Episode 125

9th September – 15th September 2024

Sanctions

This week’s sanctions news starts in the UK, where the Export Control Joint Unit (‘ECJU’), Ministry of Justice, and Department for Business and Trade (‘DBT’) have issued a Notice providing an update on the Russia sanctions in relation to legal services, and the revocation of legal advisory services general trade licence. Additionally, the ECJU and the DBT have issued a General Licence which permits the direct or indirect provision of legal advisory services concerning Russia, and updated Guidance on complying with professional and business services sanctions related to Russia. The Office of Financial Sanctions Implementation (‘OFSI’) has also taken action against Iran to freeze the ‘funds and economic resources of persons who are or have been involved in the commission of serious human rights violations or abuse in Iran; or hostile activity by the Government of Iran or an armed group backed by the Government of Iran.’ Also, OFSI has taken action in respect of Russia against ‘persons who are or have been involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine; or obtaining a benefit from or supporting the Government of Russia.’ In relation to transportation and Russia, OFSI has announced sanctions on Russian aerospace operators, specifically the 924th State Center For Unmanned Aviation, the Command Of The Military Transport Aviation, and Russian Aerospace Forces. Additionally, a shadow fleet of tankers used to transport Russian oil in breach of sanctions has been sanctioned. In all, 10 ships are sanctioned under this action, bringing the total number of vessels sanctioned under this operation to 25. The vessels are barred from UK ports and denied access to the UK Ship Register. Four stories to end this week’s UK round-up. First, OFSI has announced the annual update of its Frozen Assets Reporting in respect of ‘all persons that hold or control funds or economic resources belonging to, owned, held, or controlled by a designated person.’ Those persons are required to submit a report to OFSI by Monday 11 November 2024. Secondly, HMRC has announced compound settlement offers to two UK exporters in excess of £348,000 for ‘exports of military listed goods, dual-use goods and related activity controlled by [statutory instruments].’ Thirdly, OFSI has issued an advisory on North Korean IT workers. Fourthly, the Department for Business and Trade and Office of Trade Sanctions Implementation have issued Guidance on ‘How suspected breaches of trade sanctions are assessed by the Office of Trade Sanctions Implementation.’

In action relating to the increasingly warm relationship between Iran and Russia, the US Department of State and the Office of Foreign Assets Control (‘OFAC’) have taken action to ‘constrain further Iran’s destabilizing activities, including its transfer of ballistic missiles to Russia, a serious escalation in its support for Russia’s illegal war against Ukraine. The expanding military partnership between Iran and Russia threatens European security and illustrates how Iran’s destabilizing influence reaches beyond the Middle East to undermine security around the world.’ This is the latest in a series of attempts by the US to disrupt the military support for Russia from Iran. Additionally this week, OFAC has sanctioned ‘three individuals, five companies, and two vessels that are involved in smuggling oil and liquified petroleum gas (LPG) to generate revenue for Hizballah. The network, comprised of Lebanese businessmen and companies and overseen by a senior leader of Hizballah’s finance team, has facilitated dozens of LPG shipments to the Government of Syria and channelled the profits to Hizballah.’ Further, OFAC has also sanctioned a ‘Cambodian businessman Ly Yong Phat (Ly), his conglomerate L.Y.P. Group Co., LTD (L.Y.P. Group), and O‑Smach Resort for their role in serious human rights abuse related to the treatment of trafficked workers subjected to forced labor in online scam centers. OFAC is also designating Cambodia-based Garden City Hotel, Koh Kong Resort, and Phnom Penh Hotel for being owned or controlled by Ly.’ And finally from OFAC this week, after we trailed these in last week’s podcast, 16 officials aligned to Maduro have been designated because they ‘obstructed a competitive and inclusive presidential election process in Venezuela and violated the civil and human rights of the people.’

The final bit of sanctions news from the US is from the Department of State which has taken action ‘against five entities and one individual that have been involved in the proliferation of ballistic missiles and controlled missile equipment and technology. Specifically,… the Beijing Research Institute of Automation for Machine Building Industry (‘RIAMB’) pursuant to Executive Order 13382, which targets proliferators of weapons of mass destruction and their means of delivery. RIAMB has worked with Pakistan’s National Development Complex (‘NDC’) – which the United States assesses is involved in the development and production of Pakistan’s long-range ballistic missiles – to procure equipment for testing of large diameter rocket motors, including the Shaheen-3 and Ababeel, but also potentially for larger systems.’

