In This Issue of CCI

Companies should monitor their international supply chain to avoid fraud, EU anti-fraud chief tells CCI

Alerting business to the threat from fraud and corporate crime, and its prevention

FRAUDIndian corporate fraud on the rise! 3Platform, PBI and MTN warning! 4Spotlight on ‘dark pools’ fraud! 5CORRUPTIONExecs bribed contractors! 6First SFO foreign bribery conviction! 6PIRACYSmall tanker violence escalates! 7INVESTMENT FRAUDMLP’s mis-sold as safe! 840% are victims of fraud says report!9MONEY LAUNDERINGEU national registers to tackle m/l! 10CYBERCRIMESigns of online investment scams! 11Banks beware new ‘virtual mugging’!12

February 2015

Businesses importing into the EU should keep a close eye on their international supply chain to ensure they are not unwillingly involved in fraud, especially as these commer-cial relations become increasingly complex, OLAF’s chief told Com-mercial Crime International. Speak-ing in an exclusive interview at his Brussels office, Mr Kessler said that companies need to take seriously their responsibility for controlling their supply chain, to avoid buying and selling counterfeit or contra-band goods, for example.

A former Italian prosecutor who has dealt with corruption, organised and financial crime in his career, Mr Kessler explained that “the way you import determines [if some-thing] is smuggled or not,” noting - simply - if European companies pay duty on imports, the smuggling has not occurred. Of course, some companies take insufficient care in paying the correct duties, espe-cially when it comes to valuations which determine ad valorem tariffs. In 2014, OLAF handled an increas-ing number of cases regarding the undervaluation of imported goods, while uncovering international operations to sneak counterfeit consumer goods onto EU markets.

Following its formal remit to investi-gate problems harming the EU’s financial resources (import duties are earmarked for the EU as ‘own resources’ in EU jargon), OLAF helped EU customs authorities uncover last year some 1,500 containers of undervalued goods from China trying to enter Europe. This included cargoes with false quantities, fake origins and fraudulent declarations of customs categories, he noted.

“Together with the Belgian authori-ties, we discovered and dismantled a huge import of counterfeit coffee, which was due to be sold in the shops, coming from China,” Mr Kessler said about one important case in 2014. And there was a simi-lar operation targeting counterfeit cosmetics in France, also coming from China, he added.

In many cases, Mr Kessler believes, companies importing these kinds of goods into Europe are closely connected to the Chinese produc-ers and the illicit profits are likely to return to China. This is why Mr Kessler is glad to have had effec-tive cooperation with Chinese law enforcement and customs authori-ties in 2014 for these kinds of

cases: “We have been able to de-velop our investigations and to also have a follow-up there,” with people being prosecuted in China as a result of OLAF investigations.” Continued on page 2/

Companies may be responsible to ensure their operations are not affected by fraud, but if such crimes harm the financial interests of the European Union (EU), they may also have to work with the EU’s anti-fraud office (OLAF). Carmen Paun spoke to its director general Giovanni Kessler (pictured right) in Brussels for CCI.

Commercial Crime International

2 February 2015

OLAF Interview

Continued from page 1/Smuggling a problemEven so, the number of cases involving counterfeit goods being smuggled into Europe remains a worrying trend, Mr Kessler believes. Tobacco smuggling, which has become very profitable over the past years due to the high taxes on these products in the EU, is a particular concern.

In November 2014, Italian and German law enforcement authori-ties, with OLAF’s contribution, dismantled an international tobacco contraband network, which manu-factured cigarettes in the EU. “It then simulated fictitious exports outside the EU or carried out real exports to third countries and sub-sequently smuggled the cigarettes back into the EU with the aim of avoiding the applicable customs duties and taxes,” an OLAF note read. It estimated that the Italian budget alone lost at least €90 million through this scam. A month later, OLAF provided Dutch cus-toms authorities with information helping uncover a shipment of 3.9 million cigarettes near Eindhoven. The cigarettes had allegedly been manufactured in Belarus and some were found concealed in kitchen cabinets - a legitimate part of the cargo.

Procurement issuesPublic procurement in member states involving EU money is also problematic, which is why it will be a priority for OLAF in 2015. OLAF officials investigate collusion amongst bidders; falsification of requirements to participate in a tender; plus conflicts of interest and collusion between tender public officials and bidders, Mr Kessler explained.

The latter “might be the endpoint of something even worse: corruption,” he said, noting that for OLAF this may be difficult to prove as such, “but it’s enough to say that there has been a suspicion of collusion or irregularity in the bidding for us to start an investigation,” he added.

“Transparent, efficient tender pro-cedures are of utmost importance for clean, competitive markets,” the OLAF director general continued.

With the markets becoming increasingly European and interna-tional, OLAF, as the only EU-wide administrative investigation body probing fraud, is well-placed to fill in the gaps that remain between the power and area of action of national enforcement authorities. “We are a bit still too much attached to a national version of fraud-related crimes, which might have been the case some years or decades ago,” Mr Kessler explained, noting that fraud is following the market in becoming more transnational.

Response to fraudA proper response to this is in the making at the moment, with the EU institutions now seriously dis-cussing the possibility of having a European Public Prosecutor Office (EPPO), an issue that Mr Kessler has strongly supported, and which has been floated for years. Such an institution would carry out inves-tigations and prosecutions in the relevant EU countries through national prosecutors applying national law, but coordinated at European level.

“Transnational crimes require a transnational, and not a frag-mented, reaction. This view, which is common sense, is largely shared in the member states,” he ex-plained. Which does not mean that the discussions about establishing an EPPO between national gov-

ernments are an easy topic, Mr Kessler suggested. They bring another layer of integration between those countries willing to participate in setting up such an institution, and raise again questions of sover-eignty transfer. He is however optimistic that the EPPO will see the light of day in the foreseeable future.

