aperio financial crime digest july 2015

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FINANCIAL CRIME DIGESTJuly 2015

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FINANCIAL CRIME DIGEST

FATF plenary meeting - latest public statementsand documents

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 de-

risking;

l Revised best practices on combating the abuse of

non-profit organisations (Recommendation 8);

l Adopted guidance for a risk-based approach to

virtual currencies;

l Adopted a typologies report on the money

laundering/terrorist financing risks and

vulnerabilities associated with gold.

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

The press release is HERE.

Welcome to the July 2015 edition of the FinancialCrime Digest, which covers updates from June 2015.

In this edition, we cover various headline topics, including;public statements and documents from the latest FATFplenary meeting in Brisbane, the latest update of the EUBest Practices paper published by the Council of the EU,the ESMAs report on anti-money laundering concernsrelating to investment-based crowdfunding, and a reportinto 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

1




2

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 BestPractices 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 Unions 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




3

Investment-based crowdfunding platforms -ESMA publishes Q&As on anti-moneylaundering

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 investment-

based 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

treated under the Third Anti-Money Laundering

Directive?

The Q&A is HERE

The press release is HERE

Telephone fraud and vishing scams - FOSpublishes review of complaints

The Financial Ombudsman Service has published

a report reviewing its work dealing with

complaints about voice phishing (vishing) and

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

banks 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.




4

Hmicho v Barclays Bank plc [2015] EWHC1757 (QB) - Financial Sanctions: accountsheld in the name of the wife of a designatedperson

The application was made by Mrs Hmicho in

relation to Barclays decision to freeze her

accounts following her husbands designation

under the EU sanctions against Syria. The Queens

Bench Division has declined to grant Mrs. Hmicho

a mandatory interim injunction to order Barclays

Bank to restore her access to three bank

accounts. The application was refused on the

grounds that Barclays had reasonable cause to

suspect that the funds within Mrs Hmichos

accounts were owned or controlled by Mr Hmicho,

a designated person under financial sanctions

imposed in respect of Syria. In so finding, the

court noted that the suspicion held by Barclays

arose not from the marriage relationship alone,

but also from the circumstances arising from the

history of deposits into the accounts, including

their unusual size and timing, which coincided

with the imposition of sanctions against Mr.

Hmicho.

This case provides useful guidance in respect of

the application of concepts of ownership and

control in the context of international sanctions,

where a non-designated third party individual, in

this case a spouse, is involved.

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.



5

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 banks 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.

Switzerlands attorney-general, Michael Lauber, hassaid that banks in Switzerland have flagged up 53possible acts of money laundering that could belinked to FIFAs 2018 and 2022 World Cup biddingcontest. Future World Cup hosts Russia and Qatarwere not implicated by the Swiss federal prosecutor.Laubers ofce has opened a case for suspectedcriminal mismanagement and money laundering inthe bidding contests, which involved 11 nations.Lauber said the 53 suspicious bank relations wereled to comply with Switzerlands anti-moneylaundering regulations.



6

Italian prosecutors have formally asked for Bank

of Chinas Milan branch and 297 individuals, most

of whom are Chinese living in Italy, to be tried for

smuggling and other crimes. The investigating

prosecutors allege various crimes, including

money laundering and tax evasion. The case

reportedly centres on an investigation that began

in 2008 into the growing influence of Chinese

criminal groups in Italys Tuscany region.

Investigators claimed that money sent to China

through the agencies of Money2Money transfer

service included proceeds of crime including

counterfeiting, embezzlement, exploitation of

illegal labour, and tax evasion. Of the total of more

than EUR 4.5 billion smuggled to China from Italy

via the transfer service, EUR 2.2 billion was

reportedly sent through the Bank of China Milan

office. A judge will review the prosecutors request

and decide whether charges should be brought.


The U.S. Treasury Department issued a two-part

National Money Laundering Risk Assessment

(NMLRA) on 12 June. Whilst the report identified

areas for improvement, its conclusion was

generally positive. Adam Szubin, acting

undersecretary for terrorism and financial

intelligence, wrote in his introduction: "Our anti-

money-laundering and countering the financing of

terrorism framework is sophisticated and well-

designed to address these threats, while

maintaining an attractive business environment".

The report is expected to be provided to the

Financial Action Task Force as part of its mutual

evaluation inspection in early 2016. The report

found ongoing issues relating to misuse of

nominees to hide beneficial ownership. It also

noted that fraud was by far the largest contributor

to illicit proceeds-generating activities.

Commentators on the risk assessment also noted

it contains a large number of examples and cases

of money laundering, which are likely to prove

useful to the private sector.

The NMLRA can be found HERE.



