On 21st December HM Treasury announced that the designation of Khalid Sheikh MOHAMMED under its terrorism sanctions regime had been renewed.
On 21st December law firm Allen & Overy published the latest edition of this newsletter, which starts by noting the 40th anniversary of the US Foreign Corrupt Practices Act (FCPA), enacted by the 95th Congress on 19th December 1977.
Headings in the newsletter that are of interest includes –
· The FCPA’s broad reach and its impact on non-US companies and individuals
Wilmer Hale has issued a briefing concerning the new voluntary platform to facilitate information sharing between the government and industry on topics related to AML and other financial crime issues. It argues that this programme represents a significant step forward on 2 related priority areas for FinCEN: information sharing and public-private partnerships. It appears that the FinCEN Exchange will convene briefings every 6-to-8 weeks among FinCEN, law enforcement and financial institutions to exchange targeted information on priority illicit finance threats, such as specific money-laundering methods and typologies. Participation in the programme is strictly voluntary and does not introduce any new regulatory requirements. It is unclear which financial institutions will participate in the FinCEN Exchange, or how those institutions will be selected; it is possible that the programme will be invitation-only, at least in the near term. The article also notes that there are at least 3 separate Bills to reform the Bank Secrecy Act are currently being considered in the US Congress that have the potential to revamp many aspects of the BSA and the AML regulatory regime, including in the areas of information sharing and public-private partnerships
On 20th December law firm Allen & Overy published a briefing concerned with the reasoning the judge had given for approving the A$45 million total penalty that had been agreed between AUSTRAC (the Australian AML/CFT authority) and the gambling operator Tabcorp. The firm says that, as it is the first judgment handed down in respect of the country’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006, all reporting entities in Australia will need to carefully review the Court’s reasoning and re-assess their AML/CTF programmes in light of the deficiencies identified. Perhaps more importantly, it argues, the size of the penalties has reiterated that this matter requires board-level attention and that the penalties will be large enough to ensure that non-compliance with the AML/CTF Act will not be seen as “a cost of doing business”. The article says the main points to note are –
- Liability for non-compliant AML/CTF programme is equivalent to not having a programme at all;
- The court found that an offence is committed each time a service is provided with a faulty AML/CTF programme in place, meaning that the maximum penalty could be almost unlimited;
- The fact that Tabcorp’s contraventions were not deliberate is barely relevant, the Act is aimed at deficient management practices; and
- A$3 million penalty is appropriate for a single failure to carry out an identification check.
VoA reports on 20th December that the US has financially blacklisted 5 Russians, including Chechen strongman Ramzan Kadyrov, whom it accused of carrying out deadly repression against people trying to expose government corruption. In addition, the US designated Ayub Kataev, a prison warden and head of a branch of the Chechen internal affairs ministry, accused of extrajudicial killing and other human rights violations, including abuse of gay men. The 3 others, Alexei Sheshenya, Yulia Mayorova, and Andrei Pavlov were said to be involved in the $230 million tax fraud conspiracy uncovered by attorney Sergei Magnitsky at the Russia-based Hermitage Fund.
If you are involved in, or interested in, export and trade controls, UN and EU sanctions or the proliferation of WMD you should read/have read this paper, and maybe particularly the last of the 4 studies, which looks at how North Korea used an offshore arrangement through panama to circumvent sanctions.
In the December 2017 a paper from the Middlebury Institute of International Studies at Monterey University, “Countering North Korean Procurement Networks Through Financial Measures: The Role of Southeast Asia”, was made up of 4 studies intended to aid SE Asian governments and financial institutions in their efforts to counter the financing of WMD programmes in North Korea and other states of concern. The 4 studies (which can be viewed and downloaded separately) are –
- Countering North Korean Procurement Networks Through Financial Measures: The Role of Southeast Asia – highlights how North Korea has exploited weak financial controls in the region to advance its nuclear and missile programmes. The study reviews UN Security Council and FATF actions to combat such abuse of the international banking system, as well as the role of US sanctions. Effective implementation of these measures in SE Asia, the study concludes, could contribute significantly to constraining North Korea and other proliferant states.
- Needed Next Steps to Strengthen Measures to Counter Proliferation Finance – identifies gaps in international measures to combat proliferation finance, and calls on the UN Security Council and FATF to clarify standards for national-level implementation of counter-proliferation-finance rules and to adopt improved enforcement mechanisms.