For the moment, OLAF continues to carry out administrative investi-gations affecting the EU financial interests, but it also looks into potential cases of misconduct by EU officials and staff members of the institutions. Based on its findings, OLAF can make financial, disciplinary or judicial recommen-dations to the EU institutions concerned and to the national law enforcement authorities. These often result in prosecutions.

Up to the challengeMr Kessler is optimistic that OLAF will keep its integrity despite the internal challenges it has to face in recent years: an ever-rising number of cases handled by 400 staff members, whose numbers are due to decrease every year because of European Commission austerity measures. OLAF proc-essed last year about 1,300 new incoming pieces of information of potential investigative interest, according to Mr Kessler. “But we are quite confident,” he said, noting that the OLAF 2014 report, expected to be published in the next few months, will show “that we manage to keep [our] investigative services up to the challenge.”

MEMBERS are reminded that the ICC Counterfeit Intelligence Bureau (CIB) undertakes investigations into counterfeit products in a bid to protect industry. The CIB has a formal Memorandum of Understanding with the World Customs Organisation (WCO) and INTERPOL.

CIB internet investigations collect a full intelligence picture of each web-site investigated. This human-based approach allows an in-depth look, not just at the website in question, but the whole network being operated by the counterfeiters. Collecting the full picture before the website is closed is important as it allows the counterfeiters to be traced if they go on to run additional websites. If CIB could help your business, or you would like to know more about the process, please email your enquiry to cib@icc-ccs.org

Commercial Crime International

3February 2015

Fraud

CORPORATE fraud in India, which a new study says rose by over 45% in the last two years, is reportedly putting global companies off investing in the country.

The Assocham/Grant Thornton study said the corporate frauds arose out of corruption, money laundering, tax evasion, window dressing, financial reporting fraud and bribery due to weaknesses in internal controls, scarcity of resources and over-riding powers of senior management. Companies related to real estate and infrastructure sector (52%) are considered to be the most vulnerable to fraud-related incidents, followed by financial services (34%), telecom (5%), manufacturing (3%), electronics and IT/ITeS (2%), Hospitality and tourism (2%), it added.

Over 65% of the survey respondents agreed that there is a rising trend of wilful defaults and frauds. They include procurement frauds, payrolls frauds, asset misappropriation, financial misstatement, corruption, bribery, tax evasion, piracy, intellectual Property (IP) fraud, kickbacks, accounting frauds, counterfeiting. Such white-collar crimes are swiftly threatening business in both the private and public sectors, the report said.

Around 71% of survey respondents believed that incidents of fraud would continue to rise over the next five years, and highlighted bribery and corruption, and regulatory noncompliance as the top frauds they had experienced in the past two years. A majority of the respondents (69%) considered strong internal controls as the most effective mitigation strategy for managing operational and financial risks related to frauds.

Rising Indian corporate fraud a problem

India discovers financial remittance scamINDIA’s Enforcement Directorate (ED) said recently it had unearthed a mega scam of fraudulent foreign remittances worth Rs15,000 crore - 1 crore = $160,000. The scam involved dubious importers deposit-ing fake bills of entries (of imports) in banks, with remittances made to unknown people outside India. Six leading banks were hit by the scam, which ran from 2011 till May last year.

Sources said that dubious importers submitted forged bills of entry and other import documents to banks with the intent to fraudulently remit foreign exchange. Multiple dupli-cates of each bill of entry were made and submitted to different banks to show legitimate imports and to illegitimately remit huge foreign exchange outside India.

ED said some of the importers under suspicion included Kanika Gems, Charbhuja Diamonds,

Claim: US investor financial illiteracy a serious liability

Sambhav Exports, Keshav Impex, Pulkit Impex, among others. "We are probing the importers' background and checking with banks if due diligence and KYC were done properly,” it said. These fake bills of import might have been used for gold smuggling, a senior official added. Much of the money was probably sent to foreign tax havens without paying any tax. It is also thought some bank officials may have colluded in the scam.

MARY Schapiro, who headed the SEC between 2009 and 2012, has slammed the state of investor financial literacy in the US, saying recently it was a major issue of concern and a serious liability for the financial well-being of the United States.

Noting that multiple studies indicate the American public doesn’t even have a fundamental understanding of financial terms, Mrs Schapiro said many American investors don’t understand even the most basic concepts like compounding of interest or inflation or what’s the difference between a stock and a bond or what’s the value of diversi-fication of your investments. “Also worrying was a basic lack of critical knowledge about investment fraud,” she added.

A major red flag warning is that less than half of the investors in the United States cannot recognise issues that indicate an investment scam may be taking place with their money, Schapiro said. “Only 40% understood that a guaranteed return for many investment prod-ucts was not possible, and only 40% understood that promising 110% [return on investment] is a red flag.” Public education should review and revise systems that encourage more financial literacy, she added.

Hedge fund manager guilty of fraudMAGNUS Peterson, 51, the founder of Weavering Capital, has been con-victed of fraud, forgery and other criminal charges related to the collapse of the hedge fund in 2009. The London-based hedge fund, which at one point had more than $600 million under management, imploded after it was discovered that a multimillion-dollar trade in the firm’s flagship fund was linked to an offshore company controlled by Mr Peterson.

The UK’s SFO, accused Mr Peterson of misleading investors over a six-year period and using swap trades to artificially inflate the performance of the Weavering Macro Fund. The fund collapsed in March 2009, and inves-tors lost about $536 million. Mr Peterson rewarded himself from funds re-ceived from investors, receiving about $9 million between 2005 and 2009.

