order to recommend the company’s infant formula to patients. These payments were funded by distributor allowance funds, in which funds were given to local Chinese distributors, with the intent of passing funds on to hospital employees. In addition, the SEC found that payments of over USD 2 million were unaccounted for in the company’s records over a five-year period, drawing criticism over the company’s lax internal controls.
The U.S. Department of Justice filed a civil forfeiture complaint
David Rath, a former health
against Philippines national Janet Napoles for the sum of USD
minister and governor of Central
12.5 million. Ms Napoles is alleged to have embezzled these
Bohemia, Czech Republic, along
funds from a disaster relief fund, set up to provide direct
with nine other associates, was
financial assistance and humanitarian disaster relief in the
found guilty of corruption worth
Philippines. She is further alleged to have attempted to hide
around CZK 7 million, and of
her embezzlement by purchasing luxury items in the U.S.,
manipulating public tenders. He
including a Porsche and a condominium in the Ritz Hotel. She
was sentenced to 8.5 years in
is currently serving a life sentence in the Philippines over the
prison and the court ordered
kidnapping of her cousin, her financial officer, who allegedly
seizure of his assets. To date, Mr
was privy to the details of her crimes. Ms Napoles is also under
Rath is the highest official being
investigation for a pork-barrel scam, where it is alleged she
crackdown by Czech Republic’s
offered several million dollars in kickbacks to Philippine
state attorney anti-corruption
senators, in order to receive government funding worth USD
campaign.
200 million.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
The Vice President of the Supreme People's Court in China has been implicated in an investigation of corruption, becoming one of the highest judicial officials caught by President Xi Jingping’s anti-corruption campaign. Xi Xiaoming, a specialist in economic law cases, is being probed for “serious violations of discipline and laws”; however, the details of the case are still undisclosed. One Chinese-based investigative finance magazine has suggested that Mr Xi is under investigation for corruptly ruling in favour of mining magnate Zhang Xinming regarding the transfer of shares in a mining operation. Governmental corruption investigations in China are notoriously opaque, and it is likely that the exact background to the investigation will not be disclosed in any substantial way.
The first of seven FIFA executives arrested in Switzerland as part of the corruption investigations has been extradited to the United States. While the Swiss Federal Office of Justice has not commented on the official flown to New York, it is widely believed to be former FIFA Vice President Jeffrey Webb. The remaining six individuals are currently resisting extradition. Mr Webb is the former president of CONCACAF, the North American football federation. He is accused of accepting millions of dollars’ worth of bribes in connection with the fraudulent sale of marketing rights. The investigation was launched by the FBI, initially over the bidding process to the 2018 and 2022 World Cups in Russia and Qatar respectively, but has since widened to include the dealings of FIFA over the last 20 years.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
Patrick Liu Chunning, the Vice President of
Brazilian police have arrested Jorge Zelada, former
Alibaba Group and General Manager of Alibaba
director of Petrobras’ International Division, as part
Group’s OSTV division, has been taken into
of ongoing investigations into fraud and
custody over allegations of bribery and corruption.
corruption. Mr Zelada has been suspected of
The matter relates to Mr Liu’s employment at
money laundering, misappropriating public funds,
Tencent Holdings. Mr Liu was in charge of digital
corruption, tax evasion, and contract fraud. It is
entertainment when he was at Tencent, and is one
alleged that Mr Zelada received bribes relating to
of six former Tencent employees to be implicated
contracts with Vantage Drilling Co. and Pride
in the corruption scandal. Alibaba has issued a
International over the operation of oil rigs. This is
statement of support for Mr Liu, and has
the first occasion a U.S. firm has been implicated
furthermore stressed that his arrest is related to
in the ongoing corruption scandal at Petrobras. Mr
his employment at Tencent, and is therefore
Zelada is suspected of hiding USD 12.9 million
unrelated to Alibaba.
worth of bribes in Monaco.
Thailand has enacted a new anti-
Brazilian investigators have additionally opened a formal
corruption law that extends a maximum
investigation into allegations of influence-peddling and
punishment of the death penalty to
corruption against former President Luiz Inacio Lula da Silva.
foreigners, including those who work
Mr Lula is alleged to have used political connections overseas
for foreign governments and
to inappropriately secure tenders for Brazilian construction firm
international organisations. Another
Oderbrecht. He denies any wrongdoing. The investigation into
provision of the new anti-corruption law
Mr Lula is another link into the massive Petrobras scandal, in
states a statute of limitations of 20
which federal prosecutors are investigating allegations of
years no longer applies if the convicted
cartels of companies working for Petrobras, overcharging
person flees the country.
