1st October 2019
US: FINANCIAL ADVISER CHARGED IN MULTIMILLION-DOLLAR PONZI SCHEME
On 30th September, a news release from US Immigration and Customs Enforcement advised that James T. Booth, 74, of Booth Financial Associates had been indicted charged with securities fraud, wire fraud, and investment adviser fraud charges in connection with his years-long $5 million scheme to defraud customers of his financial services firm.
THE AFRICAN CONTINENTAL FREE TRADE AREA
Deloitte Nigeria has issued a briefing on 30th September on the largest free trade agreement (FTA) since creation of the WTO. It sets out to provide some background to the AfCFTA, reviews its current state and attempts to predict what businesses should expect in the short to long term. It came into force on 30th May. Phase 1 is scheduled to be completed ready for the start of trading under the Agreement in July 2020 and covers establishing which goods are covered and how will they be liberalised; which services are covered and how will they be liberalised; and how would disputes be resolved. Phase 2, not yet begun, would cover questions of cross-border investment, competition and IP rights. The briefing concentrates on Phase 1.
ILLEGAL WILDLIFE TRADE THRIVES ON FACEBOOK, INTERNET FORUMS
On 30th September, EcoWatch carried a Deutsche Welle report saying that in Germany live reptiles make up the majority of wildlife traded online, and that researchers found most adverts in internet forums, not social media, but they also saw closed Facebook groups with names suggesting they are used to trade reptiles. Some of the species on offer are listed under the Convention on International Trade in Endangered Species (CITES). Facebook’s commercial policy states that posts may not promote the sale of animals and, after being alerted, it deleted the sites. It is said that legal loopholes also cause headaches for law enforcement trying to catch traffickers in the act. For instance, it reports, Germany is said to be at the centre of the illegal trade in Sri Lankan reptiles, according to an investigation published in April by wildlife trade monitoring group TRAFFIC.
XIAOMI PHONES ACCOUNT FOR 60% OF SMUGGLED SMARTPHONES IN BRAZIL
On 30th September, Telecompaper reported that an estimated 2.7 million smartphones will reach the black market this year, accounting for around 6% of the market and that price differences can reach 40% when compared with legally marketed mobile phones. It is estimated that 1.6 million Xiaomi mobile phones enter the country irregularly, most of them from Paraguay.
CROATIA LOSES €120 MILLION ANNUALLY IN TAX REVENUE DUE TO TOBACCO SMUGGLING
Total Croatia News on 30th September reported the the findings of a project on the illegal trade in tobacco products along the Balkan route under a project was carried out by the Zagreb Institute of Economics in 2018. The project leader said 7.6% of smokers in Croatia (88,000) bought tobacco products on the grey market – compared to the regional average is 11%. The survey also shows that prices of tobacco products in said 7 countries are significantly lower than the EU average, as well as that they differ significantly between them, which is an additional incitement to smuggling. In Croatia, cigarettes made of illegal cut tobacco are 10 times cheaper than legally produced ones.
US MANUFACTURER HB FULLER DISCLOSES POTENTIAL SANCTIONS VIOLATION
The Wall Street Journal on 30th September carried an article saying that a US manufacturer of adhesives, said it may have violated US economic sanctions on Iran through the potential resale of its products by some customers of its subsidiaries, with its hygiene products possibly resold into Iran through customers of its subsidiaries based in Turkey, starting in 2011, and in India, from 2014. It makes adhesives used in electronics, furniture, construction and disposable baby nappies. The company said it stopped sales to the customers in 2018, adding the company doesn’t currently conduct any business in Iran.
NEW ZEALAND COMPANY AND PAIR ON TRIAL OVER MOGUL’S ‘SUSPICIOUS’ $53 MILLION
The New Zealand Herald on 1st October reported that a company and 2 employees are on trial accused of failing to report hundreds of “suspicious” transactions involving tens of millions of dollars belonging to an international mogul; in what is understood to be the first such criminal case to be heard in New Zealand’s courts since specific AML laws were introduced a decade ago. It is alleged some 311 transactions totalling more than $53 million were conducted in 2016 for the mogul, who prosecutors claim was a customer of the New Zealand company. No names have been released for legal reasons.
