Saturday, March 23, 2019
The first ever beneficial ownership toolkit was released today in the context of the OECD’s Global Integrity and Anti-Corruption Forum. The toolkit, prepared by the Secretariat of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes in partnership with the Inter-American Development Bank, is intended to help governments implement the Global Forum’s standards on ensuring that law enforcement officials have access to reliable information on who the ultimate beneficial owners are behind a company or other legal entity so that criminals can no longer hide their illicit activities behind opaque legal structures.
The toolkit was developed to support Global Forum members and in particular developing countries because the current beneficial ownership standard does not provide a specific method for implementing it. To assist policy makers in assessing different implementation options, the toolkit contains policy considerations that Global Forum members can use in implementing the legal and supervisory frameworks to identify, collect and maintain the necessary beneficial ownership information.
“Transparency of beneficial ownership information is essential to deterring, detecting and disrupting tax evasion and other financial crimes. The Global Forum’s standard on beneficial ownership offers jurisdictions flexibility in how they implement the standard to take account of different legal systems and cultures. However, that flexibility can pose challenges particularly to developing countries.” said Pascal Saint-Amans, Head of the OECD’s Centre for Tax Policy and Administration. “This new toolkit is an invaluable new resource to help them find the best approach.”
The toolkit covers a variety of important issues regarding beneficial ownership, including:
- the concepts of beneficial owners and ownership, the criteria used to identify them, the importance of the matter for transparency in the financial and non-financial sectors;
- technical aspects of beneficial ownership requirements, distinguishing between legal persons and legal arrangements (such as trusts), and measures being taken internationally to ensure the availability of information on beneficial ownership a series of checklists that may be useful in pursuing a specific beneficial ownership framework;
- ways in which the principles on beneficial ownership can play out in practice in Global Forum EOIR peer reviews;
- why beneficial ownership information is also a crucial component of the automatic exchange of information regimes being adopted by jurisdictions around the world.
With 154 members, a majority of whom are developing countries, the Global Forum has been heavily engaged in providing technical assistance on the new beneficial ownership requirements, often with the support of partner organisations including the IDB. The Toolkit offers another means to further equip members to comply with the international tax transparency standards.
The Toolkit is the first practical guide freely available for countries implementing the international tax transparency standards. It will be frequently updated to incorporate new lessons learned from the second-round EOIR peer reviews conducted by the Global Forum, as well as best practices seen and developed by supporting organisations.
Friday, March 22, 2019
The Cayman Islands is committed to the implementation of international standards on Anti-Money Laundering (AML) and the Countering the Financing of Terrorism (CFT) as set out in the Financial Action Task Force (FATF) Recommendations. In the Cayman Islands, we are constantly refining the regulatory regime to address emerging threats and vulnerabilities.
Although we have made significant progress, the Government recognizes the need to take ongoing measures to update the AML/CFT regime to address the full range of risks relating to money laundering, the financing of terrorism and proliferation to the Cayman Islands and to communicate its strategy to relevant stakeholders.
The goals identified in the Strategy arise out of a year-long evaluation of the risks identified in the NRA
and an assessment of the measures to be taken to address them. The goals include:
- Enhancing the jurisdiction’s AML/CFT legal and regulatory framework;
- Implementing a comprehensive risk-based supervisory framework;
- Strengthening of sanctions, intelligence and enforcement;
- Enhancing domestic cooperation and coordination;
- Ensuring an efficient and effective system for international cooperation; and
- Raising AML/CFT awareness among all stakeholders and the general public.
Thursday, March 21, 2019
NY Times: former President Luiz Inácio Lula da Silva, who was sentenced to 12 years in prison for corruption and money laundering
Reuters states: Prosecutors alleged that Temer was the leader of a “criminal organization” that took in 1.8 billion reais ($472 million) in bribes or pending future kickbacks as part of numerous schemes, including one related to the Angra nuclear power plant complex on the Rio de Janeiro coast and other state firms.
Former Minister Moreira Franco (Mines and Energy) was also arrested. (Estadão - in Portuguese)
The Cayman Islands has a high level of commitment to ensuring their AML/CFT framework is robust and capable of safeguarding the integrity of the jurisdiction’s financial sector. The jurisdiction’s AML/CFT regime is complemented by a well-developed legal and institutional framework. As a major international financial centre, the Cayman Islands is confronted with inherent ML/TF risks, threats and associated vulnerabilities emanating from domestic and foreign criminal activities (e.g. tax evasion, fraud, drug trafficking).
- The Cayman Islands has not provided the FRA with the tools to assist investigative authorities in the identification of cases. While the FRA is able to triage the SARs they receive, they have not been able to sufficiently analyse and disclose these reports in a timely manner. They also do not have access to the widest possible level of relevant information nor does the jurisdiction collect relevant information from its reporting entities (e.g. wire transfers) that would allow for the proactive identification of cases for investigation. The result is that there is a low level of usage of FRA’s disclosures to supplement investigations and they have been used to a negligible extent to initiate investigations.
- While the Cayman Islands has trained and experienced investigators in the Financial Crimes Unit (FCU) to pursue TF, training to improve awareness and understanding of TF among the competent authorities and the judiciary is required. There has been to a limited extent, TF investigations and no TF prosecutions in the jurisdiction.
- The jurisdiction may benefit from further training and outreach to relevant stakeholders in the areas of TF and PF so as to effectively implement the requirements of TFS measures.
- The AML/CFT supervisory/regulatory regime for Financial Institutions (FIs) and Trust and Corporate Service Providers (TCSPs) is established and understood by relevant stakeholders. Customer due diligence (CDD) measures and controls are well entrenched in the financial sector. FIs particularly the larger and established banks as well as the TCSPs have an understanding of their ML threats, appear to be more vigorous in their mitigating efforts, but lack understanding of their TF threats. Nonetheless, a portion of the securities sector is subject to limited supervision and not subject to monitoring for AML/CFT compliance or risk assessment (e.g. 55% of excluded persons under SIBL). This is a potential source of ML/TF risks, particularly with respect to the excluded persons that perform the higher ML/TF risk activities of portfolio management and broker/dealing. Due to limited assessment and compliance information on the persons conducting these activities, the extent to which the AML/CFT regime is understood by these persons has not been determined.
Sunday, March 17, 2019
Mizrahi-Tefahot Bank Ltd., (Mizrahi-Tefahot) and its subsidiaries, United Mizrahi Bank (Switzerland) Ltd. (UMBS) and Mizrahi Tefahot Trust Company Ltd. (Mizrahi Trust Company), entered into a deferred prosecution agreement (DPA) with the Department of Justice filed today in the U.S. District Court for the Central District of California, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Department of Justice’s Tax Division, First Assistant United States Attorney Tracy L. Wilkison, and Chief Don Fort for Internal Revenue Service-Criminal Investigation. As part of the agreement, Mizrahi-Tefahot will pay $195 million to the United States.
Mizrahi-Tefahot is one of Israel’s largest banks, with more than 4,000 employees, and is publicly traded on the Tel-Aviv Stock Exchange. During the relevant period of criminal activity, Mizrahi-Tefahot had branches in Los Angeles, California, the Cayman Islands, and London, England. In 2014, the Cayman Islands branch surrendered its license and was closed. UMBS, a subsidiary of Mizrahi-Tefahot, had one branch in Zurich, Switzerland. Mizrahi Trust Company, a fully owned subsidiary of Mizrahi-Tefahot, operated under the regulatory authority of the Bank of Israel. Collectively, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company provided private banking, wealth management, and financial services to high-net-worth individuals and entities around the world, including U.S. citizens, resident aliens and permanent residents.
“Mizrahi-Tefahot’s admission of guilt and agreement with the United States to pay significant penalties and pay over the fees earned from knowingly assisting tax evading Americans reflects the continuing efforts of the Tax Division to end the criminal role of international financial institutions in perpetuating offshore tax fraud,” said Principal Deputy Assistant Attorney General Zuckerman. “A financial institution is not a faceless entity, but is the embodiment of the acts of its bankers, relationship managers and all employees. When a bank’s employees, at any level, facilitate U.S. tax fraud, the bank facilitates tax fraud and will be held responsible.”
“For over a decade, this Israeli bank, through its employees, engaged in conduct designed to hide its clients’ funds so they could avoid paying U.S. income taxes,” said First Assistant United States Attorney Tracy L. Wilkison, “Mizrahi-Tefahot solicited customers in Los Angeles and other U.S. cities to open offshore accounts with the hope they would never be linked to the American clients. As a result of this criminal conduct, the bank will surrender fees it earned, repay the United States for lost tax revenue, and pay a substantial fine.”
“Today’s announcement sends a clear message that banks, who promote the use of offshore tax schemes against the United States, will be held accountable and face substantial fines and penalties,” said Don Fort, Chief, IRS-Criminal Investigation. “Any financial institution – no matter where it operates – will be held accountable if it helps U.S. residents dodge their tax responsibilities. This agreement with Mizrahi-Tefahot is the latest notice to American taxpayers, who might flout the law, that we can and will uncover your hidden assets.”
In the DPA and related court documents, Mizrahi-Tefahot admitted that from 2002 until 2012 the actions of its bankers, relationship managers, and other employees defrauded the United States and specifically the Internal Revenue Service (IRS) with respect to taxes by conspiring with U.S. taxpayer-customers and others. Mizrahi-Tefahot employees’ acts of opening and maintaining bank accounts in Israel and elsewhere around the world and violating Mizrahi-Tefahot’s Qualified Intermediary Agreement (QI Agreement) with the IRS enabled U.S. taxpayers to hide income and assets from the IRS.
According to the filed statement of facts and the DPA, these employees took steps to assist U.S. customers in concealing their ownership and control of assets and funds held at Mizrahi-Tefahot, Mizrahi Trust Company and UMBS, which enabled those U.S. customer-taxpayers to evade their U.S. tax obligations, including:
- Assisting and referring U.S. customers to professionals to open and maintain accounts at Mizrahi-Tefahot and UMBS in the names of pseudonyms, code names, Mizrahi Trust, and foreign nominee entities in offshore locations, such as St. Kitts and Nevis (Nevis), Liberia, Turks & Caicos, and the British Virgin Islands (BVI), and thereby enabling those U.S. taxpayers to conceal their beneficial ownership in the accounts and maintain undeclared accounts;
- Opening customer accounts at Mizrahi-Tefahot and UMBS for known U.S. customers using non-U.S. forms of identification, and failing to maintain copies of required identification and account opening documents;
- Opening and maintaining foreign nominee bank accounts for certain U.S. clients holding U.S. securities, enabling those U.S. taxpayers to evade U.S reporting requirements on securities’ earnings in violation of Mizrahi-Tefahot’s QI Agreement with the IRS;
- Entering into “hold mail” agreements with U.S. customers whereby Mizrahi-Tefahot and UMBS employees held bank statements and other account-related mail in their offices in Israel and Switzerland, and by doing so enabling documents reflecting the existence of the offshore accounts to remain outside the U.S.;
- Until 2008, providing U.S. customers at Mizrahi-Tefahot’s Los Angeles branch use of their funds held in offshore Mizrahi-Tefahot and UMBS accounts (pledge accounts) through back-to-back loans, while excluding any record of the offshore pledge account at its Los Angeles branch to take advantage of Israeli and Swiss privacy laws and prevent disclosure of the funds to U.S tax authorities;
- Failing to adhere to the requirements of Mizrahi-Tefahot’s QI Agreement by (i) permitting U.S. customers who refused to provide the bank with the proper IRS Forms W-8BEN and/or W-9 to continue trading in accounts holding U.S. securities, (ii) transferring assets to foreign entity accounts controlled by U.S. customers to avoid the proper QI reporting requirements, and (iii) failing to timely address compliance deficiencies in U.S. customer accounts holding U.S. securities; and
- Until 2008, periodically sending “Roving Representatives,” to the United States to solicit new customers and to meet with existing U.S. customers in Los Angeles, California, New York, and other locations in the U.S. for the purposes of opening accounts and surreptitiously reviewing and managing existing customers’ offshore accounts.
According to the terms of the DPA, Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company will cooperate fully, subject to applicable laws and regulations, with the United States, the IRS, and other U.S. authorities. The DPA provides that Mizrahi-Tefahot will ensure that all of its overseas branches and other companies under its control that provide financial services to customers covered by the Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471-1474 (FATCA), will continue to implement and maintain an effective program of internal controls with respect to compliance with FATCA in their affiliates and subsidiaries. The DPA also requires Mizrahi-Tefahot and its subsidiaries affirmatively to disclose certain material information it may later uncover regarding U.S.-related accounts, as well as to disclose certain information consistent with the Department’s Swiss Bank Program with respect to accounts closed between Jan. 1, 2009, and October 2017. Under the DPA, prosecution against the bank for conspiracy will be deferred for an initial period of two years to allow Mizrahi-Tefahot, UMBS, and Mizrahi Trust Company to comply with the DPA’s terms.
The $195 million payment consists of: 1) restitution in the amount of $53 million, representing the approximate unpaid pecuniary loss to the United States as a result of the criminal conduct; 2) disgorgement in the amount of $24 million, representing the approximate gross fees paid to the bank by U.S. taxpayers with undeclared accounts at the bank from 2002 through 2012; and 3) a fine of $118 million.
This agreement marks the second time an Israeli bank has admitted to similar criminal conduct. In December 2014, the Bank Leumi Group entered into a DPA with the Department of Justice admitting that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the IRS by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world.
Principal Deputy Assistant Attorney General Zuckerman, First Assistant United States Attorney Wilkison and Chief Fort commended special agents of IRS-Criminal Investigation, who investigated this case, and Western Criminal Enforcement Section Chief Larry J. Wszalek and Trial Attorneys Melissa S. Grinberg and Lisa L. Bellamy of the Tax Division, who prosecuted this case. Principal Deputy Assistant Attorney General Zuckerman also thanked the United States Attorney’s Office for the Central District of California for their substantial assistance.
Friday, March 15, 2019
in 2018, China convicted over 30,000 of taking bribes, 288,000 IP cases concluded, 28 million law suits filed
Among them were 18 officials at or above ministerial level, including Sun Zhengcai.
Another 2,466 people were convicted of offering bribes last year, according to the annual work report of the Supreme People's Court.
Local courts at all levels handled 28 million lawsuits and concluded 25 million, up 8.8 and 10.6 percent, respectively.
The number of concluded intellectual property cases reached 288,000, an increase of 42 percent year-on-year, according to the work report.
read the full story and follow the stats at ECNS here
A federal jury in Birmingham, Alabama found a father and son guilty of multiple charges for their roles in investment fraud and bank fraud schemes in which they stole over $10 million from individual investors—including multiple former professional athletes—and Alamerica Bank of Birmingham, Alabama.
Donald Watkins Sr., 70, of Atlanta, Georgia, was convicted on seven counts of wire fraud, two counts of bank fraud and one count of conspiracy. Donald Watkins Jr., 46, of Birmingham was convicted on one count of wire fraud and one count of conspiracy. Sentencing is set for July 16 before U.S. District Court Judge Karon O. Bowdre of the Northern District of Alabama, who presided over the trial.
“The jury’s verdict today sends a clear message: Donald Watkins Sr. and Donald Watkins Jr. are frauds, plain and simple,” said Assistant Attorney General Benczkowski. “They induced their victims to part with more than $10 million of supposed ‘investment capital’ and used it to support their lavish lifestyle. I want to thank the prosecutors and law enforcement agents for their hard work investigating and prosecuting this case.”
“This was a case about deception and greed at the expense of too many,” said U.S. Attorney Town. “The findings of guilt for these two individuals should forewarn anyone who would seek to defraud investors so brazenly. We appreciate the labor of the jurors whose role as citizens in this process is so critical to our system of justice. We are also grateful to the Alabama Securities Commission and the Department of Justice’s Fraud Section for allowing their personnel to engage in this prosecution.”
“Both of the men found guilty today are financial predators who truly represent pure greed,” said FBI Special Agent in Charge Sharp. “We are pleased that the defendants in this case are being held accountable for their crimes and we will continue to work with our law enforcement partners to investigate and prosecute those who commit these types of financial crimes.”