Commercial Crime International

4 February 2015

Fraud

A recent rise in activities commonly referred to as Platform Trading, Private Platform Programs (PPPs), Prime Bank Trading, or Medium-Term Note Trading Programs, has led the FBI to issue a new warning. Its findings reflect similar experiences by the ICC Financial Investigations Bureau (FIB), which asks its own members to remind themselves of the key indicators of these types of fraud.

In these schemes, perpetrators falsely represent their ability to offer above-average market returns with below-market risk through the trading of bank instruments. Offering such programs, or claiming to have connec-tions to such programs is usually illegal and should be a red flag warning of fraud.

The FBI, which has participated in numerous investigations of persons promoting Platform Trading investment schemes, noted several common characteristics in its warning that investors should watch out for. These include:✤ Claims that investor funds can be placed in a bank account, and then used, without risk, to trade bank debentures, or other financial instruments;✤ Claims that invested funds can be used to lease or rent US Treasury Obligations and then use these same leased securities as collateral for further trading programs;✤ Claims that trading Medium Term Notes (“MTN’s”), Prime Bank Notes, or any other bank instruments, on a riskless basis, will yield above market returns;✤ Claims that Letters of Credit or Standby Letters of Credit can be discounted or traded for profits;✤ Claims that certain high-yield foreign trading programs are sanctioned or supported by the Federal Reserve, International Monetary Fund, Inter-national Chamber of Commerce, or other US or international agencies;✤ Claims about special connections to the Federal Reserve or some other internationally renowned organisation such as the United Nations, the IMF or the World Bank;✤ Claims of ties to benevolent, humanitarian or charitable projects;✤ The need for extreme secrecy and nondisclosure agreements;✤ Claims that banking and regulatory officials will deny knowledge of such instruments;✤ Claims that these investment opportunities are by invitation only, available to only a handful of special customers, and historically reserved for the wealthy elite;✤ Claims that the financial instruments are too technical or complex for non-experts to understand.

In general, the FBI added, investment programs that purport to offer an introduction to secret investment markets, which offer above-market rates of return with below-market rates of risk, for privileged customers with special access, are fraudulent. There are no secret markets in Europe or in North America in which banks trade securities. Any representations to the contrary are fraudulent.

Some phrases are commonly seen in documents presented by fraudsters in the course of Platform Trading schemes. If any of these phrases appear in documentation, the investment opportunity should be treated with suspicion. These “red-flags of investment fraud” include:★ Non-circumvention, non-disclosure★ Good, clean, clear and of noncriminal origin

★ Blocked Funds Investment Program★ Private Placement Program★ Prime Bank Trading Program★ Medium-Term, Mid-Term, or Seasoned Note Trading Program or Platform★ Federal Reserve approved★ Roll Program★ Irrevocable Pay Orders★ Unconditional Bank Guarantee★ Prime Bank Notes, Guarantees, Letters of Credit, Standby Letters of Credit★ Fresh cut paper★ Top 100, 50, 25, 10, etc. European/World Banks★ Trading Platform or Platform Trading Program★ Insurance Wrap protecting investment value★ Paymaster who handles funds disbursement★ Exit-buyer See also Page 11/

Warning follows rise in Platform, PBI and MTN Trading Programs

TWO Melbourne mortgage brokers - Najam Shah Aizaz Hassan, originally from Pakistan - have been arrested and charged with defrauding major Australian banks and other financial institutions in an alleged A$110 million fraud involving fake home loan applica-tions, said to be one of the biggest of its kind in Australia.

The alleged conspiracy involves more than 300 loan applications to several banks including Com-monwealth Bank of Australia, Westpac, NAB and ANZ Bank. St George, Bankwest, Adelaide Bank, Bank of Queensland, Citibank and Suncorp have also been involved in the alleged scam.

It’s alleged that bank statements, payslips, citizenship certificates and statutory declarations were submitted on behalf of clients from the now defunct Myra Financial Services, where the men worked between 2008 and 2011.

Aus banks caught in mortgage fraud

Commercial Crime International

5February 2015

Fraud

New claims put spotlight back on ‘dark pools’ fraud

Firm settles false advertising chargesUS investment management firm F-Squared Investments has agreed to pay $35 million and admit wrongdoing to settle charges that it defrauded investors through false performance advertising about its flagship product. Announcing the agreement, the SEC said it had also separately charged the firm's co-founder and former CEO Howard Present with making false and misleading statements to investors as the public face of F-Squared.

According to the SEC, F-Squared, which is the largest marketer of index products using exchange-traded funds (ETFs), began receiving signals from a third-party data provider in September 2008 indicating when to buy or sell an investment. The signals were based on an algorithm, and F-Squared and Present used the signals to create a model portfolio of sector ETFs that could be rebalanced periodically as the signals changed. They named the new product "AlphaSector" and launched the first index a month later. AlphaSector's indexes quickly became the firm's largest revenue source, and F-Squared went from losing money to becoming a highly profitable investment manager.

The SEC alleged that while marketing AlphaSector into the largest active ETF strategy in the market, F-Squared falsely advertised a successful seven-year track record for the investment strategy based on the actual performance of real investments for real clients. In reality, the algorithm was not even in existence during the seven years of purported perform-ance success. The data used in F-Squared's advertising was actually de-rived through backtesting, which is the application of a quantitative model to historical market data to generate a hypothetical performance during a prior period. F-Squared and Present specifically advertised the investment strategy as "not backtested." Furthermore, the hypothetical data contained a substantial performance calculation error that inflated the results by approximately 350%.

"Investors must be able to trust that performance advertisements are accurate," said Andrew Ceresney, Director of the SEC's Division of Enforcement. "F-Squared has admitted that it misled its clients over a number of years about the existence and success of its core strategy.”

CLAIMS that “significant, additional wrongdoing” by Barclays has been uncovered in relation to the opera-tion of its "dark pool" trading plat-form have refocussed attention on a dubious practice that some now label a fraud.

