The NCA has been granted freezing orders on eight bank accounts containing a total of more than £100 million, which is suspected to have derived from BRIBERY AND CORRUPTION IN AN OVERSEAS NATION.

The Account Freezing Orders (AFOs) were obtained at Westminster Magistrates Court on 12 August, and represent the largest amount of money frozen using AFOs since they were introduced under the Criminal Finances Act 2017.

The orders will allow the NCA to further investigate the funds.

If found to be derived from – or intended for use in – unlawful conduct, the NCA will seek to recover the money.

Linked case

Approximately £20m held by a linked individual was frozen following a hearing in December 2018.

Other cases

Earlier this year, in unrelated cases, the NCA secured an account forfeiture order against more than £400,000 held in frozen bank accounts belonging to a Moldovan national.

Another forfeiture order was granted on money held in an account belonging to the niece of Syrian ruler, Bashar al-Assad.

The NCA’s Ben Russell, Deputy Director of the National Economic Crime Centre (NECC), said:

1. “The NECC leads UK law enforcement efforts to tackle illicit finance, bringing the capabilities of multiple agencies together against the threat.
2. “In the last year, the NCA has used new powers such as Unexplained Wealth Orders and Account Freezing Orders to target suspected illicit assets, and we are already seeing some far reaching impact of this

To read original article please click here

From a cybersecurity risk governance perspective, the FSC will expect as a minimum from the Management Companies the following:

1. understanding of the cyber risks, vulnerabilities and impact associated in running their businesses, with supporting documentation;
2. putting into place appropriate policies and procedures duly approved by the board to mitigate the risks;
3. carrying out an annual cybersecurity risk assessment which is reported to the board;
4. conducting regular IT audit and addressing identified loopholes accordingly;
5. conducting penetration testing to ensure that their systems are not vulnerable or susceptible to cyber-attacks;
6. putting in place appropriate contingency arrangements that they can be deployed in the event of a cyberattack, including but not limited, maintaining service levels for clients and informing relevant parties and authorities about the attack and its impact; and
7. running a comprehensive technology risk and cybersecurity training programme at all levels.

To read original article please click here 

Activists and politicians tout beneficial registries as a solution to the perceived abuse of anonymous company ownership. Stephen Baker and Charlie Sorensen of Baker & Partners contend that kleptocratic dictators and sophisticated fraudsters won’t be impeded by such registries. The authors explain how existing civil laws have proven effective in seizing ill-gotten gains.

Recent high-profile cases involving the seizure of assets in Jersey have grabbed headlines around the globe, not least because of their connection to high-profile former dictators and corrupt politicians. However, these cases provide an important opportunity for debate around the wider issues of ownership transparency—particularly in offshore jurisdictions—as the race to chase ill-gotten gains rumbles on around the globe.

1. In the first case,
   1. some $267 million of property was forfeited following an order of the Royal Court of Jersey.
   2. This sum represented the proceeds of a fraud committed under the kleptocratic Nigerian regime of General Sani Abacha.
   3. This money was held in accounts in the name of Doraville Properties Corporation (Doraville), a company incorporated in the British Virgin Islands (BVI) which was the vehicle of Mohammed Abacha, the son of General Abacha.
   4. This forfeiture was brought about using U.S. and Jersey civil forfeiture legislation, which allows assets which are shown (on the balance of probabilities) to represent the proceeds of crime to be forfeited by the court.
   5. In this case the U.S. had jurisdiction because money stolen from the Nigerian Treasury was laundered through U.S. dollar denominated bank accounts and using U.S. backed securities.
   6. Jersey had jurisdiction because Doraville held assets there, resulting in a U.S. civil forfeiture order enforced in Jersey.
2. In a second case,
   1. the Royal Court of Jersey recognised the appointment of two liquidators who had been appointed by the BVI High Court over three BVI companies. Those companies had been used to launder the proceeds of an over-invoicing infrastructure fraud whose victims were the Municipality of Sao Paulo and Brazil.
   2. The main fraudster was Paulo Maluf, the former Mayor of Sao Paulo, who had used BVI companies as part of the money laundering process.
   3. Mr Maluf has subsequently been convicted of criminal offences in Brazil. The liquidations followed a civil trial in Jersey in which judgment was obtained against two of the BVI companies in a sum which (with interest) has risen to over $30 million, giving liquidators control over the Jersey-held property of the three BVI companies and full access to their financial records.

Both of these cases represent textbook examples of jurisdictions with a sound rule of law taking responsibility for misuse of financial services, including company incorporation, as well as effective action being taken against criminals who misuse offshore companies.

In the context of the Nigerian case, the law enforcement authorities used statutory powers only available to the state to compel the production of documents. This was backed by full international cooperation, with everyone involved or who could show an interest having the right to be heard.

In the Brazil case, civil proceedings were instituted by Brazil and Sao Paulo against the BVI companies, alleging that they had dishonestly assisted in the fraud and knowingly received property. In Jersey local financial institutions were ordered to disclose documents, and Brazil and Sao Paulo were then able to freeze the assets in question in advance of the trial. The Jersey Court concluded “unhesitatingly” that there had been a fraud and, thanks to the BVI taking the necessary steps to enforce the judgment, liquidators are now in place and there is a very real prospect of a substantial recovery.

Registry…or Red Herring?

It is important that these cases are considered in the light of the very strong drive, led by the EU and Financial Action Task Force, to move to an international standard where public registries of beneficial owners of corporations become the norm. The Parliament in Westminster has become so exercised about this issue that it has purported to legislate for its Overseas Territories to force such registers upon those jurisdictions. How would such a system have realistically helped?

The answer is: “not much.”

