TRANSACTION LAUNDERING AND HIGH-RISK PAYMENT PROCESSORS

TRANSACTION LAUNDERING AND HIGH-RISK PAYMENT PROCESSORS

INTRODUCTION

Transaction laundering is one of those terms you may have come across, or should have come across, and it may be one of the most important means of laundering the proceeds of criminal activity.

However, as with other types of trade-based financial crime that are often grouped under the somewhat misleading term “trade-based money laundering”, it is one relatively difficult to detect and thus likely to elude the types of routine check undertaken by compliance staff.  It is not a new phenomenon, and as far back as 2001 the expected growth in online transactions was predicted to lead inevitably to e-laundering as well[1].

In essence, one might consider that, despite the apparent high-tech and “modern” paraphernalia and terms involved, transaction laundering is no different from “old fashioned” money laundering, where a seemingly cash-rich front, such as a takeaway or launderette was used, but with online payments substituted for real cash.

The continued rapid growth in e-commerce makes transaction laundering more prevalent, easier to hide, and much easier to make an integral component of a larger fraud.  Estimates of the value of transaction laundering have suggested figures of $200 billion a year in the US alone.

In recent months, AirbnB has also been identified as another route for transaction laundering[2] – a scheme involving more than 3,000,000 lodging listings in 65,000 cities across 191 countries would seem to have obvious appeal to launderers.  There have also been reports of “sales” of non-existent goods via Amazon, eBay etc.

The proliferation of so-called micro merchants and instant onboarding by payment providers etc, as well as the explosion of different payment methods contribute to data overload and difficulty in monitoring merchant portfolios.

Thomson Reuters, owners of the World-Check compliance tools, has said that about 50%-70% of online sales for illicit drugs, counterfeit goods, and unlawful adult content involve some form of transaction laundering, quoting the Electronic Transactions Association (ETA), a trade association for the payments industry.  It goes on to say that unlicensed online gambling is even more dependent on this type of money laundering, with more than 90% of illegal gambling sites said to be making use of transaction laundering to move their credit card receipts into the payment system[3].

WHAT IS IT?

Transaction laundering may also be described as “credit card laundering”, “undisclosed aggregation,” or “factoring”, such terms having, or capable of being given, legitimate connotations[4].  Indeed, factoring in itself is a large and wholly licit activity allowing a creditor to sell on debts owed to it to a third party, the third party charging a percentage commission for the right to collect the debt as its own – paying the creditor, for example, 90% of the original debt.  The third party gets a new asset and the original creditor gets most of its money immediately, and without the concern of potential bad debts etc.

However, cases involving activity identified as transactions laundering, and using the term to flag up the importance of the methods involved, remain relatively rare.  There was a prominent US case in 2013, involving an estimated $6 million – but it was the Federal Trade Commission and not the FBI that undertook the case[5].  Another important case dates from 2016, when US authorities took action against Canadian-based PacNet[6], described by the US Treasury as an “international payments processor and money services business, [and] has a lengthy history of money laundering by knowingly processing payments on behalf of a wide range of mail fraud schemes that target victims in the United States and throughout the world”[7].

There are three basic forms of transaction laundering –

  • Use of a front company – this is set up and passes any due diligence checks made by a bank or financial institution. However, rather than just selling goods, the company also (or instead) launders criminals’ money – for example, by use of wholly fictitious “sales” (aka “phantom shipments”) to cover movements of cash, or sells illegal products masquerading as legitimate goods.
  • Use of a “pass through company” – this is where an otherwise genuine company with a legitimate account takes on a “silent partner” and –
    • allows (or has to allow) an that partner (or another) to use its account[8];
    • embeds a payment link on the web page of another’s company, to route payments (e.g. for illegal goods sold using that site) through its own, apparently legitimate account; or
    • enters the sales from the partner business into its system manually, making the laundering more difficult to detect.

The company whose account is being used may received an inducement, such as a percentage commission, even if not itself directly implicated in the illegal sales or activity generated the additional “income”.  The “partner” may be described as an “affiliate partner” or as part of an “affiliate network”, in either case seeking to route payments for illegal or non-existent product via the legitimate account.

