4th October 2018
WHY DO AUDITORS SO RARELY FIND FRAUD?
Interesting article from Cooley LLP in the US on 3rd October suggests that the notion of a “clean audit” is widely misunderstood and provides some reasons why an audit might not be the best means of uncovering fraud.
HOW 3D PRINTERS COULD BECOME A GLOBAL NON-PROLIFERATION NIGHTMARE
An article published by the Atlantic Council in the US on 3rd October says that 3D printing of weapons and weapon parts poses not only a threat to domestic safety, but also to the international political landscape. Widespread 3D printing could enable nations that are the target of international sanctions to sidestep regulations and print restricted items and this would undermine the legitimacy and effectiveness of this vital foreign policy instrument. It says that in 2017 a grenade launcher named RAMBO (Rapid Additively Manufactured Ballistics Ordnance) was produced in the US, and that the US, having expressed interest and intent in expanding its 3D printing capabilities, has succeeded in printing ammunition and entire weapons systems. It also mentions that, in 2016, the North Korean regime showcased an indigenously-produced 3D printer, and that Iranian company Noura Imprinting Layers Industries (NILI) also produced a metal 3D printer that is said to have found research and industrial applications in the country’s aerospace and military sectors.
US EXTENDS MONITOR TERM ON CHINA’S ZTE BY 2 YEARS FOR VIOLATING TERMS OF AGREEMENT
Investing.com and others on 4th October reported that a US judge had ruled that ZTE had violated probation imposed last March on the mobile phone company for attempting to evade US sanctions by shipping American goods and technology to Iran, and extended its monitor term under US export control laws to 2022.
DOES FBI SHUTDOWN OF 1BROKER EXCHANGE SIGNAL A NEW ERA OF US GLOBAL ENFORCEMENT?
Website Brave New Coin on 2nd October carried an article about the closure by the US authorities of exchange 1Broker, which has been shut down in a joint SEC and FBI action. It is said that, as well as with failing to comply with US KYC/AML requirements, the SEC also allege that 1Broker founder Patrick Brunner is guilty of failing to register the exchange as a dealer of security-based swaps. It points out that 1Broker is not based in the US, but its parent, 1Pool — which also incorporates sibling exchange 1Fox — is registered in the Marshall Islands, a territory which falls under the US ‘Compact of Free Association’.
CLAIM OF COMPANY “SWINDLE” THAT “EXTORTS CUSTOMERS” WITH CHARGE FOR AML INVESTIGATIONS
Fast News Media on 2nd October carried a report from Panama alleging that AML rules are being used by “less than serious financial institutions” to keep the money of some of their customers or to not pay them back. The (poorly translated, it seems) report claims that a business, said to be controlled by an Isle of Man-registered company, tells a customer that it has had to open an AML investigation into the client’s funds and then imposes a charge for that investigation (in the example given, over $11,000 or over 10% of the original amount involved).
IRELAND: FREEZING ORDER SERVED ON PETER CONLON OVER MISSING CHARITY FUNDS
The Irish Independent reported on 4th October that a worldwide asset-freezing order has been served on Irish businessman Peter Conlon in relation to the hunt for €3.8 million of missing charity funds. The order and other court papers are said to have been served on Mr Conlon in a Swiss jail in August. A one-time Entrepreneur of the Year, Mr Conlon is believed to have been in custody since before Christmas. Ammado, his online fundraising platform for charities, collapsed spectacularly at the start of year.
BELGIUM WARNS OF 28 NEW FRAUDULENT CRYPTO PLATFORMS
On 5th September, Hogan Lovells reported that Belgium’s financial regulator, FSMA, had updated its list of cryptocurrency platforms that display signs of fraud.
SFO MOVES TO SEIZE LONDON PROPERTIES ALLEGEDLY LINKED TO ‘ROBBER BARON PRINCESS’
London Loves Business on 4th October claimed that the SFO has announced it will begin action to recover 3 London properties, allegedly obtained using the proceeds of corrupt deals in Uzbekistan involving Gulnara Karimova and Rustam Madumarov.
COUNTER-TERRORISM AND BORDER SECURITY BILL: BRIEFING FOR HOUSE OF LORDS STAGES
On 3rd October, the House of Lords Library published a briefing document which provides details on the provisions and House of Commons scrutiny of the Counter-Terrorism and Border Security Bill ahead of its 2nd Reading in the Lords on 9th October.
