Financial Crime Wave – OCCRP and TI team up to tackle corruption, historic hack at Yahoo, and more

OCCRP and Transparency International

In this week’s Financial Crime Wave, the Organized Crime and Corruption Reporting Project and Transparency International join forces to tackle corruption on a grand scale, hackers make history with breach of 1 billion records at beleaguered former tech behemoth Yahoo, U.S. Treasury, in a first, designates money services businesses in Iraq and Syria for supporting ISIS, and more.


OCCRP and TI team up to take down corruption on a grand scale in new partnership

The Organized Crime and Corruption Reporting Project  (OCCRP) and Transparency International (TI) are joining forces in a first of its kind partnership to root out grand corruption on a global scale, the Global Anti-Corruption Consortium. This new initiative will connect investigative journalists turning a spotlight on the secretive shadow economy with anti-corruption activists able to translate complex information into compelling campaigns for change.

The project is structured to ensure the independence of reporters and activists to pursue their distinct goals, and will generate information sharing between those communities on an unprecedented scale, with common themes agreed at editorial level.Corruption that empowers kleptocrats at the expense of citizens is one of the greatest governance, development, and security challenges facing the world today. Despite the serious and widespread harm it causes to society, benefiting the few at the expense of the many, it often goes unpunished. OCCRP, TI and others have shown that through persistent use of local expertise and new technology, it is possible to follow the money, expose corrupt dealings, and empower citizens to press for accountability, (via the OCCRP and TI).

Wealthy, corrupt criminals, politicos fleeing persecutions, prosecution in U.S.

Wealthy politicians and businessmen suspected of corruption in their native lands are fleeing to a safe haven where their wealth and influence shields them from arrest – a country supposedly with one of the strongest counter-financial crime regimes in the world: The United States. They have entered the country on a variety of visas, including one designed to encourage investment. Some have applied for asylum, which is intended to protect people fleeing oppression and political persecution. An investigation by ProPublica, in conjunction with the Stabile Center for Investigative Journalism at Columbia University, has found that officials fleeing prosecution in Colombia, China, South Korea, Bolivia and Panama have found refuge for themselves and their wealth in this country, taking advantage of lax enforcement of US laws and gaps in immigration and financial regulations. Many have concealed their assets and real-estate purchases by creating trusts and limited liability companies in the names of lawyers and relatives, (via the Business Standard).

Brazilian chemical firm to pay nearly $1 billion for corruption scheme tied to Petrobras scandal

Brazilian chemical company Braskem SA said Wednesday it has agreed to pay fines and damages of about $957 million as part of a leniency accord with prosecutors investigating a corruption scheme centered on state-controlled oil company Petróleo Brasileiro SA, or Petrobras. Braskem said it would continue to cooperate with authorities and that it will be subject to external monitoring, but declined to provide details about any criminal offenses it may have committed. Braskem said that, at the end of the third quarter, it had liquid assets of 10.7 billion reais ($3.2 billion), more than enough to make the first payment. The anticorruption investigation, known as Operation Car Wash, has led to the arrests of dozens of executives of construction companies for their involvement in the graft scheme, in which builders overcharged Petrobras for projects and then channeled some of the money to politicians and their parties. Scores of politicians are also under investigation by the probe, (via the Wall Street Journal).

Money laundering

Federal appellate court overrules Las Vegas judge in Bank of China money laundering case

A federal appeals court has ruled that a Las Vegas judge failed to use the correct guidelines in enhancing the sentences of four people convicted of laundering millions of dollars in stolen bank money through casinos. The 9th U.S. Circuit Court of Appeals on Thursday ordered the District Court to reconsider the sentences of defendants accused of stealing $485 million from the Bank of China and laundering the money, including $20 million through Las Vegas casinos. Chao Fan Xu was sentenced to 25 years in prison, Guo Jun Xu received a 22-year term, and wives Wan Fang Kuang and Ying Yi Yu got eight-year terms. Fan Xu and Jun Xu worked at the Bank of China. The four were convicted in August 2008 in Las Vegas of racketeering conspiracy, illegally transporting stolen funds and immigration fraud, according to court records, (via 4-Traders).


In Taiwan, legislative amendment to extend AML rules to gatekeepers, jewelers, real estate

Taiwan’s Legislative Yuan on Friday passed an amendment to the Money Laundering Control Act, widening the scope of professions required to report any suspicious financial transaction by their clients to the authorities. According to the amendment, in addition to financial institutions, jewelers, land registration agents, real-estate brokers, lawyers and accountants must report suspicious transactions. If any of their clients are found to have been involved in money laundering and they are found to have failed to report them to the Investigation Bureau, they can be fined up to NT$1 million (US$31,387). The amendment also stipulates that any financial institution that avoids, refuses to comply or interferes with inspections looking into possible acts of money laundering may be punished with a fine ranging from NT$500,000 to NT$5 million. The amendment would come into force in June next year at the earliest, the Legislative Yuan said, (via the Taipei Times).