Moneyweek magazine describes ‘Dark Pools’ as a form of private stock exchange where less infor-mation is disclosed about what is going on than is usual with other exchanges. Usually owned by big investment banks, they have become increasingly popular with big institutional investors, such as pension funds. Dark pools are supposed to be a safe way for institutional investors to execute block trades without worrying that their transactions will move market prices before the deal is com-pleted, it said. However, dark pools have been criticised for making the markets less transpar-ent than they should be, and are sometimes seen as being unfair to smaller private investors by giving a misleading view of how much buying and selling is actually going on in the market.

Barclays roleBarclays was initially accused of fraud related to its ‘dark pool’ (one of 40 such off-exchange venues in the US) operation last year when a lawsuit filed by the New York State attorney general, Eric Schneider-man, claimed that it repeatedly lied to brokers about the extent of aggressive and predatory high-speed trading in the pool - activity that exposed investors to precisely the type of price distortions they were trying to avoid and that, not incidentally, enriched Barclays by increasing the number of transactions executed in the pool.

The lying, it was alleged at the time, took the form of private and public assurances by Barclays that inves-tors in its pool were continually shielded from high-speed trading

when, to the contrary, the bank ac-tively sought to attract such traders to its venue and even bolstered their trading strategies by giving them privileged information about the pool, according to the suit. All the while, the suit said, Barclays assured its clients that it sent their buy-and-sell orders to trading venues that offered the best terms, when it actually sent almost all orders to its own dark pool first.

The lawsuit against Barclays alleged a pattern and practice of premeditated and habitual deceit, with the aim of profiting at the ex-

pense of clients and the smaller investors those clients serve. In the new claims last month, Eric Schneiderman said he had uncovered new evidence that the bank cheated clients and investors, and that top executives knew what was occurring. In response, Barclays said that it would “con-tinue to defend vigorously against these allegations."

There is no reason to believe that such wrongdoing is limited to Barclays, however. But for the time being, it is Barclays that is in the regulators’ sights.

Commercial Crime International

6 February 2015

Corruption

Execs jailed for bribing contractorsTWO former executives at one of America's leading healthcare claims processing firms - MultiPlan Inc - were recently sentenced to serve one year and one day in prison for their role in a scheme to steer contracts to technology vendors in exchange for $3.4 million in bribes and kickbacks.

Keith Bush, MultiPlan’s former Vice President and Director of Database Administration, and Anil Singh, the company’s Chief Information Officer, each pleaded guilty to a multi-count criminal Information charging them with honest services fraud and money laundering. As well as prison, each must make restitution of $1.2 million and forfeit assets totalling $3.4 million.

The charges against the former managers were that they created and carried out a multi-year kickback scheme involving the steering of $23 million in contracts to five different technology companies in exchange for the payment of kickbacks which they concealed and laundered using multiple shell companies and bank accounts.

As part of the same investigation, prosecutors also charged six individuals who were associated with various information technology companies that paid the kickbacks to the MultiPlan managers. Five of these men have pleaded guilty to fraud charges. One man is on the run and believed to be living in India. MultiPlan began investigating after receiving an anonymous tip by email about their activities.

SMITH & Ouzman, a UK printing company has been found guilty of making £400,000 of corrupt payments to secure contracts in Africa. The company, along with two directors, bribed agents in Kenya and Mauritania, said the Serious Fraud Office after a three-year investigation and trial. It is the SFO's first conviction against a corporation for bribing foreign officials. The company, which makes official security documents such as ballot papers and certifi-cates, along with Christopher Smith, 71, the company’s chairman, and Nicholas Smith, 43, a sales and marketing director, will be sentenced later this month.

The 2011 Bribery Act makes it easier for the SFO to bring a prose-cution against companies and individuals, no matter where in the world the alleged corruption takes place so long as there is a link to the UK. The SFO is yet to prosecute a company under the Bribery Act but secured its first convictions against individuals under the new legislation in December after a trial concerning a £23m biofuel pyramid scheme. Two men received sen-tences of up to 13 years imprison-ment.

WILBUR Anthony Huff, an Ameri-can businessman, will pay more than $128 million in restitution and forfeit $10.8 million to the US government after pleading guilty to corruption, fraud, bribing bank officials and costing the Internal Revenue Service $53 million in losses. He also faces up to 12 years in jail when sentenced later this year.

According to the US Attorney's Office, Huff, among other things, diverted millions of dollars from one company he controlled, O2HR - to which clients had paid workers'

compensation coverage expenses - to fund other business ventures and pay expenses for his family.Huff also paid at least $400,000 and other items to bribe top Park Avenue Bank officials for their assistance, the release said.

The case stemmed from an investi-gation into failed Park Avenue Bank, where former bank president Charles Antonucci, whom Huff admitted to bribing, was (in 2010) the first person convicted of steal-ing US government bank bailout funds from the Troubled Asset Relief Program, or TARP.

REUTERS has reported that by April, Britain will set up a specialist police unit focussed on corruption and bribery. The move is intended to increase the country's defences against white-collar crime in the financial sector, and is part of a wider plan to stamp out fraudulent business practices. The new unit will sit within the National Crime Agency (NCA), Britain's equivalent to the FBI, and will pull together experts from within the NCA and specialists from other government agencies.

Businessman bribed bank officials

First SFO foreign bribery conviction

UK sets up bribery/corruption unit

CEO diverted funds with bank helpTHE former chief executive and founder of NVC Lighting Holding Ltd, China's biggest lighting manufacturer, and employees at four leading Chinese banks are reported to be under police investigation for allegedly helping to divert company funds.

