Episode 123

26th August – 1st September 2024

Sanctions

This week’s sanctions news starts in the US, where more sanctions have been opened against Russia targeting international supply chains. The Department of the Treasury and the Department of State ‘targeted nearly 400 individuals and entities both in Russia and outside its borders—including in Asia, Europe, and the Middle East—whose products and services enable Russia to sustain its war effort and evade sanctions…. Treasury is targeting numerous transnational networks, including those involved in procuring ammunition and military materiel for Russia, facilitating sanctions evasion for Russian oligarchs through offshore trust and corporate formation services, evading sanctions imposed on Russia’s cyber actors, laundering gold for a sanctioned Russian gold company, and supporting Russia’s military-industrial base by procuring sensitive and critical items such as advanced machine tools and electronic components…. Treasury is also targeting Russian financial technology companies that provide necessary software and IT solutions for Russia’s financial sector. Treasury is aware of Russian efforts to facilitate sanctions evasion by opening new overseas branches and subsidiaries of Russian financial institutions. Foreign regulators and financial institutions should be cautious about any dealings with overseas branches or subsidiaries of Russian financial institutions, including efforts to open new branches or subsidiaries of Russian financial institutions that are not themselves sanctioned. Treasury has a range of tools available to respond to the establishment of new evasion channels. The State Department is targeting entities and individuals involved in Russia’s future energy, metals, and mining production and exports; sanctions evasion; Russia’s military-industrial base, including armed unmanned aerial vehicle (UAV) production, Belarusian support for Russia’s war effort, and air logistics entities; additional subsidiaries of State Atomic Energy Corporation Rosatom; and malign actors involved in the attempted, forcible “re-education” of Ukraine’s children.’ The Department of State noted later in the week that the designations include ‘two entities and 11 individuals who have been involved in the forcible transfer and deportation of Ukraine’s children to camps promoting indoctrination in Russia and Russia-occupied Crimea and who have imposed Russian indoctrination curriculums in those regions of Ukraine.’

In news relating to the Israel-Hamas conflicts, the Department of State has this week also sanctioned ‘Hashomer Yosh, an Israeli nongovernmental organization that provides material support to U.S.-designated outpost Meitarim Farm, and U.S.-designated individuals Yinon Levi, Neriya Ben Pazi and Zvi Bar Yosef. After all 250 Palestinian residents of Khirbet Zanuta were forced to leave in late January, Hashomer Yosh volunteers fenced off the village to prevent the residents from returning. The volunteers also provided support by grazing the herds and purporting to “guard” the outposts of U.S.-designated individuals …[and]… Yitzhak Levi Filant (Filant), the civilian security coordinator of the Yitzhar settlement in the West Bank. Although Filant’s role is akin to a security or law enforcement officer, he has engaged in malign activities outside the scope of his authority. In February 2024, he led a group of armed settlers to set up roadblocks and conduct patrols to pursue and attack Palestinians in their lands and forcefully expel them from their lands.’

And finally, on sanctions from the US this week, the Office of Foreign Asset Control (‘OFAC’), issued a host of new licences, of which General Licence No 103, and General Licence No 104, relax rules respecting certain Russia diamonds so as to ease restrictions on those legitimate businesses caught out by the imposition of sanctions.

Late last week, the UN Security Council ISIL (Da’esh) and Al-Qaida Sanctions Committee removed Yassine Chekkouri from its list of designations. This week, the United Kingdom and Switzerland followed suit, and the United Kingdom has updated the Consolidated List.

In the European Union (‘EU’), The Guardian in the UK reports that Josep Borrell, High Representative of the Union for Foreign Affairs and Security Policy, has urged the foreign ministers of the EU’s member states to consider sanctions against Itamar Ben-Gvir and Bezalel Smotrich, two Israeli government ministers who have made inflammatory statements and undertaken controversial acts which might be regarded as provocative. Borrell has also urged the lifting of restrictions on Ukraine’s use of long-range weapons against Russian military targets following Russian attacks on 26th August against civilians and critical infrastructure in Ukraine.

