Hellenic Shipping News on 17th November reported that almost half of Iran’s state-owned oil tankers have stopped broadcasting their geographical positions over the past month, leaving an uncertain picture of the country’s seaborne crude exports after the reintroduction of US sanctions. At least 25 tankers owned by Iran’s National Iranian Tanker Company have not posted any update of their position by satellite using the Automatic Identification System (AIS) since November 10th.
On 16th November, a UN news release reported that BADI SALAH had been added to the UN sanctions list for Libya. A Libyan, he is described as senior commander of the armed anti-GNA Al-Somood front, also known as Fakhr or ‘Pride of Libya’, and the Misratan Al Marsa Central Shield brigade.
On 16th November, a news release from the Isle of Man FSA said that, in line with MONEYVAL’s common follow-up rules of procedure, the Isle of Man had to report back to MONEYVAL in July 2018 on the steps taken since the publication of the Mutual Evaluation Report in 2016 to strengthen its AML/CFT framework. It says that this follow-up report (dated July 2018) has now been published and analyses progress in addressing the technical compliance deficiencies identified in the mutual evaluation report. The report also looks at whether the Isle of Man has complied with the new requirements of those FATF Recommendations that have changed since 2016. It quotes MONEYVAL as saying that: Overall, the Isle of Man has made commendable progress in addressing the TC deficiencies identified in its 5th Round MER and has been re-rated on 8 Recommendations (8 upgrades). It notes that MONEYVAL re-rated the Isle of Man –
- to “Compliant” with Recommendations 5 (criminalisation of the financing of terrorism), 6 (targeted financial sanctions on the financing of terrorism), 16 (wire transfers), 29 (FIU), 32 (cash couriers) and 33 (statistics); and
- to “Largely Compliant” with Recommendations 24 (transparency of legal persons) and 35 (sanctions).
As a result, it says, the Isle of Man is assessed as Compliant or Largely Compliant on 38 out of 40 of the FATF Recommendations. Note that these refer to technical compliance, whereas the “Immediate Outcomes” markings deal with the effectiveness of the compliance and controls.
The revised Technical Compliance markings are now –
The Isle of Man will remain in enhanced follow-up and will continue to report back to MONEYVAL on progress to strengthen its implementation of AML/CFT measures; and is expected to report back to the MONEYVAL Plenary within 1 year.
Spiegel Online in Germany on 16th November published a feature saying that in 2011, a Russian billionaire set out to rescue the ailing AS Monaco football club. He invested in top players and invited government, police and justice officials to matches. He handed out both gifts and jobs. Then he was arrested for alleged corruption. The feature provides background on Dmitry Rybolovlev, where he (and his wealth) came from and his involvement in the “Bouvier affair” involving art as a capital investment and the lawsuit from Rybolovlev against Swiss art broker, Yves Bouvier, and his involvement in Cyprus and shenanigans there when he became embroiled in a divorce battle.
The Jerusalem Post on 17th November carried an article saying that “lax” German terror finance policies permitted Hezbollah to run a vast criminal enterprise to raise funds through a money laundering operation in Europe and South America. French prosecutors have now put 15 members on trial in Paris. According to German media outlets, 4 of the accused men lived in Germany, and are charged with laundering Columbian narcotics money via a complex finance evasion scheme with the aid of the Lebanese Diaspora. Using a hawala system, the operation took proceeds from narcotics to Europe, where the money was laundered and collected, and then funnelled to Lebanon and back to Columbia. It is alleged that the Lebanese network bought with cash jewellery and watches in value from roughly €10 euros in jewellery stores in Germany.
16th November 2018
CHINESE CUSTOMS ARREST 17 SUSPECTS FOR IVORY SMUGGLING
The Sundiata Post on 16th November reported that China has arrested 17 suspected smugglers and seized 10 pieces of African ivory weighing 323.7 kg in Shenzhen. The suspects, including 6 Hong Kong residents, attempted to smuggle the ivory to the Chinese mainland via Hong Kong.
IRELAND: ILLEGAL CIGARETTES COST THE STATE €229 MILLION IN LOST TAXES
On 15th November, The Times reported that, according to a Revenue Commissioners report, almost 1 in 7 cigarettes smoked in Ireland last year was illegally obtained, costing the state about €229 million in lost tax. 13% of cigarettes consumed in the Republic last year were illicit smuggled goods, against the estimated EU average of 10.4%. An increase is largely due to the discovery of an illegal cigarette manufacturing plant, a factory capable of producing 250,000 cigarettes an hour, in a barn in Co Louth in March.
CHARCOAL STILL SMUGGLED FROM KDF-CONTROLLED SOMALIA ZONE
Business daily Africa on 15th November reported that Al-Shabaab continues to reap substantial revenues from charcoal smuggling in southern Somalia. Al-Shabaab makes at least $7.5 million from “taxation” at checkpoints, and “generates more than enough revenue to sustain its insurgency,” African Union monitors say. With an estimated 3 million bags of charcoal smuggled last year from Somalia, the total value of the illicit trade is put at $150 million – the charcoal exports being destined for the UAE, with criminal networks based in Dubai, the UAE and Kismayo involved,
JAPANESE FSA PLANS TO REGULATE CRYPTOCURRENCIES
Bitcoin.com reports that the Financial Services Agency, has unveiled a plan to regulate cryptocurrency wallet services. The regulator has put forward a number of regulatory measures as well as proposing how to implement them. The plan unveiled at the meeting focuses on service providers — not software wallet developers or hardware wallet manufacturers.
MONEYGRAM SETTLES AML COMPLIANCE FAILURE CHARGES
On 15th November, Cadwalader Wickersham & Taft LLP published an article containing background and commentary on the case of Moneygram settling charges filed by the US Federal Trade Commission for failing to implement previously prescribed FTC and DoJ AML compliance programmes. MoneyGram International Inc agreed to extend its existing deferred prosecution agreement with the DoJ, forfeit $125 million in fees it received in connection with fraudulent transactions, and separately agreed to settle charges filed by the FTC for failing to implement FTC and DoJ fraud prevention compliance programmes.
“CORPORATE AMERICA FLEES ZERO-TAX CARIBBEAN HAVENS AFTER CRACKDOWN”
Accounting Today on 15th November reported that many US multinational corporations have packed up or are choosing to open subsidiaries in low-tax, rather than no-tax, countries that are seen as more legitimate than the formerly popular island destinations of the Cayman Islands and the Bahamas – in response to regulations from the EU that require them to justify the business purpose for their offshore operations. Some firms — such as hedge funds — are staying put in their Caribbean locations, undeterred by political pressure and facing fewer restrictions since many are private, it says.
URBAN MINING: IN SEARCH OF EUROPE’S VALUABLE WASTE
EurActiv on 16th November carried an article that says each year Europe wastes millions of tonnes of valuable metals in landfill or by exporting them, and asks how can policy measures increase the recovery of these materials? In 2014, Europe exported almost 2 million tonnes of scrap metal including aluminium and copper, as well as 1.3 million tonnes of electronic waste, according to industry association Eurometeaux. The problem is actually getting worse – export levels have steadily increased for over a decade. The European Commission has targeted an increase in the recovery of these used materials, so-called “urban mining”. Some in the metals sector have complained that rather than addressing the problem, some EU legislation is actually exasperating it by making it more difficult to reuse materials due to environmental restrictions.
MEPs CALL FOR STRICTER CONTROL ON EU ARMS EXPORTS
EurActiv on 15th November reported that EU lawmakers passed a draft resolution on arms export control by 427 votes in favour, 150 opposed, and 97 abstentions on the need for tougher checks on EU arms exports and demanded a sanction mechanism to be put in place on those countries that systematically fail to comply with common criteria. The EU is the second largest arms supplier in the world with 27% of the global share, after the US (34%), followed by Russia (22%), according to the EU’s 19th annual report on arms exports.
ANGOLA BATTLING TO REVIVE OIL EXPLORATION
Defence Web on 15th November reported that nearly 2 decades after securing initial rights, the Total CEO was in Luanda to snip the ribbon on a $16 billion oil project. It’s not clear when he, or his peers, will be cracking open the bubbly in Angola again. Africa’s second-largest crude producer is facing a steep decline unless it revives exploration in what was once one of the world’s most exciting offshore prospects. Oil accounts for 95% of exports and around 70% of government revenue. Signs of fresh exploration follow a period of near-paralysis due to a lack of drilling success, a slump in oil prices and a deteriorating relationship between Sonangol and oil majors. Angola’s offshore reserves are expensive to explore and develop.
AML GROUP COMPLETES REVIEW OF TAIWAN’S FINANCIAL OPERATIONS
Taiwan News on 16th November reported that the Asia/Pacific Group on Money Laundering (APG) completed its 2-week inspection of Taiwan’s financial sector that will determine wither or not Taiwan has been found to be in compliance with the regulations of the international AML agency. The initial evaluation report from the APG was received by the Taiwan government on 16th November. It is said that some government officials are expressing “cautious optimism” that Taiwan will receive a positive rating.
IRAN TO BUILD RAILWAY THROUGH IRAQ, CONNECTING TO SYRIAN PORT
Customs Today on 14th November reported that Iranian technicians and engineers are due to complete the Shalamcheh – Basra railway with a plan to eventually connect it to Syria’s Lattakia port, an official in the Islamic Republic of Iran Railways (RAI) said.
RUSSIA-US TRADE RAISES 8.5% YEAR-ON-YEAR DESPITE SANCTIONS, ACCORDING TO CUSTOMS SERVICE
Customs Today on 14th November reported that trade between Russia and the US increased by 8.5 per cent year-on-year in the first 9 months of 2018, compared to the same period last year, and stood at $18,019 billion, according to the data published by the Russian Federal Customs Service (FTS).
WHAT DID US CUSTOMS DO ON A TYPICAL DAY IN 2017?
A news release from US Customs and Border Protection provided a snapshot, with such information that it daily processed 1,088,300 passengers and pedestrians and $6.5 billion worth of imported products. It 21 arrests of wanted criminals at ports of entry and seized 5,863 lb of narcotics, $265,205 in undeclared or illicit currency, and $3.3 million worth of products with Intellectual Property Rights violations. It intercepted 12 fraudulent documents.
NEARLY 3,500 KG OF CANNABIS RESIN WERE FETCHED FROM THE SEA OFF EUROPA POINT, GIBRALTAR
The Gibraltar Chronicle reported on 16th November that nearly 3½ tonnes of cannabis resin were fetched from the sea off Europa Point as suspected drug traffickers escaped from the Guardia Civil’s marine officers. The chase took place after a Maritime Service vessel patrolling in the Bay of Gibraltar spotted a Rigid-Hull Inflatable Boat, such as those often used for drug trafficking, in the sea. To date, the Guardia Civil has stopped 4 RHIB since the ban on them came into effect on October 28th.
INTERPOL LEADS GLOBAL CRACKDOWN ON CRIMINAL MARITIME POLLUTION
Illicit Trade on 14th November carried a report on a worldwide law enforcement effort designed to tackle criminal maritime pollution backed by Interpol and Europol which has resulted in the discovery of hundreds of offences and exposed serious cases of contamination across the globe. The month-long operation, which was dubbed “30 Days at Sea” and took place throughout October. Numerous illegal discharges of oil and refuse from boats, shipbreaking, breaches of ship emissions regulations, and pollution on rivers and land-based run-off to sea water, were detected.
MONGOLIA SHAKEN BY WIDENING LOAN SCANDAL
The Nikkei Asian Review on 16th November reported on demonstrations to demand prosecutions of officials caught in a widening loan scandal – with allegations that 3 members of the cabinet have benefited by getting the low-interest loans for business controlled by them or their family members. More than a dozen lawmakers and police officials have also been implicated. The head of the fund has been arrested, and the state auditor and the minister overseeing the fund – himself an alleged beneficiary – have both been ousted. Others are under investigation.
APG PRAISES TAIWAN’S AML EFFORTS, WITH CAVEATS
Focus Taiwan on 16th November reported that Taiwan’s AML efforts have impressed an evaluation team from the Asia/Pacific Group on Money Laundering (APG), but there is more work to be done. A statement from the Cabinet said the preliminary results of a mutual evaluation by the APG found Taiwan’s AML system to be functioning well, and praising the newly established Anti-Money Laundering Office (AMLO). However, the evaluation team is reported to have said that financial supervisory agencies should more tightly monitor the operations of banks’ offshore banking units, and punishments should be made harsher to deter money laundering.
FRAUD CHARGES AGAINST IB TIMES OWNER RE ALLEGED $35 MILLION LAUNDERING SCHEME INVOLVING CHRISTIAN UNIVERSITY
On 16th November, the Press Gazette reported that the parent company of news website the International Business Times has been charged in connection with an alleged $35 million fraud which prosecutors say saw funds laundered through an evangelical Christian university. IBT Media, formerly Newsweek Media Group, and its co-owner Etienne Uzac each face 2 counts of money laundering, 4 counts of falsifying business records, and 1 count of scheming to defraud and conspiracy.
ICO HITS METROPOLITAN POLICE WITH ENFORCEMENT NOTICE OVER USE OF GANGS MATRIX
Local Government Lawyer on 16th November reported that the Information Commissioner’s Office has served an enforcement notice against the Metropolitan Police Service after an investigation found that its use of the ‘Gangs Matrix’ database had led to multiple and serious breaches of data protection laws. The Gangs Matrix which records intelligence related to alleged gang members. The article details the findings. The ICO said that due to the timing of the case, it was dealt with under the provisions of the Data Protection Act 1998, and not the General Data Protection Regulation (GDPR) and 2018 Act that replaced it in May this year.
BOSS OF PERSONAL INJURY CLAIMS BUSINESS JAILED FOR FRAUDULENTLY MOVING £51,000 IN FUNDS
Accountancy Daily on 16th November reported that Darren Bullough, the boss of a personal injury claims management business has been jailed for 21 months and banned for 7 years after fraudulently removing company funds in the months before the courts would make a winding-up order resulting in the closure of the business. His firm, Direct Assist Ltd, incorporated in 2007 had registered offices in Bury and Bolton and he was its sole director.
UK FINANCE BUSINESSES’ CONCERNS FOR IMPERSONATION FRAUD
On 16th November, UK Finance reported on a webinar broadcast in October on impersonation fraud. It says that it was clear to see that many financial institutions were experiencing similar issues around this type of fraud to those being reported by it intelligence team; and that it was still a growing, and was by far the biggest concern, amongst the audience of 336 finance professionals – with 42% of them highlighting this as the area where they have seen the biggest growth in fraud over the last year. Notably, there was a marked concern over ‘misuse of facility’, which is a type of fraud where an innocent victim’s genuine information or account is used to apply for credit or to transfer funds to and from illicit accounts. UK Finance’s advice was that financial institutions would be to familiarise themselves with guidance and advice from the Payment Systems Regulator and the FCA and raise awareness amongst customers through campaigns. More importantly, it says, the advice would be to share data, intelligence and analysis on transactions, suspicious activity and known adverse cases, to help spot fraudulent activity sooner, to stop it having a significant impact on customers and organisations.
NICE PUBLISHES DRAFT SCOPE FOR NEW GUIDELINES ON CANNABIS-BASED PRODUCTS FOR MEDICINAL USE
The Pharmaceutical Journal reported on 16th November that the National Institute for Health and Care Excellence (NICE) is consulting on guidelines on cannabis-based products for medicinal use in the UK. The consultation closes on 4th December. It notes that smoked cannabis and cannabis supplements, such as those marketed as food products, are excluded from the guidelines. The guidance is due to be published in October 2019.
The draft guidelines are at –
CARGOX LAUNCHES FIRST OPEN, NEUTRAL BLOCKCHAIN SMART BILL OF LADING (B/L) PLATFORM FOR SHIPPING
On 16th November, Loadstar reported that the decentralised system for sending digital documentation, the Smart B/L platform is targeting forwarders, NVOCC and shippers was a world first.
CANADA’S CANNABIS LEGALISATION ENTERS INTO FORCE
A news release from the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) on 16th November reported that the law to legalise recreational use of cannabis entered into force on 17th October. The news release provides brief details of the use, production and sales rules, and says that Health Canada anticipates that cannabis-containing edible products will be permitted within the next year.
US WITHDRAWAL FROM THE EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE, ONE YEAR LATER
On 16th November, the Brookings Institute published an article saying whilst the withdrawal did not attract the attention of other moves by the Trump Administration, it was still deeply disturbing for all those who care about fighting against corruption in natural resource extraction, particularly, with the US having been a leader in helping to curb corruption in extractives and other industries across the globe, by means of the FCPA, for example. EITI is described as the global standard for the good governance of oil, gas and mineral resources – see its factsheet at –
COLOMBIA PROBES DEATHS OF WITNESSES AND ALLEGED COVER-UP IN BRIBERY CASE
The Wall Street Journal and the Economist on 16th November reported on the death of a key witness (and his son) in the bribery investigation linked to Odebrecht SA, and the revelation that he had sought US protection before he died. A recording from beyond the grave alleged that the man who is now Colombia’s prosecutor sought to over up bribes in the same case.
ADMINISTRATORS STRUGGLE TO TRACE PAINTINGS LINKED TO MONEY LAUNDERING SCANDAL
The Art Newspaper on 12th November reported that 2 art works supposedly owned by a bankrupt company, whose director Matthew Green resigned in February following an FBI sting operation, are “apparently” in Dubai. Administrators cannot locate the 2 paintings supposedly belonging to Mayfair Fine Art Limited, whose former director Matthew Green is being charged with attempted money laundering following the Beaufort Securities scandal.
EU COURT UPHOLDS RELISTING OF TUNISIAN INDIVIDUAL
The European Sanctions Blog on 16th November reported that the EU General Court has upheld Mohamed Mabrouk’s 2017 and 2018 renewed listings under EU Tunisia sanctions targeting those responsible for the misappropriation of Tunisian state funds.
PROSECUTORS DISMANTLE THE MOST IMPORTANT GROUP OF CANNABIS TRAFFICKERS IN BUCHAREST – WHO DIVERSIFIED INTO CRYPTO MINING
Romania Insider on 16th November reported that, in the past 3 years, this network managed to produce and distribute more than 2 tonnes of cannabis products in Bucharest and in neighbouring counties. Moreover, to increase their income, the defendants also set up a complex system in a nearby hall, which they used for cryptocurrency mining.
OCCRP on 16th November reported that Brian Hall, a UKIP branch chairman, was caught with nearly 597 vials of ‘GcMAF’ worth $322,000 – this being a controversial drug said to cure cancer, HIV, multiple sclerosis, and autism – while attempting to board a ferry to northern France in 2015. He had obtained the drug from a secret laboratory in Cambridge that had been shut down for manufacturing the blood product without a licence – Immuno Biotech Ltd. The company reportedly sold the vials for €660 each.
The Washington Post on 14th November reported that Acting Attorney General Matthew G. Whitaker received early warnings that customers were complaining that an invention-marketing company he advised might be a fraud – Patent Marketing. He defended the company and remained on its board until joining the Justice Department in 2017. The company shut down in May and agreed to pay a settlement of nearly $26 million to resolve a wide-ranging Federal Trade Commission complaint that it bilked customers.
For a useful background piece on what the company got up to, see the “Planet Money” podcast from NPR at –
On 16th November, FATF published the report, already published on 9th November by the regional FATF-style body, ESAAMLG. It also published an updated version of the consolidated schedule of all assessment markings.
A news release from the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) on 16th November introduced a report that details the results of a 2-day workshop on the EMCDDA’s trendspotter methodology held in Lisbon in November 2017. The workshop involved representatives from national drug observatories based in countries from the Community of Latin American and Caribbean States (CELAC), along with experts from European countries and regional and international organisations active in the drugs field. The main focus was on identifying the most recent trends and developments in the region with regard to drug use, harms and markets.
This Occasional paper from RUSI on 16th November reviews the efforts of national authorities to harness the opportunities of data analytics for anti-money-laundering purposes. It sets out potential methods and their benefits, as well as other factors that should be considered to ensure the proportionality and sustainability of innovative approaches. The cases reviewed as part of this research illustrate the value of data analytics for AML supervision and enforcement. For the purposes of this research, the term ‘data analytics’ refers to methods allowing users to turn data into knowledge that would not be revealed through a human review of the data in question. This includes traditional statistical methods and more recent developments relating to ‘big data’ or machine learning. Its conclusions include that supervisors, FIU and law enforcement agencies should adopt a strategy to identify and harness opportunities for the use of data analytics in an AML context; and that bodies such as FATF and the IMF should more systematically review to what extent member countries have considered and harnessed the potential of data analytics for AML intelligence, supervision and enforcement purposes, which will allow for peer learning.
Baker McKenzie on 16th November reported a VoA story that a dramatic recording from beyond the grave has led to allegations that Nestor Martinez, Colombia’s chief prosecutor — a key US ally in the war on drugs, and at the time a legal counsel to Colombia’s biggest banking group — tried to cover up bribery payments that were part of Latin America’s biggest corruption scandal, prompting calls for his resignation.
RUSI on 16th November published an article which says that the British government claims to be focussing on its ability to seize the proceeds of organised crime, but the response remains piecemeal, underfunded and poorly co-ordinated. Whilst the article highlights some positive points, it also says that the overall £7.5 million funding pot to boost the asset recovery response is paltry compared to the estimated tens of billions of criminal assets the UK’s long-suffering financial investigators are charged with capturing. It also cautions against over-reliance on unexplained wealth orders – saying that, due to their already litigious nature, it is unlikely that they will be used in all but the most serious (or perhaps, straightforward) cases.