Petrobras billions of dollars for major contracts.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION The UK government has opened up the possibility for reviewing the 2010 Bribery Act, following calls from British firms stating that it was making it substantially more difficult to secure business overseas. The Department for Business, Innovation and Skills has issued letters inviting industry leaders to comment on whether the Act had an impact on their ability to export. Additionally, the BIS has invited comments on the usefulness of the Act, and is inquiring into options for further clarifying the information held in the Act.
Italian police seized EUR 1.6 billion of assets in a
A report published by Oxfam America has
mafia raid in Sicily. Five siblings, described as
criticised a bureaucratic delay in the U.S. SEC
“business people� are believed to be members of
publishing a rule requiring U.S. listed companies
the Virga family based around the main city
to disclose payments to foreign government
Palermo. The Italian anti-mafia police (DIA) claim
officials over access to oil and gas projects. The
the seizure of dozens of bank accounts, motor
SEC has yet to implement this and, in a March
vehicles, and approximately 800 buildings. This is
filing, suggested that this would not be enacted
one of the largest asset seizures undertaken by
until early 2016. This has drawn strong criticism
the DIA in its 20-year history.
from anti-corruption organisations and lobbies, who claim it has helped fuel corruption abroad.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: SANCTIONS The U.S. Treasury has blacklisted the Singapore-based shipping firm Senat Shipping Ltd. over allegations that it is supporting illegal arms shipments to North Korea. Senat has been accused of providing significant support to Ocean Maritime Management Company (OMMC), a North Korean shipping company. OMMC attempted to conceal a shipment of arms to North Korea in 2013, using the DPRK-flagged cargo vessel Chong Chon Gang. Senat is accused of arranging the purchase, repair, certification and crewing of vessels on behalf of OMMC. As a result, Senat’s assets have been frozen. The sanctions extend to Senat’s President, Leonard Lai.
Thailand could to be added to the U.S. sanctions
Russian customs officials hindered an attempt
list, over the country’s record on human trafficking.
by a Kaliningradian man to evade Russian-
Thailand was downgraded to “Tier 3” listing in 2014
imposed sanctions. The man was caught trying
after four consecutive years on Tier 2 Watchlist.
to smuggle 460 kg of cheese from Poland to the
Thailand is a regional hub for human trafficking,
Russian enclave of Kaliningrad, stuffed in the
but has recently attempted to crackdown on gangs.
rear and passenger seat of his car. The man
Normally, a downgrade to Tier 3 would trigger a
denies any wrongdoing, and denies he was
range of sanctions; however, the U.S. has yet to
transporting the goods for commercial purposes.
announce any impending sanction.
EU dairy products are currently under Russian sanctions related to the conflict in Ukraine.
The EU removed two Iranian oil entities from its sanctions list in late July. Petropars Operation and Management and Petropars Resources Engineering filed an appeal to the EU Court in May 2015 and have recently had their sanctions lifted. The UK Treasury has confirmed that an asset freeze no longer applied to these companies. Meanwhile, the court has maintained sanctions on Petropars Iran and Petropars Oilfield Services, due to the large stake they have in the National Iranian Oil Company.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: TERRORIST FINANCING
It has emerged that the father of Mohammad Youssuf Abdulazeez, the gunman responsible for the Chattanooga shootings, has previously been under investigation for terrorist financing. A spokesperson from the FBI confirmed at Mr. Abdulazeez was investigated for funding overseas charities. However, there is no indication that Mr. Abdulazeez had been involved in any wrongdoing. Investigations into overseas charities was common in the US post-9/11, and very few prosecutions ever took place, suggesting a lack of criminal activity. Authorities in the U.S. are still investigating whether the Chattanooga shootings constituted an act of terrorism.
The European Securities and Markets Authority (ESMA) has issued an announcement warning of the potential for abuse of crowdfunding platforms regarding money laundering and terrorist financing. While platforms that operate within the Markets in Financial Instruments Directive are already subject to antimoney laundering and anti-terrorist financing, ESMA has warned that platforms that do not fall into this remit do not.
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