My personal selection of articles, reports, links and podcasts I have come across and/or found useful or interesting during October 2017.
31st October 2017
DRUG TRAFFICKING IN THE MENA – THE ECONOMICS AND THE POLITICS
The Middle East and North Africa (MENA) is a major source, transit point, and consumer of illicit drugs. EU ISS paper providing background information. The European Union Institute for Security Studies (EUISS) is the EU agency dealing with the analysis of foreign, security and defence policy issues.
OVERSEAS FIRMS URGED TO BE WARY OF CONTRAVENING RUSSIAN SANCTIONS
Established in 1966, the Hong Kong Trade Development Council (HKTDC) is a statutory body dedicated to promoting Hong Kong trade.
With the latest round of US-led anti-Russian sanctions now entering its fourth month, overseas businesses have been warned of the dangers of inadvertently falling foul of this stringent legislation and incurring penalties in their own right.
The US Secretary of State and the Director of National Intelligence are compiling a dossier on all of the senior political figures and businesspeople thought to have links to the Putin administration. This will contain information on the assets of all such individuals, as well as details of the source of their wealth and that of their immediate relatives. The report will also flag up any known or suspected instances of corruption relating to this target group, while also highlighting the identity of any of their non-Russian business connections. The clear intention behind these newly actioned sanctions is to identify those overseas businesses or individuals that are illicitly trading with the country and subject them to the same trade embargo. This means that many EU and US firms may suddenly find that their existing middlemen trading partners are now off-limits.
It suggests that it will also be prudent, where possible, for overseas companies to focus on sectors that are less compromised by direct association with senior figures in the Russian government. Overall, these relatively uncontentious sectors are said to include retailing, agricultural products, pharmaceuticals, fast-moving consumer goods (FMCG) and everyday household items
THE LATEST GLOBAL FINANCIAL INTEGRITY REPORT SHOWS THAT ILLICIT FINANCIAL OUTFLOWS FROM DEVELOPING COUNTRIES CONTINUE TO GROW RAPIDLY
The latest GFI report shows that illicit financial outflows (IFF) from developing countries, already at alarming levels, continue to grow rapidly
FORBES: MALAYSIA RE-OPENS 1MDB INVESTIGATION
The attorney-general of Malaysia has announced that investigations into the 1MDB scandal will reopen. It was thought that the police had concluded its investigation which caused significant business disruption across SE Asia.
FINCEN ADVISORY ON DISASTER RELIEF FRAUD
Financial Institutions should be aware of potential fraudulent activity related to disaster relief efforts. Lists examples of potential frauds.
EVERSHEDS SUTHERLAND ARTICLE ON CRIMINAL FINANCES ACT 2017 PROVISIONS THAT CAME INTO FORCE ON 31ST OCTOBER
Changes to SAR, civil recovery and information-sharing; and introducing Unexplained Wealth Orders.
CRIMINAL FINANCES ACT 2017 (COMMENCEMENT NO. 3) REGULATIONS 2017
The Criminal Finances Act 2017 Regulations 2017 (SI 2017/1028) are the third commencement regulations made under the Criminal Finances Act 2017, and amend the Proceeds of Crime Act 2002 and the Terrorism Act 2000. The new AML information-sharing regime will be incorporated into the regulated sector in the UK by means of section 11 which inserts sections 339ZB – 339ZG into POCA 2002 enabling regulated persons to request and share information with their regulated peers. Insulation from resulting claims of breach of confidence or contravention of data protection laws is ensured by section 339ZF which provides that a relevant disclosure “made in good faith” does not breach any duties of confidence or “any other restriction on the disclosure of information, howsoever imposed.” A formal information sharing channel for the regulated sector represents another string to the UK’s AML bow.
30th October 2017
US CRIMINALS INCREASINGLY TURNING TO CRYPTOCURRENCY
In its recently-published 2017 National Drug Threat Assessment (NDTA), the DEA reports that drug trafficking organizations are turning to Bitcoin and other virtual currencies to enable easy transfer of illicit funds internationally. The NDTA is a comprehensive strategic assessment of the threat posed to the US by domestic and international drug trafficking and the abuse of illicit drugs. The report combines a wide variety of law enforcement reporting and other data to determine which substances and criminal organizations represent the greatest threat to the US.
ECJ UPHOLDS DESIGNATION OF UGANDA COMMERCIAL IMPEX
Cases T-107/15 and T-347/15 – designation under DRC sanctions upheld and claimant ordered to pay costs.
NEW GOVERNMENT MEASURES IN IRELAND TO TACKLE WHITE COLLAR CRIME
Banks and other financial institutions are to face a stricter monitoring regime as part of a series of initiatives to tackle white collar crime and corruption. The Office of the Director of Corporate Enforcement (ODCE) is being effectively disbanded. It was severely criticised for its work in bringing the failed prosecution of former Anglo Irish Bank chairman, Seán FitzPatrick. The measures includes 2 new Bills providing for quicker and more effective prosecutions in corruption and bribery cases. There will also be a civil Bill aimed at strengthening the oversight and governance of corporations and executives.
US QUIETLY SANCTIONS CHINA OVER NORTH KOREAN MISSILE LAUNCHERS
The US Government for the first time imposed economic sanctions on a Chinese company for providing vehicles used to transfer North Korea’s road-mobile nuclear missiles – Wuhan Sanjiang Import and Export Co. Ltd., although the 13th October announcement focused on the company’s sale of equipment to Iran and only mentions the launcher transfers in passing.
From at least as early as 2014, Wuhan Sanjiang sold missile-related gyrocompasses, specialty sensors and other electronics to Iran’s military and Islamic Revolutionary Guard Corps (IRGC). The Chinese equipment is likely incorporated in Iran’s Fajr and Zelzal short-range missiles that were transferred by Tehran to the Hezbollah terrorist group in Lebanon and have been fired against Israel. The US Treasury statement said that “additionally, in 2011, Wuhan Sanjiang transferred 6 off-road lumber transporter vehicles to North Korea, which North Korea subsequently converted into Transporter-Erector-Launchers (TEL) for use in its ballistic missile programme”. This is the first time the US government has formally acknowledged the strategic missile transfers that were first reported by the UN in 2013.