NVC said last year it suspected the former chief executive of either embezzling or falsely obtaining loan guarantees totalling 623 million yuan ($101.71 million) without the knowledge of the company's current board. The transactions were allegedly arranged by Bank of China Ltd (BOC), China Minsheng Banking Corp, China Construction Bank Corp (CCB) and Industrial and Commercial Bank of China Ltd (ICBC).

Commercial Crime International

7February 2015

THE increased violence associated with piracy and armed attacks on ships last year should be a major concern for the shipping industry going forward, the ICC International Maritime Bureau (IMB) said last month.

Releasing its Annual Piracy Report for 2014, which recorded a total of 245 attacks - actual or attempted - worldwide (compared to 264 in 2013), the IMB noted that whilst piracy and armed attacks as a whole had decreased, there had been a disturbing increase in the amount of violence against crew members, specifically in SE Asia.

Overall, it said, 442 crew members were taken hostage last year, an increase on the 304 the year before, and four were killed. The rise can be largely attributed to the large number of small tankers hijacked in SE Asia - 16 of the 21 recorded worldwide.

Responding to some industry comment that the attacks on small tankers are not important in the context of the overall global piracy problem, the IMB said it believed the opposite. Its Annual Report lists 86 chemical/product tankers attacked last year, the highest number by ship type and way more than the 55 container ships targeted (the 2nd most popular ship-type target).

More attacks?While it accepts the recent reduc-tion in world oil prices to half their previous value could prove a disin-centive to attacks aimed at theft of product oil cargoes, it may also be that attacks escalate as part of a bid to maintain profit levels when the stolen oil is sold on, it noted, especially as there is evidence of organised crime and sometimes insider involvement in the process. This might in turn mean more violent hijacks at sea as the pirates are under more pressure to suc-

Piracy

IMB: Stay alert as violence against small tanker crews escalates

Pirate Attacks 2014Total Attacks = 245 (264 2013)

Actual - 204183 Boarded; 21 Hijacked

64 steaming; 128 at anchor; 12 berthedAttempted - 41

13 Fired On; 28 Attempted Boarding25 steaming; 16 at anchor; 0 berthed

Attack Hotspots (2013 in brackets)Indonesia-100(106); Malaysia-24(9); Bangladesh-21(12); Nigeria-18(31)

Seafarer Violence - Total = 479 (373 in 3013)442 hostage (304); 4 killed(1); 13 injured (21); 9 kidnapped (36)

ceed, and it is certain that the in-dustry will not weather for long reports of crew being killed or cast adrift and left to their own fate, as was the case in several incidents last year.

More violenceThey included an incident in December where the crew of a tanker carrying bitumen retreated to the safety of their citadel when pirates boarded the vessel. The pirates, discovering the cargo was not gas oil or diesel, which they were expecting, left the ship soon afterwards. But when the crew emerged from the citadel they found the 3rd Engineer shot in the head. He later died after being taken to hospital.

On another occasion, last June, a tug and barge carrying containers was hijacked. The crew was taken hostage, tied up and transferred to the barge. The pirates then cast the barge adrift and stole the tug. Some 12 days later the crew man-aged to free themselves, raise the alarm and be rescued. The tug is still missing.

More recently, in October, pirates hijacked a product tanker in Indo-nesian waters. The crew were set adrift in a life raft and eventually rescued by fishermen nearly two

weeks later. The tanker was later found off the coast of Thailand. In both these cases, the lives of the crew was at risk until they were rescued.

Early action deters boardingSmall product tankers are difficult to protect and easy to access given their low freeboard when laden. Despite the oil price fall, their cargo is still relatively high value and easily sold on the sec-ondary market. That makes them a good target for groups of armed pirates in high speed skiffs.

But, says the IMB, their situation is not as hopeless as it might seem. There are cases where crews who have been able to identify approaching small, high speed, craft, and who were able to let them know they had been seen - by directing the Aldis lamp on the skiff, manoeuvring, sounding whistles etc. Without the element of surprise, on several occasions the pirates abandoned the attack.

Thus the advice to the crews of small tankers is to stay alert, as it appears that early identification of an attack may be enough to make the difference between being boarded or not, and the violence that almost inevitably results as a consequence.

Commercial Crime International

8 February 2015

Investment Fraud

‘Expert’ advisors mis-sold MLPs as safe THE dangers of investing in things you don't understand was high-lighted recently in reports that Americans who have sought income from seemingly safe investments like master limited partnerships (MLP’S) that invest in oil and gas production, delivery and distribution, may be in for a shock.

MLPs are tax-exempt, publicly traded companies that own pipelines, storage tanks, and other cash-generating energy infrastruc-ture and give practically all their income to shareholders in the form of distributions. That’s a big part of their appeal: MLPs yielded an average 6.7% over the past 12 months, according to data com-piled by Bloomberg. And along with buying MLP stocks, last year investors put more than $11.9 billion into mutual and exchange-traded funds (ETFs) investing in MLPs, according to Morningstar. Up till now they have been rewarded as the unprecedented US energy boom propelled them forward, but MLPs are structured differently from typical corporations and operate in a highly technical industry.

Now, however, with the precipitous recent drop in oil prices, investors are sadly discovering that these investments are anything but safe, the reports said. Many MLPs are collapsing and investors receiving

their year-end statements have found that their supposed 'safe' investments are down by as much as 75%. If the price of oil continues to fall, as some predict, these losses may soon reach 90%.

Part of the problem, say observers, is due to supposed 'expert' invest-ment advisors either not under-standing what they are selling, or even worse, hawking high risk investments as safe ways to pro-cure much needed income in a low income environment. In turn, their clients also do not understand what they are investing in and blindly follow the advice they are given/sold. Many, it seems, may be about to learn the hard way that risk and return go hand in hand. It is impos-sible to achieve a high return in a low interest rate environment with-out exposing yourself to high risk. It may be a basic formula, but it is not one friendly stockbrokers or financial advisors tend to espouse too often.

