FINANCIAL CRIME DIGEST

MAKE INFORMED DECISIONS

June 2015

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FINANCIAL CRIME DIGEST

1

TECHNICAL AND REGULATORY UPDATES

The Fourth Money Laundering Directive (2015/849/EU) has been

published in the Official Journal of the European Union and came into

force on 25 June 2015. Article 67 states that ‘Member States shall

bring into force the laws, regulations and administrative provisions

necessary to comply with this Directive by 26 June 2017’.

The Directive brings about significant changes in the definition of

Politically Exposed Persons, the Beneficial Ownership requirement

and the Penalties regime.

The Wire Transfer Regulation also came into force on the same date.

The Regulation lays down rules for payment service providers, who are now

required to send information, not only on the payer, but also on the payee.

The text for the Fourth Money Laundering Directive is HERE

The text for the Wire Transfer Regulation is HERE

Fourth Money Laundering Directive and Wire Transfer Regulation published in the Official Journal

In this edition, we cover information regarding the imple-mentation of the EU fourth money laundering directive, the British Banker’s Association coverage of a World Bank survey on de-risking, Transparency International’s discussion document on ‘unexplained wealth orders’, recent judgements, and regulatory actions - as well as news and updates relating to money laundering, bribery and corruption, sanctions, and terrorist financing.

Welcome to the June 2015 edition of the Financial Crime Digest, which covers updates from May 2015.

FINANCIAL CRIME DIGEST

TECHNICAL AND REGULATORY UPDATES

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Empowering the UK to recover corrupt assets- Transparency International UK publishes discussion paper

Transparency International UK has published a discussion paper suggesting that a new ‘Unexplained

Wealth Order’ (UWO) power be conferred on UK law enforcement. It advocates that suspects issued with a

UWO would have to explain legitimate and legal sources of wealth for suspicious UK assets or transactions,

provided there was sufficient suspicion of criminality. If the trigger for a UWO is a suspicious activity report,

then the 31-day timeframe for refused consent would be paused while the UWO is being responded to.

The task force found, after talking with law enforcement and legal experts, that the 31-day time period is

insufficient for investigating complex corruption cases.

Failure to respond to a UWO, or an inadequate response, together with the initial grounds for suspicion,

may then be used to facilitate a civil recovery process against the asset. Transparency International

further recommends that an appropriate governing body, such as the Law Commission or a Parliamentary

Committee, considers this paper as the basis for a wide-ranging review of powers to tackle corruption and

money laundering associated with corruption in the UK.

The discussion paper is HERE

FINANCIAL CRIME DIGEST

TECHNICAL AND REGULATORY UPDATES

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De-risking - BBA publicises World Bank Group’s survey

The British Bankers’ Association (BBA) is publicising a survey by the World Bank

Group, which has been launched to collect data from banks on the key drivers and

consequences of de-risking. The survey is divided into a set of common questions,

with a secondary section geared to each participant’s particular sector. The results

of the survey will have extremely high visibility, and will feed into the production of a

report for the G20, which will include the perspectives of money transfer operators,

banks, and national governments worldwide. The findings will further shape wider

discussions taking place in a range of international fora, including the FATF and Financial Stability Board.

The deadline for responses is the end of June, and the BBA encourages all banks to respond.

The press release is HERE

The survey on de-risking is HERE

Swedish banks fined over lax anti-money laundering controls

Sweden's financial regulator has fined the

two biggest banking groups, Nordea and

Handelsbanken for breaching laws on money

laundering and terrorism financing. The

Financial Supervisory Authority (FSA) said

Nordea had lacked an effective system to detect

and prevent money laundering for several years,

whether identifying high-risk individuals, sus-

picious transactions and counterparts in tax

havens, or countries linked to terrorism. With

regard to Handelsbanken, the FSA said the

deficiencies were significant and meant the

bank ‘ran a high risk of being used by people to

launder money or finance terrorism’.

Nordea Bank was given a warning and

the maximum administrative fine of 50

million kronor (USD 6 million), and Svenska

Handelsbanken AB was fined 35 million kronor.

