Episode 116

8th July – 14th July 2024

Sanctions

This week’s sanctions news starts in the US, where the Office of Foreign Assets Control (‘OFAC’) has made two deletions and an administrative list update to its Specially Designated Nationals List. It has also updated Venezuela General Licence 40C, which ‘authorises certain transactions involving the exportation or reexportation of liquefied petroleum gas to Venezuela.’ The US Department of State has also announced sanctions against ‘three Israeli individuals and five entities connected to acts of violence against civilians in the West Bank. One of the targets … is Lehava, an organization led by U.S.-designated Ben Zion Gopstein that has been involved in acts of violent extremism. Lehava’s members have engaged in repeated acts of violence against Palestinians, often targeting sensitive or volatile areas. Additionally,… sanctions [are imposed] on four outposts that are owned or controlled by U.S.-designated individuals who have weaponized them as bases for violent actions to displace Palestinians. Outposts like these have been used to disrupt grazing lands, limit access to wells, and launch violent attacks against neighboring Palestinians.’

In Switzerland, the ‘Federal Department of Economic Affairs, Education and Research (EAER), in its capacity as the competent body for sanctions, expanded its sanctions listings against Russia on 8 July. Switzerland is thus adopting the additional sanctions listings decided by the EU …[and the]… changes will take effect at 6pm on 9 July…. The new sanctions mainly target businesspersons, propagandists, members of the armed forces and judiciary, persons responsible for the deportation of Ukrainian children and members of the Federal Security Service of the Russian Confederation (FSB). The newly sanctioned entities include, in particular, companies operating in the Russian defence sector as well as companies in the financial and trade sectors that are actively involved in circumventing sanctions.’

In the UK, The Foreign, Commonwealth and Development Office (‘FCDO’), the Export Control Joint Unit (‘EJCU’), and the Office of Financial Sanctions Implementation (‘OFSI’), have updated several guidance documents respecting the sanctions of the following countries: Zimbabwe; Venezuela; Republic of Guinea-Bissau; Bosnia and Herzegovina; and, Nicaragua. They have also updated the Global anti-corruption sanctions guidance and the Global Human Rights sanctions guidance.

Bribery and Corruption

In this week’s bribery and corruption news, the Organisation for Security and Cooperation in Europe (‘OSCE’) ‘facilitated a training course to enhance the knowledge and skills of criminal justice practitioners from Moldova on investigative techniques in corruption cases. The training course was jointly delivered by practitioners from Guardia di Finanza – Italy’s economic and financial police, the Anti-Corruption Prosecutor’s Office of Moldova, and the Romanian National Anti-Corruption Directorate, allowing participants to learn about different models, legal bases and mechanisms in investigating corruption. Special focus was put on Guardia di Finanza’s “follow-the-money” approach, which traces the movement of funds to determine the source and destination of potentially illicit funds. The second part of the training course focused on international co-operation in investigation of corruption, including formal and informal channels for exchange of information. Through practical exercises, participants worked on case studies, putting in practice their newly acquired knowledge.’

Staying Europe, Eurojust has supported a range of investigations into ‘corruption, trading and the influencing and bribery of foreign public officials have led to 13 searches across France, Spain and the Netherlands. A multinational company is being investigated for possible corruption and money laundering involving civilian and military equipment. French authorities have started multiple investigations into the company. The first investigation, opened at the end of 2016, concerns the sale of defence material and the construction of a naval base, around which there are suspicions of corruption. A second investigation, opened in June 2023, concerns the suspected corruption and influencing of foreign public officials linked to the sale of civilian and military equipment abroad.’ Not a lot of detail, but that might be expected at this early stage.

Sticking with Europe, the Council of Europe’s Group of States against Corruption (‘GRECO’) has published its Evaluation Report of Georgia. While the report recognises some positive developments over recent years respecting new integrity-related rules, together with asset and financial interests public declarations, the report does suggest the ‘adoption of a specific strategy to prevent corruption within the executive, as no new national Anti-Corruption Strategy and Action Plan have been developed since 2020. There is no code of conduct that applies specifically to persons with top executive functions and clear guidance on conflicts of interest and other integrity related matters should be developed for them. Regarding law enforcement..., GRECO recommends that an operational anti-corruption strategy be established, coupled with action plans for the law enforcement agencies. Georgia should also ensure that background checks/vetting are carried out at regular intervals for all levels and more frequently depending on police officers’ exposure to corruption risks and the required security levels. The implementation of the recommendations addressed to Georgia will be assessed by GRECO in 2025 through its compliance procedure.’