The Strategy itself, as published on 1st November, is available at –
Low Tax on 16th November reported that the Minister of International Business and Industry has confirmed that the territory will soon repeal a number of tax measures that are considered to be contrary to new international standards on harmful tax regimes. The regime that established the international business company form will be dismantled, the law repealed, and a raft of tax incentives used to lure IBC will be removed – most significantly the foreign currency earnings credit. Incentives allowed some businesses to enjoy a tax rate as low as 0.25%.
Rferl has published an article about this right-wing group seeking to expand into Western Europe and the US, and its political wing, the National Corps. Despite supplying arms and training to Ukraine, the US has banned arms from going to Azov members and forbidden them from participating in US-led military training because of their far-right ideology. The Azov Battalion was formed in May 2014 in response to the Russia-backed separatist advance sweeping across eastern Ukraine. Comprised of volunteers, it has roots in a group of hard-core, far-right soccer fans, including many violent hooligans, commonly known in Eastern Europe as “ultras”. After the 2015 Minsk Accord peace deal, the Azov Battalion was officially incorporated into Ukraine’s National Guard and its leadership shifted focus from the battlefield to the political arena. The Azov National Corps entered the political fray in October 2016 and incorporated 2 other far-right organisations. In recent months Azov members have taken advantage of that, making several visits to EU countries to meet numerous European counterparts. The FBI had apparently alleged that Azov was “training and radicalising” American far-right groups.
A probe by the Nigerian Senate into whether state oil firm NNPC improperly withdrew money expanded with the amount under investigation doubling to over $2.2 billion, a committee said. The Senate voted to probe withdrawals of $1.05 billion by Nigerian National Petroleum Corporation (NNPC), from NLNG, a venture owned by the state oil firm and foreign energy companies, without approval. NLNG, which produces liquefied natural gas (LNG) for export, is a joint venture company owned by NNPC and foreign energy firms Royal Dutch Shell Plc, Total SA and ENI.
On 15th November, EIN Newsdesk carried a report from the IMF under its Financial Sector Assessment Program-Report on the Observance of Standards and Codes on FATF Recommendations for AML/CFT. The summary says that Colombia has a reasonable understanding of its main domestic AML/CFT risks. The country’s understanding of risks relies particularly on the results of the 2013 and 2016 National Risk Assessments (NRA). The 2016 NRA has yielded reasonable findings with respect to the identification of the main money laundering threats and vulnerabilities. The AML/CFT supervisory systems and tools are not entirely in line with the risk-based approach (RBA), and there are significant gaps in the supervision of designated non-financial businesses and professions (DNFBP). Colombia investigates and prosecutes money laundering effectively, but not in a manner that is commensurate with its risks. The full report is available at –
Diálogo on 15th November reported that criminals in Costa Rica and Panama transport Chinese citizens to Central America for labour exploitation or to take them illegally to the US. In September, Costa Rican and Panamanian authorities dismantled a human trafficking ring that smuggled people from China to Latin America, and the 2-year investigation led to a ring linked to criminals in other Latin American countries, such as Peru, Colombia, and Ecuador. Chinese citizens were transported from China to Europe by air. From there, they were taken to Ecuador, Peru, or Colombia, with Costa Rica as their final destination for a $22,000 to $45,000 fee. Most migrants entered via Juan Santamaría International Airport in San José, Costa Rica, with the complicity of some state officials.
15th November 2018
BVI & CAYMAN ISLANDS: SANCTIONS – ADDITIONAL REPORTING OBLIGATIONS
On 13th November, Maples published an article reporting that, w.e.f. from 7th November, the reporting obligation in respect of financial sanctions orders in the two jurisdictions shall extend to ‘relevant businesses and professions’, including auditors, casinos, precious metal and stone dealers, external accountants, independent legal professionals, real estate agents, tax advisers and trust or company service providers. Sanctions Orders are extended by UK Statutory Instrument to these British Overseas Territories, to implement UK, EU or UN sanctions measures.
COUNTER-PROLIFERATION TOOLS AND DIPLOMACY IN US FOREIGN POLICY
A news release from the US State Department on the EIN Newsdesk comprises a speech on an aspect of the work of the State Department that the speaker says is often overlooked. The Bureau of International Security and Nonproliferation, or ISN — is the State Department’s lead for counter-proliferation policy and operations. The speech touches upon the recent history of the organisation, and current challenges.
RENEWED REGULATORY, TRANSPARENCY AND ANIMAL WELFARE FOCUS IN STORE FOR AUSTRALIAN LIVE ANIMALS EXPORT INDUSTRY
On 14th November, the Future Directions website reported that, the fallout from recent scandals and licence revocations, and that the Australian Federal Agriculture Minister initiated the ‘Review of the Regulatory Capability and Culture of the Department of Agriculture and Water Resources in the Regulation of Live Animal Exports’, otherwise known as the Moss Review. The article says that, in beef exports alone, Australia ranks behind only Canada and France. Australian cattle are particularly in demand in Indonesia and Vietnam, while most sheep shipments head to the Middle East. The industry is currently estimated to be worth $2 billion annually; and that it employs over 10,000 individuals and is the backbone of various regional industries. The Moss Review highlighted a number of cultural issues and regulatory shortcomings that had contributed to failings on the part of the regulator, the Department of Agriculture and Water Resources (DAWR). The minister has also announced plans to appoint an Inspector-General for Animal Welfare, a role that could help address the shortcomings and promote the cultural change required within the department and the industry.
OFAC HIGHLIGHTS GAPS IN SINGAPORE’S SANCTIONS REGIME
Regulation Asia on 15th November published an article in the wake of OFAC targeting a Singaporean citizen, a pair of companies and 2 cargo vessels resulted from violations of the trade embargoes enacted by the UN, which Singapore follows. It identifies 3 actions that regulators in countries such as Singapore could follow in order to reduce the chances of further high-profile regulatory incidents – greater bank vigilance and oversight; expanded regulatory scope (none of the companies named in the US actions are financial institutions); and regulatory outreach and education.
AUSTRALIA: $8.5 MILLION CHINESE MONEY LAUNDERING RING SMASHED
On 14th November, the Cairns Post and others reported that police have seized more than $8.5 million in jewellery, luxury cars and properties as they swooped on a Chinese money laundering ring in Melbourne, Sydney and the Gold Coast. It is alleged that 2 Chinese nationals travelled to Australia in 2015 “to establish shell companies to transfer proceeds of crime and purchase residential and development property in Australia”, and that Chinese authorities allege the money was raised in China through the defrauding of investors.
THE UK’S NEW NATIONAL ECONOMIC CRIME CENTRE
On 13th November, Kingsley Napley published an article on the NECC. The NECC is an overarching body whose function is to co-ordinate the UK’s national response to economic crime by tasking and co-ordinating the UK’s different prosecuting bodies, supported by “enhanced analytic capabilities and intelligence”. The NECC is based at the Head Quarters of the NCA and operates with a staff of around 55, recruited mainly from the NCA, the SFO, HMRC, the City of London Police and FCA. Its first annual budget is in the region of £6m.
IRELAND: CHARITIES REGULATOR PUBLISHES NEW GOVERNANCE CODE
On 9th November, Mason Hayes & Curran published an article on the “Charities Governance Code”, published by the Charities Regulator on 7th November, saying that it is an essential document for charity trustees and providing a link to the Code. Every charity must abide by the Code’s principles. The Code is drafted on a “comply or explain” basis, meaning that charities must comply with the Code or else explain why they have not done so. All charities will be expected to implement the Code from 2020 onward.
FORMER KEYDATA BOSS STUCK WITH £76 MILLION FCA FINE
Squire Patton Boggs on 13th November reported that the Upper Tribunal has upheld the FCA decision to fine Stewart Ford, the former CEO of Keydata Investment Services Limited, a huge £76 million (the largest FCA fine on an individual) and ban him from working in the financial services industry – for a lack of integrity, for failing to deal with the regulator in an open way after he made false statements during compelled interviews with the regulator, and the fine results from allegations of active concealment and lack of integrity. Keydata failed to carry out proper due diligence in respect of the viability of the financial model, or the third parties involved, and produced misleading brochures. Ford had extracted exorbitant fees of £73.3 million but concealed this from Lifemark’s compliance officer, the regulator, investors and IFA.
HAND CAR WASHES NEED LICENSING TO PREVENT ‘MODERN SLAVERY’, SAYS COMMONS COMMITTEE
On 15th November, the Parliament website reported that hand Car Washes should require licences to operate to prevent exploitation of workers and water pollution, MPs on the Environmental Audit Committee are demanding.
MINING COMPANIES WELCOME LIFTING OF UN SANCTIONS ON ERITREA
Defence Web on 15th November reported that Danakali and other miners said a UN decision to lift sanctions on Eritrea – after a rapprochement with Ethiopia and thawing of relations with Djibouti – should enhance international trade opportunities and give an economic boost, although widespread wariness about investing in mining was likely to linger. The UN Resolution removes a requirement for countries to ensure people or companies working in Eritrea’s mining sector prevented funds from being diverted and used to undermine peace and security in the region.
POLICE BELIEVE DIAMONDS SMUGGLED INTO ISRAEL IN CONDOMS
The Times of Israel on 15th November, in an article about the investigations into Russian-Israeli billionaire Lev Leviev’s diamond enterprise, says that police believe people smuggled hundreds of millions of shekels’ worth of gems into Israel inside condoms inserted into couriers’ bodies. 6 suspects are being held on suspicion of smuggling: 2 had run a diamond facility owned by Lev Leviev and the remaining 4 suspects held senior positions in his company. Diamonds — worth some $81.4 million — were then allegedly sold illegally in Israel, without paying taxes. They were also smuggled into other countries, according to the investigation.
ETHIOPIA’S EX DEPUTY INTELLIGENCE CHIEF ARRESTED IN CORRUPTION, RIGHTS CRACKDOWN
IOL in south Africa reported on 15th November that more than 60 officials, some from the intelligence services and some from the military-run industrial conglomerate METEC, have been arrested. Analysts and diplomats are describing the arrests as a “full frontal assault on the establishment”. The attorney general has said that investigations uncovered corruption at METEC (Metal and Engineering Corporation), which makes military equipment and is involved in sectors from agriculture to construction.
EU: REVISING THE VISA INFORMATION SYSTEM
On 15th November, the European Parliament Research Service published a briefing paper on plans to upgrade the Visa Information System (VIS) to allow for more thorough background checks on visa applicants, while also closing security information gaps and ensuring full interoperability with other EU-wide databases.
WCO DEDICATES 2019 TO TRANSFORMING FRONTIERS INTO SMART BORDERS FOR SEAMLESS TRADE, TRAVEL AND TRANSPORT
On 15th November, a news release from the WCO said that the Secretary General of the World Customs Organization announced on 8th November that 2019 will be devoted to the swift and smooth cross-border movement of goods, people and means of transport, with the slogan “SMART borders for seamless Trade, Travel and Transport”. The news release lays down the guiding principles are at the centre of Customs compliance, enforcement and facilitation efforts: Secure, Measurable, Automated, Risk Management-based and Technology-driven. The campaign will be launched on International Customs Day, which is celebrated annually by the global Customs community on 26th January.
CALL FOR INTERNATIONAL ACTION ON THE USE OF INCENDIARY WEAPONS
Ekklesia on 15th November reported that countries at an upcoming UN disarmament conference, faced with evidence of 30 new incendiary weapons attacks in Syria, should agree to strengthen the international law that governs their use, Human Rights Watch says in a new report. The 13-page report, Myths and Realities about Incendiary Weapons, counters common misconceptions that have slowed international progress in this area.
The report is available at –
PODCAST: CUSTOMS, BORDERS AND DIGITAL PROTECTIONISM – THE IMPERFECT STORM
This podcast from Gowling WLG on 15th November explores the crucial customs and border issues that are likely to be caused by protectionist laws and barriers (including data protection laws) that govern the movement of data, as well as tech related goods and services. Gowling WLG’s Ursula Johnston and Sean Giles talk to national journalist Andrew Cave, a writer for the Daily Telegraph and Forbes magazine.
Gowling WLG also offers a report “Protectionism 2.0”, in which it explores the digital forces driving the new protectionist agenda. It is concerned with the flow of data between governments, businesses and consumers, as well as the raw materials needed to power the technological revolution, and Gowling WLG revealed in a previous report that the world’s top 60 economies have adopted more than 7,000 protectionist trade measures since 2008.
REPORT: MONITORING DRUG USE IN RECREATIONAL SETTINGS ACROSS EUROPE
On 15th November, the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) published this report which examines how drug-use data are currently collected in recreational settings, and identifies the benefits and challenges of monitoring in these milieux. It is said that the report shows how specific drugs, drug-using populations and recreational settings dominate investigations, while others tend to be ignored. Research largely focuses on night-time-economy (NTE) locations, such as clubs and bars, leaving a significant knowledge gap around drug use in other recreational settings (e.g. private parties, illegal raves). The point is made that drug use takes place in both private and public recreational settings.
EX-MACEDONIA PM GRUEVSKI SEEKING REFUGEE STATUS IN HUNGARY
Reuters reported on 15th November that Nikola Gruevski resigned in 2016 after 10 years in power, fled his Balkan homeland 6 months after being sentenced to 2 years in prison on corruption-related charges.
THE ANATOMY OF CONSTRUCTION CORRUPTION IN NEW YORK
The Real Deal on 1st April published an interesting article that still has relevance, claiming that bribery and overbilling schemes have become commonplace in the world of real estate’s middlemen in New York City’s $45.3 billion construction industry.
‘PHENOMENAL BREACH OF TRUST’: CORK CREDIT UNION WORKER STOLE €400,000 FROM ACCOUNTS
The Irish Examiner on 15th November reported that a 55-year-old credit union board member, Moira Coughlan, was remanded in custody for the theft of €407,000 as the judge described both the fraud and the breach of trust as reaching a phenomenal level.
SWAZILAND: PRIVATE SECTOR CORRUPT, BUT PUBLIC SECTOR WORSE
OCCRP on 15th November reported that the Kingdom of eSwatini, formerly known as Swaziland, lost $2.09 million due to fraud and corruption in various sectors of the government, the national police deputy commissioner said at an event celebrating International Fraud Awareness week. A report exposes widespread fraud and financial irregularities across numerous government ministries, including the offices of the Prime Minister, National Commissioner of Police and the Ministries of Education, Defence and Home Affairs.
FORMER CFO JAILED FOR FAILING TO PAY $1 MILLION FRAUD FINE
Law 360 on 15th November reported that the former CFO of Dewey & LeBoeuf LLP, Joel Sanders, has been jailed in the US. He was convicted last year on felony charges related to a scheme to defraud the defunct firm’s lenders and investors.
JERSEY: ASSETS CONFISCATED FROM ID THEFT FRAUDSTER AT US REQUEST
The Jersey Government issued a news release on 15th November about Michael David Reid, currently in prison in the US. He had been extradited from Colombia in 2007, and in 2005-2007, he and his co-conspirators engaged in an elaborate scheme to steal money from account holders at various financial institutions. The fraud was perpetrated by stealing the identities and assets of more than 250 people living in Venezuela and other countries outside the US, with accounts set up in the US to launder the illicit funds. In 2017, assets in Jersey were frozen on the back of a US forfeiture order. Having had his appeals rejected, the order now be enforced in the Island and the assets paid into the Criminal Offences Confiscation Fund.
ROSMAH MANSOUR, WIFE OF OUSTED MALAYSIAN PRIME MINISTER NAJIB RAZAK CHARGED WITH CORRUPTION
Jurist on 15th November reported that she was charged, along with 3 others, on 2 counts of corruption in Kuala Lampur. In charges related to 1MDB scandal involve he being accused of stealing 12,000 pieces of jewellery, 423 wristwatches and 567 handbags, among other items, along with $112 million in cash; the total value of these items exceeds $225 million.
SOUTH KOREAN CONSTRUCTION COMPANY EMPLOYEES INDICTED ON US BRIBERY CHARGE
Baker McKenzie reported on 15th November that 2 employees of a South Korean construction company, SK Engineering & Construction Co. Ltd, have been indicted on US federal fraud charges in connection with construction contracts for projects at a US Army base in South Korea.
IN ‘EL CHAPO’ CASE, DEFENCE PUTS SPOTLIGHT ON ALLEGED MEXICO CORRUPTION
Insight Crime on 15th November reported that defence lawyers for former Sinaloa Cartel kingpin “El Chapo” have alleged that 2 of Mexico’s presidents accepted millions of dollars in bribes — unverified accusations that are hotly denied, but which put Mexico’s government in an uncomfortable position and are likely to become a recurring theme during the trial.
TRANSPOSITION, IMPLEMENTATION AND ENFORCEMENT OF UNION LAW
On 15th November, the EU Parliament Research Service published a handy briefing paper which provides a simplified and brief explanation of the terminology linked with the transposition, implementation and enforcement of EU law. It also describes the main roles of the EU institutions and Member States during the legislative procedures leading to adoption of European legislation and possible infringement procedures. Less useful in the UK in the light of Brexit perhaps…
The UK, Australia, New Zealand, Canada and the USA together make up the Five Eyes Law Enforcement Group, a global coalition of agencies working together to tackle transnational crime.
INTERACTIVE GUIDE TO HOW FIREARMS GET ONTO THE STREETS OF THE UK
From smuggling to importation via the Dark Web, and even theft from legitimate owners. Follow the journey of a firearm into the UK.
UK POLICE NEED A ‘ZERO TOLERANCE’ CULTURE FOR DISCLOSURE FAILINGS
Police Professional on 15th November reported that HM Attorney General has called for an immediate end to disclosure being seen as “an administrative add-on rather than fundamental pillar of the justice system”. This is in the light of a report issued reviewing and making many recommendations to improve the disclosure of evidence process in criminal trials.
SINGAPORE TO BECOME “IP HUB” FOR RUSSIAN BUSINESSES
World Intellectual Property Review on 15th November reported that Singapore is soon to become an “IP hub” for innovative Russian enterprises, after the Intellectual Property Office of Singapore’s (IPOS) international arm made an agreement with Russia’s Internet Initiatives Development Fund (IIDF). IPOS will give the Russian enterprises access to IP management consultancy services, bespoke patent search and analytics, and customised training programmes and workshops.
From smuggling to importation via the Dark Web, and even theft from legitimate owners. Follow the journey of a firearm into the UK.
On 15th November, FinCEN reported that revised Geographic Targeting Orders (GTO) that require US title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The purchase amount threshold, which previously varied by city, is now set at $300,000 for each covered metropolitan area. FinCEN is also requiring that covered purchases using virtual currencies be reported. GTO cover certain counties within the following major US metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
FAQ on GTO are available at –
On 15th November, OFAC advised that 17 Saudi passport-holders had been added to the Global Magnitsky human rights sanctions list for their alleged role in the killing of dissident journalist Jamal Khashoggi. The sanctioned individuals include Consul General Mohammed Alotaibi, who oversaw the Saudi consulate in Istanbul where Khashoggi was allegedly killed.
On 15th November, the WCO announced that the Study Report on Illicit Financial Flows (IFF) via Trade Mis-invoicing was available for public consultation. The Report was endorsed by the WCO Council in June and subsequently presented to the G20 Development Working Group in July 2018. The Report contains an overview of the current methods employed in assessing the magnitude of IFF via Trade Mis-invoicing – the Price Filter Method (PFM) and Partner Country Method (PCM).
The report is available at –
On 15th November, Sandler Travis Rosenberg reported that the US State Department has published an updated list, with 26 added names, of entities and sub-entities that are under the control of, or act for or on behalf of, the Cuban military, intelligence, or security services or personnel and with which direct financial transactions would disproportionately benefit such entities at the expense of the Cuban people or private enterprise in Cuba.
The list is available at –
An article on Ekklesia on 15th November said that the diamond industry must deliver on its promise that consumers can trust the diamonds they purchase are sourced, traded, and processed responsibly, according to a coalition of concerned civil society organisations. The appeal comes as members of the international community gather in Brussels for the Kimberley Process Plenary. The article reports that a new System of Warranties Guidelines introduced by the diamond industry claims to provide assurances to consumers beyond the Kimberley Process certificate that their diamonds have been sourced, processed and traded responsibly. However, despite the reforms, the System of Warranties still falls far short of international standards for responsible company behaviour – including by stating that respect for human rights by companies is “voluntary”. Campaigners say the Kimberley Process’s narrow definition of a conflict diamond is one of the major loopholes of the certification scheme, meaning that it does not address the much broader range of human rights concerns that continue to be associated with the diamond supply chain.
The System of Warranties Guidelines are at –
and an explanatory note on reform of them is at –
The Financial Mirror on 15th November also reported that according to ratings agency Moody’s, at their peak in April 2012, deposits from residents of countries outside the EU climbed to €21.9 billion, exceeding the size of the domestic economy; but the volume of non-EU deposits declined to €7.1 billion as of September 2018, accounting for 15% of total deposits.