According to evidence presented at trial, between approximately 2007 and 2013, Donald Watkins Sr. sold “economic participations” and promissory notes connected with Masada Resource Group, a company that he ran as manager and CEO. Investors paid millions of dollars after Donald Watkins Sr. and Donald Watkins Jr. falsely represented that the money would be used to grow Masada, which Donald Watkins Sr. described as a “pre-revenue” company that supposedly had technology that could convert garbage into ethanol. Instead of investing the money into Masada, however, Donald Watkins Sr. and Donald Watkins Jr. diverted funds to pay personal bills and the debts of their other business ventures. The evidence showed that victim money was used to pay for Donald Watkins Sr.’s alimony, hundreds of thousands of dollars in back taxes, personal loan payments, a private jet and clothing purchased by Donald Watkins Jr. and his wife. Emails introduced at trial also showed that Donald Watkins Jr. and Donald Watkins Sr. planned to obtain millions of dollars for these purposes from one victim on multiple occasions, when they knew that their victims trusted them to put their money to use in growing Masada. The defendants’ scheme eventually grew to include another business venture, Nabirm Global, a company that Donald Watkins Sr. claimed held mineral rights in Namibia.
Donald Watkins Sr. also defrauded Alamerica Bank, an entity in which Donald Watkins Sr. was the largest shareholder, the evidence showed. In order to pay hundreds of thousands in litigation expenses associated with another one of Donald Watkins Sr.’s business ventures, the defendants, Donald Watkins Sr. executed a plan to use a straw borrower to take out money from Alamerica Bank and give it to them. This straw borrower—Donald Watkins Sr.’s long-time mentor and a prominent figure in the Birmingham community—took over $900,000 in loans from Alamerica Bank and then immediately permitted Donald Watkins Sr. and Donald Watkins Jr. to use those funds for their personal benefit.
Thursday, March 14, 2019
UK Economic Crime - Parliament's Conclusions and recommendations for anti-money laundering supervision and sanctions implementations
1.The scale of economic crime in the UK is very uncertain. It seems that it can reasonably be said to run into the tens of billions of pounds, and probably the hundreds of billions. We note that those who gave evidence regarded it as being small in comparison to the total amount of financial activity in the UK, and especially the City of London—for example the daily value of foreign-exchange trading in the UK at around £1.8 trillion. Such a comparison provides no comfort to the Committee. Rather, it suggests that upper bound of the estimate is unknown, and almost unconstrained. (Paragraph 15)
2.It is exceptionally difficult to measure economic crime, given those undertaking it are actively trying to hide it. The Committee does not doubt the will of the authorities to combat economic crime. However, it considers there to be merit in attempting to measure its extent, since greater understanding of the scale of the problem will allow those responding to provide sufficient resources to tackle it, and potentially highlight where those resources should be targeted. The Committee therefore recommends that the Government undertakes more analysis to try and provide both more precision on the potential estimate of the size and scale of economic-related crime in the UK, as well as the exposure of different sectors to it. (Paragraph 16)
3.The UK holds a prime position in global financial services, with the City of London a dominant financial centre. Given Brexit challenges, the UK will work to keep it that way. A ‘clean’ City is important, so the Government must recognise the responsibility to combat economic crime that comes with that position. Recent moves by the Government in this area are welcome, but must be sustained, and match the UK’s ambitions to continue to be a global leader in financial services. (Paragraph 21)
4.The UK’s departure from the European Union will inevitably result in a change in international trading relationships. Such new trading relationships may also provide opportunities to those wishing to undertake economic crime in countries that are more vulnerable to corruption. The UK must remain alert to that risk, including when it conducts trade negotiations. The Government must be consistently clear about its intention to lead in the fight against economic crime, and not compromise that in an effort to swiftly secure new trading relationships. (Paragraph 26)
5.We recommend that the Government retains, or replicates, the arrangements with the EU to maintain the flow of information to UK law enforcement agencies on economic crime. We recommend that the Government work to develop strong relationships with other countries and strengthen mutual information sharing and law enforcement powers. (Paragraph 27)
6.The Committee may consider taking further evidence on the findings of the Financial Action Task Force (FATF) mutual evaluation in due course. The Committee does, however, note the zeal with which the Government has considered reform in this area as the FATF mutual evaluation has approached. With mutual evaluations occurring only on a 10-year cycle, the UK should not solely rely on prompting by FATF to ensure its economic crime prevention, detection and enforcement systems remain fit for purpose and it should not rely on FATF alone to identify areas where improvement is needed. The Committee therefore recommends the Government institutes a more frequent system of public review of the UK’s AML supervision, and law enforcement, that will ensure a constant stimulus to improvement and reform. This review should take a holistic view of the entire system, rather than be undertaken by each individual component supervisor or agency. There may be a role for the recently announced Economic Crime Strategic Board in this work. (Paragraph 33)
7.The property sector poses a risk from an anti-money laundering perspective. Yet the AML supervisory regime around property transactions is complicated. Banks are supervised by the Financial Conduct Authority, solicitors by their relevant professional body, and estate agents by HMRC. While there may be debate over which part of the transaction chain bears most responsibility from an AML perspective, each part has a role in reporting, or preventing, a transaction that may be used for money laundering. There is a risk that some estate agents may be unsupervised, having not registered with HMRC. We recommend that HMRC carries out further work to ensure estate agents are registered with them and following best anti-money laundering practice. (Paragraph 45)
8.There is a clearly identified risk that company formation may be used in money laundering. There are a number of entities that undertake company formation, and therefore a number of supervisors. More worryingly, there appears to be a number of unsupervised entities engaged in company formation. These should be identified by HMRC and dealt with as a matter of urgency. (Paragraph 51)
9.There must be no weak areas in the UK’s systems for preventing economic crime. At present, Companies House presents such a weakness. The UK cannot extol the virtue of a public register of beneficial ownership and yet not carry out the necessary rigorous checks of the information on that register. The Government must urgently consider reform of Companies House to ensure it has the statutory duties and powers to ensure it plays no role in helping those undertaking economic crime, whether here or abroad. It is welcome that the Economic Secretary has noted that BEIS is considering reform in this area, but the Government should move quickly and now publish detail of this reform by summer 2019. (Paragraph 63)
10.Though the emphasis has been on the risk presented by enablers, such as accountants or solicitors, there should also be a sharp focus on the supervision of the core financial services. To the extent that this risk is not ameliorated by supervision, the FCA needs to ensure that they keep up a constant pressure on the core financial services businesses and take appropriate enforcement action against them. (Paragraph 72)
11.The evidence we have received has directed our attention to those who act on the periphery of the financial system, rather than its core, the so-called enablers or facilitators. External witnesses suggested that there is a requirement for education as well as enforcement—the Security Minister pointed towards the responsibility of the enablers to play their part. It is welcome that in its Serious and Organised Crime Strategy, the Government has acknowledged a similar focus. The Committee recommends that the Government steps up education of facilitators, to ensure they have all information about their role, recouping any additional costs through fees. Once this has been completed, it should be followed with an enforcement campaign to ensure compliance. (Paragraph 78)
12.The Committee supports the role that The Office of Professional Body Anti-Money Laundering Supervision (OPBAS) has been given in relation to the Professional Body Anti-Money Laundering Supervisors. The inherent conflict in a membership organisation also monitoring its own members means that there is a need for external supervision. The number of such supervisors also shows there is a need for a single organisation to look at the system as a whole, and identify weaknesses across the piece. We consider the concerns around whether the statutory AML supervisors also need such a coordinating body later in this Report. (Paragraph 86)
13.At present, OPBAS also has the responsibility of recommending to the Treasury whether a professional body should remain an AML supervisor. It is not clear how the Treasury would consider such an OPBAS recommendation, and where it would envisage placing such AML supervisory responsibilities in such a case. Without adequate preparation in this area, AML supervisors may become too important to fail, and therefore risk undermining standards in this area. We recommend that the Treasury publishes—within six months—a detailed consideration of how it would respond to such a recommendation from OPBAS. (Paragraph 87)
14.In evidence to this Committee, the Chief Executive Officer of HMRC noted that he was considering, as part of the 2019 Spending Round, querying whether HMRC should retain its role in Anti-Money Laundering supervision. The Committee agrees that this should be given proper consideration, not only to support HMRC concentrating on its core tasks but also to address concerns expressed to the Committee about HMRC’s work as an AML supervisor, and whether its approach to its supervisory responsibilities may be unduly influenced by its role as a tax authority. The Treasury must send the Committee a report on this consideration well ahead of the Spending Review. (Paragraph 106)
15.Notwithstanding the above recommendation, the Committee has heard a number of concerns around the work of HMRC as an AML supervisor, including around its work on unregistered firms. If it is to retain its AML supervisory responsibilities, HMRC should: (Paragraph 107)
- include within its departmental objectives a single stand-alone objective related to its anti-money laundering supervisory work; and
- keep a clear reporting line between its AML supervisory work and its work investigating tax crime and associated money laundering offences. HMRC should have a separate strategy for its AML supervisory work which would include key performance indicators on which HMRC can report.
16.With the creation of OPBAS, the Government acknowledged that consistency across AML supervisors was important. The Committee recommends that it should go one stage further, by creating a supervisor of supervisors. The aim of this institution would be to ensure that there is consistency of supervision across all the AML supervisors, whether statutory or professional body. There is a strong case for this to be OPBAS, given it already has a role in the coordination of the professional body AML supervisors, and a role in information sharing. (Paragraph 111)
17.The Government should then also consider moving the supervisory responsibilities of HMRC to OPBAS. This would reduce fragmentation in the current supervisory landscape and allow HMRC to focus on its tax authority responsibilities. It would also mean that OPBAS could act as supervisor of last resort in the case of a failure of a professional body supervisor. The close relationship between OPBAS and the FCA, a fellow supervisor, would also be beneficial. (Paragraph 112)
18.OPBAS should be placed on a firmer statutory footing, more akin to the Financial Ombudsman Service, in having its own distinct identity protected under primary legislation. (Paragraph 113)
19.The resources to combat economic crime available to the private sector dwarf those currently available to the public sector. The private sector support to the public sector, provided either through direct payments or through undertaking tasks one might expect Government to undertake on AML, is therefore welcome. (Paragraph 124)
20.One significant issue is the maintenance of expertise in the public sector to undertake this work, considering the salaries available in the private sector. The Government and public sector bodies should consider whether there is the pay flexibility available to ensure that the appropriate skills are maintained. (Paragraph 125)
21.The Committee is also concerned that the Government may have not allocated enough resource to effectively marshal the private sector resources to achieve a ‘hostile environment’. The Economic Secretary confirmed that there is no cross-government assessment of public resources being brought to bear in this area. The Committee recommends that such an assessment is made, and that any potential funding shortfalls are rectified. (Paragraph 126)
22.There has been great emphasis on the need for information sharing in combatting economic crime. Such information should be shared both within sectors, and between sectors. Banks have asked for additional powers to share information between each other. Such a move would require significant consideration of the privacy impact on consumers of financial services. At the very least, there should be a number of safeguards to protect both consumers’ information, and to ensure that as a consequence of such information sharing no consumers unfairly lose their access to financial services. We recommend that the Government reviews the scope to increase information flows at the bank level and report back to this Committee within six months. (Paragraph 135)
23.The Government has placed a lot of emphasis on the benefits the National Economic Crime Centre will bring. It is welcome that a single centre will provide an element of leadership to this complex web of interacting agencies and firms. The Committee will continue to monitor the impact of NECC, and recommend that annual updates of the measures of success of the NECC are published or provided to the Committee. (Paragraph 141)
24.Suspicious Activity Reports (SARs) are one way in which the authorities can receive intelligence from the private sector. The SARs reform programme is therefore an exceptionally important piece of work for the AML regime. The Committee’s evidence suggests that reform should focus on increasing the number of SARs reports by those outside the core of the financial system, the so-called enablers. We have heard a number of reasons why SARs may not be submitted by the enablers. It is a legal requirement for SARs to be submitted, so the system needs to be as robust and simple to use as possible. Thought should also be given, in a world of faster payments, to how NCA requested delays to payments can be better handled. Confidence in the SARs system, at present, appears to be weak outside the core financial service. In its response to this Report, the Government should set out how it will increase confidence in the SARs regime. (Paragraph 165)
25.We also heard evidence that quality, rather than the quantity of SARs, should be encouraged. While an increase in quality is always desirable, modern data analytics means that quantity may also be useful. The review will have to be careful not to stifle SARs that in and of themselves may seem of low quality, but when analysed in the round may provide far more useful information. (Paragraph 166)
26.The Politically Exposed Persons regime is an important part of the system for preventing money laundering. We have heard that defining PEPs remains difficult for institutions, both large and small. While commercial solutions are available, they may be beyond the resources of very small companies. We recommend that the Government creates a centralised database of PEPs for the use of those registered by AML supervisors. (Paragraph 171)
27.Derisking, where financial institutions cease customer relationships with certain ‘high risk’ customers, can have a significant impact on both individuals and businesses. As we have seen, it can also potentially move illicit flows underground. While there has seemingly been much effort, progress in tackling derisking has been achingly slow. We recommend that the Government publishes its strategy on how to address disproportionate derisking strategies within six months. That strategy must include how it will take the conclusions of the G20 taskforce forward. (Paragraph 183)
28.The Government’s proposals on reforming the law on corporate liability around economic crime have stalled. Though the Solicitor General realises the importance of this issue, preparations for Brexit seem, in part, to have waylaid this important work. Despite Brexit, the Government must progress domestic priorities must not be forestalled any longer by Brexit. Without reform in this area, multi-national firms appear beyond the scope of legislation designed to counter economic crime. That is manifestly unfair, and weakens the deterrent effect a more stringent corporate liability regime may bring. (Paragraph 199)
29.There is clear evidence that legislative reform is required to strengthen the hand of law enforcement in the fight against economic crime. We recommend that the Government sets out a timetable for bringing forward legislation to improve the enforcement of corporate liability for economic crime. The Serious Fraud Office’s suggested reforms should be considered as part of those proposals. (Paragraph 200)
30.The Solicitor General emphasised the importance of getting the detail of new legislation right. The consultation process can help with that task and need not be delayed until proposed legislation is in near final form. (Paragraph 201)
31.We recommend that the Government responds to the evidence submitted in response to the 2017 Corporate liability for economic crime: call for evidence and undertake further consultation on proposals for legislation by the next Queen’s speech. (Paragraph 202)
32.The Office of Financial Sanctions Implementation (OFSI) has only been in existence for a year and a half. It has a number of potential sanctions breaches under investigation. While all breaches will have to be investigated thoroughly, and treated on their own merits, public examples of enforcement will be necessary if OFSI is to be recognised as an effective deterrent. It is necessary for the Government to review the effectiveness of OFSI. We recommend that two years after its formation marks the time for such a review to take place. (Paragraph 213)
33.The EN+ listing occurred due to a weakness in sanctions policy, not implementation. The evidence heard by the Committee suggests that while the proposed listing was carefully analysed given its sensitivities, the narrowness of the sanctions regime meant that the listing could not be blocked. (Paragraph 222)
34.In the face of this seeming failure of the sanctions regime, the Economic Secretary has suggested that there should be a power for the Government to block a listing on National Security grounds. On the face of it, this would create a new focussed power outside the sanctions regime. If the Committee is to be persuaded that such a power is necessary and appropriate, the Government needs to set out very clearly when such a power would be used, what effect it might have on UK listings and financial services, and most importantly, why it would be needed, especially when sanctions are in the full control of the UK post-Brexit. We would expect full, wide and timely consultation on such a power to inform its scope and design. (Paragraph 223)
35.There has been, without doubt, a malign influence on the UK financial system from certain elements of Russian money. This fact has been acknowledged by both financial services and law enforcement. However, as noted by the FCA, illicit Russian money does not need to use novel or unique ways to enter the UK. The UK must achieve a balance between focussing on financial flows from one country, while not distorting the AML system, and creating a risk that other criminals slip by while attention is focussed on individuals with a specific nationality. (Paragraph 230)
36.The United Kingdom’s departure from the European Union could allow additional flexibility in its use of sanctions. The Government must ensure it is ready to introduce any new powers it believes are necessary as soon as any further flexibility has become available, having consulted appropriately.(Paragraph 236)
Assistant Attorney General Brian A. Benczkowski Delivers Remarks at the 33rd Annual ABA National Institute on White Collar Crime Conference
Thank you, Ray, for that kind introduction, and thank you to the organizers of this important program, which really is the premier white-collar conference in the country each year. It is a pleasure to be here in New Orleans, a place where I spent a lot of time in my previous life in private practice.