  • Operating a “funnel account” – this is where, again, an otherwise legitimate business accepts credit card charges from companies that do not have merchant processing accounts, entering the charges as legitimate transactions in its own card payment processing system. For example, in locations where online gambling is illegal this might occur with transactions instead being tagged with the Merchant Category Code for online clothing or electronics sales.

In each of the above, it may well be that the account involved is legitimate and/or intended to continue operating.  However, there are the so-called “bust out frauds” – where a merchant applies for a merchant account with a payment provider without any intention of actually operating a legitimate business.  Instead the account is used for fraudulent or illegal transactions, with the aim of processing as many transactions as possible within a short amount of time, and before being caught, simply abandon the account.

The National Merchants Association[9] in the US have also categorised transaction laundering as follows –

  • Benign laundering – where two legitimate businesses are sharing the same gateway;
  • Malicious laundering where an illicit business sends its transactions through a legitimate account, using it as cover for its own illicit proceeds; and
  • Affiliate laundering – where an illicit business hijacks customer payment information, creates an affiliate account at a third-party merchant site, and then purchases goods using the hijacked funds to collect affiliate commission from the site through fictitious purchases.

In 2017, a Reuters investigation revealed a network of dummy online stores offering household goods that was actually a front for internet gambling payments.  In that case, 7 sites operated out of Europe and appeared to sell innocuous items including fabric, DVD cases, maps, gift wrap, mechanical tape, pin badges and flags.  In fact, they were wholly fake outlets, part of a multinational system to disguise payments for the $40 billion global online gambling industry, which is illegal in many countries and some US states[10].

It is not just criminals that can, and do, use transaction laundering methods.  In 2017, the FBI in an affidavit said it had uncovered a global financial network run by a senior Islamic State official that funnelled money to an alleged ISIS operative in the US through fake eBay transactions[11].  The terrorist attacks in Paris in 2015 are also said to have been funded through online sales of counterfeit goods and illegal drugs[12].

In September 2017, the Financial Times published a guest article calling for transaction laundering to be a top priority for regulators[13].   The author said that the principle behind transaction laundering is simple: an unknown business uses an approved merchant’s payment credentials to process credit card payments for unknown products and services.  He also said that online marketplaces and the like lacked the tools to vet each merchant, let alone each payment or customer.  The article made the point that traditional forensic tools used can result in lengthy, clumsy and unproductive investigations, and AML efforts are often wrongly focussed on high-risk, high-volume merchants – whereas payments can be routed through smaller players, and smurfed into smaller amounts (see also the comments about the use of algorithms by High-Risk Payment Processors below).

HOW CAN YOU DETECT IT?

Amongst the possible ways to detect transaction laundering are –

  • close examination of the “merchant’s” website – how are goods or services offered, does it look appealing to the consumer, would you be tempted to use it? Do the types (sizes, colours etc) of goods or services make sense?
  • comparing the content of the website to its claimed volume of business – does it make sense; does it seem realistic?
  • by taking into account how long the website has been active – typically, new sites do not generate large-scale business when first launched (unless they are from already large and reputable businesses)
  • comparing the products offered and the average sales price and the Merchant Category Code being used – are there unexplained spikes in sales values, does the average individual sale value make sense for the type of product being offered?
  • where the Code(s) being used by the website do not match the type of products that is supposedly selling

EverCompliant, a leading provider of cyber risk intelligence and transaction laundering detection and prevention, has said that the top 10 Merchant Category Codes used by transaction launderers are as follows[14]

  1. Book Stores
  2. Food Stores
  3. Convenience Stores
  4. Markets
  5. Household Appliance Stores
  6. Men’s and Boy’s Clothing
  7. Accessories Stores
  8. Variety Stores
  9. Cosmetic Stores
  10. Gift, Card, Novelty, and Souvenir Shops

For the TCSP[15] community, one of the chief risks is that they are used by new or existing clients to create the fake businesses, the front companies or to create the structure through which proceeds are seemingly legitimised and/or routed to or through jurisdictions on their way to benefit the criminals at the heart of the fraud.  Not just client onboarding, but ongoing compliance checks, would be required – what might have sounded like a perfectly plausible proposition might, when revisited at a later date and when one is able to examine what has actually taken place, not ring true.