See the Asia Times article –
US TREASURY LAUNCHES TERRORIST FINANCING TARGETING CENTER IN MIDDLE EAST
In May 2017 the US Treasury announced that the US and Saudi Arabia would serve as co-chairs of the newly-established Terrorist Financing Targeting Center in a co-operative effort to address the changing landscape of terrorism and its financing. The Treasury announced on October 25th the imposition of sanctions against “9 individuals and entities that finance and facilitate terrorism” and aid other transnational threats in the Middle East by actively supporting violence in Yemen. The US co-ordinated this action with Saudi Arabia, the UAE, Kuwait, Oman, Bahrain, and Qatar, who designated these advocates of terror under their own domestic authorities. This was the largest ever multilateral designation in the Middle East.
SIPRI ARTICLE ATTEMPTS TO PUT IRAN’S MISSILE AND SPACE PROGRAMMES IN CONTEXT VIS A VIS THE JCPOA AND PROLIFERATION RISKS
GUARDIAN PODCAST – THE SCIENTISTS PERSUADING TERRORISTS TO SPILL THEIR SECRETS
Expert interrogators know torture doesn’t work – but until now, nobody could prove it. By analysing hundreds of top-secret interviews with terror suspects, two British scientists have revolutionised the art of extracting the truth
29th October 2017
BANGLADESH BANK IN UK ON BRINK OF INSOLVENCY
Sonali Bank’s UK subsidiary (SBUK) facing insolvency after RBS restricted transaction on the Bangladeshi bank’s dollar account due to serious weaknesses in its AML systems. The Prudential Regulation Authority (PRA) has warned that it would declare SBUK insolvent if it fails to achieve efficiency in running the dollar, pound and euro accounts.
ITALIAN – BULGARIAN MONEY LAUNDERING UNVEILED
Torino’s Guardia di Finanza arrested 26 people accused of taking part in a financial fraud in the Italian state for over €105 million, 24chasa newspaper reported. Money was transferred to companies’ accounts in Bulgaria, and then traded via ATM in Italy. More than 40 properties in Turin and Rimini, as well as several luxury cars, have been seized. The criminal organisation responsible for major fraud of the Italian state has acted in the field of energy efficiency projects. Through them were sold shares certifying the energy saving. After several money-laundering operations, fraudsters transferred money to companies mostly in Bulgaria, but sometimes also in Romania and the UAE, operating in the real estate, construction and trade of cars, watches and alcohol.
27th October 2017
US ISSUES NEW LIST OF RUSSIAN POTENTIAL SANCTIONS TARGETS
Section 231(d) of the Countering America’s Adversaries Through Sanctions Act (CAATS Act) passed in January 2017 required the US President to issue “regulations or other guidance to specify the persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation.”
On 26th October (after a draft of the guidance was leaked to the New York Times) the US State Department released a list of 39 entities associated with Russian defence and intelligence. Only 10 were not previously on the Specially Designated Nationals (SDN) or Sectoral Sanctions Identification (SSI) Lists. Of the 29 already on one of those lists, 8 are on the SSI List. No asset freezes were imposed on those named persons and does not mean they are added to the US Treasury SDN or SSI List. The Act requires the imposition of 5 or more sanctions of the 12 listed in section 235 beginning on or after January 29th 2018, and will be notified in a separate notice.
The new list is at https://www.state.gov/t/isn/caatsa/275116.htm
Guidance and FAQ on the new list is at https://www.state.gov/t/isn/caatsa/275118.htm
EU PARLIAMENT COMMITTEE CALLS FOR TIGHTENING OF AML CONTROLS
In the wake of the Panama Papers, the European Parliament formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. PANA has issued recommendations to European Parliament: tougher enforcement, greater transparency, improved information sharing and prohibitions against outsourcing of customer due diligence.
IRAN BALLISTIC MISSILES AND INTERNATIONAL SANCTIONS ENFORCEMENT ACT,
This Act expands US sanctions on Iran with respect to ballistic missiles, has been passed in the US House of Representatives and now passes on the Senate.
ZIMBABWE’S LARGEST BANK FINED BY OFAC FOR SANCTIONS-BUSTING
Zimbabwe’s biggest bank by asset base, CBZ Bank, facing a US$3.8 billion fine by OFAC for thousands of financial transactions done on behalf of ZB Bank then under US economic sanctions, the Zimbabwe Independent reported. However, after mitigation and negotiations, the penalty has been reduced to US$385 million. The amount could still be further reduced as negotiations are still ongoing.
EQUATORIAL GUINEA PRESIDENT’S SON RECEIVES SUSPENDED SENTENCE IN GRAFT TRIAL IN FRANCE
A French court has given a 3-year suspended sentence to Teodorin Obiang, the son of Equatorial Guinea’s leader and who serves as vice-president, after a landmark graft trial that lifted the lid on his playboy lifestyle. The 48-year-old was tried in absentia and also given a suspended fine of €30 million after being found guilty of embezzlement, money laundering, corruption and abuse of trust. The case was brought by 2 anti-corruption groups, is the first of 3 targeting the families of African leaders for using ill-gotten gains to live it up in France. Obiang was accused of spending more than 1,000 times his official annual salary on a 6-story townhouse in Paris, fast cars and artworks, among other assets.
For more detail see France 24 http://www.france24.com/en/20171027-paris-equatorial-guinea-obiang-president-son-suspended-sentence-graft-trial
OIL, EXTORTION STILL PAYING OFF FOR ISIS
As ISIS loses territory across Syria and Iraq, its capacity to generate revenue has declined drastically. However, ISIS continues to profit from its oil industry, black market antiquities trading, and taxing and extorting local populations under its control (including “taxing” road tankers transiting its territory).
See the Q&A with Patrick Johnston, senior political scientist at the RAND Corporation and expert on ISIS financing –
26th October 2017
EU EXTENDS BURUNDI SANCTIONS FOR FURTHER YEAR
The EU extended for 1 year a travel ban and asset freeze against 4 persons whose ‘activities are deemed to be undermining democratic governance and obstructing the search for a peaceful political solution in Burundi.
