financial crime

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.



Global: money laundering case review

Back to Financial Crime Asia’s roots, this month’s review of money laundering cases from around the world examines developments and prosecution trends in the UK, US, Brazil.

Enforcement in the UK

The UK’s now defunct Office of Fair Trading hit three real estate agents with a parting gift of fines for ‘significant and widespread failures’ in implementing the UK Money Laundering Regulations 2007. The firms dropped their guard in terms of customer due diligence, ongoing monitoring of business relationships, policies and procedures on record-keeping, internal controls and risk assessments, and training on recognising suspicious transactions. The UK OFT closed its doors on March 31st this year; HM Revenue and Customs picked up the reigns for supervising estate agents for AML purposes.

A court in London sentenced two Chinese citizens to 15 and 12 months behind bars FCA - Follow the money keep calmfor laundering GBP30,000 in the proceeds of cocaine trafficking. Detective Constable Andy O’Boy tracked the duo down by following the trail of transactions sent from Northern Ireland to the couple, and then from the couple onto China.

Police officers in Birmingham, UK, smashed what they believe is one of the biggest laundering operations ever to touch the UK and put 32 men behind bars for 140 years for cleaning and estimated GBP180m. The gang used several techniques to place and layer the cash. They made deposits into accounts in the name of a money service business (MSB) at banks in three different cities, totalling GBP160m between 2008 and 2011. One bank sluiced a whopping GBP44m. The money was placed into USD accounts before transfer to Asia and the Middle East; false company records created by the MSB owner hid the transaction trail. The gang also employed the ‘cuckoo smurfing’ technique (placing dirty cash into accounts of unwitting Iranian students who were expecting international transfers, in this case, and asking them to transfer the money on). Police stated the money was the proceeds of trafficking class A and class B drugs. Heroin and marijuana are class A and B drugs which come from Asia.

Interestingly, as yet there is no comment on whether the banks who sluiced the cash will be probed for not spotting the transactions, or praised because their suspicious transaction reports tipped off the police to the network.

US test AML laws against bitcoin

FCA - BitcoinA court in Florida will prosecute the first US trial for money laundering via bitcoin. Investigators arrested two men in a sting operation, after they responded to fake on-line messages from police officers posing as credit card thieves who wanted to launder their cash via bitcoin.

In March, the US Internal Revenue Service ruled that bitcoin should be treated like property and not currency for tax purposes. The recent rise in regulatory and legal interest in crypto-currencies, called convertible virtual currencies in US law, is a double edged sword. On one hand, it allows legitimate crypto-currency firms to step up to the plate and showcase their commitment to compliance with relevant laws and regulations. On the other, it threatens to stem the flow of investment and exchange in crypto-currency by penning them in with complex rules that are difficult to navigate. While the majority of crypto-currency firms are more than willing to comply, and have set up regulatory compliance as a pillar of new businesses, their best intentions could be strangled by regulation, a bitcoin community member argues in this video.

Brazilian state oil company raided in ML probe

Brazil’s Federal Police raided the headquarters of state-run oil company Petroleo Brasileiro SA in Rio de Janeiro on Friday as part of a money-laundering probe, two sources with direct knowledge of the operation FCA - Rio de Janeirotold Reuters.

In a statement Friday, the police said they were exercising 23 search and arrest warrants in the cities of Sao Paulo, Campinas, Rio de Janeiro, Macae and Niteroi as part of its operation Lava Jato (Operation Car Wash) which is an investigation of money laundering by currency exchange houses.



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SEC policy expected to encourage whistle-blowers in Asia

ImageThe number of whistle-blowing cases in Asia, including China, is expected to continue rising with a new policy by the US Securities and Exchange Commission (SEC) to protect whistle-blowers, analysts say.

The global crackdown on corruption and greater financial incentives to report wrongdoing could lead to a spike in the number of whistle-blowing cases involving US and British companies in Asia, according to a report by AlixPartners, an international business advisory firm.