Stockbrokers are required to know their customer and to know the products they are selling to their clients. If a stockbroker doesn’t un-derstand the risk of an investment they are recommending, they can be held accountable for making an unsuitable investment recom-mendation. If they knowingly pro-mote a high risk investment as safe they are committing securities fraud.

‘Cherry-picking’ stock advisor jailed

A hundred football stars are feared to have been caught in an alleged £30million investment con offering the promise of a 20% a month return that police have said may be the biggest swindle ever to hit the British game. But the scheme collapsed amid huge debts and detectives are reported to be probing alleged links to massive gambling on soccer matches after bookmakers William Hill handed investigators details of the betting account of Michael McIndoe, a retired player who went bankrupt in October 2014 and is alleged to have recruited other footballers into the investment venture.

The fraud, initially reported to the National Fraud Intelligence Bureau last year, may be a Ponzi scheme. Police and creditors uncovered a trail of abandoned addresses in London or Scotland linked to McIndoe. Companies House re-cords show he became director of several businesses in 2011 after retiring from football, one of which was aimed at footballers and prom-ised exclusive access to nightclubs and private jets.

McIndoe allegedly sought invest-ments at meetings with business-men and footballers at plush hotels, where he claimed he was working with hedge fund managers, bank managers and businessmen. One investor said: “He was very con-vincing and the best salesman you could meet. At the end of the meet-ing he would take money and put it in a briefcase and get back in the car.” Players who saw initial returns recommended the investment scheme to teammates, friends and family. But the scheme collapsed at the end of 2011. In all, footballers are thought to have handed over up to £30million to those behind the scheme. McIndoe is alleged to have spent his part of the proceeds on a lavish lifestyle and gambling.

Footballers caught in investment con

US investment advisor Noah Myers will be jailed for defrauding clients in a "cherry-picking" securities scheme that cost investors in his MiddleCove Capital LLC company about $470,000.

The court was told that a cherry-picking trader allocates profitable trades to favoured accounts, often the individual’s own account, and assigns unprofitable trades to disfavoured accounts. Between April 2009 and November 2010, Myers engaged in the fraudulent practise at MiddleCove by purchasing the leveraged exchange traded fund (ETF) ProShares Ul-traShort Financials, as well as other securities. He then disproportionately allocated trades that had appreciated in value during the course of the day to his personal and business accounts.

Commercial Crime International

9February 2015

Investment Fraud

40% victims of financial fraud says report SEC charges two in HYIP scheme RESEARCH has shown that a large proportion of consumers have suffered

from some form of financial fraud in the past, highlighting the importance of remaining vigilant to the threat. According to research from Phoenix Group, two in five (or 40%) of those surveyed had suffered from some form of financial fraud, with 41% of those having lost more than £500 in the process. Often, it's simply down to lack of awareness, and this in itself can make consumers vulnerable.

More than half (53%) of those asked said they'd be able to recognise a scam if they saw one, but the reality doesn't quite match up: just one in five managed to detect a fraud before they lost any money, while over one in ten (13%) have been a victim of financial fraud more than once, initially losing an average of £774. Many people won't report a fraud, either – just 22% stated that they'd report it to Action Fraud, with 15% saying that they'd be reluctant to do so for fear of repercussions from the fraudster.

The research also highlighted the need to raise awareness of it – for example, a growing tactic in financial fraud is to use high-pressure sales tactics to sell high risk investments, which also highlights the need for consumers to seek suitable advice before making any investment deci-sions. It's an issue that becomes even more pressing given the fact that 23% of those surveyed refuse to talk to anyone when making important investment decisions, leaving them vulnerable to scams.

Scams drive UK court cases up 25%

THE SEC recently charged two Indian-based individuals and their company with running an unauthor-ised high-yield investment scheme.

The SEC alleged that vulnerable investors were mis-sold a number of investment plans that guaran-teed high returns, with one plan offering 2% income on a daily basis. It said the two men offered guaranteed daily profits as they anonymously solicited investments for their purported investment management company called Profits Paradise. The two used a range of tactics to lure in investors, including a stringent social media strategy that targeted investors through Facebook and Youtube. They also used false names, claiming to be Paul Allen and Nathan Jones, and registered their firm’s website using fake details.

The SEC said it found that Profits Paradise would invite investors to deposit funds that were held in a pool account with funds from other investors. Once a substantial amount had been raised the funds were then supposedly invested in global markets, including foreign exchange, stocks and commodi-ties. In order to sell their proposi-tion, the two operated a website and social media channels that enticed investors through their lucrative sales pitches.

THE number of fraud cases coming to trial in the UK rose 25% in 2014, driven by large numbers of invest-ment scams, says KPMG, reporting the findings of its most recent fraud barometer survey.

A total of £717 million was lost to fraud in cases that came to court during the year, of which £216m went into fake investment schemes, the biggest single category, said KPMG. This compared with £168 million the previous year. Total fraud volumes were down £824 million in the absence of large scale cases such as those perpetrated by rogue traders, it added. Instead, the num-bers showed a larger number of cases yielding smaller sums, which KPMG said indicated “victims are now being targeted because of vulnerability rather than wealth”. The increase in investment fraud may reflect higher disposable incomes as the economy recovers, KPMG said, as well as a search for income generating investments in an environment where yields are generally low. A lot of people are

being targeted by quite sophisti-cated criminals with compelling explanations of the ‘investments’.

There was also a rise in scams by employees trusted with their companies’ funds. Some £6.3 million was lost to payroll fraud, as part of £117 million lost through 29 separate cases involving people handling company money. These included Dennis Harold, who stole nearly £3 million from a recruitment consultancy through payments to fictional staff.

