Episode 111

3rd June – 9th June 2024

Sanctions

This week’s sanctions news starts in the European Union, where the mood music around the 14th round of sanctions against Russia following its invasion of Ukraine picks up considerably. As regards the news concerning the content, and as we have reported during the lengthy consultation on the drafting of this latest round, the transportation and use of Liquefied Natural Gas (‘LNG’) in projects currently being undertaken by Russia is believed to be part of the package, as well as the bloc being urged to amplify sanctions circumvention. The issue of the use of oblique structures and third parties to obscure sanctions breaches is not only an issue for the bloc, but of concern for the US and the UK which have each issued updated enforcement policies, guidance, and notice of enforcement action in recent weeks. This is developing, with the final draft near, but not yet, complete. In other news from the EU, the Council has sanctioned nine additional individuals and entities in North Korea for activities related to the illegal weapons programme and its continued support for the Russia invasion of Ukraine by the supply, in particular, of drones. And, finally, the bloc in conjunction with partners across the globe has issued a joint statement on North Korea and Russia which involved in affirmation ‘that the recent sanctions designations by each of our governments represent a coordinated effort to hold the DPRK and Russia to account and to impose costs on actors and entities involved in the unlawful transfer of arms from the DPRK to Russia for use in attacking Ukraine.’

In the US, the Department of the Treasury Office of Foreign Assets Control (‘OFAC’) has designated one individual and four corporations from Iran for their involvement in the unmanned aerial vehicle (‘UAV’) programme, the products of which have been so effectively and devastatingly used in attacks within Ukraine by Russia. A disappointing story from the US to finish off. We reported in the podcast a couple of weeks ago that some in the US had threatened to sanction members of the International Criminal Court (‘ICC’) for its issuing of warrants against Israeli Prime Minister Benjamin Netanyahu and Israeli Defence Minister Yoav Gallant, together with three members of Hamas, for various war crimes for which they are alleged to be responsible. Well, this week, the US House of Representatives has passed a Bill to sanction the ICC, specifically targeting the officials involved in this case. The individuals concerned are subject to a ban on their entry to the US. While the Bill is unlikely to become law as the Democrats control the US Senate, and Biden would have to sign the Bill into law, I do think that the optics of the Bill are quite poor. Nation states cannot, on the one hand, support international institutions when its decisions align with their policy objectives, while on the other take action in the form of sanctions when its decisions are less welcome. Picking and choosing support on the basis of whether they are with your friends or your enemies is infantile and reminiscent of the school playground. Let’s hope this is the last of this sort of thing we see.

Bribery and Corruption

This week’s bribery and corruption news starts in the US, where a retired Admiral in the US Navy has been charged, along with two company executives, with a range of bribery offences. Robert Burke, Yongchul “Charlie” Kim, and Meghan Messenger, are alleged to have met in 2021 where it was said to have been agreed that ‘Burke would use his position as a Navy Admiral to steer a sole-source contract to …[the co-accused’s company]… in exchange for future employment at the company. They allegedly further agreed that Burke would use his official position to influence other Navy officers to award another contract to Company A to train a large portion of the Navy with a value Kim allegedly estimated to be “triple digit” millions.’ No indication of when the trial will take place, and a plea has not yet been entered. In another instance of bribery, only this time sentencing following conviction, a pharmacy owner has been sentenced for making payments and engaging in money laundering. ‘Richard Hall … worked with others to create and market expensive compounded medications, which are intended to be custom-tailored to individual patient needs. Hall paid marketers to recruit area doctors to write prescriptions for these expensive compounded medications, including by creating so-called “investment opportunities” so that doctors who wrote prescriptions to the pharmacy could profit from the pharmacy operations. Hall paid illegal kickbacks to these marketers and engaged in a conspiracy to launder the unlawful proceeds.’ And, finally, on bribery and anti-corruption news from the US, Ericsson, the telecoms corporation based in Sweden, has exited the monitoring which was part of the Deferred Prosecution Agreement it made with the Department of Justice following corrupt activities in China, Vietnam, and Djibouti. While the original period of independent compliance monitoring was three years, the term was later extended by one year.

Now, to the UK, where the Association of Chartered Accountants (‘ACCA’) has announced the findings of a report inro the scale of, and attitudes towards, bribery and corruption in business in the UK. The report, Bribery and corruption: The hidden social evil on your doorstep, indicates that more than half of small and medium enterprises (‘SMEs’) believe that having a robust corporate anti-bribery and corruption policy will cost the firm business. However, ‘77% agree that having a strong anti-bribery policy boosts customer confidence in their business, and 68% say it increases their chances of getting lucrative contracts with big businesses and public sector bodies.’ I missed this story at the time, so it is a couple of weeks old, but certainly worth looking through if you are responsible for the corporate bribery and anti-corruption compliance programmes within your organisation.