DEFERRED PROSECUTION AGREEMENTS: A FRENCH APPROACH TO CONSIDERING THE PUBLIC INTEREST
On 27th September, McMillan LLP in Canada published a briefing in which it provides a definition of a DPA as being a “remediation agreement” – a prosecutorial tool used to combat economic crimes. DPA, it says, are formal agreements entered into between prosecutors and corporate wrongdoers whereby charges are laid, stayed, and ultimately dropped if the offending party meets agreed-upon conditions by the end of the DPA term. However, prosecution can resume, if any DPA conditions are not met. The article considers how the French experience with DPA may provide insight into the development of the Canadian regime going forward. In June 2019, the French authorities issued guidelines to assist companies in considering whether a DPA (or CJIP in French terminology) would be appropriate in the circumstances. It says that the guidelines specify that CJIP fines have 2 purposes – disgorgement of ill-gotten gains and deterrence. It concludes that the French guidelines were specifically issued to promote predictability and legal certainty around the CJIP regime; and that Canada may consider following the French example by issuing guidelines to ensure a clear, predictable approach for future DPA.
TETHER, NOT BITCOIN, LIKELY THE WORLD’S MOST USED CRYPTOCURRENCY
On 1st October, KYC 360 reported that data from CoinMarketCap.com show that the token with the highest daily and monthly trading volume is Tether, whose market capitalization is more than 30 times smaller. Tether’s monthly trading volume is said to be about 18% higher than that of Bitcoin. However, the article also says that Tether is being sued by New York for allegedly commingling funds including reserves.
CUBA: TITLE III LAWSUITS ARE COMING – WHAT ARE THEY AND WHAT CAN YOU DO?
On 30th September, Greenberg Traurig published a short article about lawsuits under Title III of the 1996 Cuban Liberty and Democratic Solidarity (LIBERTAD) Act (aka the Helms-Burton Act), which have already been initiated against such companies as Carnival Cruises. It allows US “victims” of confiscation of property by the Cuban regime to seek remedy in US courts. It explains what are eligible claims and estimates how many are likely – at least 10 to date. It briefly discusses defences and what to do if faced by such a lawsuit.
DANSKE BANK CLOSES DOWN ITS BANKING ACTIVITIES IN ESTONIA
On 1st October, Reuters reported that Danske Bank said its Estonian business had entered into liquidation after the country’s financial regulator in February ordered it to close its branch at the centre of one of the largest-ever money laundering scandals.
HOW TO SOLVE THE CRISIS IN RECYCLING NOW THAT CHINA HAS STOPPED IMPORTING SCRAP
An article from Chatham House on 1st October argues that only global action will solve the crisis in recycling now that China has stopped importing scrap. In March 2018, China effectively halted imports of plastic and paper scrap, saying it would accept ‘no more foreign rubbish’. This action, known as Operation National Sword, was first announced in July 2017. The article says that the move received wide coverage at the time, particularly its effect on local recycling policies and markets in countries such as the US, UK and Australia, which had effectively outsourced their recycling problem to China – yet the shockwaves continue to reverberate. It says that pressure has been mounting week by week since March 2018, and has demonstrated the reach of global recycling and highlighted the evolving global waste economy in all its forms, the emergence of scrap as a globalised resource, the risks associated with this new resource frontier, and the challenges in policing it, both internationally and locally. Operation National Sword has been effective in reducing China’s imports of plastic and paper scrap. Recorded shipments fell to practically zero in 2018. Prices for scrap collapsed, affecting already cash-strapped local authorities and leading to plastic and paper rubbish piling up at ports and in warehouses. Much of this is now being sent to landfill sites or incinerated, as is the case in Britain. The article also points out that Malaysia, Vietnam, Indonesia and Thailand were quickly swamped with mountains of plastic they didn’t have the capacity to deal with and, in late 2018, their governments started refusing more plastic shipments followed in March 2019 by India. Despite these bans, smuggling has remained a problem.
US: CFTC CHARGES 3 WITH FRAUD IN BINARY OPTIONS SCHEME
On 30th September, a release reported that the US Commodity Futures Trading Commission has issued 3 orders filing and simultaneously settling charges against 3 individuals – Liora Welles of California, Yair Hadar of Florida, and Shira Uzan of California – who each fraudulently solicited customers to enter into illegal, off-exchange binary options transactions through internet websites using fictitious trade names such as “BinaryBook” and “BigOption”. The individuals are former employees of Yukom Communications Ltd, an Israeli-based entity that the CFTC has charged, along with 4 other entities and four individuals, with operating an illegal and fraudulent $103 million global retail “binary options” trading enterprise.
