FINANCIAL CRIME DIGEST July 2015
MAKE INFORMED DECISIONS
FINANCIAL CRIME DIGEST Welcome to the July 2015 edition of the Financial Crime Digest, which covers updates from June 2015. In this edition, we cover various headline topics, including; public statements and documents from the latest FATF plenary meeting in Brisbane, the latest update of the EU Best Practices paper published by the Council of the EU, the ESMA’s report on anti-money laundering concerns relating to investment-based crowdfunding, and a report into telephone fraud and “vishing” scams by the FOS. We also highlight recent media news relating to money laundering, bribery & corruption, sanctions, and terrorist financing.
TECHNICAL AND REGULATORY UPDATES FATF plenary meeting - latest public statements and documents
l Adopted a typologies report on the money laundering/terrorist financing risks and vulnerabilities associated with gold.
Following its plenary meeting held in Brisbane on 24-26 June 2015, the Financial Action Task Force (FATF) has: l Published two documents identifying jurisdictions that may pose a risk to the international financial system; l Issued a statement and future work plan on derisking; l Revised best practices on combating the abuse of non-profit organisations (Recommendation 8);
The documents identifying jurisdictions that may pose a risk to the international financial system are HERE and HERE The statement and future work plan on de-risking is HERE The revised best practices on combating the abuse of non-profit organisations is HERE The guidance for a risk based approach to virtual currencies is HERE
l Adopted guidance for a risk-based approach to virtual currencies;
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The press release is HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES De-risking - FCA supports FATF work The Financial Conduct Authority (FCA) has issued its support for the work being conducted by the FATF on de-risking. The FCA has said it expects banks will be particularly interested in the section of the FATF statement about due diligence for correspondent banking relationships. The press release is HERE
Sanctions - the Council of the EU publishes update of the Best Practices paper The Council of the European Union has published the latest update of the EU Best Practices for the effective implementation of restrictive measures (sanctions). The paper contains non-exhaustive recommendations for the effective implementation of restrictive measures in accordance with EU law and national legislation. The intention of the paper is to identify key elements in the implementation of sanctions taking into account: l The specific situation within the European Union’s legal system; l The review of the current state of implementation of sanctions; l The importance of emphasising some already existing best practices that reflect current priorities of Member States. The paper is annexed to an “I” Item note and is HERE
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES Investment-based crowdfunding platforms ESMA publishes Q&As on anti-money laundering The European Securities and Markets Authority (ESMA) has published Q&As aimed at national competent authorities on the application of rules on anti-money laundering and terrorist financing to investment-based crowdfunding platforms. The purpose of this document is to promote common supervisory approaches and practices in the application of anti-money laundering rules to investment-based crowdfunding. Answers were provided to three questions: l What are the risks in relation to terrorist financing and money-laundering with regards to investmentbased crowdfunding, and how could they be mitigated? l Is the risk profile of the platform affected by whether it is regulated under MiFID or not? l How should investment-based crowdfunding be
Telephone fraud and “vishing” scams - FOS publishes review of complaints
treated under the Third Anti-Money Laundering
The Financial Ombudsman Service has published
Directive?
a report reviewing its work dealing with
The Q&A is HERE
complaints about voice phishing (“vishing”) and
The press release is HERE
“no hang up” frauds. The report includes information on how banks try to prevent vishing scams, bank actions once fraud has been detected, how banks handle complaints about scams, and best practice going forward. The ombudsman found that in 4 in 10 cases, the bank’s response to the fraud had fallen short, so the customers were compensated. In the remainder of the cases, the bank had done all that it could - but the money had been stolen and the ombudsman could not find the bank at fault. The report is HERE The press release is HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES Hmicho v Barclays Bank plc [2015] EWHC
arose not from the marriage relationship alone,
1757 (QB) - Financial Sanctions: accounts
but also from the circumstances arising from the
held in the name of the wife of a designated
history of deposits into the accounts, including
person
their unusual size and timing, which coincided with the imposition of sanctions against Mr.