In the UK, the Office of Financial Sanctions Implementation (‘OFSI’) has announced amendments to the Counter-Terrorism (Domestic) Regime by the imposition of travel bans on two already designated individuals, namely Nazem Ahmad, who is a suspected Hizballah financier, and Mustafa Ayash, who is involved with Gaza Now, the media network. The Consolidated List has been updated, and the immigration restrictions to which these individuals are now subject are contained in the Counter-Terrorism sanctions: guidance.

And finally on sanctions this week, a blog post had been written by Alexander Kolyandr, ‘Tightening the Screw? — EU’s New Sanctions on Russia’, on the website of the Center for European Policy Analysis. The post considers the growing differences between sanctions against Russia as imposed by the US and EU.

Bribery and Corruption

The bribery and corruption starts this week in China, where Li Jiping, former vice president of China Development Bank, has been arrested on suspicion of bribery. In early August, he was expelled from the Communist Party for unspecified reasons relating to disciplinary issues and contravention of laws. While this latest news adds a little more meat to the bones, no further detail has, as yet, been provided. This is the latest effort from the Chinese authorities to root out corruption across all levels of society, and across all sectors of Chinese life.

In other bribery and corruption news this week, the US Department of Justice has, first, updated the information it provides on the Global Anti-Corruption Rapid Response Fund (‘RRF’) which is operated by the Office of Overseas Prosecutorial Development, Assistance & Training (‘OPDAT’).  The RRF deploys ‘prosecutors and law enforcement officials on temporary international assignments to help foreign partners investigate, prosecute, and adjudicate corruption and related offenses, and to recover assets.’ Secondly, OPDAT has also updated on its Multilateral and regional anti-corruption programs. Operating since 1991, it has ‘provided expert assistance and case-based mentoring to foreign counterparts to develop justice systems that can combat corruption consistent with international and regional conventions, protocols, and standards.’ Staying in the US, the Attorney’s Office has announced the guilty plea of a former corrections officer who admitted ‘receiving approximately $1,600 in what he described as “bribe” payments in return for smuggling cigarettes into the facility [at which he worked].’

In other significant anti-corruption news this week, the Council of Europe’s Group of States against Corruption (‘GRECO’), has published a report on Italy. The Report calls for ‘determined measures to prevent corruption in Italy in respect of persons with top executive functions (‘PTEFs’), including the President of the Council of Ministers, ministers, undersecretaries of state, extraordinary and special commissioners, members of the offices of direct collaboration, as well as members of the State Police, the Carabinieri and the Guardia di Finanza.’ The Report is also critical of the legal framework dealing with corruption which, though it is extensive, is ‘complicated to navigate’ which reduces its effectiveness. ‘This is especially apparent in the regulation of conflicts of interest and financial disclosure, where different rules apply but do not cover all PTEFs adequately.’ Further, the Report suggests that a common framework should apply to all PTEFs, with proper guidance and raised awareness, together with confidential counselling on ethical issues. In relation to the police, GRECO argues for greater female representation at senior levels. ‘All … forces have a robust system in place for the prevention and management of integrity risks. It could, however, be improved by introducing integrity checks in the context of transfers and promotions, as well as at regular intervals for the most exposed functions.’

And finally, on bribery and corruption news this week, an invitation to read an open Substack from the legal journalist, Joshua Rozenberg, marking the publication of ‘Corruption and Misuse of Public Office’, the leading practitioner text on the subject.

Money Laundering

The money laundering news this week starts in the US where, to mark Overdose Awareness Week, the Financial Crimes Enforcement Network (‘FinCEN’) has reminded financial institutions ‘to monitor for and report suspicious transactional activity related to the illicit fentanyl supply chain and the trafficking of illicit fentanyl and other synthetic opioids.’ Also from FinCEN this week, it has issued final rules respecting the residential real estate and private investment markets. ‘The final residential real estate rule will require certain industry professionals to report information to FinCEN about non-financed transfers of residential real estate to a legal entity or trust, which present a high illicit finance risk. The rule will increase transparency, limit the ability of illicit actors to anonymously launder illicit proceeds through the American housing market, and bolster law enforcement investigative efforts. The final investment adviser rule will apply anti-money laundering/countering the financing of terrorism (AML/CFT) requirements—including AML/CFT compliance programs and suspicious activity reporting obligations—to certain investment advisers that are registered with the U.S. Securities and Exchange Commission (SEC), as well as those that report to the SEC as exempt reporting advisers. The rule will help address the uneven application of AML/CFT requirements across this industry.’