UNDERSTANDING CHINA’S BELT & ROAD INFRASTRUCTURE PROJECTS IN AFRICA
On 30th September, the Brookings Institute published a report on an initiative which is generally popular in the developing world, where almost all countries face infrastructure deficiencies and a shortage of resources to overcome them. Through large amounts of loans to participating countries to construct infrastructure in various sectors, the BRI can potentially bring significant benefits to these countries by filling their infrastructure gaps and boosting economic growth. However, the report points out that the initiative has received various criticisms from advanced industrial economies: that the programme lacks transparency and serves to facilitate China’s export of its authoritarian model; that the commercial loan terms are bringing on a new round of debt crises in the developing world; and that the projects have inadequate environmental and social safeguards. The report examines the implementation of BRI infrastructure projects in Africa in light of available information.
CHINA AND ECONOMIC SANCTIONS: WHERE DOES WASHINGTON HAVE LEVERAGE?
Another report from the Brookings Institute on 30th September warns that, although historically China has been a sanctions recipient, with only a few isolated incidents of using sanctions in return, this situation is likely going to change in the years to come. China’s increasing assertiveness in economic sanctions will allow it to not only hit back directly against the US with retaliatory measures, but also to develop independent rationales to apply sanctions in pursuit of Chinese policy objectives. China may begin using sanctions as an affirmative instrument of policy. US reliance on Chinese financing, especially for US national debt, and Chinese economic growth in areas where the US typically excels demonstrate China’s capacity to target the US. The report relates the history of sanctions on China, dating from the civil war, won by the Communists in 1949. It notes that China did not exercise its veto to block UN sanctions against a range of targets throughout the 1980s and 1990s, including Iraq, Haiti, the former Yugoslavia, Somalia, Afghanistan, Libya, Angola, Rwanda, Liberia, Sudan, Ethiopia, Eritrea, Sierra Leone, and Cote d’Ivoire; and that only in recent years has China become more active, vetoing sanctions against Myanmar, Zimbabwe, and Syria since 2007 but also voting in favour of sanctions against North Korea and Iran.
ALSO AVAILABLE: AML/CFT FOLLOW-UP REPORTS ON BANGLADESH, CAMBODIA, FIJI AND MYANMAR
Also available on the website of the FATF-style regional body APG are the follow-up reports for these 4 countries; being the 3rd follow-up reports for Bangladesh and Fiji, the 2nd follow-up report for Cambodia and the first follow-up report for Myanmar. These reports were adopted by APG in July.
PERU’S PRESIDENT DISSOLVES CONGRESS TO PUSH THROUGH ANTI-CORRUPTION REFORMS
On 1st October, the Guardian reported that the President dissolved the parliament over his anti-corruption campaign, but rebel legislators refused to leave the chamber as protests against them started across the country. Peru’s worst political crisis in 2 decades threatens unrest in the South American country and could bring lawmaking to a halt. The opposition Popular Force party has dragged its feet on passing his anti-corruption reforms. The last straw, he said, was Congress’ appointment of a new member to the top court, the constitutional tribunal, which would be the likely referee in a legal dispute between Congress and the government. Proposed nominees for up to 6 of the tribunal’s 7 members had drawn fire for links to criminally suspect judges.
FINANCIAL REPORTING COUNCIL TIGHTENS A KEY UK ACCOUNTING STANDARD FOLLOWING A STRING OF CORPORATE COLLAPSES
On 30th September, the Wall Street Journal reported that the accounting and audit sector regulator issued a revised version of ISA UK 570, the standard that governs the definition of a business as a “going concern” that is likely going to continue operating for at least another year. Under the new standard, auditors will be required to more robustly challenge management’s going concern assessment, test the supporting evidence and evaluate the risk of management bias – effective for reporting periods starting on or after December 15th. The FRC says it sets out tougher requirements for auditors than current international standards.
UK: 2 TRADERS JAILED FOR ILLEGAL IVORY EXPORT SALES ON E-BAY
The Art Law & More newsletter from Boodle Hatfield on 1st October reported that traders, Guy Buckle and Sik-Hung Or, from South London, have been jailed for illegally selling antique ivory fans worth £145,259 on eBay, after they were discovered in November 2017 when Royal Mail intercepted 2 parcels at Heathrow Airport destined for China. They had failed to obtain the necessary re-export permits issued by the Animal and Plant Health Agency – though it is noted that the fans could have been lawfully sold as antiques in the UK without need for a permit. They pleaded guilty to 3 counts of illegally exporting ivory goods with intent to evade a restriction in contravention of the Customs and Excise Management Act 1979 and were sentenced to 28 months imprisonment. Since 2017, the US and China have banned ivory imports, and eBay has had a self-imposed a ban on selling ivory on its site for over a decade.