TRIBUNAL RULES THAT CGT APPLIES TO NON-EXISTENT FLAT
On 3rd October, ICAEW reported that a decision has left a taxpayer facing a capital gains tax (CGT) bill of £61,383 on the sale of his apartment, which he had bought off-plan in London in 2004 but could not move into until 2010 because it didn’t exist.
ENRC DEMANDS JUDICIAL REVIEW OF SFO PROBE
The Law Society Gazette on 4th October reported that mining company Eurasian Natural Resources Corporation (ENRC) has demanded a judicial review of the SFO long-running investigation into alleged criminal activities. This follows the recent the recent success of the company in an action about whether or not legal privilege attached to documents from an internal investigation.
FINNISH CUSTOMS: SNUS SMUGGLING RING EVADED €4.6 MILLION IN TAXES
On 2nd October, Customs Today reported that customs officials have said that they suspect a group of 8 people are behind an organised smuggling operation that illegally brought a total of 12,700 kg of snus, a powdered tobacco product, into Finland from Sweden between 2016 and 2018. Sales of the substance are banned in all EU countries except Sweden. Although commercial imports of snus are banned in Finland, individuals are allowed to bring from abroad a maximum of 1 kg of the substance per calendar day into Finland for personal consumption.
OECD: TAX INSPECTORS WITHOUT BORDERS MAKING SIGNIFICANT PROGRESS TOWARDS STRENGTHENING DEVELOPING COUNTRIES’ ABILITY TO EFFECTIVELY TAX MULTINATIONAL ENTERPRISES
On 4th October, the OECD released a news release about the annual report of Tax Inspectors Without Borders (TIWB), a joint initiative of OECD and the UN Development Programme (UNDP), which is intended to boost domestic revenue mobilisation by improving tax auditing and tightening compliance efforts across Africa, Asia, Europe, Latin America and the Caribbean. It says that increased tax revenues directly attributable to TIWB programmes and TIWB-style support as of April 2018 are estimated at $414 million, according to the report, which documents activities over the second full year of operations under the OECD/UNDP partnership arrangements. Revenues raised have been about 100 times programme costs, meaning every US dollar spent on TIWB brings in $100 in additional tax revenues. Current programmes specialise in risk-based audit case selection, audit processes and negotiation of advance pricing arrangements. Audits under TIWB programmes mainly deal with different issues of transfer pricing and international taxation, including permanent establishment, validation of management and service fees and the valuation of intellectual property. Audits cover a cross-section of industry sectors including agriculture, construction, financial services, information technology and communications, hospitality, manufacturing and mining.
LAW FIRM LAUNCHES FIRST OF ITS KIND MOBILE APP FOR DAWN RAIDS IN IRELAND
On 3rd October, law firm Matheson announced that it was the first Irish law firm to offer a legal tech solution to aid businesses who may face a dawn raid by Irish or EU regulators. Matheson’s Dawn Raid App is a tool for crisis management and training: providing guidance during a Raid and increasing awareness of Raid protocol in advance. Key features of the mobile app are a step-by-step guidance for a business experiencing a dawn raid, and quick access to Matheson lawyers.
SINGAPORE PASSES NEW LAW ON VARIABLE CAPITAL COMPANIES (VCC)
Out-Law on 3rd October published a briefing on a new Act which provides for VCC structures to be set up in the city state, and sets further rules on how they are to be administered, managed and regulated. The variable capital structure of a VCC allows it to issue and redeem shares without having to seek shareholders’ approval, enabling investors to enter and exit investment funds when they wish to. It can also pay dividends using its capital. A VCC may be established as a standalone structure, or as an umbrella structure with multiple sub-funds with different investment objectives, investors, assets and liabilities.
IRELAND: LARGE INCREASE IN ILLEGAL STEROID SEIZURES IN 2017
The Irish Times on 3rd October reported that the amount of illegal medicines seized by authorities increased by over 40% in 2017, largely due to a massive rise in the number of steroids being imported into the country. Anabolic steroids, which are used to increase muscle mass, made up just under half of the seized medicines which were uncovered. 6 people were prosecuted for possession or supply of illegal medicines and issued formal cautions to 6 more.
