FINANCIAL CRIME DIGEST March 2015
MAKE INFORMED DECISIONS
FINANCIAL CRIME DIGEST Welcome to the March 2015 Financial Crime Digest covering key updates from February 2015. This month’s digest covers updates in relation to the Serious Crime Act 2015, the FATF Plenary meeting in Paris, progress on the fourth EU Money Laundering Directive, and the launch of the Joint Money Laundering Intelligence Taskforce. It also provides a summary of key press and media coverage relating to fraud, money laundering, bribery and corruption, data security, and sanctions news, plus a look ahead to upcoming events and publications in March 2015.
TECHNICAL AND REGULATORY UPDATES The new Section 37 of the Serious Crime Act 2015 provides civil liability exemption for money-laundering disclosures. The Home Office has announced that the Serious Crime Bill has received Royal Assent, making it the Serious Crime Act 2015. Section 37 places civil immunity for money laundering disclosures on a statutory footing. The exemption provides that “where an authorised disclosure is made in good faith, no civil liability arises in respect to the disclosure on the part of the person or on whose behalf it is made.” Karen Bradley MP, Minister for Modern Slavery and Organised Crime, had previously explained that the Government was obliged under Article 26 of the EU Third Anti-Money Laundering Directive to protect those who report suspicions of money laundering in good faith from incurring civil liability for doing so.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES She said that, whilst the common law currently provides such protection, the Government had concluded that placing civil immunity on a statutory footing would be advantageous in providing greater legal certainty. The Opposition supported the new clause and it was later added to the Serious Crime Bill. The announcement is HERE. The Serious Crime Act is HERE.
The FATF Plenary meeting took place at the OECD in Paris from 25 - 27 February 2015. The public statement can be found HERE. The Plenary considered a number of matters, including: l Terrorist financing, and the issue of a report on the financing of the Islamic State in Iraq and the Levant (ISIL) l Jurisdictions with AML/CFT deficiencies l Fourth round mutual evaluation reports l Collaboration between the Egmont Group of FIUs and FATF
The City of London Police has announced the launch of the Joint Money Laundering Intelligence Taskforce. The taskforce will run for an initial period of 12 months, with a view to improving intelligence sharing arrangements and building on
l An ongoing review of ‘de-risking’, in line with the risk-based approach l Building on the FATF 2014 report on virtual currencies
national leadership against organised economic and financial crime. Representatives from the financial sector, NCA and City of London Police will be based in a single hub to develop an operational level understanding of money laundering risks.
FATF listed Iran and the Democratic People’s Republic of Korea (DPRK) as two jurisdictions
The banks involved are: Lloyds, Santander, HSBC,
with on-going or substantial money laundering
Nationwide, Post Office, RBS, Barclays, Citigroup,
or terrorist financing risks. Algeria, Myanmar
BNP Paribas, and Standard Chartered. Information
and Ecuador are considered to have strategic
and intelligence will be processed and
AML/CFT deficiencies and have not made
disseminated via the British Bankers Association’s
sufficient progress in addressing the
Financial Crime Alerts Service. Other law
deficiencies, or have not committed to an
enforcement agencies and financial institutions
action plan to address the deficiencies.
include HMRC, Financial Fraud Action UK, and Cifas (UK's independent fraud prevention service).
The FATF Plenary session discussed the mutual evaluation reports of Australia
The press release is HERE.
and Belgium.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES The Council of European Union has endorsed the political agreement reached with the European Parliament on the proposed Fourth Money Laundering Directive and proposed regulation on information accompanying transfer of funds (the Wire Transfer Regulation). The strengthened rules reflect the need for the EU to adapt its legislation to take account of the development of technology and other means at the disposal of criminals. The main elements are: l Extension of the directive's scope, introducing requirements for a greater number of traders. This is achieved by reducing from EUR15,000 to EUR10,000 the cash payment threshold for the inclusion of traders in goods, and also including providers of gambling services. l Application of a risk-based approach, using evidence-based decision making, to better target risks. The provision of guidance by the European supervisory authorities. l Tighter rules on customer due diligence. Obliged entities, such as banks, are required to take enhanced measures where the risks are greater, and can take simplified measures where risks are demonstrated to be smaller. l Member states will have two years to transpose the directive into national law. l The press release is HERE. l The texts of MLD4 and Wire Transfer Regulation are HERE. l The procedure file for MLD4 is HERE. l The procedure file for Wire Transfer Regulation is HERE.