CONGO MINE GOES DIGITAL IN FIGHT AGAINST CONFLICT MINERALS
On 1st October, Defence Web reported the latest initiative in eastern Democratic Republic of Congo to improve systems meant to show minerals entering global supply chains come from mines that don’t use child labour or fund warlords and corrupt soldiers. Currently companies mostly rely on a paper-based certification scheme. UN experts documented cases of tags used to identify clean minerals stolen and sold to smugglers – allowing them to pass off ore from blacklisted mines as responsibly sourced. Under the system, a government official puts a barcoded tag on a sack of ore rich in tantalum, a rare metal widely used in smartphones, and its use started in January at SMB mine near Rubaya, which has some of Africa’s largest deposits of coltan, a tantalum-rich ore. The article notes that the US passed legislation in 2010 requiring US-listed companies to disclose whether their products contained any tantalum, tin, tungsten or gold from the region – and perform due diligence. A similar EU rule will take effect in 2021 and the London Metal Exchange could ban suppliers of metals not responsibly sourced by 2025. The article notes that a study in April recorded interference by Congo’s military or armed militias at 28% of the 711 mine sites visited between 2016 and 2018. Other projects use more advanced technology to track minerals along complex supply chains – for example, in southern Congo, RCS partnered with companies including Ford and IBM to trace cobalt, a component in lithium-ion batteries, with a system which uses blockchain, the technology behind bitcoin, to create a tamper-proof record. And in monitored mines in Rwanda using smartphones armed with GPS to pinpoint where ore was tagged and facial recognition software to confirm identities of miners.
BRIEFING PAPER: THE JCPOA AND RISING US-IRAN TENSIONS
On 1st October, the House of Commons Library in the UK produced a briefing paper which looks at the Iran nuclear agreement (the JCPOA) and recent developments between the US and Iran, following the attack on tankers in the Gulf in June 2019.
UK: REGULATION OF FIREWORKS
On 1st October, the House of Commons Library published a briefing paper saying that there are strict rules in place in the UK regulating the sale, possession and use of fireworks. The briefing paper provides an overview of the current legislative provisions regulating the supply and use of fireworks in England & Wales and (in the main) Scotland.
EXPLAINER: A LOOK AT THE LEGAL TROUBLE FACING ISRAEL’S NETANYAHU
On 1st October, The Alegemeiner carried an article which set out to provide a guide to the criminal cases surrounding Netanyahu.
BRAZIL: 8 YEARS JAIL TIME FOR BILLIONAIRE CONVICTED OF INSIDER TRADING
On 1st October, Fin24 in South Africa reported that Eike Batista, 62, formerly Brazil’s richest man, was sentenced to an additional 8 years and 7 months of prison time for insider trading. He had already been convicted for paying $16.6 million to get government contracts as part of a sprawling Operation Car Wash corruption probe and sentenced to 30 years, which he is serving under house arrest.
NICOLAS SARKOZY TO FACE TRIAL FOR CAMPAIGN FINANCE FRAUD
On 1st October, Deutsche Welle reported that the former French President claims he was unaware of a scheme that allowed him to double the legal spending limit, though despite spending €43 million in his campaign, he still lost. He has lost an appeal to France’s highest criminal court to stop the trial going ahead and risks up to a year in prison and a fine if found guilty on the charges.
BBC INVESTIGATES THE BOOMING TRADE IN PASSPORTS
A BBC World Service documentary first broadcast on 1st October was the first of a 2-part programme on the trade in passports. It visits Hong Kong, a hub for buyers from Mainland China and includes an interview with the head of the world’s biggest citizenship brokerage – hearing how easy it can be to get a second, or a third, passport. The programme is available online.
US DOJ CLOSES NIGERIA, ALGERIA INVESTIGATIONS INTO ENERGY COMPANY ENI
On 1st October, Reuters reported that the DoJ has closed its investigations into alleged corruption by oil major Eni in Nigeria and Algeria without taking any action, the Italian energy group said. Eni is currently on trial in Milan on graft allegations revolving round the acquisition of a giant Nigerian oilfield in 2011.
INDIA: PMC BANK “CREATED MORE THAN 21,000 FAKE ACCOUNTS TO HIDE LOANS”
On 1st October, NDTV in India reported that the Punjab and Maharashtra Co-operative Bank (PMC) used more than 21,000 fictitious accounts to hide loans it made said to total some $616 million, according to a police complaint lodged by officials, in the latest banking fraud case to affect India. A single realty firm and its group companies were the beneficiaries of 44 loans, according to the complaint. The complaint names the bank’s Chairman Waryam Singh and its Managing Director Joy Thomas, along with other bank officials, and accuses them of criminal breach of trust, forgery and falsification of records. The central bank has moved to take charge of PMC, one of India’s top 5 co-operative lenders with more than 900,000 depositors, and suspended Thomas and the bank’s board after uncovering lending irregularities; it also barred the bank from renewing or granting any loans or making investments without prior approval, and limited the amount depositors could withdraw.