The press release is HERE

FINANCIAL CRIME DIGEST

TECHNICAL AND REGULATORY UPDATES

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Forex - FCA fines Barclays GBP 284 million

The Financial Conduct Authority (FCA) has

imposed a financial penalty of GBP 284,432,000

on Barclays Bank Plc (Barclays) for failing

to control business practices in its foreign

exchange (FX) business in London. This is the

largest financial penalty ever imposed by the

FCA or its predecessor, the Financial Services

Authority (FSA).

The FCA found that between 1 January 2008

and 15 October 2013, Barclays’ systems and

controls over its FX business were inadequate.

These failings gave traders in those businesses

the opportunity to engage in behaviours that put

Barclays’ interests ahead of those of its clients,

other market participants, and the wider UK

financial system. These behaviours included

inappropriately sharing information about

clients’ activities and attempting to manipulate

spot FX currency rates, including doing so in

collusion with traders at other firms, in a way that

could disadvantage those clients and the market.

The final notice is HERE

The press release is HERE

Recent judgements - Bank Mellat v HM Treasury [2015] EWHC 1258 (Comm)

This judgement follows the UK

Supreme Court’s decision in June

2013, which held that the UK

Treasury had unlawfully applied

sanctions against Bank Mellat.

This decision is significant in that

it establishes that the UK can be

held financially liable for sanctions

measures that are unlawfully applied

against an entity.

The UK Financial Restrictions (Iran)

Order 2009 (which was introduced by

the Treasury under powers conferred

upon it by Schedule 7 of the Counter-

Terrorism Act 2008), came into

force on 12 October 2009, and was

part of the UK’s efforts to curtail the

financing of Iran’s nuclear weapons

programme. Under the 2009 Order, all

persons operating in the UK financial

sector were banned from entering

into or continuing any transactions

or business relationships with certain

entities associated with Iran. Bank

Mellat, one of Iran’s largest private

commercial banks, and its branches

were subject to these sanctions.

The judgement is HERE

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: MONEY LAUNDERING

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Finma, the Swiss financial market regulator, said that virtual currency Bitcoin should be treated as a serious medium for illicit activity, such as money laundering. The comments were reported to be a sign of a widening acceptance and use of the digital payments system. Bitcoin’s ability to be used anonymously and internationally increases the risk it could play a role in terrorist financing. Finma completed a two-month consultation in April 2015, and will incorporate feedback into its revised Anti-Money Laundering Ordinance.

The U.S. Financial Crimes Enforcement Network (FinCEN) assessed a USD 700,000 civil money penalty against

Ripple Labs, Inc. and its wholly-owned subsidiary XRP II, LLP for wilful violations of several requirements of the U.S.

Bank Secrecy Act, by acting as a money services business and selling its virtual currency, known as XRP, without

registering with FinCEN, and by failing to implement and maintain an adequate anti-money laundering programme.

FinCEN Director Jennifer Shasky Calvery said ‘innovation is laudable, but only as long as wit does not unreasonably

expose our financial system to tech-smart criminals eager to abuse the latest and most complex products.’

State Street Corp. has said that

it expects to face enforcement

by the Federal Reserve and the

Massachusetts Division of Banks,

after it failed to comply with the

Bank Secrecy Act, anti-money

laundering rules and U.S. economic

sanctions. In a regulatory filing,

the bank said that, as part of a

‘written agreement’, it expects to

be required to improve its compli-

ance programme, and to retain an

independent company to review

account and transaction data.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: MONEY LAUNDERING

The Vatican’s Financial Intelligence Unit (AIF), formed by

Pope Benedict in 2010 to help set up a regulatory system

to combat money laundering within the Vatican Bank, has

presented its first report on the bank’s progress. The AIF

said the bank, formally known as the Institute for Religious

Works (IOR), has toughened regulatory standards and

closed thousands of accounts. It found the bank has made

good progress on improving transparency, but needs more

changes to consolidate anti-money laundering reforms. The

Vatican Bank is seeking to repair its public image following

a series of financial scandals, and has been undergoing

massive reforms over the last three years.