- Chinpo Shipping: A Singaporean Financial Agent of North Korea – how North Korea created an offshore de facto bank in Singapore to finance its illegal activities and how Singapore’s courts addressed the first known prosecution for financing proliferation. The case underscores that greater due diligence by banks and regulatory authorities is urgently needed.
- Due Diligence And The Panama Papers Episode: Lessons For Proliferation Finance – shows how a North Korean bank, denied access to the international banking system, set up an offshore entity to transact its business. The analysis calls for greatly strengthened enforcement efforts by offshore tax havens, closer scrutiny of clients by banks and law firms conducting international business, and greater efforts by governments to block sanctions-violating front companies from accessing their banking systems.
The Ecologist and others reports that Royal Dutch Shell and Italian oil giant Eni have been ordered to stand trial in Milan on charges of aggravated international corruption for their role in a 2011 $1.1 billion deal for Nigerian oil block OPL 245. For years, Shell had claimed that it only paid the Nigerian Government for the oil block. But investigations showed, and Shell confessed, that it had dealt with former oil minister Dan Etete, via his front company Malabu. Etete was convicted of money laundering in France in 2007. He had awarded the OPL 245 oil block to his secretly owned company while serving as oil minister. In December 2016, the Milan Public Prosecutor alleged that $520 million from the deal was converted into cash and intended to be paid to the then Nigerian President Goodluck Jonathan, members of the government and other Nigerian government officials. He also alleges that money was also channelled to Eni and Shell executives with $50 million in cash delivered to the home of Eni’s then Head of Business for Sub-Saharan Africa, Roberto Casula. Nigerian authorities have also filed charges against a Shell subsidiary and Eni as well as several of their staff.
UK UPDATES ITS NORTH KOREA SANCTIONS REGIME
The North Korea (United Nations Sanctions) (Amendment) (No. 3) Order 2017 (SI 2017/1278) further amends the North Korea (United Nations Sanctions) Order 2009 to give effect to certain aspects of further UN sanctions imposed against North Korea by the Security Council in Resolution 2375, adopted on 11th September. The Order –
- extends offences related to carriage of goods to North Korea to broaden the range of goods to which the offences apply: to include condensates and natural gas liquids, refined petroleum products, and crude oil, and textiles;
- creates an offence relating to the facilitation of or engagement in ship-to-ship transfers concerning North Korean ships and items being transported to or from North Korea; and
- creates offences relating to access to UK ports by ships owned, operated, crewed or flagged by North Korea, or vessels which refuse inspection for carriage of goods prohibited under the 2009 Order.
US law firm, Steptoe & Johnson, has issued an article speculating that western investors may be shut out of the sovereign debt market as a result of new or modified sanctions. US (and EU) sanctions aimed at Russian debt financing have been in place since 2014. The new concerns follow the warning last year against US or EU banks participating in a Russian sovereign Eurobond offering, on the grounds that the proceeds may be diverted to sanctioned state-owned enterprises. Currently, U.S. law does not prohibit involvement in the issuance or trading of Russian sovereign debt. However, the recently enacted Countering America’s Adversaries Through Sanctions Act (CAATSA) in the US might alter the situation, particularly as section 242 requires the US Treasury to report on possible expansion of sanctions “to include sovereign debt and the full range of derivative products.”
Reuters, in an “exclusive” on 19th December reports that a draft FATF evaluation report says that Mexican prosecutors are failing to systematically punish money launderers and tax authorities are too lax with potential drug money fronts such as real estate and luxury goods firms. The article notes that Mexico is the top source of illegal drugs to the US and both countries’ authorities have been criticised by civil society groups for leaving drug gang finances largely intact. It says that the 200+ page report commends previous efforts to clean up the Mexican banking sector, and officials say tighter regulations flushed much illicit money from the banking system. However, the report says Mexican tax authorities did not do enough to monitor businesses outside the financial sector used for money laundering, such as real estate. Data in the report provided by Mexico shows the country seized just $32.5 million in 2016. That represents less than 0.1% of the $58.5 billion of illicit revenues the government estimates is generated by organised crime annually; and only 8% of investigations in Mexico last year were based on FIU reports, according to data in the FATF report. That is down from around an average of 15% in recent years.