By Brian Monroe
bmonroe@acfcs.org
April 14, 2016
In this week’s Financial Crime Wave, Germany unveils plan to crack open tax havens, Panama Papers leak widens, capturing banks, FinCEN subjects funding portals to AML rules, and more.
Tax evasion
German Finance Minister Wolfgang Schaeuble gave details of a plan on Sunday to combat tax havens including creating an international network of registers that list the actual owners of companies. A huge leak of documents from the Panama-based law firm Mossack Fonseca has shown how offshore firms are used to stash the wealth of the rich and powerful, embarrassing several world leaders. Germany made closer international cooperation on tax evasion a priority during its presidency of the G7 economic powers in 2014/15. Schaeuble told the public broadcaster ARD that if company registers listing the owners of firms were networked internationally, it would be possible to find all the people hiding behind offshore companies. In the European Union, such registers have already been agreed as part of a fourth directive on money laundering that must be implemented at the national level by mid-2017. Schaeuble also pointed to an agreement on automatically swapping tax information, which around 100 countries have now joined. It is due to come into effect in 2017. He said the Panama Papers were ratcheting up the pressure on those that had not joined, such as the United States, to sign up. A government paper seen by Reuters showed other elements of Schaeuble’s 10-point plan, including urging Panama and all other holdouts to join the tax data exchange agreement, (via Reuters).
Corruption
Leslie Caldwell announced a one-year pilot program Tuesday intended to encourage companies to self report FCPA offenses and cooperate with the Justice Department. Companies that report early and cooperate will receive credit — up to a 50 percent reduction off the bottom end of the U.S. Sentencing Guidelines fine range. Appointment of a monitor wouldn’t be required for cooperators, “if a company has, at the time of resolution, implemented an effective compliance program.” The DOJ would also consider a declination for companies that meet the new guidelines, it said Tuesday. The DOJ released a nine-page memo Tuesday written by Andrew Weissmann, chief of the DOJ fraud section. It’s called the Foreign Corrupt Practices Act Enforcement Plan and Guidance. Weissmann said the new one-year pilot program “draws a clear distinction between credit that you can be eligible for voluntary self-disclosure as opposed to companies that may decide to wait to see if they get caught, and then cooperate.” Assistant AG Caldwell said the DOJ has added ten new prosecutors for FCPA cases, doubling the size of the FCPA unit. The FBI has three new squads of special agents devoted to FCPA investigations and prosecutions. Weissmann’s memo said the DOJ is “strengthening its coordination with foreign counterparts in the effort to hold corrupt individuals and companies accountable.” The DOJ is sharing leads, documents, and witnesses with international law enforcement counterparts, “and they are sharing them with us,” the memo said, (via the FCPA Blog).
A former high-ranking football official in the Americas pleaded guilty on Monday to charges that he participated in bribery schemes uncovered in a U.S. investigation of corruption in the sport’s world governing body, FIFA. Alfredo Hawit, a former FIFA vice president from Honduras who also led the North and Central America and Caribbean confederation, CONCACAF, pleaded guilty in federal court in Brooklyn, New York, to four conspiracy charges. Hawit is one of 42 individuals and entities charged as part of a U.S. investigation of more than $200 million in bribes and kickbacks sought and received by football officials for marketing and broadcast rights to tournaments and matches. The investigation has sent Switzerland-based FIFA and other football governing bodies into an unprecedented crisis. Gianni Infantino, FIFA’s newly elected president, has vowed to restore FIFA’s image. Hawit, 64, pleaded guilty to racketeering conspiracy, two counts of wire fraud conspiracy and conspiracy to obstruct justice. He also agreed to forfeit $950,000 as part of his plea agreement. Speaking in Spanish, Hawit admitted in court to having received hundreds of thousands of dollars in bribes from two sports marketing companies that were seeking media rights for football matches and tournaments. “I knew it was wrong for me to accept such undisclosed payments,” Hawit said through a translator. To date, 15 people and two sports marketing companies have pleaded guilty in the U.S. case. Prosecutors in a court filing on March 28 said they were in plea negotiations with multiple defendants, (via Reuters).
