FINANCIAL CRIME WAVE – BIG U.S. VERDICT IN TURKISH BANK SANCTIONS CASE, PWC FRAUD RULING, AND MORE

Petrobras

In this week’s Financial Crime Wave, a jury in New York needs a day to convict a Turkish banker for helping rogue regime Iran evade U.S. sanctions programs, the FDIC wins a key ruling against a Big Four accounting firm, potentially opening up the door to hefty damages, a Dutch bank sets aside nearly $400 million in an expected U.S. financial crime compliance settlement, and more.

Corruption 

Beleaguered Brazilian Petrobras to pay nearly $3 billion to settle U.S. corruption suit in record deal

Brazil’s state-controlled oil company Petroleo Brasileiro SA on Wednesday agreed to pay $2.95 billion to settle a U.S. class action corruption lawsuit, in what was said to be the biggest such payout in the United States by a foreign entity. Petrobras denied any wrongdoing in the deal, which was one of the largest securities class action settlements in U.S. history. With the settlement, it will pay out more than six times what it has received so far under a Brazilian probe into bribery schemes that involved company executives and government officials. The settlement, smaller than many analysts anticipated, was an important milestone for the oil firm as it tries to emerge from the scandal that has entangled two former Brazilian presidents and dozens of the country’s corporate executives.

For the last four years Brazil has been rocked by the so-called Car Wash investigation into kickbacks from contractors to executives of state-run companies and politicians in return for public projects. The settlement put an end to “extremely high uncertainty” about the company’s potential liability, JPMorgan said in a client note, adding that it had expected a figure above $5 billion. Analysts at Brazilian bank BTG Pactual said the market had expected a settlement of $5 billion to $10 billion, (via Reuters).

In Saudi graft sweep, crackdown, big settlements are get out of jail card, sans the free

The Saudi government in recent days has released at least two dozen high-profile suspects held in a wide-ranging crackdown on corruption, a sign that those accused of illegally amassing wealth are increasingly agreeing to settle as authorities push to expedite the investigation process – with some individual settlements soaring into the billions of dollars. The anticorruption campaign began in early November and has swept up more than 200 people, including senior government officials, prominent businessmen and members of the ruling family, many of whom have been confined to the opulent Ritz-Carlton hotel in western Riyadh.

The investigation is being led by a newly established anticorruption agency headed by the kingdom’s crown prince, Mohammed bin Salman, who is pushing to overhaul Saudi Arabia’s oil-dependent economy as well as its conservative society. The detainees, who face accusations that range from procurement fraud to money laundering and bribery, were given the option by Saudi authorities of relinquishing part of their wealth in exchange for freedom rather than going to court, (via the WSJ).

Sanctions

New York jury convicts former top Halkbank executive in helping Iran evade U.S. sanctions

A Turkish banker accused of helping Iran evade U.S. sanctions has been convicted by a jury in New York after a trial that sowed distrust between the two nations. The verdict came Wednesday at a trial where witnesses described corruption at the highest levels of Turkey’s government, prompting its leaders to lash out at the U.S. prosecution.

The verdict pertained solely to Halkbank executive Mehmet Hakan Atilla, but its ramifications were likely to affect relations between Turkey and the U.S. Atilla was convicted of five counts, including conspiracy. He was acquitted of one money laundering charge. Throughout the month-long trial, Turkish officials spoke out against the prosecution. President Recep Tayyip Erdogan called it a U.S. conspiracy to “blackmail” and “blemish” his country, (via the Associated Press).

Terror finance

U.S. Attorney General to review DEA efforts to stamp out terror, narcotics nexus, could expand investigative powers

Attorney General Jeff Sessions last month directed a review of a law enforcement initiative targeting Hezbollah’s drug trafficking and related operations in the United States and abroad, to evaluate allegations that certain matters were not properly prosecuted.

“Protecting our citizens from terrorist organizations and combatting the devastating drug crisis gripping our nation are two of the Justice Department’s top priorities,” said Attorney General Sessions, in a statement, adding that the review will look for any missing investigative tools that could help agents or barriers to successful prosecutions, (via the U.S. DOJ).

Fraud

Judge rules PwC negligent in bank failure resulting from fraud, opening the door to hundreds of millions of dollars in damages

PricewaterhouseCoopers LLP was negligent in connection with one of the biggest bank failures of the financial crisis, a federal judge has ruled, opening up the Big Four accounting firm to the potential of hundreds of millions of dollars in damages. PwC violated auditing rules and didn’t take steps that could have detected a $2 billion fraud scheme that contributed to the 2009 failure of Alabama’s Colonial Bank, the judge ruled. The ruling Thursday came in a lawsuit brought against PwC by the Federal Deposit Insurance Corp.