And finally on sanctions news this week, first, the General Court of the European Union has rejected an attempt by the Russian National Settlement Depository to annul the sanctions imposed on it by the European Union. Secondly, a direction to some reading in the form of an open access article in the European Financial Review which ‘explores a pivot by the EU in its approach to trade sanctions.’

Bribery and Corruption

The bribery and corruption news starts with the Council of Europe and the Group of States against Corruption (GRECO) which has published the first report on Kazakhstan assessing its progress in implementing the recommendations issued to the country in the Joint First and Second Round Evaluation Report in 2022. ‘GRECO concludes that Kazakhstan has implemented satisfactorily or dealt with in a satisfactory manner four out of 27 recommendations contained in the Joint First and Second Round Evaluation Report. The implemented recommendations concerned enhanced training for prosecutors and judges on corruption-related offences; strengthening the mechanisms for tracing criminal proceeds and identifying ultimate beneficial owners, as well as reviewing the burden of evidence; further detailing the existing Code of Ethics for Civil Servants; and, finally, raising awareness among tax authorities of corruption-related matters.’ The Council of Europe has also updated on its joint project with the European Union supporting ‘economic transition by strengthening the economic governance and improving the business and investment climate in Tunisia. The Project Improving economic governance by fighting corruption in Tunisia builds on the 2019 - 2023 Tunisia anti-corruption project, a component of the larger initiative Project to support the independent bodies in Tunisia (PAII-T), which provided targeted technical assistance to Tunisian authorities active in the fight and prevention of corruption. The overall expected impact of the Project is that key Tunisian institutions involved in the fight against corruption, as well as both houses of Parliament, will have the best capacities to develop, effectively implement and monitor anti-corruption policies and measures.’

In the UK, a new report by Transparency International (‘TI’) has revealed that Covid-19 PPE and other contracts worth £15.3bn could be regarded as ‘high-risk’ in that they demonstrated three or more of 14 corruption ‘red flags’ identified by TI. The report, Behind the Masks; Corruption red flags in COVID-19 public procurement, ‘attributes these failings to the widespread and often unjustifiable suspension of procurement checks and safeguards, costing billions to the public purse, and eroding trust in political institutions.’ The new government has committed to address the issue of corruption in response to the pandemic, and the issues highlighted by this report might be a decent place to start.

In other bribery and corruption news this week, the Serious Fraud Office (‘SFO’) in the UK has announced that six former employees of commodities corporation, Glencore, have appeared in court charged with a range of offences relating to the award of oil contracts in countries across Africa. A further hearing will take place on 8th October. In the US, the Securities and Exchange Commission (‘SEC’) has announced that Deere & Company, better known as John Deere, the global manufacturer of agricultural machinery and heavy equipment, has ‘agreed to pay nearly $10 million to resolve SEC charges that it violated the Foreign Corrupt Practices Act (FCPA) arising out of bribes paid by its wholly owned subsidiary, Wirtgen Thailand.’ The agreement relates to bribery of Thai government officials allied to the Royal Thai Air Force, and certain government agencies, in order to win government contracts.

In further news from the US this week, the Embassy in Tanzania has published the opening remarks of Ambassador Michael Battle at a workshop organised by the US Department of Commerce on anti-corruption and co-operation. In other news, the U.S. Agency for International Development and concerned parties gathered to mark the completion of work with the judiciary in Bosnia and Herzegovina ‘to improve their effectiveness in handling high-level corruption cases.’

In a round-up of bribery and corruption news this week, in Australia, the National Anti-Corruption Commission has confirmed that investigations into the conduct of six current or former parliamentarians, and three current or former parliamentary staff, which started in the 2023-2024 reporting period, remain ‘on foot’. It is being reported by Byline Times in the UK that the Covid Corruption strategy of the British government is being set up to fail because of the limited scale of the role, and the likely small staff the individual will have to undertake the significant task of rooting out the corruption which is said to have gone on. The comments were reportedly made by David Green, KC, at a meeting held this week of the All Party Parliamentary Group on Anti-Corruption and Responsible Tax.

In other bribery and corruption news this week, the World Economic Forum, in conjunction with Transparency International, has published ‘Business Integrity: A Toolkit for Medium-Sized Enterprises’. ‘This toolkit provides essential resources and strategies to cultivate a culture of integrity within these enterprises, including risk assessments, anti-corruption policies and frameworks for managing conflicts of interest. By adopting these tools, organizations can safeguard their reputations, boost competitiveness and enhance their resilience.’