“Continuous Merchant Portfolio Monitoring” is a fancy term coined for what should be standard, ongoing risk assessment.  The problems encountered are likely to include the fact that such ongoing sampling/monitoring is likely to be resource-intensive, involving potentially large amounts of data, requiring the ability to understand the terms used, and understanding the products and markets involved.

There are automated systems offered, where software analyses large amounts of data to detect anomalies, irregularities or other triggers.  Such software might also help in detecting high-risk payment processing abuses (see below), particularly where automated systems and algorithms are being used by the other side.  Such software can take advantage of emerging technologies like AI and machine-learning solutions.  These solutions are generally aimed at the merchants, payment providers and financial institutions.

In the Isle of Man, a jurisdiction with a large and generally well-respected and regulated TCSP community, in 2017 guidance issued on trade-based money laundering was amended in February 2017 to make specific mention of transaction laundering[16]  the definition given was that transaction laundering was “A form of online fraud where legitimate merchants process payments (usually involving credit or debit cards) on behalf of another merchant.  Using [transaction laundering], a merchant sets up an online store and receives the approval of a bank or payments provider to process orders, he or she then sets up additional, unregistered websites to sell other, illegal goods with payments being routed via the legitimate online store.”.  This is a useful, concise definition but the scope of transaction laundering in its various forms is really far wider – and the definition does not directly address the High-Risk Payment Provider risk (see below).

On the other hand, the term “transactions laundering” does not occur at all in the latest editions of the AML/CFT handbook published by the Island’s Financial Services Authority (FSA)[17], though the Handbook does contain comprehensive and detailed guidance on risk assessment, ongoing monitoring etc.  In the sector-specific guidance provided by the FSA, whilst again comprehensive and detailed, there appears to be no direct reference to transaction laundering, nor of the risks posed to TCSP in unknowingly becoming involved in it.

HIGH-RISK PAYMENT PROCESSING

A good starting point when trying to think about High-Risk Payment Processing (HRPP) is to listen to a podcast interview of Simona Weinglass, the reporter from the Times of Israel who broke the story of the scandal of the $10 billion binary options trading operating from Israel[18].  The fraudsters involved there used HRPP to realise their ill-gotten gains.  Ms Weinglass claims that when trying to investigate HRPP she could find little or no literature on this aspect of the case.

Put simply, HRPP set out to facilitate “high-risk” businesses by arranging to filter their proceeds into the financial system.  This may be to assist businesses with which traditional (or, as they would probably describe them, conservative) financial institutions are reluctant to deal, and/or manipulate merchant codes to disguise or misrepresent the nature of the business generating the funds – so as to prevent difficulties or unwanted scrutiny or delay in payment processing.

Of course, the high-risk businesses they serve are not necessarily involved in anything illegal – they may, for example, simply have a poor, or insufficient, credit history, have suffered excessive chargebacks[19] in the past, or operate in a business or territory with a history of high chargeback risk.  However, as long ago as 2012, FinCEN issued an Advisory that warned financial institutions in the US of AML risks associated with third-party payment processors[20].

Whilst a large number of businesses offer services as HRPP, and would be operating legitimately, there will be others who would target those generating illegal proceeds.  These would aim to integrate the funds through the legitimate (or not) payment processing system and legitimate (or not) banks.  Hence, they may use reputable US or European banks, using subterfuge including breaking down payments into micro payments and spreading over numerous accounts or locations to fall below levels that might attract attention.  This system may be highly automated, with the use of algorithms to handle the arrangements.  They may alternatively, or also, use banks or other entry points in jurisdictions where less (or no) questions are asked about the source or legitimacy of funds.

Even if an account is identified and terminated by an acquirer[21], research undertaken in the US by G2 Web Service in 2016 appeared to show that around 25% of terminated accounts keep the rest of their operations mostly intact, seeking new paths into the payment system.  Others rename and reform their operations but continue to sell illicit goods.  Only a minority disappear completely[22].

