13th April 2018
THE SNEAKY WAYS CHINA AND RUSSIA COULD THREATEN US SATELLITES
Defense News in the US on 11th April, referring to the recent Secure World Foundation report, said that a new report had said that major global powers, such as China and Russia, are focusing more on space weapons that neutralise others’ satellites rather than those that destroy payloads on orbit. A likely attack in 2018 would come in the form of electronic warfare jamming that could prevent users from turning on their equipment, directed energy attacks to dazzle sensors, or perhaps most plausibly, hacking a terminal on the ground so troops cannot operate it.
CHANGES TO US EXPORT LICENSING FOR TARGETS USED TO MAKE TRITIUM
On 10th April, Morgan Lewis & Bockius LLP published an article saying that the Department of Commerce on 5th April had added a new Export Control Classification Number (ECCN) to the Commerce Control List (CCL) which requires an export licence for shipments of the targets, components used for production of the targets, and the associated technology for all destinations except those that are members of the Nuclear Suppliers Group (NSG) (except China). However, the Final Rule actually reduces the restrictions on these components and related technology from the level of previous control. The controls are for nuclear non-proliferation and anti-terrorism reasons and follow a 6-year review of certain commodities and technologies that were not identified in an existing ECCN, and therefore were not subject to the appropriate control. Tritium has legitimate peaceful uses, but also may be used to boost the yield of both fission and thermonuclear weapons, and to enhance the efficiency of fission weapons as well as fission stages of fusion.
ARIZONA GUN MANUFACTURER CHARGED IN CONNECTION WITH FIREARM SMUGGLING SCHEME
12 News in the US reports that a gun manufacturer and 2 Texas men have been charged in connection with a firearm smuggling scheme, according to the US DoJ. Tracy Garwood — who owns Garwood Industries in Scottsdale — Tyler Carlson, 28, and Michael Fox, 59, face charges including possessing and transferring unregistered machine guns and unlawfully exporting firearms to Mexico. They are said to have unlawfully acquired and smuggled 200 firearms, including .50 calibre rifles, and hundreds of thousands of ammunition to Mexico.
GUITAR MAKERS HIT HARD BY NEW REGULATIONS ON PRIZED ROSEWOOD
Eagle Tribune in the US on 12th April reported that an international crackdown on illegal logging in tropical forests has ensnared the makers of some guitars and other musical instruments, whose top-end products require small amounts of rosewood, a material prized for its rich, multi-coloured grain and resonant sound. Since new trade rules took effect in 2017, guitar makers have complained about long delays in getting permits to import rosewood and export finished instruments that contain it. Governments in Africa and Latin America proposed the regulations to combat increased rosewood smuggling over the past decade that they said had endangered the species, which is also known for its fragrance, a sweet floral aroma that gives the wood its name. It says that the UN describes the rosewood trade as the world’s costliest wildlife crime, with seizures totalling more than almost all other species combined – between 2005 and 2015, 10,000 metric tons of protected rosewood was seized.
CAYMAN: COMPLIANCE POSITIONS MUST BE HELD BY INDIVIDUALS
On 12th April, DMS Governance in the Cayman Islands reported that in February the Cayman Islands Monetary Authority (CIMA) reaffirmed its position on AML/CFT requirements confirmed that natural persons must be appointed for the AML Compliance Officer (AMLCO), Money Laundering Reporting Officer (MLRO) and Deputy MLRO (DMLRO) role, and has confirmed that additional guidance will be issued. All regulated funds (unregulated funds have a grace period until 31st May) are required to appoint individuals who are suitably qualified and experienced as AMLCO, MLRO and DMLRO.
HOW COMPLIANCE BECAME THE ‘FIFTH C’ IN DIAMONDS
IDEX on 12th April carried an article that refers to past, more lax ways of doing business in the diamond trade but says that now, like it or not, compliance to official requirements for a clear audit trail of one’s processes is now an integral part of a diamantaire’s business. You could say compliance is the “Fifth C” of the business, the author says. It goes on to detail the development of AML controls in the trade, to now where it describes the situation as “full compliance the new normal”. It reports that the sector is already witnessing greater scrutiny by governments. In the US, Cartier was fined for an AML procedural lapse in 2017, and in Belgium, there are reports of AML spot checks being conducted by authorities in the diamond district with companies being fined for not having adequate KYC information. In India, the government appointed a regulator for AML-related laws for the gems and jewellery sector, and the recent financial scandals (re Modi etc) in India will probably precipitate tougher scrutiny by the regulator. The article concludes that companies in the sector across the globe, regardless of their location, will have no option but to enhance their AML awareness and processes and institute a clear risk-based AML policy, with adequate KYC information, decision hierarchy, enhanced due-diligence guidelines, transaction monitoring and reporting mechanisms.