On 15th November, the Home Office reported that the Attorney General has published the Government’s Review of the efficiency and effectiveness of disclosure in the criminal justice system. Its findings and recommendations include –
- investigators and prosecutors would benefit from simpler, clearer, and more practical assistance in performing their duties – changes should be made to simplify and modernise secondary legislation, guidelines, guidance and protocols that sit underneath CPIA 1996;
- there have been failings in the rigour and application of the disclosure test in ‘volume crime’ cases – there should be a rebuttable presumption in favour of disclosure for categories of key documents/material that usually assist the defence; such items will be disclosed unless they do not satisfy the disclosure test;
- roles and responsibilities between different law enforcement units and agencies, prosecutors, and advocates need to be clarified;
- a sensitive disclosure strategy document ought to be created for all cases in which sensitive lines of enquiry and sensitive unused material exists;
- the Manual of Guidance, to be amended to reflect the need to document all reasonable lines of inquiry;
- audit trails to be prepared in a way that converts to supplying the key information to the prosecutor (and court or defence if appropriate), for example in relation to what lines of inquiry were pursued and how and why digital media were (or were not) examine;
- DPP to update the Director’s Guidance on Charging to clarify the decision maker’s duty to ensure adequate disclosure assurance before a charging decision is made;
- too many disclosure issues and tasks are left until too late a stage in litigation;
- prosecutors to adapt an Early Case Planning Conference approach from complex cases to ensure progress is assessed and monitored on a tight timetable;
- a lack of pre-charge discussion between investigators/prosecutors and those representing the suspect hamper early resolution of evidential issues, particularly where there is a large quantity of digital material;
- provide more clarity on the legitimacy of using AI and flexibility with innovative processes other than pure scheduling
14th November 2018
IRAN, PANAMA, AND RUSSIA POSE HIGHEST FINANCIAL CRIME RISK, ACCORDING TO UK FINANCIAL SERVICES INDUSTRY
Finance Feeds on 13th November reported that Iran, Panama and Russia are the jurisdictions assessed by UK-based financial services firms to have highest financial crime risk, according to the first FCA annual financial crime survey of over 2,000 UK firms, across the financial sector.
BRITISH DRUGS BARON ‘ONCE ONE OF EUROPE’S MOST INVESTIGATED CRIMINALS’ IS JAILED IN SPAIN
The Daily Mirror on 13th November reported that Brian Charrington, 61, of Warrington was jailed for 15 years for drug trafficking and money laundering in Spain and also ordered to pay a fine of more than €30 million. He was a former associate of notorious gangster Curtis Warren. His son Ray, one of 9 defendants in a trial over a large drugs seizure near Benidorm in July 2013, was also handed a 3½-year jail sentence after being convicted of money laundering.
AIRLINE STAFF DETAINED IN INDIA OVER GOLD SMUGGLING
New Indian Express reported on 13th November that officials at Air India SATS and Sri Lankan Airlines were amongst those detained in Delhi over alleged smuggling of gold from Dubai.
SWIFT SAYS SUSPENDING SOME IRANIAN BANKS’ ACCESS TO MESSAGING SYSTEM
ACFCS reported on 13th November that bank messaging service SWIFT said that it was suspending some unspecified Iranian banks’ access to its messaging system in the interest of the stability and integrity of the global financial system – but made no mention of US sanctions.
SPAIN ARRESTS 4, SEIZES MORE THAN 115 PROPERTIES WORTH MORE THAN €60 MILLION IN VENEZUELAN MONEY LAUNDERING PROBE
ACFCS on 13th November reported that Spanish police have arrested a former Venezuelan official and an exiled opposition leader’s relative and seized more than 100 properties in a money-laundering investigation into a ring that allegedly bought real estate in Spain with illicit funds from Venezuela.
CANADA CONSIDERS “VAST” CHANGES TO AML REGIME
On 13th November, Blake Cassels & Graydon LLP published an article about a recent report which makes 32 recommendations on proposed modifications and additions to the Canadian AML regime, and it highlights the key changes proposed by the Report and discusses their potential implications, if implemented. The recommendations include a pan-Canadian beneficial ownership registry, and that controls on the real estate sector be expanded to apply to mortgage insurers, land registry systems and title insurance companies. Another recommendation is that structuring transactions in a manner designated to avoid record-keeping or reporting requirements under the AML legislation should be a criminal offence (for both customers and regulated entities).
IS IT HARDER TO PIERCE THE CORPORATE VEIL OF A US LIMITED LIABILITY COMPANY (LLC)?
On 12th November Fisher Broyles LLP considered this question in the light of a recent bankruptcy case – Steve Baldwin, et al. v. Atlantis Water Solutions, LLC, et al. (In re Atlantis Water Solutions, LLC). In this case it was discussed the different analysis required to pierce the veil of a LLC, where it is argued that the vehicle is a sham or means to evade/avoid controls or scrutiny. The Court ultimately found that a creditor could not pierce the veil of a Montana LLC, using traditional piercing corporate veil factors that apply to corporations. It notes that those traditional factors do not necessarily apply in cases where the insolvent entity is not a corporation and state law expressly permits the non-corporate entity to operate in a less formal manner.
RECEIVERS…THE GATEWAY TO UNLOCKING DISABLED BEARER SHARES
On 16th October, Harneys, in its Offshore Litigation Blog, about BVI Court of Appeal decisions concerned with ‘disabled’ bearer, where shareholders were found to have a constitutional right not to be deprived of their property without compensation.
JERSEY, GUERNSEY, ISLE OF MAN – KEY ASPECTS OF “ECONOMIC SUBSTANCE” LEGISLATION
On 5th November, the 3 Crown Dependencies issued guidance which sets out key aspects of the proposed legislation and will be followed by more comprehensive guidance notes. The proposed legislation is relevant to all companies resident for tax purposes in the Crown Dependencies and will be effective for accounting periods commencing on or after 1st January.
IMF SPEECH – WINDS OF CHANGE: THE CASE FOR NEW DIGITAL CURRENCY
The IMF has published the text of a speech given by the MD of the IMF at the Singapore Fintech Festival in which Christine Lagarde evaluates the role for central banks in the new financial landscape — especially in providing digital currency, and considers some downsides, and how they can be minimised. UK Finance interpreted it as the IMF urging government to offer cryptocurrencies to prevent them from becoming a haven for fraudsters and money-launderers, in a proposal made by the head of the International Monetary Fund, Christine Lagarde, at a conference in Singapore
IMF – CENTRAL BANK DIGITAL CURRENCIES
An IMF Working Paper on 13th November considers central bank digital currencies (CBDC) and why central banks might issue them, as well as risks and side effects.
EU 6th AML DIRECTIVE (6AMLD) PUBLISHED AND TRANSPOSITION DATE SET
KYC 360 reported on 14th November that all EU countries are expected to bring into force the laws and administrative provisions necessary to comply with this directive by 3rd December 2020.
UK FASHION RETAILERS COMMIT TO TACKLING MODERN SLAVERY
Ekklesia on 14th November reported that John Lewis, M&S, New Look, NEXT, River Island and Shop Direct are putting their signatures to a joint agreement aimed at combating labour exploitation in UK textiles manufacturing. The intent is to send a strong signal that the textiles sector is resolved to playing its part in discouraging labour abuse and taking action when it does occur. The Apparel and General Merchandise Public and Private Protocol commits signatories to work together to eradicate slavery and exploitation in textile supply chains. Enforcement bodies have also signed the document, which is supported by industry bodies British Retail Consortium, UK Fashion and Textile Association, and auditing system Fast Forward.
USES OF A HACKED PC
USES OF HACKED EMAIL
INDIA: PREVENTION OF CORRUPTION (AMENDMENT) ACT 2018
Law firm Osborne Clarke published a guide from BTG Legal which says that the Indian Parliament has recently passed the Prevention of Corruption (Amendment) Act 2018, which introduces a number of amendments to the existing anti-bribery and corruption law in India – the Prevention of Corruption Act 1988. The one-page guide identifies the highlights of the new legislation.
BOKO HARAM EVOLVES BUT REMAINS A SUBSTANTIAL THREAT IN NIGERIA
The Cipher Brief website on 14th November published a review of the status of this group which has evolved from a group focused on economic and social development in Nigeria into a transnational terrorist organisation. It reminds one that, in 2015, Boko Haram pledged allegiance to the Islamic State. Shortly after, there was a major split with Abu Musab al-Barnawi, the appointed leader of the so-called Islamic State-West Africa (ISWAP), while Abubakar Shekau continues to lead the other faction of Boko Haram.
PODCAST: 100 DAYS TO DEFEAT SILOS AND ALLOW INFORMATION EXCHANGE
On 6th November, a podcast from BAE Systems saw Holly Armitage and Chris Blood, data strategists at BAE Systems, talk about the practical steps banks need to take to share intelligence between their Fraud, Cyber and Compliance teams. They have seen and tackled this across both the public and private sector, and talk about how banks can take concrete first steps within 100 days – and how some of the toughest challenges they will overcome will be human and cultural.
EU: BETTER SECURITY FOR ID CARDS
On 14th November, a news release from the EU advised of a decision to improve the security of identity cards, to reduce the risk of identity fraud. EU ambassadors have agreed the Council’s position on a proposal for a Regulation which will strengthen the security of identity cards of EU citizens and of residence documents issued to EU citizens and their non-EU family members – with minimum standards both for the information contained in them and for security features common to all Member States that issue them. It is expected that the new rules will enter into force 2 years after adoption of the Regulation, meaning that by this date all new documents issued must fulfil the new criteria.
FCA BANS ADVISER BROTHERS CONVICTED OF £17 MILLION FRAUD
Professional Adviser on 14th November reported that the FCA has banned 2 Norwich-based advisers, Alan and Russell Taylor, for using their advice firm to run a £17.5 million fraud that conned more than 200 elderly and vulnerable clients. They have now been banned by the regulator from performing any function in relation to any regulated activity carried on by any authorised person, exempt person or exempt professional firm.
US AND 4 ALLIES IN CRACKDOWN ON “PROFESSIONAL ENABLERS” OF INTERNATIONAL TAX FRAUD
Reuters on 14th November reported that the IRS, in an alliance with UK, Australia, Canada and the Netherlands set up earlier this year, is pursuing individuals and firms that facilitate tax evasion, IRS Chief of Criminal Investigations told reporters. The Joint Chiefs of Global Tax Enforcement (J5) alliance was launched in July to boost the fight against global tax evasion and money laundering.
BELGIAN SOCCER CLUB RAIDED OVER FRAUD SUSPICIONS
Reuters on 14th November reported that investigators raided Royal Excel Mouscron and detained 3 people suspected of funnelling illicit funding from offshore companies and illegally obtaining a licence to operate as a professional club. The case is the second recent investigation into suspected fraud and money laundering in Belgian soccer.
GREECE: MONEY LAUNDERING AUTHORITY TO OPEN ACCOUNTS OF FORMER PRIME MINISTER
On 14th November, Tovima reported that the Authority for Combating Money Laundering has ordered the opening of the bank accounts of former Pasok prime minister Costas Simitis and his family, as well as of Simitis’ public order minister, Michalis Chrysohoidis.
FORMER ROMANIAN FOOTBALL LEAGUE PRESIDENT ACQUITTED AFTER 7-YEAR INITIAL SENTENCE
Romania Insider on 14th November reported that Bucharest Court of Appeal has acquitted former Romanian Football League (LPF) president, Dumitru Dragomir, of tax evasion, embezzlement and money laundering charges in a case related to the sale of broadcasting rights for football matches in the top league between 2009 and 2014.
UK FOBT MAXIMUM STAKE CHANGES AND THE REMOTE GAMING DUTY RISE WILL BE BROUGHT FORWARD TO APRIL
iGaming Business reported on 14th November that the online gambling industry is set for a £100 million tax bombshell next year after the UK confirmed that fixed-odds betting terminals (FOBT) maximum stake changes and the Remote Gaming Duty rise will be brought forward to April.
FORMER TRADER BEHIND UK’S BIGGEST BANKING FRAUD DEPORTED TO GHANA
The Irish Examiner on 14th November reported that a former trader behind a £1.4 billion banking fraud has been deported to Ghana despite a campaign to keep him in the UK. Kweku Adoboli was handed a 7-year jail sentence in 2012 after he gambled away the record-breaking sum while working for UBS.
LAW FIRM FRAUD: INVESTIGATING THEFT BY A FELLOW PARTNER
On 14th November, Out-Law published an article providing guidance and saying that time is of the essence for law firms when responding to allegations that fraud has been committed by a partner, particularly where client money is involved.
MOBILE CUSTOMS TEAMS IN BULGARIA SEIZE OVER 51 TONNES OF ILLICIT FUEL WITHIN A WEEK
Novinite on 14th November reported that mobile customs teams have seized over 51 tonnes of illicit fuel within a week, on 3 occasions.
NATO SCIENTISTS DEVELOP NEW IED BOMB-DETECTING DEVICES
Homeland Preparedness News in the US on 14th November reported that NATO recently announced the development of 3 new technologies designed to detect improvised explosive devices (IEDs) as part of its Science for Peace and Security (SPS) Programme.
GIBRALTAR FUNDS AND INVESTMENTS ASSOCIATION HAS PUBLISHED FIRST-EVER CODE OF CONDUCT FOR CRYPTO FUNDS
On 14th November, Gibraltar Chronicle reported that, at an event held in London, the GFIA also published an amendment of Gibraltar’s Experienced Investor Funds Regulations 2018.
EUROPEAN PARLIAMENT SLAMS MOLDOVA AS A ‘STATE CAPTURED BY OLIGARCHIC INTERESTS’
Rferl on 14th November reported that the European Parliament on 14th November overwhelmingly passed a Resolution highly critical of Moldova, saying it has become a “state captured by oligarchic interests” that exert their influence over most part of Moldova’s society. The European Commission earlier this year froze the first tranche of a €100 million macro-financial aid package for Moldova, citing worries over the democratic situation in the country.
On 14th November, the UN announced it would lift the arms embargo, travel ban, assets freeze and targeted sanctions previously imposed on Eritrea, while simultaneously renewing its sanctions imposed against neighbouring Somalia. UN SCR 2444 (2018) terminated those measures imposed on Eritrea by its Resolutions 1907 (2009), 2023 (2011), 2060 (2012) and 2111 (2013).
With the arms embargo on Somalia renewed, the UN also renewed the sanction exemptions for deliveries of weapons, ammunition or military equipment or the provision of advice, assistance or training intended solely for the development of the Security Forces of the Federal Government of Somalia to provide security for the Somali people.
OCCRP on 14th November published an article saying that police arrested 24 suspected ‘Ndrangheta associates and seized €10 million in assets following an investigation that uncovered shady health care industry arrangements between politicians and a local mafia clan. The arrangements allowed the ‘Ndrangheta to take control of the ambulance industry, funeral parlours, medical supply provision and blood transport. The gangsters disguised as the entrepreneurial Putrino Group, which managed the businesses from 2010 until 2017.
Malta Independent on 14th November reported that a massive Italian investigation into money laundering by Italian organised crime groups who are said to be running an illegal betting industry. 68 people have been arrested and assets worth over €1 billion seized in Italy and abroad. The collaboration of Eurojust and the judicial authorities of Austria, Switzerland, the UK, the Isle of Man, the Netherlands, Curacao, Serbia, Albania, Spain and Malta was fundamental in tracing the accumulated assets and carrying out the seizures, broadcaster Rai reported. Another report says that goods and cash were seized in Albania, Austria, Britain, Germany, the Isle of Man, Italy, Luxembourg, Malta, Romania, Serbia, the Seychelles and Switzerland.
On 14th November, DEFRA has published the independent review of serious and organised waste crime and its effects, and making recommendations on a strategic approach to waste crime. One of its comments is that waste exports provide ample opportunity for organised criminals to operate at scale, with a veil of legitimacy and with limited probability of detection. It says that The UK does not generally export waste for disposal, except for relatively small quantities of hazardous waste such as mercury, which requires specialist disposal – the majority of UK waste is exported for (intended) recycling under the Green List Controls. With the exception of hazardous waste exports, which require prior approval from the UK competent authorities, data on the majority of UK waste exports is poor. One recommendation is that a Joint Unit for Waste Crime (JUWC) should be established. It highlights the problems of “waste brokers”, whose lack of regulation leaves the system in which they operate open to abuse by organised criminals.
In the latest TRACE podcast, in her first podcast, the new Director of the SFO, Lisa Osofsky discusses her goals for the Office and how her professional background will make her a “different kind of Director”.
On 13th November, Corporate Counsel from Law.com reported that the SEC had said it had filed a cease and desist order against the sole owner and operator of EtherDelta, an unregistered online trading platform, marking the first time the commission went after such a platform.
The primary purpose of this paper is as a learning process, for me. My intention was to seek to understand the general situation in Panama in respect of anti-money laundering/control of the financing or terrorism (AML/CFT), anti-proliferation and export and trade control measures, controls on proliferation financing (CPF), and related matters.
Any comments, additions and/or corrections are welcome…
- INTRODUCTION AND GENERAL INFORMATION
- THE EU TAX BLACKLIST
- TAX AND THE OECD
- FATF EVALUATION ASSESSMENT
- NATIONAL RISK ASSESSMENT
- THE NATIONAL STRATEGY PLAN
- RELEVANT BODIES
- KEY AML/CFT/CPF LEGISLATION
- IDENTIFIED AML/CFT DEFICIENCIES
- WHAT ABOUT PROLIFERATION?
- RESIDENT AGENTS
- THE LEGAL SYSTEM
- THE LEGAL SYSTEM – THE ACCUSATORIAL CRIMINAL JUSTICE SYSTEM
- BRIBERY AND CORRUPTION
- THE COLON FREE ZONE
- THE PANAMA PAPERS
- ILLEGAL UNREPORTED UNREGULATED (IUU) FISHING
- KIMBERLEY PROCESS AND “BLOOD” OR “CONFLICT” DIAMONDS
- INDIRECT TAX
- HUMAN TRAFFICKING
INTRODUCTION AND GENERAL INFORMATION
There are many factors that mean that Panama not only make it attractive as a jurisdiction to would-be money launderers, proliferators etc; but also make it essential that the country have comprehensive and effective AML/CFT controls, as well as export and other controls to combat proliferation and other trade-related risks. These factors include –
- its geographical location – to which one can add the next couple of factors;
- being a major trade and logistics hub (not only because of the Panama Canal, though which about 5% of all world sea trade passes, but also because of the existence of 5 container ports (In 2018 it was announced that the Panama Canal Authority (ACP) is planning to relaunch the concession process to build and operate a new container terminal at Corozal on the Pacific side of the canal in 2020) used for import, export, transit and transhipment of cargo). In 2016, Colón Container Terminal was the busiest port of transit with 56% of shipping, followed by Balboa (34%), Manzanillo (8%), and then Cristobal (2%);
- the Panama Canal – which contributes about $1 billion in tolls to the economy, and greatly boosting the use of the country as a logistics centre;
- having the largest single shipping register in the world – the Panama Registry claims to be in charge of managing the world´s largest ship registry, with over 8,000 registered vessels which accounts 18% of the world fleet;
- its status as major financial centre (especially in terms of business in and from Latin America);
- its use of the US dollar as if its own;
- the presence of the largest free port and free trade zone in the Americas at Colon (being the largest of 12 such zones in the country); and
- what have been described as favourable corporate and tax laws.
Panama remains regarded by the US State Department as a being a jurisdiction of primary concern in respect of money laundering and financial crimes. According to the State Department, the release of the “Panama Papers” and the US Treasury’s designation of the Waked Money Laundering Organisation as a Specially Designated Narcotics Trafficker in 2016 exposed and underlined vulnerabilities in Panama’s financial transparency regime.
If further evidence of vulnerability was required, in 2017, Panama agreed a $220 million settlement with Brazilian construction company, Odebrecht, which had admitted to paying $59 million in bribes in the country in 2012-14 to secure public works projects. The settlement included a $100 million penalty for using the banking system for illicit activities. It was also said that Panamanian officials were investigating 43 people related to projects contracted during the last 3 presidential administrations.
It did not help the country’s reputation that the former president, Ricardo Alberto Martinelli Berrocal, who held office 2009-2014. In January 2015, the Supreme Court ordered an investigation of Martinelli over alleged corruption, and his immunity from prosecution (as leader of a political party) was lifted and in due course an arrest warrant was issued and he was accused of embezzling government money to fund illegal surveillance activities. He had fled to the US, but was eventually extradited from Florida in June 2018.
In its Country Report on Panama in August 2015, the International Monetary Fund (IMF) said that the most immediate priority for Panama was to finalise the process of enhancing financial integrity, and that monitoring, supervision and regulation of the financial sector need to see continued enhancement. To these ends, it said, it was important that Panama finalise the Action Plan agreed with the OECD’s Financial Action Task Force (FATF), which had identified “strategic AML/CFT deficiencies”, though it noted that the passing of the new AML law in 2015 was an important step.
Further impetus for improvements to the country’s AML/CFT regime came in the form of an impending review by GAFILAT, the regional FATF-style monitoring body, which was scheduled to take place in late 2017, and would include use of the new “effectiveness” ratings (meaning that the review would not only look at technical compliance with FATF Recommendations, but also at evidence of how effective controls were).
In late 2015, Panama passed comprehensive legal reforms concerned with AML, with further legislative and administrative changes continuing.
Its first national risk assessment (NRA), published in January 2017, identified free trade zones (of which there are 12), real estate, construction, lawyers and banks as being of “high risk”. In the light of this, in May 2017, the government published a National Strategy Report outlining 34 strategic priorities for 17 government institutions, intended to improve the country’s AML/CFT regime and running to 2019.
As is the case with many “offshore” financial centres, most of the money laundering in Panama is likely to primarily originate with illegal activities elsewhere – with drug trafficking, tax evasion and smuggling having been identified by the US State Department as the most common or likely.