 

Ray Todd

17th September 2018

 

[1]  The Law Enforcement Implications of New Technology (Commonwealth of Australia report, August 2001): https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Former_Committees/acc/completed_inquiries/1999-02/itlaw/report/index

[2]  https://www.thedailybeast.com/inside-airbnbs-russian-money-laundering-problem

[3]  https://store.legal.thomsonreuters.com/law-products/solutions/clear-investigation-software/anti-money-laundering/the-growing-threat-of-transaction-laundering

[4]  Another term used is merchant-based money laundering  (MBML), of which it is said that transaction laundering is just one form.

[5]  https://www.ftc.gov/news-events/press-releases/2013/09/ftc-halts-elusive-business-opportunity-scheme

[6]  http://en.finance.sia-partners.com/20161113/pacnet-services-what-you-need-know

[7]  https://www.treasury.gov/press-center/press-releases/Pages/jl5055.aspx

[8]  This might be described as an “identity swap”.

[9]  https://www.nationalmerchants.com/fraud-education/a-new-kind-of-fraud-transaction-laundering/

[10]  https://www.reuters.com/article/us-gambling-usa-dummies-exclusive/exclusive-fake-online-stores-reveal-gamblers-shadow-banking-system-idUSKBN19D137

[11]  https://www.wsj.com/articles/fbi-says-isis-used-ebay-to-send-terror-cash-to-u-s-1502410868

[12]  http://www.lefigaro.fr/actualite-france/2015/01/08/01016-20150108ARTFIG00004-charlie-hebdo-l-itineraire-des-freres-kouachi.php

[13] https://ftalphaville.ft.com/2017/09/27/2193969/transaction-laundering-should-be-a-top-priority-for-regulators-in-2018/

[14]  http://evercompliant.com/five-ways-criminals-abuse-payments-ecosystem/

[15]  Trusts and corporate services providers.

[16]  https://www.gov.im/media/1348726/notice-1000-man-trade-based-money-laundering-july-18.pdf

[17]  https://www.iomfsa.im/media/1475/amlcfthandbookfinalversiond.pdf

[18]  https://www.traceinternational.org/bribe_swindle_or_steal

[19]  Chargebacks are where the credit card company cancels a payment after the customer has claimed that the transaction involved was unauthorised.  The funds are debited from the business’s account and credited back to the customer.  Here too, chargebacks need not indicate any illicit activity on the part of the business, hospitality industry, hotels and travel agencies are may also be flagged as high-risk because they can suffer high levels of chargebacks initiated by unsatisfied customers.

[20]  https://www.fincen.gov/resources/advisories/fincen-advisory-fin-2012-a010

[21]  Such as a credit card company.

[22]  http://www2.g2webservices.com/cleaning-out-transaction-laundering/

OTHER THINGS YOU MAY HAVE MISSED – SEPTEMBER 17

17th September 2018

WHY EU BANKS HAVE BECOME A MONEY LAUNDERER’S DREAM

The Financial Times on 17th September carried an opinion piece which sought to explain why its author thought EU banks seem so vulnerable to money laundering, citing the recent Danske Bank and ING cases as examples.  The reasons given include “patchy” implementation of changing AML rules, variable implementation and enforcement across Member states – with only 5% follow-up of SAR in some states, poor co-ordination between national authorities, and no central EU database.  However, another reason seems the most compelling – that some places have built their wealth and success on dodgy funds, such as former the former Soviet Union.

https://www.ft.com/content/64ec1f54-b825-11e8-b3ef-799c8613f4a1

INDIA: STATE MINISTER GRANTED BAIL IN MONEY LAUNDERING CASE

New Kerala reported on 16th September that Karnataka Water Resources Minister, DK Shivakumar, and 3 others had been granted bail in a case involving tax and money laundering charges.

https://www.newkerala.com/news/read/46630/ktaka-minister-dk-shivakumar-granted-bail-in-money-laundering-case.html

6 KEY MARITIME ISSUES TO UNDERSTAND BEFORE DOING BUSINESS IN INDONESIA

On 14th September, HFW published a briefing saying that, with the growing importance of Indonesia to the shipping industry and the disproportionate number of losses taking place in the region, it is imperative for stakeholders to understand the nuances of Indonesia’s legal and regulatory regime in order to avoid potential pitfalls.  HFW has therefore outlined 6 key jurisdiction-specific challenges relating to maritime casualties and claims; noting that Indonesian law can be very localised, with several commonly used international regulations not in use.