In neither case above would the existence of such a register of the beneficial ownership of the offshore corporations have made any difference—and the stark reality is that the same is likely to be true in most cases of fraud. It is inconceivable that the Abacha or Maluf family would have made their names available to the public. A criminal of any sophistication will not have his name in a public registry.

The only people who will record their names will be honest citizens. Those are not the persons in which there should be any interest, and—on the contrary—it might be thought that they are entitled to some privacy as to their property and business affairs. Does anyone really think that the despot’s wife who owns the company which owns the central London hotel will allow her name on a public register?

Take, for example, the existing U.K. companies registry, which requires persons of significant control of a company be made public.

There is no effective regulation of the information provided—nobody checks it. Although it may be a crime to provide false information to the registry, the expression “garbage in, garbage out” springs to mind.

A better system would be to allow only the incorporation of companies by licensed corporate service providers. That is the system that many offshore centers—including the Crown Dependencies—have had in place for many years. There is a mass of legislation which requires banks and other financial services businesses, lawyers, and accountants to carry out proper due diligence before entering business relationships. If a corporate service provider is subject to inspection by an active regulator, then that should mean there is a proper check on whether a thorough due diligence process is being followed. The authorities, including tax authorities, have substantial powers to obtain information—by compulsion where necessary—both at home and abroad, and there are substantial international tax reporting obligations. Such effective regulation should significantly reduce the risk of companies being misused.

The information as to beneficial ownership of companies must be provided to many Offshore Companies Registries, and it is a crime to provide false information. Currently, that information is not available to the general public and is only accessible by law enforcement or court order. Courts regularly order disclosure of information where it is needed in both civil and criminal matters.

Will public registers of beneficial ownership realistically add to this body of information? It is difficult to see how they will be any more than window dressing. In fact, there is a real risk that such registries will be counter-productive and that criminals will use further layers of nominees and “straw men and women” to disguise their ownership of property, making the task of tracking down criminals, including tax evaders, even more difficult. This would inhibit the ability of an insolvency practitioner or asset recovery lawyer to uncover true beneficial ownership by a well-considered disclosure application.

So what are the alternatives?

Aside from the potential for requiring company incorporation by a licenced service provider, the most powerful weapons in the fight are the use by victims of the civil courts in jurisdictions with strong adherence to the rule of law and—one which has in reality been rarely used—the great powers of the law enforcement authorities. The U.K. has had powers to forfeit criminal property for many years, but they have not been widely used. The powerful laws which jurisdictions already have should be properly used. As just one example, broad publicity in the U.K. followed the first use by the High Court of an Unexplained Wealth Order, which requires a person to explain how an asset has been purchased with lawful income on pain of assets being forfeited in the absence of a satisfactory explanation. It will be very interesting to follow how frequently these orders will be used and how effective they will be. If properly used, they have the potential to be very powerful indeed.

Although it may score political points, legislation requiring public registries of beneficial owners is not necessarily the way forward when it comes to tackling these issues and may be counter-productive. Instead, jurisdictions with a strong rule of law must take responsibility for the misuse of their financial services. In civil cases, courts should be more willing to hear cases where assets are held in, or controlled from, that jurisdiction or companies incorporated there have been involved in wrongdoing. The result is likely to be less posturing, and more action.

Read original here

https://news.bloombergtax.com/daily-tax-report/insight-beneficial-registries-arent-the-best-solution-to-win-the-asset-seizing-race

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Stephen Baker is Senior Partner and Charlie Sorensen is a Senior Associate at Baker & Partners, a leading specialist offshore litigation and disputes law firm based in Jersey, Channel Islands.

Many financial services businesses in Jersey ( “relevant business or businesses”) which are subject to the requirement to carry out due diligence on their customers under the Money Laundering (Jersey) Order 2008 (“MLJO”) have historically placed a considerable measure of reliance on being able to operate a simplified due diligence process.

This process is in respect of situations where their regulated customers are acting on behalf of their customers – who are regarded as third parties from the standpoint of the relevant businesses.

In many cases, it can be impractical for relevant business to undertake a full due diligence exercise on these underlying third parties.

The typical scenarios encountered are

1. where the customer of the relevant business is acting as a nominee or intermediary for a significant number of its own underlying clients or where the customer of the relevant business is operating a pooled account or an omnibus arrangement which feeds in to a service or product which is offered, managed or administered by the relevant business in Jersey.

Historically Article 17 of MLJO

2. has provided a series of simplified due diligence approaches which address this type of situation and which effectively exempt a relevant business from carrying out full due diligence on underlying third parties provided certain conditions and control measures are complied with.

HOWEVER the Money Laundering ( Amendment No.10) (Jersey) Order 2019 ( “Amendment No.10”), effective on June 2019,

3. has made some significant changes to the simplified due diligence procedures notwithstanding that the stated intention of Amendment No.10 in this context was merely to re-cast the existing simplified due diligence permissions in the form of exemptions from the requirement to apply identification and verification procedures under MLJO.

These new Article 17 provisions are complex to read and digest, and the following paragraphs attempt to summarise the thrust of the changes that Amendment No.10 has brought about without getting too lost in the detail of the provisions.

TERMINOLOGY

Confirmation from a relevant person that carries on trust company business or a person who carries on an equivalent business that A is known to the trust and company services provider, and trust and company services provider is satisfied that the particular individual is the person whose identity is to be found out.