EU EXTENDS REPUBLIC OF GUINEA SANCTIONS FOR FURTHER YEAR
EU EXTENDS TRANSNISTRA SANCTIONS FOR A FURTHER YEAR
ANGOLA BRIBERY CONVICTIONS
3 former senior employees of German logistics company, F.H. Bertling, sentenced on 17th October following an investigation by the SFO into corrupt payments made to the Angola state oil company, Sonangol ‘in relation to F.H Bertling’s freight forwarding business in Angola and a contract worth approximately $20 million.’
TOUGHER EU SANCTIONS ON NORTH KOREA
Tougher sanctions extend the ban on EU investment concerning DPRK to all sectors.
TRANSPARENCY INTERNATIONAL ANTI-BRIBERY TOOL
Transparency International has launched a free-to-use, online anti-corruption portal which ‘aims to provide consistent and implementable procedures for companies operating in multiple jurisdictions’ and ‘presents international good practice informed by the UK Bribery Act, US Foreign and Corrupt Practices Act, other national legislation, as well as the ISO37001 standard’, while recognising the ‘global nature of modern business.’
The 18 modules include risk assessment, due diligence, managing third parties, aligning incentives to behaviour, and a free e-learning course.
UK NATIONAL RISK ASSESSMENT OF MONEY LAUNDERING AND TERRORIST FINANCING 2017 (NRA)
The NRA sets out the key money laundering and terrorist financing risks for the UK, how these have changed since the UK’s first NRA was published in 2015, and the action taken since 2015 to address these risks.
No direct mention of the Isle of Man, but “A 2015 report identified that over 75% of investigations involving land and property by the Metropolitan Police Service’s Proceeds of Corruption Unit (now the NCA’s International Corruption Unit) involved companies registered overseas, primarily in UK Crown Dependencies or Overseas Territories with financial centres”
Legal services [including solicitors] continue to be at high risk of attracting criminals who are intent on money laundering, but are not considered to be a target for terrorist financing, according to the latest government assessment. Although some legal service providers involved in money laundering were complicit, most of such cases involved people who were “either willfully blind or negligent”, it continued, while innovation in the legal industry could provide criminals with new opportunities.
See the Legal Futures article –
REVISED CODE OF PRACTICE UNDER SECTION 377 POCA 2002 FOR USE OF INVESTIGATIVE POWERS
Amended in the light of changes made by the Criminal Finances Act 2017 (though with changes not initially in force in Northern Ireland).
SANCTIONS AND ANTI-MONEY LAUNDERING BILL – HOUSE OF LORDS LIBRARY BRIEFING
Bill introduced in the House of Lords on 18th October, with its second reading in the House of Lords on 1st November. This House of Lords Library Briefing has been prepared in advance of the second reading in the House of Lords.
One significant change introduced by the Bill is the proposed power exercised by secondary legislation to extend the obligation to report specified sanctions-related information to apply to anyone. In other words, the Government intends to extend the criminal offence of not reporting information relating to financial sanctions from the current scope of “relevant businesses or professions” to all natural and legal persons. Prior to August this year, reporting obligations only applied to credit and financial institutions and required the reporting of information “that a person is a designated person” and information about breaches. With effect from 8th August, the reporting regime in relation to financial sanctions was extended to include non-financial sector businesses (see Herbert Smith Freehills briefings).
RUSI STUDY ON INFORMATION-SHARING TO IMPROVE AML COMPLIANCE – THE ROLE OF FINANCIAL INFORMATION-SHARING PARTNERSHIPS IN THE DISRUPTION OF CRIME
RUSI Occasional Paper examines the effectiveness of suspicious activity reporting in the financial system. The volume of suspicious transaction reports submitted by banks and others across key financial centres is growing at 11% per year, with over 2.6 million reports expected to be filed in the UK and the US in 2017. However, this study finds that between 80% and 90% of this suspicious reporting is not useful to active law enforcement investigations.
This Ballard Spahr LLP blog post examines the findings and proposals in the RUSI study for developing effective public–private financial information sharing partnerships (FISP) in order to better detect, prevent, and combat money laundering and terrorist financing. Observing that modern financial crime “operates in real time, is most often international in scale and can be highly sophisticated ad adaptive to avoid detection,”. The Study generally posits that AML systems ideally should include real-time and cross-border information sharing.
US BILLS TARGETING HIZBALLAH
The US House of Representatives has passed 2 Bills and agreed to a Simple Resolution targeting Hizballah.
- The Hizballah International Financing Prevention Amendments Act of 2017 requires the President to impose sanctions on any foreign person that “knowingly assists, sponsors, or, provides significant financial, material, or technological support for” Hizballah.
- The Sanctioning Hizballah’s Illicit Use of Civilians as Defenseless Shields Act, requires the President to identify and impose sanctions on any foreign person affiliated with Hizballah, who is “responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, the use of civilians as human shields”, as well as those who “[attempt] to provide, or significantly [facilitate] the provision of, material support” to such a person.
Both Bills now go to the US Senate to vote on them.
The Simple Resolution (which does not require Congressional approval) urges the EU to designate Hizballah in its entirety as a terrorist organization and increase pressure on it and its members, encourages the EU to “implement sanctions against Hizballah-affiliated terrorists in tandem with the United States”, and “urges the EU to designate Hizballah in its entirety as a terrorist organization and increase pressure on the group” through a number of proposals. The EU currently designates only Hizballah’s military wing.
CHINESE COUNTERFEITING OF OTHERWISE LEGAL REPLICA COINS
The production and ownership of copies or replicas of US coinage, regardless of their quality or metal content, is not prohibited by us law. The Hobby Protection Act of 1973 requires a reproduction to be clearly marked on one side with the word COPY, incused (not in raised lettering). There are many reputable manufacturers of replica coins in the US and around the world.