http://www.hfw.com/Murky-waters-Six-key-maritime-issues-to-understand-before-doing-business-in-Indonesia-Sep-2018

GUATEMALA’S TOP COURT ORDERS RETURN OF UN ANTI-CORRUPTION CHIEF

Deutsche Welle on 17th September reported that Guatemala’s highest court has delivered a strong rebuke to President Jimmy Morales and allowed for the return of a UN-backed anti-graft chief, whom Morales had banned from the country.  The government has 48 hours to challenge the ruling before a final decision is reached.  The head of the UN International Commission against Impunity in Guatemala (CICIG), Ivan Velasquez, had been under attack since leading a graft investigation on his 2015 presidential campaign.

https://www.dw.com/en/guatemalas-top-court-orders-return-of-un-anti-corruption-chief/a-45514657?src=ilaw

USING BENFORD’S LAW TO DETECT TAX FRAUD IN INTERNATIONAL TRADE

An article on 17th September from VOX, the policy portal of the Centre for Economic Policy Research (CEPR) in the EU starts by saying that smuggling, along with other forms of border tax evasion, is a substantial problem around the world.  It then uses Benford’s Law, which holds that the leading digits in various types of numerical data are not uniformly distributed, to identify suspicious import flows.  Results using Turkish data suggest that deviations from Benford’s Law are consistent with higher rates of tax evasion. The article claims that the approach could be employed by authorities to identify shipments that merit greater scrutiny. 

https://voxeu.org/article/using-benford-s-law-detect-tax-fraud-international-trade?src=ilaw

AIRCRAFT PURCHASE, OWNERSHIP AND OPERATION

Bradley Arant Boult Cummings LLP in the US is producing a series of blog posts addressing various issues related to the purchase, ownership and operation of private aircraft by family business owners.  In doing so, it provides a handy overview of those issues and procedures involved, in the US at least.

https://www.familybusinessadvocates.com/category/private-aircraft-ownership/

EU/US SANCTIONS VERSUS RUSSIAN ANTI-TRUST LAWS

Noerr LLP published an article on 12th September saying that foreign sanctions, including secondary US sanctions that are aimed at non-US companies doing business with Russia, are forcing many international companies to carefully evaluate and restructure their contractual relationships with Russian counterparties.  In this process Russian anti-trust law provides obstacles that may be difficult to overcome sometimes.  It discusses these Russian laws and how they may be relevant in certain sanctions-related scenarios, liability risks and the attitude of the Russian authorities; although it does say that the initiative to introduce criminal liability for compliance with the sanctions seems to have lost support, with President Putin having stated that Russia will not punish foreign partners for complying with anti-Russia sanctions.

https://www.noerr.com/en/newsroom/News/eu-us-sanctions-vs-russian-antitrust-laws.aspx

4 LUXURY BRANDS CAUGHT UP IN THE CHINESE ACTRESS’ FALL FROM GRACE

The South China Morning Post on 17th September carried an article about the actress, Fan Bingbing, one of China’s highest-earning entertainers, who has not been seen in public since the July tax evasion scandal.  Her disappearance poses some difficult questions for the luxury brands she endorses.

https://www.scmp.com/lifestyle/fashion-beauty/article/2164508/fan-bingbing-tax-evasion-scandal-four-luxury-brands-caught?src=ilaw

BUSINESS LOSSES FROM MANDATE FRAUD DOUBLE TO £77 MILLION

London Loves Business on 17th September reported that businesses are being urged to alert staff to the dangers of mandate fraud after new figures show that losses more than doubled in the last year to reach £77 million.  Mandate fraud is where an employee is tricked into changing a regular payment mandate such as a direct debit, standing order or bank transfer and redirecting it into a fraudster’s account, the fraudster having contacted the business, usually by email, to advise of a change in process.

https://londonlovesbusiness.com/business-losses-from-mandate-fraud-double-to-77m/?src=ilaw