1. REGULATED BUSINESS has the meaning provided given in Article 1 of the Supervisory Bodies Law

regulated business” means –

1.  the business of a recognized fund, or of an unclassified fund, within the meaning of the Collective Investment Funds (Jersey) Law 1988[4], or
2.  a Schedule 2 business for which a person must –

(i)      be registered under the Banking Business (Jersey) Law 1991[5],

(ii)      hold a permit under the Collective Investment Funds (Jersey) Law 1988,

(iii)     be registered under the Financial Services (Jersey) Law 1998[6], or

(iv)     be authorized by a permit under the Insurance Business (Jersey) Law 1996[7];

b. EQUIVALENT BUSINESS has the meaning given in Article 5 of the Money Laundering Order

Equivalent business

For the purposes of this Order, business (“other business”) is equivalent business in relation to any category of financial services business carried on in Jersey if –

1. the other business is carried on in a country or territory other than Jersey;
2.  if carried on in Jersey, it would be FINANCIAL SERVICES BUSINESS of that category (whether or not it is called by the same name in Jersey);
3. in that other country or territory, the business may only be carried on by a person registered or otherwise authorized for that purpose under the law of that country or territory;
4. the conduct of the business is subject to requirements to forestall and prevent money laundering that are consistent with those in the FATF recommendations in respect of that business; and
5. the conduct of the business is supervised, for compliance with the requirements to which paragraph (d) refers, by an overseas regulatory authority.

“relevant person” means –

1. a person carrying on a FINANCIAL SERVICES BUSINESS in or from within Jersey; or
2. either –

(i)      a Jersey body corporate, or

(ii)      other legal person registered in Jersey,

carrying on a financial services business in any part of the world but for the purposes of this definition “financial services business” does not include the business of acting, otherwise than by way of business, as trustee of an express trust;

In-Scope Customer Relationships

Article 17 addresses broadly three types of customer relationships.

THE FIRST ( WHICH I AM CALLING CASE A)

Case A is focussed on what might be regarded as the most highly regulated /trustworthy counterparties.

Case A covers the following categories of regulated customer who are acting for underlying third parties:

1. Regulated banks in Jersey
2. Regulated public investment funds in Jersey
3. Regulated insurers in Jersey
4. Regulated investment businesses in Jersey
5. Regulated fund services businesses in Jersey
6. Foreign equivalent businesses to any of the above Jersey regulated businesses

The second ( which I am calling Case B)

CASE B is focussed on what might be regarded as customer types which rank below the most highly regulated/trustworthy counterparties.

Case B covers the following categories of customers who are acting for underlying third parties:

1. Unregulated Investment Funds in Jersey
2. Non-Public Investment Funds in Jersey
3. Foreign equivalents to either of the above categories

The third ( which I am calling Case C)

Case C addresses certain specific customer relationships and covers the following:

1. Jersey banks, lawyers or accountants dealing with a TRUST COMPANY BUSINESS IN JERSEY ( OR A FOREIGN EQUIVALENT BUSINESS) where the Trust Company Business is acting on behalf of one or more of its own underlying customers
2. Jersey banks dealing with Jersey lawyers where the lawyer is acting on behalf of an underlying customer of the lawyer

Article 17 Conditions and Control Measures

Before Amendment No.10, the MLJO deployed a range of conditions and control measures which were applied in different combinations to the three Cases reflecting the perceived risks inherent in these relationships.

The range of controls and measures used in the context of Article 17 comprised the following:

1. A requirement to record in writing the reasons why it was appropriate to place reliance on simplified due diligence taking account of the money laundering risks associated with the customer relationship;
2. Being satisfied that because of the nature of the customer relationship that there was little risk of money laundering occurring;
3. Operating a written assurance regime and obtaining confirmation that the customer has applied identification and verification procedures to the third party and will keep the evidence obtained and provide that evidence on request.
   1. Written assurances have the capability of being given on an evergreen basis to apply to multiple transactions during an ongoing relationship;
4. Operating a testing regime under which the relevant business
   1. periodically checks that the customer has appropriate policies and procedures in place to carry out customer due diligence and
   2. that they do obtain and keep information relating to third parties and will provide that information on request without delay; and
   3. that there are no legal impediments to the transfer of such data to the relevant business;
5. Where a third party for whom a customer is acting has a significant financial interest in the service or product with which the relevant business has a connection, a requirement that the relevant business will find out the identity and legal status of such third party.

AMNEMDEMNET 10 – the Application of the Conditions and Control Measures have changed.

Case A

1. In connection with Case A,
   1. the OLD version of the MLJO (before the Amendment No.10 changes) required the controls listed at 1 and 5 In the section above to be applied only.
2. Following the implementation of Amendment No.10 Case A is now subject to
   1. the controls listed at 1.and 4. above BUT NOT ( Paragraph 5. has been disapplied generally and removed from its former application to all three Cases).
   2. A significant change application of the testing regime in paragraph 4. to Case A
      1. This change constitutes a material increase in the compliance duties which need to be operated by each relevant business in connection with a Case A customer.
   3. It seems strange that control 4. has been applied to what would generally be perceived as the most highly regulated and trustworthy counterparties rather than control 3.
   4. Control 4 requires
      1. ongoing periodic checks that the customer due diligence procedures are fit for purpose whereas one might have assumed from the quality of a Case A counterparty that a one-off review resulting in the provision to the relevant business of an evergreen written assurance might, dependent on circumstances, have sufficed for this category of customers.

Cases B and C

1. In connection with Cases B and C, the OLD version of the MLJO before the Amendment No.10 changes required the controls at 1., 2., 3., 4. and 5 Listed above to be applied to customer relationships falling within Cases B and C.
2. Following the implementation of Amendment No.10 Cases B and C are now subject to CONTROLS 2. AND 3. ONLY.
3. This appears to be a significant relaxation in the extent of compliance duties that need to be undertaken to maintain Case B and Case C relationships in good standing with the anti-money laundering requirements.
4. As Cases B and C could be viewed as giving exposure to a higher risk of default than a Case A relationship

1. it seems strange that a one-off written assurance exercise could, in theory, be sufficient rather than applying for periodic scrutiny and review under the testing requirements in control 4.

