Episode 104

15th April – 21st April 2024

Sanctions

In the UK, updates have been made to the consolidated list. First, the Foreign, Commonwealth and Development Office has made three updated to the Sudan financial sanctions regime. Al-Fakher Advanced Works Co. Ltd, Alkhaleej Bank Co Ltd, and Red Rock Mining Company are now subject to an asset freeze. Secondly, the Office of Financial Sanctions Implementation (‘OFSI’) has amended an entry on the Democratic People’s Republic of Korea financial sanctions regime. The National Aerospace Technology Administration remains subject to an asset freeze. Thirdly, 13 entries have been added to the consolidated list from the Iranian financial sanctions regime.

The US has been especially active in its sanctions activity this week. First, the Office of Foreign Assets Control (‘OFAC’) has designated 12 entities and 10 individuals in Belarus pursuant to Executive Order (E.O.) 14038. This action is superadded to its sanctions imposed, first, in response to the fraudulent August 2020 election and, secondly, President Alyaksandr Lukashenka’s support for Russia’s invasion of Ukraine. ‘The individuals and entities OFAC [targeted] include six revenue-generating state-owned enterprises (SOEs) and one entity and five individuals involved in facilitating transactions for a U.S.-designated major Belarusian defense sector enterprise. OFAC additionally [targeted] five entities and five individuals involved in a global arms network doing business with a U.S.-designated Belarusian defense firm.’ Secondly, OFAC also placed limitations on the importation and entry into the U.S. of Russian-origin aluminium, copper, and nickel, except as provided by law, licensed or otherwise authorised. In other news on sanctions from the US, you may recall the widely-reported news that the US had partially lifted sanctions on Venezuela with conditions around democracy, etc, attached. Well, the concerns about the failure of Maduro to make the changes necessary under the electoral roadmap agreement have caused the US administration to re-think its oil and gas sector authorisations, allowing them to lapse. They expired at 12:01am on 18th April. ‘Despite delivering on some of the commitments made under the Barbados electoral roadmap, [the US is] concerned that Maduro and his representatives prevented the democratic opposition from registering the candidate of their choice, harassed and intimidated political opponents, and unjustly detained numerous political actors and members of civil society. [The US calls] on Maduro to allow all candidates and parties to participate in the electoral process and release all political prisoners without restrictions or delay. In order to implement an orderly process following the expiration of General License 44, the United States will issue a 45-day wind-down license. Treasury’s Office of Foreign Assets Control also will consider requests for specific licenses to continue activities beyond the end of the wind-down period on a case-by-case basis.’

The other interesting news from the US this week on sanctions comes in the form of enforcement action. First, a former North Korean official serving in Thailand, Myong Ho Ri, has been charged with conspiracy to violate U.S. economic sanctions, as well as bank fraud, and international money laundering. According to the indictment, ‘Ri arranged for shipments of goods to North Korea using U.S. dollar wire transfers without receiving a license from the U.S. Treasury Department. Ri is charged with one count of conspiracy to violate the International Emergency Economic Powers Act (IEEPA), one count of conspiracy to commit bank fraud, and 18 counts of international money laundering relating to a scheme to smuggle goods into North Korea from Thailand via Dalian, China.’ Secondly, an international arms dealer has been charged with sanctions violations. Syrian national, ‘Mohamad Deiry and Lebanese national Samer Rayya, both principals of an Iraq-based arms company, Black Shield Ltd., are charged with conspiring to export munitions from the United States to Sudan and Iraq without the necessary licenses and approvals, in violation of the Arms Export Control Act. Additionally, Deiry and Rayya were charged with conspiring to commit money laundering in furtherance of their illicit procurement activities.’ Both individuals remain at large, but have connections with Syria, Lebanon, Iraq, Turkey, Russia, Belarus, Sudan and Libya.

And, finally, on sanctions news, and specifically from the US, OFAC has also targeted the Iranian UAV Program, its steel industry and automobile companies. The new sanctions are in response to Iran’s missile and drone attack on Israel which took place last weekend. OFAC has targeted ‘16 individuals and two entities enabling Iran’s UAV production, including engine types that power Iran’s Shahed variant UAVs, which were used in the April 13 attack. These actors work on behalf of Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), its UAV production arm, Kimia Part Sivan Company (KIPAS), and other Iranian manufacturers of UAVs and UAV engines. OFAC … also [designated] five companies in multiple jurisdictions providing component materials for steel production to Iran’s Khuzestan Steel Company (‘KSC’), one of Iran’s largest steel producers, or purchasing KSC’s finished steel products. Iran’s metals sector generates the equivalent of several billion dollars in revenue annually, with the majority coming from steel exports. OFAC … also [sanctioned] three subsidiaries of Iranian automaker Bahman Group, which have continued to materially support the IRGC and other entities designated pursuant to counterterrorism authorities, including Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL). Bahman Group itself is being concurrently designated for owning these entities.’ This action was coordinated with the action which the United Kingdom took this week, and which I mentioned earlier in the podcast.