Mark Twain once observed that “New Orleans food is as delicious as the less criminal forms of sin.” I hope each of you is getting a chance to engage in some culinary sin a little bit this week, even if the Mardi Gras season ended on Tuesday.
Events like this provide an invaluable forum for practitioners, prosecutors, and law enforcement -- who often sit across the table from one another – to exchange ideas and perspectives, and to discuss areas of mutual interest.
I want to reflect today on those areas of mutual interest.
Government enforcers and industry are so often painted as adversaries.
But that simplistic view ignores how frequently our individual interests can intersect.
Financial fraud and corruption threaten private competition as well as the public fisc.
Effective white-collar enforcement promotes market integrity and fairness, as well as fundamental values of democratic accountability.
And prosecutors and companies alike each bear a critical responsibility, both in deterring corporate misconduct, and also in addressing such misconduct when it occurs.
Mutual interests, however, don’t necessarily guarantee mutual trust. At the Department of Justice, we recognize that transparency often can be key to advancing our mutual interests with the many responsible members of the corporate community.
After all, when companies understand what conduct will be credited or penalized, the more likely they are, as generally rational actors, to implement effective compliance programs and, upon finding misconduct, to voluntarily disclose it, cooperate with the government, and remediate.
And the more likely they are to work with the government, not against us, and to choose a course of action that ultimately advances the rule of law.
Since rejoining the Department last year, I have made it a priority to foster transparency in our corporate enforcement practices. We have sought to promote transparency in both our general policies and our case-specific resolutions, many of which I will be discussing today. And we have further promoted that transparency through a focus on both the clarity and detail of the policies themselves, as well as their effective dissemination within the Department and to the public.
There can be no doubt that today’s law enforcement challenges are many, and varied, and complex. But the Department’s commitment to white-collar criminal enforcement and the promotion of ethical business practices remain as strong as ever. You needn’t take my word for it. The numbers themselves bear this out. In fiscal year 2018, the Department charged more than 6,500 defendants in white-collar prosecutions, a modest three-percent increase over the prior year. In the Criminal Division, which I oversee, those numbers were even higher. In 2018, our Fraud Section prosecutors charged 406 individuals, won 268 convictions, and brought 10 corporate enforcement actions. They recovered more than $1 billion in domestic corporate criminal fines, penalties, restitution, and forfeiture, as part of resolutions that returned $3 billion globally.
The Fraud Section also posted impressive numbers in a couple of other categories. The number of individuals convicted at trial in 2018 marked a 40 percent increase from the previous year. And the number of individuals charged in 2018 was 33 percent higher than in 2017. The Fraud Section’s Securities and Financial Fraud Unit charged 66 individuals in 2018 – up from 57 individuals the year before. And the FCPA Unit charged 31 individuals in 2018 – up from 24 individuals the year before.
Meanwhile, our Health Care Fraud Unit, which also oversees our Medicare Fraud Strike Forces, charged 309 individuals in 2018 – an increase of 40 percent over 2017. And we dramatically expanded those Strike Forces in 2018, establishing new teams to concentrate on health care fraud and opioid cases in 12 federal districts, including in Philadelphia, Newark, NJ, and all across the Appalachian region.
As the numbers suggest, we remain steadfastly focused on holding culpable individuals accountable – which I think everyone understands is the most effective deterrent to corporate crime. At the same time, however, we have also remained steadfast in our efforts to hold corporations accountable whenever the conduct warrants an entity-level resolution.
In fact, just this week, Mobile TeleSystems PJSC, or MTS, the largest mobile telecommunications company in Russia, entered into a deferred prosecution agreement with the Department in connection with FCPA violations in Uzbekistan. The case involved an elaborate scheme with a staggering $865 million in bribe payments -- nearly 2 percent of Uzbekistan’s gross domestic product -- to a former Uzbek official. The bribes were designed to secure the official’s assistance in the company’s entry into Uzbekistan’s telecommunications market. As part of the agreement, the companies agreed to pay a combined penalty of $850 million. MTS agreed to a three-year monitorship. MTS’s wholly owned Uzbek subsidiary entered a guilty plea to conspiracy to violate the FCPA’s anti-bribery and books and records provisions. And we announced charges against two individuals, the former Uzbek official and the former CEO of another MTS subsidiary.
The Department’s white-collar prosecutions and resolutions should send an unmistakable message to the private sector: We are serious about fighting corporate fraud and corruption, and we are serious about doing so through resolutions that are fair and effective.
That means, as an initial matter, that we aim to be as transparent and consistent as possible about the criteria we apply in exercising our prosecutorial discretion. We strive to be open books about which factors we find aggravating, which we find mitigating, and how each is penalized, credited, and ultimately weighed. It also means, more fundamentally, that we want to convey to companies the right incentives for responsible corporate behavior. We want to avoid penalties imposed for penalties’ sake. If a company faces other civil or foreign penalties for the same misconduct, we will apply our “anti-piling on” policy to reduce or apportion financial fines, forfeitures, and restitution between authorities to ensure that the overall outcome is equitable and just. We also will avoid penalties that disproportionately punish innocent employees, shareholders, customers, and other stakeholders.
Each of these guiding principles helps ensure that companies and their advisors, with better visibility into our decision-making process, can make their own well-informed decisions going forward.
Of course, the Department conveys its approach to white-collar and corporate enforcement not simply through the cases that we prosecute, but also the cases we agree not to prosecute. The Department’s FCPA Corporate Enforcement Policy is at the forefront of this effort. The Policy lays out in plain terms how we assess FCPA violations based on our evaluation of specific actions taken by a company in the face of misconduct.
By formalizing and memorializing the Department’s declination criteria in the Justice Manual, the policy conveys to both prosecutors and the public that we will reward companies that act responsibly upon uncovering criminal misconduct.
As many of you well know, the Corporate Enforcement Policy details the standards for what constitutes voluntary self-disclosure, full cooperation, and timely remediation, providing for a presumption of a declination when a company meets these conditions. It lays out various aggravating circumstances that could potentially overcome that presumption. And it details reductions to fines that prosecutors should apply if aggravating circumstances call for a criminal resolution with a company that has voluntarily self-disclosed.
At bottom, the policy fosters transparency about when credit is due, and how we will award that credit. With that information, companies and their officers will be better equipped to engage in rational decision-making about the steps they should take to qualify for a declination.
At the end of the day, companies that voluntarily self-disclose, take steps to prevent misconduct through robust compliance programs, and take appropriate remedial steps when misconduct is detected should know that they will get a fair shake from the Department.
To further promote transparency, we have made publicly available all of our case declinations to date under the FCPA Corporate Enforcement Policy. There currently are 12 declination letters published on the Department’s website. Each sheds additional light on how we apply the Corporate Enforcement Policy to different facts and circumstances and the determinative factors in our resolution.
The most recent of those 12 letters involves our decision just last month to not prosecute Cognizant Technology Solutions Corporation, a publicly traded Fortune 200 company, for FCPA violations. Certain high-level employees and agents of Cognizant allegedly participated in a scheme through which they authorized a third-party construction company to pay approximately $2 million in bribes to Indian officials for help in securing a planning permit relating to an office park project. Notwithstanding the fact that the misconduct reached the highest levels of the company, we declined prosecution. And we have made it clear why: The company voluntarily self-disclosed the conduct within two weeks of when the company’s board learned of it. As a result, the Department was able to identify the culpable individuals – and indeed, we have announced charges against the former president and the former chief legal officer of the company for their alleged involvement in the scheme.
Our declination letter also noted, among other factors in the declination: the thoroughness of the company’s internal investigation; the proactive and ongoing nature of its cooperation with the government in investigations and prosecutions; the effectiveness of its preexisting compliance program; and the company’s willingness to fully remediate and disgorge its entire cost savings from the bribery.
A declination letter from this past August provides another reference point. We declined prosecution in the case of the Insurance Corporation of Barbados Limited, or ICBL, despite the involvement of high-level executives in a scheme to bribe a Barbadian government official in exchange for insurance contracts. We reached that decision based, in part, on the company’s voluntary disclosure, its significant remediation efforts, including the termination of all employees involved, its cooperation with our investigation, and its implementation of an enhanced compliance program and more robust internal accounting controls. And the Department pursued individual accountability, charging two of the company’s senior executives, as well as a former Barbadian official.
These two cases make clear that aggravating factors like high-level executive involvement in the misconduct will not necessarily preclude a declination when the company’s actions are otherwise exemplary.
To be sure, publishing our declination policy and letters in the Justice Manual and on our website addresses just part of the broader challenge of transparency.
It is also critical that we periodically take stock of our policies themselves. We need to ensure that our policies are clear, comprehensive, and up to date. And ensuring that our policies provide the right message and the right mix of incentives involves an ongoing process of refinement and reassessment.
To that end, last October, I updated a Criminal Division guidance memorandum from 2009 on the selection of corporate monitors. We sought to update the preexisting monitorship policy to provide more guidance about the factors that will prompt the appointment of a monitor in the first place, including how to weigh the benefits and costs of a potential monitorship, and to clarify details about the selection process and scope of monitorships. Similarly, we are currently in the process of updating the FCPA Corporate Enforcement Policy to bring it in line with current practice.
As members of my leadership team announced over the past year, the Department now extends the principles of the Corporate Enforcement Policy to situations where misconduct is uncovered through due diligence in the context of a merger or acquisition, or, in appropriate instances, through post-acquisition audits or compliance integration efforts. Applying the policy to the M&A context avoids chilling acquisition activity by law-abiding companies, who might otherwise walk away from worthwhile investments due to the risk of FCPA enforcement.
After all, we want law-abiding companies with strong compliance cultures to be willing to make these kinds of acquisitions. Put another way, we don’t want the good corporate actors to cede the field to higher-risk entities that may only perpetuate illegal conduct.
The new policy also makes clear that, in appropriate cases where the acquired entity presents aggravating circumstances – such as when the acquired entity’s past leadership was complicit in corruption, but has since been purged by the acquirer – a disclosing company may still receive a declination. All this is consistent with our broader objectives of rewarding companies that voluntarily self-disclose and promptly remediate after learning of misconduct.
And because the only written guidance relating to this issue was contained in the non-binding DOJ/SEC Resource Guide to the FCPA, which was released in 2012, we are working to ensure that our current practice is reflected in the Corporate Enforcement Policy itself.
Additionally, in the coming months, the Criminal Division will host the first of what I anticipate will be an annual training program for white-collar prosecutors, with a focus on how we, as prosecutors, will evaluate the effectiveness of corporate compliance programs. Training is, of course, step one in any effort to promote consistency in the exercise of prosecutorial discretion.
Before we can credibly speak of conveying predictable guiding principles to the private sector, we need prosecutors on the same page themselves. Getting prosecutors across the country in one room to reflect on recent key resolutions and walk through emerging challenges in compliance will help educate our trial attorneys on the guiding principles by which we will pursue or not pursue corporate charges.
At the end of the day, we at the Department of Justice are deeply mindful of our role in ensuring greater transparency in corporate enforcement, and the impact that has in the corporate community. Given my own past experience, I’d venture to guess that most, if not all of you, in the room today have had a client ask some version of the following question in the course of a DOJ-facing matter: “How do you think the Department will react if we do X?” Believe it or not, we want to help enable you to better answer those questions with greater confidence and greater credibility. It is in our own interest to do so.
Exercises of prosecutorial discretion are never formulaic. But with more established markers by which both prosecutors and the private sector can conform their actions, we can expand the extent to which government and industry find themselves aligned and working toward the same ends, rather than against each other.
After all, companies are, in many ways, the first line of defense against corporate misconduct. Working with many of you, companies are best equipped and best positioned to evaluate risk and implement measures to prevent corporate misconduct before it occurs.
And when companies are incentivized to avert at the front end – through effective internal controls and compliance programs – the very violations that we would have to prosecute at the back end, that inures to the benefit of both government and industry.
We have mutual interests in seeing corporate misconduct fairly and effectively deterred and redressed. And at the Department of Justice, we will continue to do our part to advance those mutual interests.
Wednesday, March 13, 2019
Mozambique’s Former Finance Minister Indicted Alongside Other Former Mozambican Officials, Business Executives, and Investment Bankers in Alleged $2 Billion Fraud and Money Laundering Scheme that Victimized U.S. Investors
A four-count indictment was returned on Dec. 19, 2018, by a grand jury in the Eastern District of New York, charging two executives of a shipbuilding company, three former senior Mozambican government officials, and three former London-based investment bankers for their roles in a $2 billion fraud and money laundering scheme that victimized investors from the United States and elsewhere.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Richard P. Donoghue of the Eastern District of New York, and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement.
“The indictment unsealed today alleges a brazen international criminal scheme in which corrupt Mozambique government officials, corporate executives, and investment bankers stole approximately $200 million in loan proceeds that were meant to benefit the people of Mozambique,” said Assistant Attorney General Benczkowski. “The Department of Justice and our law enforcement partners are dedicated to using all tools at our disposal to prosecute those who engage in money laundering, financial fraud and corruption at the expense of U.S. investors, wherever those individuals may be located.”
“As charged in the indictment, the defendants orchestrated an immense fraud and bribery scheme that took advantage of the U.S. financial system, defrauded its investors and adversely impacted the economy of Mozambique, in order to line their own pockets with hundreds of millions of dollars,” said U.S. Attorney Donoghue. “This indictment underscores the Department of Justice’s continuing efforts to end such fraudulent and corrupt practices and to hold those responsible to account for their crimes.”
“Today’s indictment proves that no matter who you are, or what position of power you’re in, you’re not immune from prosecution,” said FBI Assistant Director in Charge Sweeney. “The FBI will continue to use all resources at our disposal to uncover crimes of this nature and expose them for what they really are.”
Jean Boustani, 40, a citizen of Lebanon who worked for the Privinvest Group, a United Arab Emirates-based shipbuilding company, was arrested at John F. Kennedy Airport in New York on Jan. 2, 2019 and arraigned later that day in the Eastern District of New York on charges that he conspired with others to commit one count of wire fraud, one count of securities fraud, and one count of money laundering in connection with $200 million in bribe and kickback payments he helped organize relating to three loans totaling more than $2 billion that were marketed and sold to U.S. victim investors. Boustani has pleaded not guilty to the charges; a trial date has not yet been set. Alongside Boustani, Privinvest’s chief financial officer Najib Allam, 58, a citizen of Lebanon, was charged with the same counts. Allam is alleged to have worked with Boustani to make the bribe and kickback payments. Allam is not currently in U.S. custody.
Manuel Chang, 63, the former Mozambican minister of finance who is a citizen and resident of Mozambique, was charged with the same counts as Boustani, namely one count of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, and one count of conspiracy to commit money laundering. Chang was arrested at the request of the United States by South African authorities on Dec. 29, 2018. The United States is seeking Chang’s extradition.
Antonio do Rosario, 44, a citizen and resident of Mozambique, was an official with Mozambique’s State Information and Security Service and a director and officer of each of the three Mozambican entities that obtained the maritime loans. Do Rosario was charged with one count of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, and one count of conspiracy to commit money laundering in connection with his receipt of bribe payments relating to the loans. Do Rosario is not currently in U.S. custody.
Teofilo Nhangumele, 50, a citizen and resident of Mozambique, acted on behalf of the Office of the President of Mozambique. Nhangumele was charged with one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering in connection with his negotiation and receipt of bribe payments relating to the loans. Nhangumele is not currently in U.S. custody.
The three investment bankers, Andrew Pearse, 49; Surjan Singh, 44; and Detelina Subeva, 37, each of whom is a resident of the United Kingdom, were also charged with one count of conspiracy to commit wire fraud, one count of conspiracy to commit securities fraud, and one count of conspiracy to commit money laundering. In addition, each banker was charged with one count of conspiracy to violate the anti-bribery and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) in connection with their roles in facilitating bribe payments to government officials in Mozambique and for circumventing the internal accounting controls of a foreign investment bank that arranged two of the loans. At the time, Pearse and Singh were managing directors of the investment bank, and Subeva was a vice president.
Pearse, Singh and Subeva were arrested on Jan. 3, in the United Kingdom, all pursuant to provisional arrest warrants issued at the request of the United States. The United States is seeking their extradition.