And, finally, on bribery and corruption this week, the United Nations Office on Drugs and Crime, has indicated that bribery is becoming less acceptable in Nigeria. In its report, Corruption in Nigeria: Patterns and Trends, jointly produced with Nigeria's National Bureau of Statistics, supported by the MacArthur Foundation and the Government of Denmark, when asked to pay a bribe in 2023, ‘over 70 per cent of Nigerians refused to do so on at least one occasion. Out of all citizens who paid a bribe, 8.6 per cent reported their experience to an official institution in 2023, a marked rise from 3.6 per cent in 2019…. The share of bribery reports that led to the initiation of a formal procedure against a public official increased nearly three-fold between 2019 and 2023, from 16 per cent to 45 per cent, while the share of those who experienced no follow-up after reporting fell from 34 per cent to 17 per cent. Despite these notable advances, corruption continues to rank among the most important problems affecting Nigerians, after cost of living, insecurity, and unemployment, and there remain challenges to effectively countering corruption in the country.’

Money Laundering

The money laundering news this week starts in Brazil, where the former president, Jair Bolsonaro, has been indicted for money laundering and embezzlement. Bolsonaro is accused of making an undeclared import of jewellery when entering Brazil from Saudi Arabia. The jewellery, reported to be worth $3 million, is significantly higher than the sum of $1,000, over which value all goods should be declared and taxed on entry. Bolsonaro denies the allegations.

To Europe now, where Danish authorities have charged Nordea bank with breach of Denmark's anti-money laundering laws which it claims were breached a number of times between 2012 and 2015. The breach is said to come from a failure to undertake sufficient due diligence of transactions by Russian customers valued at around 26bn crowns. There are believed to be no charges against individuals. In other news from Europe, authorities in Spain have arrested five members of an alleged Chinese criminal network on suspicion of money laundering. ‘Between 2 and 3 July, a dozen searches of homes, company headquarters, commercial warehouses and restaurants were carried out. The searches involved some hundred Spanish police officers who were supported on the ground by French Judicial Customs investigators and Europol experts. The searches took place in Madrid, Valencia, Alicante, and Barcelona. The head of the criminal network is among those arrested. Close to EUR 160 000 in cash was seized during the searches. The investigation was initiated in February 2021 by the French authorities after the French Customs in Perpignan seized more than half a million euros in cash hidden in a vehicle equipped with a concealed compartment.’ The European Union has also updated on the assistance it is providing to Namibia following its Financial Action Task Force (‘FATF’) grey listing this year. It is providing ‘a tailor-made training workshop for Namibia’s relevant officials in charge of financial intelligence analysis, investigations and prosecution of money laundering and terrorist financing as well as tracing and recovery of proceeds of crime.’

In the UK, the Bank of England has published a speech given by Victoria Cleland, Executive Director, Payments, on the power of Legal Entity Identifiers (‘LEIs’). A LEI is a ‘20 character standardised alpha-numeric code, enabling unambiguous identification of legal entities, avoiding challenges that arise from identifying entities by name alone. For example, confusion can arise where entities have similar names such as US commercial bank ‘Bank of England’ and the UK central bank ‘The Governor and Company of the Bank of England’. But there is no ambiguity between their LEIs (549300GY4NTTEM7WWB64 and YUEDD7W89PH0FV8Q2S28). Every LEI contains consistent reference information about an entity and its ownership structure, enabling an understanding of ‘who is who’ and ‘who owns whom’. The data is publicly available for free as a global directory, enhancing market transparency. Importantly, from the perspective of financial crime, Cleland indicated that financial crime checks could be simplified by using LEIs as a reference to access due diligence information’, but that Cleland also referenced the value of LEIs globally, drawing attention to the work of the Financial Action Task Force (‘FATF’), where its ‘public consultation on Recommendation 16 (the principal standard covering information required to be contained in cross-border payment messages for financial crime purposes) specifically references LEIs to be required as a mandatory element in cross-border payment messages.’

Now, on the subject of the Financial Action Task Force (‘FATF’), this week it published a targeted update on the implementation of its standards on virtual assets (cryptoassets) and virtual asset service providers (VASPs) or cryptoasset service providers (CASPs)). The update relates to recommendation 15 (R.15) and the related interpretative note (INR.15), as well as recommendation 16 (R.16) (‘the travel rule’) and the related interpretative note (INR.16).

In terms of global news, the Commonwealth has drafted a new model law to aid countries in the regulation of virtual assets. The model law was presented at a high-level event hosted by the Commonwealth Secretariat at its London headquarters this week.

In Australia, AUSTRAC has updated those who may be interested on its international cooperation in order to address transnational serious and organised crime. It has doubtless assuaged the concerns of the Australian public by indicating that it engages in ‘regional and international forums; provides technical assistance or training to other financial intelligence units (FIUs) across the globe; and, exchanges information and intelligence.’ In addition, AUSTRAC has also issued a public update on the Fintel Alliance, which is a public-private partnership led by AUSTRAC with representatives from government, law enforcement and industry, central to which are the core principles of shared governance, shared strategy and shared investment.