In the UK, Spotlight on Corruption (‘Spotlight’), the group which seeks to highlight corruption in the UK and overseas, has published a letter it has received from the National Crime Agency (‘NCA’) in the UK following contact Spotlight made to it about enforcement of political finance law since there is no agency with overall responsibility for criminal enforcement in the UK. The NCA has responded to indicate that while it does undertake some action in relation to such crime, it does not want a central role and, further, that if there are issues with the enforcement of electoral finance laws, then it may be due to the way the legislation, the Political Parties, Elections and Referendums Act 2000, has been drafted.

In Australia, the National Anti-Corruption Commission has announced that it will not investigate six individuals associated with the robo-debt scandal in Australia because of investigations already underway against five of them by the Australian Public Service Commission. Robo-debt was an automated scheme set up by the Australian government which made inaccurate demands for welfare repayments on the basis of flawed algorithms. The scandal has reached all parts of Australian government and officials.

We end this week’s round-up of bribery and corruption news with a coordinated action taken against individuals seeking to undermine the Red Notice system, which is used by international law enforcement agencies to flag fugitives from the law. Individuals were identified in Moldova seeking to pay, or having paid, intermediaries and public figures to warn wanted criminals of their Red Notice status. Four individuals have been arrested.

Money Laundering

The money laundering news this week starts with more news on Turkey’s attempts to remove itself from the Financial Action Task Force’s list of Jurisdictions Under Increased Monitoring – the so-called ‘grey list’. We have reported on this podcast in recent weeks, and it has been over all the mainstream and specialist media, that Turkey has been making significant efforts to remove itself from the list. It has gone hard on Crypto Asset Service Providers (CASPs), and looked to reshape its compliance and other money laundering-related obligations by new legislation which was debated in the parliament last week. Frankly, at this point, I feel invested in Turkey’s removal such is the sheer volume of stories on the subject, and their increasingly positive tone as we draw closer to decision day at the end of June. Indeed, such is the frenzy, it is reported that the imminent removal of Turkey from the ‘grey list’ has caused the Borsa Istanbul, the Turkish stock exchange, to make gains. At this point, a denial of removal would likely be devastating, but it is not without precedent. As I mentioned in last week’s podcast, a similar slew of stories predicting the removal of Philippines from the ‘grey list’ at the FATF’s February plenary turned out to be decidedly premature when the decision to leave them on the list was made. So, the decision around Turkey is almost too exciting to bear. Mark your diaries for the 28th June.

In the UK, Monzo Bank has revealed in its 2024 Annual Report that the Financial Conduct Authority (‘FCA’) has dropped the criminal investigation into possible breaches of anti-money laundering rules and other financial crime failings. ‘As disclosed in previous years, in 2021 the FCA commenced an investigation into our compliance with the Money Laundering Regulations 2017, potential breaches of some of the FCA Principles for Businesses and related FCA rules for anti-money laundering and financial crime systems and controls. The period under investigation is 1 October 2018 to 30 June 2022. In November 2023, the FCA informed Monzo that it was no longer assessing criminal liability relating to Monzo’s compliance with the Money Laundering Regulations 2017. The FCA will continue pursuing the investigation into potential breaches of some of the FCA Principles for Businesses and related FCA rules for anti-money laundering and financial crime systems and controls as a civil matter only. We continue to cooperate with the FCA in their investigation. The FCA enforcement division is continuing both their ongoing investigation and the review of our historic compliance with financial crime regulation; we expect it to take time to resolve. This could have a negative impact on our financial position, but we won’t know when or what the outcome will be for some time….’ No information from the FCA as yet.

Market Abuse

On market abuse news this week, we go back to a story we covered in episode 101 of the podcast and that is news relating to the outcome of action taken against former Chairman of Arista Networks, Andreas ‘Andy’ Bechtolsheim. Bechtolsheim was charged with insider trading and the Securities and Exchange Commission (‘SEC’) has announced that it has obtained final judgment in the matter. ‘The SEC alleged in its complaint, filed on March 26, 2024, that Bechtolsheim, who was Arista Networks's chair at the time, illegally traded in Acacia options on July 8, 2019, after learning of Acacia's impending acquisition through his and Arista Networks's longstanding relationship with another multinational technology company that was also considering acquiring Acacia. Immediately after learning this information, Bechtolsheim allegedly traded Acacia options in the accounts of a close relative and an associate. The next day, July 9, 2019, before the market opened, Acacia and Cisco announced that Cisco had agreed to acquire Acacia. According to the SEC's complaint, Bechtolsheim's trading generated combined illegal profits of $415,726 in the accounts of his relative and associate. Without admitting or denying the allegations in the SEC's complaint, Bechtolsheim consented to the entry of the judgment which enjoins him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, bars him from serving as an officer or director of a public company for five years, and orders him to pay a civil monetary penalty of $923,740.’