MICROSOFT NETWORK ENGINEER CHARGED WITH MONEY LAUNDERING LINKED TO REVETON COMPUTER RANSOMWARE
The Sun Sentinel in the US on 13th April reported that Raymond Uadiale, 41, a Microsoft network engineer is facing federal money-laundering charges in Florida linked to the Reveton Trojan malware, which freezes victims’ computers and tries to force them to pay a “fine” or ransom. He pleaded not guilty. Prosecutors said Uadiale, who also used the name Mike Roland, was part of a conspiracy led by a man who has since been arrested and is facing criminal charges in the UK. Uadiale’s role is alleged to have been some 5 years ago, and to help transfer those payments to the man in the UK, using Liberty Reserve, a virtual currency that was shut down in 2013 by federal prosecutors who said it was used primarily by cybercriminals to launder money.
GOODBYE ICO, HELLO ILP?
On 12th April, Carey Olsen published a briefing on an alternative form of fundraising to an initial coin offering (ICO), the initial loan procurement (ILP). It explains that an ILP is similar to an ICO but in the form of loans rather than coin acquisitions, they enable borrowers and creditors to enter into a loan agreement through legally binding “smart contracts”. With an ILP, a creditor’s investment is contractually tied to the performance of the company and eliminates the wild swings of volatility that have been associated with a vast number of ICO – in simple terms, as long as the company makes a profit, the creditor gets annual returns. It goes on to refer to a Estonian partnership that provides the first ILP of its kind. This uses Future Loan Access Tokens (FLAT) – transferrable loans that can be assigned to third parties – as soon as they lend funds to the company.
THE ROLE AND DESIGN OF NET WEALTH TAXES IN THE OECD
On 12th April, the OECD released this report which examines and assesses the current and historical use of net wealth taxes, defined as recurrent taxes on individual net assets, in OECD countries. It provides background on the use of wealth taxes over time in OECD countries as well as on trends in income and wealth inequality. It then assesses the case for and against the use of a net wealth tax to raise revenues and reduce inequality, based on efficiency, equity and tax administration considerations. The effects of personal capital income taxes and taxes on wealth transfers are also discussed to understand how these taxes interact with net wealth taxes. Finally, the report looks at practical tax design issues and shows that the way a net wealth tax is designed can have a significant impact on the effectiveness and fairness of the tax. The report concludes with a number of practical tax policy recommendations regarding net wealth taxes.
IR35 AND SOLE PERSON COMPANIES: A CONTRACT PURELY DESIGNED TO AVOID TAX
In the Financial Times on 12th April, BBC money guru, Paul Lewis, says to expect the UK government to target this expensive loophole in the autumn Budget. He provides a handy example to how the “fiddle” works.
ICELAND NEEDS EFFECTIVE TOOLS TO PRESERVE INTEGRITY IN GOVERNMENT AND THE POLICE
In its latest evaluation report on 12th April, the Council of Europe’s Group of States against Corruption (GRECO) called for Iceland to strengthen its systems to limit risks of corruption and improper conduct in government functions and law enforcement agencies. It notes that the Icelandic society has become over the years increasingly aware and intolerant to the various forms and manifestations of corruption, especially after the financial crisis of 2008. It calls for more robust and consistent rules of conduct, for instance in relation to gifts and other benefits and contacts with third parties seeking to influence government work, including lobbyists. Additional measures also need to be taken concerning revolving doors and parallel activities.
EU CONFIRM EXTENSION OF IRAN HUMAN RIGHTS SANCTIONS TO 2019 AND AMENDED DETAILS
On 13th April, EU Regulation 2018/565/EU and Council Decision 2018/568/CFSP confirmed that the EU had renewed its sanctions against individuals and 1 entity in Iran on the grounds of serious human rights abuses until 13th April 2019. They also updated details of 29 individuals and the entity designated under the sanctions, with replacement entries.