BEST PRACTICES GUIDE TO ENHANCE CONTAINER SHIPPING
On 3rd October, the International Federation of Freight Forwarders Associations (FIATA) announced the release of its first “Best Practice Guide” focusing on the charging of demurrage and detention. The guide provides best practices that may help reduce unnecessary supply chain costs and inefficient operations leading to unnecessary detention and demurrage charges.
FACILITATION OF TAX EVASION: HMRC LIKELY TO TAKE AGGRESSIVE ENFORCEMENT ACTION WHERE STAFFING COMPANIES FAIL TO CHECK THEIR SUPPLY CHAIN PROPERLY
Osborne Clarke on 3rd October reported that the new corporate offence of failing to prevent the facilitation of tax evasion, often now referred to in the staffing sector as ‘CFA risk’, came into force a year ago. Osborne Clarke says that recent reports suggest that HMRC is gearing up to investigate high-risk sectors. It goes on to provide background information for staffing companies, including what they could do to protect themselves.
ATTACKS ON MULTINATIONALS IN COLOMBIA: SIGNS OF NEW CRIMINAL ERA
Insight Crime on 3rd October reported that a series of attacks on multinational companies operating in Colombia could indicate that armed groups are shedding discipline for increased criminal gains, in a new era of organised crime in the country.
USA AXES TREATY BEHIND IRANIAN AVIATION SAFETY RULING
Flight Global on 4th October reported that the US had withdrawn from the 1955 treaty with Iran following the ruling by the International Court of Justice (ICIJ) that the US government should lift sanctions preventing the export of equipment and services for maintaining civil aviation safety, as well as medicines. The US also said it would withdraw from the ICIJ.
RUSSIA AND UKRAINE CLASH IN THE SEA OF AZOV
The European Council on Foreign Relations on 2nd October produced an article saying that new Russian naval activities around Crimea could presage a new, maritime front in the war in eastern Ukraine. The Sea of Aazov is the north-eastern offshoot of the Black Sea – encircled by Russia, occupied Crimea, and Ukraine. It includes the key Ukrainian Donbas ports of Mariupol and Berdiansk.
ISLE OF MAN FINANCIAL SERVICES AUTHORITY ANNUAL REPORT 2017/18
The Tynwald Order Paper for 16th October included a link to the FSA annual report. It includes reference to its role in providing assistance to outside investigations and insider dealing and the work of its AML Unit in seeking to counter money laundering and the financing of terrorism. It also mentions its enforcement activity, including in relation to the disqualification of directors.
CUMBRIA: POTENTIAL SLAVERY VICTIM RESCUED ‘AFTER LIVING IN SHED FOR 40 YEARS’
The UK Gangmasters & Labour Abuse Authority on 3rd October reported about a potential modern slavery victim, who investigators believe has been living in a 6-feet high shed in Cumbria for the last 4 decades, has been rescued by the Gangmasters and Labour Abuse Authority (GLAA). Officers arrested a 79-year-old British man on suspicion of modern slavery offences.
FIGHT AGAINST INTERNATIONAL TERRORISM IMPEDED BY STALEMATE ON COMPREHENSIVE CONVENTION
A UN news release on 3rd October said that, as the UN General Assembly met, and with international terrorism evolving into new, complex forms, the lack of a comprehensive convention has become a handicap and deterrent in the fight against the threat. Divisions over a definition for terrorism have been impeding progress towards a legal framework.
UN SECURITY COUNCIL RENEWS AUTHORISATION FOR STATES TO INSPECT VESSELS SUSPECTED OF SMUGGLING MIGRANTS OFF LIBYA’S COAST
On 3rd October, the UN advised the adoption of UN SCR 2437 to renew, for a period of 1 year, its prior authorisation allowing Member States to inspect vessels on the high seas off the coast of Libya, given reasonable grounds for suspicion that they are being used for smuggling migrants or human trafficking.
US SENATORS SEEK PROBE OF MONEY LAUNDERING IN REAL ESTATE MARKET
The Wall Street Journal on 3rd October reported that 2 US senators are seeking a Congressional probe into the risk of money laundering in the real estate sector in the US, and have sought the assistance of the Governmental Accountability Office an investigation into vulnerabilities in the UAML legal regime related to the real-estate sector. Using Geographical targeting Orders (GTO), the authorities have been tracking cash sales in certain areas of the country since 2016, and the senators want to know what has been learned as a result.