Bribery and Corruption

This week’s bribery and corruption news starts in China, where the former chairman of the China Everbright Group, and ex-central bank executive, has been indicted on suspicion of embezzlement and bribery. Tang Shuangning was indicted by a court in Tangshan, according to a statement issued by the Chinese authorities. This action is the latest in a long line of action taken by the ruling Communist party in an attempt to root out corruption among current and former officials in the country.

In the UK, the All-Party Parliamentary Group on Anti-Corruption & Responsible Tax has published its Economic Crime Manifesto II, using the opportunity presented by the upcoming election in the United Kingdom to urge the next government to commit to stronger responses from the UK’s anti-corruption framework. While not limited to corruption, dirty money and its links to corruption are recurrent themes. The manifesto contends that the UK is inadvertently complicit in bankrolling dictators and kleptocrats around the world, but that illicit wealth also poses serious threats to the UK’s national and economic security.

While not in any sense coordinated with this news, though the timing could not be more coincidental, Transparency International UK has published its strategy for 2024 under the banner ‘Stopping Corruption Promoting Integrity’. While noting the extreme and diverse range of harms which corruption can cause, the strategy promotes the vision of ‘a world in which government, business, civil society, and the daily lives of people are free from corruption, along with a mission to stop corruption, promote integrity and,… hold power to account for the common good.’

Now, on the theme of committing to corruption reforms, Transparency International has raised the issue in the context of the European Union and the prospects for the new Directive on combatting corruption to be agreed by the bloc this year. ‘Time and again, significant cases of misuse of both state and EU funds have come to light. In fact, it’s been estimated that the EU loses up to €990 billion to corruption every year. Domestically, political corruption has undermined the rule of law and, in the most extreme cases, has even led to state capture. Currently, member states are not tackling these issues coherently. Not only are their rules not comprehensive and strong enough to effectively prevent and criminalise corruption, but there's also inconsistency between member states when it comes to which corruption offences are criminalised and how they are enforced. The EU has not been pulling its weight on the international stage when it comes to fighting cross-border corruption. EU companies that bribe officials in foreign markets rarely face punishment, and authorities are doing far too little to stop foreign corrupt officials and their cronies from brazenly laundering and investing their stolen assets in the EU…. [However, last year,] the European Commission proposed a dedicated directive on combatting corruption, seeking to harmonise anti-corruption legislation across all 27 EU member states and make it mandatory to criminalise offenses outlined in the United Nations Convention against Corruption (UNCAC) within EU law. It was a promising first step towards closing gaps in legal frameworks, increasing criminal sanctions, and expanding the tools and measures available to enforcement agencies in the investigation and prosecution of such crimes. Further headway was recently made in February when the European Parliament adopted its own position. This goes even further than what the Commission initially set out last year and introduces several elements that we advocated for – including those that establish the rights of victims of corruption and civil society organisations who represent them in court. The Parliament will enter into negotiations with the Council on the final version of the Directive later this year. It is critical that EU decision-makers take this opportunity to agree on strong measures that enable member states to more effectively counter corruption.’

Staying with the EU, its Delegation to Ukraine marked the 10th anniversary of its support for the rule of law and anti-corruption reforms in the country. Under the banner of ‘The Decade of Transformation, Towards a Future of Integrity’, the event marked the ‘significant progress in anti-corruption and Rule of Law reforms since the Revolution of Dignity. Overall, Ukraine improved its ranking in the Transparency International's Corruption Perceptions Index from 144 to 104 since 2013, and various surveys attest the growing intolerance among citizens for corruption, although much remains to be done to re-establish citizens’ trust in the justice system. This event was organised to emphasize the EU's pivotal role in reforming Ukraine's governance and to highlight the evolving dynamics of this cooperation, especially as Ukraine embarks on its path towards EU accession.’ Now, a story to dovetail these and there is news that Ukraine’s High Anti-Corruption Court has granted permission to confiscate the assets of the former Motor Sich president, Viacheslav Bohuslaiev.

In other corruption news, the International Federation for Human Rights (‘FIDH’), Transparency International, and Transparency International (France), are launching a three-year pilot program to combat grand corruption with a human rights-based approach. The partnership has been formed ‘to implement strategies to hold States, individuals, and companies responsible for acts of grand corruption…. A cornerstone of the organisations’ strategy is the development of a human rights-based advocacy and methodology guide to document grand corruption. Civil society leaders will be trained to use the guide in their countries and advocate nationally and internationally. Some of the programme’s other key actions include litigation to prosecute acts of grand corruption and advocacy to strengthen global governance on corruption and human rights.’