Harsh sentence to deter fraudstersA judge in Utah recently sentenced a fraudster who tricked investors out of at least $15.2 million to 19 years in prison. Passing what is considered an unusually harsh sentence for fraud in the state, US District Judge Robert Shelby called fraud a "significant problem."

The case at issue concerned Robert Holloway, 57, who operated an investment firm called US Ventures LC between May of 2005 and April of 2007. He claimed that the company used a special commodities trading software that generated returns of 0.8% per day. But evidence at his earlier trial showed that US Ventures actually lost $10 million in trading while Holloway created false daily reports showing profits. The operation took in $33 million and Holloway used hundreds of thousands of dollars for personal expenses.

Commercial Crime International

10 February 2015

Money Laundering

New EU national information registers to tackle m/lNEW European anti-money launder-ing rules will require company own-ers to be listed on national registers to which journalists and others with “legitimate interest” will have access. The rules, agreed late last year between the European Parliament and EU governments, are aimed at making questionable deals harder to hide from scrutiny and helping tackle tax evasion and money laundering.

National governments will be required to set up central registers of information on the owners of corporate and other legal entities, including trusts that often hide the ultimate owner of assets. Under the rules, authorities will have unre-stricted access to the information - which would include an owner’s name, date of birth, nationality, residency and details on ownership - as will banks conducting customer due diligence. The information would also be available for scrutiny by people with a “legitimate inter-est,” such as nongovernment or-ganisations, investigative journalists and other citizens, provided they can demonstrate their interest. In the case of trusts, the information

will be available only to government bodies and not the public. Under the new rules, banks, auditors, lawyers, real-estate agents and casinos will also have to be more vigilant about suspicious transac-tions made by their clients.

The new deal goes beyond what was agreed by the leaders of the Group of 20 largest economies in November 2014. They called for such information to be made available to all relevant authorities - possibly through central registers - but made no reference to the public, or journalists having access as well. However, the deal must be formally endorsed by EU gov-ernments and the parliament’s Eco-nomics and Justice Committees

before being put to a vote by the full parliament this year. After the parliament’s vote, EU governments will have two years to incorporate the new rules into their national laws and set up the registers.

“For years, criminals in Europe have used the anonymity of off-shore companies and accounts to obscure their financial dealings,” commented Krisjanis Karins a lawmaker at the European Parlia-ment involved in the negotiations.

“Creating registers of beneficial ownership will help to lift the veil of secrecy of offshore accounts and greatly aid the fight against money laundering and blatant tax evasion,” he said.

Bitcoin money transmitter jailed BITCOIN entrepreneur Charlie Shrem was recently sentenced to two years in jail for his part in a money laundering scheme, after a bitcoin exchange he ran was found to be aiding users of the Silk Road black market. Shrem was previously a senior figure in the bitcoin community, sitting on the board of the foundation which oversees the cryptocurrency, while also running his own exchange, BitInstant.

In September, he pled guilty to the charges of money laundering after being accused of running a scheme with Floridian Robert Faiella to sell bitcoins anonymously to users of the Silk Road website. According to prosecution documents, Faiella ran a business on the Silk Road website under the name BTCKing, where he let users exchange cash for bitcoin anonymously in exchange for a cut. Faiella fulfilled those orders using BitInstant, where Shrem was chief executive and chief compliance officer.

Under US federal rules, BitInstant was a money transmitter, and required to report substantial transactions, or patterns of transactions, which indi-cated suspicious activity. Shrem never filed any such reports, and the prosecution claimed that he knowingly partnered with Faiella to ensure that the latter would continue to have access to the exchange.

17 accused of Italian m/l conspiracy ITALIAN finance police arrested 17 people late last year. They were accused of running an international money laundering ring through a British-based money transfer services company - Sigue Global Services Ltd, which was used to shuttle illegal proceeds abroad, mostly to China.

Managers at the Rome branches of Sigue Global Services Ltd were among those suspected of interna-tional conspiracy and money laundering that investigators said amounted to more than 1 billion euros ($1.24 billion) in just over two years.

The bulk of the cash leaving Italy went to China in hundreds of thou-sands of transactions just under the limit - now set at 1,000 euros - at which stringent money launder-ing regulations are applied, the finance police alleged. No taxes were paid on any of the money transferred, causing a loss of about 500 million euros to the Italian state, the police said. Italy has one of the highest rates of tax evasion in the European Union, estimated to be up to €130 billion per year. A manager at Sigue's British headquarters said the company's branches in 50 countries operated independently and local owners signed contracts pledging to respect money laundering laws. He insisted that Sigue "is not involved in any criminal activity."

Commercial Crime International

11February 2015

Cybercrime

Online investment scams - the warning signsTHERE are thousands of investment schemes on the internet and most are scams. Once the operators have raked in a hefty amount for themselves, and incoming investments dry up, the operation simply disappears off the web, or morphs into another, similar scam. Most investors are left with no money and no recourse. Because it’s impossible to find out who is behind these entities, there’s no one to pin down to sue.

The schemes advertise returns that are outrageous, and this fact alone should be enough of a red flag to set alarm bells ringing. For instance, a recent scheme to emerge on the web, Grand FX, which purportedly invests on the forex markets on your behalf, promises “standard” investors a return of 1,400% on money invested after 25 days, and “VIP” investors 2,000% after 20 days. Clearly, if the operators were indeed making such good profits, they would certainly not be letting the whole world into their secret. Yet new victims sign on all the time, some aware there is a scam but confident they can make a quick profit and escape in time. For the less aware, here are some of the other common warning signs.

Website signs of an investment scam The website business has no physical address and no telephone num-

ber. The only contact is via email. If a telephone number is given it may be a mobile, which can be checked. If the site does list a physical address, it may be false, and can be quickly checked with a Google or similar search. Such searches do not always provide definitive results but, for example, if the given address is supposedly for a major global corporation and turns out to be a residential property, it's a good indication that all is not what it might seem.