CYPRUS INTRODUCES A NEW FUND VEHICLE: THE REGISTERED ALTERNATIVE INVESTMENT FUND (RAIF)
Harneys on 21st September reported that the RAIF had been introduced in Cyprs, and are said to be specifically relevant to professional and ‘well-informed’ investors and will significantly streamline the establishment process. The briefing provides detail of the key aspect of the new fund type.
VENEZUELA HAS OFFICIALLY LAUNCHED ITS OIL-BACKED CRYPTOCURRENCY
Oil Price.com on 4th October reported that Venezuela has officially launched what its President Nicolas Maduro claims is a first state-backed oil-backed cryptocurrency, El Petro, which it says analysts and experts see as nothing but a scam and another effort to skirt sanctions and mask the inability to overhaul the ailing domestic economy. The official public sale — which Venezuela say is backed by oil, natural gas, diamonds, and gold—will begin on 5th November, Maduro has said.
COSTA RICAN AUTHORITIES DETAIN 2 ROMANIAN FUGITIVES
OCCRP on 4th October reported that Costa Rican authorities have announced that they have detained 2 women, Alina Bica and Elena Udrea, wanted by their home country of Romania after being sentenced for abuse of power and corruption. Bica, 44, was once Romania’s chief prosecutor, tasked with fighting organised crime and terrorism. In 2015 she was charged with bribery and abuse of power. Last summer, she visited Costa Rica and then moved there before the end of 2017. Soon after, Udrea joined her – she had also risen in Romania’s government, holding various ministerial posts and was a member of parliament, and even ran to become Romania’s first female president. She was charged with receiving a $315,000 bribe connected to the 2009 presidential campaign.
WORLD BANK BARS SEVERAL INDIAN COMPANIES AND INDIVIDUALS OVER CHARGES OF CORRUPTION
IBT Times on 4th October reported that the World Bank has barred numerous Indian companies and individuals from India from involvement in its various projects across the globe because of their involvement in fraudulent and corrupt activities. In total, the World Bank has debarred 78 companies and individuals. Others face conditional non-debarment which meant that they would remain eligible to participate in the projects financed by World bank only if they meet the certain agreed-upon conditions.
SLOUGH MAN WITH SUSPECTED LINKS TO ORGANISED CRIME CHARGED WITH DOCUMENT FORGERY
The NCA in a news release on 4th October said that a 39 year old man, Oleksandr Sukhoviy, has been charged on suspicion of being a member of an organised crime group responsible for the production and supply of false identity documents. NCA investigators allege he has links to 2 men recently jailed following the discovery of an industrial-scale forgery factory in Stratford, capable of producing tens of thousands of documents.
US COURT SENTENCES HONDURAN MAN FOR MONEY LAUNDERING FUNDS MISAPPROPRIATED FROM THE HONDURAN SOCIAL SECURITY AGENCY
OCCRP on 4th October reported that a US federal court has sentenced a Honduran citizen to more than 3 years in prison for conspiracy to launder over $1 million in bribes and misappropriated funds. Carlos Zelaya, 47, was residing in the New Orleans area when charged. Zelaya conspired with his brother, who was Executive Director of the Honduran Institute of Social Security (IHSS) from 2010 to 2014, and others to launder over $1.3 million in bribe payments made by 2 Honduran businessmen. The funds were laundered via international wire transfers and used to purchase real estate in the New Orleans area.
MEXICO’S LUCRATIVE OIL THEFT INDUSTRY FUELLING INCREASED CRIMINAL VIOLENCE
Insight Crime on 4th October carried a feature saying that violent battles between rival criminal groups vying for control over Mexico’s lucrative oil theft business left more than 50 people dead over the span of 5 days, highlighting the deadly consequences of the trade’s emergence as one of the country’s most prized illicit economies. Analysis quoted says that oil theft is booming in Mexico. Statistics released by Pemex earlier this year revealed that the oil company registered a record 9,509 incidents of oil theft in 2017, a 27% increase from the 6,873 incidents recorded in 2016. Oil theft is a billion-dollar business due to the large market that exists for stolen fuel.