Corruption

Papua New Guinea: How good AML is pushing placement back to the gatekeepers

Effective anti-money laundering programmes in banks are moving the gateposts for placing dirty cash into the financial system back a few steps, into the offices of lawyers, accountants and other professional service providers.  Undercover reporters working with Global Witness have video-recorded two prominent lawyers in Papua New Guinea explaining exactly how to channel a large bribe to a government minister.

Corruption reaches “right to the top” in Papua New Guinea, a representative of the national anti-corruption task force states in the video posted above. Being a government minister is the fastest way to becoming a millionaire, one of the lawyers claims.

Papua New Guinea shares a resource rich island of New Guinea with the Indonesian provinces of Papua and West Papua. As noted by Global Witness,  despite its resource wealth, much of the money made from them fails to reach the majority of the population. Plagued by corruption, the people on the lowest rungs of the economy suffer while those at the top line their pockets.

Right to the top

While bribery may be a well-established norm in PNG, the method of channelling funds to corrupt politicians has evolved, largely due to more stringent anti-money laundering rules and closer transaction monitoring.

The days of  “banging a million bucks into a private account in Singapore” are over, one of the lawyers explained to the undercover reporter.

AML in banks is largely effective – huge investment in compliance expertise and monitoring software has pushed the threshold for placing dirty money into the system away from the banker and towards other professional services providers. Today’s enablers are lawyers, accountants, estate agents and others, employed to help disguise the funds before they reach the financial system.

Australia, according to Global Witness researchers, is providing an open door for anyone to place dirty cash in the country’s financial system. The Australian Federal Police have estimated that more than AUS200m (USD147m) laundered from PNG into Australia annually.

During a conversation with a prominent lawyer in Port Moresby, bribes are referred to as “ministerial improvements” and “mobilisation fees”. Paying bribes in large sums is ill-advised, as it attracts too much attention. “Small dribs and drabs”  – what some of us might call structuring – is recommended as an alternative method of getting the cash to the minister unnoticed.

False accounting – using inflated invoices for legal services – are touted as a method for sending bribe money to the intended recipient’s Australian bank account. The false invoicing method is well used to launder money, but this is the first time we’ve heard a law firm offer its own books to move the cash.

Alarmingly, this once again underscores how significant ‘gatekeepers’ – lawyers, estate agents, accountants – are in enabling financial crime. Both lawyers in this film quicky hid behind a veil of hypotheses once questioned by Global Witness after the recordings. They know how to do this, but for how long can they keep getting away with it? Lawyers and law firms for estate agents exposed in the ‘From Russia with Cash’ film know how to use the  law to protect their clients. But there is something more powerful going on here – an absence of ethics or simply the will to do anything for filthy lucre.

Being a politician provides the quickest route to becoming a property millionaire, one lawyer tells the Global Witness reporter. Well. you’ve got to stash the bribe money somewhere eh?

 

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China publishes gallery of alleged financial fugitives

FCA china-financial-fugitives

China’s Ministry of Public Security has released information about economic fugitives (pictured) who were believed to be at large in other countries, including Australia. China Ministry of Public Security

The Communist Part of China’s crackdown on corrupt officials has created a wave of economic fugitives, who are fleeing China to escape trial. The Ministry of Public issued the photos above of alleged economic fugitives from China, many of whom are thought to be in Australia.

The Chinese diaspora is widespread. Since President Xi Jinping began his campaign to root out corruption from the Chinese Communist Party, stories of alleged financial criminals fleeing China to live with relatives in other countries have cropped up in the media. Last year, the focus was the US, thought to be a safe haven from extradition. Now the focus is Australia, another country which has an extradition treaty with China, but which has yet to ratify it.

In March this year, China reportedly gave the US a list of allegedly corrupt officials, thought to be in the US and asked for help in tracking them down. The Chinese government launched Operation Foxhunt  in summer 2014, in a bid to track down suspects on-the-run beyond China’s borders.