“Our firm has seen an increase in the number of whistle-blower matters raised within China as a result of an increased focus on governance as well as the Chinese government’s focus on corporations such as GlaxoSmithKline [Pharmaceuticals],” said Mike Murphy, managing director at AlixPartners.

The Chinese government is investigating GSK, the biggest British drug firm, for suspected bribery on the mainland.

“The allure of rewards through SEC represents a source of concern for companies,” the AlixPartners report said.

Under a US whistle-blower programme established by the Dodd-Frank Act, those who report wrongdoing may receive financial rewards of 10-30 per cent of the fines imposed on a company by US authorities if their tips lead to successful enforcement.

In November 2011, Britain’s Serious Fraud Office launched its whistle-blower hotline but does not offer financial rewards for tip-offs.

Hong Kong’s Independent Commission Against Corruption also encourages whistle-blowing in corruption cases, the report said.

In late January, Sean McKessy, chief of the SEC’s Office of the Whistleblower, said the US regulator may soon file cease-and-desist orders as well as impose penalties against companies that punish employees who blow the whistle on them.

This month, the SEC will file an amicus curiae brief – evidence that may change a court decision – in support of Taiwanese whistle-blower Liu Meng-lin, which may reverse an earlier US court ruling, Main Justice, a US anti-corruption publication reported.

Liu, a former compliance officer at Siemens’ health care unit in China, had accused the German conglomerate of making inflated bids for medical imaging equipment sales to public hospitals and then selling the equipment at lower prices to intermediaries who gave kickbacks to hospital officials.

Siemens fired Liu in March 2011, which he claimed was illegal under the Dodd-Frank Act.

In October last year, US judge William Pauley ruled that provisions to protect whistle-blowers under Dodd-Frank did not extend outside the United States. In that court case, Pauley threw out a lawsuit by Liu that alleged Siemens had funnelled kickbacks to Chinese and North Korean hospital officials.

Following similar cases last year, concerns were raised that whistle-blowers in subsidiaries of American companies outside the US would not be afforded protection from the anti-retaliation provisions of the Dodd-Frank Act.

“This was likely to make it much more difficult for an employee in a Chinese subsidiary of a US business to blow the whistle on inappropriate acts,” said Keith Williamson, head of forensic and dispute services for Asia at Alvarez & Marsal, an international professional services firm.

Given that McKessy recently indicated the regulator may take action against employers that retaliate against whistle-blowers, this threat appears to have receded, said Williamson.

“I expect this to embolden whistle-blowers in China in bringing matters to their employer or the SEC, knowing the SEC may protect them,” Williamson said.

The number of whistle-blowing tips the SEC received from China soared from 10 in 2011 to 27 in 2012 and 52 last year, according to the regulator. China was the third largest source of tips to the SEC outside the US last year, behind Britain and Canada.

Globally, the number of tips jumped from 334 in 2011 to 3,238 last year, according to the SEC’s annual whistle-blower report.

Source – SCMP

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Why Thailand needs

Thailand is in turmoil. Anti-government whistle-blowers are still on the streets of the capital, the general elections of February 2nd FCA - YLdefacedwere peacefully disrupted. In many parts of Bangkok and in southern Thailand, where I live, the elections did not happen at all. I scoured this island for a polling station yet found nothing but a few defaced posters of PM Yingluck Shinawatra. The voting in south Thailand never happened because Post Office workers refused to release the ballot papers in time for voting.

Tourism numbers are officially down although all guest-houses on this island appear to be full. Foreign governments are issuing travel warnings to would be tourists. Few have issued a travel ban as yet, but it appears the medical tourists are steering clear, opting to put up with un-botoxed brows until the rallies stop. Even the once-loyal rice farmers have moved on Bangkok to express their anger at not receiving promised subsidies for their crops.