The widely-watch case has implications for the broader auditing and consulting industries, which have thus far been mostly insulated from lawsuits when banks they were reviewing later failed, though that appears to be changing. The ruling ups the pressure and liability on firms doing similar audits as well. U.S. District Judge Barbara Jacobs Rothstein will now consider separately whether damages should be imposed on PwC, and how much. She dismissed other FDIC allegations against PwC, as well as allegations of negligence that Colonial’s bankruptcy trustee brought against the accounting firm, (via the WSJ).

Enforcement

Dutch bank sets aside nearly $400 million for expected U.S. AML settlement

Rabobank, the Dutch cooperative bank, said on Tuesday it has taken a 310 million euro ($373 million) provision in the fourth quarter of 2017, ahead of an expected settlement with the U.S. government. The United States was negotiated similar settlements with foreign banks, typically tied to sanctions violations or failing to adequately monitor funds flowing through correspondent account portals.

In a statement, the Dutch bank said its U.S. unit has been under investigation since 2013 by the U.S. Department of Justice over possible violations of the Bank Secrecy Act “and other regulations and statutes in relation to its historical anti-money laundering compliance program.” Rabobank said the settlement will likely include a guilty plea by its U.S. unit to a single offence related to former employees’ withholding of information from the regulator nearly five years ago. The action is expected to conclude this quarter, but could linger depending on discussions with other U.S. regulators and authorities, (via Reuters).

In U.K., regulators handing out fewer AML fines as banks bolster AML compliance

Fewer fines are the silver lining of banks’ dogged compliance drive. The UK’s Financial Conduct Authority collected 230 million pounds in penalties in 2017. Though that’s a big increase on 2016, the haul was skewed by a record fine for Deutsche Bank. It suggests heavy spending on tightening up controls is finally delivering some benefits.

Financial firms paid out 10 times as much to the FCA in 2017 as in the previous year. Strip out the 163 million pound punishment for Deutsche Bank, however, and the haul was just 5 percent of the 1.5 billion that the regulator collected in 2014 – the peak year for UK fines. Moreover, penalties imposed on companies regulated by the FCA in Britain are getting smaller: excluding Deutsche, the average fine was 17 million pounds last year, down from 37 million pounds in 2014. Banks are also making fewer transgressions. Only two regulated lenders were fined in 2017, compared with 16 in 2014, (via Breaking Views).

FATF

Global watchdog assesses Mexico, citing lapses in AML effectiveness, prosecutions

The Financial Action Task Force (FATF), the watchdog group that sets global AML standards, has released its full report on Mexico, a much-anticipated document recently leaked to news outlets, which stated the country is still broadly struggling with making compliance, enforcement and investigations more effective while stamping out corrupt government officials and still-potent organized criminal groups.

Virtual currencies

A primer on a new criminal trend and secrecy bastion: Privacy coins

With over 50 privacy coins on the market, purveyors of anonymous transactions are spoilt for choice. This smorgasbord of privacy-centric coins can be a little overwhelming though. To help you pick the best of the bunch, here’s our rundown of the main contenders. But first, a bit about how privacy coins work. Bitcoin transactions are semi-anonymous: every transaction on the blockchain is broadcast publicly and visible for all eternity, but the owner of each wallet is unknown. Tying addresses to real-world identities is now relatively easy for the powers-that-be, because everyone has to cash out somewhere, and that usually involves linking bitcoin addresses to bank accounts.

Most privacy coins still rely on a bitcoin-style public ledger, but use technology that obfuscates the path of the transaction. It might still be possible to determine that a certain amount of cryptocurrency was sent, but the path leading from sender to recipient has been concealed. The way in which various privacy coins go about this differs considerably depending on privacy tech algorithms. The three most common privacy algorithms are zk-Snarks, Coinjoin, and RingCT. The latter method is used in monero; Coinjoin features in dash and is also being trialed with bitcoin; and zk-Snarks are used by most of the Z coins including Zcash. Here’s how they work:

·         One example: RingCT – Monero’s ring signatures allow the sender to hide their transaction among other outputs. In addition, RingCT makes it possible to hide the amount being sent. Coupled with a stealth receiving address, this makes for an extremely discreet way of sending funds. Transparency is optional with monero, which uses an “opaque” blockchain, (via Bitcoin.com).