Episode 119

29th July – 4th August 2024

Sanctions

This week’s sanctions news starts in the UK, where the Office of Financial Sanctions Implementation (‘OFSI’) has extended the licence respecting the operation of Evraz Plc’s North American Subsidiaries. It now expires on 31 March 2025 at 23:59. OFSI has also extended the licence respecting the sale, divestment or transfer of financial instruments held at the National Settlement Depository (‘NSD’) in Moscow, and the payment of safe keeping fees. It now expires at 11:59pm on 12th October 2024.

Staying in the UK, the National Crime Agency (‘NCA’) has recovered £780,000 in forfeiture of sanctioned funds which, the NCA argued, were held for the benefit of Petr Aven, the former head of Russia's largest commercial bank, despite not being in his name. Aven was sanctioned in 2022 for supporting the government of Russia. ‘Attempts to relocate the funds, as well as transactions made after March 15 2022 by Aven's estate manager, Stephen Gater, are believed by the NCA to have been in breach of those sanctions. These included the payment of salaries to over 20 members of Aven's household staff, and the sale of a Bentley Bentayga worth £160,000. In 2022, the NCA obtained nine Account Freezing Orders over accounts linked to Aven, together with two sets of detained cash. The agreement between the NCA and Stephen Gater for the forfeiture of £783,827.34 was ratified at Westminster Magistrates Court on 29 July 2024.’ This is the first instance of the NCA securing forfeiture of sanctioned funds under the Proceeds of Crime Act 2002. OFSI has also announced that two entries have been removed from the Yemen financial sanctions regime, and therefore also from the consolidated list, and they are no longer subject to an asset freeze. The individuals are Ali Abdullah Saleh and Ahmed Ali Abdullah Saleh. This follows a decision of the United Nations made on 30th July 2024. Finally on sanctions from the UK this week, the Foreign, Commonwealth and Development Office has announced the implementation of a new search function to the UK Sanctions List which will enable users more effectively to search for designated persons without downloading the list in its entirety. This improvement, so it is said, is part of ongoing efforts to improve the UK’s sanctions infrastructure and the overall user experience to support sanctions compliance. I have had a play around with it, and it works well. It provides all the information anyone working in sanctions compliance could possibly need.

In the European Union, the Council has added ‘The Base’ to the EU Terrorist List. ‘The Base is an organisation of right-wing extremists involved in terrorist acts, which was founded by Rinaldo Nazzaro in 2018…. Following its listing, The Base is subject to the freezing of its funds and other financial assets or economic resources in EU member states. It is also prohibited for EU operators to make funds and economic resources available to the organisation. The Council today … renewed the list of persons, groups and entities subject to restrictive measures with a view to combatting terrorism, delisting one deceased person and maintaining the rest unchanged.’

In the United States, the Office of Foreign Assets Control (‘OFAC’) has imposed sanctions on ‘five individuals and seven entities based in Iran, the People’s Republic of China, and Hong Kong that have facilitated procurements on behalf of subordinates of Iran’s Ministry of Defense and Armed Forces Logistics. Those designated … procure various components, including accelerometers and gyroscopes, which serve as key inputs to Iran’s ballistic missile and unmanned aerial vehicle (‘UAV’) program. Iran’s acquisition of critical missile and UAV components continues to enable its proliferation of weapons systems to its proxies in the Middle East and to Russia.’ Additionally, OFAC has sanctioned two individuals and four companies that have facilitated weapons procurement for Ansarallah, commonly referred to as the Houthis.

Bribery and Corruption

This week’s bribery and corruption news starts in the UK, where the pressure group, ‘Spotlight on Corruption’ has published a report in which it is critical of the record of the UK in the enforcement of sanctions. In order to respond more appropriately to sanctions abuse, the report makes four principal recommendations. First, that the government should ‘develop and publicise a clear and ambitious cross-system sanctions enforcement strategy.’ A new cross-departmental sanctions task force should be created which is ‘overseen by a single minister responsible for sanctions delivery, to improve domestic coordination on sanctions enforcement.’ For sake of transparency, a new sanctions tracker should be established ‘to collate and publish centralised data on sanctions.’ Finally, the ‘incoming chairs of parliamentary committees should collaborate on a comprehensive, cross-committee inquiry into the UK’s sanctions regime and establish parliamentary mechanisms for the routine oversight of sanctions.’