Panama Papers
Banks and financial firms have been told to hand over any information about their dealings with the law firm at the centre of the Panama Papers to the UK’s Financial Conduct Authority by a week on Friday. The City regulator had written to major financial firms on Monday, as the details of the accounts handled by the law firm Mossack Fonseca began to emerge, to ask what information banks held about any dealings with it and gave them 10 days to provide any details they may have. Around 20 firms have received the correspondence from the FCA, which is responsible for regulating the City and has made tackling money laundering and financial crime one of its seven priorities for this year. The 15 April deadline for information about dealings with Mossack Fonseca is contained in the letter, which also asks what action they are taking as a result of the release of the 11.5m files from the Panama-based law firm. “Beyond 15 April we will require updates on any significant issues or relationships identified and a full response, detailing your findings, when your investigation is concluded,” the letter said, according to the Financial Times (£). In other developments on Thursday:
The Geneva prosecutor said he had launched a criminal inquiry in connection with the Panama Papers.
The Russian president, Vladimir Putin, offered his first response to the revelations, saying they were an attempt to destablise Russia. He noted that his own name did not appear in the documents and said there was no proof of corruption in them.
The Financial Times reported that the British prime minister, David Cameron, had intervened personally to prevent offshore trusts from being dragged into an EU-wide crackdown on tax avoidance.
A university student asked Cameron about the “personal experience” he had about tax avoidance. Cameron said he had “made tax and transparency the number one issue” at international summits.
A former chief executive of HSBC Michael Geoghegan was revealed to have held his £8m London townhouse through an offshore company – and planned to avoid tax by effectively renting the property to himself.
On Tuesday, the FCA revealed it had written to the firms about the revelations, which have caused reverberations around the globe. “The FCA has written to a number of firms about this issue, including those on our systematic anti-money-laundering programme, and we are working closely with a number of other agencies who are also looking at this,” the FCA said, (via The Guardian).
Organized crime prosecutors raided the offices of the Mossack Fonseca law firm Tuesday looking for evidence of money laundering and financing terrorism following a leak of documents about tax havens it set up for wealthy international clients. Soon after news reports based on a trove of documents from the firm began emerging more than a week ago, Panama’s government had said it would investigate. A half-dozen police officers set up a perimeter around the offices while prosecutors searched inside for documents. The attorney general’s office said in a statement that the objective of the raid was “to obtain documentation linked to the information published in news articles that establish the use of the firm in illicit activities.” It said searches also were made at other subsidiaries of the firm in Panama and at the telephone company’s computer support center. Mossack Fonseca has denied any wrongdoing, saying it only set up offshore financial accounts and anonymous shell companies for clients and was not involved in how those accounts were used. The law firm said on its Twitter account Tuesday night that it “continues to cooperate with authorities in investigations being undertaken at our headquarters.” The search came a day after intellectual property prosecutors visited Mossack Fonseca to follow up on the firm’s allegations that a computer hack led to the leak of millions of documents about tax havens. The firm filed a complaint charging the security breach shortly before the first media reports working with the documents offered details on how politicians, celebrities and companies around the globe were hiding assets in offshore accounts and shell companies. “Finally the real criminals are being investigated,” co-founder Roman Fonseca said on Monday. Mr. Fonseca has maintained that the only crime which can be taken from the leak was the computer hack itself. He has said he suspects the hack originated outside Panama, possibly in Europe, but has not given any details, (via the Wall Street Journal).
Casinos
The newly announced Joint Illegal Gaming Investigation Team hopes to make a dent in money laundering and shady transactions taking place at B.C. casinos. And for good reason. Those “suspicious cash transactions” have reached a staggering $119 million in the last 12 months, according to a B.C. government document that accompanied Monday’s announcement of a crackdown. According to Kevin Hackett, chief operating officer of the Combined Forces Special Enforcement Unit of B.C., the new investigative unit has been created to curtail a wide range of suspicious activity, including “people walking in [to a casino] with hockey bags full of money.” At the unveiling of the joint team in Vancouver, B.C. Finance Minister Mike de Jong referred briefly to a bar graph that showed “suspicious cash transaction reports for the Lower Mainland as received … from gaming service providers …” The graph shows a peak last July of $20.7 million in suspicious cash transactions — but de Jong did not refer to the total for the past 12 months. But the chart does and according to it, the total amount of suspicious cash transactions since April of last year was $119.1 million. Money laundering can happen when individuals buy in at a casino with dirty cash, play a few games and then cash out their balance and claim it as winnings. (CBC) In the past, CBC News investigations have shown how easily dirty money can be laundered at B.C. casinos, sometime by simply buying chips with ill-gotten cash and then turning around a short time later and cashing out, (via the Canadian Broadcasting Corporation).