The UK Cabinet OfďŹ ce has published the Terms of Reference for the second phase of its review to improve the coordination and effectiveness of the UK’s enforcement response to bribery, corruption and related fraud, through a full consideration of the powers, capabilities and organisations involved. The FCA is supporting the review. The Terms of Reference are HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
HM Government, the Department of Business Innovation and Skills (BIS) and other Government bodies have announced new measures to help UK businesses face cyber security challenges. New Government support to keep UK businesses stay safe in cyberspace includes: l A new cyber security envoy has been appointed to help British small businesses and first time exporters promote their business interests across the US. Andy Williams will be based in the British Embassy in Washington to help boost UKUS cyber security deals l An updated ‘10 Steps to Cyber Security’ guide, which shows businesses how to
GCHQ has issued a report detailing the nature of cyberattacks and how to stop them, which focuses on:
combat cyber threats l The threat landscape - the types of attackers, their l New research published by the Department
motivations and their technical capabilities
for Business, Innovation and Skills (BIS), which demonstrates how top UK companies are improving their responses to cyber threats. The results of the annual ‘Cyber Governance Health Check’ for FTSE350
l Vulnerabilities - what are they, and how are they exploited? l Cyber-attacks, stages and patterns - what is the ‘typical’ structure of a cyber-attack?
companies shows increased awareness and action, along with areas for improvement l Publication of a new report from GCHQ
l Reducing the impact of an attack - what controls are needed to reduce the impact of common cyberattacks?
detailing the common cyber-attacks used against industry by cyber criminals, and how to stop them. l The press release is HERE. l The ‘10 Steps to Cyber Security’ guide can be found HERE.
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l Case studies - real world examples that demonstrate how cyber-attacks have caused financial and reputational damage to major UK businesses l The GCHQ Report is HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
The ‘FTSE 350 Cyber Governance Health Check
l The World Bank announced it has imposed
Tracker Report’ offers significant insight into the
sanctions in relation to fraud and corruption
cyber governance of the UK’s highest-performing
against four companies, including two in
businesses. The Cyber Governance Health Check
Bolivia - Empresa Constructora y Consultora
(“the Tracker”) is a questionnaire comprising of 37
LAPTUS S.R.L. and Ingenieria en
questions which assesses the extent to which
Construcciónes Orleans (ICOR), one in
boards and audit committees of FTSE 350
Bangladesh - Globe Pharmaceuticals Ltd
companies understand and oversee risk
(Globe) and one in Cambodia - Seng Enterprise
management measures that address cyber
Co., Ltd.
security threats to their business. The Tracker is HERE.
l New York State banking regulator Benjamin Lawsky has proposed measures requiring bank
l The European Union has implemented new sanctions against a number of Ukrainian and
executives to personally attest to the adequacy of their money laundering controls.
Russian nationals after a reported increase in violence in late January. The sanctions focused on organisations and individuals supporting the continuing unrest in Eastern Ukraine.
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FINANCIAL CRIME DIGEST
PRESS AND MEDIA: MONEY LAUNDERING Swiss prosecutors raided the offices of HSBC Private Bank (Suisse) and opened an enquiry into possible aggravated money laundering. The raid followed disclosures by Washington-based International Consortium of Investigative Journalists.
The UK Government has been criticised over its investigation of just one person in connection with the HSBC money laundering scandal, which
French prosecutors recommended
implicated up to 1,000 individuals. A petition has
pursuing criminal charges against Royal
been set up to compel the authorities to investigate
Bank of Canada’s wealth management
the cases further, and has so far collected over two-
arm in the Bahamas. RBC Bahamas is
thirds of the required one million signatures.
accused of conspiring to commit tax fraud and money laundering in relation to a trust
FinCEN has launched a probe into Citigroup-owned bank Banamex USA. The US arm of the second largest bank in Mexico is being investigated over compliance with the Bank Secrecy Act. In 2012, Banamex USA faced enforcement actions in relation
it managed in Bahamas. RBC has recently retreated from most of Latin America and the Caribbean, following numerous money laundering probes in the last 18 months into its wealth management arm.
to flaws in the bank’s customer due diligence and internal control systems. In 2014, the bank suffered losses of USD 500 million in relation to corporate loan fraud. In Virginia, US-based Capital One Financial announced it was under investigation by the Department of Justice and FinCEN, relating to its anti-money laundering protocols. The Supreme Court of Nigeria gave permission to the Economic and Financial Crimes Commission (EFCC) to bring charges on 23 counts of money laundering and illegal diversion of public funds totalling NGN1.5 billion against former governor of Plateau State, Joshua Dariye.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: MONEY LAUNDERING In exchange for maintaining a
Italy’s most senior anti-Mafia prosecutor, Franco Roberti, has said
EUR240 billion financial
that Calabrian crime syndicate 'Ndrangheta has beaten the Sicilian
lifeline, Greece’s Government
Mafia for control of organised crime in northern Italy. Roberti warned
outlined a plan to tackle
that the influence of Italian organised crime groups had already
corruption, including going
spread beyond Italy to Germany, France and Spain, and there was
after wealth tax evaders.
evidence of Mafia-related activities in the UK.