Late in the week, the Serious Fraud Office (‘SFO’) in the UK announced charges against five former Glencore employees Alex Beard, Andrew Gibson, Paul Hopkirk, Ramon Labiaga and Martin Wakefield with conspiracy to make corrupt payments in order to benefit commodities giant’s oil operations in West Africa. ‘The five individuals,... have been charged in connection with the awarding of a range of oil contracts variously spanning Cameroon, Nigeria and the Ivory Coast from 2007 to 2014. Andrew Gibson and Martin Wakefield have also been charged in relation to the falsification of invoices to Glencore’s London office marked as service fees to a Nigerian oil consultancy from 2007 to 2011. A hearing is scheduled for 10am on Tuesday 10th September at Westminster Magistrates’ Court.’

The other bribery news from the UK this week takes us back to something we covered in episode 76 of the podcast, and it is the dispute between the Republic of Mozambique and a range of defendants, including the shipbuilder, Privinvest. You may remember that the Republic had won the right to commence the claim as being outside an arbitration agreement which it had agreed. The case commenced in October 2023, and judgment from the High Court was handed down this week. In finding for the Republic, Knowles J was scathing of the behaviour of many participants. ‘The trial revealed this to be a case of Mozambique as a developing nation being exploited by highly developed institutions and corporations that should know better. But it also showed a nation well capable of doing better but which was also let down by its own officials and office holders. It is remarkable to note that, in all I heard and read, I was unable to identify a single senior official or office holder who over the period 2011-2015 stood up for Mozambique and challenged or tested what was or might be going on.... There was corruption. But this is also a case about an overall absence of standards that went far wider than the instances of corruption. There were those prepared to prey on weakness and inexperience. Those who saw the opportunity to make money with no regard to whether the Projects would fail and what that would mean for others. Those who set their sights on self-interest and on personal financial reward, and put those over any sense of responsibility. There were no searching questions about preparation for supply, or the projections. Sometimes one piece of behaviour below proper standards enabled another with ultimate consequences that were truly serious. Some might be able to say that the law and any relevant regulatory framework did not require more of them than they did. But that is not my point. Those who did the worst may suffer legal or regulatory consequences, but what about the others? Law and regulation alone cannot do all the heavy lifting, even where the remarkable common law is available. They are not the only source of standards. A far greater sense of responsibility was required. The case shows why ethics is so critical in finance, in commerce and in state administration, and how bad things can get without ethics. On the banking side, the opportunity was there to show what banking could do. To focus on how banking could help and enable a nation and its people. But the opportunity was not taken, and that is nothing short of a tragedy. The focus was instead on what banking could make out of Mozambique, alongside others looking to do the same. Even if the banks were not to help and enable the nation, at least the involvement of banking expertise could have drawn attention to the fact that these Projects would fail. Instead, with sovereign guarantees in the picture, the reviews of the bankers were focused on the credit risk to the banks rather than also the propriety of what was going on as a consideration in its own right;… The scale and nature of what was able to happen in this case presented systemic threat to Mozambique’s economy. Its relationship with the IMF was tangibly damaged for a period. It is striking, and to note, that the banks were not searching as they asked about the IMF’s position on the financial commitments that Mozambique was proposing to take on. Could there not have been clear arrangements to enable, expect or require banks to check directly with the IMF rather than through the country? And, as a wider point, could the country have had the benefit of further support from the IMF and the international community in the crucial area of how to contract well?’ The Republic will be able to claim over $825m from Privinvest and another, as well as take advantage of an indemnity linked to $1.5bn under liability to lenders and bondholders.

Money Laundering

The money laundering news this week starts in the US, where the Financial Crimes Enforcement Network (‘FinCEN’)) has issued a notice to customers of financial institutions on the subject of reporting beneficial ownership information to FinCEN under the Corporate Transparency Act. In the Cayman Islands, the Beneficial Ownership Transparency Act 2023 came into force on 31st July 2024.

Fraud

On fraud news, more nostalgia, with news from the US of the sentencing and a guilty plea in relation to Covid-19 fraud. First, an individual has been sentenced for fraudulent receipt of Economic Injury Disaster Loans. Herman Nash has been imprisoned for 18 months, followed by five years of supervised release, after receiving $800,000 from the scheme. A restitution order in the sum of $738,000 was made, with the seizure of two vehicles. In the other case, a woman has pleaded guilty to the role she had in two separate conspiracies that resulted in more than $900,000 in fraudulent Paycheck Protection Program (PPP) loans. Under the terms of the plea agreement, the ‘individual must forfeit to the government at least $75,833, which represents the proceeds she personally obtained from the scheme, and pay $908,278 in restitution to the Small Business Administration, representing the total fraud loss associated with the wire fraud scheme.’