Jennifer Shasky Calvery, director

of the U.S. Treasury Department’s

Financial Crimes Enforcement

Network (FinCEN), stated in a

recent speech that she expected

a greater focus on money laun-

dering activities through the real

estate sector. She said this type

of money laundering ‘is not a new

issue’ – however, she added that

‘FinCEN continues to see the use

of shell companies by interna-

tional corrupt politicians, drug

traffickers and other criminals to

purchase luxury residential real

estate in cash.’ Her speech follows

a series of articles published by

The New York Times in February

2015, which uncovered the use

of shell companies to purchase

high-value real estate at The Time

Warner Center in New York City.

A foundation established by former Nigerian President Olusegun Obasanjo has sacked its London-based Chief Executive Officer, after video evidence emerged showing that she had been involved in money laundering activities for many years. Video footage shot discreetly by a participant at a London meeting in December 2014 showed Anne Welsh, the former CEO, had plotted a USD 4.9 million scheme to exploit the deadly Ebola virus tragedy in West Africa, by helping a group of ‘Lebanese businessmen’ who wished to donate some money to the Olusegun Obasanjo Foundation for work in Sierra Leone. The group said it would donate USD 2 million if the foundation arranged to launder the balance of USD 2.9 million.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: MONEY LAUNDERING

An ex-director of Petroleo Brasileiro SA (Petrobras), Brazil’s state-owned oil company, was sentenced to five years in prison, in the latest development in the multi-billion dollar corruption investigation. According to a document published by a court in Curitiba, Brazil, Nestor Cervero, who left Petrobras in 2014, set up a front company in Uruguay to purchase an apartment in an upscale Rio de Janeiro neighbourhood with illicit funds. Cervero is the second former director of Petrobras to be convicted in relation to the corruption case, the first being Paul Roberto Costa, the company’s former head of refining, who is due to serve two years under house arrest after turning state’s witness in the case.

Deutsche Bank announced

that it had launched an

internal investigation into its

investment division in Russia. The statement

followed a report in a German weekly magazine,

which stated that several of the bank’s

employees in Russia were suspected of

laundering important sums of dubious origins

for Russian clients, by carrying out complex

transactions on the derivatives market.

Deutsche Bank said in a statement: ‘We are

committed to participating in international

efforts to detect and combat suspicious

activities, and we take strong action where

we find evidence of misconduct’.

Plus500, a London-

listed trading platform,

announced that its UK

arm had been subject to an external review

by the Financial Conduct Authority at the

beginning of the year. Following the review,

Plus500 agreed with the FCA to halt all client

transactions until customers could provide

proof of their status. Plus500 said that it had

frozen about 55% of its client accounts while

it assesses their status under anti-money

laundering regulations. The firm said that

new customers could still sign up through its

Cypriot subsidiary, and was working to resolve

the issues within as short a time as possible.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: MONEY LAUNDERING

Caesars Entertainment

Corp., owner of Caesars

Palace casino in Las

Vegas, announced in a

quarterly filing that it was in discussion with U.S.

federal authorities to settle allegations of money

laundering at Caesars Palace, and the casino

company could pay a fine of between USD 12

million and USD 20 million. Caesars said it had

met with federal government officials to discuss

‘in general terms the results of their

investigations, and had proposed a range of

potential settlement outcomes.’ FinCEN was

investigating Caesars for potential violations

of the U.S. Bank Secrecy Act. In recent years,

FinCEN has focused on anti-money laundering

procedures and policies, and has taken a

particular interest in the gaming industry.

U.S. authorities are reportedly investigating Venezuela’s powerful parliamentary head, Diosdado Cabello, and other senior officials, for possible cocaine trafficking and money laundering. The Wall Street Journal reported that federal prosecutors in New York and Miami, and a Drug Enforcement Administration unit, were gathering evidence from former cocaine traffickers, Venezuelan military defectors, and people once close to top Venezuelan government officials. Cabello has repeatedly denied allegations that he has been involved in drug trafficking.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: BRIBERY AND CORRUPTION

Press reporting has been dominated by

coverage of the FIFA bribery scandal. At the

instigation of the U.S. Department of Justice,

Swiss police arrested seven officials from FIFA.