The indictment alleges that between approximately 2013 and 2016, the co-conspirators organized for more than $2 billion in three loans to be arranged by Investment Bank and another foreign bank. The loans were made to companies owned and controlled by the Mozambican government: Proindicus S.A., Empresa Moçambicana de Atum, S.A. (EMATUM) and Mozambique Asset Management (MAM). The money was purportedly to be used to fund three maritime projects for which the shipbuilder, Privinvest, would provide the equipment and services. Proindicus was to perform coastal surveillance, EMATUM was to engage in tuna fishing, and MAM was to build and maintain shipyards. Chang, in his capacity as minister of finance, signed guarantees on behalf of Mozambique for all three fraudulent loans. Singh signed the agreements on behalf of the investment bank for the two loans on which the bank acted as primary arranger. The investment bank subsequently paid the loans directly to Privinvest.
As further alleged in the indictment, the co-conspirators facilitated Privinvest’s criminal diversion of more than $200 million in loan proceeds, including more than $150 million in bribe payments to Chang and other Mozambican government officials that Privinvest paid to ensure that Mozambique would enter into the loan arrangements. In addition to the bribe payments, the alleged fraud also included approximately $50 million in kickback payments to Pearse, Singh, and Subeva, who assisted the conspirators to obtain financing for the loans through their investment bank and a second foreign investment bank. Pearse, Singh, and Subeva, along with the other members of the conspiracy, allegedly subsequently sold the loans to investors worldwide, including in the United States. Moreover, the participants in the scheme allegedly conspired to defraud these investors by misrepresenting how the loan proceeds would be used, the amount and maturity dates of other loans and debt Mozambique was obligated to pay, and the ability of Mozambique or its state-owned entities to repay the loans.
Mozambique and its state-owned entities have thus far allegedly failed to make more than $700 million of repayments that have become due on the loans.
The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The investigation is being conducted by the FBI’s New York Field Office. The government’s case is being prosecuted by the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS) and Fraud Section, and the Business and Securities Fraud Section of the U.S. Attorney’s Office for the Eastern District of New York. MLARS Trial Attorneys Sean W. O’Donnell and Margaret A. Moeser, Fraud Section Trial Attorney David M. Fuhr, and Assistant U.S. Attorneys Matthew S. Amatruda and Mark E. Bini of the Eastern District of New York are prosecuting the case.
The Criminal Division’s Office of International Affairs provided critical assistance in this case. The Department appreciates the significant cooperation and assistance provided by the Securities and Exchange Commission. The Department also appreciates the assistance provided by law enforcement authorities in the United Kingdom and in South Africa.
MLARS’s Bank Integrity Unit investigates and prosecutes banks and other financial institutions, including their officers, managers, and employees, whose actions threaten the integrity of the individual institution or the wider financial system.
The Treasury Committee has today published a unanimously-agreed Report on Economic Crime – Anti-money laundering supervision and sanctions implementation.
- More precise estimate of the scale of economic crime in the UK needed
- Government should review UK’s anti-money laundering supervision more frequently
- UK shouldn’t compromise in fight against economic crime to secure trade deals post-Brexit
- HMRC should ensure all estate agents are registered with them for AML purposes
- Companies House needs powers to combat economic crime
- Wrong for Government to not reform corporate criminal liability framework for economic crime
- Read the report summary
- Read the report conclusions and recommendations
- Read the full report: Economic Crime: Anti-money laundering supervision and sanctions implementation
Scale of the Problem
- The scale of economic crime in the UK is very uncertain, with estimates ranging from the tens of billions of pounds to the hundreds of billions. The Government should provide a more precise estimate so that the response can be tailored to the problem.
- The Financial Action Task Force (FATF) has completed its review of the UK’s anti-money laundering (AML) and counter-terrorist financing systems, over a decade since the previous full review. To maintain a ‘clean’ City, the Government should institute a more frequent system of public review of the UK’s AML supervision and law enforcement that will ensure a constant stimulus to improvement and reform. This may be a role for the newly-announced Economic Crime Strategic Board, jointly chaired by the Chancellor of the Exchequer and the Home Secretary.
Organising the Defence
- The anti-money laundering supervision system is highly fragmented. The UK has 22 accountancy and legal professional body AML supervisors (regulated by the Office for Professional Body AML Supervision (OPBAS)) and three statutory AML supervisors (HMRC, the FCA and the Gambling Commission). It is unclear why OPBASonly supervises the professional body AML supervisors and not the statutory ones. To ensure consistency across all AML supervisors, the Government should create a supervisor of supervisors, and there is a strong case for this to be OPBAS.
- Concerns have been raised that HMRC treats its supervisory responsibilities as a bolt-on activity to its revenue raising activities. If it is to retain its AML supervisory responsibilities, HMRC should have a departmental objective relating to this work.
- Brexit will provide both risks and opportunities in terms of economic crime. The increase in trade with non-EU counties will increase the likelihood that UK businesses will come into contact with markets with lower AML standards than the UK, but there will also be an opportunity for the UK to be a beacon in the world for the high standards to which we aspire. When conducting trade negotiations, the Government must be clear about its intention to lead the fight against economic crime, and not compromise by shifting to a more buccaneering role in an effort to secure trade deals. The Government must also ensure that the flow of information between the EU and UK’s enforcement agencies is retained or replicated post-Brexit.
Two sectors of particular concern in the UK’s fragmented AML supervision are property and company formation:
- Estate agents have been roundly criticised for failing to protect the UK from proceeds of corruption being stashed in the property sector. Indeed, the Security Minister at the Home Office called them a “weak link” in the AML regime. It was also suggested that more emphasis should be placed on solicitors as they will often assess the source of a customer’s funds. HMRC should ensure that estate agents are registered with it for AML-purposes and ensure that they are following best practice.
- Another area of concern is company formation, specifically the role of Companies House, which is not required to carry out any AML checks. This makes it a weakness in the UK’s system for preventing economic crime. The Government should urgently consider giving it the powers to ensure that it plays no role in helping those undertaking economic crime.
- The UK’s corporate criminal liability framework for economic crime has been described as not fit for purpose. It is typically more difficult to identify which people are the directing mind and will of a larger company than a smaller one, potentially encouraging more exotic management structures to avoid prosecutions. The Government’s consultation on this issue has made no progress since it closed in March 2017 due to preparations for Brexit. Despite Brexit, the Government must progress domestic policies. It is wrong and potentially dangerous to not reform this area. The Government should consider proposals for new legislation, including a proposal that a company would be guilty of the substantive criminal offence if a person associated with it commits a certain offence, and the introduction of a new offence of failing to prevent economic crime.
- HM Treasury’s Office for Financial Sanctions Implementation (OFSI) is responsible for the implementation of financial sanctions, which the FCA defines as an order prohibiting a firm from carrying out transactions with a person or organisation. The effectiveness of OFSI has been questioned for lacking bite and not acting as a deterrent to UK based sanctions violations. OFSI has a number of sanctions breaches under investigation, and whilst it is right that all breaches are investigated thoroughly, public examples of enforcement will be necessary if OFSI is to be recognised as an effective deterrent. Its first monetary penalty is a step towards that. The Government should review the effectiveness of OFSI this year, two years after its formation.
- There has been, without a doubt, a malign influence on the UK financial system from certain elements of Russian money. However, the UK must achieve a balance and not create a risk that other criminals slip by while attention is focussed on individuals with a specific nationality.
- Politically exposed persons (PEPs) are individuals whose prominent position in public life may make them vulnerable to corruption. Regulations require enhanced due diligence on PEPs, yet defining and identifying who may fall into this category remains difficult for institutions. The Government should create a centralised database of PEPs for the use of those registered by AML supervisors.
- A Suspicious Activity Report (SAR) is a piece of information which alerts law enforcement that certain client/customer activity is suspicious and might indicate money laundering or terrorist financing. Those outside the core of the financial system – so-called enablers – including those involved in property and company formation, should be encouraged to submit more SARs. The system should be as robust and simple to use as possible, ensuring that SARs are high in quality and quantity, especially as modern data analytics may be able to make good use of the information.
Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:
“With the uncertainties of Brexit around the corner, the Government should regularly review the UK’s effort to combat money laundering to ensure a constant stimulus to improve.
“When the UK does leave the EU, there will be both risks and opportunities in terms of economic crime. The Government must ensure it does not bow to buccaneering deregulatory pressures and maintain its intentions to lead in the fight against economic crime.
“Leading that fight is going to require focus. The Government needs to bring greater order to a fragmented supervisory system, better identify the scale of the problem, and make a greater effort to combat the known risks and gaps in the supervisory system.
“The Committee’s comprehensive report makes a series of recommendations around estate agents, Companies House, financial sanctions and the UK’s corporate criminal liability framework that would help the UK combat economic crime.”
Tuesday, March 12, 2019
Arrests of Yale, U of Texas, Yale, Stanford, USC, UCLA, and Georgetown Staff for Bribery for College Admissions
Dozens of individuals involved in a nationwide conspiracy that facilitated cheating on college entrance exams and the admission of students to elite universities as purported athletic recruits were arrested by federal agents in multiple states this morning and charged in federal court in Boston. Athletic coaches from Yale, Stanford, USC, Wake Forest and Georgetown, among others, are implicated, as well as parents and exam administrators.
William “Rick” Singer, 58, of Newport Beach, Calif., was charged with racketeering conspiracy, money laundering conspiracy and obstruction of justice. Singer owned and operated the Edge College & Career Network LLC (“The Key”) – a for-profit college counseling and preparation business – and served as the CEO of the Key Worldwide Foundation (KWF) – a non-profit corporation that he established as a purported charity.
Between approximately 2011 and February 2019, Singer allegedly conspired with dozens of parents, athletic coaches, a university athletics administrator, and others, to use bribery and other forms of fraud to secure the admission of students to colleges and universities including Yale University, Georgetown University, Stanford University, the University of Southern California, and Wake Forest University, among others. Also charged for their involvement in the scheme are 33 parents and 13 coaches and associates of Singer’s businesses, including two SAT and ACT test administrators.
Also charged is John Vandemoer, the head sailing coach at Stanford University, Rudolph “Rudy” Meredith, the former head soccer coach at Yale University, and Mark Riddell, a counselor at a private school in Bradenton, Fla.
The conspiracy involved 1) bribing SAT and ACT exam administrators to allow a test taker, typically Riddell, to secretly take college entrance exams in place of students or to correct the students’ answers after they had taken the exam; 2) bribing university athletic coaches and administrators—including coaches at Yale, Stanford, Georgetown, the University of Southern California, and the University of Texas—to facilitate the admission of students to elite universities under the guise of being recruited as athletes; and (3) using the façade of Singer’s charitable organization to conceal the nature and source of the bribes.
- College Entrance Exam Cheating Scheme
According to the charging documents, Singer facilitated cheating on the SAT and ACT exams for his clients by instructing them to seek extended time for their children on college entrance exams, which included having the children purport to have learning disabilities in order to obtain the required medical documentation. Once the extended time was granted, Singer allegedly instructed the clients to change the location of the exams to one of two test centers: a public high school in Houston, Texas, or a private college preparatory school in West Hollywood, Calif. At those test centers, Singer had established relationships with test administrators Niki Williams and Igor Dvorskiy, respectively, who accepted bribes of as much as $10,000 per test in order to facilitate the cheating scheme. Specifically, Williams and Dvorskiy allowed a third individual, typically Riddell, to take the exams in place of the students, to give the students the correct answers during the exams, or to correct the students’ answers after they completed the exams. Singer typically paid Ridell $10,000 for each student’s test. Singer’s clients paid him between $15,000 and $75,000 per test, with the payments structured as purported donations to the KWF charity. In many instances, the students taking the exams were unaware that their parents had arranged for the cheating.
- College Recruitment Scheme
It is further alleged that throughout the conspiracy, parents paid Singer approximately $25 million to bribe coaches and university administrators to designate their children as purported athletic recruits, thereby facilitating the children’s’ admission to those universities. Singer allegedly described the scheme to his customers as a “side door,” in which the parents paid Singer under the guise of charitable donations to KWF. In turn, Singer funneled those payments to programs controlled by the athletic coaches, who then designated the children as recruited athletes – regardless of their athletic experience and abilities. Singer also made bribe payments to most of the coaches personally.
For example, during a call with one parent, Singer stated: “Okay, so, who we are…what we do is we help the wealthiest families in the U.S. get their kids into school…My families want a guarantee. So, if you said to me ‘here’s our grades, here’s our scores, here’s our ability, and we want to go to X school’ and you give me one or two schools, and then I’ll go after those schools and try to get a guarantee done.”
As part of the scheme, Singer directed employees of The Key and the KWF to create falsified athletic “profiles” for students, which were then submitted to the universities in support of the students’ applications. The profiles included fake honors that the students purportedly received and elite teams that they purportedly played on. In some instances, parents supplied Singer with staged photos of their children engaged in athletic activity – such as using a rowing machine or purportedly playing water polo.
- Tax Fraud Conspiracy
Beginning around 2013, Singer allegedly agreed with certain clients to disguise bribe payments as charitable contributions to the KWF, thereby enabling clients to deduct the bribes from their federal income taxes. Specifically, Singer allegedly instructed clients to make payments to the KWF in return for facilitating their children’s admission to a chosen university. Singer used a portion of that money to bribe university athletic coaches to designate the children as student athletes. Thereafter, Masera or another KWF employee mailed letters from the KWF to the clients expressing thanks for their purported charitable contributions. The letter stated: “Your generosity will allow us to move forward with our plans to provide educational and self-enrichment programs to disadvantaged youth,” and falsely indicated that “no good or services were exchanged” for the donations. Many clients then filed personal tax returns that falsely reported the payment to the KWF as charitable donations.
The charge of racketeering conspiracy provides for a sentence of no greater than 20 years in prison, three years of supervised release, a fine of $250,000 or twice the gross gain or loss, whichever is greater and restitution. The charge of conspiracy to commit money laundering provides for a sentence of up to 20 years in prison, up to three years of supervised release, and a fine of not more than $500,000 or twice the value of the property involved in the money laundering. The charge of conspiracy to defraud the United States provides for a sentence of no greater than five years in prison, up to three years of supervised release and a fine of $250,000. The charge of obstruction of justice provides for a sentence of no greater than 10 years in prison, three years of supervised release and a fine of $250,000. The charges of conspiracy to commit mail fraud and honest services mail fraud, and of conspiracy to commit wire fraud and honest services wire fraud, provide for a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of 250,000 or twice the gross gain or loss, whichever is greater. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.
United States Attorney Andrew E. Lelling; Joseph R. Bonavolonta, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; and Kristina O’Connell, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigations in Boston, made the announcement today. Assistant U.S. Attorneys Eric S. Rosen, Justin D. O’Connell, Leslie Wright, and Kristen A. Kearney of Lelling’s Securities and Financial Fraud Unit are prosecuting the case.
The details contained in the charging documents are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.
- William Rick Singer, 58, of Newport Beach, Calif., owner of the Edge College & Career Network and CEO of the Key Worldwide Foundation, was charged in an Information with racketeering conspiracy, money laundering conspiracy, conspiracy to defraud the United States, and obstruction of justice. He is scheduled to plead guilty in Boston before U.S. District Court Judge Rya W. Zobel on March 12, 2019, at 2:30 p.m.;
- Mark Riddell, 36, of Palmetto, Fla., was charged in an Information with conspiracy to commit mail fraud and honest services mail fraud as well as conspiracy to commit money laundering;
- Rudolph “Rudy” Meredith, 51, of Madison, Conn., the former head women’s soccer coach at Yale University, was charged in an Information with conspiracy to commit wire fraud and honest services wire fraud as well as honest services wire fraud;
- John Vandemoer, 41, of Stanford, Calif., the former sailing coach at Stanford University, was charged in an Information with racketeering conspiracy and is expected to plead guilty in Boston before U.S. District Court Judge Rya W. Zobel on March 12, 2019, at 3:00 p.m.;
- David Sidoo, 59, of Vancouver, Canada, was charged in an indictment with conspiracy to commit mail and wire fraud. Sidoo was arrested on Friday, March 8th in San Jose, Calif., and appeared in U.S. District Court for the Northern District of California yesterday. A date for his initial appearance in federal court in Boston has not yet been scheduled.