The application was made by Mrs Hmicho in
Hmicho.
relation to Barclays’ decision to freeze her accounts following her husband’s designation
This case provides useful guidance in respect of
under the EU sanctions against Syria. The Queen’s
the application of concepts of ownership and
Bench Division has declined to grant Mrs. Hmicho
control in the context of international sanctions,
a mandatory interim injunction to order Barclays
where a non-designated third party individual, in
Bank to restore her access to three bank
this case a spouse, is involved.
accounts. The application was refused on the grounds that Barclays had “reasonable cause to suspect” that the funds within Mrs Hmicho’s accounts were owned or controlled by Mr Hmicho, a designated person under financial sanctions imposed in respect of Syria. In so finding, the
The Court considered Regulations 3, 4 and 5 of the Syria (European Union Financial Sanctions) Regulations 2012, and Regulation 16 (which includes the circumvention offence). The judgement is HERE.
court noted that the suspicion held by Barclays
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FINANCIAL CRIME DIGEST
PRESS AND MEDIA: MONEY LAUNDERING
The Geneva prosecutor has agreed to close its investigation into HSBC, in return for a financial settlement of SWF 40 million (around GBP 28 million). In addition, the bank was given a final warning by the authorities for “organisational deficiencies”, which allowed money laundering to take place in the bank’s Swiss subsidiary. As a result of the settlement, HSBC will not be prosecuted and Swiss authorities will not publish findings of their investigation into alleged aggravated money laundering. The Geneva authorities described the payment as “compensation” rather than a fine, reflecting the harm done to the city and the profits obtained by HSBC from processing illicit funds. The settlement with HSBC does not cover employees.
Switzerland’s attorney-general, Michael Lauber, has said that banks in Switzerland have flagged up 53 possible acts of money laundering that could be linked to FIFA’s 2018 and 2022 World Cup bidding contest. Future World Cup hosts Russia and Qatar were not implicated by the Swiss federal prosecutor. Lauber’s office has opened a case for suspected “criminal mismanagement and money laundering” in the bidding contests, which involved 11 nations. Lauber said the 53 “suspicious bank relations” were filed to comply with Switzerland’s anti-money laundering regulations.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING Italian prosecutors have formally asked for Bank
through the agencies of Money2Money transfer
of China’s Milan branch and 297 individuals, most
service included proceeds of crime including
of whom are Chinese living in Italy, to be tried for
counterfeiting, embezzlement, exploitation of
smuggling and other crimes. The investigating
illegal labour, and tax evasion. Of the total of more
prosecutors allege various crimes, including
than EUR 4.5 billion smuggled to China from Italy
money laundering and tax evasion. The case
via the transfer service, EUR 2.2 billion was
reportedly centres on an investigation that began
reportedly sent through the Bank of China Milan
in 2008 into the growing influence of Chinese
office. A judge will review the prosecutor’s request
criminal groups in Italy’s Tuscany region.
and decide whether charges should be brought.
Investigators claimed that money sent to China
The U.S. Treasury Department issued a two-part
Financial Action Task Force as part of its mutual
National Money Laundering Risk Assessment
evaluation inspection in early 2016. The report
(NMLRA) on 12 June. Whilst the report identified
found ongoing issues relating to misuse of
areas for improvement, its conclusion was
nominees to hide beneficial ownership. It also
generally positive. Adam Szubin, acting
noted that fraud was by far the largest contributor
undersecretary for terrorism and financial
to illicit proceeds-generating activities.
intelligence, wrote in his introduction: "Our anti-
Commentators on the risk assessment also noted
money-laundering and countering the financing of
it contains a large number of examples and cases
terrorism framework is sophisticated and well-
of money laundering, which are likely to prove
designed to address these threats, while
useful to the private sector.
maintaining an attractive business environment". The report is expected to be provided to the
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The NMLRA can be found HERE.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING Ricardo Teixeira, the former head of the Brazilian football federation, is facing charges of money laundering and tax evasion. Teixeira’s successor as president of the CBF federation, José Maria Marin, was one of the individuals arrested by Swiss police on indictments of corruption brought by the U.S. authorities. Teixeira left the CBF in 2012 amid criticism over his preparations for the 2014 World Cup, which Brazil hosted, and a police investigation into reports that he had taken millions of dollars in bribes from a sports marketing firm. Teixeira denied the allegations and was not charged with any wrongdoing.