Swiss officials later opened a parallel investi-

gation concerning the bidding process for the

2018 Russia World Cup and the 2022 Qatar

World Cup. In the first investigation, the U.S.

Department of Justice alleges that sports mar-

keting executives paid USD 150 million in bribes

to FIFA officials to secure broadcasting rights.

Nine football officials and five sports executives

were charged. Former FIFA official Chuck Blazer,

acting as an informant, admitted taking bribes

in exchange for awarding the 1998 World Cup to

France and the 2010 World Cup to South Africa.

In a second investigation, Swiss authorities are

investigating bribery during the bidding process

for the 2018 and 2022 World Cups. In response,

FIFA president Sepp Blatter abruptly announced

his resignation. A number of banks in the UK

have reportedly launched reviews into whether

corrupt payments were processed through

their accounts. They were named in the U.S.

Department of Justice indictment, which does

not alleged wrongdoing on their part.

Following an investigation by the The Serious Fraud Office (SFO) and the City

of London Police into the awarding of contracts in a series of high-value

infrastructure projects, Graham Marchment pleaded guilty and was

sentenced to 2.5 years imprisonment for his role in the conspiracy. Between

2004 and 2008, Marchment conspired with his co-defendants, Andrew Rybak,

Ronald Saunders, Philip Hammond, and others, to obtain payments by

supplying confidential information in relation to oil and gas engineering

projects in Egypt, Russia and Singapore. Marchment worked as a

procurement engineer, and deliberately leaked confidential information to

bidders in exchange for payments disguised as commission. The contracts

that Marchment was involved in were worth around GBP 40 million.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: BRIBERY AND CORRUPTION

The SFO has brought further charges as

part of its ongoing investigation of Alstom

Network UK Limited. In addition to the

charges that were announced as part of phase

three of its investigation into Alstom in April,

the SFO has charged Jean-Daniel Lainé, and

he appeared, together with Michael John

Anderson, and representatives of Alstom

Network UK Ltd, at Westminster Magistrates’

Court. The matter has been sent for trial at

Southwark Crown Court.

China Telecom Corp Ltd, the third largest mobile telecoms company in China, said in

a statement that it had taken action against 31 executives involved in extravagant

banquets and prostitution. It said that the executives had spent RMB 79,500 (around

USD 12,800) of public funds on lavish banquets and entertainment in a restaurant

in Hebei province. Executives were punished for holding ‘small coffers’, a common

practice amongst government agencies and state-owned enterprises, to keep certain

public funds off the books, to fund their banquets and related ‘recreational’ activities.

The U.S. Securities and Exchange Commission

(SEC) has charged global resources company

BHP Billiton with violating the Foreign Corrupt

Practices Act (FCPA), when it sponsored the

attendance of foreign government officials at the

Summer Olympics. BHP Billiton agreed to pay a

USD 25 million penalty to settle the SEC’s charges.

An SEC investigation found that BHP Billiton failed

to devise and maintain sufficient internal controls

over its global hospitality program connected to

the company’s sponsorship of the 2008 Summer

Olympic Games in Beijing. BHP Billiton invited 176

government officials and employees of state-

owned enterprises to attend the Games at the

company’s expense, and ultimately paid for 60

such guests, as well as some spouses, and others

who attended along with them. Sponsored guests

were primarily from countries in Africa and Asia,

and they enjoyed three- and four-day hospitality

packages that included event tickets, luxury hotel

accommodations, and sightseeing excursions

valued at USD 12,000 to USD 16,000 per package.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: SANCTIONS

The Canadian Senate has adopted

the Magnitsky sanctions motion,

and condemned those involved

in the cover-up of the USD 230

million corruption exposed by Sergei Magnitsky.

Senator Andreychuk, who introduced the motion

in the Senate of Canada, said: ‘Joining with

parliaments around the world, the Senate’s

adoption of this motion expresses our commit-

ment to accountability for foreign nationals who

commit the most serious violations of human

rights.’ The Resolution encourages sanctions

against any foreign nationals who were

responsible for the detention, torture or death

of Sergei Magnitsky, or who have been

involved in covering up the crimes he exposed.