The following defendants were charged in an indictment with racketeering conspiracy:
- Igor Dvorskiy, 52, of Sherman Oaks, Calif., director of a private elementary and high school in Los Angeles and a test administrator for the College Board and ACT;
- Gordon Ernst, 52, of Chevy Chase, Md., former head coach of men and women’s tennis at Georgetown University;
- William Ferguson, 48, of Winston-Salem, N.C., former women’s volleyball coach at Wake Forest University;
- Martin Fox, 62, of Houston, Texas, president of a private tennis academy in Houston;
- Donna Heinel, 57, of Long Beach, Calif., the senior associate athletic director at the University of Southern California;
- Laura Janke, 36, of North Hollywood, Calif., former assistant coach of women’s soccer at the University of Southern California;
- Ali Khoroshahin, 49, of Fountain Valley, Calif., former head coach of women’s soccer at the University of Southern California;
- Steven Masera, 69, of Folsom, Calif., accountant and financial officer for the Edge College & Career Network and the Key Worldwide Foundation;
- Jorge Salcedo, 46, of Los Angeles, Calif., former head coach of men’s soccer at the University of California at Los Angeles;
- Mikaela Sanford, 32, of Folsom, Calif., employee of the Edge College & Career Network and the Key Worldwide Foundation;
- Jovan Vavic, 57, of Rancho Palos Verdes, Calif., former water polo coach at the University of Southern California; and
- Niki Williams, 44, of Houston, Texas, assistant teacher at a Houston high school and test administrator for the College Board and ACT.
The following defendant was charged in a criminal complaint with conspiracy to commit mail fraud and honest services mail fraud:
- Michael Center, 54, of Austin Texas, head coach of men’s tennis at the University of Texas at Austin
The following defendants were charged in a criminal complaint with conspiracy to commit mail and wire fraud:
- Gregory Abbott, 68, of New York, N.Y., the founder and chairman of a food and beverage packaging company;
- Marcia Abbott, 59, of New York, N.Y.;
- Gamal Abdelaziz, 62, of Las Vegas, Nev., the former senior executive of a resort and casino operator in Macau, China;
- Diane Blake, 55, of San Francisco, Calif., an executive at a retail merchandising firm;
- Todd Blake, 53, of San Francisco, Calif., an entrepreneur and investor;
- Jane Buckingham, 50, of Beverly Hills, Calif., the CEO of a boutique marketing company;
- Gordon Caplan, 52, of Greenwich, Conn., co-chairman of an international law firm based in New York City;
- I-Hin “Joey” Chen, 64, of Newport Beach, Calif., operates a provider of warehousing and related services for the shipping industry;
- Amy Colburn, 59, of Palo Alto, Calif.;
- Gregory Colburn, 61, of Palo Alto, Calif.;
- Robert Flaxman, 62, of Laguna Beach, Calif., founder and CEO of real estate development firm;
- Mossimo Giannulli, 55, of Los Angeles, Calif., fashion designer;
- Elizabeth Henriquez, 56, of Atherton, Calif.;
- Manuel Henriquez, 55, of Atherton, Calif., founder, chairman and CEO of a publicly traded specialty finance company;
- Douglas Hodge, 61, of Laguna Beach, Calif., former CEO of investment management company;
- Felicity Huffman, 56, of Los Angeles, Calif., an actress;
- Agustin Huneeus Jr., 53, of San Francisco, Calif., owner of wine vineyards;
- Bruce Isackson, 61, of Hillsborough, Calif., president of a real estate development firm;
- Davina Isackson, 55, of Hillsborough, Calif.;
- Michelle Janavs, 48, of Newport Coast, Calif., former executive of a large food manufacturer;
- Elisabeth Kimmel, 54, of Las Vegas, Nev., owner and president of a media company;
- Marjorie Klapper, 50, of Menlo Park, Calif., co-owner of jewelry business;
- Lori Loughlin, 54, of Los Angeles, Calif., an actress;
- Toby MacFarlane, 56, of Del Mar, Calif., former senior executive at a title insurance company;
- William McGlashan Jr., 55, of Mill Valley, Calif., senior executive at a global equity firm;
- Marci Palatella, 63, of Healdsburg, Calif., CEO of a liquor distribution company;
- Peter Jan Sartorio, 53, of Menlo Park, Calif., packaged food entrepreneur;
- Stephen Semprevivo, 53, of Los Angeles, Calif., executive at privately held provider of outsourced sales teams;
- Devin Sloane, 53, of Los Angeles, Calif., founder and CEO of provider of drinking and wastewater systems;
- John Wilson, 59, of Hyannis Port, Mass., founder and CEO of private equity and real estate development firm;
- Homayoun Zadeh, 57, of Calabasas, Calif., an associate professor of dentistry; and
- Robert Zangrillo, 52, of Miami, Fla., founder and CEO of private investment firm.
Thank you, Alexandra, for that kind introduction.
It is fitting that one of my final speeches in this job is about promoting compliance and preventing corruption. I started my legal career as a public corruption prosecutor. I planned to spend a few years representing the United States before entering the private sector. That was almost 30 years ago.
People talk about the revolving door between government and the private sector. The door never revolved for me. It was one way in, and it will be one way out. There are many good reasons to work for the United States government. But the work that you do – fighting corruption and creating a fair opportunity for honest American citizens who work hard and play by the rules – that is why I came here in the first place.
Your work also resonates with me because I attended an undergraduate business school, where I studied management, marketing, accounting, and finance. I planned to put those skills to use in corporate America. Law enforcement took me in a different direction, but understanding business remains central to my work.
Financial expertise is important to prosecutors because you need to comprehend transactions in order to recognize when they are fraudulent. And familiarity with the practical needs of doing business sometimes allows you to spot an innocent explanation for conduct that otherwise may appear suspicious.
But financial incentives can and do lead corporate officers to engage in corruption. It can be difficult to resist those incentives when public officials expect personal benefits. If we fail to enforce the rules, corrupt businesses will enjoy and profit from a competitive advantage. Rules that are not enforced can be worse than no rules at all, because honest people follow them anyway, giving corrupt people a cost-free competitive advantage.
A desire to promote morality is reason enough in itself to prevent corruption, but there is also a pragmatic benefit.
The forecasting models that I learned in business school rely on hypothetical “efficient markets” that benefit customers because prices reflect all relevant information. But corrupt markets are never efficient. Corruption does not only cause the good guys to lose business opportunities. Corruption produces excess profits for wrongdoers, at the expense of consumers. It raises prices and reduces innovation.
When I served as United States Attorney for Maryland, we conducted a lengthy criminal investigation that documented a widespread pay-to-play culture in one of our largest counties. When that sort of culture becomes engrained, honest businesspeople take their investments elsewhere. It happens in cities. It happens in states. In some places, it happens in nations.
Criminal prosecutions are part of the solution. Criminal cases reveal illegal schemes to the public and may cost corrupt officials their jobs. But every system remains vulnerable to people who pursue their own personal interests. So the key to promoting a culture of integrity is to build structures that resist corruption, and not just to hope for honorable employees.
The United States Constitution provides a good example. It aspires to establish a government that promotes the interests of the governed, rather than the interests of their temporary leaders. All government officials take an oath pledging loyalty to the public interest. Reliance on personal integrity and cultural norms is part of the strategy to preserve liberty. But it is supported by structural protections. The enforcement mechanism is crucial, as James Madison recognized in Federalist 51, because “you must first enable the government to control the governed; and in the next place oblige it to control itself.”
The Department of Justice uses similar protections. We instill a culture of ethical conduct from the first day employees take the oath of office – an oath to well and faithfully execute the duties of their office. Our Department’s name contains a moral value, and we reinforce it. In the words of a classic country song, “You’ve got to stand for something, or you’ll fall for anything.” We teach our employees what it means to stand for Justice.
As a result, if you walk into any branch of the Department of Justice, you will find honorable, ethical, and admirable people.
But no organization with 115,000 employees is flawless. We maintain a culture of integrity, not merely a culture of trust. We do not assume that everyone will obey their oath. We rely on auxiliary precautions. We need mechanisms to correct mistakes and punish wrongdoers.
Our Professional Responsibility Advisory Office provides nationwide guidance about ethical responsibilities, and we designate experienced attorneys to serve as Professional Responsibility Officers in each U.S. Attorney’s Office. Everyone in the Department participates in annual ethics training.
We also maintain professional, nonpartisan internal watchdogs. There are Offices of Professional Responsibility in Main Justice and in each of our law enforcement agencies, and an Office of the Inspector General with 475 employees and jurisdiction over the entire department. The Inspector General has criminal investigative authority as well as administrative authority. If an investigation requires criminal process, the Inspector General’s armed federal agents work with U.S. Attorneys to obtain grand jury subpoenas and search warrants, just like FBI agents. Our internal watchdogs help us to deter waste, fraud, and abuse.
Most importantly, Department of Justice employees develop the discipline imposed by the need to prove allegations to a judge and jury in an open courtroom, with credible witnesses and admissible evidence. That gives us a powerful incentive to seek the truth, and only the truth, wherever it may lead.
Ensuring the integrity of governmental processes is essential to building public confidence in the rule of law, and it is supported by the commitment of private sector leaders.
I am grateful to TRACE International and its member companies for your work to uphold the rule of law.
President Donald Trump issued a proclamation last year that summarized what the rule of law is about. It said that “we govern ourselves in accordance with the rule of law rather [than] … the whims of an elite few or the dictates of collective will.”
Our nation’s founders did not take the rule of law for granted. First, they fought a war on their own soil to break free from rule by a foreign monarch. Then they operated for a decade under the Articles of Confederation, with a weak central government that proved incapable of meeting its obligations. So, in 1787, the Constitutional Convention met in Philadelphia to establish rules for a new central government. The founders agreed on a written Constitution establishing structural protections to promote the rule of law.
But the concept of a government bound by law to serve the people is not universal.
I visited the nation of Armenia in 1994, when it was emerging from seven decades of Soviet domination. I gave a lecture about public corruption laws. When I finished, a student raised his hand. He asked, “If you can’t pay bribes in America, how do you get electricity?”
That question illustrated how the young man learned to think about his society.
Businesses that bribe officials by offering personal benefits in return for the favorable exercise of government power undermine legitimate businesses and cheat citizens. It sets off a race-to-the-bottom and leads to increased prices, substandard products and services, and reduced investment.
Before the enactment of the Foreign Corrupt Practices Act in 1977, paying bribes was an ordinary aspect of doing business overseas. Corruption was rife in many parts of the world. Some European countries allowed companies to deduct bribes on their corporate tax returns as business expenses.
Congress passed the FCPA law with bipartisan support, and the marketplace adapted to America’s effort to establish and enforce anti-bribery laws.
Two decades later, the Organization for Economic Co-operation and Development adopted an Anti-Bribery Convention, establishing legal standards to prohibit bribery of public officials in international business transactions. The United States was one of the first signatories. Our leadership encouraged other major world powers to commit to doing business with integrity.
Last year, the Department of Justice increased its prosecutions of white collar crime and other priorities. Thanks to a series of initiatives and policy changes, we are making corporate criminal enforcement more effective and efficient.
We announced charges against more than 30 individual defendants last year in FCPA-related cases, and convictions of 19 individuals.
Last month, we indicted a salesman and the president of an American company for allegedly paying bribes in Venezuela. They are charged for paying kickbacks to officials of a government-owned energy company.
That investigation led to charges against more than 30 individuals. Our Department received assistance from the Department of Homeland Security as well as our law enforcement colleagues in Switzerland and the Cayman Islands. That sort of international cooperation is essential to prohibit corruption by multinational corporations.
While pursuit of criminal and civil remedies against corporations is important, we should always focus on the individuals responsible for misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing. But the deterrent impact on the individual people responsible for wrongdoing is sometimes attenuated in corporate prosecutions. The most effective deterrent to corporate criminal misconduct is identifying the people who commit crimes and sending them to prison. Absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability.
Critics who describe our policy changes as going soft on corporate crime completely miss the point. The goal of criminal enforcement should not be to pursue a small number of cases and set a new record each year for the largest check extracted from shareholders. Enforcement should not be like a random lightning strike. When there is a low risk of detection and enforcement against the company, and a minimal risk of punishing individuals, that does not deter corporate officers from pursuing their own personal profit though criminal activity. We aim to incentivize companies to report crimes, disgorge illegal proceeds, take remedial actions, and identify accountable officials so we can prosecute them – and do it all promptly. That will result in less corporate crime in the future.
We should focus on the people who play significant roles in setting a company on a course of criminal conduct. We want to know who devised and authorized criminal schemes, and hold them accountable.
Our individual accountability policy is designed to drive change, and lead more companies to implement meaningful proactive compliance programs. Change can be difficult in large organizations. But the ability to adapt to change is an essential survival skill.
Nassim Nicholas Taleb coined the term “anti-fragile” to describe the most successful business model. He points out that the opposite of fragile is not merely robust or resilient. Anti-fragile things do not just bounce back in response to stress, like rubber bands. Instead they grow stronger, like muscles.
Complacency can be deadly when circumstances change, and circumstances always change. Taleb tells a story that illustrates the danger of forgetting that past performance is never a reliable indicator of future outcomes: “Consider a turkey that is fed every day. Every … feeding [enhances] the bird’s [confidence] that it is the general rule of life [that humans always] ‘look… out for its best interests’ …. On the … [day] before Thanksgiving, something unexpected will happen to the turkey.” Taleb refers to that as a “Black Swan” event – an occurrence so low in probability that we ignore the risk, but so great in impact that it renders projections moot.
Corporations need to prepare for unexpected events, but government should provide certainty when possible.
In FCPA cases, we incentivize exemplary corporate conduct. If companies self-report violations, cooperate with investigations, and remediate harm, we reward them with a presumption that we will decline to pursue the company with criminal charges. Instead, we focus our limited resources on individuals, and on companies that fail to take compliance obligations seriously.
When criminal liability is not at issue and corporations seek expeditious resolutions, our attorneys should negotiate reasonable civil settlements that remedy the harm and deter future violations. If a company meaningfully assists the government’s investigation and candidly provides details about culpable officials and other employees most responsible for the misconduct, our civil attorneys have discretion to offer credit.
In all cases, we should make the punishment proportional to the violation. Companies in highly regulated industries may face multiple enforcement actions for the same conduct, so we try to ensure that corporate resolutions resulting from parallel or joint investigations are reasonable and proportionate.
If government agencies fail to coordinate and instead “pile on” with multiple penalties for the same conduct, it deprives the company of the certainty and finality available through a settlement. If a company seeks in good faith to resolve problems and move forward, it is appropriate when negotiating a settlement to consider the impact on innocent employees, customers, and investors, along with the need for deterrence. Resolving cases expeditiously and conclusively is also important because it allows government agencies to uncover and address new schemes instead of devoting additional enforcement resources to established violations.
We want our attorneys to coordinate their investigations to avoid the unnecessary imposition of duplicative fines, penalties, and forfeitures. We also try to coordinate with other federal, state, local, and foreign enforcement authorities that want to resolve potential claims arising from the same misconduct.
Before I conclude, I want to talk about the importance of compliance programs, because law enforcement agencies achieve deterrence only indirectly. We prosecute criminal wrongdoing after it occurs. But a company with a robust compliance program can prevent corruption and eliminate the need for enforcement.
Most American companies take seriously their obligation to avoid illegal business practices. They want to do the right thing. They need our help to protect them from devious competitors that seek unfair advantages by breaking the law.
To reduce white collar crime, we need to encourage companies to report suspected wrongdoing to law enforcement, and to resolve any liability expeditiously.
Corporate America should regard law enforcement as an ally. In turn, the government should provide incentives for companies to engage in ethical behavior and to assist in federal investigations. Law enforcement efforts are most effective when we build bridges with law-abiding businesses.
The government should provide incentives for companies to engage in ethical corporate behavior. That means notifying law enforcement about wrongdoing, cooperating with government investigations, remedying past misconduct, and preventing future misconduct by implementing a robust compliance program.
The safest communities are self-policing. They do not rely on continual government enforcement.
We should encourage and support the development of self-policing mechanisms for corporate crime. Law enforcement agencies should give the greatest consideration to companies that establish effective compliance programs in advance, because it frees our agents and prosecutors to focus on people who commit more serious financial crimes or pose other threats to America. The fact that some misconduct occurs shows that a program was not foolproof, but that does not necessarily mean that it was worthless. We can make objective assessments about whether programs were implemented in good faith.