However, it is recognised that Panama is a transhipment point for drugs due to not only its geographical location (particularly bordering Colombia), and the large amount of air and sea traffic transiting the country.
The Colon Free Zone (CFZ) is the second-largest free trade zone in the world. In 2017, the NRA published by the Ministry of Economy and Finance acknowledged that Panama’s free trade zones were prone to facilitate money laundering and other crimes. It was said that the weaknesses of the CFZ were highlighted throughout the analysis carried out by the Ministry through the NRA.
Law firms and corporate service providers (CSP) in Panama are seen as key gatekeepers, but in the past at least were seemingly subject to less than stringent oversight and control. The current International Narcotics Control Strategy Report from the US State Department says that the use of nominee shareholders and directors, thereby helping to mask the true ownership and control of corporate vehicles, is still prevalent. That said, Panama was said to have instituted comprehensive customer due diligence (CDD) and suspicious activity report (SAR) requirements.
As mentioned, Panama is a member of GAFILAT, the Financial Action Task Force of Latin America, what is termed a “FATF-style regional body” (FSRB). In 2016, a public statement from FATF said that the organisation welcomed Panama’s significant progress in improving its AML/CFT regime and noted that Panama had established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2014. As a result, it was no longer subject to ongoing monitoring, but it was said it would continue to work with GAFILAT to address the full range of AML/CFT issues identified in its mutual evaluation report of 2018.
THE EU TAX BLACKLIST
Panama was removed from the EU tax blacklist in January 2018 following “commitments made at a high political level to remedy EU concerns”. The list was of jurisdictions that were regarded as non-cooperative by the EU, and they were assessed including criteria including tax transparency and implementation of “anti-BEPS” measures.
As part of this commitment, the government accelerated the implementation of several reforms to strengthen its tax system, and it signed various international agreements on the exchange of tax information.
In January 2018, Panama signed up to the Common Reporting Standard (CRS), a move described by the OECD as “reaffirming its commitment to the automatic exchange of financial account information”. The CRS requires jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that are required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. According to OECD information, as at the date of this paper, Panama had enacted the necessary primary and secondary legislation, but had not yet issued guidance on implementing CRS.
TAX AND THE OECD
Panama has a number of special economic zones (SEZ) to attract foreign businesses and to promote innovation, and where special tax reliefs and benefits apply. The most important is the CFZ, Panama Pacifico and Cuidad del Saber (City of Knowledge) – in these 3 zones, there are over 2,000 businesses and 43,000 workers (2.4% of total employment in the country).
In 2018, Law No. 654 inter alia added a new paragraph to the Fiscal Code requiring companies established in SEZ, in an oil free trade zone, or operating as a multinational company headquarters (SEM) to apply transfer pricing rules to dealings with related parties – previously the OECD Guidelines were to be considered the technical reference for purposes of interpreting of the country’s transfer pricing rules and provisions. Transfer pricing has been described by the OECD as the allocation of profits for tax and other purposes between parts of a multinational corporate group. The current OECD international guidelines are based on the “arm’s length” principle – that a transfer price should be the same as if the companies involved were indeed two independent companies, not part of the same corporate structure. The arm’s length principle (ALP) is in Article 9 of the OECD Model Tax Convention and is the framework for bilateral treaties between OECD countries, and many non-OECD governments.
In its 2018 peer review report, the OECD said that Panama was making progress in addressing base erosion and profit shifting (BEPS). BEPS means tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the OECD, over 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS. The OECD said that anti-avoidance measures still needed strengthening in Panama, to prevent aggressive tax planning and enable the collection of a fair amount of tax by or for the other countries affected. Panama signed the BEPS Multilateral Convention in 2018.
In 2016, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes rated Panama as “non-compliant” for the purposes of the international standard for the exchange of information. After taking steps to remedy this, a “fast track” reassessment in 2017 resulted in an upgrade of its rating to “Largely Compliant”.
In 2016, the country had committed to implementing the international standard of Automatic Exchange of Financial Account Information (AEOI), known as the Common Reporting Standard (CRS), and signing up formally to the necessary instrument in January 2018 – with this expected to see the first such exchanges later in 2018.
Also in 2016, Panama signed the Convention on Mutual Administrative Assistance in Tax Matters, thereby greatly extending its tax information exchange network. The Convention itself came into effect in 2017.
FATF EVALUATION ASSESSMENT
Panama is a member of GAFILAT, the regional FATF-style regional body, which assesses Panama against the 40 Recommendations issued by FATF and which “set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction” and thereby establish an international standard against which countries can be measured.
Since 2013, FATF has also evaluated jurisdictions against 11 “Immediate Outcomes” to assess the effective implementation of the Recommendations and the overall robustness and effectiveness of the control regime in that jurisdiction. The 11 Immediate Outcomes are included in the methodology laid down for carrying out of assessments –
Assessments are undertaken by means of mutual evaluation, a type of peer review using experts selected from other member countries of FATF or the regional body, and the results published in mutual evaluation reports (MER), both by the regional body and by FATF itself. The experts carry out an on-site visit and also call for documents and information from the country being assessed, and enter into an ongoing dialogue with the country up to the time of the report being finalised. The results of the assessments undertaken by the regional bodies are moderated and approved by FATF, and the markings published by FATF in a schedule of results for all jurisdictions that have been assessed.
After the previous MER in 2014, the International Cooperation Review Group (ICRG) of FATF placed Panama in its enhanced follow-up process, and GAFILAT also placed the country under an enhanced follow-up process (which had ended by the time of the next on-site visit in 2017). The role of the ICRG is to monitor and report on “high risk” jurisdictions. Referral to the ICRG is normally based primarily on the results of the jurisdiction’s MER, and jurisdictions whose MER reveals a significant number of key deficiencies are referred to the ICRG. Jurisdictions considered to be falling short may be given a short window (usually 12 months) to demonstrate improvements, and may be required to prepare and submit an action plan and to engage in meetings with FATF representatives, as well providing high-level political commitment to remedying any identified shortcomings.
The latest MER for Panama was published in 2018, this followed an on-site visit by a team of evaluators from GAFILAT in May 2017. According to that MER, Panama was deemed “Compliant” for 10 and “Largely Compliant” for 22 of the FATF 40 Recommendations.
However, Panama only scored “Substantially Effective” for 2 of the 11 Immediate Outcomes, and failed to score “Highly Effective” for any.
One of the main risks facing Panama in terms of income from criminal activities was said to be the receipt of funds or other financial assets resulting from tax crimes committed abroad. This risk had not been considered in the NRA and in the MER GAFILAT said it was important to point out that tax crimes are not criminalised as a predicate offence for the purposes of money laundering in Panama, which (naturally enough) significantly affects the possibilities for prevention and investigation. The National Strategy Plan included criminalising tax crimes as one of its most important action points, and the MER identified this step as a priority action.
Illicit drug trafficking was seen as the illicit activity committed in the Panamanian territory which was most related to money laundering in the country, with the country being seen as primarily a transit point – not a production base – for drugs heading chiefly to North America.
The MER said a priority was for Panama to pay special attention to the free zones sector to prevent measures of improper invoicing of goods or other illegal foreign trade operations. It also said that measures must be taken to control the use of cash in free zones, as well as in the real estate and construction sectors.
The MER called for greater attention to be paid to the risks of terrorism financing and proliferation/proliferation financing, and for more effort on raising the awareness of the risks.
However, as was the case with the NRA, the MER noted that tax crime not being a predicate offence for money laundering enhanced the risks in some vulnerable sectors, such as the financial sector, the corporate sector and the free zones. In addition, the MER said that the current control mechanisms of operation of the corporate service sector were not considered enough to mitigate the risks associated to the operation of Panamanian corporations and private interest foundations, especially in the offshore sector (something I think was underlined by the Panama Papers).
NATIONAL RISK ASSESSMENT
FATF regards a national risk assessment (NRA) that identifies, assesses and understands the money laundering and terrorism financing risks facing a jurisdiction as an essential part of developing a national AML/CFT regime. It is also something that an evaluation team would expect the jurisdiction to have undertaken, and it is referred to in the Recommendations (in particular recommendation 1, and would inform the rating of the Immediate Outcomes.
Panama’s NRA was approved in December 2016 by the National Commission against Money Laundering, TF and Financing the Proliferation of Weapons of Mass Destruction (CNBC), and the same month submitted to the cabinet and President. It was formally published in January 2017, and duly taken into account by the GAFILAT review team.
The NRA identified that the main risks from money laundering are derived from illicit financial flows from abroad which may be placed in Panama and which are associated with drug trafficking. Other offences related to organised crime, smuggling and other offences related to international trade. In respect of internal threats, drug trafficking, corruption, financial crimes and crimes against intellectual and industrial property were identified as the main offences.
The NRA determined that Panama has a vulnerability to the receipt into the country of the proceeds obtained from predicate offences committed abroad and that the legal services and legal arrangements existing in Panama may be misused abroad for money laundering.
The NRA also put the terrorism financing risk as “low”, because Panama does not have individuals or terrorist organisations and does not maintain relations with countries at greater risk of terrorism. There were said to be (and this point was endorsed in the MER) mechanisms in place to prevent the use of the financial system for terrorist financing and to implement targeted financial sanctions related to terrorist financing and proliferation.
However, the NRA evaluated mainly terrorism risk and not the terrorist financing risk, and it was said by GAFILAT in the MER that both financial institutions and DNFBP did not fully understand risks of, or from, terrorist financing. In the 2018 MER, GAFILAT called for greater attention to be paid to the risks of terrorism financing and proliferation/proliferation financing, and for more effort on raising the awareness of the risks.
One of the main risks identified by the NRA had been in the real estate sector, and this was identified as a top priority in the on-site monitoring programme of the Intendencia (see list of relevant bodies below).
Another sector identified in the NRA as high-risk were companies that operate in the Colon and other free zones, with large amounts of cash said to circulate in the Colon zone.
Another high-risk area was the legal sector, particularly where lawyers act as resident agents. At the time of the 2017 evaluation visit by GAFILAT only 522 such lawyers/agents were registered with the FIU out of a total of 4,216. A resident agent is required to identify the client (including ultimate beneficial owner), obtain information about the purpose for which the legal entity is created, and provide the competent authorities with the required information (such as to combat money laundering and terrorism financing and any other illegal activity). However, the MER concluded there was some doubt or confusion over what, or whether at all, the resident agent had to carry out deeper or follow-up proactive verification – such as to detect subsequent changes affecting or different from that information initially relied upon.
The NRA evaluated the risks of companies used for illegal purposes, concluding that the sector was vulnerable and considered of high risk. In particular, the NRA established that there is “a vulnerability for companies without activities in the Republic of Panama to be used in other countries for money laundering or TF purposes”.
The MER also pointed out that the NRA did not consider one of the main risks currently experienced by the country in terms of income from criminal activities, which is the receipt of funds or other financial assets derived from tax crimes committed abroad – these not being a predicate offence for money laundering in Panama. Furthermore, it said, the NRA did not go far enough into the analysis of existing risks in each of the different activity sectors identified as vulnerable.
According to the conclusions of the NRA, the risks of some types of non-profit organisation (NPO) being used for money laundering or terrorism financing, are low, and (as already mentioned) that terrorism threats are mainly found abroad, and that the NPO in Panama, in general, do not send resources abroad, but raise them for conducting activities within the country. In addition, no cases were identified where an NPO had been used for terrorist financing purposes. Panama did not include NPO within the range of reporting institutions, under Law No. 23, 2015, and did not identify any subgroup of NPO with having a higher risk of abuse for the terrorist financing. The body for Supervision, Monitoring and Evaluation Department of Non-Profit Organizations and Private-Interest Foundations (see the list of relevant bodies below) is in charge of supervising the operation of the NPO, collecting information on directors and financial statements every year, and re-evaluating the sector for possible risks and vulnerabilities regarding terrorist activities.
THE NATIONAL STRATEGY PLAN
The National Strategy for Combating Money Laundering, Terrorist financing and the Proliferation of Weapons of Mass Destruction was jointly developed by the Panamanian government and the IMF. It was formally approved in May 2017.
One of the Plan’s lines of action was for tax crimes to be criminalised (which was also highlighted as a priority action by the 2018 MER), this being an obvious gap in the law, and identified as a source of vulnerability to the country and its finance and business sectors.
One point of note was that the Plan labelled the vulnerability risk of registered agent lawyers as “low”, although the sector was identified as “high-risk” in the NRA, and evidence of the Panama Papers would appear to support the latter assessment.
The Plan established the Strategical Priorities of the country under 5 pillars –
- Prevention Component;
- Detection and Intelligence Component; and
- Investigation and Criminal Justice Component.
Based on these 5 pillars, an Action Plan was drawn up, with various objectives set and actions planned up to December 2020.
The National Commission against Money Laundering, Terrorism Financing and Financing the Proliferation of Weapons of Mass Destruction acknowledged the NRA, and it approved the National Strategy. The Commission allows for the co-ordinating of the activities of authorities with jurisdiction on prevention matters, and it was under its aegis that the National Strategy was drafted. As described in the National Strategy, the Commission is charged with –
- approving national risk strategies for money laundering, terrorism financing and countering proliferation of WMD;
- taking the necessary measures to mitigate national risks, manage resources and adopt decisions on execution, in addition to monitoring the action plan; and
- establishing policies and ensuring co-ordination on issues involving money laundering, terrorism financing and countering proliferation of WMD.
There are a number of law enforcement, regulatory and supervisory bodies that one need to be aware of when considering the situation in Panama.
There are 4 supervisory bodies for the financial sector – SBP, SMV, SSRP and IPACOOP.
|SBP||Bank Supervisor of Panama (Superintendencia de Banco de Panamá).
Its supervision includes remittance and currency exchange businesses, although Panamanian law regards these as “non-financial” businesses, as well licensed banks (92 at the time of the GAFILAT evaluation), issuers or processors of debit cards, credit and prepaid, payment and electronic money. Remittance houses and savings and housing loan corporations, supervised by the SBP, are authorised by the Ministry of Commerce and Industry (MICI).
Supervises – banks and banking groups; fiduciary companies; financial companies; financial leasing companies; factoring companies.
|SMV||Supervisor of the Securities Market (Superintendencia del Mercado de Valores).
Grants licences to the securities companies, investment companies, advisors and investment managers.
Supervises – self-regulated organisations; securities firms; investment managers; pension fund administrators; disability fund managers
|SSRP||Panama Supervisor of Insurance and Reinsurance (Superintendencia de Seguros y Reaseguros de Panamá).
Responsible for insurance and reinsurance brokers, as well as insurance loss adjusters etc, insurance agents, executives and managers of companies’ insurance companies (captive insurance), and related businesses.
Its main objective is to protect contracting parties and to promote an inclusive insurance market by performing duties and activities that ensure the solvency and liquidity of insurance companies and the performance of activities regulated in compliance with this law and its regulations.
Supervises – insurance and reinsurance companies; insurance brokers (natural or legal persons); reinsurance brokers (natural or legal persons); insurance adjusters or inspectors; insurance agents (natural or legal persons).
|IPACOOP||Panamanian Autonomous Cooperative Institute (Instituto Panameño Autónomo Cooperativo).
Responsible for granting legal status to co-operatives and credit unions, and, if necessary, to intervene and liquidate them for breach of AML/CFT regulations.
Supervises – Credit Unions; Mulitple or Integral Services Cooperative that are involved in savings or credit activities; Other co-operative organisations conducting financial intermediation.
Other relevant bodies include –
|INTENDENCIA||Supervisor and regulator of non-financial reporting institutions (DNFBP) and activities (Intendencia de Supervisión y Regulación de Sujetos Obligados No Financieros).
Responsible for a variety of DNFBP, including –
companies in the Colon Free Zone and the Agency of Panama Pacifico, Zona Franca Baru;
casinos, gaming, gambling and betting system organisations (including online);
developers, real estate agent and broker of real estate, when they are involved in transactions for clients concerning the purchase and sale of real estate;
companies in the construction industry;
companies involved in marketing of precious metals and gemstones;
savings and loans institutions for housing;
money exchanges; and
companies engaged in the buying and selling of new and used cars.
|FIU||The Financial Intelligence Unit (FIU, in Spanish UAF).
Serves as the national centre for the collection and analysis of financial information related to money laundering/terrorist financing/proliferation crimes, for receiving and analysing Suspicious Transaction Reports (STR) and Cash (and cash equivalents) Transaction Reports (CTR), which are submitted using an electronic platform that allows interaction with the reporting institutions to offer feedback on the quality of the report. Strict confidentiality applies to STR and their contents can only be disclosed to the Public Prosecutor’s Office (PPO), criminal investigation agents and judicial authorities.
The FIU also receives information from the National Customs Administration (ANA) on travellers’ declarations related to the transportation of money, securities or documents for more than $10,000 (or its equivalent in another currency).
It issues financial intelligence reports with added value which are disseminated by the PPO. Once the analysis is completed, an intelligence report is prepared and evaluated by a committee, together with an assigned analyst and then it is submitted to the General Director of the FIU, who can decide whether to carry out further inquiries or communicate the results of the analysis to the PPO. The FIU can also spontaneously communicate the result of its analysis through its intelligence reports to the PPO and other criminal investigation agents or jurisdictional authorities where it is suspected that money laundering, terrorist financing or proliferation activities have been, or are being, carried out. However, it is normally a working group meeting between the FIU and the PPO that marks the beginning of an investigation.
However, the 2018 MER found that the number of reports disseminated (by the FIU and other competent authorities) was low. It also noted a lack of feedback to the FIU on whether reports it had prepared, or assistance it had rendered, had been of benefit.
The FIU also provides technical assistance at the request of the PPO or other competent authorities.
The 2018 MER noted that there was a low level of STR in sectors identified in the NRA as having high vulnerability to money laundering and terrorist financing (e.g. attorneys acting as resident agents, the real estate sector and those in the Colon Free Zone.
The FIU is a member of the Egmont Group of FIU, and is thus able to make use of that organisation’s system of secure, confidential requests for assistance and information.
The Ministry of Foreign Relations receives the updated lists of the United Nations Security Council referring to natural or legal persons designated for proliferation, these are communicated to the FIU (and CSN).
The FIU may exchange financial intelligence information with such countries whose FIU is member of the Egmont Group, or with such countries with which it has signed a MoU; it is also able to exchange such information on the basis of reciprocity. The FIU is also party to the Regional MoU for combating money laundering and the financing of terrorism among the different FIU of Central America, Colombia and Dominican Republic, as well as to the MoU of FIU with the 17 other GAFILAT states.
The website of the UAF includes FAQ, which answer such questions as what are predicate crimes, and what are the functions of the unit.
|MONEY LAUNDERING AND FINANCING OF TERRORISM UNIT||A specialised entity created by the Office of the Attorney General in 2016 to support prosecuting attorneys in complex financial investigations, developing proprietary investigations and helping with money laundering criminal investigation strategy. The Unit also has a co-ordination mission aimed at strengthening the execution of investigations by means of inter-institutional groups with the participation of the Judicial Investigation Division, the FIU and the Institute of Forensic Medicine and Forensic Sciences.|
|PPO||The Public Prosecutor’s Office in the Attorney General’s Office.
Disseminates financial intelligence reports prepared by the FIU. It also undertakes investigations.
It is the authority in charge of properly investigating money laundering, predicate offenses and terrorist financing.
A specialised unit for money laundering and terrorist financing has been created to support the PPO, with analysts and appropriate technical support: the ML/TF Specialized Unit. Its support staff include financial, accounting and IT analysts who collaborate on the financial analysis.
The PPO also works with the support of the Department of Judicial Investigation (DIJ) of the National Police (see below), which is dedicated to investigating money laundering and terrorist financing.
The PPO applies for court orders retraining property or other assets. Ultimately, such property may be ordered to be disposed of by the Ministry of Economy Finance. Property which is also evidence remains in the custody of the PPO, but other property is the responsibility of the Department of Administration of Seized Property.
The PPO also acts as the country’s central authority for mutual legal assistance requests, co-ordinating with the Foreign Office, under several international treaties. However, Panama had established several central authorities according to the nature of the offence and the convention involved, to provide legal assistance in criminal matters, and in some cases the responsibility lies with the Ministry of Government, with prior delivery to the PPO, and in other cases with the Foreign Office.
The PPO has a special unit destined to fulfil functions in international co-operation matters, which prioritises and monitors how assistance requests are dealt with, with the objective that they will be answered in a timely manner.
|DEPARTMENT OF ADMINISTRATION OF SEIZED PROPERTY||This Department reports to the Ministry of Economy and Finance and is involved where the property involved in cases under the former legal system (i.e. that of prior to the transition to an accusatory system similar to that of the US – see more detail on this below). It is responsible for control of all restrained and seized property which is not considered as also being evidence (in which case remains in the custody of the PPO). It would arrange any disposal, such as by auction, of any condemned property.|
|DIRECTORATE OF ADMINISTRATION OF SEIZED PROPERTY||This Directorate was created only in 2015 and it also reports to the Ministry of Economy and Finance. It is involved in cases arising under the post-2016 accusatory legal system. Where any monies and securities are restrained or seized these would remain in the custody of the financial institution in which it was found, accruing interest, but monitored and controlled by this office.|
|ANA||National Customs Authority (Autoridad Nacional de Aduanas).
It controls and supervises customs operations and the flow of goods entering, remaining in or exiting the country and those goods covered by permanent or temporary customs regimes, customs warehouses, free trade zones and duty-free stores.