Comparable resolutions, motions and acts have

been adopted by the European Parliament,

the British House of Commons, the Dutch

Parliament, the Organisation for Security and

Cooperation in Europe, and others.

Russia has blacklisted 89 prominent individuals from

the European Union who will not be allowed to enter

the country. The EU condemned the move, which

came after a number of EU politicians were recently

denied entry when arriving in Russia, with authorities

saying their names were on a confidential ‘stop list’.

The EU did not confirm who was on the list, nor did

Russia’s embassy in the EU. However, Jacek Saryusz-

Wolski, a Polish member of the European Parliament,

tweeted a list of 89 names that included himself.

U.S. authorities took punitive measures

against an Iraqi airline and a Syrian

businessman relating to the sale of aircraft to

Iran’s Mahan Air, a sanctioned Iranian airline.

The Financial Times reported that Western

governments suspect Iraq-based Al-Naser

Airlines to have been a front for Mahan Air to

acquire the planes. A U.S. official said that

Mahan Air took delivery of nine Airbus aircraft

early in May. The U.S. has imposed sanctions

on Mahan Air three times since 2011 for alleg-

edly shipping arms to the Syrian government;

transporting members of Iran’s elite Quds

Force of the Islamic Revolutionary Guards

Corp; and providing transport for Hezbollah,

the Lebanese militia, which Washington

designated as a terrorist organisation. The

U.S. Treasury Department said that the nine

aircraft have been designated as ‘blockable’

interests, increasing the risk for Mahan Air to

fly them on international routes.

FINANCIAL CRIME DIGEST

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PRESS AND MEDIA: TERRORIST FINANCING

The U.S. Department of Treasury Office of Foreign Assets Control (OFAC) has issued its 23rd Terrorist

Assets Report, covering the year to December 2014. During the year, terrorist assets blocked in the United

States totalled USD 21.8 million. These blocked funds belong to, or are controlled by, terror groups -

including Al-Qaeda, Hamas and Hezbollah. The report also identified blocked funds and non-blocked funds

relating to Iran, Cuba, Syria and Sudan, which the report identifies as ‘state sponsors of terrorism.’ OFAC

identified around USD 2.3 billion in assets in the United States as belonging to state sponsors of terrorism,

most of which belong to Iran. Blocked Iranian cash and assets in the United States are valued at around

USD 1.9 billion. This includes eleven diplomatic and consular properties.

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For further information, please contact:

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ABOUT APERIO INTELLIGENCE We are a corporate intelligence and financial crime

advisory firm based in the City of London. We specialise

in: conducting enhanced due diligence on high risk cus-

tomers and third parties; integrity due diligence on critical

acquisitions and investments; market entry and political

risk analysis; and investigations. We provide tailored

training and advisory services relating to financial crime,

in particular anti-money laundering and sanctions com-

pliance. Our clients include some of the world’s leading

regulated financial institutions. Our team has decades of

collective experience in advising clients on financial crime

and intelligence gathering, helping them to manage risk

and maximise potential.

Aperio Intelligence Limited125 Old Broad StreetLondon EC2N 1AR

t: +44 (0)20 7073 0430e: info@aperio-intelligence.com

www.aperio-intelligence.com

Registered Address: Carlton House, 101 New London Road, Chelmsford, Essex CM2 0PP. Registered in England & Wales: 09164101 VAT: GB 195 2320 10© Aperio Intelligence Limited 2015. All rights reserved. Aperio Intelligence and the Aperio logo are registered trademarks of Aperio Intelligence Limited.

For further information, please contact:

Adrian Ford - 020 7073 0432Greg Brown - 020 7073 0433

ABOUT APERIO INTELLIGENCE We are a corporate intelligence and financial crime

advisory firm based in the City of London. We specialise

in: conducting enhanced due diligence on high risk

customers and third parties; integrity due diligence on

critical acquisitions and investments; market entry and

political risk analysis; and investigations. We provide

tailored training and advisory services relating to financial

crime, in particular anti-money laundering and sanctions

compliance. Our clients include some of the world’s

leading regulated financial institutions. Our team has

decades of collective experience in advising clients on

financial crime and intelligence gathering, helping them

to manage risk and maximise potential.