Hong Kong police have charged a
According to the Swiss government, a report issued by
prominent figure in Macau's casino
Switzerland’s interdepartmental group on combating money
junket industry with laundering
laundering and terrorism financing (CGMT) “shows that
HKD 1.8 billion (around GBP 150
Switzerland is not immune to financial crime, and is still an
million) through bank accounts in
attractive location for laundering the proceeds of crime mostly
the southern Chinese city. Cheung
committed abroad”. Money laundering relating to sports
Chi-tai faces three separate counts
organisations was not covered in the report. The CGMT report
of money laundering, according to
found existing legislation to be an adequate response to current
a charge sheet. The businessman
risks, but recommended eight measures to improve the existing
was a major investor in publicly
anti-money laundering infrastructure. This included increased
traded Macau junket operator
dialogue between the public and private sectors, as well as
Neptune Group. Cheung Chi-tai
developing and systematising statistics. Switzerland’s
was named as a triad leader in a
government will make its recommendations to parliament, after
1992 U.S. Senate subcommittee
reviewing the report. The CGMT report noted in particular that
report and in recent Hong Kong
“Switzerland is running the risk of being abused as a platform for
court cases.
money laundering by certain commodities trading parties”.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING
At the Plenary meeting of the FATF in Brisbane,
The U.S. Treasury Financial Crimes Enforcement
Australia, the FATF congratulated Indonesia for
Network (FinCEN) has levied a USD 75 million
significant progress made by the country in
penalty against a casino operator in a Pacific
addressing strategic AML/CFT deficiencies earlier
island for what it referred to as “wilful and
identified by the FATF and included in its action
egregious” violations of anti-money laundering
plan. The FATF said that Indonesia will no longer
rules dating back to 2008. The civil fine against
be subject to the FATF’s monitoring process under
the Tinian Dynasty Hotel & Casino in the Northern
its on-going AML/CFT compliance process.
Mariana Islands, a U.S. commonwealth, was the largest ever issued against a casino by FinCEN. The fine follows warnings by FinCEN to other casinos to increase their efforts to prevent money laundering.
Jin Wang, a former Executive Vice President of Qualcomm Inc. has been sentenced to 18 months imprisonment and directed to pay a USD 500,000 fine after pleading guilty in a U.S. Securities and Exchange Commission case to securities fraud, based on his insider trading and money laundering linked to his efforts to evade detection and obstructing justice. Wang was found to have traded insider information obtained from his employer on three occasions. Wang and an associate, Gary Yin, a registered representative at Merrill Lynch, created offshore entities and set up bank accounts. The ownership of accounts was designed to make it appear they belonged to others. Yin also admitted to conspiring with Wang to obstruct justice and launder money.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
The U.S. Department of Justice has filed a complaint for civil forfeiture of USD 34 million, representing the value of shares in a Canadian energy company which were used to bribe Chad’s former ambassador to the United States and Canada, Mahamoud Adam Bechir. The DOJ said that in 2009, Bechir and Youssef Hamid Takane, deputy chief of mission for Chad to the U.S., agreed to use their official positions to influence the award of oil exploration rights in Chad to a Canadian oil company, Griffiths Energy International Inc. In late 2009, Griffiths Energy issued four million shares to the wives of Bechir and Takane, and to another associate. Griffiths Energy also agreed to make a payment of CND 2 million to Bechir’s wife as a “consulting fee”. The money was co-mingled and transferred through U.S. bank accounts and real estate, according to the DOJ. In 2013, Griffiths Energy pleaded guilty to bribing Bechir in Canadian courts under the Canadian Corruption of Foreign Public Officials Act. The DOJ has filed the civil forfeiture action under the Kleptocracy Asset Recovery Initiative.