IRISH ANGLE IN AUDACIOUS $230 MILLION RUSSIAN TAX FRAUD
On 13th April, the Irish Times carried a comprehensive article which says that the Hermitage case that involved large sums of stolen Russian funds passing through the Bank of Ireland and AIB bank and an audacious $230 million Russian tax refund fraud, began sometime in April 2007 when members of a criminal gang in Russia, including members of the interior ministry, flew to Cyprus. The case led to the death of lawyer, Sergei Magnitsky, and the introduction of the Magnitsky sanctions by the US and others.
AUSTRALIAN MAN FACING US EXTRADITION TO FACE HISTORIC GAMBLING FRAUD ACCUSATIONS
The Sydney Morning Herald on 13th April reported that a Queensland man, Baron Matson (aka Baron Bronstein, Philip Fletcher and Lincoln Robert Marshall) accused of roping investors into a fake betting scheme 1997-2001 before disappearing with their money is facing extradition to the US. It is alleged that he ran the scam with his father, Roger Bronstein. US residents were sent letters encouraging their cash investment in an algorithm that guaranteed winning bets on thoroughbred, harness and greyhound racing.
US MAY HAVE ACCIDENTALLY BOUGHT FUEL FROM IRAN THEN HAD $150 MILLION OF IT STOLEN AND USED TO DESTABILIZE AFGHANISTAN
The Daily Caller on 12th April carried an article claiming that the US military in Afghanistan and allied forces may be accidentally buying fuel from Iran (because, it is said, contract didn’t require the vendors to tell the military where they got the fuel), and also saw at least $154 million in fuel stolen (due to slackness, corruption etc), which may have funded terrorists and destabilised the Afghanistan government.
SOLICITOR AND BARRISTER CONVICTED OF $14 MILLION TAX FRAUD IN US
On 12th April, the Law Society Gazette reported that a qualified barrister and solicitor, who is also a licensed attorney in the US, has been found guilty by a New York Court for his part in a $14 million tax fraud scheme. It is reported that Michael Little, 67, ‘advised and helped’ an American family defraud the IRS by hiding millions in overseas bank accounts. He was also found guilty of failing to file his own personal tax returns, and assisting in the filing of false tax returns.
UK: SANCTIONS AGAINST RUSSIA – IN BRIEF
On 12th April, the House of Commons Library provided a useful summary of the position.
SYRIA AND CHEMICAL WEAPONS – IN BRIEF
On 12th April, a new House of Commons Library briefing paper looks at the UK response to allegations of chemical weapons usage in Syria. It draws upon previous Commons Library briefing papers, links to which are provided.
SEC SUES LONGFIN OVER TRADES FOLLOWING ACQUISITION OF CRYPTOCURRENCY COMPANY
Goodwin on 12th April reported that the SEC had sued Longfin Corporation, a financial technology company that recently entered the cryptocurrency space, as well as Longfin’s CEO and 3 others affiliated with the company and has had $27 million of assets frozen. The charges appear to relate to the illegal sale of unregistered, restricted shares in Longfin following its acquisition of a purported cryptocurrency business, “Ziddu.com”.
FRENCH BILL FOR THE PROTECTION OF TRADE SECRETS
On 12th April, Field Fisher Waterhouse reported a Bill currently before the French legislature on the protection of trade secrets.
FORMER CHINESE POLITICAL STAR PLEADS GUILTY IN BRIBERY TRIAL
Baker McKenzie on 12th April reported that Sun Zhengcai, a former senior Communist Party official who was once tipped to be China’s future president has pleaded guilty to accepting millions in bribes at his trial. n July, Sun was abruptly removed from his post as the ruling Communist Party’s chief of the southwestern city of Chongqing and was replaced by Chen Miner, who is a protege of President.
BERMUDA TO INTRODUCE INITIAL COIN OFFERING (ICO) LEGISLATION
Appleby on 12th April reported that Bermuda’s legislature in considering a Bill which is part of a larger plan for Bermuda to become a global leader in the cryptocurrency arena.
HOW DO WE CONTROL DANGEROUS BIOLOGICAL RESEARCH?