What was the intention of Amendment No.10, and where are we going?

1. As noted above it seems strange that Amendment No.10 appears to have introduced material changes of emphasis to the due diligence requirements applicable to Cases A, B and C whereas the prior Consultation Document issued by the Jersey Financial Crime Strategy Group signalled that the changes would simply recast the existing simplified due diligence options in the form of exemptions from the need to carry out due diligence but without altering the conditions and limitations to Article 17 set out in the previous version of the MLJO.
2. Amendment No.10 is a holding exercise, in that the applicability of the exemptions from due diligence now set out in the revised Article 17 will be subject to further review once the National Risk Assessment exercise (“NRA”) being conducted in Jersey is completed.
3. The NRA will include a full review of the justification for exemption provisions in the island’s financial crime laws and the NRA results together with ongoing pressure that is likely to be exerted by MONEYVAL could well result in further changes being made in the medium term to Article 17 of MLJO.

On July 30, 2019, the US Court of Appeals for the DC Circuit unanimously upheld a district court order requiring three unnamed Chinese banks to produce financial records subpoenaed by US federal prosecutors. Although the US government does not currently suspect that the subpoenaed banks took part in wrongdoing, the banks were allegedly used by a now-defunct front company, controlled by the North Korean government, to facilitate hundreds of millions of US dollars in transactions through correspondent accounts maintained by the subpoenaed banks at US financial institutions.

The US government believes that the subpoenaed documents may reveal how North Korea circumvented US economic sanctions intended to prevent it from financing its nuclear weapons program.

The DC Circuit, in considering the government’s evidence, afforded considerable deference to the representations of the US Treasury Department’s Office of Foreign Asset Control (OFAC) in several actions and notices relating to the alleged front company.

Notably, the US government sought not only records about transactions passing through the subpoenaed banks’ US correspondent accounts, but all records relating to any transactions by the front company at the subpoenaed banks.

In affirming the lower court’s order, the DC Circuit has potentially opened a door through which the US government can obtain a wide array of transactional records from foreign banks, even if those records are unrelated to US operations or US correspondent accounts, if the transactions are “in service of an enterprise entirely dedicated to obtaining access to US currency.”

However, it remains to be seen whether the unique facts of this case will limit the effect of the court’s decision.

Case background

The US government first-served subpoenas on the banks in December 2017, seeking records in connection with its investigation into the alleged front company.

The banks objected to these subpoenas, arguing that complying with the requests would require the banks to violate multiple Chinese laws.

The banks requested that the US government submit a formal request for the records to the Chinese government through the Mutual Legal Assistance Agreement (MLAA). The US government, apparently believing that such a request would be futile based on past experiences, refused to submit an MLAA request to the Chinese government.

Following a year of unsuccessful negotiations between the banks and the US government, the US government filed a motion to compel enforcement of the subpoenas in November 2018. The district court granted this motion and ordered the banks to comply with the subpoenas.

The banks continued to decline producing the documents, reiterating their concerns over Chinese law and arguing that the court lacked jurisdiction over them.

The district court held the three banks in contempt, and ordered each bank to pay a fine of $50,000 per day until they complied. The court stayed these fines contingent on the banks seeking an expedited appeal and the banks accordingly appealed to the DC Circuit.

Court finds two bases for personal jurisdiction

In their appeal, the banks objected to the subpoenas on jurisdictional grounds, arguing that that US courts lacked personal jurisdiction over them and thus could not order them to comply with the subpoenas.

Although several high profile court decisions in recent years have greatly narrowed the jurisdictional reach of US courts in civil actions brought against foreign banks by private litigants (including the Supreme Court’s ruling in Daimler AG v. Bauman and the Second Circuit’s ruling in Gucci Am., Inc. v. Weixing Li), the Court held that there were two separate bases that permitted jurisdiction over the banks under the circumstances.

1. First, the Court held that two of the banks, which operated branch offices in the US, had previously consented to personal jurisdiction when they signed agreements with the US Federal Reserve in connection with opening their US branch offices. In these agreements, the banks had expressly consented to jurisdiction by US federal courts in any US government proceeding initiated under the Bank Secrecy Act. In light of these agreements, the Court held that the investigation into the North Korean sanctions violations was a proceeding that had arisen under the Bank Secrecy Act and thus it established jurisdiction over the two banks. The fact that the North Korean front company was not alleged to have actually used any of the US branch offices was immaterial.
2. Second, for the remaining third bank, which had not maintained any branch offices in the US and had not entered into a similar agreement with the US government, the Court held that its alleged use of a US-based correspondent bank account to facilitate transactions in US dollars on behalf of the North Korea-owned front company was sufficient to establish specific personal jurisdiction over the bank. The Court approved the subpoena’s broad request for all records relating to the bank’s US correspondent account, including records of related transactions that occurred outside of the US. The Court noted, however, that this was based on evidence that the specific front company in the case had “operated exclusively as a US dollar clearinghouse” for North Korea, suggesting that jurisdiction may be more limited under different circumstances. The court did not elaborate further, but such circumstances could include customers that do not engage in US dollar transactions or use US correspondent banking services. In light of this bank’s more limited ties to the US, the US government had used a special subpoena pursuant to an anti-money laundering provision of the Patriot Act rather than the broader grand jury subpoenas used for the other banks.