In all cases, compliance mitigates risk, making companies more valuable and less likely to encounter unanticipated costs from protracted investigations and penalties. When a company establishes a culture of integrity, it creates value. Compliance is an investment. Ethical, law-abiding companies attract better investors, employees, and customers. People want to do business with companies that are honest and reliable.
An effective compliance program is not just about a written policy or a regular training program. Companies should focus on how their compliance programs work in practice.
In Shakespeare’s play Henry the Fourth, a prince brags about his ability to call up ghosts. He proudly claims: “I can summon spirits from the vasty deep.” His skeptical friend mockingly replies, “Why, so can I, or so can any [one]; But [the question is,] will they come when you … call for them?”
Similarly, just talking about compliance is meaningless. A culture of compliance needs to be integrated into corporate policies. Employees should be trained and encouraged to think about compliance issues when making business decisions, and there should be regular audits to identify problems.
Finally, in the spirit of promoting a culture of integrity, I want to leave you with the wisdom of this ancient proverb: if you desire to know a person’s character, consider his friends. You can help protect your business by using caution when selecting associates and by ensuring appropriate oversight. Always make sure that you can stand proudly with the company you keep.
Monday, March 11, 2019
Council for the Control of Financial Activities - COAF (DECREE No. 9.663, OF JANUARY 1, 2019)
STATUTE OF THE FINANCIAL ACTIVITIES CONTROL COUNCIL - COAF
NATURE AND PURPOSE
Article 1. The Council for the Control of Financial Activities - Coaf, a collective deliberation body with jurisdiction in the national territory, created by Law No. 9,613 of March 3, 1998 , part of the structure of the Ministry of Justice and Public Security, with headquarters in Federal District has the purpose of disciplining, administering administrative penalties, receiving, examining and identifying suspicious occurrences of illicit activities provided for in said Law, without prejudice to the jurisdiction of other public bodies and entities.
Paragraph 1 - The Coaf may maintain decentralized centers, using the infrastructure of the regional units of the bodies to which the Directors belong, with a view to adequate coverage of the national territory.
Paragraph 2. The Coaf may conclude technical cooperation agreements and agreements with public entities or private entities, in order to carry out the duties provided for in Law No. 9,613 of 1998.
OF THE ORGANIZATION
Art. 2 The Council for the Control of Financial Activities - Coaf has the following structure:
I - Plenary;
II - President;
III - Cabinet;
IV - Executive Secretariat;
V - Financial Intelligence Directorate; and
VI - Supervisory Board.
Single paragraph. The Executive Secretary and the Directors shall be appointed by the President of the Coaf and appointed by the Minister of State for Justice and Public Security.
From the composition of the Plenary
Article 3. The Plenary shall be chaired by the President of the Coaf and composed of public servants with an unblemished reputation and recognized competence in the area, chosen from among the members of the effective staff of the following organs and entities:
I - Central Bank of Brazil;
II - Brazilian Securities Commission;
III - Private Insurance Superintendence;
IV - Attorney General of the National Treasury;
V - Special Secretariat of the Federal Revenue of Brazil;
VI - Brazilian Intelligence Agency;
VII - Ministry of Foreign Affairs;
VIII - Ministry of Justice and Public Security;
IX - Federal Police;
X - National Superintendence of Complementary Pensions of the Ministry of Economy; and
XI - Comptroller General of the Union.
Single paragraph. The Councilors shall be appointed by the respective Ministers of State and appointed by the Minister of State for Justice and Public Security.
Art. 4 The Coaf Plenary will have the support of the Executive Secretariat, the Financial Intelligence Board and the Supervisory Board.
From the position of President
Art. 5 The office of President of the Coaf is of exclusive dedication, not admitting any accumulation, except those constitutionally allowed.
Paragraph 1 - The provisions of paragraph 1 and paragraph 2 of art. 6, as well as in art. 7th.
Paragraph 2. The President of the Coaf shall be appointed by the President of the Republic, by appointment of the Minister of State for Justice and Public Security.
From the term of Counselor
Art. 6 The term of office of the Directors shall be three years, with a re-appointment.
Paragraph 1 - The Directors shall lose their term of office in the following cases:
I - absolute civil incapacity;
II - criminal conviction in a final judgment;
IV - loss of the effective position in the organ of origin or retirement; or
V - violation of the provisions of art. 7th.
- 2 The member of the Plenary who is unjustifiably absent from three consecutive regular meetings or ten interim meetings shall automatically lose his term of office.
- 3 In the event of loss of office or resignation of Board member, a substitute shall be appointed, who shall serve a regular term, observing the provisions of thecaput .
Paragraph 4. The function of Director shall be exercised without prejudice to the regular attributions in the organs of origin.
From the fences
Art. 7 - The President, the Board Members and the servants in office in Coaf are prohibited:
I - to participate, in the form of controller, administrator, preposto or agent manager, of legal entities with related activities in the caput and in the sole paragraph of art. 9 of Law 9,613 of 1998 ;
II - to issue an opinion on matters relating to its specialization, outside of its functional attributions, even if in theory or acting as a consultant to the legal entities referred to in item I of the caput ;
III - to express, in any medium, an opinion on a pending trial in the Plenary; and
IV - to provide or divulge information of a confidential nature, known or obtained as a result of the exercise of its functions, including to its organs of origin.
COMPETENCES AND TASKS
The competence of the Plenary
Article 8 The Plenary shall be responsible for:
I - to ensure compliance with the pertinent legislation, the Statute of the Coaf and the Internal Regulations of Coaf;
II - to discipline the subject of its competence, under the terms of Law no. 9.613, of 1998 ;
III - decide on infractions and apply the administrative penalties provided for in art. 12 of Law No. 9,613, of 1998 , to the individuals and legal entities referred to in art. 9 of the aforementioned Law , for which there is no own supervisory or regulatory body;
IV - issuing the instructions for the individuals and legal entities referred to in item III;
V - to elaborate the list of transactions and suspicious transactions, according to the terms of § 1º of art. 11 of Law No. 9,613 of 1998 ;
VI - to express its views on proposals for international agreements, within its sphere of competence, and to hear, when applicable, the other public bodies or entities involved in the matter;
VIII - to regulate the situations in which the summary rite defined in the Internal Rules of the Coaf applies; and
IX - delegate to the President of the Coal jurisdiction to judge the merits of administrative procedures sanctioning the infractions provided for in item IV of the caput of art. 10 and item III of the caput of art. 11 of Law 9,613 of 1998 .
The duties of the President
Art. 9º The President of Coaf is responsible for:
I - to preside, with voting rights, including the one of quality, the meetings of the Coaf Plenary;
II - to edit the normative and regulatory acts necessary to improve the Coaf's work;
III - to convene meetings and determine the organization of the agenda;
IV - to sign the official acts of the Coaf and the decisions of the Plenary;
V - guide the administrative activities of Coaf;
VI - officiate the competent authorities;
VII - appoint an expert, to assist in the activities of the Plenary, when the matter demands specific technical knowledge;
VIII - invite representatives of public or private bodies or entities to participate in meetings, without voting rights, observing the guest's reservation of information of a restricted and confidential nature.
IX - represent the Coaf before the Public Powers and other authorities, including international authorities;
X - execute and enforce decisions of the Plenary;
XI - to promote the exchange of information on financial intelligence, articulation and institutional cooperation with relevant authorities, including from other countries and international organizations, in the prevention and combating of money laundering and terrorist financing;
XII - deliberate ad referendum of the Plenary on the matters of competence of the Plenary, in cases of urgency and of relevant interest;
XIII - promote, in articulation with the other Coaf leaders, integrity, internal control and management of institutional risks; and
XIV - to ensure, together with the other officers and servants, the institutional image of Coaf.
Responsible for the Executive Secretariat
Article 10. The Executive Secretariat shall:
I - conduct the activities of organizational management, development and innovation within Coaf;
II - conduct administrative, document and archive management activities related to Coaf activities;
III - to conduct the information technology management activities of Coaf;
IV - coordinate the management of institutional security;
V - to guide, coordinate and supervise the activities of attendance to the public, to the supervised ones, the regulators and the competent authorities;
VI - to coordinate and supervise the administrative activities of Coaf;
VII - assist the President in the definition of guidelines and in the implementation of the actions of the area of competence of Coaf; and
VIII - perform other duties committed by the Plenary or by the President.
Responsible for the Financial Intelligence Board
Art. 11. The Financial Intelligence Board is responsible for:
I - to receive, from the persons referred to in art. 9 of Law 9,613 of 1998 , communications of suspicious operations or in kind, to examine and identify the suspected occurrences of illicit activities provided for in said Law;
II - to receive reports, including anonymous, regarding operations considered suspicious;
III - disseminate information to the competent authorities when there is suspicion of criminal offenses or indications of their practice;
IV - manage data and information;
V - require information maintained in the databases of public and private bodies and entities;
VI - share information with competent authorities of other countries and international organizations;
VII - to coordinate and propose mechanisms for cooperation and exchange of information, in Brazil and abroad, to enable swift and efficient actions to prevent and combat money laundering and terrorist financing; and
VIII - requesting information and documents from the persons referred to in art. 9 of Law 9,613 of 1998 .
Responsible for the Supervisory Board
Art. 12. The Supervisory Board is responsible for:
I - supervise the fulfillment of the obligations to prevent and combat money laundering and the financing of terrorism by the persons referred to in art. 9 of Law 9,613, of 1998 , for which there is no own supervisory or regulatory body;
II - to propose to the Plenary the edition of norms applicable to the people mentioned in art. 9 of Law 9,613, of 1998 , for which there is no own supervisory or regulatory body;
III - to register the work of the Plenary on a permanent basis, and to respond to requests for information and documents that are of interest to the administrative sanctioning process;
IV - to decide on the filing of preliminary investigation or for the institution of administrative sanctioning process;
V - to sign subpoenas in the sanctioning administrative processes;
VI - to decide on the granting of delay of time in the scope of administrative sanctioning processes, except in the hypotheses of competence of the Reporting Counselor;
VII - determine the publication of an act and decision in the scope of administrative sanctioning processes;
VIII - to coordinate with the regulatory bodies, the communicating institutions and the competent authorities on measures related to the prevention and combating of money laundering and the financing of terrorism; and
IX - to request information and documents from the obligated persons listed in art. 9 of Law 9,613 of 1998 .
The duties of the Directors
Article 13. The Directors are responsible for:
I - cast votes in the processes and issues submitted to the Plenary;
II - to issue orders and make decisions in the cases in which they are rapporteurs;
III - request the Supervisory Board for information and documents that may be of interest to the administrative sanctioning process of which it is a rapporteur, observing the legal secrecy, as well as to determine the steps that are necessary for the exercise of its functions;
IV - to fulfill the other tasks assigned to them in the Internal Rules of Coaf; and
V - perform other duties committed by the Plenary or the President.
From the common attributions of the
Art. 14. The Executive Secretary, the Director of Financial Intelligence and the Supervisory Director are jointly responsible for:
I - to advise the President of the Coaf on matters related to their respective areas of activity;
II - to attend the ordinary and extraordinary sessions of the Plenary;
III - to define, plan and evaluate, together with the President, the general guidelines of Coaf's performance and verify, within the respective subordinate units, its compliance;
IV - to define the priorities of action of the respective areas of action, according to the strategic guidelines, and to monitor the fulfillment of the goal plan by the respective subordinate units;
V - verify compliance with the determinations of the President and the institutional mission of Coaf;
VI - to edit operational norms related to the subjects related to their respective attributions; and
VII - ensure, together with the President and other servants, the institutional image of Coaf.
THE EXCHANGE OF INFORMATION
Art. 15. The Central Bank of Brazil, the Securities Commission, the Superintendency of Private Insurance, the Federal Police Department, the Brazilian Intelligence Agency and other public bodies and entities with powers to supervise and regulate the persons treat the art. 10 and art. 11 of Law No. 9.613 of 1998 , will provide the information and collaboration necessary to fulfill the duties of the Coaf.
- 1 The exchange of confidential information between the Coaf and the bodies mentioned in thecaput implies transfer of responsibility for the preservation of confidentiality.
Paragraph 2. The bodies referred to in the caput shall establish mechanisms for the compatibility of their data systems in order to facilitate the exchange of electronic information.
Art. 16. The Coaf may share information with relevant authorities of other countries and international organizations, based on reciprocity or agreements.
Art. 17. Received the request for information regarding the criminal infractions foreseen in art. 1 of Law No. 9,613 of 1998 , from a competent authority or body of another country, the Coaf shall respond to the request or refer it, if necessary, to the competent bodies, so that appropriate measures may be taken to comply with the request.
OF THE ADMINISTRATIVE PROCESS
Art. 18. The sanctioning administrative process constitutes a supervisory instrument and will be instituted in cases where there are verified indications of the occurrence of administrative infractions foreseen in Law No. 9,613 of 1998 , observing the principles of legality, purpose, motivation , reasonableness, proportionality, morality, ample defense, adversarial proceedings, legal certainty, public interest and efficiency, among others.
Single paragraph. The Central Bank of Brazil, the Securities Commission, the Superintendency of Private Insurance and other public bodies or entities responsible for applying administrative penalties provided for in art. 12 of Law No. 9,613 of 1998 , shall observe their procedures and, where applicable, the provisions of these Bylaws.
Art. 19. The Coaf may conduct preliminary inquiries, in a reserved capacity.
Art. 20. Upon completion of the preliminary investigations, the Coaf, through the Supervisory Board, shall propose the establishment of the administrative sanctioning process or determine its closure and, in this case, submit the decision to the superior review.
Article 21. The sanctioning administrative process shall be instituted within thirty working days, counted from the date of knowledge of the infraction, of the receipt of the communications referred to in item II of the caput of art. 11 of Law 9,613 of 1998 , or the knowledge of the conclusions of the preliminary investigations, by a reasoned act of the Director of Supervision of Coaf.
Article 22. The accused will be summoned to present a defense within a period of fifteen days, counting from the date of receipt of the summons, and must present the evidence of his interest, being able to present new documents at any time, before the conclusion of the procedural instruction .
Paragraph 1 - The summons shall contain the entire content of the act of initiating the administrative sanctioning process.
Paragraph 2. The summons of the accused shall be made by post or other electronic form of communication, with notice of receipt, or, if the summons by these forms is not successful, by a notice published only once in the Official Gazette of the Union, counting the deadline referred to in the main section of the date of receipt of the subpoena or the publication of the notice, as applicable.
Paragraph 3. The defendant may monitor the administrative process in person or by electronic means, in person or by his / her legal representative, in the event of being a legal entity, or by a legally qualified lawyer, ensuring broad access to the process.
Art. 23. It will be considered revealed the accused who, after summons, does not present defense within the deadline referred to in art. 22, incurring in confession as to the matter of fact, against him running the other deadlines, regardless of new subpoena.
Single paragraph. The revel can intervene in the process, at any stage, without the right to repeat the act already practiced.
Art. 24. Once the deadline for the presentation of the defense has been reached, the authority responsible for conducting the proceedings may determine the execution of the proceedings and the production of evidence of interest in the proceeding, with the possibility of requesting new information from the accused, clarifications or documents, to be submitted within the period fixed by the requesting authority, maintaining the legal secrecy, when applicable.
Article 25. The decision shall be rendered within sixty days, counted from the date of completion of the instruction.
Article 26. The Coaf and the public bodies and entities responsible for applying the administrative penalties provided for in Law No. 9,613 of 1998 will monitor compliance with its decisions.
- 1 In case of non-compliance with the decision, in whole or in part, the fact shall be communicated to the competent authority, which shall determine measures for judicial enforcement.
Paragraph 2 - The Coaf shall be represented by the Union Attorney.
Article 27. Decisions of the Coaf Plenary shall be appealed to the Appeals Council of the National Financial System.
Art. 28 Act of the Minister of State for Justice and Public Security shall provide for the supplementary rules for the regulation of administrative sanctioning in Coaf, in compliance with the provisions of Law No. 9.613 of 1998 .
FINAL AND TRANSITIONAL PROVISIONS
Article 29. The expenses with the operation of the Coaf will be at the expense of the Ministry of Justice and Public Security.
Art. 30. The Advocate-General of the Union shall appoint a member of the Union's Advocacy General, who shall act jointly with the Coaf.
Art. 31. The organization and functioning of the Coaf, the competencies of the units and the attributions of the leaders shall be established in Internal Rules, approved by an act of the Minister of State for Justice and Public Security.