One of its roles involve handling travellers’ declarations related to the transportation of money, securities or documents for more than $10,000 (or its equivalent in another currency).
Under Panama law, money falls under the definition of “merchandise”, thus allowing its seizure alongside any goods or vehicle used to transport it. Non-declaration or false declaration involving cash etc of over $10,000 in value (in whatever denomination) at importation is also regarded as a form of customs fraud. A written declaration system is established for all travellers, who must declare if they carry more than $10,000.
In customs matters, the most intensive co-operation is with Colombia, mainly, and with Costa Rica, these countries sharing land borders with Panama. Colombia is the country in which a greater exchange and co-ordination takes place.
There is also a co-operation programme with US, mainly aimed at controls on containers and merchandise in transit at the Panamanian ports, and that have the US as their final destination (there is a free trade agreement in place between the US and Panama). The US has also provided assistance and support for the acquisition of equipment that allows conducting non-intrusive inspections of shipments to detect radioactive materials.
The ANA undertakes risk-based checks of shipments in transit through the country’s ports.
|CNBC||National Commission against the laundering of capital (La Comisión Nacional contra el Blanqueo de Capitales); aka National Commission against Money Laundering, Terrorism Financing and Financing the Proliferation of WMD (Consejo Nacional Contra el Blanqueo de Capitales, Financiamiento del Terrorismo, y de la Proliferación de Armas de Destrucción Masiva).
A council chaired by the Minister of Economy and Finance, with 2 other ministers, the Superintendent of banks, prosecutor general from the PPO, the director of the FIU and the President of the Commission of economy and Finance of the National Assembly. It also has a technical secretariat attached, which has technical and administrative functions. It approves the national risk strategy to prevent money laundering, manages the resources available and identifying money laundering national risks. It also follows up the National Plan to prevent money laundering and establishes policies for the prevention of money-laundering offences.
|SENAFRONT||National Border Control Service (Servicio Nacional de Frontera).
This operates at the land border crossings with Costa Rica and Colombia. They are an armed, paramilitary force which often saw clashes with FARC. It is a specialised and permanent police force structured and organised to guard the terrestrial borders of Panama.
|CSN||The National Security Council (Consejo de Seguridad Nacional)
This was created in 2010 as a consulting and advisory body for the President on national security and defence issues. Within its scope are terrorism and terrorism financing, as well as the investigation of corruption, organised crime, drug trafficking and migrant smuggling. The Counter-Terrorism Department and the Prevention Committee against Terrorism and its Financing (see below) is part of the CSN.
The CSN also has representation on the Prevention Committee against Terrorism (see below). The Counter Terrorism Department of the CSN was established in 2016 and is dedicated to carrying out intelligence tasks on individuals or legal persons that are suspected of being related to terrorism and terrorist financing.
The Ministry of Foreign Relations receives the updated lists of the UN Security Council referring to natural or legal persons designated for proliferation reasons, these are communicated to the CSN (and the FIU).
|COUNTER-TERRORISM DEPARTMENT AND THE PREVENTION COMMITTEE AGAINST TERRORISM AND ITS FINANCING||Departamento de lucha contra el terrorismo y el comité de prevención contra el terrorismo y su financiamiento.
This is part of the CSN and its main function is to collect and disseminate intelligence relating to terrorism, terrorist financing or the proliferation of WMD. It also compiles reports that are submitted to the Prevention Committee against Terrorism (see below).
|PREVENTION COMMITTEE AGAINST TERRORISM||Comité de prevención contra el terrorismo.
This committee involves representatives from the CSN, FIU, PPO, the office of the President, and other state entities. It reviews reports prepared by the Counter-Terrorism Department and the Prevention Committee against Terrorism and Financing, makes recommendations for decisions taken by the CSN, evaluates requests for inclusion on UN sanctions lists and exchanges information with other state bodies in cases of suspected terrorist financing.
|GIA||The Inter-institutional Anticorruption Group (Grupo Interinstitucional Anticorrupción).
This was created in 2016 to promote preventive actions against acts of corruption and organised crime within public security organisations. It reports to the Executive Secretariat of the CSN.
|DIJ||This is the Department of Judicial Investigation (Departamento de Investigación Judicial) of the National Police (see below).|
|POLICE||The National Police (Policía Nacional).
The PPO works with the support of the Department of Judicial Investigation (DIJ) of the National Police, which is dedicated to investigating money laundering and terrorist financing. At the time of the GAFILAT evaluation Panama was in the process of improving its capabilities to conduct parallel financial investigations, with the creation of specialised units in the PPO and the Police.
|MINGOB||The Ministry of Government (Ministerio de Gobierno).
MINGOB is concerned with issues relating to the internal government and internal security. It determines government policies and plans, co-ordinates, directs and executes administrative control of the provinces and indigenous territories, respecting their cultural heritage and promoting their development.
It has the power to grant and suspend the legal status of non-profit organisations (NPO) and keeps an updated list of all NPO. The Supervision, Monitoring and Evaluation and Private-Interest Foundations Department of MINGOB has the role of verifying the legal status of most NPOs and supervising them based on risk, through off-site supervision or on-site visits. This Department is responsible for supervising the operation of the NPO, collecting information on the boards of directors and financial statements every year, and re-evaluating the sector for possible risks and vulnerabilities regarding terrorist activities.
The Office for the Execution of Mutual Legal Assistance Treaties and International Cooperation of the MINGOB is an additional central authority for bilateral treaties, as well as the Inter-American Convention on Mutual Assistance in Criminal Matters and the Treaty of Mutual Legal Assistance in Criminal Matters between the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.
|MICI||Ministry of Commerce and Industry (Ministerio de Comercio e Industria) is the authority that grants licenses to financial companies, leasing companies and factoring companies. Remittance houses and savings and housing loan corporations, supervised by the SBP, are authorised by MICI. It is also responsible for supervising the search for and exploitation of mineral resources and compliance with foreign trade policy.|
|JCJ||Gambling Control Board (Junta de Control de Juegos)
The Board operates under the Minsitry of Finance and Economy and registers casinos and other playing of games of chance. However, monitoring of this sector was transferred from the JCJ to the Intendencia.
|MIRE||Ministry of Foreign Affairs (Ministerio de Relaciones Exteriores).
The authority in charge of co-ordinating the communications with the Sanctions Committees derived from the UN SCR 1267/1988/1989, and the designations made by foreign countries, in accordance with the terms of the UN SCR 1373; and is in charge of reporting, through diplomatic channels and upon deliberation of the CSN, to the respective Committee of the UN Security Council, and receiving response from the latter, to subsequently report to the CSN and the FIU. MIRE is also responsible in respect of proliferation sanctions.
|PGN||Office of the Attorney General of the Nation (Procuraduría General de la Nación).
It prosecutes crimes and other violations of the law, and monitors the professional conduct of government officials. The Office is responsible for all criminal cases, unless involving the President or judges of the Supreme Court.
It is the central authority in Panama for the UN Convention against Transnational Organized Crime, the UN Convention against Corruption and the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.
|NCST||National Council on Secure Trade.
Comprised of representatives from several ministries; its roles include approval of the strategic trade control regulations (i.e. export and trade controls including counter-proliferation; this being its main role), revoke licences, and manage inclusion on the national register created under Decree 81 of 2017.
|TCSTT||Technical Committee on Secure Trade and Transport.
Comprised of members from the same ministries as the NCST, plus a representative of the Panama Canal Authority (PCA); its roles are to provide technical and administrative support, chiefly by drafting and updating the strategic trade control regulations and the National Control List, and developing and maintaining the licensing process. The latter role includes making decisions on the granting of licences.
KEY AML/CFT/CPF LEGISLATION
“Money laundering” was defined in Articles 254 to 259 of the Criminal Code; in accordance with Article 254, the crime of money laundering is committed by whoever whether “[…] personally or through another person, receives, deposits, trades, transfers or converts monies, securities, property or other financial resources, reasonably foreseeing that they come from activities related … offences against …with the purpose to hide, disguise or conceal its illicit origin, or whoever helps evade the legal consequences of such offences, will be punishable by 5–12 years in prison. Various inchoate, ancillary, aiding and abetting offences etc are also covered.
The Criminal Code also contains specific provisions for public officials or candidates to public offices: the use of resources from illicit origin for the financing of political campaigns, or of any nature, is criminalised.
Predicate offences are expressly mentioned in Article 254 of the Criminal Code (though not, at the time of the MER, tax crimes).
The government had identified combating money laundering as one of 5 goals in its 5-year National Drug Control Strategy in 2002, and had established the Unidad de Análsis Financiero (UAF), the country’s FIU. In 2016, the FIU launched a website for online submission of STR and CTR. The FIU also saw its budget tripled in2015.
Law 23 of 2015 criminalised money laundering and set AML compliance requirements for entities in 31 sectors. It also classified as crimes additional activities related to money laundering and financing of terrorism and also creating conditions for improved judicial assistance and co-operation with foreign institutions. The changes were part of the action plan that allowed Panama to be removed from the FATF “grey” list.
The 2015 Law also established the formation of the national co-ordination system which comprised –
- the National Commission against Money Laundering, the Financing of Terrorism and the Financing of the Proliferation of Weapons of Mass Destruction;
- the Financial Analysis Unit (the FIU, or UAF) for the Prevention of the Crime of Money Laundering and Financing of Terrorism; and
- the Supervisory Institutions.
The Intendencia is responsible for supervision and regulation of those in the non-financial sector subject to controls, and oversees the AML compliance of over 14,000 DNFBP, including in the CFZ, as well as, since 2017, MSB and money transmitters. Stricter oversight controls were imposed on non-profit organisations and foundations from 2017 through MINGOB.
Legislation introduced in 2015 saw the issue of bearer shares was banned in 2016, and those already in use were made subject to requirements that the companies involved had to appoint an authorised custodian (this having to have been done by December 2015) and maintain strict controls over the use of them. The law also permitted the conversion of bearer shares into nominative shares.
According to the MER, all DNFBP have an authority that registers them or that grant an activity permit, and without such registration or permission, it is not possible for a DNFBP to continue its activity. The Intendencia has an MoU with all the entities that register or authorise the operation of the DNFBP.
All banks and trust companies must have a money laundering committee comprised of board members.
With effect from June 2018, Executive Decree 122 required the automatic sharing of tax-related financial information with 33, primarily European, states. The measure followed international reporting standards laid out by the OECD Common Reporting Standards (CRS) and approved in Panama in 2016.
On 14th September 2018, 2 additional measures dated 21st August and issued by the Superintendency of Banks of Panama took effect –
- Firstly, the Prevention Agreement for Other Financially Obligated Subjects No. 002-2018 established the registration process of “exchange offices”. This applied to all natural or legal persons that provided services for the purchase and sale of coins, banknotes or other monetary instruments, inside and outside the country, in any form, whether or not their principal activity, excluding those that are subject to the supervision of another regulator. It required AML/CFT and CPF compliance standards and procedures, and the submission of STR/CTR to the FIU.
- Secondly, the Prevention Agreement for Other Financially Obligated Subjects No. 001-2018 established the registration process for money remittance companies. This applied to all natural or legal persons that provide money transfer services, either through transfer systems or transfer of funds, compensation of funds or by any other means, inside and outside of the country, whether or not its main activity. It also imposed similar AML/CFT/CPF-based requirements on those affected.
IDENTIFIED AML/CFT DEFICIENCIES
Leaving aside proliferation (see below), and the obvious problem that tax crimes were not predicate crimes for money laundering purposes, a number of deficiencies were noted in the current International Narcotics Control Strategy Report (INCSR) from the US State Department –
- Inconsistent, incomplete or unnecessary STR and CTR;
- Compliance officers often include minimal analysis with STR;
- Compliance officers are said to notify clients and/or bank executives and directors about investigations (or the likelihood of investigations) – with no “tipping off” law to criminalise such behaviour;
- Authorities lack sufficient resources, including trained staff with industry experience (especially for DNFBP);
- Regulators cannot access STR/CTR due to confidentiality laws;
- The quality of analysis by the FIU was lacking, response times to foreign inquiries were too long, and the quality of requests from foreign counterparts was not good enough (the report suggested that FIU should become an independent agency);
- The CFZ is vulnerable to illicit financial and trade activities due to weak customs enforcement and limited oversight of transactions;
- Tax evasion is not a predicate crime (though legislation to make it such was under consideration in 2018); and
- Law enforcement needs more and better tools to conduct long-term, complex financial investigations, including undercover operations.
WHAT ABOUT PROLIFERATION?
A good definition of proliferation was included in a paper from Project Alpha – “Proliferation is the spread of the capability to manufacture Weapons of Mass Destruction (WMD) to states intent on producing such weapons. In each of the major WMD categories such as chemical weapons, biological weapons and nuclear weapons, there are international treaties which commit signature states to not seek such weapons and, in relation to nuclear and chemical weapons, there are verification regimes designed to detect whether states ‘cheat’.”.
Since 2004, Panama had been party to the US-sponsored Proliferation Security Initiative, a move that would permit the US to search Panama’s flagships in international waters if they are suspected of transporting weapons of mass destruction or WMD equipment. Under the agreement, Panama and the US would be able to ask each other for permission on short notice to board their respective flagships on the open seas. The ship’s cargo could then be seized if it is found to be related to non-conventional weapons programmes.
The following is an extract from a paper by me dated 12th October 2018 and posted on my blog.
The export, transit or transhipment of strategic goods was not highlighted in the NRA as a significant threat. However, it did note that the most vulnerable sectors for money laundering in Panama would be the sectors related to foreign trade, such as the free trade zones, especially the Colon Free Zone. It said that there was no clear terrorism threat in Panama (at least to Panama itself, whereas an attack on the Canal could equally be a means of damaging the US, China or other major beneficiary from its services, or as merely a “spectacle” to gain publicity). It was the financing of terrorism that was seen as a greater threat.
In May 2017, Panama enacted Executive Decree 81 for the control of trade and dual-use material for reasons of national and international security – in other words for the purposes of preventing proliferation of WMD and their delivery systems. The Decree formed part of the Action Plan submitted to the UN by Panama in October 2017 outlining how it intended to implement UN SCR 1540, as amended. As the Action Plan stated, UN SCR 1977 (2011) had invited member states to prepare on a voluntary basis a national implementation action plan for implementing UN SCR 1540 and to submit those plans to the UN’s 1540 Committee.
The aim of UN SCR 1540 is preventing chemical, biological, radioactive and nuclear (CBRN) weapons, as well as their means of delivery and related materials, from coming under the control of non-state actors, terrorist groups or organised crime and it urges member states to refrain from providing them with any form of support. It also urges member states, in accordance with their national procedures, to adopt and enforce appropriate effective laws which prohibit any non-state actor to manufacture, acquire, possess, develop, transport, transfer or use chemical, biological, radioactive or nuclear weapons and their means of delivery, and related materials, for terrorist purposes or organised crime, as well as attempts to engage in any of the activities, participate in them as an accomplice, assist them or finance them.
Panama was already party to various relevant international treaties and agreements concerned with the control of CBRN weapons and materials – the Nuclear Non-Proliferation Treaty, the Biological and Toxic Weapons Convention, the Chemical Weapons Convention, and the Convention on the Physical Protection of Nuclear Materials.
Wisely, Panama chose to frame the new law so as to target both states and non-state actors. It was required by the Decree to adopt a list of dual-use goods, and to make the transport, transfer, management, trade, import, export and re-export subject to control. The Decree also called for the developing of a system to licence such goods, as well as outreach and educational efforts, and enforcement – all of which was to be outlined in an action plan required by the Decree.
Two bodies were created by the Decree: the National Council on Secure Trade (NCST) and the Technical Committee on Secure Trade and Transport (TCSTT) – see the table above for brief details of their roles.
The NCST and TCSTT were assisted in their work by existing bodies –
- Container Technical Inspection Unit – which uses radiation portal monitors (RPM) at the main coastal ports. These devices are passive, non-intrusive devices used to screen objects and persons passing through them for nuclear and radiological materials;
- Inter-Institutional Risk Analysis Office – for the analysis of information in cargo manifests to determine the risk profiles of cargo, vessels, and economic agents;
- Joint Port Control Units (JCPU) – Panama is also a party to the Global Container Control Program, an initiative of the UN Office on Drugs and Crime and the WCO designed to improve container traffic security by providing training and promote co-operation among member nations. One of its elements is the creation of JCPU which specialise in the inter-agency profiling of port units at select container terminals in seaports or dry ports, and in Panama JPCU have been established at Balboa which covers the Port of Balboa; and in Colon which covers Port of Manzanillo, Colón Container Terminal and Port of Cristobal;
- National Customs Authority (ANA – see the above table – ANA employs a “single window” system, the Sistema Integrado de Gestión Aduanera (SIGA) and, since 2017, the Panamanian Marine Authority and the Panama Canal Authority implemented Ventanilla Única Marítima de Panamá (VUMPA), an electronic system that requires ships to produce required documentation in advance of their arrival so that government agencies can conduct risk assessment and be ready for inspection by a single official. A 2016 report found that SIGA could be adapted to be used to provide a strategic goods licensing system; and
- Panama Canal Authority (PCA) – which can deny a vessel transit of the Canal if the condition or character of the cargo “is such as to endanger Canal structures”, which must be taken to include potentially dangerous cargo, or “which might render the vessel liable to obstruct the waterway”, which again might include a dangerous cargo sinking or rendering the ship uncontrollable. The Regulation on Navigation in Panama Canal Waters requires a minimum of 96-hour notice of intent to transit with dangerous cargo (and similarly, cargo comprising hazardous waste is also required to be notified to the PCA. It also requires all vessels transporting radioactive materials through the Canal to comply with applicable requirements, as published in the current edition of the IMDG Code and there are specific requirements for certain types of radioactive cargo with, for example, 30 days’ notice of fissile material carried as cargo – for other vessels intending to arrive at Panama Canal waters all cargo carried on board must be declared at least 96 hours prior to their arrival.
The Decree of 2017 also required a National Registration, Tracking, and Inventory System for Economic Agents of Dual-Use Goods. This will entail a national register, and any “economic agent” wishing to participate in “handling” dual-use goods will have to be registered. It will be an electronic platform, managed by TCCST. TCCST will also develop risk profiles of applicants for inclusion on the register.
At the time the Decree came into force the evidence appeared to show that Panama did not have a significant number of companies that imported or exported dual-use items. Nevertheless, outreach and training would be needed to ensure that both officials and business was aware of the new controls, the requirement for registration when appropriate, and, in particular, the application of the controls to intangible technologies.
Panama is receiving assistance from the US Government under the Export Border and Related Security (EXBS) programme, with a focus on legal, licensing, and enforcement training, along with providing information systems and equipment. There is also training and assistance provided under the Global Container Control Program.
Rather than compile its own list of items that should be subject to control, it was proposed that Panama should simply adopt the dual-use control list in use in the EU. This had the advantages of complying with all the relevant international non-proliferation agreements, such as –
- the Wassenaar Arrangement on transfers of conventional arms and dual-use goods and The selection criteria for dual-use items under the Wassenaar Arrangement is that dual-use goods and technologies to be controlled are those which are major or key elements for the indigenous development, production, use or enhancement of military capabilities;
- the Australia Group, the aim of which is the harmonisation of export controls, to ensure that exports do not contribute to the development of chemical or biological weapons;
- the Nuclear Suppliers Group, a group of nuclear supplier countries that seeks to contribute to the non-proliferation of nuclear weapons through the implementation of two sets of Guidelines for nuclear exports and nuclear-related exports; and.
- the Missile Technology Control Regime, a voluntary partnership of 35 countries to prevent the proliferation of missile and unmanned aerial vehicle (UAV or “drone”) technology capable of carrying above 500 kg payload for more than 300 km.
It is also regularly updated, and benefits from the input of all the Member States, several of which are themselves major producers of military and dual-use goods and technology.
Another useful factor is that the EU correlates the codes allocated to the dual-use items to their classification codes (“CN Codes” or commodity codes), 8-digit codes used to identify the items for customs purposes on declarations and other documentation. These classification codes themselves correlate to the codes used worldwide under the Harmonized System (“HS Codes”).
The 6-digit HS Code directly equates to the first 6 digits of the CN Code, allowing the items in question to be identified. The first 2 digits identify the chapter the goods come under (e.g. Chapter 09 – Coffee, Tea, Maté and Spices). The next 2 digits identify groupings within that chapter (e.g. 09.02 – Tea, whether or not flavoured). The final 2 digits are even more specific (e.g. 09.02.10 – Green tea: not fermented). Up to the 6-digit level, all countries classify products in the same way (a few exceptions exist where some countries apply old versions).
A decision was made in early 2018 for Panama to adopt the EU list.
Note that the EU uses the term “dual-use item” and not “dual-use goods”. This emphasises that the controls and the control list deals with not just physical goods, but also software and technology – and therefore can cover intangible “exports” (such as the sending of designs or data) as well as the physical export of goods themselves.
Furthermore, since 2011 the EU Regulation prohibited exports of dual-use goods to destinations subject to an arms embargo imposed by the EU, OSCE or UN.
The EU currently has in development a “recast” of the Regulation which contains the dual-use list. This recast, amongst other things, introduces a new “human security” dimension to export controls, to prevent the abuse of certain cyber-surveillance technologies by regimes with a questionable human-rights record, and use OECD-based “due diligence” guidelines to ensure that their goods cannot fall into the wrong hands. The proposals also formally introduce standardised operational internal control programmes (ICP) as part of the assessment in the granting and control of export authorisations and licences (such ICP were previously required by only some EU Member States).