The language used on the website is ungrammatical, or it may be flowery, vague or unidiomatic. Take, for instance, this passage from coindeposit.biz, which offers a return of 5,000% on a two-day investment: “Our firm strives to provide you with exceptionally well customer service. For us, each and every client is equally important and special. The website capability and trade execution on our website is commendable. Our company offers you such excellent services at a very feasible cost.”

The language on the website is a copy and paste from a legitimate company website. This is not always obvious but if suspicious try pasting particular 'unique' phrases into Google and trying to find a match. If the fraudsters have been careless the source of the original may just pop up.

How the business operates and how it makes money are couched in vague terms, with no concrete facts or figures, and no means through which you can verify the information.

You pay through a relatively unknown online payment system or e-currency. Many of these systems and currencies are unregulated in any of the big Western economies - or any other jurisdiction - and some are known to have been set up by the con artists themselves, according to Wikipedia. Some have been linked to other criminal activities and money laundering.

The website provides numerous testimonials from supposedly satisfied customers. If these appear to come from very large companies, which some do, ask yourself why they would need such services and, more importantly, why they would advertise the fact in a testimonial.

The website offers incentives to people acting as agents, who recruit new investors.

As online investment frauds become ever more sophisticated they have also begun exploiting the electronic media to the full. Many now use social

media – including YouTube, Twitter and Facebook – to fabricate a ‘buzz’ and create the illusion of so-cial consensus, thereby lending an air of legitimacy to their operations.

They also use other, supposedly objective, websites to punt their schemes. Some of these sites pur-port to monitor and rank the ‘best’ programmes. Others tout winning investment strategies or provide a forum for trading tips on how to profit, even those suspected to be scams. Still others expressly caution investors against invest-ment scams, using reverse psy-chology to create the false impres-sion that this particular operator is somehow different. These tactics create the illusion of a real market, complete with real investors, real investments and real demand.

The maxim that you shouldn’t believe all you read is thus nowhere more applicable than on the internet. The web is the least credible of the media; anyone can put anything on a website and dress it up to look legitimate. For example, investment sites often give “statistics” of how much has been invested, how much has been paid out, and how many investors they have attracted. Don’t believe any of it.

To avoid being scammed:1) Ask and check. Always independently verify who you are dealing with and whether the seller of an investment is licensed to do business. Go to 'Who is.com' and check when the website was cre-ated and by who. Check with the appropriate authorities whether the business is licensed to sell investments. Check whether the purported investment is even available to an ordinary member of the public. Some commonly offered are not.2) Exercise scepticism. Ask your-self why they would want to “share” their “secrets” with you. Cont pg12

Commercial Crime International

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Copyright 2015. All rights reserved

Website protection

Cybercrime

A recent court ruling in the US that companies can use trademark law to protect the unique look and feel of their websites from imitators is being seen as a significant devel-opment. In the case, the court in California ruled that the look and feel of a website used to market and sell products and services can constitute protectable trade dress under Section 43 of the Lanham Act. See 15 U.S.C. § 1125(a) (2012).

A website’s distinctive appearance, layout, and design qualities—its “look and feel”—are often the most important tools through which a company can make a first impres-sion on consumers and effectively market its brand. As a result of this ruling, companies should consider registering their websites as trade-marks with the US Patent and Trademark Office (the “USPTO”).

3) Recognise persuasion at work.Rankings and testimonials are tac-tics fraudsters use to bolster the credibility of the scam, but remem-ber: credibility can be faked. And avoid falling into the trap of thinking that you can outsmart the con artists. In these schemes, sooner or later, the investor always loses.

If you have already put money into an investment scheme that subsequently arouses suspicions: ★ Do not put in more, even if the programme appears to be paying “interest”;★ Do not refer others in an effort to garner referral fees – doing so only furthers the fraud and draws you into the scheme; and★ Do not try to “ride the Ponzi” by trying to get in and get out before the scheme collapses. If you do, you could end up like investors in Genius Funds, an investment scam shut down by US regulators in 2010, in which participants lost $400 million.

Online scams -from p11

WOULD-BE Brazilian bank fraudsters are reported to be using something called KL-Remote, described as a user-friendly "virtual mugging" platform. The attack toolkit has an attractive interface that includes a "start phishing" button. It effectively circumvents both two-factor authentication and device identification protections.

The toolkit is distributed by being embedded in other malware. It comes preloaded with a list of targeted banking URLs. When the infected user visits one of those sites, the malware operator gets an alert and can then decide whether or not to proceed with an attack. IBM Security Trusteer, which released details about the KL-Remote recently, said that unlike banking Trojans, KL-Remote is less automated. It requires attackers to do some manual sleight of hand, but it makes it very easy to pull off. As IBM describes it, "during a remote overlay attack, the criminal is virtually looking over the victim's shoulder, watching his or her every move. At some point, the attacker takes direct control over the device without the victim's knowledge."

When KL-Remote goes into action, it first takes a snapshot of the infected user's browser screen and lays it over the real website, preventing the user from interacting with the real site. A quick click of the "start phishing" button begins issuing a series of prompts -- customised for each bank - stating that the user needs to install a security update, and it tricks the user into entering the password and one-time token.

Once the user enters that data, the tool throws up a waiting message - one of those usual "installing update, this may take a few minutes" messages. While the user waits, the tool takes control of the infected machine's key-board and mouse and carries out whatever fraudulent financial transac-tions the attacker would like with that user's bank account.

The user can't see the activity, and the bank can't tell that the person conducting the transaction isn't the account holder logging in from the usual device. The attack effectively circumvents two-factor authentication and device identification.

Bank fraudsters discover ‘virtual mugging’