PANAMA PAPERS REPORT FROM THE EU

On 9th November, Politico reports that MEPs on the Panama Papers inquiry committee released a 121-page report on 8th November summarising findings and recommendations, to be voted on in the EU Parliament later in November.  The findings start on page 13 (and continue to page 43…).

https://www.politico.eu/wp-content/uploads/2017/11/2017-11-08-PANA-Final-Report-002.pdf?utm_source=POLITICO.EU&utm_campaign=5ecda84209-EMAIL_CAMPAIGN_2017_11_09&utm_medium=email&utm_term=0_10959edeb5-5ecda84209-190081609

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REPORT – MOMENTUM TO PREVENT NUCLEAR TERRORISM HAS WANED

Global momentum has waned in efforts to prevent terrorists from obtaining nuclear and radiological materials, according to a new report released by the Stimson Center (a non-partisan organisation described as working to solve the world’s greatest threats to security and prosperity). The report, Re-energizing Nuclear Security: Trends and Potential Collaborations Post Security Summits, finds that momentum to combat nuclear security threats has slowed after a series of high-level global summits concluded in 2016. Industry, governments, and civil society can re-capture momentum through a series of pragmatic actions, the report concludes.

The author of the report says, “power plants can be vulnerable to evolving cyber threats. ISIL and Boko Haram are operating near nuclear facilities. The spread of weapons-grade material from North Korea is a very real concern. Industry, governments, and civil society can do more to address these challenges given this security landscape”.

The report proposes several recommendations for stakeholders to adopt to better confront nuclear security challenges.  Amongst the recommendations is the suggestion that streamlined reporting of compliance with the Convention on the Physical Protection of Nuclear Materials fundamental principles could be introduced as part of UN Security Council Resolution 1540 reporting.  UN SCR 1540, of course, requires all member states to refrain from providing any form of support to non-State actors that attempt to develop, acquire, manufacture, possess, transport, transfer or use nuclear, chemical or biological weapons and their means of delivery, in particular for terrorist purposes.

https://www.stimson.org/content/amid-evolving-risks-momentum-prevent-nuclear-terrorism-has-waned

Report at – https://www.stimson.org/sites/default/files/file-attachments/Nuclear-Energy-R7-WEB.pdf

Baker McKenzie survey – where are commercial bribery offences pursued?

GLOBAL GCN SURVEY: COMMERCIAL BRIBERY PROHIBITIONS AND ENFORCEMENT

Baker McKenzie survey analyzed where commercial bribery is a criminal offense, who may be prosecuted and how active the local authorities are.  The results, published on 6th November, analysed responses from 74 countries to 6 questions –

  1. Is commercial bribery a criminal offense in your country?
  2. If commercial bribery is a criminal offense, may the bribe giver and the recipient be punished?
  3. Does the prohibition apply to (i) individuals, (ii) companies or (iii) both?
  4. If commercial bribery is not a criminal offense in your country, is it prohibited by any other laws (e.g. unfair competition etc.)?
  5. How active are your local law enforcement agencies to enforce commercial bribery in your jurisdiction?
  6. To the best of your knowledge, how many commercial bribery proceedings took place in your jurisdiction over the past three years?

https://globalcompliancenews.com/survey-commercial-bribery-20171106/

BLOCKCHAIN, TRADE FINANCE AND SANCTIONS ISSUES

Clifford Chance law firm paper of 6th November says trade finance is one of the areas likely to benefit from blockchain technology first by becoming cheaper, faster and more accessible. However, it also says developers and market participants should be mindful to consider the sanctions implications given the extraordinary reach of sanctions and the magnitude of the penalties for breach. Any US-owned blockchain technology would remain subject to OFAC regulation, and may be subject to export controls. Similarly, if the technology is owned or licensed by a US person and supplied to, or used by, someone or somewhere subject to sanctions this could be prohibited.  There could be similar problems under EU or other sanctions regimes. The paper summarises what developers need to bear in mind from a sanctions perspective.

https://www.cliffordchance.com/briefings/2017/11/blockchain_tradefinanceandsanctionsissues.html

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OUTCOMES OF FATF/GAFLIAT PLENARY

OUTCOMES OF JOINT FATF/GAFILAT PLENARY

On 1st to 3rd November FATF and GAFILAT (formerly known as Financial Action Task Force of South America or GAFISUD) held a joint plenary in Argentina.  The outcomes included –