Compliance
The UK financial regulator will prioritise a crackdown on money laundering — a problem highlighted this week by a large leak of documents from a Panamanian law firm — and has written to about 20 regulated companies to discuss allegations uncovered so far. The Financial Conduct Authority said it was also working with other agencies to review the revelations. While many people use offshore companies for privacy and tax benefits, the documents from Mossack Fonseca pointed to their use in some cases to conceal ill-gotten gains or evade taxes. HSBC, Coutts, Rothschild, UBS and Credit Suisse are among the groups that used Mossack Fonseca to set up thousands of offshore companies for their clients over 40 years, according to data uncovered by the International Consortium of Investigative Journalists. The FCA said that if it found companies with weaknesses in their money laundering controls, it would use its enforcement powers to send a “deterrent message” and might refer cases to law enforcement agencies. The largest money laundering fines have mostly come from the US authorities but the FCA did impose on Barclays a £72m penalty for lax anti-money laundering controls in November, (via the Financial Times).
Corporate transparency
The European Union will, on Tuesday, unveil a proposal aimed at clamping down on corporate tax avoidance by companies operating in the 28-nation bloc. The new measure, first proposed last year after it came to light that Luxembourg had struck sweetheart tax deals with companies such as McDonald’s and Fiat Chrysler, includes provisions that would force multinationals to disclose how much tax they pay in each EU country — an issue that has assumed special importance following last week’s Panama Papers revelations. In a joint op-ed published Tuesday by the Irish Times, Valdis Dombrovskis — the EU commissioner for the euro and social dialogue — and Jonathan Hill — the bloc’s commissioner for financial stability — said that the new proposals are aimed at ensuring equity and fair competition among companies operating in the EU. The proposal would cover approximately 6,500 companies with revenue of over 750 million euros ($856 million). Similar rules already exist for banks, and mining and forestry companies. In addition to providing a detailed, country-by-country breakdown of profits, taxes and turnover, the long-planned measure — which, once tabled, would require approval from EU governments and the European parliament — also seeks to increase scrutiny of tax havens that are often used by large corporations to hide untaxed revenue. “While our proposal … is not of course focused principally on the response to the Panama Papers, there is an important connection between our continuing work on tax transparency and tax havens that we are building into the proposal,” Hill reportedly said in a statement, (via the International Business Times).
Funding portals
The Financial Crimes Enforcement Network (FinCEN) has proposed to amend the Bank Secrecy Act’s (BSA) definition of “Broker or Dealer in Securities” in order to ensure that funding portals implement policies and procedures reasonably designed to achieve compliance with federal anti-money laundering (AML) requirements, including the filing of suspicious activity reports, currently applicable to brokers or dealers in securities. This proposal does not affect other activities, beyond securities, conducted by these businesses. Currently, the BSA regulatory definitions of broker or dealer in securities do not include funding portals. The current BSA regulations define broker-dealers in securities as being those persons “registered, or required to be registered, as a broker or dealer with the SEC under the 1934 Act.” In 2012, Congress passed the Jumpstart Our Business Startups Act (JOBS Act) that created a new exemption for offerings of crowdfunded securities under certain circumstances. The JOBS Act also exempted certain funding portals from the 1934 Act’s registration requirements, thus excluding them from the BSA’s definition of brokers or dealers in securities. After consulting the Securities Exchange Commission, FinCEN is proposing to amend the relevant BSA definitions to include funding portals, and therefore retain access to the important reports and records that these businesses may provide to combat money laundering and terrorist finance. Comments on this proposed rule will be accepted until June 3, 2016, (via FinCEN).