7

Ricardo Teixeira, the former head of the Brazilian football federation, is

facing charges of money laundering and tax evasion. Teixeiras

successor as president of the CBF federation, Jos 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

prominent figure in Macau's casino

junket industry with laundering

HKD 1.8 billion (around GBP 150

million) through bank accounts in

the southern Chinese city. Cheung

Chi-tai faces three separate counts

of money laundering, according to

a charge sheet. The businessman

was a major investor in publicly

traded Macau junket operator

Neptune Group. Cheung Chi-tai

was named as a triad leader in a

1992 U.S. Senate subcommittee

report and in recent Hong Kong

court cases.

According to the Swiss government, a report issued by

Switzerlands interdepartmental group on combating money

laundering and terrorism financing (CGMT) shows that

Switzerland is not immune to financial crime, and is still an

attractive location for laundering the proceeds of crime mostly

committed abroad. Money laundering relating to sports

organisations was not covered in the report. The CGMT report

found existing legislation to be an adequate response to current

risks, but recommended eight measures to improve the existing

anti-money laundering infrastructure. This included increased

dialogue between the public and private sectors, as well as

developing and systematising statistics. Switzerlands

government will make its recommendations to parliament, after

reviewing the report. The CGMT report noted in particular that

Switzerland is running the risk of being abused as a platform for

money laundering by certain commodities trading parties.



8


At the Plenary meeting of the FATF in Brisbane,

Australia, the FATF congratulated Indonesia for

significant progress made by the country in

addressing strategic AML/CFT deficiencies earlier

identified by the FATF and included in its action

plan. The FATF said that Indonesia will no longer

be subject to the FATFs monitoring process under

its on-going AML/CFT compliance process.

The U.S. Treasury Financial Crimes Enforcement

Network (FinCEN) has levied a USD 75 million

penalty against a casino operator in a Pacific

island for what it referred to as wilful and

egregious violations of anti-money laundering

rules dating back to 2008. The civil fine against

the Tinian Dynasty Hotel & Casino in the Northern

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.



9

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 Chads

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 Bechirs 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.



10


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 Uzbekistans 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 Karimovs 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 rst corporateenforcement action for2015 under the U.S.Foreign Corrupt PracticesAct, the U.S. Department ofJustice announced that IAPWorld Services Inc., aFlorida-based defence andgovernment contractor,agreed to pay USD 7.1million in a non-prosecution agreement forconspiring to bribe Kuwaitiofcials in exchange for acontract to build a large-scale domestic surveillancesystem in Kuwait. Theprimary employee of IAPWorld Services, JamesRana, pleaded guilty to onecount of conspiracy toviolate the FCPA.

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 companys 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.



11


British private investigator Peter Humphrey and his American

wife Yu Yingzeng have been released early from prison in

China. The pair were convicted in China last year on charges

of purchasing private information on Chinese citizens in a

case involving a sex tape and allegations of bribery linked to

GlaxoSmithKline PLC. In his first interview since his release,

Humphrey claimed he had not bribed anyone or obtained any

information from any Chinese government employee. He

claimed he had been constantly harassed in prison over

signing a document called admission of guilt and a

statement of remorse. He claimed a confession aired on

Chinese television shortly after his arrest had been heavily

distorted. He further claimed that some Chinese medical

staff had refused his requests for appropriate medical

attention as a deliberate effort to force him to sign a

confession of crimes both before and after the trial. Chinese

authorities have stated that Humphreys claims of

mistreatment are not true.

Interpol has announced it is

suspending a four-year-old agreement

with FIFA, following investigations into

corruption against world footballs

governing body. Under the deal the

worlds largest police institution was

receiving a donation from FIFA worth

USD 20 million over 10 years to create

an Integrity in Sport programme.

Interpols programme aimed to prevent

the manipulation of sporting events

and illegal gambling by criminal

groups. Interpol has issued

international wanted persons alerts

known as Red Notices for two former

FIFA officials and four corporate

executives at the request of

U.S. authorities.



12


Two former officials of Edinburgh City Council and

two directors of a private construction company,

ABC Limited, have been jailed for bribery and

corruption offences relating to the award of

building contracts. Charles Owenson and James

Costello worked for City of Edinburgh Council

when they were given hospitality by ABC,

including corporate seats at Hibs and Hearts

football grounds, meals and bar crawls. They

admitted offences under the Public Bodies

Corrupt Practices Act 1889 (the legislation that

pre-dates the Bribery Act 2010). Kevin Balmer and

Brendan Cantwell, two former directors of ABC,

that went into liquidation in 2010, also admitted a

corruption offence. The Crown has also raised

proceedings to recover crime profits in the case.

The U.S. Department of Justice has announced

that two more Swiss banks, Socit Gnrale

Private Banking and Berner Kantonalbank AG will

pay penalties of USD 17.807 million and USD 4.619

million respectively to reach resolutions under the

DOJs Swiss Bank Programme, which provides a

path for Swiss banks to resolve potential criminal

liabilities in the United States. As part of the non-

prosecution agreements, the two banks have

agreed to co-operate in any civil or criminal

proceedings, and to demonstrate implementation

of controls to stop misconduct involving

undeclared U.S. accounts, and pay penalties in

return for the DOJs agreement not to prosecute

these banks for tax-related criminal offences.