Also from the US, the Commodities and Futures Trading Commission’s Office of Customer Education and Outreach has issued an advisory ‘reminding the public that frauds may extend beyond one-time acts and that victims may be targeted multiple times—sometimes by the same criminal gangs…. In many cases, fraud is a long story, not a single act. People who are victimized by one fraud are often victimized again and again.’ The advisory provides that money and long-distance relationships should not mix; that individuals should be cautious of unsolicited contact in whatever form; that any trading platform used is registered with the appropriate organisation; and, that people should be wary of impersonation scams.

And, finally, on fraud from the US, the leader of a technical support scam has been sentenced to seven years imprisonment. ‘Vinoth Ponmaran … exploited elderly victims by remotely accessing their computers and convincing victims to pay for computer support services that they did not need and which were never actually provided.’ In total, the conspiracy generated more than $6 million in criminal proceeds from at least approximately 6,500 victims.

The other piece of fraud news this week comes from the UK, where the National Crime Agency (‘NCA’) has announced that it has closed down a platform used as part of a major fraud which causes 1.8m scam calls to be made. ‘Russian Coms, established in 2021, is thought to be behind financial losses in the tens of millions …[with]… an estimated 170,000 people across the UK … believed to be victims. The platform allowed criminals to hide their identity by appearing to call from pre-selected numbers, most commonly of financial institutions, telecommunications companies and law enforcement agencies. This enabled them to gain the trust of victims before stealing their money and personal details. Between 2021 and 2024, over 1.3 million calls were made by Russian Coms users to 500,000 unique UK phone numbers. Of those who reported to Action Fraud, the average loss is over £9,400.’

Market Abuse

On market abuse news this week, in the US, the Securities and Exchange Commission (‘SEC’) has charged an individual, Andrew Left, and his firm, Citron Capital LLC, ‘for engaging in a $20 million multi-year scheme to defraud followers by publishing false and misleading statements regarding his supposed stock trading recommendations…. Left is alleged to have used his Citron Research website and related social media platforms on at least 26 occasions to publicly recommend taking long or short positions in 23 companies and held out the positions as consistent with his own and Citron Capital’s positions. The complaint alleges that following Left’s recommendations, the price of the target stocks moved more than 12 percent on average. According to the SEC’s complaint, once the recommendations were issued and the stocks moved, Left and Citron Capital quickly reversed their positions to capitalize on the stock price movements. As a consequence, Left bought back stock immediately after telling his readers to sell, and he sold stock immediately after telling his readers to buy.’ Left has entered a not guilty plea.

The SEC has also charged the founder of social media company, Get Together Inc, known as ‘IRL’, has been charged ‘with defrauding investors by making false and misleading statements about the company’s growth and concealing his and his fiancée’s extensive use of company credit cards to pay for personal expenses. …Shafi … raised about $170 million from investors by portraying IRL as a viral social media platform that organically attracted the vast majority of its purported 12 million users.’ No further information has been released.

In Hong Kong, the Securities and Futures Commission (‘SFC’) has ordered ‘Mr Wu Kam Shing, a former executive deputy general manager of China CITIC Bank International Limited, to disgorge close to $3 million in ill-gotten gains after the [Market Misconduct Tribunal (‘MMT’)] found that he had engaged in insider dealing in the shares of Bloomage BioTechnology Corporation Limited (‘Bloomage’) following proceedings brought by the [SFC]. Between March 2017 and June 2017, Wu worked with a team of staff members of the bank in respect of a loan transaction to finance Grand Full Development Limited’s offer to privatise Bloomage. As soon as the loan was approved by the bank on 22 May 2017, Wu, in possession of the inside information, started acquiring Bloomage shares – using his wife’s securities accounts he controlled and his personal trading accounts – accumulating a total of 1,275,000 shares before the privatisation scheme was announced to the public some three weeks later. Wu then disposed the majority of the shares, making a profit of $2,971,604.43.’

Other Financial Crime News

In other financial crime news this week, in the UK, the National Crime Agency has launched a public private partnership to identify criminality using banking data. ‘The participating banks are providing the NCA with account data indicative of potential criminality. Subject matter experts and investigators from the NCA and the banks have formed a joint team to analyse the data, alongside the NCA’s own data. Any intelligence outputs will inform the NCA’s investigative work and help the banks to identify risk. Use of financial intelligence in such a way will better protect the public from serious and organised crime, and protect the integrity of the UK’s financial system. In other news respecting the NCA this week, the National Crime Agency main estimate memorandum 2024 to 2025 has been updated. The Primary purpose of this Memorandum is to provide the Committee with an explanation of the underlying business drivers for the changes made between the NCA’s 2024-25 Main Estimate and the 2023-24 Main Estimate and Supplementary Estimate.’