A court in France has acquitted 14 companies accused of bribing the former Iraqi regime and violating the UN-sponsored Oil-for-Food programme. Renault Trucks, Schneider Electric, Legrand, and several other French companies, were found not guilty of bribery, corruption and misuse of company assets. The acquittal follows a 2013 trial in which a number of other French companies, including oil conglomerate Total, were also acquitted.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
U.S. authorities have commenced a forfeiture action for USD 300 million claimed to be the proceeds of an international bribery conspiracy involving two Russian telecoms companies. The U.S. alleges that Vimpelcom Ltd, which is part owned by Mikhail Fridman, and Mobile TeleSystems OJSC used a web of shell companies and phony consultancy contracts to funnel bribes to a close relative of Uzbekistan’s president, Islam Karimov. The assets sought by the U.S. are held in the Bank of New York Mellon Corporation in Ireland, Luxembourg and Belgium, according to the complaint filed in a Manhattan court. The funds sought allegedly belong to a company called Takilant Ltd, owned by Karimov’s relative. The company has previously been the subject of a corruption investigation by Swedish prosecutors. The individual was not named, but referred to only as “Government Official A”.
In its first corporate enforcement action for 2015 under the U.S. Foreign Corrupt Practices Act, the U.S. Department of Justice announced that IAP World Services Inc., a Florida-based defence and government contractor, agreed to pay USD 7.1 million in a nonprosecution agreement for conspiring to bribe Kuwaiti officials in exchange for a contract to build a largescale domestic surveillance system in Kuwait. The primary employee of IAP World Services, James Rana, pleaded guilty to one count of conspiracy to violate the FCPA.
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The former co-Chief Executive Officer of PetroTiger Limited, an oil and gas company based in the British Virgin Islands, with operations in Colombia and a former office in New Jersey, pleaded guilty to conspiring to pay bribes to a foreign government official in violation of the U.S. Foreign Corrupt Practices Act. The case was brought to the attention of the U.S. Department of Justice through a voluntary disclosure by PetroTiger. As a result of the company’s voluntary disclosure, co-operation and remediation amongst other factors, the DOJ declined to prosecute PetroTiger. Joseph Sigelman pleaded guilty to conspiring to violate the FCPA. Sigelman is the third former PetroTiger executive to plead guilty in the case.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
Interpol has announced it is
British private investigator Peter Humphrey and his American
suspending a four-year-old agreement
wife Yu Yingzeng have been released early from prison in
with FIFA, following investigations into
China. The pair were convicted in China last year on charges
corruption against world football’s
of purchasing private information on Chinese citizens in a
governing body. Under the deal the
case involving a sex tape and allegations of bribery linked to
world’s largest police institution was
GlaxoSmithKline PLC. In his first interview since his release,
receiving a donation from FIFA worth
Humphrey claimed he had not bribed anyone or obtained any
USD 20 million over 10 years to create
information from any Chinese government employee. He
an “Integrity in Sport” programme.
claimed he had been constantly harassed in prison over
Interpol’s programme aimed to prevent
signing a document called admission of guilt and a
the manipulation of sporting events
statement of remorse. He claimed a confession aired on
and illegal gambling by criminal
Chinese television shortly after his arrest had been heavily
groups. Interpol has issued
distorted. He further claimed that some Chinese medical
international wanted persons alerts
staff had refused his requests for appropriate medical
known as Red Notices for two former
attention as a deliberate effort to force him to sign a
FIFA officials and four corporate
confession of crimes both before and after the trial. Chinese
executives at the request of
authorities have stated that Humphrey’s claims of
U.S. authorities.
mistreatment are “not true”.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION
Two former officials of Edinburgh City Council and
The U.S. Department of Justice has announced
two directors of a private construction company,
that two more Swiss banks, Société Générale
ABC Limited, have been jailed for bribery and
Private Banking and Berner Kantonalbank AG will
corruption offences relating to the award of
pay penalties of USD 17.807 million and USD 4.619
building contracts. Charles Owenson and James
million respectively to reach resolutions under the
Costello worked for City of Edinburgh Council
DOJ’s Swiss Bank Programme, which provides a
when they were given hospitality by ABC,
path for Swiss banks to resolve potential criminal
including corporate seats at Hibs and Hearts
liabilities in the United States. As part of the non-
football grounds, meals and bar crawls. They
prosecution agreements, the two banks have
admitted offences under the Public Bodies
agreed to co-operate in any civil or criminal
Corrupt Practices Act 1889 (the legislation that
proceedings, and to demonstrate implementation
pre-dates the Bribery Act 2010). Kevin Balmer and
of controls to stop misconduct involving
Brendan Cantwell, two former directors of ABC,
undeclared U.S. accounts, and pay penalties in
that went into liquidation in 2010, also admitted a
return for the DOJ’s agreement not to prosecute
corruption offence. The Crown has also raised
these banks for tax-related criminal offences.