UK: PEOPLE SMUGGLING RINGLEADER ORDERED TO PAY BACK £138,000
A news release from the NCA on 1st October announced that Leonard Powell, the ringleader of an organised crime gang that used small boats to smuggle Albanian migrants across the English Channel has been told to pay back nearly £138,000 in criminal profits. If he fails to pay up within 6 months he will receive an extra 2 years on his sentence, and will still owe the money. It says that the Powell family were working with Albanian criminals, who took on the role of ‘travel agents’, organising the illegal facilitation of Albanian migrants into the UK from the north coast of France.
EXPLORING THE USE OF ‘THIRD COUNTRIES’ IN PROLIFERATION NETWORKS: THE CASE OF MALAYSIA
In February 2019, a paper from the European Journal of International Security says that so-called ‘third countries’ are frequently exploited by those involved in networks to transfer proliferation-sensitive technologies, allowing procurement agents to obscure the end user or vendor located in the proliferating state, and to deceive industry, export licensing officials, and intelligence services. The paper uses 3 cases involving entities based in Malaysia – A. Q. Khan’s nuclear black market network, and Iran and North Korea’s efforts to procure and market WMD-related and military goods; used to generate insights into proliferators’ selection of ‘third country’ hubs.
ARGENTINE POLICE ARREST GANG SELLING PLASTIC PENISES FILLED WITH COCAINE
On 21st September, Illicit Trade reported that police in Argentina have arrested members of a drug dealing gang on suspicion of selling plastic penises stuffed full of cocaine in a red-light district of a city close to Buenos Aires.
US MARSHALS SOLD A MAN A PLANE SEIZED FROM A DRUG MONEY LAUNDERER, BUT MEXICO IS HOLDING IT ‘HOSTAGE’
On 1st October, the Washington Post reported that a congressman and the FAA are trying to help the Florida man who purchased the plane for his new aircraft sales business. The aircraft had previously been owned by a businessman convicted of laundering millions of dollars for the Zetas drug cartel, and was registered in Mexico, and the Mexican government will not cancel its registration there, meaning the buyer is unable to register the plane in the US.
FCPA ENFORCEMENT FOR Q3 2019
A post on the FCPA Blog on 1st October says that during the third calendar quarter there were 7 corporate FCPA enforcement actions with penalties and disgorgement totalling about $78.5 million. The post provides a breakdown of the settlements involved.
US: AIR FORWARDERS HESITANT TO EMBRACE CBP’S ELECTRONIC EXPORT MANIFESTS
On 1st October, American Shipper reported that air freight forwarders foresee the benefits of filing electronic air-cargo manifests with US Customs and Border Protection, but many are still reluctant to climb on board without clearer direction from the agency. It is said that forwarder participation in voluntary Electronic Export Manifest [EEM] pilot programme has not been widespread, with only a handful participating. CBP first introduced the EEM pilot programme to the air, ocean and rail freight transport modes about 2 years ago, with participating carriers are required to supply CBP with information about exports prior to loading for departure from the US; and supply house bill- and air waybill-level details directly to CBP and then inform the carriers that they have completed the filing. The carriers then submit their own master manifests electronically to CBP. It is said that forwarders vary greatly in size, some being quite small (and would need greater assistance), and that a significant challenge in the air-cargo export environment is that flight departure locations and dates are often subject to last-minute changes.
AIRLINE GROUND CREWS ARE AN UNDER-MONITORED TERROR THREAT
An article on Homeland Security Today on 30th September, following the recent arrest of an American Airlines mechanic, is concerned with the danger posed by insider threat to airlines and the difficulty of detecting individuals who have access to aircraft and secure areas at airports who may pose a threat. The recent case was initially described as being related to a labour grievance, not terrorism – but at a hearing prosecutors claimed the suspect had ties to Islamic extremism. The article argues that not enough has been done to counter the potential threat. Insider threat security measures in place at airports rest on 2 main pillars: access controls and background checks, and says that background checks as generally employed at the US airports today are flawed in at least 2 respects. To detect and defeat the threat means employing measures of the kind routinely used by intelligence services and government agencies (although history suggests even these are not fool proof).
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