Anti-corruption civil sparks

The protests were sparked in November by a mass public action and social media campaign to stop the passing of an Amnesty Bill, which would have been a green light for exiled politicians – with Thaksin Shinawatra at their helm – to return to Thailand without fear of prosecution for electoral fraud. Thai people want to stop corruption in their country, as do the ex-patriot residents and business owners. Thai people have taken to the streets and to social media sites to do voice their opposition. Anti-bribery sentiment is strong among the foreign community, but uncoordinated and there are few outlets for publicising attempted bribes and blatant corruption. A Facebook group called Corruption and Business in Phuket is providing an excellent stream of news on anti-bribery efforts in the province. This week, Phuket citizens called for a public meeting on bribery and corruption, following a blockade of one of the islands busiest beaches in protest at an alleged TBH20,000 (USD609) paid to three Tourist Police Officers. The funds were allegedly returned to the briber by the officers during a “private meeting.”

Official channels

Although not well publicised, Thailand has a National Anti-Corruption Commission, staffed by more than  1,000 people dedicated to pursuing bribes made to state officials and government contracts; private bribery is beyond the commission’s remit. Led by Dr Sirilaksana Khoman, the commission is government funded but has autonomy in investigations and prosecutions. In an interview with The Big Chilli ex-pat magazine, Dr Sirilaksana outlines why she believes corruption has changed in Thailand since 1997, (the Asian economic crisis, the concentration of political power under a “charismatic” new leader and numerous allegations of large scale corruption), three “grand”corruption cases she has worked on since 2007 and the pre-emptive work NACC carries out by scrutinising the accounts of major infrastructure and technology projects as they happen.

The NACC does accept reports of bribery and corruption from the public, which must be signed by the complainant. The NACC uses a system to anonymise the letters once received, by cutting the names/signatures off and placing them in an envelope kept in a heavily guarded safe. It gave no figures on how many letters it receives annually. From the outside, this system looks less  than appealling to anyone who has just been stopped by a traffic cop and asked for a bribe to avoid getting a ticket. Accessibility and anonymity are two fundamentals of any whistle-blower scheme and, reporting on a state employee who has just tried to extort funds from you is blowing the whistle.

I am a huge fan and supporter of the Janaagraha led  I Paid A Bribe initiative, set up in 2010 initially to estimate the total amount paid in bribes each year  in India. In India, as in Thailand, there are fixed bribery rates for certain services.  For example, getting your passport processed, getting the stamp on the deeds of your house, getting the electricity company to turn on the supply are all covered by a recognised and regularised extra payment directly to the civil servant. The I Paid A Bribe portal collects information on bribes paid, bribes requested by not paid and incidents of meeting an “honest officer.” Those submitting stories can remain anonymous or publicise their names.

The IPAB intitiative has grown beyong india, and now has sites operating for 11 countries in Asia, Africa and Europe, with plans for portals in North and South America. Regrettably, Thailand is not yet part of the IPAB plans for Asia but this country could really benefit from this service.

This is a shout out to IPAB and anyone in Thailand, via Corruption and Business in Phuket, Eyes of Thailand and to Dr Sirilaksana herself to support the launch of in Thailand.  Let’s get this started.

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Indian Bitcoin exchange produces KYC/AML guidance

A bitcoin exchange in India has published a compliance policy for dealing with clients in terms of bitcoin transfers. BTCXIndia FCA - Bitcoinhas reproduced the standard Know Your Customer and Anti-Money Laundering (KYC/AML) policy used by financial institutions and tailored the requirements to fit a typical bitcoin customer and transaction.

The KYC/AML guidelines focus on a customer acceptance policy, identification procedures, transaction monitoring and risk management. In brief, anyone who wants to open an exchange account with BTCXIndia will undergo the same due diligence as a client opening a regular bank account. Identification processes will include scrutiny of beneficial owners, monitoring will look for  complex, unusually large transactions and BTCXIndia has hinted that it will set thresholds for transaction limits if required. Remittances worth more than INR50,000 (USD798, XBT0.836) will be effected by debit to the customer’s account or against cheques and there will be no cash transactions through the firm at all, which would reduce some of its risks.

The exchange has committed itself to creating risk profiles for all customers, based on low, medium and high categories and using information derived from their identity, social/ financial status, nature of business activity, information about his clients’ business and their location. Salaried employees, government owned companies, regulators will fall into the low risk group, along with any client whose financial/business information is easy to acquire, barring high net worth individuals who will not automatically receive low risk status.