And finally on bribery and corruption news this week, The Guardian delves a little more deeply into the troubles of the Serious Fraud Office (‘SFO’) and the civil action brought by the global corporation, ENRC, after the SFO dropped a corruption investigation into the company. We reported last week that the SFO, in its Annual Report, expects the matter of determination of damages to be heard in 2025/2026 after it failed to obtain leave to appeal the decision that it could, along with others, be liable for losses sustained by ENRC.

Money Laundering

We’ll start the money laundering news this week in the UK, where the Financial Conduct Authority (‘FCA’) has announced it has charged an individual with unlawfully operating multiple crypto ATMs without being registered with the FCA. Olumide Osunkoya is alleged to have operated crypto ATMs which ‘processed £2.6m in crypto transactions across multiple locations between 29 December 2021 and 8 September 2023 without the required registration.’ This is the first prosecution relating to this form of unregistered cryptoasset activity under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The defendant will appear before Westminster Magistrates’ Court on 30th September 2024.

In Australia, the government has announced reforms to its anti-money laundering regime with the introduction of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024. ‘The Bill will close a significant regulatory gap in Australia by expanding the regime to address vulnerabilities within ‘tranche-two’ entities, including lawyers, accountants, real estate professionals and dealers in precious stones and metals. AUSTRAC’s recent Money Laundering National Risk Assessment noted criminals are increasingly exploiting these sectors to conceal illicit wealth and launder money. The Bill will also help bring Australia into line with international standards set by the Financial Action Task Force (‘FATF’). Australia is now one of only five jurisdictions out of more than 200 that do not regulate these tranche-two entities or ‘gatekeeper’ professions. It means Australia is at serious risk of being ‘grey-listed’ by the FATF….’ This news follows the publication of research earlier in the week by the Australian Institute of Criminology (‘AIC’) and the Australian Transaction Reports and Analysis Centre (‘AUSTRAC’) which reinforced the need for AML reform to cover the tranche two entities from ‘being exploited by criminal groups.’

And finally on money laundering news this week, the FATF is set to release its MER on India on 19th September 2024.

Fraud

On fraud news, in the US, a federal jury in Nevada has found an individual guilty of defrauding banks of more than $11m in Covid-19 pandemic relief funds. ‘...Meelad Dezfooli ... engaged in a scheme to submit fraudulent loan applications under the Paycheck Protection Program (PPP).... [In total], Dezfooli submitted three fraudulent PPP loan applications to federally insured banks, purportedly for the benefit of companies that the defendant controlled, and obtained more than $11.2 million in proceeds from those loans.’ He will be sentenced on 5th December. In other Covid fraud news, four individuals are facing charges relating to the devising and implementing of a ‘scheme that attempted to defraud the U.S. Small Business Administration out of at least $178 million in loans…,’ while two individuals have been convicted for ‘applying for and receiving a fraudulent Economic Injury Disaster Loan from the Small Business Administration.’ Others engaged in the conspiracy were convicted at an earlier stage following guilty pleas. No news yet on when the two convicted this week will be sentenced. Finally, a former Massachusetts State Senator has been convicted of Covid-19 fraud. Last one now, only this time from the UK, where an individual who received two full amounts of £50,000 in Bounce Bank Loans which were claimed fraudulently has been told by a judge that he must repay more than £56,000 or he will face a term of imprisonment.

We’ll stay with Covid-19 fraud for a moment, since this week the UK government has announced collaboration between agencies in Australia, Canada, New Zealand, and the US, ‘to coordinate the fight against Covid fraud. The meeting of Five Eyes - an intelligence alliance between the UK, Australia, Canada, New Zealand and the United States - will help to identify ways governments have been successfully detecting, recouping and prosecuting fraud committed during the pandemic.’

In other news from the US, the FBI has published its Cryptocurrency Fraud Report for 2023. According to the report, ‘investment fraud was the most reported cryptocurrency scheme in 2023 and also saw the most reported losses, with about $3.9 billion lost.’ These losses are increasing in their scale and complexity, so the report offers a range of tips to avoid becoming a victim. As I always say with these reports, though it is a US report, lessons can be taken from it by anyone with an interest in avoiding victim status.

In other fraud news this week, and hot on the heels of the news reported last week that the Financial Ombudsman Service in the UK is looking to reduce the limit placed on APP fraud from the earlier recommended £415,000 to £85,000, The Guardian has published a human interest story from the victims of APP fraud.