LEBANON: SHIP CARRYING INFECTED CATTLE BARRED ENTRY

The Daily Star on 17th September reported that a livestock carrier that had been rumoured to be carrying anthrax-infected cattle will not be allowed to dock in Lebanon, a senior source at Lebanese Customs said.  Turkish news website Sozcu identified the ship as the Rahmeh, which flies the flag of Panama and left the Turkish port of Bandirma.

http://www.dailystar.com.lb/News/Lebanon-News/2018/Sep-15/463500-no-infected-cattle-arriving-at-beirut-port-officials-say.ashx

http://www.dailystar.com.lb/News/Lebanon-News/2018/Sep-15/463500-no-infected-cattle-arriving-at-beirut-port-officials-say.ashx

CONVEYANCERS LIABLE FOR REGISTRATION ERROR DESPITE MORTGAGE FRAUD

Legal Futures on 14th September reported that the Court of Appeal has ruled that there is “no public interest” in allowing a negligent conveyancer to avoid liability when they did not know that their client was actually engaged in mortgage fraud, and making the situation otherwise, might make solicitors less diligent in detecting fraud.

https://www.legalfutures.co.uk/latest-news/conveyancers-liable-for-registration-error-despite-mortgage-fraud

FEARED ALBANIAN MAFIA MUSCLING IN ON DRUGS TRADE IN BIRMINGHAM

Birmingham Live on 17th September reported on Albanian mafia links seen or suspected in drugs and vice crime in Birmingham, and saying that in 2017 West Midlands Police made 140 arrests of Albanian nationals, with 51 drug offences representing the largest specified category.  On the other hand, it mentioned that, by contrast, the force arrested 1,467 Romanian citizens, which included 620 cases of theft and 35 drugs offences.  The NCA has said it will relentlessly pursue organised crime groups and it has broken up Albanian drugs, document-forging and people-smuggling operations across the UK this year, but says that say the gangs have ‘established a high-profile influence within UK organised crime’.

https://www.birminghammail.co.uk/news/midlands-news/how-feared-albanian-mafia-muscling-15153525

FIRST ALL-BRITISH RADAR SATELLITE USES INCLUDE TARGETING ILLEGAL LOGGING AND RACKING SUSPICIOUS SHIPPING ACTIVITY

MSN on 16th September reported on the launch in India of the NovaSar satellite.  The satellite can take images night or day, even through the cover of heavy clouds.  It is said to be ideal for spotting illegal logging in high cloud-covered forests, such as the Amazon, and functions will also include monitoring for oil spills and floods, as well as tracking suspicious shipping activity such as smuggling.

https://www.msn.com/en-gb/news/uknews/blast-off-for-rocket-with-first-all-british-radar-satellite/ar-BBNpsij?ocid=spartanntp

2 MORE PLEAD GUILTY IN US PROBE OF PDVSA

The Wall Street Journal on 14th September reported that the US has secured 2 more guilty pleas in an ongoing corruption probe of Venezuela’s state-run energy company, Petroleos de Venezuela SA.  A Texas man pleaded guilty in Houston federal court to a foreign-bribery conspiracy charge.  The federal judge also unsealed a July 2017 guilty plea of a Florida man to money-laundering conspiracy charges.  Both men are scheduled to be sentenced in February 2019.

https://www.wsj.com/articles/two-more-plead-guilty-in-u-s-probe-of-pdvsa-1536943562?mod=searchresults&page=1&pos=1

THE EU BLOCKING REGULATION – ISSUES AND CONSIDERATIONS FOR THE FINANCIAL SERVICES SECTOR  

In July, UK Finance – a trade association representing 300 of the leading firms providing finance, banking and payments-related services in or from the UK – produced a briefing paper explaining the EU Regulation designed to mitigate the effect of re-imposed US sanctions on Iran.

https://www.ukfinance.org.uk/wp-content/uploads/2018/07/UK-Finance-paper-EU-Blocking-Regulation-11-July-2018-FINAL.pdf

FIRST CONTAINERSHIP GOES NORTH OF RUSSIA FROM ASIA TO EUROPE

On 17th September, EU Observer reported that Venta Maersk, a brand-new ice-strengthened containership is first containership to use the still ice-plagued North East passage north of Russia from Asia to Europe.  It belongs to Seago Line, a shipping company owned by A.P. Moller Maersk A/S, the world’s largest container-shipping agency.