It can be expected that the risk profiling and risk assessments undertaken by the Panamanian authorities would also take into account the existence and worth of such ICP.
The EU Regulation also includes a ‘catch-all clause’ for items which could be used in connection with a WMD programme but may not be included in the list of controlled items, and controls on brokering dual-use items and their transit through the EU. It is unclear if either of these aspects are dealt with in the Panamanian law.
Under the EU Regulation, dual-use items are goods and technology which have both a legitimate civil use, but have also a use, or potential use, for military purposes, or for use in connection with weapons of mass destruction. Goods affected include all those which can be used for non-explosive uses (as those with explosive uses would be caught by the general controls on military and paramilitary and related goods), and those relevant to the development, production or use of nuclear weapons and other weapons of mass destruction.
All companies and foundations in Panama must have an authorised resident agent. Law No. 2 of 2011, defines a Resident Agent as being “the lawyer or law firm that provides services as such and that must keep the records required by this law for legal persons constituted in accordance with the laws of the Republic of Panama and with which maintains a professional relationship in the present”.
The Law also regulates the KYC measures for clients of resident agents. Resident agents are required to identify the client, obtain information about the purpose for which the legal entity is created, and provide the competent authorities with information, as required, to combat money laundering and the financing of terrorism and any other illegal activity.
However, the MER said that the CDD requirements for resident agents was not clear – though it was clear that the must report any suspicious transactions to the FIU (though the MER also described the number of STR submitted for such transactions were “very scarce”). In any case, the agent is not obliged to obtain information on a third party acting for a client, when that third party is a legal person that belongs to a professional body requiring professional and ethical standards – such as a law firm, bank, insurer, trustee company, accountants etc. That third party need only supply information on the client for whom it is acting “according to the requirements and procedures established in the laws of the jurisdiction where he performs his operations”.
From 2015 until the time of the GAFILAT on-site visit in 2017, the Intendencia had conducted a total of 48 supervision proceedings at attorneys and law firms – of the 4,216 registered resident agents. Even so, 15 sanctioning proceedings have been started, but no sanctions have been applied to any case up to the date of the GAFILAT visit. Furthermore, no sanctions have been applied for breach in the registration obligation with the FIU, which applies to 88% of the resident agents.
THE LEGAL SYSTEM
Panama is a civil law jurisdiction with codified laws, derived from Spanish and Roman law, but heavily influenced by US law in certain areas – such as having the concept of habeus corpus, and, to some degree, judicial precedent. In Panamanian courts, trial by jury is not available to settle commercial disputes.
The highest court is the Supreme Court, consisting of 9 judges, each appointed for 10-year terms by the President and approved by the National Assembly. Below that are appellate courts, other specialist courts, and 2 circuit courts in each province, plus municipal, courts, family courts etc.
The US State Department in 2012 had claimed that the criminal justice system remains at risk for corruption. This view was echoed by a report published by Transparency International in 2014, which stated that the organisation’s Global Competitiveness Report 2013-14 stated that the independence of the judiciary in Panama was the weakest in Latin America and Caribbean, raking at position 118 out of 148 in the world ranking at the time. The World Bank “Doing Business” project is also said to have described the judicial system in Panama as being “slow, inefficient and corrupt”. Transparency International also commented on weak implementation of anti-corruption conventions.
THE LEGAL SYSTEM – THE ACCUSATORIAL CRIMINAL JUSTICE SYSTEM
In 2016, Panama completed a transition of its criminal law, begun in 2011, to a new legal system similar to that in the US and UK. This was the “Accusatorial Criminal Justice System”, aka “the penal accusatory system”. An adversarial system featuring oral trials, and changing from the typically European-style inquisitorial system, where the court (or investigating magistrate) is involved in investigating all or part of the case, to one featuring oral trials and where the judge is the impartial referee between the prosecution and defence. The objective of the reform was said to be to achieve a better investigation, prosecution and adjudication of criminal cases in Panama.
The previous system did not allow for the adjudication of cases during the investigation phase. Following the implementation of the new system, up to June 2016, it was said that Panama’s judiciary had already dealt with a total of 1,887 cases during the first 2 phases of the changeover, resulting in 91% of adjudications being handed down before trial.
BRIBERY AND CORRUPTION
In the 2017 Transparency International Index Panama was placed at 96th position, with a score of 37, largely unchanged since 2012.
The latest edition of the World Bank Worldwide Governance Indicators (WGI), which provides a ranking of 215 countries and territories based on 6 dimensions of governance, including political stability, government effectiveness, and control of corruption, gave Panama a rating of 36 (out of a possible 100).
The 2018 MER identified corruption as one of the main internal threats giving rise to money laundering risk.
The prominence of corruption as a risk may be highlighted by the case of former President Martinelli, who was president 2009-2014.
In 2015, Panama’s Supreme Court ordered Martinelli’s arrest over accusations that he used public funds to illegally spy on more than 150 prominent people. He flew to the US just days before the court launched a corruption investigation against him, but was detained there and subsequently extradited back to Panama in 2018. Returning home, he faced 8 charges – these including allegations that he rigged tenders for public contracts for meals and book bags for schoolchildren under Panama’s largest social welfare scheme, the National Aid Program. In June 2018, Transparency International Panama estimates that as much as 1% of Panama’s GDP – approximately $600 million – may have been lost to various corruption schemes during Martinelli’s presidency.
COLON FREE ZONE
As early as 1914, a feasibility study suggested Colon as the best place for a free zone. In 1948, Law No.18 established the Colon Free Zone (CFZ) as an autonomous institution of the Panamanian state, which would have its own legal personality, but subject to inspection and surveillance by the Presidency and the Comptroller General.
Hence, the CFZ now forms a customs territory located in Panama, but to and from which goods can be imported and exported free from tariff, fees, customs rights and sales taxes. It is located in the province of Colon at the Atlantic end of the Panama Canal. It attracts services and bases for importing, storing, assembling, packing and re-exporting goods from all over the world, especially electronic devices, pharmaceutical products, liquors, tobacco, home and office furniture, textile products, footwear, jewellery and toys. CFZ in 2015 accounted for 6% of all non-finance jobs in the country.
It is now the largest free port in the Americas, and second largest in the world, occupying about 2.4 km2 (600 acres) and divided into 2 large areas: one segregated from the city of Colon by a wall, and the other in the harbour area, which is designated for warehouses, covering 0.53 km2 (130 acres) and not far from Colón’s commercial sector. There are said to be over 3000 companies either represented or operating from the zone.
It also has a special tax regime that offers the exemption of several kinds of taxes, with the purpose of promoting the establishment of companies in the zone.
The CFZ has a web-based electronic documentation system which allows agents of users of the zone to present documentation to the CFZ administration and customs offices remotely.
In 2010, FATF published a report claiming that free trade zones (FTZ), which include free ports, were a ‘money-laundering and terrorist-financing threat’ partly due to inadequate safeguards, relaxed oversight and weak inspections. It sought to demonstrate, using a series of cases studies, ways in which such zones could be misused for money laundering and terrorist financing purposes. The chief factors which this report identified as making the zones vulnerable were –
- inadequate AML/CFT safeguards;
- relaxed oversight by competent domestic authorities;
- weak procedures to inspect goods and register legal entities, including inadequate record-keeping and information technology systems; and
- lack of adequate co-ordination and co-operation between zone and customs authorities.
“The Global Illicit Trade Environment Index Free trade zones: Five case studies” was produced by the Economist Intelligence Unit (EIU) and published in 2018. One of the 5 case studies it featured dealt with the CFZ. Saying that the CFZ is large and hugely important, the report notes that in 2017 the total trade passing through it totalled $19.7 billion. The report remarks that Panama scored zero on the FTZ governance indicator, with the CFZ singled out for lacking effective controls and thus having little in the way of enforcement.
The EIU report claimed that cigarette smuggling is rife, particularly of illicit “white cigarettes”, said to chiefly originate in China, India, UAE and Paraguay, and then being sent on to destinations elsewhere in Latin America, including to other free zones. It is also said that the chief purpose of the cigarette smuggling is “origin laundering”, i.e. disguising or misdescribing the origin of the goods to benefit from preferential tax or duty treatment, or to avoid discrimination (e.g. to enable the product to be portrayed of domestic production).
In October 2018, the European Parliament Research Service (EPRS) produced a study into money laundering and tax evasion risks in free ports at the request of the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3). This had followed concerned expressed about free zones expressed in resolutions in the Parliament. Included in this report were useful explanations of what free zones and free ports were.
The EPRS report used the following description of “free ports” –
Free ports are warehouses in free zones, which were – originally – intended as spaces to store merchandise in transit. They have since become popular for the storage of substitute assets, including art, precious stones, antique, gold and wine collections – often on a permanent basis. Apart from secure storage, sales arguments in the free port business include the deferral of import duties and indirect taxes such as VAT or user tax as well as a high degree of secrecy.
“Free zones”, however, were said by the EPRS report to fall into 4 broad categories –
- Free trade zones, typically located near seaports or airports, mainly offer exemptions from national import and export duties on goods that are re-exported. Local services gain, though there is little, if any, value added to the goods traded.
- Export processing zones go a step further by focusing on exports with a significant value added, rather than only on re-exports.
- Special economic zones apply a multisector development approach and focus on both domestic and foreign markets. They offer an array of incentives including infrastructure, tax and custom exemptions, and simpler administrative procedures.
- Industrial zones are targeted at specific economic activities, say media or textiles, with infrastructure adapted accordingly.
Although the CFZ has not been linked to the storage of art, as an illustrating of how free ports and free zones can adapt and evolves, the EPRS study looked in depth at Le Freeport in Luxembourg, where art is involved, the study noting that as interest in art as an investment has grown, the appeal of storing it tax-free while it potentially appreciates in value has grown too, spurring the expansion of free ports in Geneva and similar facilities elsewhere in Europe and Asia. Owners do not have to pay import or export taxes when they ship to or from those locations.
The CFZ is not the only free zone in Panama, it having granted a total of 16 licences to operate zones, between the cities of Panama and Colon. The Panama Pacifico Area is one of the most important projects and the main objective of this Special Economic Area is the attraction of new direct foreign investment and the creation of jobs in Panama.
There are also container and logistic parks, with Panama regarded as an excellent logistics centre due to its position and connections – internal and external. An example is Panama Logistics Park, a real estate industrial project and logistics centre of 460,000m2, strategically located in the east of Panama City and a short distance from Tocumen Airport.
THE PANAMA PAPERS
The Panama Papers is the name for the release of documents obtained from a Panama-based offshore services provider called Mossack Fonseca, and for the investigations carried out following this.
The International Consortium of Investigative Journalists (ICIJ), together with the German newspaper Suddeutsche Zeitung and more than 100 other media partners, spent a year sifting through 11.5 million leaked files that originated with Panama-based Mossack Fonseca. 2 years later, Suddeutsche Zeitung received further leaked documents from the now-defunct law firm comprising some 1.2 million additional documents, mostly covering the years 2016-2017.
Operating in more than 21 jurisdictions, Mossack Fonseca was considered one of the 5 biggest wholesalers of offshore secrecy in the world. Of the companies that appear in Mossack Fonseca’s files, around 50% of the more than 113,000 were incorporated in the BVI; but the second favourite jurisdiction was Panama itself, where the firm had its headquarters. Mossack Fonseca traces its beginnings to 1986, when Ramón Fonseca merged his small, law firm in Panama with another local firm headed by Jürgen Mossack, a Panamanian of German origin.
The investigation noted that when the BVI cracked down on bearer shares in 2005, Mossack Fonseca moved bearer share clients to Panama.
In February 2017, police in Panama arrested the founders of Mossack Fonseca on money laundering charges after authorities raided the firm’s headquarters as part of investigations into Operation Car Wash, Brazil’s largest-ever bribery scandal and Brazilian construction company, Odebrecht. Panama’s Attorney General Porcell called Mossack Fonseca “a criminal organisation that is dedicated to hiding money assets from suspicious origins”. Mossack and Fonseca were released in April 2017.
Panama’s attorney general’s office told Süddeutsche Zeitung that five criminal investigations related to Mossack Fonseca are ongoing.
In the wake of the leaks the firm sought to help (and hopefully retain) some clients by changing its own business name to remove any obvious reference to the Panamanian founders on mail, packages, and invoices. In Samoa, Mossack Fonseca became Central Corporate Services Ltd. In Panama, Mossack Fonseca transferred clients to Orbis Legal Services, which hired some Mossack Fonseca employees to maintain the “same level of service”.
In May 2016, the firm announced to clients that it was shutting down its office in the Isle of Man, and closures of its offices in Jersey and Hong Kong soon followed. Later that year, Fonseca and Mossack announced that they would retire from the firm they had founded. A skeletal Mossack Fonseca would remain open for a few years longer to fulfil existing obligations but would “eventually wither away,” an email to clients said.
In 2018 the firm bearing closed for good. However, in May 2018, prosecutors in Panama charged 10 Mossack Fonseca employees with money laundering as part of investigations into the Car Wash scandal. Mossack remained under investigation elsewhere, including in Germany as an accessory to tax evasion.
ILLEGAL UNREPORTED UNREGULATED (IUU) FISHING
From November 2012, the European Commission undertook what it described as a formal dialogue with several countries which were warned of the need to take strong action to fight IUU fishing. One of these countries was Panama. When significant progress was observed, the Commission could end the “dialogue” (using a football metaphor, cancelling the yellow warning card). This was the case for Panama in October 2014.
With its large shipping register it was perhaps inevitable that Panama should be one of the countries affected.
The EU IUU Regulation entered into force in 2010 and applied to all landings and transhipments of EU and third-country fishing vessels in EU ports, and all trade of marine fishery products to and from the EU. It aims to make sure that no illegally caught fisheries products end up on the EU market. To achieve this, the Regulation requires countries to certify the origin and legality of the fish caught by vessels flying their flag, thereby ensuring the full traceability of all marine fishery products traded from and into the EU. The system thus ensures that countries comply with their own conservation and management rules as well as with internationally agreed rules. In addition to the certification scheme, the Regulation introduces an EU alert system to share information between custom authorities about suspected cases of illegal practices.
KIMBERLEY PROCESS AND “BLOOD” OR “CONFLICT” DIAMONDS
The Kimberley Process Certification Scheme (KPCS) is a set of standards that regulates the trade in rough diamonds (ala conflict diamonds). It sets out the way in which each participating country should handle the imports and exports of rough diamonds, and internal controls for ensuring that domestic trading and processing are not contaminated by illicit sales.
It dates from May 2000 when governments, NGO and industry groups sought to come up with a practical way to prevent illicit diamonds from entering the legitimate diamond trade. The resulting Kimberley Process Certification Scheme was designed and entered into force in 2003, with the support of the UN and WTO.
Panama joined the Kimberley Process in 2012.
The Panama Diamond Exchange (PDE) – renamed the World Jewelry & Diamond Hub, Panama in 2016, as a large number of its members also dealt in jewellery -was the first and only diamond bourse in the entire region of Latin America, including South America, Central America, Mexico and the Caribbean. It was established in 2006 and officially accepted into the World Federation of Diamond Bourses (WFDB) in 2008.
An article published in 2008 by the Center for Security Studies (CSS) at ETH Zurich warned that Panama might become a funnel for smuggling illegal diamonds abroad; saying that observers worried that Panama’s role in laundering illegal diamonds mined in South America might only grow as the Central American country became a regional hub of the Latin American diamond trade. In the article, Venezuelan and Guyana diamonds were singled out as those might likely to be laundered through Panama. In 2008, there were reports of Venezuelan diamonds being smuggled through Panama.
It would appear that Intendencia has responsibility for AML/CFT supervision of traders in the diamond business.
Panama has a form of VAT, called ITBMS (impuesto a las transferencias de bienes corporales muebles y la prestacion de servicios), and applies to imported goods, products sold or services rendered in Panama. Exports of goods, and certain export-related services (such as international freight charges), are ITBMS-exempt.
According to the OECD in 2018, Panama raises about 2.6% through ITBMS receipts, but only collects around 62% of potential revenue, meaning that 38% is lost.
There is also a stamp tax levied on the issuance of certain documents.
ISC is a selective consumption tax (impuesto selectivo al consumo), an excise tax on imports of specific goods such as luxury vehicles, jewellery, firearms, alcoholic beverages and tobacco products.
Insurance tax is levied on insurance premiums.
Panama has been described as a source, transit, and destination country for men and women exploited in sex trafficking and forced labour. Children are exploited in forced labour, particularly domestic servitude, and sex trafficking in Panama. Most identified trafficking victims are foreign adults exploited in sex trafficking, especially women from South and Central America. However, it is also said that Panamanians are also exploited in the country, and elsewhere in the Caribbean and Latin America.
In 2018, it was reported that, following a 2-year investigation, Costa Rica and Panama had combined to dismantle a criminal organisation smuggling Chinese to central America for labour exploitation or for onward transportation to the US. It was alleged that Chinese nationals with links to Asia, Europe and South America had been involved. The smuggled individuals were brought from China to Europe by air, moving on to Ecuador, Peru, or Colombia, but with Costa Rica as their final destination – mostly entering through Juan Santamaría International Airport in San José (with the alleged connivance of officials there). The fee charged was said to be between $22,000 and $45,000 fee. Some were smuggled to Panama for onward trafficking to the US. In most cases, it was said, those involved became indebted to the criminals, a debt they then had to pay off and/or work for the criminals.
This was not an isolated case, insofar as the trafficking or people into Latin America is concerned. Earlier in 2018, for example, another gang was found to have charged victims about $10,000 each to bring Asian (including Chinese) people from the Ecuador/Colombia border to Panama for onward passage into the US.
The US State Department 2018 Trafficking in Persons Report said that the Government of Panama does not fully meet the minimum standards for the elimination of trafficking; however, it is making significant efforts to do so. It was said to have demonstrated increasing efforts by investigating, prosecuting, and convicting more traffickers; establishing the National Commission on the Identification and Protection of Victims to address victim identification and administer victim services; and developing and implementing its 2017 National Plan Against Human Trafficking (PNTdP; a 5-year plan extending to 2022). There is a National Commission for Countering the Trafficking of Persons (Comisión Nacional contra la Trata de Personas), chaired by the Ministry of Public Security. However, it said, the government did not meet the minimum standards in several key areas.
Article 456 of the penal code does not criminalise all forms of sex and labour trafficking because it required movement to constitute a trafficking offence. Anyone who promotes, leads, organises, finances, invites, or manages by any means of communication, mass or individual, or in any other way facilitates the entry into or the exit from Panama or the movement within Panama of a person of any sex, to realise one or several acts of prostitution or to submit a person to exploitation, sexual or labour servitude, slavery or activities similar to slavery, forced labour, servile marriage, mendacity, illicit extraction of organs or irregular (illegal) adoption, is guilty of an offence. The use of force, fraud, or coercion are aggravating factors, rather than essential elements of the crime.
Within Panama itself, it has been reported that victims include Nicaraguan men, and to a lesser degree, Colombians, for use in the areas of construction, agriculture, mining and other sectors. Most victims of labour trafficking come from Nicaragua by bus and enter Panama through Costa Rica.
 US State Department, 2018: https://www.state.gov/j/tip/rls/tiprpt/countries/2018/282727.htm
 There is at least anecdotal information that Panama issues a number of visas to Colombian women to work as prostitutes – prostitution is legal in Panama.
 Somewhat ironical perhaps, given that the US Border patrol was originally established not to keep out Mexicans and others from Central America, but rather the Chinese.
 In Panama, the PPO was quoted as saying that the smuggling ring in Panama consisted of Panamanian citizens and foreigners.
 Hence, Panama is placed in “Tier 2”; meaning Countries whose governments do not fully meet the TVPA’s minimum standards, but are making significant efforts to bring themselves into compliance with those standards.
 Although the report notes that it had disbanded the specialist police unit set up in 2016.
 Law 79 of 2011 on trafficking in persons and related activities; originally criminalised human trafficking. (Ley N⁰ 79 sobre Trata de Personas y Actividades Conexas).
 Even where there is no sexual or labour exploitation.