In other money laundering news this week, it is being reported that a Russian national has been arrested in Buenos Airies for allegedly laundering stolen cryptocurrency on behalf of North Korean cyber criminals, the Lazarus Group. No details of the accused have been released. In Nigeria, the government has committed to doing what is necessary to see that Nigeria is removed from the FATF list of Jurisdictions under Increased Monitoring – the so-called grey list – by May 2025.

And finally, on money laundering news this week, the accountancy firm KPMG has identified that this has been a bumper year for money laundering cases reaching the courts with nine cases having been heard in Crown Court this year alone. These cases have a combined value of £128.2m.

Fraud

On fraud news, we start in the UK with more instances of action taken against a Covid-19 fraudsters. First, an individual from Devon claimed five individual bounce back loans for his businesses by overstating the turnover of each. Matthew Littlechild has had 13 years of bankruptcy restrictions imposed preventing him from acting as a company director or borrowing more than £500 without declaring the sanctions against him. The other case is of a father and daughter, Gerard and Catherine Deegan, who secured two bounce back loans, totalling £140,000, neither of which they were entitled to receive. Catherine Deegan was sentenced to 10 months imprisonment, suspended for 18 months, and ordered to complete 150 hours of unpaid work. Gerard Deegan was sentenced to 16 months imprisonment, suspended for 18 months. He also received a disqualification order preventing him from being a company director for 10 years, as well as being placed under an electronically monitored curfew between 6pm and 6am for the next eight months.

To New Zealand now, where it is being reported by various news agencies that the Serious Fraud Office (‘SFO’) in the country is to lose six roles across the Strategy and Prevention, Forensic Services, and Legal teams. The losses are due to a cut in funding to the SFO of 3.5 per cent. You might imagine that this would cause some to question how serious the authorities in New Zealand are taking the fight against fraud and other financial crime. The New Zealand Crime and Victims Survey Cycle 5 report, published in June 2023, makes for tricky reading given the context of this decision. That report found that ‘rates of fraud and deception significantly increased from Cycle 4 (2021)’ and that ‘fraud and deception was the most common type of offence, …[with]… 510,000 offences (experienced by 10.2% of adults), up from 288,000 offences (experienced by 6.2% of adults) [in 2021].’ You never know, stranger things have happened than a government u-turn when something unpopular is announced, but there don’t appear to be any signs of this at the moment. A couple of interesting footnotes to this story, one of which came out this week. First, a report on the effectiveness of anti-corruption institutions in the country, which was commissioned by Transparency International (‘TI’) New Zealand, has been published. The key points seem to be something of nudge for policymakers to make some changes to the deterrence and detection of corruption. New Zealand’s historic low level of corruption is inadequately protected against risks of slow erosion, where it is already undergoing a decline, as evidenced by its steady movement down through Transparency International’s Corruption Perception Index (‘CPI’). ‘Between 2011 and 2023 New Zealand fell ten percentage points on the CPI, from 95 to 85 points.’ The urge from the Report is that a ‘clear lead agency on corruption akin to the functional leaders on procurement or policy’ should be created to replace the current system where a range of bodies have some form of role to play. Short of the creation of a single agency to address the problem, which will require a government funding commitment, it is worth remembering the SFO’s ‘Statement of Intent 2023-2027’. In that Statement, it reiterated its commitment to the prevention, investigation, and prosecution of corruption, and recognised its key role in ‘meeting New Zealand’s international obligations around corruption.’ In light of these cuts to a relatively small agency, and the warning in the TI Report, the question of whether the headcount reduction will contribute to the perception of decline is likely to remain a pertinent one.

Market Abuse

On market abuse news this week, the US Securities and Exchange Commission (‘SEC’) has announced the settlement of charges against ‘Dileep Murthy … for insider trading in advance of the June 2021 announcement that Macquarie Infrastructure Corporation had entered into an agreement to sell its Atlantic Aviation business.’ Murthy agreed to ‘pay disgorgement of $88,006.59, prejudgment interest of $13,711.30, and a civil penalty of $88,006.59.’