Sunday, March 10, 2019
U.S. Obtains Over $25 Million in Forfeited Funds as Part of a Successful Effort to Root Out Fraud and Corruption in Government Contracting in Afghanistan
The Department of Justice has reached a settlement of its civil forfeiture case against assets owned by Hikmatullah Shadman that he wrongfully acquired as a government contractor in Afghanistan. Under the terms of the settlement, approximately $25 million will be forfeited to the United States. The civil settlement is part of a global settlement that involved the resolution of a criminal case and False Claims Act allegations.
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, Assistant Attorney General Jody Hunt of the Department’s Civil Division, U.S. Attorney Robert J. Higdon Jr. for the Eastern District of North Carolina, Inspector General John F. Sopko of the Special Inspector General for Afghanistan Reconstruction (SIGAR), Director Frank Robey of the U.S. Army Criminal Investigation Command (CID)’s Major Procurement Fraud Unit, Special Agent in Charge Robert E. Craig Jr. of the Defense Criminal Investigative Service (DCIS) Mid-Atlantic Field Office and Special Agent in Charge John Strong of the FBI North Carolina Field Office made the announcement after the settlement was signed and filed with the U.S. District Court for the District of Columbia.
“The United States relies on government contractors to supply and resupply our military with vital resources they require to carry out critical missions,” said Assistant Attorney General Hunt. “We will continue to ensure that companies and individuals who contract directly or indirectly with the federal government do not engage in fraudulent business practices at the expense of our nation’s military and the American taxpayer.”
“The success of our overseas war and reconstruction efforts is tied directly to the trust and respect established with the local populace,” said U.S. Attorney Higdon. “Corruption in our military operations undermines those efforts and cannot be tolerated.”
“This case involved fraud and corruption that exploited subcontracts designed to support American troops in a conflict zone,” said Special Inspector General John F. Sopko. “I’m proud of the tenacity displayed by SIGAR special agents, whose dogged pursuit of justice led to the return of $25 million to the United States Treasury.”
According to court documents, Hikmatullah Shadman, a young Afghan national, operated several companies including Hikmat Shadman Logistics Services Company (HSLSC), which served as subcontractors delivering supplies to U.S. service members at various locations in Afghanistan. From November 2010 to March 2012, Shadman charged the United States more than $77 million for delivering supplies to U.S. service members. The civil forfeiture case, initially filed on Nov. 20, 2012, targeted, among other things, Shadman’s fraudulent receipt of a disproportionate number of subcontracts for the transport of military supplies in Afghanistan, as well as the inflated prices that he charged the United States for such transport.
From at least 2007 to 2012, the U.S. Government paid contractors and subcontractors to resupply U.S. military forces operating in Afghanistan, and utilized local Afghan-owned businesses to transport fuel and other supplies by truck to various locations throughout the country. The investigation revealed thousands of apparent falsified documents submitted by Shadman’s companies to the United States for payment. As a result of this falsification, the Government often paid Shadman for work that was never performed and for work other than that described in the documentation submitted. Through his companies, Shadman also charged the United States rates which were well above the average rate of his competitors. The forensic analysis conducted in this case revealed that Shadman overcharged the United States millions of dollars for transporting supplies to U.S. service members in Afghanistan.
As part of the global settlement, several companies owned and controlled by Shadman, including HSLSC, entered into a separate agreement with the United States to resolve False Claims Act allegations arising from kickbacks paid from November 2010 to May 2012 to obtain subcontracts to transport military supplies needed by the U.S. military in Afghanistan. Under the agreement, $1.5 million of the forfeited funds will be paid to resolve these claims.
In addition to the civil forfeiture and False Claims Act resolutions, Shadman’s primary company, HSLSC, was criminally prosecuted by the U.S. Attorney’s Office in the Eastern District of North Carolina. On Jan. 3, HSLSC pleaded guilty to a criminal information, No. 5:18-cr-492-1, charging the corporation with two counts of paying gratuities to two U.S. service members in Afghanistan, and one count of conspiracy to do the same, in order to influence the award of subcontracts to HSLSC and to ensure favorable treatment in the contracting process. In this criminal case, HSLSC was sentenced to pay an $810,000 fine and forfeit $190,000. Under the terms of the civil settlement agreement agreed to by the parties, those funds will be paid to the United States before the civil settlement is concluded. As part of the criminal case, HSLSC also agreed to be placed on probation for five years, not to contest debarment, not to seek to engage in business within the United States, and its corporate officers agreed not to apply for a visa to travel to the United States.
“The corporate plea and the civil settlement filed today once again demonstrates that defrauding the government is a losing proposition,” said Director Robey of the U.S. Army CID’s Major Procurement Fraud Unit. “Stealing U.S. tax dollars meant to support our soldier’s readiness is an egregious abuse of trust. We, along with our law enforcement partners, will continue to protect the U.S. military from unscrupulous businesses.”
“DCIS will aggressively investigate complex fraud and corruption that undermines the integrity of the Department of Defense (DoD) no matter where it happens or how long it takes,” said DCIS Special Agent in Charge Craig. “We hope that this case demonstrates the commitment of DCIS and our law enforcement partners to use every available option to protect valuable DoD resources around the world and better enable our Warfighters to accomplish our critical global missions.”
This civil forfeiture case was brought under the Kleptocracy Asset Recovery Initiative by a team of dedicated prosecutors in the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), working in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered assets to benefit the people harmed by these acts of corruption and abuse of office. Individuals with information about possible proceeds of foreign corruption located in or laundered through the United States should contact federal law enforcement or send an email to firstname.lastname@example.org.
The investigation was conducted by SIGAR along with the FBI, DCIS, the U.S. Army Major Procurement Fraud Unit, and the U.S. Air Force Office of Special Investigations, and was prosecuted by Trial Attorneys Patricia Kessler and Steven Parker of MLARS International Unit, and Assistant U.S. Attorney Elizabeth Aloi of the District of Columbia (formerly of MLARS). The HSLSC criminal case was prosecuted by Assistant U.S. Attorney Banu Rangarajan of the Eastern District of North Carolina.
The civil False Claims Act imposes treble damages and penalties on those who knowingly submit false or fraudulent claims for government funds or property. The False Claims Act investigation was handled by Trial Attorney Glenn Harris of the Department’s Civil Division, Commercial Litigation Branch, Fraud Section, and Assistant U.S. Attorneys John Truong and Heather Graham Oliver of the U.S. Attorney’s Office for the District of Columbia.
Friday, March 8, 2019
Three Former Mozambican Government Officials and Five Business Executives Indicted in Alleged $2 Billion Fraud and Money Laundering Scheme That Victimized U.S. Investors
BROOKLYN, NY – An indictment was unsealed on March 4, 2019, charging Najib Allam, an executive of the Privinvest family of maritime services companies, and Teofilo Nhangumele and Antonio do Rosario, former Mozambican government officials, for their roles in a $2 billion fraud and money laundering scheme that victimized investors in the United States and around the world. The indictment was previously unsealed on January 3, 2019 as to co-defendants Jean Boustani, a Privinvest executive, Manuel Chang, the former Finance Minister of Mozambique, and Andrew Pearse, Surjan Singh and Detelina Subeva, former high-ranking investment bankers at an international investment bank (the Investment Bank). Each defendant is charged with wire fraud conspiracy and money laundering conspiracy. In addition, Boustani, Allam, Chang, do Rosario, Pearse, Singh and Subeva are charged with securities fraud conspiracy. Pearse, Singh and Subeva are also charged with conspiracy to violate the anti-bribery and internal controls provisions of the Foreign Corrupt Practices Act (FCPA).
Richard P. Donoghue, United States Attorney for the Eastern District of New York, Brian A. Benczkowski, Assistant Attorney General of the Justice Department’s Criminal Division, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI), announced the charges.
“As charged in the indictment, the defendants orchestrated an immense fraud and bribery scheme that took advantage of the United States financial system, defrauded its investors and adversely impacted the economy of Mozambique, in order to line their own pockets with hundreds of millions of dollars,” said United States Attorney Donoghue. “This indictment underscores the Department of Justice’s continuing efforts to end such fraudulent and corrupt practices and to hold those responsible to account for their crimes.”
“The indictment unsealed today alleges a brazen international criminal scheme in which corrupt Mozambique government officials, corporate executives, and investment bankers stole approximately $200 million in loan proceeds that were meant to benefit the people of Mozambique,” said Assistant Attorney General Benczkowski. “The Department of Justice and our law enforcement partners are dedicated to using all tools at our disposal to prosecute those who engage in money laundering, financial fraud and corruption at the expense of U.S. investors, wherever those individuals may be located.”
“Today’s indictment proves that no matter who you are, or what position of power you’re in, you’re not immune from prosecution,” stated FBI Assistant Director-in-Charge Sweeney. "The FBI will continue to use all resources at our disposal to uncover crimes of this nature and expose them for what they really are.”
The Fraudulent Scheme
The indictment alleges that between approximately 2013 and 2016, Boustani, Allam, Nhangumele, do Rosario, Chang, Pearse, Singh, Subeva and their co-conspirators ensured that the Investment Bank, and another foreign investment bank, would arrange for more than $2 billion to be extended, in three loans, to companies owned and controlled by the Mozambican government: Proindicus S.A. (Proindicus), Empresa Moçambicana de Atum, S.A. (EMATUM) and Mozambique Asset Management (MAM). The proceeds of the loans were intended to fund three maritime projects for which Privinvest was to provide the equipment and services. Specifically, Proindicus was to perform coastal surveillance, EMATUM was to engage in tuna fishing and MAM was to build and maintain shipyards.
Instead, the defendants and their co-conspirators illegally facilitated Privinvest’s criminal diversion of more than $200 million of the proceeds of the loans. These stolen funds included more than $150 million that Privinvest — at the direction of Boustani, Allam and others — used to bribe Chang, Nhangumele, do Rosario and other Mozambican government officials to ensure that companies owned and controlled by the Mozambican government would enter into the loan arrangements, and that the government of Mozambique would guarantee those loans. In addition, Privinvest diverted approximately $50 million in kickback payments to Pearse, Singh and Subeva, who assisted the co-conspirators to obtain financing for the loans through the Investment Bank and the other foreign investment bank. The loans were subsequently sold in whole or in part to investors worldwide, including in the United States. In doing so, the participants in the scheme conspired to defraud these investors by misrepresenting how the loan proceeds would be used, the amount and maturity dates of other financial obligations held by Mozambique and the ability of the government of Mozambique to repay the loans.
To date, the companies controlled by the government of Mozambique have failed to make more than $700 million of loan repayments that have become due.
Boustani, a citizen and resident of Lebanon and Antigua and Barbuda, was the lead salesperson and negotiator for Privinvest, and is charged for his role in coordinating the payment by Privinvest of more than $200 million in bribe and kickback payments to Mozambican government officials and investment bankers in order to facilitate the three loans. He is alleged to have personally received at least $15 million from the scheme. Boustani was arrested in Queens, New York on January 2, 2019 and arraigned later that day in federal court in Brooklyn. Boustani has pleaded not guilty to the charges, and a trial date has not yet been set.
Allam, a citizen of Lebanon, was the Chief Financial Officer of Privinvest, and is charged for his role in helping Boustani and others coordinate the payment by Privinvest of more than $200 million in bribe and kickback payments. Allam remains at large.
Nhangumele, a citizen and resident of Mozambique, acted in an official capacity on behalf of the President of Mozambique during the charged scheme, and is charged for his role in facilitating the payment by Privinvest of over $150 million to Mozambican government officials to gain approval for the maritime projects, and to cause Mozambique to borrow more than $2 billion from the two investment banks in government-guaranteed loans to finance the projects. Nhangumele has not yet been arrested on the charges in this indictment and Nhangumele is not currently in U.S. custody.
Do Rosario, a citizen and resident of Mozambique, held positions within the Mozambican government, including with the Mozambican state intelligence service, known as “SISE,” and managerial roles for each of the three state-owned entities formed to undertake the maritime projects that are the subject of the indictment. He is charged for his role in ensuring that Mozambique would undertake the maritime projects and award the contracts for those projects to Privinvest, and that Finance Minister Chang would issue government guarantees binding Mozambique to repay $2 billion in loans to undertake the projects. He is alleged to have personally received more than $12 million from the scheme. Do Rosario has not yet been arrested on the charges in this indictment and is not currently in U.S. custody.
Chang, a citizen and resident of Mozambique, was the former Finance Minister of Mozambique, and is charged for signing guarantees on behalf of Mozambique for the three corrupt loans. He is alleged to have personally received at least $5 million from the scheme. Chang was arrested on December 29, 2018, in South Africa, pursuant to a provisional arrest warrant issued at the request of the United States. The United States is seeking his extradition.
Pearse, a citizen of New Zealand, Singh, a citizen of the United Kingdom and Subeva, a citizen of Bulgaria, reside in the United Kingdom. At the time of the charged scheme, Pearse and Singh were managing directors, and Subeva was a vice president, of the Investment Bank. Each has been charged for facilitating bribe payments to government officials in Mozambique and for circumventing the internal accounting controls of the Investment Bank, which arranged two of the three loans. Pearse, Singh and Subeva were arrested on January 3, 2019, in the United Kingdom, pursuant to provisional arrest warrants issued at the request of the United States. The United States is seeking their extradition.
* * * * *
The charges in the indictment are allegations, and the defendants are presumed innocent until proven guilty.
The investigation is being conducted by the FBI’s New York Field Office. The government’s case is being handled by the Business and Securities Fraud Section of the United States Attorney’s Office for the Eastern District of New York (EDNY), the Criminal Division’s Money Laundering and Asset Recovery Section (MLARS) and the Fraud Section. Assistant United States Attorneys Matthew S. Amatruda and Mark E. Bini of the EDNY, Trial Attorneys Margaret Moeser and Sean W. O’Donnell of MLARS and Trial Attorney David M. Fuhr of the Fraud Section are prosecuting the case.
The Criminal Division’s Office of International Affairs provided critical assistance in this case. The Department appreciates the significant cooperation and assistance provided by the United States Securities and Exchange Commission. The Department also appreciates the assistance provided by law enforcement authorities in the United Kingdom and in South Africa.
Lebanon, Antigua and Barbuda
ANTONIO DO ROSARIO
E.D.N.Y. Docket No. 18-CR-681 (WFK)
Thursday, March 7, 2019
The Financial Action Task Force (FATF) is the global standard-setting body for anti-money laundering and combating the financing of terrorism (AML/CFT). In order to protect the international financial system from money laundering and financing of terrorism (ML/FT) risks and to encourage greater compliance with the AML/CFT standards, the FATF identifies jurisdictions that have strategic deficiencies and works with them to address those deficiencies that pose a risk to the international financial system.
Jurisdiction subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and financing of terrorism (ML/FT) risks.
Democratic People's Republic of Korea (DPRK)
The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threats they pose to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies. Further, the FATF has serious concerns with the threat posed by the DPRK’s illicit activities related to the proliferation of weapons of mass destruction (WMDs) and its financing
The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies, financial institutions, and those acting on their behalf. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with applicable United Nations Security Council Resolutions, to protect their financial sectors from money laundering, financing of terrorism and WMD proliferation financing (ML/FT/PF) risks emanating from the DPRK. Jurisdictions should take necessary measures to close existing branches, subsidiaries and representative offices of DPRK banks within their territories and terminate correspondent relationships with DPRK banks, where required by relevant UNSC resolutions.
Jurisdiction subject to a FATF call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risks arising from the jurisdiction.
In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in October 2018 to continue the suspension of counter-measures.
In November 2017, Iran established a cash declaration regime. In August 2018, Iran has enacted amendments to its Counter-Terrorist Financing Act and in January 2019, Iran has also enacted amendments to its Anti-Money Laundering Act. The FATF recognises the progress of these legislative efforts. The bills to ratify the Palermo and Terrorist Financing Conventions have passed Parliament, but are not yet in force. As with any country, the FATF can only consider fully enacted legislation. Once the remaining legislation comes fully into force, the FATF will review this alongside the enacted legislation to determine whether the measures contained therein address Iran’s Action Plan, in line with the FATF standards.
Iran’s action plan expired in January 2018. In February 2019, the FATF noted that there are still items not completed and Iran should fully address: (1) adequately criminalising terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) ensuring the full operational independence of the Financial Intelligence Unit and clarifying that the submission of STRs for attempted TF-related transactions are covered under Iran’s legal framework; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; and (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.