In other news from the SEC this week, insider trading charges have been filed against Andre Wong ‘for unlawfully trading the securities of NeoPhotonics Corporation (“NeoPhotonics”) ahead of an announcement that his then-employer, Lumentum Holdings Inc. (“Lumentum”), had agreed to acquire NeoPhotonics. According to the SEC’s complaint,… Wong learned material nonpublic information about Lumentum’s plans to acquire NeoPhotonics from a colleague at Lumentum. Based on this information, Wong purchased 10,000 shares of NeoPhotonics stock ahead of Lumentum’s acquisition announcement and generated approximately $62,000 in illegal profits.’ The case was brought about following data obtained through the SEC Market Abuse Unit’s Analysis and Detection Center, which is used to detect suspicious trading patterns.

Other Financial Crime News

In other financial crime news this week, the Organisation for Security and Cooperation in Europe (‘OSCE’) has released The Western Balkans Monitoring Report. The Western Balkans includes Albania, Bosnia and Herzegovina, Kosovo, Montenegro, and North Macedonia, and they have been monitored in the report in terms of their judicial responses to serious organised crime and corruption. ‘The Project’s trial monitoring identified symptoms of systemic challenges at the institutional, legislative and policy level, …[but noted that]… initiatives are already underway to address many aspects of the issues identified…. These include strategies, action plans, guidelines and targeted capacity building. These are substantial investments that, with sustained efforts, can lead to substantial progress. The main areas identified for further improvement at the institutional level, to varying degrees across the region, relate to ownership of reform processes, accountability and performance management, and resources allocation.’

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news, which starts in the UK, where there has been a cyber-attack on the systems of a number of London hospitals, resulting in the cancellation of operations, and emergency in-patients being sent elsewhere. This is not the first such incident of the targeting of medical providers. It has been reported many times that hospitals around the world have been targeted, and in some unconfirmed cases, there were resultant deaths from the associated disruption. There has, so far, been no claim of responsibility, but there are early suggestions that it could be a Russian cyber gang which goes by the name of Qilin. This assertion was made by Ciaran Martin, the former chief executive of the National Cyber Security Centre.

In Germany, the Christian Democrats, the political party, has suffered a cyber-attack, with around a week to go until the elections to the European Parliament. The Social Democratic party in Germany was subject to a cyber-attack last year. No claim of responsibility has so far been made.

Staying in continental Europe, the Centre for Cyber Security in Denmark has increased the threat level from cyber-attacks in the country from low to middle, which is threat level three of five on the scale used by the Danes. The shift is due to the continued threat from Russia following its invasion of Ukraine and the Danish government’s support for the collective action taken by the European Union against Russia, including the sanctions, the 14th package of which is in preparation.

References

Association of Chartered Accountants, Bribery and corruption – The hidden social evil on your doorstep.

Council of the European Union, DPRK: EU sanctions nine additional individuals and entities involved in the country’s activities related to illegal weapons programmes and supporting Russia’s war of aggression against Ukraine.

Delegation of the European Union to the Russian Federation, Sanctions: Joint Statement on DPRK-Russia.

Interpol, INTERPOL action leads to anti-corruption operation in Moldova.

Monzo Bank, Annual Report 2024.

National Crime Agency, NCA uncovers corrupt officials who helped wanted criminals to circumvent international Red Notice system.

Office of Foreign Assets Control, Iran-related Designations; Non-Proliferation Designations.

Organization for Security and Co-operation in Europe, Kosovo’s judiciary to treat organized crime and corruption cases more vigorously, OSCE Mission report says.

Securities and Exchange Commission, SEC Obtains Final Judgment Against Former Arista Networks Chairman Andy Bechtolsheim for Insider Trading.

Securities and Exchange Commission, SEC Charges Former Lumentum Executive with Insider Trading.

Spotlight on Corruption, Letter from the National Crime Agency highlights problems with the UK’s political finance enforcement regime.

Spotlight on Corruption, National Crime Agency Letter to Spotlight on Corruption.

US Department of Justice, Retired Navy Admiral and Business Executives Arrested for Bribery Scheme.

US Department of Justice, Pharmacy Owner Sentenced for Paying Illegal Kickbacks and Engaging in a Money Laundering Conspiracy.