The Bulletin of the Atomic Scientists on 12th April published an article by a Fellow at King’s College London. After reviewing the position, particularly in the US, it concludes by saying that guarding against deliberate misuse of biology is a tall order for the international community and national policymakers. On the other hand, it is not an impossible task given political will. We already have frameworks, concepts, and experiences to draw on, including the Biological Weapons Convention (BWC) and US policies on Dual Use Research of Concern. We can, it argues, build on these to reduce the security risk posed by the rapid evolution of biology.
REVISION OF THE EU 4TH MONEY LAUNDERING DIRECTIVE
On 12th April, the EU Parliament Think Tank published a paper on proposals from the Commission, Parliament and Council to amend the 4th ML Directive. These include: the obligation for Member States to provide data to the Commission on trusts and legal arrangements; specific professional secrecy obligations for staff working, or having worked for, competent authorities supervising credit and financial institutions; cooperation between competent authorities; or the obligation for Member States to provide FIU with access to information – including through registries or central electronic data retrieval systems – which allows the identification of any natural or legal person owning real estate.
THE HOUSE THAT LUKASHENKO BUILT: THE FOUNDATION, EVOLUTION, AND FUTURE OF THE BELARUSIAN REGIME
On 12th April, the Carnegie Center published a briefing on the highly consolidated, adaptive authoritarian regime in Belarus. It looks at how the Belarusian political system is structured and how its relationships with its citizens, Russia, and the West have evolved – as Lukashenko ages and economic challenges continue to mount.
WHO WINS FROM RUSSIA-WEST TENSIONS IN THE POST-SOVIET TERRITORIES?
The Carnegie Moscow Center on 12th April has produced a commentary which says that the surge of third powers in the post-Soviet space is propelled by the twin engines of rising demand for alternatives to Russia and the West, and growing supply of new ambitious economic and political regional players. The overall effect of these trends is to offer most post-Soviet states an increasing array of foreign, economic, and political options, and a wider and more stable foundation for much-coveted multi-vectoral foreign policies in which they can more often say no, if they want to — to both Moscow and Western capitals. The commentary comments on an audit of how China, Turkey, Iran, Israel, and the Arab states approach and deal with Belarus, Ukraine, Moldova, Georgia, Armenia, and Azerbaijan. Some of the figures that emerged from this inventory are, it says, quite striking.
US DOJ ANNOUNCES SECOND DISTRIBUTION OF MADOFF FUNDS
On 13th April, Mondo Visione reported that the US DoJ had announced that the Madoff Victim Fund (MVF) began its second distribution of $504 million in funds forfeited to the US Government in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme, bringing the total distributed to over $1.2 billion. These funds will be sent to over 21,000 victims across the globe.
US FREEZES MILITARY AID TO CHAOTIC LIBYA
On 12th April, Real Clear Defense reported that the Trump administration holds off on delivering the weapons to the violence-plagued North African country. It says that the DoD and State departments previously authorised some $23 million to train and equip Libyan special operations forces and secure the country’s vast borders, under a 6-year-old plan to carry out security and counter-terrorism training and rule of law programmes in a handful of vulnerable countries, but funds have been frozen since mid-2016, according to congressional notifications reviewed by Al-Monitor, with just $220,000 out of $15 million in border security funding permitted.
DRUG MISUSE AND DEPENDENCY: UK GOVERNMENT RESPONSES TO ACMD REPORTS
On 13th April, the Home Office published Ministerial responses to Advisory Council on the Misuse of Drugs (ACMD) reports on drug misuse and dependency.
ARUBAN TELECOMMUNICATIONS PURCHASING OFFICIAL PLEADS GUILTY TO MONEY LAUNDERING CONSPIRACY INVOLVING VIOLATIONS OF THE US FOREIGN CORRUPT PRACTICES ACT
On 13th April, the US DoJ published a news release about Egbert Yvan Ferdinand Koolman, 49, a Dutch citizen residing in Miami, and his role in a scheme to arrange and receive corrupt payments to influence the awarding of contracts with an Aruban state-owned telecommunications corporation. Another US citizen, Lawrence W. Parker, Jr., 42, of Miami, had already pleaded guilty in the same case.