There are Chinese counterfeiters who admit they produce 100,000 fake coins per month — exceeding the volume of legitimate coins struck by many small nations. These counterfeits are in compliance with Chinese law as long as they are dated before 1949, the year the People’s Republic was founded. Unlike the US, China does not require replicas or copies to be marked as such.
In 2014 the Collectible Coin Protection Act strengthened the Hobby Protection Act by, among other things, allowing faster response by law enforcement, making seizure easier, and expanding legal remedies available to those harmed by the sale of counterfeit coins.
For more information see the following article –
ANOTHER LARGE-SCALE ANTI-MONEY LAUNDERING OPERATION IN SPAIN
Spanish National Police force has struck against another Chinese money-laundering gang. More than 50 people were arrested across 11 Spanish provinces in Operation Shopping. The main raid centred on the Cobo Calleja industrial estate in Fuenlabrada (Madrid) but arrests were also made in Barcelona, Sevilla, Malaga, Valencia, Alicante, Mallorca, La Coruña and Gran Canaria. Charges include money laundering, tax fraud, false documents and membership of criminal organisation.
APPARENT ILLUSTRATION OF THE IMPORTANCE OF TRADE-BASED MONEY LAUNDERING FOR DRUG TRAFFICKING GROUPS IN LATIN AMERICA
Merchandise seized during Colombia’s largest-ever anti-contraband operation was allegedly linked to the Sinaloa Cartel, and is an apparent illustration of the importance of trade-based money laundering for drug trafficking groups in the region. It started with a 2-year investigation where US authorities suspected export companies of laundering Sinaloa Cartel drug money.
Authorities have seized 20 buildings, 20 companies and 11 stores — an estimated total value of nearly $87 million. Another $1.6 million worth of contraband merchandise was also impounded. The network used a contraband scheme dubbed “60/40,” El Espectador reported. Smugglers mix legal and illegal merchandise together, with illicit products making up 40% of the cargo, with certain sales of illicit merchandise reportedly allowed the Sinaloa Cartel to pay its Colombian cocaine suppliers.
25th October 2017
FCA SAR NUMBERS SOAR
The number of reports notifying the FCA of suspicious transactions have risen to their highest ever level, more than doubling in the last 2 years. According to a recent FOI request, the FCA has received 3,730 STR for 2017 to date – a 24% rise on 3,008 in the whole of 2016, and more than double the number received in 2015. This followed the introduction of the EU Market Abuse Regulation in July 2016 which introduced more disclosure requirements to the financial services sector and in the UK built on the existing market abuse regime.
AUSTRALIAN RISK ASSESSMENT
In July 2017, AUSTRAC released its latest (AML/CFT risk assessment which focuses on the securities and derivatives sector. Similar to past risk assessments released by AUSTRAC, this risk assessment has a broader application to the financial services industry as a whole.
LINKS BETWEEN TERRORIST ACTIVITY AND CRIMINAL PAST
ICSR (International Centre for the Study of Radicalisation and Political Violence) has recently published a report titled “Criminal Pasts, Terrorist Futures: European Jihadists and the New Crime-Terror Nexus“. ISCR has found that there is not a merging of criminals and terrorists as an organisation, but the merging of their social networks and environments. Criminal and terrorist groups now recruit from the same pool of people which creates synergies and overlapping networks.
ICSR recommends targeting all streams of financing. Efforts at countering terrorist finance needs to be broadened beyond the banking system to all sources of funding, including small scale and petty crime, such as drug dealing, theft, robberies, and the trade in counterfeit goods. Not only will doing so help to counter terrorist financing, but also to reduce ordinary crimes and to enable law enforcement agencies to operate a so-called ‘Al Capone approach’.
HOUSE OF COMMONS LIBRARY BRIEFING PAPER ON IRAN JCPOA DECERTIFICATION
Decertification does not end the deal, nor does it even mean that the US is walking away from it. It does give Congress a 60-day opportunity to re-impose sanctions on Iran using an expedited procedure. The initiative is now with Congress to decide how to act.
LOOT BOXES AND MONEY LAUNDERING
An MP has opened an inquiry into the legality of loot boxes. Loot boxes are virtual items that may be redeemed to receive a randomized selection of additional virtual items. Various countries around the world have recently moved to regulate the provision of loot boxes in video games. The primary legal issue is whether the loot box mechanic constitutes gambling. Other issues, which are addressed in the article, include whether the age rating of games with loot box mechanics should be impacted based on the inclusion of the game mechanic, and whether consumer protection laws require disclosure of the odds of obtaining certain virtual items through loot boxes.
See Sheppard Mullin article –
RUSSIA VETOES UN SECURITY COUNCIL INVESTIGATION INTO SYRIA CHEMICAL WEAPONS ATTACKS
Russia on vetoed the UN Security Council’s resolution to extend the UN Organisation for the Prohibition of Chemical Weapon (OPCW) investigation into the Syria chemical-weapons attack.
24th October 2017
ISRAEL BANS BINARY OPTIONS DUE TO FEARS OF FRAUD
Israel has outlawed the country’s binary options industry, which some local authorities said had links to organised crime. The move by the Knesset was at the request of the head of the country’s securities regulator who had promised to act against the industry in August 2016, following an investigation by The Times of Israel.
BELARUS US SANCTION LICENCES
On October 24th OFAC issued a general licence continuing the extension of certain sanctions relief toward Belarus. The fourth in a series of identical licenses, it authorises US persons to engage in certain transactions with 9 Belarus-based entities that have previously been designated SDN, as well as entities in which the 9 entities have a 50% or greater ownership interest, for a renewable period of 6 months. The first in this series was issued in 2015, following President Lukashenko’s decision to welcome election monitors and free certain political prisoners.
23rd October 2017
OFSI GUIDANCE ON SANCTIONS FOR CHARITIES
New guidance was published on 19th October by OFSI to help charities and NGO understand their responsibilities and comply with financial sanctions. OFSI has worked closely with charities, regulators and banks to understand common challenges faced by those operating in hostile environments. The guidance helps clarify what activities may be permitted under an OFSI licence and how to apply. It also identifies sources of information and advice available, including the Charity Commission’s toolkit for charities and NGO.