Court Holds that Patriot Act Subpoenas Can Reach Records of non-US Transactions “Relating to” the Use of US Correspondent Bank Account

The court also clarified the scope of records that may be subpoenaed under the Patriot Act, in order to resolve a disagreement between the government and one of the banks over its service of process provision, 31 U.S.C. § 5318(k).

The bank argued that the language should be narrowly construed to only include records of transactions that passed through the bank’s US correspondent banking account. The government argued for a more expansive interpretation that would include all records that had “a connection with” the company’s use of the US correspondent bank account, including transactions that were not made on the correspondent account itself.

The court analyzed the statute using statutory interpretation principles and endorsed the government’s more expansive interpretation. The court held that records “related to” the company’s use of the US correspondent account included “records of transactions that do not themselves pass through a correspondent account when those transactions are in service of an enterprise entirely dedicated to obtaining access to US currency and markets using a US correspondent account.”

International Comity Considerations

The banks also challenged the subpoenas as inconsistent with principles of international comity, [www.law.cornell.edu/wex/comity_of_nations] as they would require the banks to violate Chinese banking secrecy laws and also because the US had not used the MLAA with China to make the requests.

The Court rejected these arguments, upholding the district court’s decision to enforce the subpoenas over international comity objections after it had determined that the US government’s national security interests overcame China’s interests in enforcing its banking secrecy law and that the MLAA request would “likely prove ineffective.”

Implications for non-US Banks

The three banks may still appeal the decision to the Supreme Court or seek an en banc rehearing before all of the judges on the DC Circuit, but if the decision is not reversed it will have significant implications for non-US banks that maintain branch offices or correspondent bank accounts in the US.

Although private litigants in US courts now face a very high bar to establish personal jurisdiction over foreign banks, this decision firmly establishes additional avenues to establish personal jurisdiction that are available to government investigators. The government may use this expanded jurisdictional reach to adopt a more aggressive approach to investigate financial crimes abroad, and to subpoena records from foreign banks.

In light of this decision, virtually any foreign bank which has signed an agreement with the Federal Reserve to open a US branch office may be deemed to have waived any objection to jurisdiction in connection with certain government investigations.

These agreements require banks to expressly consent to personal jurisdiction in any matter initiated by the government arising under the Bank Secrecy Act and this consent is not limited to the bank’s activities in the US branch offices.

This decision also means that the use of a US correspondent banking account to violate US sanctions can establish specific personal jurisdiction to subpoena records connected to suspect transactions.

Significantly, this decision may be used to reach records of transactions which only “relate to” the use of the US correspondent account despite not being transacted through such accounts themselves. Thus, suspicious transactions in and through a US correspondent bank account may now be used to probe the bank’s wider relationship with the customer.

As a result, banks should consider adopting effective safeguards to ensure that all transactions made in US dollars or which will be processed through a US correspondent bank account are in full compliance with US law. Banks should also consider what jurisdictional waivers and regulatory requirements they are consenting to through these agreements when deciding whether to operate a branch office in the US.

Sourced

Europe has come up with a nifty plan to help Iran buy and sell stuff outside the reach of U.S. sanctions. The problem is that the plan is a fraud magnet. How do we know?

The plan is known as the “Instrument in Support of Trade Exchanges,” or “INSTEX.” Lots of smart people have been involved in creating the program. Let’s hope they’re not too young to remember 1995, when fraudsters first heard that the UN was setting up a program known as “Oil-for-Food.”

Similar to INSTEX, Oil-for-Food was designed to allow a sanctioned country (in that case, Iraq) to sell oil on the world market in exchange for food, medicine, and other humanitarian goods. A 2005 independent audit of the program found a staggering variety of fraudulent schemes netting billions of dollars in income for illicit merchants, intermediaries, and the Saddam Hussein regime itself. If INSTEX is not careful, it could be the victim of similar scams.

How INSTEX is designed to work

The program sets up a trade finance system between Europe and Iran. EU exporters send goods to Iran, submit invoices to INSTEX, and receive payment from the INSTEX entity in Europe. Likewise, Iranian exporters send goods to Europe, submit invoices to the INSTEX-related entity in Iran, and receive payments in Iranian Rials. No U.S. dollars are involved, nor is the SWIFT system (both of which could subject the transactions to U.S. sanctions).

How fraudsters intend to work INSTEX

The idea has a certain merit. In theory, the system should help alleviate suffering in Iran by providing better access to humanitarian goods. But just as with Iraq nearly a quarter century ago, bad actors have no interest in doing good. In just one of many scams, Oil-for-Food fraudsters posed as sellers, submitting forged trade documents and getting paid for fake transactions. In the INSTEX context, it would look like this:

Lessons for the future

The fake seller scheme was only one of many attacks on the Oil-for-Food system. There was also massive fraud from the Hussein regime, which found multiple ways to skim illicit profits off the top of the program. With the passage of time, we expect fraudsters have only gotten more sophisticated.

Some have argued that the establishment of INSTEX is more political than economic. But the risk of fraud is real. Just ask the UN. Anyone interested in real humanitarian solutions for Iran should be wary.

Read more – https://www.globaltradelawblog.com/2019/08/19/instex-fraud-iran-eu/#page=1

Comsure’s moan –

This story shows why the money laundering laws are not used to their fullest effect. 

1 Although the proceeds of crime order against the duo as part of the civil process to recover the illegal benefit of their crime was used

a. WHY were they not indicted under the proceeds of crime law?

2. Also what about

a. the facilitators (e.g. lawyers, accountants, the banks, the virtual market places) of their crimes

and

b. end-users (e.g. the bank and the bank accounts) of their crimes?