Fraud

The fraud news this week starts in Europe where, first, the European Public Prosecutor’s Office (‘EPPO’) in Iași (Romania) has ‘brought charges against three individuals and five companies for aggravated subsidy fraud and money laundering, following an investigation into an IT project, with an estimated damage of €1 million. Two of the suspects referred to the court of Iași remain in pre-trial detention. At issue is a company that requested non-repayable EU funds of up to €2 million (RON 10 953 924), for an IT project for the development of innovative software solutions (Innovative Platform for Rapid and Secure Financial Transactions – PIST). According to the investigation, between 2020 and 2022, the beneficiary of the project submitted false or inaccurate documents for services and goods that were never delivered or purchased, as well as employment contracts for persons who were not actually employed – thus unduly obtaining funds from the EU budget of €1 million.’ Secondly, the EPPO has also announced charges concerning nine individuals and two corporations with customs fraud and corruption of public officials in Malta. ‘The charges include customs fraud, active and passive corruption of public officials, participation in a criminal organisation and money laundering…. At issue is a suspected fraudulent scheme to evade the payment of customs taxes and duties on the importation of clothing, bags, shoes and other goods from China, by under-declaring their value and weight. It is alleged that this was done with the complicity of customs officials, who are believed to have been offered money to refrain from correctly carrying out their duties.’ Thirdly, the EPPO has seized assets in the amount of €1.3m following a fraud and money laundering investigation in Naples, where a ‘company ostensibly operating in the field of administrative consultancy, which successfully applied in 2022 for two projects financed by EU funds. One of the projects involved a €300 000 loan for ‘the development of e-commerce for SMEs in foreign countries’, of which €150 000 was disbursed. The other involved a €1.3 million grant for SMEs (small and medium-sized enterprises), which was almost fully disbursed and financed by the Recovery and Resilience Facility (RRF). Based on the evidence, the company, lacking operational headquarters, employees, and utility contracts, submitted falsified financial statements for 2019 and 2020 in order to secure the €300 000 loan. It is understood that for the €1.3 million grant, the same company, with an auditor’s assistance, submitted entirely fictitious data to the paying agency. These documents were intended to simulate foreign operations, a prerequisite for the funding.’

Other Financial Crime News

In other financial crime news this week, the Financial Conduct Authority (‘FCA’) in the UK has announced that it plans to implement the FATF recommendations respecting the use of criminal background checks on the owners and controllers of financial institutions. In Consultation paper CP24/11, published this week, the FCA has set out how it will consult on the introduction of such checks when applications for authorisations are made from January 2025.

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news, starting in the UK, where the National Crime Agency has coordinated an international operation to degrade illegal versions of Cobalt Strike, ‘an illicit software which has been used by cybercriminals for over a decade to infiltrate victims’ IT systems and conduct attacks. Unlicensed versions of Cobalt Strike, a penetration testing tool used to check for vulnerabilities in a company’s network and help improve cyber security, were targeted during a week of action [at the end of June]. Since the mid 2010’s, pirated and unlicensed versions of the software downloaded by criminals from illegal marketplaces and the dark web have gained a reputation as the ‘go-to’ network intrusion tool for those seeking to build a cyber attack, allowing them to deploy ransomware at speed and at scale. Due to the range of tools, free training guides and videos that come with legal versions of the software, those adopting it for criminal use require low levels of sophistication and money. This disruption activity represents more than two-and-a-half years of NCA-led international law enforcement and private industry collaboration to identify, monitor and denigrate its use.’

And, finally, this week, the National Cyber Security Centre (‘NCSC’) in the UK has issued an alert about evolving techniques used by China state-sponsored cyber attackers, APT40. ‘The threat group APT40 has embraced the trend of exploiting vulnerable small-office and home-office (SoHo) devices as a launching pad for attacks. These devices are softer targets when they are not running the latest software, or are no longer supported with security updates, and they more easily conceal malicious traffic…. The UK has previously attributed APT40 as being part of the Chinese Ministry of State Security.’

References

AUSTRAC, Spotlight on our work with international partners.

AUSTRAC, Discover purpose behind the Fintel alliance.

Bank of England, A multi-tool for cross-border payments: the power of Legal Entity Identifiers − speech by Victoria Cleland.

Commonwealth, New Commonwealth model law to help countries regulate virtual assets.

Council of Europe, Georgia: anti-corruption body calls for stronger oversight and accountability in top executive functions and the police.

Council of Europe, Fifth Round Evaluation: Georgia.

Delegation of the European Union to Namibia, EU supports Namibia to tackle money laundering, terrorist financing and related crimes.

Eurojust, Eurojust supports searches into bribery and money laundering.

European Public Prosecutor’s Office, Romania: Three individuals and five companies indicted for €1 million fraud involving IT project.

European Public Prosecutor’s Office, Malta: Eleven charged in investigation into customs fraud and corruption of public officials.

European Public Prosecutor’s Office, Italy: EPPO seizes assets in €1.3 million fraud and money laundering investigation.