https://euobserver.com/news/142837

ZIMBABWE SUGAR SALES (ZSS) LTD CAUGHT UP IN A $45 MILLION TAX EVASION STORM

On 17th September, All Africa reported that Zimbabwe Sugar Sales (ZSS) Ltd, a company that sells and distributes sugar on behalf of Hippo Valley Estates and Triangle Limited, has been caught up in a $45 million tax evasion storm spanning 2009 to March 2015.  The figure could rise even higher if ZSS’s activities from April 2015 to date are factored in.

https://allafrica.com/stories/201809170268.html?src=ilaw&viewall=1

LEGAL REQUESTS FOR COMPANY DATA BY SFO HAVE DOUBLED

FS Tech on 17th September reported that law firm Pinsent Masons says that 1,032 ‘Section 2’ notices have been issued by the SFO in 2017-18 without the government agency needing to seek approval for the orders through the courts.  This number is up more than 123% on the 463 notices issued in 2013-2014.  Section 2 notices compel businesses to hand over documents or electronic data to assist with SFO investigations, without the need for judicial oversight to impose the order.  Failure to comply is a criminal offence, which can attract up to 6 months in prison.  It points out that search warrants require the SFO to explain to a judge why their proposed search parameters are appropriate, whereas Section 2 powers requires no such oversight.

http://www.fstech.co.uk/fst/%20Legal_Requests_Data_Doubled.php%20.php?src=ilaw

SEC ENFORCEMENT ACTIONS SIGNAL RAMP-UP AGAINST CRYPTOCURRENCY

A briefing from Alston & Bird on 17th September on the SEC’s first enforcement actions against cryptocurrency companies.  This, it points out, followed the issue of the DAO Report in 2017 which confirmed that those who offer and sell digital currency could be subject to the federal securities laws.  The briefing provides details of recent enforcement actions.

https://www.alston.com/-/media/files/insights/publications/2018/09/crypto-sec-settlement.pdf

REGULATORS AIR CONCERNS OVER SKINS GAMBLING AND LOOT BOXES – SIGN AGREEMENT TO ADDRESS RISKS

Intergame Online on 17th September reported that 15 gambling regulators from across Europe, as well as Washington State Gambling Commission, have signed an agreement to work together to address the risks created by the blurring of lines between gaming and gambling.  It says that tackling unlicensed third-party websites offering illegal gambling linked to popular video games is a priority.

https://www.intergameonline.com/igaming/news/regulators-air-concerns-over-skins-gambling-and-loot-boxes

WELCOME TO E-ESTONIA: WHERE VIRTUAL RESIDENTS OUTNUMBER NEWBORNS

On 14th September, the IMF Blog had a new posting that included a podcast with Siim Sikkut, Estonia’s Chief Information Officer.

https://blogs.imf.org/2018/09/14/welcome-to-e-estonia-where-virtual-residents-outnumber-newborns/

THE LINK BETWEEN GROWING CHINESE ARMS EXPORTS TO THE REGION AND A WAY OF SECURING GREATER GEOPOLITICAL INFLUENCE

The Interpreter on 17th September published an article which says that the fall in export of Russian made weapons to Africa corresponded with the rise in Chinese exports – though Russia remains the largest supplier of major weapons to Africa (39% of the region’s imports), but China sells to more countries than Russia.  Whilst the Belt and Road Initiative (BRI), announced in 2013, is one significant example where the economic expansion via the land (belt) and sea (silk road) challenges the strategic interests of many states, China’s growing arms industry and arms exports means that weapon sales could have become a new foreign policy tool for China in Africa.  Development of the Chinese arms industry has enabled it to become a major arms exporter, with a 38% increase in total arms exports that was second only to Israel.

https://www.lowyinstitute.org/the-interpreter/chinas-arms-trade-rival-global-influence

UK’S LACK OF PLAN TO PREVENT CHILD TRAFFICKING ‘FAILS THOUSANDS’