Money Laundering

The money laundering news this week starts in the US, where Commissioner Hester Peirce of the Securities and Exchange Commission (‘SEC’) has issued a strong response against making certain investment advisers subject to a range of anti-money laundering/countering the financing of terrorism (AML/CFT) regulations. Peirce argues that none of justifications offered in support of this latest proposal is convincing or compelling. Peirce is of the view that since there are few examples of where registered investment advisers have acted as an entry point for financial criminals, it may not be the problem suggested by FinCEN. As she states: ‘if the identified gap is really a problem, after so many years we should have a wide array of examples of how advisers were used by financial criminals. Instead, the threat unregulated RIAs pose to our national security and financial system seems to be largely notional.’

In Australia, Tiktok is under investigation by the anti-money laundering authority, AUSTRAC. The investigation is understood to have arisen in response to issues Tiktok had with its gifting service for streamers, which was an issue which surfaced, initially, in Turkey in 2022 where links were identified to terrorist organisations. There is nothing official on AUSTRAC, but the story is being so widely reported in the respected sections of the MSM, that it must have some legs. We’ll follow this one for sure.

And, finally, on money laundering news this week, Europol has announced 20 arrests in action taken against a money laundering gang. ‘The suspects laundered more than €10m using stolen identities of Colombian, Portuguese, Spanish and Venezuelan nationals. They had also created an ad hoc network of companies capable of financing the network’s activities and laundering ill-gotten profits…. During the action days, law enforcement officers carried out 13 searches that led to the seizure of:

€156 000 in cash,
gold bars worth €35 000,
more than 50 vehicles,
jewellery and over 30 luxury watches worth a total of €500 000,
electronic devices, such as mobile phones, and a weapon.

More than 100 bank accounts and 10 real estate properties worth over EUR 3 million were also blocked as a result of the operation.’

Staying with the EU, this week, MEPs will hold a final vote on the single EU anti-money laundering rulebook and the new Anti-Money Laundering and Countering the Financing of Terrorism (‘AMLA’). ‘The Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) package, to be discussed and put to a vote on Wednesday, was agreed with the Council in January. It includes the sixth Anti-Money Laundering (AML) directive, the EU “single rulebook” regulation and the Anti-Money Laundering Authority (AMLA).’ The debate and vote takes place on 24th April.

And, finally, on money laundering news this week, the Financial Action Task Force (‘FATF’) this week convened a meeting of Ministers representing 40 members of the organisation in Washington. The Ministers ‘reaffirmed their unwavering commitment to combat financial crime, and fully support the FATF as the global standard-setter for preventing and combatting money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction (AML/CFT/CPF)…. The Ministers noted that despite significant progress made, there continue to be gaps in effective implementation of the FATF Standards and committed to swiftly implement measures to improve the effectiveness of outcomes in tackling ML/TF and PF. The Ministerial Declaration also noted that further efforts were required on supervision and preventive measures, beneficial ownership transparency, investigating and prosecuting money laundering, and confiscating the proceeds of crime. Ministers reaffirmed their commitment to support jurisdictions to implement the tools needed to protect the financial system and the broader economy from the threats of illicit finance. Ministers also pledged to fully, swiftly and effectively implement the FATF Standards and to hold any member countries accountable if they fail to do so. Considering the serious ongoing threat of terrorism the world is facing, the FATF will continue its strategic focus on countering terrorist financing and encourage all jurisdictions to strengthen cooperation to better detect, investigate, prosecute and disrupt terrorist financiers.’

Fraud

On fraud news this week, two main stories. First, from the European Union, where Europol has reported the arrest of nine individuals in connection with the ‘JuicyFields’ investment fraud. On ‘11 April 2024, over 400 law enforcement officers in 11 countries executed 9 arrest warrants and conducted 38 house searches. During the investigation and action day, €4,700,000 in bank accounts, €1,515,000 in cryptocurrencies, €106,000 in cash and €2,600,000 in real estate assets were seized or frozen. Law enforcement also seized several luxury vehicles, works of art, cash and various luxury items, as well as large numbers of electronic devices and documents. According to judicial estimates, the total damages resulting from fake investments in the advertised cannabis cultivation crowdsourcing platform amount to a staggering €645m, but actual and unreported damages could be significantly higher. In total, an estimated 550,000 participants worldwide, most of them European citizens, were registered as online investors. Using bank transfers or cryptocurrencies, around 186 000 participants actually transferred funds into the elaborate Ponzi scheme active from early 2020 to July 2022.’