EUROPOL HIGHLIGHTS SALE OF COUNTERFEIT GOODS ON DARKNET
Europol has highlighted the increasing threat arising from the sale of counterfeit goods on the DarkNet; the key points made by Europol –
- Darknet contains marketplaces just like the Surface Web. Trade on these marketplaces is currently limited, but there is significant potential for growth.
- In particular, Darknet markets are becoming more user friendly and are starting to resemble markets which are available on the Surface Web. Further, the software needed to access these markets can be easy to locate.
- A broad range of counterfeit goods have been identified on Darknet markets and, as with the Surface Web, there is potential for high profits to be made.
- Infringers tend to offer goods for sale on a number of different Darknet markets. For this reason, taking action in relation to an isolated market may not be an effective means to end infringement altogether.
- Earlier this year, AlphaBay and Hansa (two of the most popular Darknet markets) were successfully taken down in an international operation by the FBI, the DEA and the Dutch National Police, with the support of Europol. These marketplaces contained thousands of listings for illegal drugs, but a significant number of counterfeit goods were also listed.
- After take downs, criminals are commonly shifting their activities to existing alternative or new Darknet markets – this makes it difficult to put a complete stop to an infringer’s activities.
OFAC SANCTIONS IRGC
OFAC imposed new sanctions against Iran’s Revolutionary Guard Corps (IRGC). The sanctions were imposed against the IRGC for their support of the IRGC-Qods Force. According to OFAC, the IRGC lent support to the IRGC-QF by providing training, personnel, and military equipment. IRGC members are accused of providing direct military assistance to units in Syria, and facilitating the transfer of personnel and military equipment to Iraq and Syria. The new sanctions were issued pursuant to Executive Order 13224. OFAC also designated 3 Iran-based companies for contributing to Iranian missile development, and a China-based company for “proliferation activities” as a result of its activities on behalf of a key supporter of Iran’s military.
RUSSIA ATTEMPT TO PUT UK MAGNITSKY ACTIVIST INTERPOL WANTED LIST
British businessman Bill Browder, who has lobbied Western governments to hold accountable those responsible for the death of jailed Moscow-lawyer Sergei Magnitsky, was placed by Russia on the Interpol wanted list. However, Interpol has rejected Russia’s request.
ECJ REJECTS YANUKOVYCH APPEALS
The ECJ has dismissed the appeals of Viktor Yanukovych, former President of Ukraine, and his son Oleksandr Yanukovych, against the General Court judgments refusing to annul their listings on the EU’s Ukraine misappropriation sanctions. The ECJ dismissed the arguments that the listing criterion for the Ukraine misappropriation regime did not pursue a valid foreign policy objective or that the General Court had been wrong to rely on the Ukrainian prosecutor’s letter as a sufficient underpinning for the sanctions.
20th October 2017
SWITZERLAND HAS ADOPTED A SERIES OF SANCTIONS AGAINST NORTH KOREA
Implementing UN Security Council Resolutions 2371 (2017) and 2375 (2017).
19th October 2017
UN REVIEW OF SANCTIONS
The UN Security Council has published an Assessment Report assessing the ‘High Level Review’ of UN Sanctions (of November 2015), which was the first comprehensive review of UN sanctions. The Compendium and the Assessment Report are “intended to serve as a basis for ongoing dialogue and engagement in promoting more effective and collaborative United Nations sanctions procedures”.
The Assessment Report makes 10 recommendations for strengthening co-operation within the UN sanctions system, enhancing cooperation between UN sanctions and the private sector, improving definitions and standards used in sanctions resolutions and related documents, refining the due process of UN sanctions, and supporting states that bear a disproportionate implementation burden.
UK SANCTIONS AND ANTI-MONEY LAUNDERING BILL
The Bill ensures that when the UK leaves the EU, it can continue to impose, update, and lift sanctions and AML regimes. Many of current sanctions regimes are established via powers in the European Communities Act 1972 (ECA). It will need new legal powers to replace these once the ECA is repealed. The European Union (Withdrawal) Bill will not provide the powers necessary to update, amend or lift sanctions after exit day in response to fast moving events. This would leave the UK in breach of its international obligations and unable to work effectively with European and international partners to tackle shared challenges.
Impact assessment –
BLOCKCHAIN: A NEW AID TO NUCLEAR EXPORT CONTROLS?
See article in the Bulletin of Atomic Scientists
18th October 2017
UK MALI SANCTIONS REGULATIONS
On 17th October, the UK published the Republic of Mali (European Union Financial Sanctions) Regulations 2017 (SI 2017/972) implementing Council Regulation (EU) 2017/1770 and bring into UK law the enforcement, licensing and penalty provisions for these sanctions.
LIBYAN INVESTMENT AUTHORITY V GOLDMAN SACHS: COURT OF APPEAL REFUSES PERMISSION TO APPEAL
In 2016, the High Court rejected a claim by the Libyan Investment Authority (LIA) that dealings between it and Goldman Sachs (GSI) crossed the line from an ordinary arm’s length bank-customer relationship to a relationship which gave rise to duties of candour and fairness. It held that, in the absence of any such protected relationship –
(1) GSI did not exercise undue influence over the LIA; and
(2) the derivative trades sold to the LIA did not constitute an unconscionable bargain.
The Court of Appeal has now refused an application for permission to appeal made by the LIA on all grounds submitted. The LIA’s challenged the High Court’s conclusion that certain trades were not procured by actual undue influence exerted upon the LIA by GSI. The LIA relied upon 3 principal grounds of appeal:
- improper inducement: GSI had an improper subsidiary motive, which should have been sufficient.
- causation: the court had “adopted different and mutually inconsistent tests” and that it was sufficient for the claimant to show that the actual undue influence was “a reason” or “a significant reason” for the decision.
- bribery: LIA contended that GSI’s conduct constituted the offer of a bribe as a matter of law.
CYBERCOACHING OR TERRORISTS: CAUSE FOR ALARM?