proceedings to recover crime profits in the case.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: SANCTIONS
Russia has said it will extend
The European Union has extended its
its ban on Western food
economic sanctions against Russia
imports for six months beyond
until the end of January 2016 to
its expiry in early August after
maintain pressure on Moscow to
the European Union extended
comply with a ceasefire accord signed
its measures. Russia also
with Ukraine. EU Ministers agreed on
announced it was considering
the extension of the sanctions due to
more import curbs on Western
“Russia’s destabilising role in Eastern
goods, including confectionery,
Ukraine”. The EU and U.S. sanctions
canned fish products, and
have targeted close associates of
flowers. The current list of
President Vladimir Putin and Russian
banned food products includes
state banks, military and energy firms.
fruit, vegetables, meat, poultry,
The move was condemned by Russia.
fish, milk and dairy.
The South Korean government has imposed financial
Russian President Vladimir Putin
sanctions on seven foreign businessmen and entities for
signed off on an amnesty for
engaging in the arms trade with North Korea, targeting three
Russians illegally hiding money in
Taiwanese individuals, three Taiwanese companies, and a
offshore accounts, provided the
state-run Syrian missile development institute. It is the first
funds were taxed or repatriated. The
time Seoul has imposed financial sanctions separate from
move is seen as part of a response to
United Nations sanctions on third-country individuals and
the imposition of economic
groups not from North Korea. The three blacklisted
sanctions on Russia which have
Taiwanese individuals are Tsai Hsein Tai, Su Lu-Chi and
coincided with record-high capital
Chang Wen-Fu. The three Taiwanese entities are Trans Merits
flight from the country. In March,
Company, Trans Multi Mechanics Company and Global
Russian Finance Minister Anton
Interface Company. The Scientific Studies and Research
Siluanov was reported as saying the
Center, a state-run Syrian institute linked to the training of
bill “declares immunity from criminal,
engineers in chemical and biological weaponry, has been a
administrative and tax punishment
target of American sanctions for more than a decade. Hsien
within the framework established by
Tai Tsai was arrested by U.S. authorities in 2013 and has
the law and in relation to
admitted that he engaged in illegal business transactions
transactions performed before
involving the export of U.S.-origin goods and machinery to
January 1, 2014, if the wrongdoings
North Korea. He was sentenced to two years in prison by a
committed involved the formation of
U.S. court in March for conspiring to defraud the United
the declared property items and
States and challenging its efforts to stop the proliferation of
transactions connected with the
weapons of mass destruction.
acquisition of these assets.”
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: TERRORIST FINANCING
Sweden's Security Service (Sapo) has
U.S. officials have warned that recent IS gains in the
warned that growing numbers of
western Iraqi city of Ramadi and the southern Syrian city of
individuals are funding trips to Syria with
Palmyra could open new lines of illicit funding for the
money received via text message loans
terrorist organisation. The U.S. State and Treasury
secured in Sweden. Investigators
departments and the Pentagon have over the past year
working for the security service said that
focused on drying up IS’s finances, by destroying both its
there had been a rise in people taking
ability to sell oil and restricting its ability to raise donations
trips to the Middle East to fight alongside
from overseas benefactors. However U.S. officials believe
terror organisations such as IS (also
that the majority of the terrorist group’s funding comes
known as ISIL or ISIS) over the last year,
from extorting local populations it controls in Iraq and
with growing numbers of visits funded by
Syria. It has also looted banks and businesses in areas it
loans taken out in Sweden. A Sapo
controls, in cities such as Mosul and Tikrit in Iraq, and
representative said that, whilst some
Raqqa in Syria. A senior U.S. official working in combatting
individuals had taken out bank loans or
terrorist financing said that the large population and
money using Swedish credit cards,
administrative structure in Ramadi offered IS new avenues
others had paid for their travel using SMS
to raise funds and bolster its balance sheet. In addition, IS
loans, representing money borrowed via
has been active in smuggling artefacts and antiquities
text messages from private companies.
plundered from sites in Iraq and Syria.
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