Cybersecurity
The U.S. Federal Bureau of Investigation (FBI) this week warned about a “dramatic” increase in so-called “CEO fraud,” e-mail scams in which the attacker spoofs a message from the boss and tricks someone at the organization into wiring funds to the fraudsters. The FBI estimates these scams have cost organizations more than $2.3 billion in losses over the past three years. In an alert posted to its site, the FBI said that since January 2015, the agency has seen a 270 percent increase in identified victims and exposed losses from CEO scams. The alert noted that law enforcement globally has received complaints from victims in every U.S. state, and in at least 79 countries. CEO fraud usually begins with the thieves either phishing an executive and gaining access to that individual’s inbox, or emailing employees from a look-alike domain name that is one or two letters off from the target company’s true domain name. For example, if the target company’s domain was “example.com” the thieves might register “examp1e.com” (substituting the letter “L” for the numeral 1) or “example.co,” and send messages from that domain. Unlike traditional phishing scams, spoofed emails used in CEO fraud schemes rarely set off spam traps because these are targeted phishing scams that are not mass e-mailed. Also, the crooks behind them take the time to understand the target organization’s relationships, activities, interests and travel and/or purchasing plans. They do this by scraping employee email addresses and other information from the target’s Web site to help make the missives more convincing. In the case where executives or employees have their inboxes compromised by the thieves, the crooks will scour the victim’s email correspondence for certain words that might reveal whether the company routinely deals with wire transfers — searching for messages with key words like “invoice,” “deposit” and “president.” On the surface, business email compromise scams may seem unsophisticated relative to moneymaking schemes that involve complex malicious software, such as Dyre and ZeuS. But in many ways, CEO fraud is more versatile and adept at sidestepping basic security strategies used by banks and their customers to minimize risks associated with account takeovers. In traditional phishing scams, the attackers interact with the victim’s bank directly, but in the CEO scam the crooks trick the victim into doing that for them, (via Krebs on Security).
Money laundering
A sophisticated ring of money launderers — with an array of pop cultural nicknames like “Tony Montana,” “Pitbull” and “Neymar” — has been busted on charges of sending untold millions in illegal cocaine profits to Colombia using nearly a dozen businesses in Miami-Dade. Miami-Dade authorities announced arrest warrants for 22 people believed to have worked in a scheme that included the suspected chief money launderer for the Mexican drug cartel headed by notorious kingpin Joaquin “El Chapo” Guzman. The wide-reaching probe into the so-called “black market peso exchange” — which involved monitoring deals in 17 countries — is the first such case to be filed in Miami-Dade state court, and offers the most recent window into the drug-fueled underground lending system that law enforcement authorities believe props up hundreds of South Florida businesses. The two-year probe — dubbed Operation Neymar because one suspect used the name of the Brazilian soccer star and other players as his aliases — was conducted by agents from the U.S. Homeland Security Investigations, Miami-Dade police and state prosecutors. As part of the investigation, undercover agents laundered a “small fraction” of drug proceeds to build evidence against the group, prosecutors said. The operation stands in stark contrast to the now disgraced and disbanded money-laundering sting unit run by Bal Harbour Police, which by 2012 had laundered millions for cartels but never made any arrests. The arrests also come as the “Panama Papers” and other investigations have put intense scrutiny on financial shenanigans in South Florida real estate — leading the County Commission to pass a resolution this week asking the federal government to stop singling out Miami as a hub for money laundering, (via the Miami Herald).
Enforcement
Why is the federal anti-money-laundering agency tight-lipped about the name of the first Canadian bank found to violate its regulations, but publicly shaming smaller players? That’s what a wide-ranging group of critics — from lawyers to investor advocates to companies whose infractions have been made public — want to know about the first-ever penalty against a bank by the Financial Transactions and Reports Analysis Centre of Canada. The terrorism and money-laundering watchdog, known as Fintrac, announced Tuesday that it has issued a $1.1-million fine against an undisclosed financial institution for failing to report a suspicious transaction and various other infractions. “Our criminal and administrative law regime is based on disclosure of wrongdoing not on secrecy of wrongdoing,” said Christine Duhaime, a lawyer who specializes in anti money laundering law. Fintrac said Tuesday’s announcement is meant to deter others from failing to report. But the bank’s name was not added to a list of violators published on the agency’s website. The home page shows the name of many smaller companies, such as jewelry stores, independent securities dealers and real estate brokerages. Fintrac collects millions of pieces of data from 31,000 businesses every year and analyzes them for suspicious activity. Those businesses are legally required to report certain financial activities — anything from cash transactions of more than $10,000 to a disguised customer. The centre has legal power to use its discretion on whether to publicly name companies it has fined. The recent unnamed financial institution isn’t the only case where it has taken exception — the companies involved in 34 of the 74 monetary penalties the agency has levied since 2008 have not been disclosed, said spokesman Darren Gibb. In the case of the bank, the agency decided it was in the public interest to publish the details of the penalty to “send a strong message of deterrence” in a timely manner rather than name the institution after a potentially lengthy appeal process. The financial institution has already paid the $1.1 million penalty, (via the Toronto Star).