A few Islamic State operatives have been contacting sympathetic prospective jihadis abroad via the internet to supply them with instruction and practical advice for carrying out terrorist acts. Some analysts have called this a “game-changer.” However, the cybercoaching enterprise is fraught with difficulties. Above all, cybercoaches have little or no control over their charges who are very often naïve, voluble, incautious, gullible, incapable, and/or troubled.
CTC Sentinel – author: John Mueller
CHEMICAL WEAPONS AND ISIL
The Islamic State is the first non-state actor to have developed a banned chemical warfare agent and combined it with a projectile delivery system. However, it appears to have been forced to abandon its chemical weapons production after the loss of Mosul in June 2017. The absence of chemical attacks outside of Mosul after the city became cut-off from the rest of the ‘caliphate’ earlier this year indicates that the group has not established alternative production facilities. But US intelligence believes that a new chemical weapons cell has been set up in the Euphrates River Valley.
CTC Sentinel – author Columb Strack
CRIME AS JIHAD: DEVELOPMENTS IN THE CRIME-TERROR NEXUS IN EUROPE
Throughout Europe, criminal and extremist milieus are merging, with many jihadis and ‘foreign fighters’ having criminal pasts. An individual’s criminality can affect his process of radicalization and how he operates once radicalized. Recent propaganda suggests that the group is aware of this reality. It has positively framed the crime-terror nexus by encouraging crime ‘as a form of worship,’ and has been lauding those from criminal backgrounds. This has been reflected on the streets of Europe, where perpetrators have used their criminal ‘skills’ to make them more effective terrorists. While understanding of the crime-terror nexus has developed, there are many knowledge gaps that have practical implications for countering terrorism.
CTC Sentinel – authors Rajan Basra and Peter R. Neumann
WHY IS SUDAN NOT SUBJECT TO THE SAME ITAR PROHIBITIONS AS OTHER STATE SPONSORS OF TERRORISM?
US persons are no longer prohibited generally from engaging in transactions that were previously prohibited without an OFAC licence under the Sudanese Sanctions Regulations. Sudan remains, however, designated on the State Department’s “State Sponsors of Terrorism List”, along with Iran and Syria. The Trump Administration has not indicated whether the terrorism designation of Sudan will change in the near future.
How and why does the State Department and the Directorate of Defense Trade Controls (DDTC) treat Sudan differently under the International Traffic in Arms Regulations (ITAR) than the other designated state sponsors of international terrorism, and apparently ignore the statutory prohibition on the export of defence articles and defence services to state sponsors of international terrorism as required by Congress under the Arms Export Control Act (AECA)?
MI5 CHIEF: DAESH IS DEAD IN SYRIA AND IRAQ – BUT THREAT HERE IS GROWING RAPIDLY
MI5 boss Andrew Parker has given the UK a reality check. In an unprecedented televised speech, he warned that the demise of Daesh (aka Islamic State of Iraq and Syria, or ISIS) will not reduce the terror threat to the UK. On the contrary, he said the threat was evolving at the ‘highest tempo’ he had known in his 34-year career. And, worst of all, we have not reached the threat’s highest watershed.
17th October 2017
UK NOTICE TO EXPORTERS 2017/22: PUBLIC CONSULTATION ON NATIONAL SECURITY PROTECTION
Public consultation launched on how to ensure takeovers and investments do not compromise national security.
121 INCIDENTS OF PIRACY AND ARMED ROBBERY AGAINST SHIPS WERE REPORTED IN THE FIRST 9 MONTHS OF 2017
A total of 121 incidents of piracy and armed robbery against ships were reported in the first 9 months of 2017, according to the International Chamber of Commerce’s (ICC) International Maritime Bureau’s (IMB) latest quarterly report on maritime piracy. Whilst piracy rates were down compared to the same period in 2016, there is continuing concern over attacks in the Gulf of Guinea and in SE Asia. The increase in attacks off the coast of Venezuela and other security incidents against vessels off Libya – including an attempted boarding in the last quarter – highlights the need for vigilance in other areas.
RUSSIA IMPOSES SANCTIONS ON NORTH KOREA
President Putin has issued a decree which ends economic, scientific and technical ties between Russia and DPRK, in line with sanctions on N Korea imposed by UN Security Council Resolution 2321 (2016).
16th October 2017
FINCAST PODCAST ON TERRORIST FINANCING
A podcast discussing the ongoing global campaign against terrorist financing from US perspective, including its multi-faceted post-9/11 history, the financial tools it has deployed against Al-Qaeda, the Islamic State, and other terrorist organizations, and why it will remain critically important to the international financial system in the future.
BANNING ENCRYPTION TO STOP TERRORISTS: A WORSE THAN FUTILE EXERCISE
Terrorist groups are increasingly using encryption to plan and co-ordinate terrorist acts, leading to calls for the banning or backdooring of encrypted messaging apps. This would be misguided, the article argues. It would not remove the ability of terrorist groups to access this technology and may push them to communicate in ways that are more difficult for Western intelligence agencies to monitor. By creating vulnerabilities in online tools used by a very large number of Americans and other users around the world, it would also expose the broader society to increased security risks.
CTC Sentinel article –
13th October 2017
HOUSE OF COMMONS LIBRARY BRIEFING PAPER ON THE NUCLEAR SAFEGUARDS BILL
The Nuclear Safeguards Bill 2017-19 was presented to Parliament on 11th October and makes provision for nuclear safeguards after the UK leaves Euratom following Brexit. This Briefing Paper discusses the background to and content of the Bill.
Nuclear safeguards are measures to verify that countries comply with their international obligations not to use nuclear materials for nuclear weapons. Safeguards were introduced as part of the 1968 Treaty on the Non-Proliferation of Nuclear Weapons where the nuclear weapon states (China, France, Russia, UK and the US) undertook not to transfer nuclear weapons or support manufacture or acquisition of weapons by non‐nuclear weapon states. As a result, non-nuclear weapons states undertook to have international monitoring of their nuclear material by the International Atomic Energy Agency (IAEA) and nuclear weapons states voluntarily accepted the same monitoring. The UK joined the European Atomic Energy Community (Euratom) in 1973. Since then, the UK’s agreements for safeguard monitoring with the IAEA have been fundamentally underpinned by the UK’s membership of Euratom. One of Euratom’s roles is to implement safeguards on nuclear material across Member States.