Some key facts

1. The illegal business was the importation of fake goods from China (In the large part they were car badges from well-known manufacturers and also counterfeit toys) for resale
2. At the time or arrest there were 90,997 fake goods ready to be sold
3. the business had generated £1.75 million in illegal turnover.
4. The used fake IDS to set up and turn their businesses

The story reported

Counterfeit goods postmaster ordered to pay back £750,000 or face five more years in prison

A man found guilty of running a fake goods business online has been ordered to hand back three quarters of a million pounds of illicit earnings – or face a further five years in prison.

In August last year, Gregory William Whitehead, 50, most recently of Tregrehan Hill, St Austell , was jailed for 32 months and William Thomas Lemoyne, 37, formerly of Trevenson Street, Camborne , but now living in France, was handed a two year suspended sentence.

Both men had pleaded guilty to conspiring to supply counterfeit goods, including fake car accessories, toys and musical instrument accessories.

At a hearing at Truro Crown Court on Monday, Cornwall Council ’s Trading Standards Officers successfully secured

a proceeds of crime order against the duo as part of the civil process to recover the illegal benefit of their crime.

The court accepted that in total, the business had generated £1.75 million in illegal turnover.

For his part in the operation, former postmaster Whitehead was ordered to pay back £750,000 or face a further five years imprisonment.  Lemoyne was ordered to pay back £1,300.

Gary Webster, Senior Trading Standards Officer said:

“Today’s result sends a clear message to those who seek to profit by selling counterfeit goods.

“Where appropriate, we will always seek to recover any benefits made from illegal trading and take the profit out of crime.”

The proceeds of crime legislation is designed to help law enforcement agencies to identify money or assets gained by criminals during the course of their criminal activity. Agencies have powers to seek to confiscate these assets following conviction for relevant offences.

Rob Nolan, Cornwall’s Portfolio holder for the Environment and Public Protection, said: 

“It may be a cliché, but this just shows that crime does not pay.

“I would like to pay tribute to the excellent work of our trading standards team, whose diligence throughout this long-running investigation has led to this result.”

Some of the fake car badges and other goods imported by Gregory Whitehead and William Lemoyne

How Cornwall Live reported the court case

A former Cornwall post master and his cousin masterminded a global criminal enterprise which saw just over £2million worth of fake car accessories, toys and musical instruments shipped to the UK from China and then sold on eBay and Amazon.

Gregory William Whitehead, 48, and William Thomas Lemoyne, 36, appeared for sentence at Truro Crown Court after previously admitting their roles in what Cornwall Council Trading Standards has described as its biggest ever operation.

Both men admitted conspiracy to supply counterfeit goods at an earlier hearing.

Prosecuting barrister Alexander Greenwood described to the court how Whitehead, most recently of Tregrehan Hill in St Austell had previously worked as the sub post master in St Columb. Along with his co-accused Lemoyne, previously of Trevenson Street in Camborne , both men traded from a converted barn warehouse at Carbean Mill in Carthew near St Austell.

When Trading Standards raided what was described in court as an “Aladdin’s cave” in February 2016 they found nearly 100,000 fake items boxed and divided by brand. The premises is said to have had three entrances and consisted of several floors, what Mr Greenwood described as

“clear evidence of a highly organised and systematic business”.

Mr Greenwood said:

“Boxes found were labelled for postage to France, Spain and ROW (rest of the world).

“There were 90,997 fake goods in the premises including goods that appeared to be Volkswagen, Mercedes Benz, Porsche, Ford, Honda, Jaguar and Jaguar.

“Investigations showed substantial sums paid from Lemoyne to the account of Whitehead and vice versa indicative of the relationship between the two.”

The court heard how the three and a half year enterprise came about after Whitehead agreed provide a UK selling point for the brother of his ex-wife in China. His former spouse Ying Yu was originally also subject to criminal proceedings but the charges were dropped.

FAKE IDs

Both Whitehead and Lemoyne used the identifications of innocent third parties to disguise their acts and also both set up a series of businesses under which the criminal operation performed.

Their criminality was discovered when officers examined a number of financial accounts and business names and were able to piece together the puzzle.

Mr Greenwood said:

“Gregory Whitehead was at the heart of what the prosecution says was a sophisticated conspiracy to import counterfeit goods for sale both in the UK and abroad.

“The offences date a number of years and both defendants were familiar with laws around the trademarking goods with Mr Whitehead even having to previously pay BMW for selling fake goods.”

The total value of the operation attributable to

Whitehead was £1,259,547 and

Lemoyne £347,118.

Sentencing Whitehead and Lemoyne, Judge Robert Linford said:

1. “Over a period of three and a half years you were responsible for the onwards distribution of a vast number of goods that were fake.
2. “You two agreed to and carried out the importation of goods from China.
3. In the large part they were car badges from well-known manufacturers and also counterfeit toys.
4. “You used the IDs of third parties and each knew what you were doing was severely wrong.
5. You, Mr Whitehead, were previously warned by BMW and Mr Lemoyne you were not ignorant of the rules and regulations either.
6. “The total value of the enterprise exceeds £2million.
7. Mr Whitehead the value of your side exceeds £1.25 million and Mr Lemoyne your side’s value was just under £350,000 although the profits were not as substantial.
8. “You both profited at the expense of the legitimate trademark holder and the over 90,000 counterfeit goods found in your possession were in the process of being sold.
9. “This was a sophisticated, commercial, for profit operation committed by you two who knew what you were doing.”

Judge Linford went onto note the considerable mitigation of both men but said he must impose deterrent sentences.

1. “With a heavy heart” Judge Linford sentenced Whitehead to 32 months in prison but said Lemoyne’s position was “very different” and therefore he was given a two year sentence suspended for two years.