And finally on fraud news this week, the National Audit Office (‘NAO’) in the UK has published a report on the issue of tax evasion on high street and online retail. The report ‘examines whether HMRC, with other relevant parts of government, is well-placed to tackle tax evasion’ in these contexts.

Market Abuse

On market abuse news this week, the Securities and Exchange Commission (‘SEC’) in the US has announced the settlement of an insider trading charge against James Phillips who purchased shares in his employer in advance of a U.S. Food and Drug Administration announcement in relation to accelerated approval of a therapy for alpha-1 antitrypsin deficiency, which is a genetic defect affecting the protein protecting from lung damage. Phillips, who was part of the finance team at the company concerned, agreed to repay a total sum of around $110,000.

One piece of market abuse news to end things, and that is a direction to a piece by law firm, Farrer and Co, on how to avoid the risks of insider dealing when working from home. This is not a new thing, and if you go back to episode 96 of the podcast, you will see the report of a story from the Securities and Exchange Commission in the US, where they charged an individual with insider trading after he had eavesdropped on work-related conversations his wife was having while she was working remotely. Real risk, so this piece is worth reading.

Other Financial Crime News

In other financial crime news this week, hot on the heels of the report last week on the need to reform the Serious Fraud Office, this week, Spotlight on Corruption has published a report which asks the question: Is Britain’s FBI On Its Knees? How to make the National Crime Agency a genuinely elite crime fighting force. The report asserts that the National Crime Agency (‘NCA’) needs reform and investment in order to ‘protect the public from major threats, including corruption, money laundering and organised crime.’ The data, drawn from official reports and submissions to the NCA’s independent pay review body, reveals some striking information. For example, it reveals that the spend on ‘temporary staff and consultants has risen by … 369% since 2015/16, and by 58% in the last three years alone.’ Further, nine per cent of NCA roles are unfilled, which is more than double the public sector average. It should also come as no surprise that the report provides that staff have suffered a real terms pay decrease, and that there is something of a brain drain with talent moving off to the private sector. Indeed, the indication is that it loses a third of its legal expertise annually. To address these challenges, the report recommends that the government should, first, review the organisational status of the NCA to insulate it from recruitment freezes and budget cuts; secondly, invest so as to see ambitious pay reform; and, thirdly, invest to transform the agency’s technological capabilities. Now, sticking with the National Crime Agency (‘NCA’), it has published the National Economic Crime Centre (NECC) Annual Report for 2023-2024. The Report looks at the economic crime threat, reviews the year, and reflects on the NECC’s performance.

And finally on other financial crime news this week, Europol has published a press release to mark the conclusion of the 8th Global Conference on Criminal Finances and Cryptocurrencies. Broadly, the conference identified new risks and emphasised how collaboration is what is needed to address the risks identified.

Cyber Crime

We end this week’s financial crime news with a round-up of cyber crime news, starting with the UK, where the Information Commissioner’s Office and the National Crime Agency have agreed a Memorandum of Understanding which established the cooperation between the agencies designed to improve the UK’s cyber resilience. In other news from the National Crime Agency in the UK, it has announced the arrest of a 17-year-old male from the west Midlands as part of the investigation into the cyber incident which affected Transport for London on 1st September.

In other news reminding us of ripple effect of a cyber-attack, Databarracks has published its Data Health Check 2024, which has found that in the last year, the primary cause of downtime and data loss is the cyber-attack. Interestingly, of those organisations surveyed for the purposes of the research, one-third indicated that a cyber-attack had resulted in a loss of jobs across cyber teams and the wider corporation. In related news, Thales’ Data Threat report for 2024 indicates that there is an increased threat from cyber-attack to companies responsible for maintenance of critical infrastructure, and BT, the telecoms company in the UK, has indicated that there are 2,000 signals indicating a potential cyber-attack every second.

We end this week’s podcast with a blog post by Krista Parsons and Vanessa Teitelbaum, both of Deloitte, who have written about the changing nature of the function of audit committees, in that they are expanding ‘beyond the traditional remit of financial reporting and internal controls, internal and external audit, and ethics and compliance programs.’ For our purposes, of the top five priorities for the next 12 months, cybersecurity was a top-three priority area for 69 per cent of audit committee members who participated in the survey which they conducted, while a third ranked it as the number one priority. Interestingly, the survey found that 58 per cent of ‘audit committees have primary oversight of cybersecurity risk.’ As far as content-rich and compelling research with a very practical context goes, it is well worth a read.