High risk examples

Customers who will require a higher level of due diligence checks, according to the policy, include:

(a) non-resident customers;

(b) high net worth individuals;

(c) trusts, charities, NGOs and organizations receiving donations;

(d) companies having close family shareholding or beneficial ownership;

(e) firms with ‘sleeping partners’;

(f) politically exposed persons (PEPs) of foreign origin;

(g) non-face-to-face customers and

(h) those with dubious reputation as per public information available.

The policy sets out clearly what the company expects from its customers and staff in terms of AML compliance and it is worth reading the policy to see just how BTCXIndia is managing this.

Legal position

The Reserve Bank of India, the regulatory body for banks and Bitcoin exchanges has vaguely mentioned that it is “watching” the crypto-currency but has not yet clarified what that means. BTCXIndia has published a useful guide on the latest legal commentary from different jurisdictions on status of bitcoin use.

A fool and his money …. the murky world of freelance writing

Modern day financial criminals are leaning on the collaborative aspects of social media to boost their credibility and freelance writers could be unwitting accomplices.

In my search for freelance writing assignments, I recently posted a profile on a social media site. Scratching beneath the surface of one particular creative writing job has revealed a potential gold mine for financial criminals – the high yield investment program or HYIP.

HYIPs are fraudulent schemes dressed up as sophisticated investment opportunities, according to the US Securities and Exchange Commission.  The Commission also claims that HYIPs operate like Ponzi schemes, wherein the capital given by new investors is used to pay earlier investors, and to convince them they are making a return on capital when in reality their own funds have long since disappeared. But this view is not held by HYIP investors in specialist internet forums. Some commentators see HYIPs as a legitimate way of making money without the interference of a regulator. Others admit to losing money in scams, but claim some HYIPs are genuine. Differentiating between the legitimate programs and the scams is not simple. HYIP advice forums guide investors to sites with well written content, which may indicate a higher level of commitment from the HYIP investment team than one that is poorly described.

Getting your marketing, copy and image right – which means with correct spelling and grammar – is fundamental to building confidence in any potential investor. The average 419 letter is poorly written and its fraudulent intent is obvious to most — although not all — readers. An investment scammer’s strengths lie in the confidence he inspires in potential investors, in selling a fake dream and convincing people to part with their money and not necessarily in content writing or graphic design. Contracting out the other parts of their scam to specialists will only add to the credibility of the scheme.

A creative company profile

I was invited to bid for a 1,000 word creative assignment to write a company profile. My contact is a man whose profile shows he is based in a harbour town in North Africa. He and his business partners claim to be professional traders, who formed an investment company in 2010, prior to the Arab Spring uprising. They are also operating legally — in Panama. 

The brief is light touch and offers no information on the company other than the three funds they offer. The company is small — my contact claims they are not planning on making billions and they want this to be clear. I have been instructed to omit any names from the copy. The brief further advises me to write ‘convincing content’ to entice people to ‘invest confidently.’ There is no mention of a regulator, or regulated entity, no mention of which licenses the company holds and no statement of the potential risks investors could face. It does make one promise which is sure to hook the uninitiated – all of the investors will receive their full principal investment back plus profits once the investment period expires.

HYIP, HYIP Hurrah? 

HYIPs are the fodder of internet chat rooms populated by professional gamblers. A quick browse through the TalkGold internet forums reveals several numerous threads relating to setting up HYIPs and HYIP monitor sites. Monitor sites will track HYIPs progress and claim to provide more savvy investors with information on when to pull their money out of the program. However, this is a far from fail-safe investment strategy.

In 2010, the US Financial Industry Regulatory Authority warned that the ‘con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate.’

According to the brief I received, the firm wants investors to read the website ‘like a novel being written just never written before’ – and they would like to head the website with a pithy quotation.

Although the opportunity to create a completely fake reality is appealing, I turned the job down. Several pithy quotations to head the site have sprung to mind however and I think I might offer him this fine English proverb as an opener:

‘A fool and his money are soon parted.’