The NCA has also this week published its cross-system professional enablers strategy 2024-2026. The rationale behind the strategy is that professional enablers – banks, the legal sector, accountancy services, amongst others – ‘can play a critical role in the efforts of corrupt elites and Organised Crime Groups to conceal the origin and destination of the proceeds of crime, and they often play a direct role in the criminal activity that impacts … communities…. The strategy focuses on developing the whole system approach in order to:

1. Create an enhanced sectoral level understanding of the threat;

2. Ensure quality information is shared between law enforcement and supervisors;

3. Strengthen and co-ordinate the capabilities of the whole system;

4. Prevent enabling activity through supervision;

5. Achieve long-lasting disruptive impact against the threat;

6. Be a world-leader on the response to professional enablers.’

In other news from the UK, the Serious Fraud Office has also published its Annual Report and Accounts for 2023-2024. It’s a broad-based report, as you would expect, but there are a couple of things worth flagging. First, while the report notes that the SFO’s vacancy rate has fallen from 23% to 16.3%, this still represents a vacancy list in bald numbers of perhaps 40 – 50 individuals. Secondly, you may remember the success which ENRC had in its civil action against the SFO in December. Well, while the SFO has sought permission to appeal, it has made provision for special payments in relation to ENRC. ‘[The December] judgment held the SFO liable for a share of the losses incurred by ENRC in the period from August 2011 to August 2023. There will be a Phase 2 trial, likely to be in late 2025 or early 2026, to determine ENRC losses as a result of the opening of the SFO’s criminal investigation (the period April 2013 to August 2023) and what share the SFO and other Defendants should respectively pay.’

And, finally, in other financial crime news this week, in the US, the Department of Justice has announced the commencement of its new corporate whistleblower awards programme. Whistleblowers can ‘visit justice.gov/CorporateWhistleblower to report information about certain types of corporate crime. If the Justice Department brings a prosecution that results in the forfeiture of criminal proceeds, the whistleblower may be eligible to receive a portion of that forfeiture as a monetary award.’ The DoJ insists the strategy is a ‘proven one’, but that existing programmes, principally those at the Securities and Exchange Commission and the Commodity Futures Trading Commission, are limited to misconduct within the competence of those agencies. This change will, the DoJ contends, ‘fill the gaps in this patchwork’.

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news, starting in Russia, where it is understood that the Russian Central Bank has been suffering from a sustained cyber-attack, the responsibility for which has been claimed by the Ukrainian Directorate of Intelligence. The attack is understood to be causing significant operational difficulties, including connectivity issues and user access. The troubles for Microsoft continue with news that it has suffered a cyber-attack affecting Outlook and Minecraft. Services have been restored but, with the recent issue with CrowdStrike, the Microsoft PR must be working overtime to keep people onside.

To the UK now, where the Information Commissioner’s Office (‘ICO’) has issued a reprimand to the Electoral Commission, which is the national election commission which regulates political parties and election finance, following a cyber-attack which affected its systems between 24th August 2021 and 27th October 2022. The ICO found breaches of the UK GDPR in that the Commission did not ensure the security of personal data, and did not ensure the ongoing confidentiality of its processing systems. The reprimand outlined the remedial action taken by the Commission, some of which is redacted for obvious reasons.

In other news from the UK, data collected by insurer/reinsurer, Chaucer, has revealed that there has been a 586 per cent increase between 2022 and 2023 in attacks on UK utility companies. While many of the attacks have been in the manner of ransomware attacks, with compromised data, as with so many other countries, concern is increasing that the attacks focus on undermining the integrity of the critical infrastructure.

References

Cayman Islands, Beneficial Ownership Transparency Act 2023.

Commodities and Futures Trading Commission’s Office of Customer Education and Outreach, CFTC Warns Customers to Watch for Follow-on Frauds.

Council of the European Union, Sanctions against terrorism: Council renews the EU Terrorist List and designates a new entity.

Department of Justice, Caledonia man sentenced for COVID loan fraud.

Department of Justice, KC Woman Pleads Guilty to $900,000 Covid Fraud Scheme.

Department of Justice, United States v. Andrew Left.

Department of Justice, Leader Of Tech Support Fraud Scheme Sentenced To Seven Years In Prison.

Department of Justice, Deputy Attorney General Lisa Monaco Delivers Remarks on New Corporate Whistleblower Awards Pilot Program.

FinCEN, FinCEN Issues Notice to Financial Institution Customers on Beneficial Ownership Information Requirements.

FinCEN, Notice to Customers: Beneficial Ownership Information Reference Guide.

Foreign, Commonwealth and Development Office, The UK Sanctions List: Search Function.