Back in February 2014, Financial Crime Asia reported on the expected surge of fugitives to Australia. Canada had apparently been the migrant’s destination of choice, until it scrapped an investment immigration programme for Chinese citizens after noticing a marked increase in the number of applications by wealthy Chinese Mainlanders.

In 2013, China’s anti-corruption body, the Central Commission for Discipline Inspection, investigated 51,000 people for corruption, bribery, embezzlement and abuse of power. It claimed a total of 30,420 officials were punished for violating new party rules aimed at avoiding pomp and ceremony, according to a report in the Sydney Morning Herald.

How to spot an economic fugitive

Government officials are politically exposed persons and, thereby, subject to enhanced due diligence measures by banks and other regulated institutions in Australia, Canada and other jurisdictions. Whether the alleged criminals will be subject to extradition or not for the crimes they may or may not have committed, their inclusion on the ‘wanted list’ is enough to merit further enquiries by financial institutions.  The photo gallery above presumably gives the names of the officials in Pinyin. Any list monitoring software worth its salt will be able to translate the names into the Latin alphabet and should be able to identify whether any of the names above correspond to accounts held at a financial institution.

 

Real estate and the promise of ready money – who cares if the cash is dirty?

The UK welcomes wealthy foreign investors, but does it really care where their money comes from? Estate agents in London’s super expensive neighbourhoods are apparently agreeing to house purchases with ‘corrupt’ Russian politicians.FCA London Property

If you are in the UK, tune in to Channel 4 this evening to watch a revealing documentary about what really goes on between agents and super rich buyers. In ‘From Russia with Cash‘,  undercover reporters pose as an ‘unscrupulous’ Russian government official “Boris’ who wants to buy a house in London for his mistress, ‘Nastya’. Despite ‘Boris’ making is clear to the agents that his funds are not from a legitimate source, the estate agents he deals with are apparently happy to go ahead with the sale and even recommend ways for ‘Boris’ to keep a low profile, according to the Guardian report.

Channel 4’s reporters used hidden cameras to film meetings with estate agents, who talked openly about previous dealings with foreign clients, government ministers – politically exposed persons, and the amount of deals which are made with some degree of anonymity. Politically exposed persons (PEPS) are individuals with access to national coffers, funds which belong to the electorate. They are government officials, their families, their associates and beyond.

Property, or real estate, is widely recognised as the best way to invest. So it should be no surprise that the proceeds of crime have found a natural home in bricks and mortar. Rules on investing and moving dirty cash are well publicised. In the UK and many other countries, Financial institutions, lawyers, accountants, dealers in high value goods and real estate agents are required to report transactions of dubious origin – those which could be hiding the proceeds of crime – to law enforcement. The penalties for not reporting suspicious transactions are severe for the institution and the individual.

Corruption and billionaires  

FCA - TITransparency International’s ‘Unmask the Corrupt‘ campaign looks closely at how UK property launders funds for corrupt individuals, many of whom are politically exposed persons. Funds designated for schools and hospitals – ‘Boris’ claims his money comes from a government health budget – is sent to offshore havens, shrouded in secrecy and then passed on to ‘enablers’ or gatekeepers in the UK who advise and facilitate investment. The thing is, the practice is nothing new. This is how the big money has always moved – the only difference is that now it is under scrutiny.

Forbes, the register of all things super-rich, lists London as third in the world of ‘Billionaire Cities‘.  Five of the remaining nine are Asian cities – Hong Kong, Tokyo, Shanghai, Singapore and Mumbai sit alongside Paris, Moscow, New York and Sydney. If the corrupt are managing to get money into the UK property market, they are certainly managing it in the other countries on this list.

Will the estate agencies and law firms mentioned in this programme be investigated and will this give rise to increased scrutiny of the real estate sector in the UK? Financial Crime Asia is keen to find out.