Read here

https://www.cornwalllive.com/news/cornwall-news/counterfeit-goods-postmaster-ordered-pay-3233497

INTRODUCTION

1. The acclamation and social status that are linked to a winning team combined with the investment in clubs with little apparent expectation of a financial return have made the industry attractive to some criminals.
2. The European Commission (Commission)  recognises
   1. that sport can be attractive to criminals in order to launder funds due to the large amounts involved in a single transaction and the recent increase in the number of individuals involved in the administration of the sport.
   2. the sector is not material compared to some others in macroeconomic terms, it merits closer analysis given its significant cultural and social impacts,
   3. economic motives may not be of prime importance to criminals, social prestige, appearing with celebrities and players and the prospect of dealing with authority figures may attract those with less than honourable intentions.
3. The Commission notes that image-rights contracts, whereby prominent players sell the rights to clubs and others to use their image, and advertising contracts can be exploited for criminal purposes, particularly tax evasion, since monies paid under these contracts are “commonly transferred” to bank accounts of companies established in third countries. Consequently, the Commission opines that there is a serious risk of fraud as it is easy to avoid declaring that the funds have been received.

SOME CONVICTIONS

1. The convictions in Spain of three of the world’s leading players—Lionel Messi, Neymar and Cristiano Ronaldo—for tax evasion of payments under image-rights and sponsorship contracts being routed through offshore jurisdictions are prime examples of this type of criminality.
2. The most common form of payments involves foreign jurisdictions that allow the final destination of the payments to be disguised or hidden.
3. Image-rights contracts are also used to conceal the actual amounts paid to players.
4. Also, the arrests of some football administrators on the fringes of the 2015 FIFA Congress in Zurich by Swiss police at the request of US prosecutors led to headlines around the world and the resignation of the FIFA president. Subsequent court proceedings revealed the corrupt awarding of television and sponsorship contracts and the influencing of votes on the staging of the FIFA World Cup. Criminal investigations into these matters continue.

FIFA Setting the rules

1. FIFA, a private body, is based in Zurich and hence is subject to Swiss law. It controls the game worldwide through its 211 members, the football federation in each jurisdiction and the six continental confederations of national federations.
   1. Each federation must follow FIFA’s rules,
      1. National federations are responsible for the development and control of football within their country, ranging from grassroots teams and school football through to professional leagues and national teams.
   2. whilst FIFA is charged with safeguarding the reputation and integrity of the sport.
2. After allegations of corruption arose around the turn of the century, FIFA published its first Code of Ethics in 2004 and created an Ethics Committee.
3. FIFA also actively monitors betting on football matches in order to detect the fixing of matches or events within matches—e.g., goal scorers, red/yellow cards, penalties, etc.
4. FIFA has established the Transfer Matching System (TMS) to monitor and control the international transfer of players.
   1. TMS records over 30 types of information, including the player’s history, the club’s involved, payments, values and contracts.

THE REPORTS

One of the first examples of official concern of criminal infiltration into the sport was the 2007 EU White Paper on Sport, which noted that corruption, illegal gambling and money laundering were detrimental to the game.

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52007DC0391&from=EN

This was followed in 2009 by the Financial Action Task Force (FATF) publishing Money Laundering in the Football Sector, which set out the vulnerabilities of the sector and some typologies to highlight their concerns.

http://www.fatf-gafi.org/media/fatf/documents/reports/ML through the Football Sector.pdf

The Commission notes the lack of transparency over the transfer of players and the true owners or controllers of football clubs can lead to a small number of people controlling the industry and “cause serious concern about the prevention and suppressing of money laundering”.

Many of the issues raised by the Commission are explored by Transparency International in its 2016 Global Corruption Report on Sport.

https://www.transparency.org/whatwedo/publication/global_corruption_report_sport

FATF observed the use of family members, lawyers, accountants and consultants to create structures to facilitate the movement of illegal funds. It further noted that payments under image rights and other contracts are often transferred to bank accounts in third countries with serious risks of fraud.

RED FLAGS & VULNERABILITY TO MONEY LAUNDERING

The Commission has provided some case studies to demonstrate the sector’s vulnerability to money laundering:

1. Firstly, a club in Portugal’s top division was relegated and soon found itself to be under considerable financial pressure.
   1. An offer of financial support from a Russian consortium was rapidly accepted by the club’s directors.
   2. The consortium soon purchased and thus controlled the club via a series of frontmen and offshore companies without the federation, at the time, understanding who controlled the club and how they generated the funds to take over the club. The club was then used to launder millions of dollars, via the under- or over-valuation of transferred players, television rights deals and betting.
2. Secondly, clubs that are acquired by criminal groups can be used to launder funds generated from betting on fixed matches.
3. Thirdly, sports corruption and match-fixing are often carried out by criminal groups with links to drug trafficking, illegal tobacco smuggling and burglaries.
4. Finally, an organised crime gang created different websites for online betting purposes to bet on manipulated sports events across Europe.
   1. The gang then developed links to their gangs to invest funds from serious crimes, including the illicit trafficking of drugs.

Based on its own case studies, the Commission believes that the threat of money laundering to professional football is “significant,” which is its second-highest category of risk.

UK HMRC

1. In the UK, the tax authority, Her Majesty’s Revenue and Customs (HMRC) disclosed in March 2019 that it had written to 1,900 agents announcing potential tax investigations following “serious allegations of fraud”. HMRC had previously announcedtax investigations into 173 players, 40 clubs and 38 agents.

https://economia.icaew.com/news/march-2019/hmrc-warns-football-agents-over-fraud-investigations

2. The determination of HMRC to address perceived tax evasion in football was demonstrated by its “dawn raid” on April 2017 on the premises of a Premier League club, Newcastle United. The ensuing legal challenge to the lawfulness of the authority’s actions focussed on the “free” transfer of a player to the club. Two days before the transfer took place, Newcastle brought an agent into the transaction. He received £1.9 million for his services, of which £1.7 million was paid away to other parties, so much so that the player, according to HMRC, had undisclosed tax liabilities of £1.1 million.