PRESS AND MEDIA: DATA SECURITY The second largest US health insurance firm, Anthem Inc. (formerly WellPoint), faced one of the largest data breaches in corporate history, after it admitted that hackers stole information on 80 million of its customers. The breach sparked a class action case against the insurer, which will also seek to ensure that Anthem customers, including their children, receive adequate protection and compensation.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION Petrobras CEO Maria das Graças Silva Foster
Brazilian authorities are investigating Rolls-Royce
stepped down and was replaced by Banco de
for alleged bribery of Petrobras executives to
Brasil CEO Aldemir Bendine, following fresh
secure a USD 100 million contract. The
probes into what is believed to be Brazil’s biggest
allegations came from one of Petrobras’ former
ever corruption scandal. In November 2014, it was
executives, Pedro Barusco, who agreed to be an
revealed that Petrobras was being investigated
informant in return for leniency. Barusco revealed
over dubious transactions between the firm’s
in a testimony that he had personally received a
directors, contractors and public officials,
kickback of USD 200,000 from Rolls-Royce.
estimated at USD 8.9 billion. The firm also witnessed a USD 100 billion fall in its market value from its September high. A former geologist of the company, Venina Velosa de Fonseca, is said to have filed a case against Petrobras after being taken to Singapore and threatened at gunpoint for her role in exposing the corrupt scheme.
Goodyear Tire & Rubber Company reached a USD 16 million settlement with the Securities and Exchange Commission for its violation of the Foreign Corrupt Practices Act (FCPA). Goodyear was charged with bribing Kenyan public and private sector officials. Around USD 3.2 million was distributed to various employees at Kenya Ports Authority, the Armed Forces Canteen Organization, Nzoia Sugar Company, the Kenyan Air Force, the Ministry of Roads, the Ministry of State for Defense, East African Portland Cement Co, and Telkom Kenya Ltd, in order to secure tire sales. Canadian police have charged leading Canadian engineering and construction firm SNC Lavalin Group Inc. with fraud and bribery linked to payments to Libyan Government officials totalling USD 49 million. The case demonstrates how, although corruption investigations are acquiring a global character, different jurisdictions employ different approaches. For SNC-Lavalin, it may not be possible to resolve the issue with a settlement, currently the most common approach used in the US for big corporations.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: FRAUD
SCA Promotions won a successful fraud dispute claim against Lance Armstrong. An arbitration panel has ordered the disgraced sportsman and Tailwind Sports Corporation to pay SCA USD 10 million in damages. It is also the largest ever sanction of its kind given to an individual in America. Armstrong’s dispute with SCA dates to 2005, when he lied under oath by stating that he had never used performance-enhancing drugs. Cayman Islands-based Caledonian Bank Ltd filed for bankruptcy in New York after the SEC sued the bank over claims it profited from stock sales of invalidly registered shell companies. The SEC action reportedly led to a run on the bank by customers.
Yves Bouvier, the owner of Luxembourg Freeport, a vast repository for billions of pounds’ worth of fine art and other treasures, was detained in Monaco along with two other Swiss nationals. He is suspected of having sold dozens of works by Picasso, Modigliani, Gauguin, Degas and Leonardo da Vinci to the family of Dmitri Ryboloylev (owner of Monaco football club) at inflated prices or with false documents. A source with knowledge of the affair said that it was a long-running probe and that a number of “high networth individuals” in Britain, the United States and Asia may have been victims of the alleged fraud.
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Freeports, previously known as bonded warehouses, were initially used to store commodities and other manufactured goods. However there is evidence that they are increasingly being used for smuggling, tax evasion and other illicit uses.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: SANCTIONS
According to Western diplomatic and intelligence sources, around USD 1 billion in cash has entered Iran as the country seeks to bypass Western sanctions. The Iranian Government allegedly began exploiting the mechanism in March 2014. Since then, there has been an explosion in the number of front companies being opened in Dubai, with Iran’s central bank said to be giving them orders to buy dollars. The money is then transported by couriers on flights. Authorities in Somaliland, the self-declared Republic in north-western Somalia, reported offloading from a ship weaponry, whose destination was unclear. Other reports suggested that the shipment originated in the UAE. Somalia, including Somaliland, is subject to a UN-imposed arms embargo. The Somaliland Minister of Interior reported that Sudan contacted the Somaliland government regarding the arms found on the ship. The UK announced its renewed move to block the sale of UK Dea assets by German RWE to Letter1 (Mikhail Fridman), citing risks he could become subject to economic sanctions on Russia , if they are tightened. In October 2014, the UK attempted to block the RWE Dea deal, which would also see the sale of UK North Sea assets. In December, RWE had agreed to look into ways of safeguarding the UK assets. The UN Security Council has distributed a draft resolution envisaging sanctions on South Sudan, in relation to
KEY UPCOMING EVENTS – MARCH 2015
repeated ceasefire failures in the area. The UN found that a North Korean shipping company, Ocean Maritime Management Company, has renamed most of its vessels in a bid to avoid western sanctions. The company was sanctioned last year for attempting to smuggle MiG-21 fighters disguised under thousands of tonnes of Cuban sugar. The UN also found that the shipments were linked to members of the North Korean intelligence agency, the Reconnaissance General Bureau (RGB), many of whom had worked at international organisations.
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Transparency International is due to release a report detailing its findings on corruption in the UK real estate sector. The report follows coverage by the New York Times in February of wealthy individuals’ use of shell companies to acquire exclusive properties in Manhattan.
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