 For example, see reports of an example case in 2017: https://www.insightcrime.org/news/brief/human-trafficking-network-dismantled-in-panama/
12th November 2018
Updated 16th November 2018
|ACP||Panama Canal Authority (Autoridad del Canal de Panama)|
|AEOI||Automatic Exchange of Financial Account Information|
|ALP||Arm’s length principle (for transfer pricing)|
|AMERIPOL||Comunidad de Policías de América|
|AML/CFT||Anti-money laundering/countering financing of terrorism|
|ANA||National Customs Authority (Autoridad Nacional de Aduanas)|
|BEPS||Base erosion and profit-shifting, see: http://www.oecd.org/tax/beps/|
|CBRN||Chemical, biological, radiological and nuclear weapons|
|CDD||Customer Due Diligence|
|CFP||Countering the financing of poliferation|
|CFZ||Colon Free Zone|
|CICAD/OEA||Inter-American Commission for the Control of Drug Abuse, of the Organization of American States|
|CNBC||National Council against ML/FT/FPWMD (Consejo Nacional Contra el Blanqueo de Capitales, Financiamiento del Terrorismo, y de la Proliferación de Armas de Destrucción Masiva)|
|CN Code||Combined Nomenclature of the EU|
|CNS||National Security Council|
|COMALEP||Multilateral Customs Agreement for Latin America, Spain and Portugal|
|CRS||OECD Common Reporting Standard|
|CSN||National Security Council (Consejo de Seguridad Nacional)|
|CSS||Center for Security Studies|
|CTR||Cash Transaction Report|
|DGI||General Directorate of Revenue (Dirección General de Ingresos)|
|DIJ||Judicial Investigation Directorate (Dirección de Investigación Judicial)|
|DNFBP||Designated Non-Financial Businesses and Professionals|
|EIU||Economist Intelligence Unit|
|EPRS||European Parliament Research Service|
|EXBS||US Government Export Border and Related Security programme|
|FATF||OECD Financial Action Task Force|
|FIU||Financial Intelligence Unit|
|FSRB||FATF-style regional body (see GAFILAT)|
|FTZ||Free trade zone|
|GAFILAT||Financial Action Task Force of Latin America (the FATF-style regional body)|
|GIA||Inter-institutional Anticorruption Group (Grupo Interinstitucional Anticorrupción)|
|HS Code||WCO Harmonised System Code to classify traded goods|
|ICP||Internal control programme|
|ICIJ||International Consortium of Investigative Journalists|
|ICRG||FATF International Cooperation Review Group|
|IMDG Code||International Maritime Dangerous Goods Code of the International Maritime Organisation|
|INCSR||US State Department International Narcotics Control Strategy Report|
|Intendencia||Supervisor and regulator of non-financial reporting institutions and activities (Intendencia de Supervisión y Regulación de Sujetos Obligados No Financieros)|
|INTERPOL||International Criminal Police Organization|
|IPACOOP||Panamanian Autonomous Cooperative Inssitute (Instituto Panameño Autónomo Cooperativo)|
|ISC||Selective consumption tax (impuesto selectivo al consumo)|
|ITBMS||impuesto a las transferencias de bienes corporales muebles y la prestacion de servicios – a form of value added tax|
|IUU||Illegal Unreported unregulated fishing|
|JPCU||Joint Port Control Units|
|JCJ||Gambling Control Board (Junta de Control de Juegos)|
|KPCS||Kimberley Process Certification Scheme|
|KYC||Know your customer|
|MEF||Ministry of Economy and Finance (Ministerio de Economía y Finanzas)|
|MER||Mutual evaluation report|
|MICI||Ministry of Trade and Industry (Ministerio de Comercio e Indus-tria)|
|MINGOB||Ministry of Government (Ministerio de Gobierno)|
|MIRE||Ministry of Foreign Affairs (Ministerio de Relaciones Exteriores)|
|ML/TF||Money laundering/terrorist financing|
|MoU||Memorandum of Understanding|
|MSB||Money services businesses|
|MUSBER||Unified Risk-based supervisión handbook (Manual Único de Su-pervisión Basado en Riesgo)|
|NCST||National Council on Secure Trade|
|NFRI||Non-financial reporting institutions|
|NRA||National Risk Assessment|
|OECD||Organisation for Economic Development and Co-operation|
|PANDEPORTES||Panamanian Sports Institute|
|PCA||Panama Canal Authority (Autoridad del Canal de Panama)|
|PDE||Panama Diamond Exchange (now the World Jewelry and Diamond Hub)|
|PEP||Politically Exposed Person|
|PGN||Office of the Attorney General of the Nation (Procuraduría General de la Nación)|
|PPO||Public Prosecutor’s Office|
|PWMD||Proliferation of Weapons of Mass Destruction|
|RPM||Radiation portal monitors|
|RRAG||GAFILAT Aset Recovery Network (Red de Recuperación de Activos de GAFILAT)|
|S.A.||Corporation (Sociedad Anónima)|
|SBP||Bank supervisor of Panama (Superintendencia de Banco de Panamá)|
|SENAFRONT||National Border Control Service (Servicio Nacional de Frontera)|
|SEZ||Special Economic Zone|
|SIGA||Customs single-window declaration system (Sistema Integrado de Gestión Aduanera)|
|SMV||Supervisor of the Securities Market (Superintendencia del Mercado de Valores)|
|SSRP||Panama Supervisor of Insurance and Reinsurance (Superintenden-cia de Seguros y Reaseguros de Panamá)|
|STR||Suspicious Transaction Report|
|TAX3||EU Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance|
|TCSTT||Technical Committee on Secure Trade and Transport|
|TEU||Twenty-feet equivalent unit – an inexact unit of cargo capacity often used to describe the capacity of container ships and container terminals|
|UAV||Unmanned air vehicle (aka drone or remotely piloted vehicle, RPV)|
|UAE||United Arab Emirates|
|UAF||See FIU (Unidad de Análsis Financiero)|
|UNODC||United Nations Office on Drugs and Crime|
|UN SCR||United Nations Security Council Resolution|
|WCO||World Customs Organisation|
|WGI||World Bank Worldwide Governance Indicators|
|WMD||Weapons of mass destruction|
|WTO||World Trade Organisation|
|ZLC||Colon Free Zone|
 In the 2018 fiscal year the Canal enjoyed a record tonnage passing through, 9.5% up on the previous year, at 442.1 million “Panama Canal tons” or PC/UMS: https://www.hellenicshippingnews.com/panama-canal-registers-record-year/ .The Panama Canal/Universal Measurement System is based on net tonnage, modified for Panama Canal purposes and uses a mathematical formula to calculate a vessel’s total volume; with 1 PC/UMS net ton being equivalent to 100 cubic feet of capacity.
 In 2016, 6.2 million TEU containers touched Panamanian ports. 80% of the TEU containers were in transit with final destinations to other countries of the Americas: https://www.inta.org/INTABulletin/Pages/Anticounterfeiting_Update_7214.aspx
 For a very recent feature on the Canal see: https://theloadstar.co.uk/wp-content/uploads/panamalr.pdf
 Panama does not have a central bank. It uses the US Dollar as its de facto currency and has a completely market-driven money supply. This means that Panama cannot produce money; it must instead buy or obtain its dollars by producing or exporting real goods or services. The currency in Panama is known as the Balboa, even though US banknotes are used. One Balboa is divided into 100 centésimos, and is issued in 1 cent, 10 cents, 25 cents, and 50 cents coins. Balboas are only issued as coins; Panama does not issue its own banknotes, and acquired US banknotes are used instead. The use of the US currency as its own makes it both easier and more likely that the country can be used to launder cash, and that therefore bulk cash smuggling from the US (and elsewhere in the region where US currency is used or accepted) is a real threat.
 In 2016, 13% of the 6.2 million TEU containers entering Panama were destined for the CFZ: https://www.inta.org/INTABulletin/Pages/Anticounterfeiting_Update_7214.aspx
 US State Department International Narcotics Control Strategy Report 2018: https://www.state.gov/documents/organization/278760.pdf
 The National Risk Assessment of Money Laundering and Financing of Terrorism – see later in the paper,
 Not helped by tax crimes not being predicate crimes for money laundering under Panamanian law, although in 2018 moves were underway to change this situation.
 Panama was a province of Colombia until US pressure in the early 20th Century saw it gain independence in 1903 (and so enable the construction of the Canal), and some Colombians still regard Panama as its “lost” province.
 A 2010 report from FATF had already documented the vulnerabilities of free zones to money laundering: http://www.fatf-gafi.org/media/fatf/documents/reports/ML%20vulnerabilities%20of%20Free%20Trade%20Zones.pdf
 El Grupo de Acción Financiera de Latinoamérica; an inter-governmental organisation that comprises 16 countries from South America, Central America and North America: http://gafilat.org.iplan-unix-03.toservers.com/content/inicio/
 For a background briefing note on the blacklist see http://www.europarl.europa.eu/cmsdata/147404/7%20-%2001%20EPRS-Briefing-621872-Listing-tax-havens-by-the-EU-FINAL.PDF
 As defined by the OECD, base erosion and profit shifting (BEPS) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. For more information see: http://www.oecd.org/tax/beps/
 For example, in September 2016, the Panamanian Assembly adopted draft Law No.363, an agreement between Panama and the US to improve international tax compliance through co-operation on the Foreign Accounts Tax Compliance Act (FATCA).
 The CRS Multilateral Competent Authority Agreement (CRS MCAA).
 This was nevertheless an improvement over the previous MER on 2014, in which it was reported that Panama fully complied with only 1 Recommendation; mostly complied with 3 Recommendations; partially complied with 26 Recommendations; and did not comply with 19 Recommendations. It did not receive a compliant or largely compliant rating in any of the 16 Principal and Fundamental Recommendations: https://www.imf.org/external/pubs/ft/scr/2014/cr1454.pdf
 This conclusion being underlined by the Odebrecht affair (see above)
 However, in 2016, of 6.2 million TEU containers entering/leaving the country, only 56 were seized for containing counterfeit goods (and this was down from 233 the previous year), with 61% of the goods said to be in transit (i.e. not destined for the Panamanian domestic market). INTA, the International Trademark Association, identified the CFZ as “a sensitive hub of counterfeit goods”: https://www.inta.org/INTABulletin/Pages/Anticounterfeiting_Update_7214.aspx
 Involved in trade-based money laundering and other trade-based financial crime: https://www.gov.im/media/1348726/notice-1000-man-trade-based-money-laundering-july-18.pdf
 Which might include proliferation, sanctions-busting etc. In 2018, Panama adopted new export controls for dual-use goods, and also adopted the EU list of dual-use items (see below).
 See MER paragraph TC31.
 “Assessing risks and applying a risk-based approach”.
 Evaluación nacional de riesgos de blanqueo de capitales y financiamiento al terrorismo de Panamá: http://www.mef.gob.pa/es/Documents/Evaluacionde%20RiesgoPanama.pdf
 Established under Law 23 of 2015.
 Or, indeed, tax evasion/avoidance, as apparently evidenced by the “Panama Papers” and the Odebrecht affair.
 Which may seem odd, given its neighbour is Colombia, which has endured decades of problems with criminal and paramilitary organisations (the two elements are almost inevitably linked), and even now, despite a ceasefire between the government the main paramilitary groups (such as FARC) – which appears under risk, to say the least, after recent elections in Colombia – continues to suffer from severe problems from crime and drugs/paramilitary gangs.
 Designated non-financial business or profession – best described as a “FATF catch-all for any business or profession that poses a money laundering risk but cannot be classified as a financial institution”: http://www.joebm.com/papers/173-W00047.pdf being those businesses and professions that have similar potential to financial institutions to be used for money laundering. They can include auditors, accountants, tax advisors, casinos and other gambling service providers, CSP, dealers in precious metals or precious stones, lawyers, notaries and other independent legal professionals, real estate agents and trusts.
 On the other hand, the National Strategy labelled the sector’s vulnerabilities as being low (despite the apparent evidence of such as the Panama Papers).
 Law No. 2 of 2011, defines a Resident Agent as being “the lawyer or law firm that provides services as such and that must keep the records required by this law for legal persons constituted in accordance with the laws of the Republic of Panama and with which maintains a professional relationship in the present”.
 Article 3 of Law 2 of 2011 refers.
 See MER page 105.
 See MER page 104 (paragraph 472).
 See MER paragraph TC26.
 See MER paragraph TC112.
 At least at the the time of the GILFAT on-site visit in 2017.
 Created under Executive Decree 136 (1995): Unidad de Análsis Financiero (UAF) in Spanish.
 At the time of the 2018 MER, some DNFBP did not have access to the platform.
 The STR rejection system allows feedback, both immediate and periodic, that is said to have improved the quality of STR.
 See comments re the “Panama Papers” below.
 The MER records that at the time of on-site visit there 84 such MoU, including with members of Egmont.
 MER paragraph 513.
 Created by Resolution No. 25 of 2016 by the Office of the Attorney General.
 “Bearer negotiable instruments”, or BNI, in the terminology of FATF.
 Law No. 30 of 1984, as amended by Law No. 49 of 2009. The laws allow for the seizure of all goods affected by smuggling or customs fraud, including the cash etc.
 Comisión de Economía y Finanzas de la Asamblea Nacional.
 Executive Decree No. 290 of 2016 created GIA.
 Created by Law No. 19 of 2010.
 Note that NPO are not (at the time of the GAFILAT on-site visit) covered by the 2015 AML law, though they are required to be registered with one of several government ministries, or the Panamanian Sports Institute (PANDEPORTES) – which regulates and grants legal status to NPO related to sports activities. They also have to submit an annual donation report to the General Revenue Office for taxation purposes.
 However, in the National Strategy there is an action plan so that the licensing of these reporting institutions can be in charge of the Superintendence of Banks
 There is gold, and a large-scale, multibillion-dollar copper mining project 120 km from Panama City (said to be capable of producing 380,000 tonnes of copper a year).
 Established by Decree No. 2 of 1998.
 With the Ministry of Commerce and Industry being the lead ministry.
 Autoridad del Canal de Panamá (or ACP) in Spanish: https://www.pancanal.com/eng/op/notices/2018/N01-2018.pdf
 Which created the National Coordination System for the Prevention of Money Laundering, TF and the Proliferation of Weapons of Mass Destruction of the Republic of Panama.
 For more information on Executive Decree 81 and its path to implementation, please see “Facilitating the Implementation of Strategic Trade Controls in the Republic of Panama” (Strategic Trade Review Journal, Spring/Summer 2018: https://strategictraderesearch.org/current-issue-summer-2018/
 http://www.un.org/en/sc/1540/documents/Panama_action_plan.pdf : a summary of its content was included in my blog post of 12th October: https://wordpress.com/post/raytodd.blog/4970
 An individual or organisation that has significant political or other influence but is not allied to any particular country or state. In the context of UN SCR 1540 it is often used to mean terrorist and paramilitary organisations and their members, supporters and organisers.
 Note that the EU Dual-use List adopted by Panama as its own uses the term “dual-use items”.
 For some background on RPM, see this Stanford University article: http://large.stanford.edu/courses/2016/ph241/wolk1/
 Such a system provides a single entry point (or “window”) – either physical or electronic – for the submission of all data and documents related to the declaration, clearance and release of goods, and managed by one agency, which then can inform any other agency required and apply or direct any necessary control action. See: http://tfig.unece.org/contents/single-window-for-trade.htm
 As well as proof of financial responsibility and adequate provision for indemnity to third parties as a guarantee against any possible damage and/or loss.
 The International Maritime Dangerous Goods Code of the International Maritime Organisation: see http://www.imdgsupport.com/free%20imdg%20code%20introduction%2037-14.pdf
 See paragraph 16 of NOTICE TO SHIPPING No. N-1-2018: https://www.pancanal.com/eng/op/notices/2018/N01-2018.pdf
 The Decree defines “handling” as meaning: “Any action that consolidates, deconsolidates, guards, preserves, packs, unpacks, repacks, handles, dispatches, transships, transits, transports, ensure, measure, certifies, operates, maritime, land or air terminals, remits by mail any of the goods, included in the National Control list of Dual-Use Goods.”
 Part of the US State Department’s Bureau of International Security and Non-proliferation (ISN), EXBS works with partner governments throughout the world seeking “to prevent the proliferation of weapons of mass destruction… by helping to build effective national strategic trade control systems in countries that possess, produce, or supply strategic items, as well as in countries through which these items are most likely to transit.” https://www.state.gov/t/isn/ecc/c27911.htm
 Council Regulation 428/2009/EC (as amended): http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1527179601283&uri=CELEX:02009R0428-20171216
 For a handy summary of the ICP requirements, see https://www.steptoeinternationalcomplianceblog.com/2018/10/eu-promotes-export-controls-and-sanctions-compliance-programs/#page=1
 An authorisation shall be required if, while not listed, “the items in question are or may be intended, in their entirety or in part, for use” at any stage of development of chemical, biological, or nuclear weapons, or “are or may be intended, in their entirety or in part, for a military end-use”, exported to countries subject to an arms embargo, or intended for use as a component of listed military items exported without authorisation; and it is the responsibility of the exporter to report to the authorities any awareness that the item he wants to export falls into these categories, even if non-listed.
 Article 2(5) of the EU Regulation refers: “brokering services” means the negotiation or arrangement of transactions for the purchase, sale or supply of dual-use items from a third country to any other third country, or the selling or buying of dual-use items that are located in third countries for their transfer to another third country – but the sole provision of ancillary services is excluded from this definition; such ancillary services are transportation, financial services, insurance or re-insurance, or general advertising or promotion.
 Though the GAFILAT MER noted a shortcoming in that the agent was not obliged to undertake “proactive” action, but merely had to obtain and file the information supplied on the purported activity of the legal entity: see paragraph 477.
 See MER paragraph 480.
 See MER paragraph 481.
 Corte Suprema de Justicia.
 Tribunal Circuital.
 The index, which ranks 180 countries and territories by their perceived levels of public sector corruption according to experts and businesspeople, uses a scale of 0 to 100, where 0 is highly corrupt and 100 is very clean: https://www.transparency.org/news/feature/corruption_perceptions_index_2017#table
 https://www.tracit.org/uploads/1/0/2/2/102238034/eiu_ftz_illicit_trade_paper.pdf The Global Illicit Trade Environment Index is commissioned by the Transnational Alliance to Combat Illicit Trade (TRACIT) and produced by The Economist Intelligence Unit (EIU). The Index evaluates 84 countries on their structural capability to guard against illicit trade, highlighting specific strengths and weaknesses.
 Though this was a fall from its peak year of 2012, when trade was valued at $3.8 billion.
 Cigarettes that are usually manufactured legitimately but are smuggled for the purposes of tax/duty avoidance/evasion.
 Although the oldest free port catering for art and other valuables is in Geneva, where the city’s first free port was set up in 1854.
 Law 41 of 2004 created the Panama Pacifico Special Economic Area.
 For background to the firm see: https://www.occrp.org/en/panamapapers/inside-the-fall-of-mossack-fonseca
 Lava Jato.
 In 2017, the company reached a settlement with Panamanian authorities: https://www.reuters.com/article/us-panama-odebrecht/odebrecht-agrees-to-pay-220-million-fine-aid-panama-probe-idUSKBN1AH57C
 Global Witness argues that conflict diamonds are defined by the Kimberley Process as ‘rough diamonds used by rebel movements to finance wars against legitimate governments’; and, as a result of this narrow definition, the Kimberley Process is not empowered to address the broader range of risks to human rights posed by the trade in diamonds. Furthermore, as the Kimberley Process applies only to rough diamonds, once stones are cut and polished, they are no longer covered by the scheme.
 “Dirty Diamonds in Panama”: http://www.css.ethz.ch/en/services/digital-library/articles/article.html/108972/pdf
 For more information on ITBMS see https://home.kpmg.com/xx/en/home/insights/2018/10/panama-indirect-tax-guide.html
AMENDMENTS TO THIS PAPER
16 November 2018
- Added section on “Human Trafficking”.
- Reference to new container terminal at Corozal added on page 1.
An excellent feature in the Irish Times on 14th November says that the Italian Mafia has turned its attention to the food industry – to the tune of around €22 billion a year – affecting the path of food to dinner tables around the world. It says that the Mafia has infiltrated the entire food chain, according to a Rome-based think-tank, the Observatory of Crime in Agriculture and the Food Chain. The Mafia has bought up cheap farmland, livestock, markets and restaurants, laundering its money through what is one of the country’s leading industries. The value of the so-called agromafia business has almost doubled from €12.5 billion in 2011 to more than €22 billion in 2018 (growing at an average of 10% a year), according to the Observatory, and now accounts for 15% of total estimated Mafia turnover. Police data indicate that all of Italy’s major crime syndicates – the Camorra, Cosa Nostra and the ‘Ndrangheta – invest in farming. Mafia syndicates in Italy have an estimated annual turnover of €150 billion, according to a report by the anti-Mafia parliamentary committee in 2017 – €40 billion more than Italy’s biggest holding company.
On 12th November, the Gibraltar Government reported that its OFT is issuing updated versions of its AML/CFT Guidance Notes. The revised guidance notes now answer FAQ and provide additional practical guidance and insights into money laundering issues specific to each industry – to real estate and high-value goods dealers.
Ropes & Gray on 12th November published an article saying that the Home Office has sent letters to more than 17,000 companies that it believes are required to publish an annual statement under the Modern Slavery Act. The letters request that companies register on the Modern Slavery Contact Database by November 18th, publish up-to-date modern slavery statements by March 31st and submit their statements to specified transparency databases. The article discusses the Home Office letter and other recent developments under the Act and share related compliance recommendations for multinationals with UK operations. It also reports that on September 24th, Australia, Canada, New Zealand, the UK and US announced a set of 4 principles intended to provide a framework on which countries can build a strategy to take effective action to prevent and eradicate human trafficking from public and private sector supply chains.
Krebs on Security on 8th November reported a warning that “Informed Delivery,” a new offering from the US Postal Service (USPS) that lets residents view scanned images of all incoming mail to carry out ID theft, and criminals are already using it to commit various identity theft and credit card fraud schemes. The article says that ID thieves have figured out ways to hijack identities and order new credit cards in victims’ names before the USPS can send their notification.
13th November 2018
IN 2017 BULGARIA EXPORTED 20% MORE ARMS AND MUNITIONS
Website Bulgaria Military reported on 12th November that a report of the Interministerial Commission for Export Control and Non-Proliferation of Weapons of Mass Destruction said that the Bulgarian military industry exported 20% more arms and munitions in 2017 than in 2016. About 30 000 workers are currently employed in the military-industrial complex, and in the last years this branch of the Bulgarian economy has stabilised, it says. Analysis is said to show that in the period 2006-2017 the export of Bulgarian arms and ammunition grew on average by almost 17% each year.