Ekklesia on 17th September reported that the UK Anti-Trafficking Monitoring Group (ATMG) has said in its new report that the UK Government is failing to protect thousands of children from exploitation by lacking a plan to prevent child trafficking.  There were 2,118 suspected child trafficking victims reported to the UK authorities in 2017, comprising 41% of the total number of potential victims and constituting a concerning 66% increase from the year before.

http://www.ekklesia.co.uk/node/26795

 

HAWALA AND A FINCEN GUIDE TO HAWALA

On 16th September, the Target Letter Law website published an article on Halawa, the trust-based informal value transfer system (sometimes called parallel banking) that is widely used for perfectly legitimate purposes across parts of South Asia, West Africa, and the Middle East, and for facilitating transactions between communities there and people in other parts of the world, like Europe and North America.  It says that tts attraction to money launderers and terrorist financers is driven in large part by the difficulty of tracing the transactions and the limited means of regulatory enforcement.  It also points out that hawala is generally unlawful in countries like Pakistan and India, and in some US states.

https://www.targetletterlaw.com/2018/09/16/financing-terrorism-through-the-halawa-system/

It also provides a link to a FinCEN guide on hawala –

https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf

FINLAND: SNUS SMUGGLING RING EVADED €4.6 MILLION IN TAXES

YLE in Finland on 17th September reported that Finnish Customs says it has uncovered an organised ring believed to have smuggled more than 12 tonnes of snus tobacco into Finland from Sweden between 2016 and 2018.  Sales of the substance are banned in all EU countries except Sweden.  Snus is a moist powder tobacco product, essentially a sort of dry snuff that is placed in the upper lip for extended periods.

https://yle.fi/uutiset/osasto/news/finnish_customs_snus_smuggling_ring_evaded_46mn_in_taxes/10408332

REGULATORS AIR CONCERNS OVER SKINS GAMBLING AND LOOT BOXES – SIGN AGREEMENT TO ADDRESS RISKS

Intergame Online on 17th September reported that 15 gambling regulators from across Europe, as well as Washington State Gambling Commission, have signed an agreement to work together to address the risks created by the blurring of lines between gaming and gambling.  It says that tackling unlicensed third-party websites offering illegal gambling linked to popular video games is a priority.

The regulators gaming regulators included those in Austria, the Czech Republic, France, Gibraltar, Ireland, the Isle of Man, Jersey, Latvia, Malta, the Netherlands, Norway, Poland, Portugal, Spain, the UK expressing their concerns over “the blurring lines between gambling and gaming”.

https://www.intergameonline.com/igaming/news/regulators-air-concerns-over-skins-gambling-and-loot-boxes

ILLEGAL TOBACCO TRADE THREAT TO EU FROM MONTENEGRO?

On 17th September, a Portuguese MEP has raised concerns about a possible increase in the number of cigarettes being smuggled into the EU from Montenegro and highlighted continuing issues surrounding illicit tobacco products entering the EU from the country’s free-trade zone at the port of Bar. She also raised the subject of the Podgorica free trade zone which, she says, is all the more concerning as it contains a cigarette factory, which reportedly began production trials in late May 2018.

https://www.tobaccoreporter.com/2018/09/illegal-trade-threat-to-eu/?src=ilaw

US E-COMMERCE RULING HITS NON-US RETAILERS

VAT Live on 17th September published an article about the Wayfair decision by the US Supreme Court which introduced a new ‘economic nexus’ test to determine if out-of-state online retailers are responsible for charging Sales Tax.  The result will (could?) drag many non-US online retailers into the Sales Tax net for the first time.  The ruling effectively overturned the previous test which limited the obligation to charge state or local Sales Tax to retailers with a physical presence in the states.  Each state has a different start date and sales/transaction requirements that trigger nexus, and the article provides a list of the states and their tax thresholds, as of 14th September.

https://www.vatlive.com/vat-news/us-wayfair-e-commerce-ruling-hits-non-us-retailers/?CampaignID=70133000001QHPk&lso=Paid%20Digital&lsmr=Paid%20Digital&_bk=vat%20live&_bt=154074534363&_bm=e&_bn=g&gclid=CN_6ufbqstECFVAQ0wodfmcISw&sessionId=1537170564396&referrer=&lastReferrer=www.vatlive.com