In the US, the CEO of a Californian biotech company, Decision Diagnostics, has been sentenced to seven years’ imprisonment for a $28m investment fraud scheme. ‘Keith Berman,… was the CEO and sole director of Decision Diagnostics Corp., a publicly traded medical device company. From February through December 2020, Berman engaged in a scheme to defraud investors by falsely claiming that Decision Diagnostics had developed a 15-second test to detect COVID-19 in a finger prick sample of blood when, in reality, no such test existed. Berman also falsely told investors that the Food and Drug Administration (‘FDA’) was on the verge of approving Decision Diagnostics’ request for emergency use authorization of its purported COVID-19 test. In reality, Berman knew that his company was unwilling and unable to meet the clinical testing required by the FDA but concealed these material facts and misled investors.’ Berman was not the only corporate indictment for Covid-19 fraud in the US this week. In Alaska, an individual has been charged with non-disclosure fraud on his Economic Injury Disaster Loan (EIDL) application, and three individuals have been charged with a multi-state fraud on the Paycheck Protection Program.

And, finally on fraud news this week in the UK, the Metropolitan Police has announced the infiltration of a website ‘used by more than 2,000 criminals to defraud victims worldwide… ‘LabHost’ is a service which was set up in 2021 by a criminal cyber network. It enabled the creation of “phishing” websites designed to trick victims into revealing personal information such as email addresses, passwords, and bank details. Users were able to log on and choose from existing sites or request bespoke pages replicating those of trusted brands including banks, healthcare agencies and postal services.’ The action was a joint one between the Met’s Cyber Crime Unit, the National Crime Agency, City of London Police, Europol, Regional Organised Crime Units (ROCUs), international police forces, and a range of private organisations.

Market Abuse

On market abuse news this week, a couple of minor things. First, a bit of reading. Pinsent Masons, the global law firm, has published analysis on the range of approaches taken to social media influencer marketing regulation across the Asia-Pacific region. I mention this because its profile has been raised by action globally to combat this matter. In the US, action has been taken against influencers providing investment encouragement to followers, while in the UK last month, the Financial Conduct Authority (‘FCA’) has published its finalised guidance on finfluencers and the law.

And, finally, on market abuse news this week, just a reminder that the Financial Conduct Authority’s consultation on publicising enforcement investigations closes on 30th April 2024.

Other Financial Crime News

In other financial crime news this week, just a reminder that in the UK, Companies House acquires its new powers to impose civil penalties from 2nd May 2024. This follows the passing of the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024 SI No 445.

Cyber Crime

The cyber-attack news this week starts with a harking back to a story we covered in episode 102 of the podcast where we reported that a joint letter had been sent to all State Governors in the US from the Environmental Protection Agency (‘EPA’) and a National Security Adviser, which warned of the threat to water and wastewater systems from a cyber-attack. Well, in a moment of painful coincidence, it has been reported that Russian cyber-attackers have breached a water treatment plant in Texas. While nothing has yet been confirmed, a report from Mandiant, which is owned by Google, has linked the attack to Sandworm, which has ties to the Russian military intelligence directorate, the GRU. Now, just to end this part, an article has been published this week in Governing, which is a magazine for people making government work, on how to protect water systems from cyber-attacks.

In other public sector and infrastructure attacks this week, it has been reported that services of the French government have been impacted by a cyber-attack this week. The cyber-attack group, ‘Anonymous Sudan’ has claimed responsibility for the attack, and most services have come back online. In Israel, Tel Aviv has experienced a significant power outage following a cyber-attack by a group referred to as the ‘Cyber Avengers’. The attack, it will come as no surprise, is a response to the Israeli action in Gaza.

And, finally, on cyber-attack news this week, the casino-operator, MGM, has commenced an action against the US Federal Trade Commission (‘FTC’) in a bid to prevent the FTC from demanding information from MGM following the cyber-attack it suffered in 2023. MGM claims that it should not be subject to such oversight because it is not a financial institution so exempt from the jurisdiction respecting FTC rules on consumer financial data. It’ll be interesting to see where this one goes.

References

All-Party Parliamentary Group on Anti-Corruption & Responsible Tax, Economic Crime Manifesto II.

Delegation of the European Union to Ukraine, “The Decade of Transformation, Towards a Future of Integrity”: the EU gathered partners to mark 10 years of its support to rule of law and anti-corruption reforms in Ukraine.

European Parliament, Fighting money laundering: final vote on a single EU rulebook and a new watchdog.

Europol, 9 arrests in EUR 645 million JuicyFields investment scam case.

Financial Action Task Force, FATF Ministers commit to stepping up efforts to fight money laundering, terrorist and proliferation financing.

Financial Conduct Authority, Consultation Paper CP24/2**: Our Enforcement Guide and publicising enforcement investigations–a new approach.

Governing, How to Protect Water Systems Against Cyber Attack.

International Federation for Human Rights, Fighting grand corruption: an essential lever to protect human rights worldwide.

Mandiant, Unearthing APT44: Russia’s Notorious Cyber Sabotage Unit Sandworm.

Metropolitan Police, Law enforcement infiltrates fraud platform used by thousands of criminals worldwide.

Office of Financial Sanctions Implementation, Financial Sanctions Notice: Sudan.