A mansion fit for a PEP

FCA mansion-on-the-heath-3-small

Who lives in a house like this? The dining room at Kenwood Gate

The brilliant Organised Crime and Corruption Reporting Project has published a ‘through the keyhole’ report into the USD25m home owned by the family of Ilham Aliyev, the President of Azerbaijan and the former vice-president of the Azerbaijan’s State Owned Oil Company (SOCAR).

Delving into ownership registers, the OCCRP has unearthed that the house is in fact owned by an Isle of Man registered company called Beckforth Services Limited.

Beckforth Services Limited is owned by President Aliyev, his wife Mehriban and their daughter Leyla Aliyeva. Leyla is registered as owning all of the shares in Beckforth. All three list their address in Baku as 73 Neftchilar Avenue, Baku which is also the SOCAR registered office in the capital. Neft means oil, Neftchilar apparently means Oil Workers.

Aliyev reportedly earns a salary of around USD230,000 per annum. As an elected official, neither he nor his wife can run businesses, which seems fair enough. The report doesn’t mention whether they can own property or not.

The house on Hampstead Heath was acquired in 1998. This was seven years after the fall of the Soviet Union, which had governed Azerbaijan from Moscow for the previous seventy years. At the time President Aliyev was the VP at SOCAR; Azerbaijan’s oil and gas sector. This year, Aliyev spoke at the Caspian Oil and Gas Exhibition. The President’s ties to the sector are still strong – unsurprisingly as this has been responsible for the country’s high economic growth, according to the CIA World Factbook.

Watch this video for the full picture.

Readers could be forgiven for thinking that the high economic growth and booming Azeri prosperity symbolised by the emblematic Flame Towers, and the clutch of extremely high value goods outlets opened in Baku has been spread across the country.

FCA Italian ShoesThis  2012 report from the New York Times offers an insight into Baku’s luxury goods market, with Italian high-end designer goods topping the scale.  It makes an interesting observation which sheds light on how different countries record trade levels. ‘Between 2003 and 2009, Italy recorded exports to Azerbaijan of roughly $1.6bn ; during the same period, Azerbaijan recorded imports from Italy of $857m.’ If the figures are correct, some USD143m in imports went astray. That’s a lot of hand-stitched shoes.

 

DOJ indictment of FIFA – a quick reminder of the details

So, this morning the FIFA members are voting on who will be the next president.

In the Blue Corner weighing in at four terms on the throne at football’s governing body, 79 year old Joseph “Sepp” Blatter is expected to take the title by almost 75% of the votes, according to this round-up from the Guardian.

In the Red Corner, the only contender for the crown, Prince Ali bin Hussein of Jordan, a 39 year old royal and president of FIFA Asia. Two days before the US Department of Justice’s swoop on FIFA officials, Prince Ali’s team contacted police in the UK to report an alleged offer of 47 more votes for Ali in the FIFA election. The votes were rejected. Prince Ali’s team engaged a UK based corporate intelligence firm, headed up by a former London police commissioner, to ensure integrity and high ethical standards throughout the campaign.

Falling on their swords?

Falling on their swords?

Blatter appears undeterred by the arrest and indictment of nine FIFA officials this week and apparently has the support of the vast majority of delegates, who when asked by the BBC this morning, seemed to err on the side of caution.

The party line appears to be this: you cannot blame whoever sits at the top of the tree for the actions of the apples hanging from it.

But should he not be responsible for what happened on his watch?

The indictment

The indictment reaches back to 1991, eight years before Blatter ascended to the top job.

According to the DOJ: “The soccer officials are charged with conspiring to solicit and receive well over $150 million in bribes and kickbacks in exchange for their official support of the sports marketing executives who agreed to make the unlawful payments.”

Any money laundering techniques uncovered and publicised during this investigation will provide a blue-print on how to clean your dirty cash. Although, that said, if Jack Warner’s claims are correct, bribery was nothing to be ashamed of, there was nothing to hide, and maybe nobody cared where the money came from.