US AIRCRAFT OWNERSHIP TRANSPARENCY ACT OF 2017
The US requires that foreign nationals may hold no more than 25% of the shares of a US corporation that owns an N-number business jet. However, trusts, business associations, shell companies, partnerships and other private entities are used to control US-registered aircraft, and their regular traffic in and of the Continental US is not monitored to the same extent as foreign-registered aircraft. The US Congress is seeking to address this area using the Aircraft Ownership Transparency Act of 2017. This legislation forces the disclosure of beneficial ownership, with acceptable evidence of identification, of any individual who exercises control over any entity, or receives substantial economic benefits from its operation. These disclosures must be made in advance, before a purchasing entity may obtain a Certificate of Registration, under this legislation.
TRUST & VERIFY #158: TRITIUM
Article argues the need for another look at tritium. When combined with deuterium, is used as fuel in the fusion reaction part of a hydrogen bomb and it is also used to significantly increase, or ‘boost’, the yield of a nuclear weapon. Although not an essential component of a nuclear bomb, tritium is nonetheless strategically important given how it impacts a nuclear weapon’s yield-to-weight ratio and is therefore considered to be a crucial component of any nuclear weapon possessor state’s arsenal. The rise of dual-use export controls as a possible answer. A thin line exists between commercial and military uses.
FINAL REPORT: PROLIFERATION FINANCING TYPOLOGIES
Project Alpha at King’s College London has published the final version of the updated report on proliferation financing typologies.
The majority of governments and financial institutions are unclear about what financing of proliferation looks like and how to identify it, so the tool is rarely exploited. This report describes typologies of financing the proliferation of WMD to address this issue.
The analyses are summarised in the form of 60 case studies. They enable identification of common elements between networks set up to finance proliferation or to circumvent financial sanctions, and of ways networks may mutate in response to sanctions.
Based on the 60 cases, the indicators in the FATF 2008 Report have been modified and categorised as –
- “potentially highly indicative,”
- “potentially moderately indicative”, or
- “potentially poorly indicative” of financing of proliferation.
The study also identified additional possible indicators, including –
- transactions involving individuals connected with countries of proliferation concern,
- the use of cash, and
- the involvement of small trading or intermediary companies.
By illustrating different types, the case studies are intended to support the work of governments and financial institutions worldwide in identifying financing of proliferation. They are intended to facilitate risk assessments, to support regulators in providing guidance to financial institutions and to support financial institutions in complying with sanctions or other WMD controls.
INFOGRAPHIC: DEMYSTIFYING THE CROSS-BORDER REMITTANCES ECOSYSTEM
With a large part of the global workforce migrating to foreign countries in search of lucrative career opportunities or better living, the World Bank estimates that migrants will send up to $636 billion home in 2017, with three-quarters of that being remitted to developing countries. In 2015, $440 billion in remittances was sent back to developing countries, but $32 billion was lost due to high transaction fees incurred during the process, and much more went unaccounted due to informal channels. Singapore-headquartered start-up Instarem has demystified the cross-border payments ecosystem with a handy infographic.
12th October 2017
DECADES IN THE MAKING: THE IRANIAN DRONE PROGRAMME
The Iranian drone programme started in the 1980s during the Iran-Iraq War. After the 8-year-long war, the country started or resumed many defence projects, including its controversial chemical, biological, and nuclear weapons efforts and ballistic missile programme.
US SUDAN SANCTIONS
October 12th, is the day on which Executive Order 13067, which repealed earlier executive orders imposing sanctions on Sudan, became effective. Some restrictions continue to apply, and see entry above re the status of Sudan under US sanctions and export controls.
INFORMATION EXCHANGE BETWEEN SMUGGLERS AND MIGRANTS: AN ANALYSIS OF ONLINE INTERACTIONS IN FACEBOOK GROUPS
Winner of the first Oxford Faculty of Law Border Criminologies Masters Dissertation/Thesis Prize.
In the 2010s there has been so far a marked increase of illegal border crossings into the EU, with approximately 1.8 million people entering the EU in this way between 2010 and the second quarter of 2016. Those migrants with a common language, ethnicity, or nationality form a larger community in the traditional sense, but in a recent development, they form online communities too.
This study is an exploration of how Arabic-speaking smugglers and migrants interact with each other using the medium of Facebook, and analyses the concerns raised in this online discourse, the information shared, and the ways in which both sides deal with the challenges they face. Smugglers who are concerned about their reputation of trustworthiness use the technological facilities of Facebook to help signal this to prospective clients, such as images, screenshots, and videos. Migrants pose many kinds of questions to the online community as a way of informing themselves. Other input from migrants is to give feedback on smugglers, which is positive or negative depending on their experience, as part of a mechanism driven by information sharers. The content of these groups further indicates that the smuggling market, at least online, is competitive and there are cases of specialisation in terms of the services provided.
NEW ZEALAND AIRCRAFT COMPANY GUILTY OF EXPORTS TO NORTH KOREA
Pacific Aerospace Ltd, an aircraft manufacturing company based in Hamilton, New Zealand, has pleaded guilty in a New Zealand court to indirectly exporting aircraft parts to North Korea and is expected to be sentenced in January. Charges had been brought against the company by the New Zealand Customs Service in August 2017.
11th October 2017
EU SANCTIONS MAP AND GUIDE
Excellent, easy to use and seemingly quite comprehensive tool that makes checking what sanctions exist, what they mean, how they were put in place and who or what they affect. Searchable and a (deceptively) simple aid that has not been available elsewhere, so far as I am aware.
“During the ‘Tallinn Digital Summit’, Estonia launched a website with a map and explanation of European sanctions under its Presidency of the Council of the European Union. The EU Sanctions Map is intended to make information about European sanctions more accessible and clearer”.