3. The court upheld HMRC’s actionsand later Newcastle made a provision of £22 million in its financial statements to cover a tax dispute with HMRC.

https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Admin/2017/2402.html&query=(%22Newcastle)+AND+(United%22)

4. Tax authorities across the world often view payments to players under image-rights contracts as “disguised remuneration” that should have been subject to deductions for income tax and social security duties on behalf of the player and payroll taxes for the club as the employer.

5. The judgment in Hull City v HMRCclearly sets out how the tax authority successfully challenged such payments.

https://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2019/TC07074.html&query=(Hull)+AND+(City)+AND+(HMRC)

THE COMMISSION NOTE  INDAQUACIES  

1. The Commission believes that the operation of the TMS is inadequate in that its contents are only available to the public authorities following lengthy intergovernmental negotiation on a case-by-case basis.
2. They complain that FIFA appears to be more concerned with its own commercial and private interests, alongside those of the clubs and the federations, than with assisting law enforcement and tax authorities.
3. The English Football Association (FA) did produce a guide on money laundering for clubs in 2008, but it was held in low regard and is not readily available on the FA’s website.

THE COMMISSION MAKES RECOMMENDATION

4. After noting that “the sector’s ability to provide dedicated resources and training in this area is still quite low”, the Commission concludes that “the level of money laundering vulnerability in the professional football sector is considered moderately significant/significant.”
5. The Commission separately notes that the sector “is not frequently used by terrorist groups” and that it has no evidence of any links to terrorist financing. Accordingly, it believes that the threat of terrorist financing to the football sector is deemed to be “moderately significant”, which represents the second-lowest threat level.
6. The raising of the awareness of the risk of money laundering in the sector amongst all relevant parties—including clubs, players, lawyers, accountants, consultants, etc.—is recommended by the Commission

SARS

1. To resolve this situation, the Commission calls for clubs, federations and associated lawyers, accountants and consultants to be required to submit suspicious activities reports to authorities just as banks are required to do.
2. Professional football clubs and players’ agents will be required to report suspicious transactions to the police or face criminal sanctions, just like banks, if radical measures proposed by the European Commission ( Commission) are adopted.
3. These measures are recommended in the Staff Working Documentthat accompanied the Commission’s recently published Supranational Risk Assessment of money laundering and terrorist financing risks facing the European Union and its 28 member-states. https://ec.europa.eu/info/sites/info/files/supranational_risk_assessment_of_the_money  _laundering_and_terrorist_financing_risks_ affecting_the_union_-_annex.pdf
4. The Commission believes these measures are necessary to combat the “significant” risk of money laundering in professional football and the “moderately significant” risk of terrorist financing in the sector.

NEW PENALTIES, NEW RULES

The Commission proposes a number of statutory measures for EU member states to consider adopting on a “comply or explain basis”:

1. Players’ agents, clubs, federations, confederations, companies and individuals should be required to report suspicious activities to statutory authorities;
2. Clubs should keep all contracts for five years;
3. Full identification should be required of all investors, including those who operate via corporate vehicles;
4. Registrations of the origin of bank account holders and the beneficiaries of funds sent to tax havens should be strengthened, and the ability to obtain information for all countries where such accounts are held should be improved;
5. Training for players, their agents, clubs, federations, and confederations should be augmented;
6. Clubs, federations and confederations should be sanctioned if they fail to provide full details about all transfer of players, including the financial structure of the transfer, the full identity of the player and any agent;
7. Independent audits of federations and confederations should be obligatory.

As regards agents, the Commission recommends that EU member-states do the following:

1. Create a registry of players’ agents, even where a player uses a family member or a lawyer as his/her agent;
2. Require all agents to be licensed;
3. Regulate and supervise the activities of agents;
4. Establish legal limits on dealing as an agent and requiring agents to be registered with a statutory body as well as with FIFA;
5. Prohibit anyone with a criminal conviction from acting as an agent or anyone who has lost a civil case regarding fraud, tax evasion or who has other unpaid civil liabilities;
6. Require agents to notify the player and relevant clubs of all other agents to be used in the transfer.

KNOW YOUR RISKS

1. PROFESSIONAL SPORTS – Investments in professional football and transfer agreements relating to professional football players –

a. There ARE EIGHT pages(232-240) devoted to professional football out of a total of 264 pages in the Commission’s Supranational Risk Assessment attracted a disproportionate interest from the mainstream media, thereby demonstrating the cultural and societal importance of the “beautiful game”.

https://ec.europa.eu/info/sites/info/files/supranational_risk_assessment_of_the_money_laundering_and_terrorist_financing_risks_affecting_the_union_-_annex.pdf

https://ec.europa.eu/info/sites/info/files/supranational_risk_assessment_of_the_money_laundering_and_terrorist_financing_risks_affecting_the_union.pdf

b. Financial crime staff would be well advised to review their client base to ascertain whether they have any individual or corporate customers who are associated with the sport.

c. Given the Commission’s risk assessment of the sport, firms should consider whether any football-linked clients should be afforded enhanced due diligence.

d. More generally, prudent staff should also compare the Commission’s risk assessment of other sectors to their firms’ assessments of those sectors and consider whether any adjustments are necessary.

THE ABOVE IS SOURCED FROM https://www.riskscreen.com/kyc360/article/refereeing-football-the-eus-plan-to-address-its-money-laundering-risks/