13

PRESS AND MEDIA: SANCTIONS

Russia has said it will extend

its ban on Western food

imports for six months beyond

its expiry in early August after

the European Union extended

its measures. Russia also

announced it was considering

more import curbs on Western

goods, including confectionery,

canned fish products, and

flowers. The current list of

banned food products includes

fruit, vegetables, meat, poultry,

fish, milk and dairy.

The European Union has extended its

economic sanctions against Russia

until the end of January 2016 to

maintain pressure on Moscow to

comply with a ceasefire accord signed

with Ukraine. EU Ministers agreed on

the extension of the sanctions due to

Russias destabilising role in Eastern

Ukraine. The EU and U.S. sanctions

have targeted close associates of

President Vladimir Putin and Russian

state banks, military and energy firms.

The move was condemned by Russia.

The South Korean government has imposed financial

sanctions on seven foreign businessmen and entities for

engaging in the arms trade with North Korea, targeting three

Taiwanese individuals, three Taiwanese companies, and a

state-run Syrian missile development institute. It is the first

time Seoul has imposed financial sanctions separate from

United Nations sanctions on third-country individuals and

groups not from North Korea. The three blacklisted

Taiwanese individuals are Tsai Hsein Tai, Su Lu-Chi and

Chang Wen-Fu. The three Taiwanese entities are Trans Merits

Company, Trans Multi Mechanics Company and Global

Interface Company. The Scientific Studies and Research

Center, a state-run Syrian institute linked to the training of

engineers in chemical and biological weaponry, has been a

target of American sanctions for more than a decade. Hsien

Tai Tsai was arrested by U.S. authorities in 2013 and has

admitted that he engaged in illegal business transactions

involving the export of U.S.-origin goods and machinery to

North Korea. He was sentenced to two years in prison by a

U.S. court in March for conspiring to defraud the United

States and challenging its efforts to stop the proliferation of

weapons of mass destruction.

Russian President Vladimir Putin

signed off on an amnesty for

Russians illegally hiding money in

offshore accounts, provided the

funds were taxed or repatriated. The

move is seen as part of a response to

the imposition of economic

sanctions on Russia which have

coincided with record-high capital

flight from the country. In March,

Russian Finance Minister Anton

Siluanov was reported as saying the

bill declares immunity from criminal,

administrative and tax punishment

within the framework established by

the law and in relation to

transactions performed before

January 1, 2014, if the wrongdoings

committed involved the formation of

the declared property items and

transactions connected with the

acquisition of these assets.



14

PRESS AND MEDIA: TERRORIST FINANCING

Sweden's Security Service (Sapo) has

warned that growing numbers of

individuals are funding trips to Syria with

money received via text message loans

secured in Sweden. Investigators

working for the security service said that

there had been a rise in people taking

trips to the Middle East to fight alongside

terror organisations such as IS (also

known as ISIL or ISIS) over the last year,

with growing numbers of visits funded by

loans taken out in Sweden. A Sapo

representative said that, whilst some

individuals had taken out bank loans or

money using Swedish credit cards,

others had paid for their travel using SMS

loans, representing money borrowed via

text messages from private companies.

U.S. officials have warned that recent IS gains in the

western Iraqi city of Ramadi and the southern Syrian city of

Palmyra could open new lines of illicit funding for the

terrorist organisation. The U.S. State and Treasury

departments and the Pentagon have over the past year

focused on drying up ISs finances, by destroying both its

ability to sell oil and restricting its ability to raise donations

from overseas benefactors. However U.S. officials believe

that the majority of the terrorist groups funding comes

from extorting local populations it controls in Iraq and

Syria. It has also looted banks and businesses in areas it

controls, in cities such as Mosul and Tikrit in Iraq, and

Raqqa in Syria. A senior U.S. official working in combatting

terrorist financing said that the large population and

administrative structure in Ramadi offered IS new avenues

to raise funds and bolster its balance sheet. In addition, IS

has been active in smuggling artefacts and antiquities

plundered from sites in Iraq and Syria.

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ABOUT APERIO INTELLIGENCEWe are a corporate intelligence and financial crimeadvisory firm based in the City of London. We specialisein: conducting enhanced due diligence on high riskcustomers and third parties; integrity due diligence oncritical acquisitions and investments; market entry andpolitical risk analysis; and investigations. We providetailored training and advisory services relating to financialcrime, in particular anti-money laundering and sanctionscompliance. Our clients include some of the worldsleading regulated financial institutions. Our clientsinclude some of the worlds leading regulated financialinstitutions. Our team has decades of collectiveexperience in advising clients on financial crime andintelligence gathering, helping them to manage risk andmaximise potential.

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