Other Financial Crime News

In other financial crime news this week, the former banker, Thomas Kalaris, has lost a hearing before the Upper Tribunal Tax & Chancery where he attempted to overturn the Financial Conduct Authority’s (‘FCA’) decision taken in 2022. That Decision Notice concluded that Kalaris was not ‘a fit and proper person to perform the controlled functions … because there [were] reasonable grounds for considering that in interviews with the [FCA] in relation to two different investigations Mr Kalaris failed to be open and cooperative and gave untrue and misleading evidence. The Authority [was] not satisfied as to his honesty and integrity.’ The Upper Tribunal upheld the decision of the FCA providing that: ‘We went on to make further findings on the basis of other evidence available at this hearing, which had not been taken into account by the Authority, and some of those findings are favourable to Mr Kalaris. However, they are significantly outweighed by our findings about the Interviews. We are in no doubt that if the matter were remitted to the Authority, it would inevitably come to the same conclusion, namely that it is not satisfied Mr Kalaris is fit and proper to perform the Chief Executive and Executive Director functions for Saranac [the company which he formed]. Furthermore, we find that the position would be the same if we had made a finding of dishonesty in relation to only one of the Interviews. We therefore dismiss the Reference. Our decision is unanimous.’

Now, a little light reading. I missed this story at the time, but the University of Portsmouth has published research indicating that a quarter of UK adults commits at least one economic crime a year. ‘Economic crime is a typology of offences that are characterised by financial harm and dishonest intent; it includes fraud, bribery, intellectual property crime, money laundering, industrial and economic espionage, and market manipulation.’ The research is available Open Access, so long as you are able to prove you’re human. Secondly, Portsmouth has also published research it conducted on behalf of the Institute of Economic Affairs concerning reform to the Serious Fraud Office (‘SFO’). The Discussion Paper, ‘Replacing the Serious Fraud Office’, argues that a new ‘Serious Economic Crimes Office’, replacing the SFO should have an amplified focus on prevention as well as enforcement. Prevention would be achieved through ‘the development and promotion of good practices and, in the most extreme cases, ‘Ethics orders’, which can be targeted at corporations to implement ethics and compliance programmes.’ Against a context of the well-known failings of the SFO, the Paper argues that in respect of its enforcement function, the new body ‘should embrace the holistic use of alternative justice mechanisms, using deferred prosecution agreements more widely, establishing a leniency programme, creating a register of serious economic crime offenders and using larger fines.’

If you would like some further light reading, I have linked the Opening Remarks of Marzunisham Omar, Deputy Governor of the Central Bank of Malaysia, at the International Conference on Financial Crime and Terrorism Financing Masterclass 2024. These remarks were this week published on the website of the Bank for International Settlements.

And finally, in other financial crime news this week, Interpol is readying for the launch of its ‘Silver Notice’. Interpol uses ‘Notices’ as an alert issued worldwide, and it uses a colour coded scheme. The addition of the ‘Silver Notice’ is to address, specifically, money laundering and illicit financial flows being conducted with use of virtual currencies.

Cyber Crime

We end this week’s financial crime news with a round-up of cyber-attack news, starting in the US, where the oil production services corporation, Halliburton, has announced a cyber-attack on its systems. While the extent of the impact on its operations is not yet known, the company continues to work with authorities as it looks to restore its operations. However, the company admitted that certain of its systems have been taken offline to protect them. In other news from the US, the Port of Seattle, which includes Seattle-Tacoma International Airport, has suffered a cyber-attack on its systems. Certain of its systems have been taken offline for their protection while work is undertaken to restore services fully. In other news of problems caused by a cyber incident at an airport, the Ministry of Defence in the Netherlands has confirmed that a network outage caused cancelled flights across the country. No information of the cause has been provided.

In the UK, the Law Society Gazette has reported that cyber-attacks against law firms in the UK increased by 77 per cent according to new research from accountancy firm, Lubbocks Fine. Law firms are a good ransomware target for cybercriminals because of the sensitive personal data which they often retain on their systems.

And finally this week, the trade magazine, Security Intelligence, has done a bit of a deep-dive into the success which the Paris Olympics had in fending off significant cyber-attacks on its systems. As we’ve reported previously on the podcast, the Paris Olympics was somewhat of a success in terms of the organisers avoiding major issues with cyber-attacks, with preparedness for cyber-attacks being as rigorous as for other threats.