The FATF decided at its meeting this week to continue the suspension of counter-measures. While welcoming the passage of the Anti-Money Laundering Act, the FATF expresses its disappointment that the Action Plan remains outstanding and expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items by completing and implementing the necessary AML/CFT reforms.
If by June 2019, Iran does not enact the remaining legislation in line with FATF Standards, then the FATF will require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. The FATF also expects Iran to continue to progress with enabling regulations and other amendments.
Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.
Wednesday, March 6, 2019
CFTC Division of Enforcement Issues Advisory on Violations of the Commodity Exchange Act Involving Foreign Corrupt Practices
The Commodity Futures Trading Commission (CFTC) Division of Enforcement today announced March 6, 2019 an Enforcement Advisory on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices. CFTC’s Enforcement Director James McDonald announced the new Advisory in remarks he made today at the American Bar Association’s National Institute on White Collar Crime. Download FCPAenfadvisoryselfreporting030619
“Combatting misconduct that affects our financial markets has truly become a team effort, and that is particularly true with respect to foreign corrupt practices,” said McDonald. “We at the CFTC will do our job as part of the team to identify this type of misconduct in our markets and hold wrongdoers accountable, working closely with our enforcement partners domestically and abroad. This new Enforcement Advisory provides further clarity surrounding the benefits of self-reporting misconduct, full cooperation, and remediation in this context, and it reflects the enhanced coordination between the CFTC and our law enforcement partners like the Department of Justice.”
Brian A. Benczkowski, Assistant Attorney General of the Department of Justice’s Criminal Division, said “Together with the Department’s Corporate Enforcement Policy, CFTC’s Advisory on self-reporting and cooperation will make clear to companies the significant benefits of voluntarily self-disclosing misconduct, fully cooperating with the government’s investigation, and remediating the misconduct. We look forward to working in parallel with the CFTC in cases involving foreign corrupt practices, as well as others.”
In prior Advisories, the Enforcement Division has made clear that it gives substantial credit for self-reporting and cooperation in determining, among other things, the appropriate level of sanctions to impose or seek. With today’s Advisory, the Enforcement Division builds on that foundation to further incentivize individuals and companies to self-report misconduct, cooperate fully in CFTC investigations and enforcement actions, and appropriately remediate to ensure the wrongdoing does not happen again.
Bankrate Inc.’s Successor in Interest Agrees to Pay $28 Million to Resolve Securities and Accounting Fraud Charges
Baton Holdings LLC, as the successor in interest to Bankrate Inc., a financial services and marketing company (Bankrate), has entered into a nonprosecution agreement and agreed to pay $28 million in combined monetary penalties and restitution to resolve the government’s investigation into a complex accounting and securities fraud scheme carried out by former executives of Bankrate. Download Bankrate Non-Prosecution Agreement
Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida and Inspector in Charge Delany DeLeon-Colon of the U.S. Postal Inspection Service made the announcement.
Bankrate admitted in the resolution documents that former executives engaged in a complex scheme to artificially inflate Bankrate’s earnings through so-called “cookie jar” or “cushion” accounting, whereby millions of dollars in unsupported expense accruals were purposefully left on Bankrate’s books and then selectively reversed in later quarters to boost earnings. In addition, Bankrate admitted that former executives misrepresented certain company expenses as “deal costs” in order to artificially inflate publicly reported adjusted earnings metrics, and also made materially false statements to Bankrate’s independent auditors to conceal the improper accounting entries. As a result of the scheme, Bankrate admitted that the fraudulent conduct caused Bankrate’s shareholders to suffer at least $25 million in losses. According to the resolution documents, Red Ventures Holdco LP, which acquired Bankrate in November 2017 after the securities and accounting fraud scheme took place, also agreed to certain terms and obligations under the agreement but had no involvement in the underlying criminal conduct.
“Today’s resolution with Bankrate’s successor in interest—together with the previously announced convictions of the company’s CFO and vice president of finance—closes the books on an accounting fraud that caused more than $25 million in losses to the company’s shareholders,” said Assistant Attorney General Benczkowski. “This case reflects the Department’s commitment to holding both individuals and institutions accountable for fraudulent conduct, and to obtaining restitution for the victims of fraud.”
“The U.S. Postal Inspection Service has an extensive history of investigating complex financial fraud schemes in order to protect investors as well as the integrity of the financial marketplace from fraudulent activities by trusted insiders who abuse their positions,” said Inspector in Charge DeLeon-Colon. “Anyone who engages in this type of financial fraud scheme should know they will be found and they will be held accountable.”
Bankrate Inc.’s former CFO, Edward J. DiMaria, previously pleaded guilty for his role in the scheme and was sentenced by Chief U.S. District Judge K. Michael Moore of the Southern District of Florida to serve 10 years in prison and ordered to pay $21,234,214 in restitution. Hyunjin Lerner, Bankrate’s former vice president of finance, also previously pleaded guilty for his role in the scheme and was sentenced by Judge Moore to serve 30 months in prison and ordered to pay $21,234,214 in restitution.
The U.S. Postal Inspection Service’s Washington, D.C. Division investigated the case. Principal Assistant Chief Henry Van Dyck and Trial Attorneys Emily Scruggs and Jason Covert of the Criminal Division’s Fraud Section prosecuted the case, with assistance from the U.S Attorney’s Office for the Southern District of Florida. The SEC also provided assistance in this matter.
Potential victims of the scheme can find information about their rights under relevant law at the following website: https://www.justice.gov/criminal-vns/case/edward-j-dimaria.
Tuesday, March 5, 2019
As part of its ongoing review of compliance with the AML/CFT standards, the FATF identifies the following jurisdictions that have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF. While the situations differ among each jurisdiction, each jurisdiction has provided a written high-level political commitment to address the identified deficiencies. The FATF welcomes these commitments.
A number of jurisdictions have not yet been reviewed by the FATF. The FATF continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system.
The FATF and the FATF-style regional bodies (FSRBs) will continue to work with the jurisdictions noted below and to report on the progress made in addressing the identified deficiencies. The FATF calls on these jurisdictions to complete the implementation of action plans expeditiously and within the proposed timeframes. The FATF will closely monitor the implementation of these action plans and encourages its members to consider the information presented below.
Jurisdictions with strategic deficiencies
Since October 2018, when The Bahamas made a high-level political commitment to work with the FATF and CFATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, The Bahamas has taken steps towards improving its AML/CFT regime, including by enacting the Beneficial Ownership Law and issuing Codes of Practice for lawyers, accountants, and the real estate sector. The Bahamas should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) developing and implementing a comprehensive electronic case management system for international cooperation; (2) demonstrating risk-based supervision of non-bank financial institutions; (3) ensuring the timely access to adequate, accurate and current basic and beneficial ownership information; (4) increasing the quality of the FIU’s products to assist LEAs in the pursuance of ML/TF investigations, specifically complex ML/TF and stand-alone ML investigations; (5) demonstrating that authorities are investigating and prosecuting all types of money laundering, including complex ML cases, stand-alone money laundering, and cases involving proceeds of foreign offences; (6) demonstrating that confiscation proceedings are initiated and concluded for all types of ML cases; and (7) addressing gaps in the TF and PF TFS frameworks and demonstrating implementation.
Since October 2018, when Botswana made a high-level political commitment to work with the FATF and ESAAMLG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Botswana has taken steps towards improving its AML/CFT regime, including by commencing online STR filing by some types of reporting entities. Botswana should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) assessing the risks associated with legal persons, legal arrangements, and NPOs, and developing and implementing a risk-based comprehensive national AML/CFT strategy; (2) developing and implementing risk-based AML/CFT supervisory manuals; (3) improving its analysis and dissemination of financial intelligence by the FIU, and enhancing the use of financial intelligence among the relevant law enforcement agencies; (4) developing and implementing CFT strategy, and ensuring the TF investigation capacity of the law enforcement agencies; (5) ensuring the implementation without delay of targeted financial sanctions measures related to terrorist financing and proliferation financing, and (6) applying a risk-based approach to monitoring non-profit organisations.
In February 2019, Cambodia made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. Cambodia will work to implement its action plan to accomplish these objectives, including by: (1) providing a broad legal basis for MLA and conducting relevant training to LEAs; (2) implementing risk-based supervision for real estate and casinos; (3) implementing the risk-based supervision to banks, including through prompt, proportionate and dissuasive enforcement actions, as appropriate; (4) amending the AML/CFT Law to address the remaining technical compliance deficiencies; (5) conducting sector-specific outreach to casinos, real-estate and MVTS providers; (6) increasing its FIU resources; enhancing its analysis of STRs; and increasing disseminations to LEAs; (7) increasing domestic coordination and cooperation to enhance ML investigations; (8) demonstrating an increase in ML investigations and prosecutions; and providing targeted proceeds of crime confiscation training to all LEAs; (9) demonstrating an increase in the freezing and confiscation of criminal proceeds, instrumentalities, and property of equivalent value; (10) establishing the legal framework to implement UN sanctions related to PF TFS, demonstrating that implementation is occurring and enhancing the understanding of sanctions evasion.
Since February 2017, when Ethiopia made a high-level political commitment to work with the FATF and ESAAMLG to strengthen its effectiveness and address any related technical deficiencies, Ethiopia has taken steps towards improving its AML/CFT regime, including by commencing outreach to FIs and DNFBPs on its draft targeted financial sanctions obligations related to proliferation financing. Ethiopia should continue to work on implementing its action plan to address its strategic deficiencies, including by establishing and implementing proliferation financing-related targeted financial sanctions.
Since October 2018, when Ghana made a high-level political commitment to work with the FATF and GIABA to strengthen the effectiveness of its AML/CFT regime, Ghana has taken steps towards improving its AML/CFT regime, including by raising awareness on risk-based supervision in the financial sector and developing templates to collect and maintain statistics on TF investigations. Ghana should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) developing and implementing a comprehensive national AML/CFT Policy based on the risks identified in the NRA, including measures to mitigate ML/TF risks associated with the legal persons; (2) improving risk-based supervision, by enhancing the capacity of the regulators and the awareness of the private sector; (3) ensuring the timely access to adequate, accurate and current basic and beneficial ownership information; (4) ensuring the focused actions of the FIU in accordance with the risks identified by the NRA, and adequate resource allocation to the FIU; (5) ensuring adequate and effective investigation and prosecution of TF; and (6) applying a risk-based approach for monitoring non-profit organisations.
Since June 2018, when Pakistan made a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime and to address its strategic counter-terrorist financing-related deficiencies, Pakistan has taken steps towards improving its AML/CFT regime, including by operationalising the integrated database for its currency declaration regime. Pakistan has revised its TF risk assessment; however, it does not demonstrate a proper understanding of the TF risks posed by Da’esh, AQ, JuD, FiF, LeT, JeM, HQN, and persons affiliated with the Taliban. Pakistan should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) adequately demonstrating its proper understanding of the TF risks posed by the terrorist groups above, and conducting supervision on a risk-sensitive basis; (2) demonstrating that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions have an effect on AML/CFT compliance by financial institutions; (3) demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS); (4) demonstrating that authorities are identifying cash couriers and enforcing controls on illicit movement of currency and understanding the risk of cash couriers being used for TF; (5) improving inter-agency coordination including between provincial and federal authorities on combating TF risks; (6) demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of TF activity and that TF investigations and prosecutions target designated persons and entities, and persons and entities acting on behalf or at the direction of the designated persons or entities; (7) demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions and enhancing the capacity and support for prosecutors and the judiciary; and (8) demonstrating effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267 and 1373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services; (9) demonstrating enforcement against TFS violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases; (10) demonstrating that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources. Given the limited progress on action plan items due in January 2019, the FATF urges Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019.
Since February 2018, Serbia made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. The FATF has made the initial determination that Serbia has completed its action plan and warrants an on-site assessment to verify that the implementation of Serbia’s AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future. Specifically, Serbia has made the following key reforms: (1) updating its NRA to developing a better understanding of key risks; (2) subjecting lawyers, notaries, and casinos to supervision; implementing risk-based AML/CFT supervision, and increasing supervisory staff resources commensurate with sectoral risks; (3) implementing measures related to CDD, politically exposed persons, and wire transfers in line with the FATF Standards; (4) establishing an effective mechanism for ensuring timely access to beneficial ownership information regarding legal persons, and a framework to ensure that such information is accurate, and current; (5) ensuring adequate and effective investigation and prosecution of third-party and stand-alone ML; (6) ensuring the implementation without delay of targeted financial sanctions measures related to terrorist financing and taking proportionate measures for non-profit organisations in line with a risk-based approach; and (7) demonstrating initial implementation without delay of targeted financial sanctions related to proliferation financing.
Since November 2017, when Sri Lanka made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. The FATF has made the initial determination that Sri Lanka has completed its action plan and warrants an on-site assessment to verify that the implementation of Sri Lanka’s AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future. Specifically, Sri Lanka has made the following key reforms: (1) enacting amendments to the MACMA to ensure that mutual legal assistance may be provided on the basis of reciprocity; (2) issuing the CDD Rule for DNFBPs, issuing any necessary guidance, and ensuring implementation of this Rule has begun, by way of supervisory actions; (3) enhancing risk-based supervision and outreach to FIs, and high risk DNFBPs, including through prompt and dissuasive enforcement actions and sanctions, as appropriate; (4) providing case studies and statistics to demonstrate that competent authorities can obtain beneficial ownership information in relation to legal persons in a timely manner; (5) issuing a revised Trust Ordinance and demonstrating that implementation has begun; and (6) establishing a TFS regime to implement the relevant UNSCRs related to Iran, demonstrating that implementation has begun, and demonstrating that implementation has begun on the UN Regulation related to the DPRK.
Since February 2010, when Syria made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Syria has made progress to improve its AML/CFT regime. In June 2014, the FATF determined that Syria had substantially addressed its action plan at a technical level, including by criminalising terrorist financing and establishing procedures for freezing terrorist assets. While the FATF determined that Syria has completed its agreed action plan, due to the security situation, the FATF has been unable to conduct an on-site visit to confirm whether the process of implementing the required reforms and actions has begun and is being sustained. The FATF will continue to monitor the situation, and will conduct an on-site visit at the earliest possible date.
Since November 2017, when Trinidad and Tobago made a high-level political commitment to work with the FATF and CFATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Trinidad and Tobago has taken steps towards improving its AML/CFT regime, including by enacting additional criminal justice reforms which will speed up consideration of ML cases in courts. Trinidad and Tobago should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) adopting and implementing the remaining measures to further enhance international cooperation; (2) addressing issues related to transparency and beneficial ownership; (3) completing the legislative efforts to enhance the processing of ML charges before the courts; and (4) implementing measures to monitor NPOs on the basis of risk.
Since November 2017, when Tunisia made a high-level political commitment to work with the FATF and MENAFATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Tunisia has taken steps towards improving its AML/CFT regime, including by beginning direct supervision of high-risk DNFBPs and enacting decrees to establish the National Registry of Companies and a decree for its proliferation finance-related targeted financial sanctions regime. The FATF has not yet fully reviewed these due to their very recent nature. Tunisia should continue to work on implementing its action plan to address its strategic deficiencies, including by: (1) fully integrating the DNFBPs, particularly lawyers, accountants and notaries, into its AML/CFT regime; (2) maintaining comprehensive and updated commercial registries and ensuring the effective collection of accurate and up-to-date beneficial ownership information is available for law enforcement; (3) demonstrating that its terrorism-related TFS regime is fully functional, especially amongst the DNFBPs, and that it is appropriately monitoring the association sector; and (4) ensuring an adequate proliferation finance-related targeted financial sanctions regime and its implementation.
Since February 2010, when Yemen made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Yemen has made progress to improve its AML/CFT regime. In June 2014, the FATF determined that Yemen had substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing procedures to identify and freeze terrorist assets; (3) improving its customer due diligence and suspicious transaction reporting requirements; (4) issuing guidance; (5) developing the monitoring and supervisory capacity of the financial sector supervisory authorities and the financial intelligence unit; and (6) establishing a fully operational and effectively functioning financial intelligence unit. While the FATF determined that Yemen has completed its agreed action plan, due to the security situation, the FATF has been unable to conduct an on-site visit to confirm whether the process of implementing the required reforms and actions has begun and is being sustained. The FATF will continue to monitor the situation, and conduct an on-site visit at the earliest possible date.