Jack Warner, the Trinidadian former FIFA vice president, was released from jail yesterday and has proclaimed his innocence to the press. He had resigned from the VP seat in 2011 amid allegations he had bribed Caribbean associates.

‘At the time he said he had been “hung out to dry”, insisting that the giving of gifts had been part of Fifa culture during his 30 years in the organisation.’

Could the Jack be reliving the same nightmare?

Read the full starting nine member of the FIFA executive arrested here. Banks will have screened the names of all nine as soon as the indictment sheet was published. Any half decent data link analysis software will bring up connected entities and transactions. But what will the world’s financial institutions now do with that info?

 

New documentary sheds light on FIFA corruption allegations

Yet another story connecting football with financial crime? We are in danger of a trend appearing here…

Allegations of corruption surround not only FIFA’s bid for the Qatar World Cup but also the 2018 World Cup. The head of England’s bidding committee testified in court that one FIFA executive asked for USD4m to secure a vote, another wanted a knighthood, said Jeremy Schaap, the ESPN reporter behind a new documentary on FIFA

ESPN has just aired a documentary revealing these stories and looking into the allegations of corruption within FIFA, the travelling empire which puts on the World Cup every four years, and behind FIFA President Sepp Blatter’s rise to power.

There’s a transcript of the show producer’s interview here and a link to the documentary here. Look out for Blatter’s defence of his role before the Oxford Union.

Should make for interesting viewing over the weekend.

Blacklists, PEPs, corruption and regulation. How is 2015 looking so far?

January 15th saw a round of face to face meetings for jurisdictions found to be lacking in the last FATF plenary, with the APG ML in Sydney.

Cambodia, Lao PDR, Pakistan, Afghanistan and Papua New Guinea  all made the last list.  Of the four countries on the high risk list three are in the Asia Pacific region – DPRK, Myanmar and Indonesia. The DPRK  has written to the OECD affirming its commitment to anti-money laundering and has apparently joined the APG as an observer.

Cuba managed to wriggle off the list of high-risk jurisdictions. While we have heard nothing much about its AML efforts, we can only assume that its new found close friendship with the White House has bought the former closed state a little wiggle room. Expect more news on trade barriers opening with Cuba.

ABC – Anti-bribery and corruption

This first ABC story provides a barometer for how the anti-corruption campaign is taking effect in Turkey. A parliamentary committee in Turkey has voted not to pursue investigations into four former ministers accused in a corruption scandal that implicated former Prime Minister Erdogan. Nine members of the 14-strong commission were members of Erdogan’s AK Party. Read more here.

The former president of Taiwan, Chen Shui-bian , currently in the fourth year of a 20 stretch for corruption, has been granted medical leave for brain surgery. But it’s not all rosy for Chen, who is facing a new round of money laundering charges. This time, charges allege he laundered TWD10m (USD321,000) in the proceeds of a bribe through his brother-in-law.

IllegalLogging2

The scale of illegal logging – http://www.illegal-logging.info

Transparency International calling for a bit of light to be shed on what the Solomon islands is doing. A man with close
connections to the logging industry has just been named the new Minister of Forestry for the island nation. Anyone else smell a conflict of interests?

ML and capital flight

Bangladesh – Bank Bangladesh, the central bank and financial intelligence unit has set up a new arm to tackle the high risk areas of TBML and terrorist financing. The move is part of the BB’s initiative to stop capital flight from Bangladesh.

Regulation

CapGemini is predicting a new era of regulation – which is great news  for regulatory professionals. Simplified operations, e-banking,  mobile  banking and other new forms of banking will take prominence, according to the report.

It also echoes a call for a reduction of banker bashing – an easy sport for many, especially those who are not employed in banking. Banker bashing may soon become a thing of the past; not because they all stop taking cocaine and becoming good people , although according to this  Guardian report it has happened , but because new financial firms, relying on new technology, will supersede banks.

