Canada’s FIU sees surge in suspicious filings tied to China, analysts say Russia launders billions..

In this week’s Financial Crime Wave, Canada’s FIU sees a surge in suspicious bank transaction filings tied to China, analysts say Russia launders billions of dollars through UK real estate, the UK FCA penalizes Barclays more than $100 million for AML filings and secretive dealings with risky customers and more.

Money laundering

Canada’s financial intelligence unit has noted a significant rise in potentially illicit transactions tied to funds flowing from China, according to an analysis of bank filings obtained by The Globe and Mail through an Access to Information Request, similar to the Freedom of Information Request in the United States.  In fact, Vancouver-area banks reported suspicious transactions involving Mainland Chinese clients 17 times more often than those tied to citizens of any other outside country in recent years, according to the data. Financial institutions are required to make the reports to FinTRAC, the federal intelligence unit that monitors money laundering and people who finance terrorist groups. It is unclear if any Canadian laws were broken in the Vancouver-area cases. One expert says it is likely the statistics are evidence of more money entering Vancouver’s hot housing market. Between January, 2012, and July, 2015, financial institutions in Vancouver, Richmond, West Vancouver and North Vancouver reported more than 8,600 suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada. The reports are triggered when the sum is larger than $10,000, when third parties conduct frequent wire transfers to a bank client or when multiple deposits go into one account from people who are not customers of the institution. The Globe and Mail obtained details of these transactions through an Access to Information Request. The vast majority – 5,895 – do not include the citizenship of the clients. (Although bank employees must make a reasonable effort to include citizenship in FinTRAC filings, a passport is not needed to open an account at many Canadian financial institutions.) Another 1,660 of the transactions were tied to Canadian citizens. In the remaining 1,045 reports, transactions in accounts belonging to Mainland Chinese clients were flagged more than any other foreign nationality, at 865. The next largest group was from Hong Kong, at 50, and then 43 involving Taiwanese people (via The Global and Mail).

Illicit financial flows from developing and emerging economies surged to US$1.1 trillion in 2013, from $465.3 billion in 2004, according to a study released Wednesday by Global Financial Integrity (GFI), a Washington, DC-based research and advisory organization. Sub-Saharan Africa suffered the largest illicit financial outflows—averaging 6.1 percent of GDP—followed by Developing Europe (5.9 percent), Asia (3.8 percent), the Western Hemisphere (3.6 percent), and the Middle East, North Africa, Afghanistan, and Pakistan (MENA+AP, 2.3 percent). According to the report, the 20 biggest exporters of illicit flows over the decade are China at $139 billion annually, Russia at $105 billion annually and Mexico at nearly $53 billion a year over the study period (via Global Financial Integrity).

Hidden capital from Russia worth billions of pounds is being laundered on the U.K.’s real estate market, according to financial experts. “There is a strong correlation between hidden outflows from Russia and the unrecorded capital in the U.K.,” Oliver Harvey, a strategist at Deutsche Bank, told Anadolu Agency. “Given the correlation, I would assume that the share arriving from Russia would be around 50 percent.” In a report released earlier this year — Dark matter: the hidden capital flows that drive G10 exchange rates — Deutsche Bank said there was strong evidence that a “good chunk” of the U.K.’s 133 billion pounds ($201 billion) of hidden capital coming into Britain was of Russian origin. The hidden money was even listed by the report as a factor behind the U.K.’s large current account deficit. A report on money laundering and terrorist financing from the U.K. Treasury and Home Office said the “laundering of proceeds of overseas corruption into or through the U.K. fuels political instability in key partner countries.” It said the National Crime Agency — sometimes referred to as Britain’s FBI — estimated billions of pounds from corruption passed through the U.K. each year. Transparency International UK said the Central Bank of Russia had estimated that $46.8 billion of illegal money left Russia in 2012 (via Daily Sabah).

The Vatican said on Saturday it had ordered the first external audit of its assets as part of a drive by Pope Francis to bring transparency to its finances where millions of euros have gone unrecorded without any central oversight, engaging seasoned firm PricewaterhouseCoopers. The pope has promised to overhaul the Vatican’s murky financial management, which have been hit by repeated scandals in recent years, however he has met resistance from Church officials who want to maintain tight control over operations. Officials told reporters that the Vatican’s Secretariat for the Economy had called on PwC, the world’s second-largest audit firm by revenue, to review the Vatican’s consolidated financial statements, which includes assets, income and expenses. The decision to work with one of the world’s top four auditors continued “the implementation of new financial management policies and practices in line with international standards,” the official said. A Vatican financial statement this year revealed that Vatican departments had stashed away 1.1 billion euros ($1.2 billion) of assets that were not declared on any balance sheet. The head of the economy secretariat, Cardinal George Pell, said last year that departments had “tucked away” millions of euros and followed “long-established patterns” in jealously managing their affairs without reporting to any central accounting office (via Reuters).