FRENCH AND SPANISH POLICE BREAK UP GANG THAT TRAFFICKED PALESTINIAN MIGRANTS INTO EUROPE
Illicit Trade on 12th November reported on a Europol-backed operation involving French and Spanish police has resulted in the disruption of a people smuggling ring that trafficked hundreds of Palestinians into Europe. The gang is said to have charged as many as 1,200 migrants up to €8,000 each to be smuggled via Spain, using smuggling routes that passed through Middle Eastern countries, East Africa and South America to get into Europe.
IBM AND SEAGATE JOIN FORCES TO USE BLOCKCHAIN TECHNOLOGY AGAINST HARD DRIVE COUNTERFEITERS
Illicit Trade on 12th November reported that data storage specialist Seagate has teamed up IBM in a bid to reduce the counterfeiting of hard drives using blockchain and security technologies. They quoted figures from the International Anti-Counterfeiting Coalition that revealed the global trade in counterfeit and pirated electronic products is worth more than $1.7 trillion. Seagate will update the IBM Blockchain Platform with product authentication information based on the Seagate Secure Electronic ID (eID) at the point of manufacture. The unique identifiers created by the system, which effectively serve as an electronic fingerprint.
BULGARIA: COMPANIES REQUIRED TO REGISTER THEIR BENEFICIAL OWNERS BY FEBRUARY
The Lawyer reported on 13th November that, in Bulgaria, companies have until 1st February to register their beneficial owners in the Bulgarian Commercial Register and Register for Non-profit Legal Persons (BULSTAT).
CREDIT SUISSE FACES GENEVA PROBE TIED TO FORMER BANKERS
Swissinfo on 12th November reported that prosecutors are investigating whether a Credit Suisse Group AG unit failed to stop money laundering in a widening fraud case tied to a defunct asset manager. The probe has been dragging on for years and focused initially on the 2 TG Investments partners, who had left Credit Suisse in 2008 to manage money for Turkish clients.
EU CHALLENGES ISLE OF MAN’S VAT REGIME FOR BIZJETS
AIN Online, an aviation and aerospace website, on 12th November reported that the EU has initiated legal action against the UK for failing to take adequate measures against what it described as “abusive VAT practices in the Isle of Man with regard to the supplies and leasing of aircraft”. The Commission’s action is in response to last year’s leak of the so-called “Paradise Papers” that revealed cases where an Isle of Man company acquired a business jet that it then leased out, with a private use in the end—often by the owner of said company. Under EU law, VAT can be deducted only on the acquisition or importation of the jet if the final use is for business. The Isle of Man last year invited HM Treasury to undertake a review to confirm the policies and procedures on the treatment of VAT on aircraft, which it said is a “particularly technical and complex area” of VAT legislation – publication of this review is still awaited.
CANNABIS BRANDS: THE NEW GOLD RUSH?
An article from Shepherd and Wedderburn LLP on 8th November says that following the legalisation of recreational cannabis in Canada last month and the limited legalisation of medical cannabis on prescription in the UK, the emerging cannabis industry seems welded to the news agenda. Mainstream businesses are examining the market potential and the “land grab” for commercial rights has already begun. It says that businesses are betting on a liberalised future and brand registrations are being secured now. Any business that sees this market as having potential, whether as a producer, an importer or a retailer, should be thinking about their brand coverage now as well, it argues.
LOWERING BAR FOR INDUCEMENT TEST IN CASES OF FRAUDULENT MISREPRESENTATION
RPC on 13th November published an article says that a recent High Court case in England (Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises) means that the test for inducement in cases of fraudulent misrepresentation is whether ‘but for’ the misrepresentation, the claimant ‘might’ have acted differently. The article says that this represents a departure from previous authorities, in which the test had been said to be whether but for the misrepresentation the claimant would have entered into the contract anyway. The firm says that this case provides helpful clarification on the test for inducement in relation to fraudulent misrepresentations and also goes further to achieve fair outcomes for claimants that have been subject to a fraudulent misrepresentation.
FORMER CEO OF FOREX COMPANY YUKOM LEE ELBAZ ON TRIAL FOR BINARY OPTIONS FRAUD
Boccadutri in Italy on 8th November published an article saying that Lee Elbaz (aka Lena Green), former CEO of the Israeli Forex company, Yukom Communications, faces trial in the US in February on charges of wire fraud linked to binary options. The indictment alleges that Yucom promoted and traded binary options fraudulently through 2 websites, “BinaryBook” and “BigOption”.
THE TRANS-PACIFIC PARTNERSHIP (TPP) TO BEGIN IN LATE DECEMBER
Australian law firm, Hunt & Hunt reported on 9th November that the TPP will start to come into operation soon. TPP is a comprehensive free trade agreement between Australia and 10 other countries: Japan, Canada, Mexico, New Zealand, Singapore, Peru, Chile, Vietnam, Malaysia and Brunei. It reduces customs tariffs on a range of goods, but also has comprehensive trade liberalisation provisions concerning trade in services, investment, the environment and labour laws. Initially, the benefits of the TPP will only extend to Australian trade with Japan, Canada, Mexico, New Zealand and Singapore, because the other TPP members are yet to pass domestic legislation ratifying the agreement. The article says that TPP is an agreement that businesses need to build into their long-term strategy. While the current benefits will work for some traders, the future potential cannot be ignored.
ZARA OWNER SHUTS IRISH SUBSIDIARY AFTER TAX AVOIDANCE CRITICISM
Yahoo News on 12th November reported that Spanish clothing giant Inditex, the owner of the Zara, Bershka, and Massimo Dutti brands, has moved to close the Irish-based unit that handled a large proportion of its online sales until earlier this year. A report had suggested that it had saved about €30 million in taxes between 2011 and 2014 by basing its ITX Fashion subsidiary in Ireland rather than in Spain, where the company has its headquarters. The report also suggested that the company has avoided more than €580 million in taxes by using entities based in Ireland, Switzerland and the Netherlands.
US BELITTLES EU’S ‘SPECIAL PURPOSE VEHICLE’ AS COMPANIES FLEE IRAN
EurActiv on 13th November reported that the US is not too concerned by Europe’s idea for a special purpose vehicle (SPV) to get around US sanctions with Iran as companies are already withdrawing from the country in droves.
GOVERNOR OF LATVIA’S CENTRAL BANK REPORTEDLY SUBJECT TO ANOTHER BRIBERY PROBE
BNE Intellinews on 12th November reported that the governor of Latvijas Banka, Edgars Rimsevics, is subject to another investigation by Latvia’s anti-corruption bureau KNAB, focusing on bribery and submitting false information to the US authorities, local media reported. He is already facing bribery charges in a case linked to a failed bank and an alleged money launderer.
ETHIOPIA: DOZENS OF TOP SECURITY OFFICIALS ARRESTED ON CORRUPTION AND ABUSE CHARGES
Deutsche Welle on 13th November reported that high-profile arrests of intelligence officials, military personnel and business people for abuse and corruption come as Prime Minister Abiy Ahmed implements reforms. The attorney general also accused intelligence figures of an assassination attempt against the new prime minister.
UK PAYROLL COMPANY CEASES TRADING BLAMING VAT CHANGES
Construction Enquirer on 13th November reported that payroll specialist Sprite has ceased trading blaming planned changes in VAT collection for its demise. The change will not come into force until next October and is designed to stop “missing trader” fraud.
‘LEBANESE CONNECTION’ DRUG TRIAL OF HEZBOLLAH AGENT TO OPEN IN PARIS
The National on 13th November reported that a crime ring with alleged links to Lebanese Shiite militia Hezbollah accused of trafficking cocaine for a Colombian drug cartel and laundering the profits to buy weapons in Syria for the group is to go on trial in Paris. The chief accused is Mohamad Noureddine, a 44-year-old Lebanese businessman with interests in real estate and jewellery. The organisation is alleged to have raised funds for Iran-backed Hezbollah fighters in Syria. The investigation was known as the “Cedar Affair”. The group is said to have laundered drug money for South American cartels for years — above all in Germany.
IRELAND: LADBROKES BLAMES BETTING TAX HIKE FOR PLAN TO SHUT ON-COURSE BOOKIES
The Irish Independent on 13th November reported that UK betting group Ladbrokes is likely to terminate all its on-course bookmaking activity in Ireland after the betting tax was doubled to 2% in the latest Irish Budget. Race sponsorship at locations where it exits the on-course betting shops will also cease, and it will also slow investment in its high street estate.
IRELAND: REPORT CLAIMS LOTTERY BETTING NO THREAT TO NATIONAL LOTTERY
Calvin Ayre on 13th November reported that a new report by University College Dublin economist Jim Power, An Assessment of the Online Gambling Market in Ireland, argues that it is ‘factually incorrect” to claim that lottery betting operators are behind a decline in funding for good causes by Ireland’s National Lottery.
AMENDMENT OF GUERNSEY TRUST LAW
On 22nd October, Carey Olsen published a briefing on how a recent change refines and enhances trust law in the island.
POLICE AND CUSTOMS AUTHORITIES SEIZED AROUND 10 TONNES OF LOOSE TOBACCO AND 411,000 ILLICIT CIGARETTES IN NORTHERN IRELAND
TJI on 13th November reported that HMRC officers together with police made the seizure after searching the site of a suspected illicit tobacco factory close to Newry, located near the border with the Republic of Ireland. The cigarettes and tobacco is thought to be worth £5 million in lost taxes and duties.
BURMA GOLDEN TRIANGLE’S DRUG PRODUCTION EXPANDS, DIVERSIFIES AMID OPIOID CONCERNS
VN Express on 7th November carried an article saying that organised crime groups are expanding and diversifying drug production in SE Asia’s Golden Triangle, according to UNODC, and the region could emerge as a hub for synthetic opioids like fentanyl. Asia Pacific counter-narcotics police met in Myanmar’s capital to negotiate a new strategy to strangle the supply of chemicals used in synthetic drug production. It says that the flow of precursor chemicals to northern Myanmar has continued mostly unimpeded. Precursors come mostly from neighbouring China, although significant volumes of chemicals and cutting agents from India, Pakistan, Vietnam and Thailand have also been detected in Myanmar. Drug gangs are also starting to produce ketamine in Myanmar’s north.
SWISS GAMING ACT SET TO COME INTO FORCE FROM JANUARY 2019
iGaming Business on 12th November reported that new laws that legalise online gambling in Switzerland but outlaw foreign operators will come into effect from January 1st, with unlicensed sites to be banned from July. The Federal Council will consider licences applications during the first half of next year in line with the new laws, with plans to issue licences to operators before July 1st when blocking measures come into effect.
WHAT’S BEHIND RUSSIA’S SANCTIONS ON UKRAINIAN POLITICIANS AND BUSINESSMEN?
The Carnegie Moscow Center on 12th November published an article which says that Russia’s recent imposition of sanctions on Ukrainian politicians and businessmen is all about Ukraine’s upcoming presidential election – an attempt to restore the pre-war status quo, consolidate the elites of Ukraine’s notorious southeast, and end the war that hinders the business community.
UK CUSTOMS INFORMATION PAPERS
On 13th November, HMRC published its latest Customs Information Paper (CIP). The latest in CIP 15 (2018), which confirms that the threshold below which simplified export declarations may be made, and for imports of goods under the Merchandise in Baggage (MIB) procedure, remains at £873 for 2019.
The other CIP for 2018 and previous years are also available online, including the most recent ones –
CIP 14 Show your CITES import permit at the first point of entry into the UK
CIP 13 Changes to customs tariff rules for imported aircraft parts
US: FORMER CHARITY CEO PLEADS GUILTY TO MULTI-MILLION-DOLLAR POLITICAL CORRUPTION SCHEME
A DoJ news release on 13th November reported that Marilyn Luann Nolan, 68, the former CEO of a charity headquartered in Springfield, Missouri has pleaded guilty to her role in a multi-million-dollar political corruption scheme that involved bribes and campaign contributions for elected public officials in Missouri and Arkansas.
BANKING CORRUPTION SCANDAL THROWS POLISH POLITICS INTO TURMOIL
Politico on 13th November reported that accusations of bribery involving the head of Poland’s financial markets regulator is perhaps understandable as the last 3 Polish governments were brought low by corruption scandals. Marek Chrzanowski, chairman of the Financial Supervision Authority (KNF), has resigned from his post. It had been reported that a banker had accused him of soliciting a bribe of as much as €9.3 million in return for lenient treatment for his bank, which was in trouble thanks to large numbers of non-performing loans.
ZIMBABWE: LAW ON ANTI-LAUNDERING AND ILLICIT DEALINGS TAKES EFFECT
ZBC on 13th November reported that a clampdown on ill-gotten and unexplained wealth obtained by individuals involved in money laundering, crime and other illicit dealings has come into effect.
UK: FACEBOOK CIGARETTE SELLERS JAILED AFTER 4-YEAR FRAUD
Talking Retail on 13th November reported that 3 members of the same Midlands household have been sentenced for selling illegal cigarettes through Facebook.The trio, all unemployed, sold cigarettes from the then family home in Wednesdbury. They used at least 6 different profiles on the social media site to advertise single packs and boxes of 200 non-duty paid cigarettes in a 4-year fraud.
UK STUDENT ‘MONEY MULES’ SENTENCED FOR MONEY LAUNDERING
The BBC on 13th November reported that 2 students thought to have been used as “mules” by criminals have been sentenced for money laundering. Abdi Mohamed and Nyanjura Biseko, both 22, pleaded guilty after more than £10,000 of fraudulently obtained money was transferred into their accounts.
IRELAND: CARS AND CASH SEIZED IN SERIES OF RAIDS BY CAB
The Irish Independent on 13th November reported that the Criminal Assets Bureau has seized 8 vehicles, plant machinery, drugs, cash and a gun in an operation targeting an organised crime gang in County Meath who are involved in drugs, theft and fraud.
CORRUPT UK BORDER OFFICIAL CAUGHT SMUGGLING DRUGS AND GUNS
On 13th November, an NCA news release reported that a corrupt UK border officer has been found guilty of attempting to smuggle firearms and drugs into the UK, following a joint investigation involving the NCA, Metropolitan Police and French police. Simon Pellett, 37, from Dover was on duty when he was arrested by officers from the French National Police in October 2017.
MALAYSIA BREAKS UP ANOTHER MAJOR CHINESE-LED ILLEGAL ONLINE GAMBLING OPERATION
Calvin Ayre on 13th November reported that the operation resulted in the arrest of 118 individuals suspected of running an illegal online gambling operation from a bungalow in Kuala Lumpur. Only one of the suspects was a local resident, with the rest hailing from China. The Chinese nationals had reportedly entered Malaysia on tourist visas and their operation primarily targeted gamblers in their home country.
UK: IMPORTANCE OF PROHIBITION ON THE COLLATERAL USE OF DISCLOSED DOCUMENTS
The Lawyer on 13th November carried an article from One Essex Court saying that the Civil Procedure Rules provide that disclosed documents may be used only for the purpose of the proceedings in which they were disclosed without the consent of the disclosing party or the Court’s permission, saying that it is well established that this rule, known as the collateral use prohibition, applies both to the disclosed documents themselves and to information derived from the documents. The article discusses the recent decision in the High Court case of The ECU Group PLC v HSBC Bank PLC.
MARINE POLLUTION CRIME: FIRST GLOBAL MULTI-AGENCY OPERATION
An Interpol news release on 13th November reported on international law enforcement operation against maritime pollution has revealed hundreds of violations and exposed serious cases of contamination worldwide. Codenamed “30 Days at Sea”, the month-long operation during October saw some 276 law enforcement and environmental agencies across 58 countries detect more than 500 offences, including illegal discharges of oil and garbage from vessels, shipbreaking, breaches of ship emissions regulations, and pollution on rivers and land-based runoff to the sea.
UK: THE RETURN OF CROWN PREFERENCE
An article from Out-Law on 13th November says that a Budget measure concerning tax and insolvency effectively puts HMRC back among preferential creditors in an insolvency. Is this a failure to learn from history?
IRANIAN CUSTOMS SEIZE 15 TONNES OF IRAQ-BOUND SMUGGLED TOMATOES LABELLED AS LETTUCE
Post Online Media on 11th November reported that in mid-October, the Iranian government had banned tomato exports following panic buying of tomato paste, a staple ingredient used in many local dishes.
FORMER EGYPT GOVERNOR SENTENCED TO 10 YEARS IN PRISON FOR BRIBERY
Baker McKenzie on 13th November reported that a criminal court sentenced former Menoufiya governor Hisham Abdel-Basset to 10 years in prison over accepting a bribe.
SHANGHAI’S JAILED TOP PROSECUTOR ‘IMPLICATES 100 OTHER OFFICIALS IN CORRUPTION CASE’
Baker McKenzie on 13th November reported that the former chief prosecutor of Shanghai who is serving a life sentence for bribery is said to have implicated about 100 officials linked to his conviction.
ORGANISED CRIME AND A GLOBAL LEGAL BATTLE: THE $220 MILLION-PLUS MANUKA HONEY INDUSTRY
The Fashion Law website on 13th November published an article which says that the high concentration of antimicrobial molecule, methylglyoxal, found in this specific type of New Zealand honey – which is said to be able to repair infection-damaged tissue, quickly ease pain and inflammation, boost the immune system, and even treat acne and other skin issues – has seen it catapulted from a local, pricey staple to a bona fide superfood with legions of international fans. Global sales of Manuka honey are currently worth hundreds of millions of dollars each year. One producer reported $83 million in revenue for a 6-month period ending early this year, with about half of those sales coming from Chinese consumers. A 1 kg jar can cost $150.
FUGITIVE FORMER ROMANIAN OFFICIALS APPEAL TO COSTA RICA CONSTITUTIONAL TRIBUNAL
Mediafax on 13th November reported that former Romanian Tourism Minister Elena Udrea and former top anti-organised crime prosecutor Alina Bica, both currently detained in Costa Rica, have launched an appeal at the country’s constitutional authority in hopes to end their detention. Bica and Udrea also applied for political asylum in Costa Rica, while the former minister also gave birth to a child in the country in September. Both are wanted, and have been convicted of corruption offences in Romania.
On 7th November, Homeland Security Today reported that ISIS is maintaining a small and damaging presence in the Philippines, according to the quarterly report to Congress from the US State Department’s lead inspector general on Operation Pacific Eagle-Philippines. It estimated there are 500 ISIS terrorists in the country. ISIS-Philippines is said to remain fragmented and degraded but still posed a security threat, carrying out several bombings against civilians, and ISIS-P lacked a formal command and control structure and was unable to carry out large-scale attacks.
The report itself can be found at –
Illicit Trade on 13th November reported that a new report from Britain’s Chief Inspector of Borders and Immigration has warned that illegal migrants and people trafficking gangs may be exploiting staff shortages at sea ports in the south of England. In some cases, ferries travelling to the UK from Europe are able to land at ports that are not even staffed with Border Force officials.
On 13th November, the UN announced that the RAFIDAIN COMPANY FOR BUILDING DAMS (aka STATE ORGANIZATION FOR DAMS) had been removed from the Iraq sanctions lists following the recommendation of the relevant sanctions committee.
On 13th November, the European Parliament Research Service published a briefing paper on steps to alleviate the effects of US sanctions on European firms, with the creation of a new mechanism as a special purpose vehicle (SPV), to facilitate financial transactions with Iran.
King & Spalding on 13th November reported that the scandal involves 8 notebooks documenting at least 7 years of elaborate corruption schemes involving senior officials in Argentina’s government. The notebooks were kept by the driver for a close advisor to Julio de Vido, who served as Minister of Federal Planning during the presidencies of Nestor Kirchner (2003-2007) and Cristina Fernandez de Kirchner (2007-2015). The contain meticulous records of money transported between construction companies, the presidential residence, the planning ministry, a series of safe houses, and the Kirchners’ private home. Media in Argentina is now reporting that lawyers with the US DoJ and SEC recently visited Argentina to meet with prosecutors about possible FCPA connections.
On 13th November, SBC News reported that Daub Alderney an online gambling subsidiary of London AIM-listed Stride Gaming Plc, has been fined £7.1 million for failing to meet Gambling Commission rules and standards on money laundering and protection of vulnerable customers. The Commission found multiple source-of-fund violations with regards to ‘enhanced customer due diligence’ checks on its financial transactions.
On 13th November, OFAC added 5 individuals connected to Hizbollah to its terrorism sanctions lists, together with the AL-MUJAHIDIN BRIGADES (a.k.a. AL MUJAHIDEEN BRIGADES; ANSAR AL-MUJAHIDIN MOVEMENT; HOLY WARRIORS BATTALION; and KHATIB AI-MUJAHIDIN).
The European Council on Foreign Relations on 12th November published an article saying that the involvement of Russian private military contractors (PMC) in Africa is rapidly growing, and with it, their political and economic influence. It says that Russia is strengthening its economic and political ties with Africa. The value of Russian trade with African countries rose from $3.4 billion in 2015 to $14.5 billion in 2016, and it is is actively co-operating with African dictators that the West has targeted with economic and political sanctions. In the last 3 years, Moscow significantly intensified its involvement in Africa, a process that culminated in Foreign Minister Sergey Lavrov’s tour of Angola, Namibia, Mozambique, Zimbabwe, and Ethiopia earlier this year. Officially, the PMC remain illegal in Russia. After using Ukraine as a testing ground, Russian PMC have been seen in Syria, and have been spotted in 3 African countries.