Banks are like enormous cruise ships once built in Europe’s shipyards – requiring millions of hands to operate, weighed down by tonnes of heavy metal and taking aeons to change course. New smaller, lighter firms can evolve, develop and zip around the market with as much flexibility as new millennial customers require.

China’s regulators have published new AML guidance to help insurers to play their part in the fight against money laundering. More details are available via a subscription here. Also check the China Insurance Regulatory Commission for more updates.

A sombre note to conclude, and remind us of the battles some of our colleagues face when reporting financial crime to the authorities. Three policemen are under arrest in Vietnam charged with plotting to murder a witness in a bribery case.

First published on the ICA blog in January 2015.

How corruption damages a society and how corporates can make a difference

Anti-corruption investigators in the Cayman Islands have arrested a FIFA executive in connection with bribery allegations. Canover Watson, a member of FIFA’s audit and compliance committee, was reportedly quizzed about alleged money laundering and abuse of public office. The case reportedly involves a 2010 contract to supply public hospitals with swipe-card billing technology.

The Qatar World Cup 2022 bid has also thrown FIFA’s practices and operations into very sharp relief and prompted a review of the bidding FCA - FIFAprocess, the results of which will not be made public. But why should they? FIFA, as powerful as it is, is a private entity and is not publicly accountable. However, media attention on allegations of corruption within the world’s largest sporting contest has ruffled feathers among the associations multi-national partners, whose businesses depend on consumer support.

In June, several of FIFA’s major corporate sponsors released statements on the association’s probe into allegations of bribery. Corporate entities act fast when their revenue is threatened. That may be a cynical stance, but at least it acknowledges the extent of consumer power. The Qatar World Cup organisers hit back at the claims that Prince Mohammed bin Hammam had paid bribes to secure the competition, insisting he was “not a member of the bid team.” Nonetheless, mud sticks and it has forced the corporate sponsors to make public their stance on corruption.

Corruption harms the weakest 

Young man in the Solomon Islands

Young man in the Solomon Islands

For a further reminder about why anti-bribery and corruption is on our agenda, and why financial institutions and corporates are being asked to focus on these ills, read this fantastic glimpse of life on the Solomon Islands, published on The Wireless. Politics are viewed as something that the people cannot engage in. Young people – the future of the Solomon Islands’ culture, economy and society – are left to fester in poverty, self-medicating with alcohol and drugs. This huge distance between voters and the elected few allows corruption to grow and rots society.

Tragically, hundreds of Nepalese construction workers have died while building the stadia for the World Cup in Qatar. The vast majority of migrant workers in Qatar are in bonded labour, forced to work in barbaric conditions. In March 2014, the international football association acknowledged its ability to help improve the situation of labour rights and working conditions in Qatar.

Although anti-corruption efforts can be used as a political tool – as some suggest they are in China – they do nonetheless draw public attention. And public attention, or at least consumer attention, drives markets.

FIFA is more than an association, it is a travelling country, a moveable state that sets up stall once every four years in a new location and wields power and influence wherever it lands.

Here’s hoping it can work towards changing labour conditions and stemming the flow of corruption.

 

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China: Spectre of Corruption Haunts Huawei

(Beijing) – More than 100 company employees at Huawei Technologies, China’s biggest telecoms equipment maker, have been implicated in allegations of graft, triggering tightened internal scrutiny on its employees and sales agents. FCA - Huawei China

At an internal meeting in Beijing on September 4, Huawei executives highlighted the company’s urgent attempt to fight against corruption in deals involving rebates in corporate businesses.

According to the company, as of August 16, Huawei detected 116 employees on suspicion of corruption in cases which were linked to 69 sales agents of the company. Four employees have been handed over to the judicial system.

Several of Huawei’s agents told Caixin that one of Huawei’s branch heads was detained during a trip, and many of his subordinates are also involved in the case.