2 CHINESE NATIONALS ARRESTED IN COUNTERFEIT SHOES BUST IN GREECE
On 13th April, Ekathimerini reported that 4,400 counterfeit shoes tagged with a popular brand name were confiscated by financial crime squad units conducting raids at 2 stores in Attica and their warehouses. 2 Chinese nationals, aged 42 and 49, were arrested and the 2 Chinese owners of the stores indicted.
RIO TINTO REVIEWS ARRANGEMENTS WITH SANCTIONS-AFFECTED RUSSIANS
London South-East on 13th April reported that FTSE 100-listed Rio Tinto PLC said that it is reviewing the arrangements with entities impacted by the US Treasury sanctions on various Russian individuals and companies.
BAHAMAS GOVERNMENT SEEKING TO PASS PROCEEDS OF CRIME BILL, FINANCIAL TRANSACTION REPORTING BILL NEXT WEEK
The Nassau Guardian on 13th April reported that the government could pass the Proceeds of Crime Bill and Financial Transaction Reporting Bill next week and announced an AML/CFT conference to be held in September.
US: 3 YEARS PRISON FOR INTERNATIONAL DARKNET DRUG TRAFFICKER
On 13th April, OCCRP reported that a US federal court sentenced Romanian Leonardo Cristea, 22, a member of the darknet drug-trafficking organisation “ItalianMafiaBrussels” (or IMB) to 3 years in prison for importing controlled substances to the US. He was arrested in May 2016 along with the alleged leader of the group, Filip Lucian Simion, in Bucharest, Romania and extradited.
JP MORGAN RUSSIAN INVESTMENT TRUST WORKING TO COMPLY WITH US SANCTIONS
Reuters reported on 13th April that JPMorgan’s Russian-focused investment trust said that it was working with OFAC to implement actions to ensure it is compliant with US sanctions against Russia.
RUSSIAN BANK WINS $140 MILLION FROM CLIENT OVER FRAUDULENT LOAN
Law 360 on 13th April reported that a London court has said that JFC Russia, a fruit importer, a former customer of BM Bank JSC must pay the Russian lender around $140 million after ruling that lieutenants working on its behalf lied about the financial health of its international business to extract a loan from the bank on which the company defaulted.
BM Bank, part of Russia’s state-owned VTB Bank Group, was induced into lending to the fruit importer in 2011.
COMPLEX DISPUTES DRIVING UP UK TAX APPEAL TRIBUNAL BACKLOG
On 13th April, Out-Law published an article saying that a number of outstanding tax disputes waiting to be heard by the UK tribunals has continued to rise, as the high-profile crackdown on tax avoidance by HMRC continues. It says that outstanding cases in the first-tier tribunal (FTT) increased by 507 last year to reach 28,521, an increase of over 1,500 outstanding cases since 2012/13, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. The number of high-value, complex cases waiting to be heard in the upper tribunal (UT) increased by 40% last year, reaching 404, according to the figures.
EGYPT WARNS AGAINST FAKE WEBSITE OFFERING E-VISAS FOR DOUBLE THE PRICE
Egypt Independent on 12th April reported that Egypt’s Interior Ministry has warned in a statement about an US website, dubbed ‘GCL Internet Services’, which has been allegedly offering e-visas to Egypt at double the official price. The ministry stressed that tourists who are looking to obtain an Egyptian visa must do so using the official government website.
TOP US SANCTIONS OFFICIAL TO LEAVE TREASURY DEPARTMENT
On 13th April, Baker McKenzie reported that John E. Smith, director OFAC, will leave the position early next month for personal reasons, after 11 years with OFAC. Mr. Smith served as the office’s leader since February 2015, first in an acting role and then since March 2017 in a permanent role.
STOLEN ART SURRENDERED AFTER CRIMINAL GROUP’S HEIST DECADES AGO
OCCRP on 13th April reported that the FBI has recovered a prized painting from a decades-old art heist in New York City, thanks to the guilty conscience of an aging terminally ill organised crime figure with links to Bulgarian criminal groups. The painting, a Chagall from 1911 titled “Othello and Desdemona” was stolen in 1988 along with several other invaluable artefacts and artworks including those of Renoir, Hopper, and Picasso. The statute of limitations on the heist expired years ago and no charges are being filed against the known thief or the man who surrendered the painting.