  • North Korea – approval of a statement about the proliferation financing risk emanating from the Democratic People’s Republic of Korea, stressing global obligations and the importance of robust implementation of the FATF standards and relevant UN Security Council Resolutions;
  • adoption of a report on the financing of recruitment for terrorist purposes – the Plenary discussed and adopted a report, The Financing of Recruitment for Terrorist Purposes.  The report sets out how terrorist organisations fund the recruitment of new members. Following a period of direct engagement with selected stakeholders, the FATF will publish the report;
  • adoption of revisions to Recommendations 18 and 21 on information sharing, and the adoption of guidance on private sector information sharing – FATF has agreed on revisions to the Interpretive Note on Recommendation 18 to clarify the requirements on sharing of information related to unusual or suspicious transactions within financial groups. This also includes providing this information to branches and subsidiaries when necessary for AML/CFT risk management.  The FATF also adopted revisions to Recommendation 21 to clarify the interaction of these requirements with tipping-off provisions.  The FATF adopted Guidance on Private Sector Information Sharing, which identifies the key challenges that inhibit sharing of information to manage AML/CFT risks, both group-wide within financial groups, and between financial institutions which are not part of the same group. It articulates how the FATF standards on information sharing apply and highlights examples of how authorities can facilitate the sharing of information, as well as examples of constructive engagement between the public and the private sectors;
  • adoption of a supplement to the 2013 FATF Guidance on AML/CFT Measures and Financial Inclusion;
  • call for Brazil to fulfil its FATF membership commitment by taking further action to fully address its identified shortcomings. As the next step in its follow-up process, Brazil has committed to an action plan for addressing the remaining deficiencies in its regime for implementing targeted financial sanctions. Should Brazil continue to fail to adequately rectify these deficiencies, in line with its action plan, the FATF will consider further steps in its follow-up process;
  • considered progress on the 2016 Action Plan agreed with Iran (with the suspension of countermeasures against Iran being renewed in June 2017) and the FATF urged Iran to proceed swiftly in the reform path to ensure full and accurate implementation of the Action Plan, addressing all remaining AML/CFT deficiencies, in particular those related to terrorist financing. At its February 2018 meeting, FATF will assess progress made by Iran and take all appropriate action

http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-november-2017.html

  • adopted revisions to the Methodology for assessing compliance with the FATF Recommendations.  These revisions clarify how assessors should determine whether legal arrangements have a similar structure or function as trusts and are, therefore, within the scope of the FATF standards on legal arrangements (Recommendation 25), and update the assessment criteria for proliferation-related targeted financial sanctions to bring the Methodology fully into line with the recent revisions to the FATF standards in this area (Recommendation 7).

http://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-plenary-november-2017.html

Update on high-risk and on-cooperative jurisdictions

Jurisdictions with strategic deficiencies   Jurisdictions no longer subject to the FATF’s on-going global AML/CFT compliance process
Bosnia and Herzegovina Ethiopia Iraq Sri Lanka Syria Trinidad and Tobago Tunisia Vanuatu Yemen   Uganda

See more detail at –

http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/fatf-compliance-november-2017.html

NEW FATF GUIDANCE ON INFORMATION-SHARING

The finalised guidance aims to improve effective information sharing, one of the cornerstones of the FATF Recommendations.  It contains a number of country examples, including examples of collaboration with authorities responsible for data protection and privacy.

http://www.fatf-gafi.org/publications/fatfrecommendations/documents/guidance-information-sharing.html

UPDATED FATF GUIDANCE ON AML/CFT MEASURES AND FINANCIAL INCLUSION, WITH A SUPPLEMENT ON CUSTOMER DUE DILIGENCE

This 2017 supplement to the 2013 guidance provides country examples of customer due diligence measures adapted to the context of financial inclusion. Those examples illustrate how a simplified set of CDD measures or alternative forms of identity verification, for example the use of e-identity tools, can support financial inclusion, while appropriately mitigating the ML/TF risks.

The objective of this updated report is to encourage countries to make use of FATF Recommendations’ flexibility to provide sound financial services to the financially excluded.

http://www.fatf-gafi.org/publications/financialinclusion/documents/financial-inclusion-cdd-2017.html

FATF STATEMENT ON NORTH KOREA (DPRK)

http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/statement-dprk-nov-2017.html

Full statement on DPRK and Iran –

http://www.fatf-gafi.org/publications/high-riskandnon-cooperativejurisdictions/documents/public-statement-november-2017.html

3 NOV – FINCEN ADVISORY ON NORTH KOREA’S USE OF INTERNATIONAL FINANCIAL SYSTEM

FINCEN ADVISORY ON NORTH KOREA’S USE OF THE INTERNATIONAL FINANCIAL SYSTEM

North Korea uses front and trade companies to disguise, move, and launder funds to finance its nuclear and ballistic missile programmes.  This Advisory provides some “red flags” that might indicate DPRK activity, and what requirements and potential offences affect US financial institutions.

https://www.fincen.gov/sites/default/files/advisory/2017-11-02/DPRK%20Advisory%20FINAL%20508%20C.pdf

Advisory includes a useful diagram outlining the use of front companies by DPRK.

Doc1

It refers to the UN Panel of experts Report of 2016 UN Report which notes that North Korean state-owned enterprises typically orchestrate elaborate trade-based payment schemes.  It does this, for example by:

  1. The Sale/Export of Natural Resources:  The DPRK sells/exports natural resources (e.g., coal, iron ore, and minerals) to China-based companies, often located near the North Korean border, such as in Liaoning province. (UN SCR 2371 prohibits imports of North Korean coal, iron and iron ore, lead and lead ore, and seafood.  UN SCR 2375 prohibits imports of textiles, among other new measures).   The Chinese companies, in turn, sell such natural resources to the Asian market.
  2. Indirect Payment for Natural Resources:  Rather than directly paying the DPRK, China-based companies divide their payments into smaller outflows in a complex layering scheme directed to front companies, shell companies, shipping or trade businesses based in Asia (often registered in Hong Kong), and other companies based in various offshore jurisdictions (e.g., BVI, Marshall Islands, and the Seychelles).  Various financial representatives and corporate service providers may establish the front or shell companies or serve as representatives of the various involved entities.
  3. The Import/Smuggling of Goods:  The front or shell companies then use the received payments to purchase and ship commodities to the DPRK.  These commodity shipments in turn may be used to smuggle goods that the North Korean government uses to build its WMD and ballistic missile programmes.