“The current figures only refer to cases with detailed evidence,” said one source from Huawei, adding the company has stepped up internal reviews on corrupt activity and promised harsh punishment for misconduct.

Facing lukewarm growth in device sales and business with telecom operators, Huawei has focused on the corporate network business. In 2013, corporate business reported 15.2 billion yuan in revenue, a year-on-year increase of 32 percent.

However, aggressive competition among sales agents in corporate deals and the reward power of sales managers to offer rebates has shaped opportunities for corruption.

A Huawei staffer said corruption usually occurs in giving product rebates to sales agents. Huawei has a complicated rebate system with large gaps in varying rebate levels.

The bigger the rebate, the larger the profit margin for agents, said the source. “To get more rebates, some agents bribe Huawei employees while other employees even ask for a bribe.”

Sources told Caixin that among the 69 agents accused of bribery by Huawei, 53 sent bribes solicited by company employees.

In addition to the corporate network business, other divisions of Huawei are taking more precautions against corruption. Recently, Yu Chengdong, chairman of Huawei’s device department, issued an internal email to his employees warning that some of the department’s staffers had been found taking bribes from agents.

Huawei’s device department has products ranging from mobile phones, tablets to broadband devices and corporate network equipment. In 2013, revenue from device sales reached 57 billion yuan.

Huawei’s total revenue amounted to 239 billion yuan last year, an increase of 8.5 percent from the previous year.

Source: Caixin

What messages are bribery settlements sending out to would be briber givers and receivers?

Influential, wealthy and ‘lawyered-up’ entities are settling bribery cases with prosecutors by throwing money at the case in order to avoid admitting guilt or proving innocence. What message does this send out to the world?

Smith & Wesson, a US handgun manufacturer, agreed to pay a USD2m fine to the Securities and Exchange Commission this week to settle FCA- cartoonsmoking gunallegations of bribery. The SEC charged Smith & Wesson with breaching the Foreign Corrupt Practices Act when employees and representatives made improper payments to foreign officials in Indonesia and Pakistan to secure contracts. Further alleged attempts at the same in Bangladesh, Nepal and Turkey, failed. S&W has neither admitted nor denied the allegations, it just paid to make it go away.

In a non-Asian related case, reports in the press claim that Bernie Ecclestone’s legal team is trying to settle a bribery case by paying GBP20m in return for the charges to be dropped, reported The Telegraph.

Meanwhile in Laos, where corrupt politicians are accepting bribes from Vietnamese‘land-grabbers’ to uproot communities whose homes are on the land.  The Laotian communities have no resources to fight a case, so they deal with the awful consequences of losing their homes.

Over in Australia, a court issued a suppression order (aka a super-injunction) prohibiting anyone in the country from mentioning details related to a multi-million dollar bribery probe implicating public officials from Indonesia, Malaysia and Vietnam. Wikileaks chose to publish the order which reveals how the case reaches to the highest echelons of Asia-Pacific’s leadership. The order follows the indictment of seven employees from the Reserve Bank of Australia, who, by nature of their work are politically exposed persons. ‘National security’ is cited as the reason for the blanket ban.

Australia and the US are in the top 20 group of least corrupt countries in the world, as per Transparency International’sCorruption Perceptions Index 2013. Malaysia and Turkey linger mid table while Bangladesh, Indonesia, Nepal and Pakistan are all between 100-150 out of 175. Laos is in the same group. The jurisdictions who are perceived to be the most corrupt have fewer defences available to protect themselves from unscrupulous bribe offerers. Sure, the public officials offered money in exchange for using their political clout could always say no, but why should they when the messages coming from their less corrupt peers is to buy your way out of it?

There is always time to celebrate anti-corruption efforts. The Global Organisation of Parliamentarians Against Corruption (GOPAC) has launched an award for anti-corruption action. Cast your votes before October 31st here.

This article first appeared on the International Compliance Association blog.