10th October 2017
CALL FOR NON-PROLIFERATION AGREEMENT ON HYPERSONIC MISSILES
Late September, Richard H. Speier, George Nacouzi, Carrie A. Lee, Richard M. Moore – researchers from the RAND Corporation International Security and Defense Policy Centre – published a new report urging the United States to co-operate with China and Russia in order to implement a comprehensive non-proliferation regime regarding hypersonic missiles.
HOUSE OF COMMONS LIBRARY BRIEFING ON THE TREATY FOR THE PROHIBITION OF NUCLEAR WEAPONS
A Treaty on the Prohibition of Nuclear Weapons was adopted in the UN on 7th July. It is the first multilateral, legally-binding, instrument for nuclear disarmament to have been negotiated in 20 years. However, none of the nuclear weapon states participated in those discussions and have declared their intention not to sign and ratify the new treaty. The lack of engagement by the nuclear weapon states raises the question of what this treaty can then realistically achieve.
9th October 2017
HOUSE OF COMMONS LIBRARY BRIEFING COMPARING NUCLEAR WEAPON STATES
There are 9 countries in the world that have nuclear weapons. Between them they possess an estimated 15,000 nuclear warheads. This paper is intended as a brief guide to which countries possess nuclear weapons and how they are seeking to either modernise or expand those capabilities. It is also part of a wider Library briefing series on nuclear weapons.
5th October 2017
ANALYSING NORTH KOREA’S CAPABILITY – 11 MINUTE VIDEO EXPLANATION
The Wall Street Journal has produced an 11-minute video highlighting how experts use new tools such as satellite imagery and 3D mapping to analyze North Korea’s military capabilities. The team, led by Jeffrey Lewis (https://twitter.com/ArmsControlWonk), look for “the clues that reveal the capabilities of a North Korean missile” to determine bluster from reality. Dr. Lewis also offers the WSJ sobering conclusions of where to go from here.
ARMS EXPORTS FROM SOUTH-EAST EUROPE ROSE BY 136.69% FROM 2009 to 2014
See report at https://t.co/AA63soOo2f
2nd October 2017
CONSEQUENCES OF TESTING AN H-BOMB IN THE PACIFIC
A detailed primer on what might happen if North Korea detonates a hydrogen bomb over the waters of the Pacific Ocean.
OTHER MATERIAL I CAUGHT UP WITH
US EXECUTIVE ORDER IMPOSES FURTHER SANCTIONS MEASURES ON NORTH KOREA
The Executive Order includes –
- broad new criteria for designating non-US persons for sanctions, including blocking their assets in the US
- a “180 Day Rule” under which vessels and aircraft are barred from entering the US for a period of 180 days after any port call or landing in North Korea
- authority for OFAC to block any funds transiting accounts linked to North Korea that come within the US or possession of a US Person
- authority for OFAC to impose sanctions on foreign financial institutions that knowingly conducted or facilitated, on or after the date of the Executive Order:
- any significant transaction on behalf of certain blocked persons; or
- any significant transaction in connection with trade with North Korea
UPDATED OVERVIEW OF IRAN
An overview of Iran’s policies relating to nuclear, chemical, biological and missile programmes (updated October 2017).
UPDATED OVERVIEW OF NORTH KOREA
North Korea’s interest in a nuclear weapons program reaches back to the end of World War 2 (updated September 2017).
REPORT ON THE INTERNATIONAL TRADE IN SMALL ARMS
The Small Arms Survey’s Trade Update 2017: Out of the Shadows provides an overview of the international trade in small arms and light weapons in 2014, identifies the world’s top and major exporters of small arms and light weapons, and assesses changes in trade patterns from 2013 to 2014. The Update also presents the 2017 edition of the Small Arms Trade Transparency Barometer, which scores key exporters from the most to the least transparent.
EU NON-PROLIFERATION AND DISARMAMENT E-LEARNING COURS
An excellent, comprehensive online, interactive course – lengthy and with the opportunity of a certificate if you can pass the online examination.
TRACE PODCAST: 1MDB
Bradley Hope of the Wall Street Journal describes his team’s in-depth and on-going research into Malaysia’s 1MDB scandal- and where Leonardo DiCaprio fits in.
TRACE PODCAST: CRIME ON THE HIGH SEAS
The Outlaw Ocean: New York Times reporter, Ian Urbina, discusses his excellent but grim series about crime and impunity on the high seas.
EU PARLIAMENT RESEARCH REPORT ON RUSSIAN SANCTIONS
20th September 2017 – Russia’s and the EU’s sanctions: economic and trade effects, compliance and the way forward.
This report summarises empirical facts about the economic impact of the EU sanctions against Russia and the Russian countersanctions, both implemented in the summer of 2014. The observed decline in trade volumes between the EU and Russia is not only due to the sanctions, but also other economic factors, such as the downturn of the Russian economy, largely caused by the falling oil price and the ensuing ruble depreciation.
Furthermore, the report says empirical evidence suggests that European and Russian companies alike managed to partly divert trade flows to other international markets in response to the deteriorating trade relationships. Overall trade diversion, however, cannot nearly compensate for losses of EU exports to Russia and thus mitigate the economy wide negative impacts. Finally, descriptive evidence and additional information seem to indicate that compliance with the sanctions was partly circumvented right after the implementation of the sanctions in 2014, in particular for agri food goods via countries of the Eurasian Economic Union. Legal trade diversion through countries unaffected by the sanctions has also taken place. It is said to be important to emphasise that this study does not assess the political costs or effectiveness of the sanctions, but merely analyses potential economic costs caused by all sanction measures in place.
CLOSING THE GAP: ASSESSING RESPONSES TO TERRORIST-RELATED KIDNAP-FOR-RANSOM
RUSI Occasional Paper examines kidnapping as a source of terrorist finance, arguing that a new approach is needed if terrorist groups are not to continue to benefit from multimillion-dollar cash injections – outlines 3 different options which would help to ‘close the gap’ between the commitments of some governments and their actions in response to the kidnapping of their citizens by designated terrorists. Published 12th September – official launch of Paper 10th November at RUSI.