The United Kingdom’s Financial Conduct Authority fined Barclays £72 million ($109 million) for failings in its anti-money-laundering (AML) controls linked to a secretive £1.88 billion deal it arranged for a number of rich clients. The deal didn’t involve any financial crimes, but the regulator accused Barclays of “failing to minimize risk” as it structured a product for those clients between 2011 and 2012. In 2010, Barclays paid US authorities nearly $300 million for compliance control violations and dealing with blacklisted regimes including Iran, Libya and Sudan. The deal in question was never logged on a Barclays computer, the FCA said. It included a clause that offered to pay the clients up to £37.7 million if their names were disclosed. Documents were locked in a specially bought safe that few staff knew existed. “Barclays applied a lower level of due diligence than its policies required for other business relationships of a lower risk profile,” the FCA said. The clients were politically exposed people and should have been subject to higher levels of due diligence, the regulator said. The bank made £52.3 million on the deal, known as an “elephant deal” structured to pay returns for the clients over several years. It gave that money up as part of the fine. In its notice the FCA said that the transaction involved investments in notes backed by underlying warrants and third-party bonds. It was the largest of its kind that Barclays had executed for high-net-worth clients. While the FCA noted that there was nothing wrong in keeping a hard copy of documents locked in a special safe, it criticized the bank because few people in Barclays knew where the safe was, or that it even existed. The regulator also said the process of approving the transaction was uncoordinated and poorly handled (via the Wall Street Journal).

Terrorist financing

United against a common enemy, the United States and Russia are negotiating a new resolution at the United Nations Security Council intended to strengthen international efforts to cut off revenues that the Islamic State raises to govern territory and spread its ideology. The United States, as the rotating president of the Security Council, is pressing for the adoption of the resolution at an unusual gathering on Dec. 17, at which some of the finance ministers from the 15 members of the council are expected to attend. The new resolution against the Islamic State would be based on one first passed in 1999 to target the financing of Al Qaeda and Osama bin Laden, its leader at the time. A similar measure was passed in February, directed at the Islamic State, but Russia, which holds veto power as a permanent member of the Council, has complained that it is routinely flouted The sources of the Islamic State’s revenues are broadly known, but officials have acknowledged that many of the details have proved elusive and difficult to combat. In addition to a steady trade in oil, the group extracts even greater amounts of money from people in the territory it controls, by imposing taxes, fees and penalties on activities from business to looting antiquities. To a lesser extent it also relies on money transfers in and out of Syria and Iraq — flows of money that the new resolution would seek to halt. By most estimates, the group raises more than a billion dollars a year, which it uses to fund its fighters and provide basic services in its territories in Syria and Iraq. That has made it arguably the wealthiest terrorist organization in the world (via The New York Times).

Terror finance lawsuits

A U.S. appeals court ruled on Tuesday that thousands of non-U.S. citizens could not pursue claims against Arab Bank Plc for providing support to militant groups behind attacks in Israel and the Palestinian territories. The 2nd U.S. Circuit Court of Appeals in New York upheld a 2013 ruling that dismissed lawsuits against the Jordan-based bank, which a jury last year found liable for providing material support for Hamas in a trial pursued by Americans. Foreign victims of attacks they attributed to Hamas and other groups argued that a U.S. Supreme Court ruling later in 2013 meant the trial judge’s ruling was based on precedent that was no longer “good law.” But the three-judge panel upheld the ruling by U.S. District Judge Brian Cogan in Brooklyn, saying the appellate ruling he relied on “remains the law of this circuit.” U.S. Circuit Judge Robert Sack wrote the panel came to that conclusion even though the Supreme Court’s decision appeared to provide for corporate liability under the Alien Tort Statute, a 1789 law often used for pursuing human rights abuse claims. Sack said a “growing consensus” exists among other appellate courts to that effect, and the 2010 2nd Circuit ruling Cogan relied on construing the statute as not allowing corporations to be sued “now appears to swim alone against the tide,” (via Reuters).


Nearly three dozen companies are effectively blacklisted from doing with Brazil’s beleaguered state-run energy company due to a massive and still-mushrooming graft operation, say company executives. Thirty-two companies are currently banned from doing work for Brazil‘s state-run oil company Petroleo Brasileiro SA because of an ongoing corruption investigation, the oil firm’s head of governance João Elek said on Wednesday. He said Queiroz Galvão Óleo e Gás could now be allowed to work with Petrobras, as the oil company is more commonly known, and hoped other companies would be able to return as well. “Petrobras can’t make it alone… it needs suppliers and companies,” he told journalists. Queiroz Galvão Óleo e Gás has been excluded from an administrative process at the CGU and could therefore be allowed to work with Petrobras, a press representative for the company said. The same representative said parent company Queiroz Galvão declined to comment on any potential leniency agreement or negotiations. Dozens of companies are being investigated by federal prosecutors as well as the CGU and anti-trust regulator CADE as part of Brazil’s largest-ever corruption scandal. The companies and some of their executives are accused of fixing and inflating prices on contracts with Petrobras and using the excess to funnel bribes to politicians, costing the oil firm an estimated $2.1 billion (via Reuters).