Yahoo discloses hack of 1 billion accounts, breaching company’s prior ‘humiliating record’

Yahoo has discovered a 3-year-old security breach that enabled a hacker to compromise more than 1 billion user accounts, breaking the company’s own humiliating record for the biggest security breach in history. The digital heist disclosed Wednesday occurred in August 2013, more than a year before a separate hack that Yahoo announced nearly three months ago. That breach affected at least 500 million users, which had been the most far-reaching hack until the latest revelation. Both lapses occurred during the reign of Yahoo CEO Marissa Mayer, a once-lauded leader who found herself unable to turn around the company in the four years since her arrival. Earlier this year, Yahoo agreed to sell its digital operations to Verizon Communications for $4.8 billion — a deal that may now be imperiled by the hacking revelations.

In both attacks, the stolen information included names, email addresses, phone numbers, birthdates and security questions and answers. The company says it believes bank-account information and payment-card data were not affected. But hackers also apparently stole passwords in both attacks. Technically, those passwords should be secure; Yahoo said they were scrambled twice — once by encryption and once by another technique called hashing. But hackers have become adept at cracking secured passwords by assembling huge dictionaries of similarly scrambled phrases and matching them against stolen password databases, (via ABC News).

Bangladeshi bank cyber hack was an inside job, says top police investigator

Some Bangladesh central bank officials deliberately exposed its computer systems and enabled hackers to steal $81 million from its account at the Federal Reserve Bank of New York in February, a top police investigator in Dhaka told Reuters on Monday. The comments by Mohammad Shah Alam, head of the Forensic Training Institute of the Bangladesh police’s criminal investigation department, are the first sign that investigators have got a firm lead in one of the world’s biggest cyber heists, which had prompted months of international finger-pointing. Arrests are soon likely, he said. On Thursday, the head of a Bangladesh government panel that investigated the heist said five bank officials were guilty of negligence but that they were only unwitting accomplices. Alam told Reuters his investigations had discovered that some bank officials had knowingly created vulnerabilities in the bank’s connection to the SWIFT global messaging and payments system.

“Bangladesh Bank’s SWIFT network was made insecure by some bank employees in connivance with some foreign people,” he said. “They knew what they were doing.” Alam said investigators were now trying to find out how the mid-ranking officials were connected to the hackers and whether they benefited financially from the heist. Asked if the officials would be arrested, he said: “We are very close to it.” The apparent momentum comes after months of trading blame among Bangladesh Bank, the New York Fed, SWIFT, and a Philippine lender that received much of the stolen funds before they disappeared. The heist prompted an international probe headed by the U.S. Federal Bureau of Investigation.


In first for U.S., Treasury sanctions MSBs in Iraq, Syria for supporting ISIS.

The U.S. Department of the Treasury this week has taken a new step to the financial underpinnings of the Islamic state by designating two money services businesses in Iraq and Syria, and disclosed a partnership to help Iraq bolster its anti-money laundering (AML) regime. The U.S. is seeking to disrupt ISIL’s financial facilitation network by designating Iraq-based Selselat al Thahab Money Exchange, ISIL financier Fawaz Muhammad Jubayr al-Rawi, and his company, the Hanifa Currency Exchange in Albu Kamal, Syria. Al-Rawi and the two money services businesses have played an important role in ISIL’s financial operations by helping the terrorist group move its money.

In a related action, the Government of Iraq has taken steps under its domestic authorities to bar al-Rawi and the two money services businesses from accessing the Iraqi financial system and freeze any assets they may have subject to Iraq’s jurisdiction.  Furthermore, Iraqi authorities, with the support of the Treasury Department, have taken action to disrupt ISIL’s financial operations in Iraq, and are implementing a robust anti-money laundering and counter terrorist financing regime that has enhanced Iraq’s ability to protect its financial system from terrorists, (via the U.S. Treasury).

Corporate transparency

TI brands Canada opaque, one of the world’s most secretive when it comes to company formation details

Canada is one of the world’s most opaque jurisdictions when it comes to ownership of private companies and trusts, said a new report released today by Transparency International Canada (TI Canada). Rich in examples, analysis and recommendations, the report was produced by Adam Ross, TI Canada’s lead researcher on beneficial ownership transparency with a team of five subject matter experts and oversight by TI Canada’s board and legal committee. The report states that anonymous companies and trusts are the getaway cars of financial crime because they enable criminals to hide behind a veil of secrecy, while giving them access to bank accounts and the means to use their illegally obtained wealth in Canada’s legal economy.

Using specific case studies and original research into the luxury property sector in Vancouver, TI Canada’s report demonstrates how little is known about who truly owns Canadian companies, trusts and the assets they control. The average price of a home in Canada has skyrocketed in recent years, with the largest increases in Toronto and Vancouver. An influx of overseas capital is one of the causes. Nevertheless, the extent and impact of foreign investment remains unknown since very little data is collected on property owners, (via Transparency International Canada).

Netherlands, Switzerland and the Emerald Isle get lowest scores in tax ranking

The Netherlands, Switzerland and Ireland are among the world’s most damaging corporate tax havens, according to a new report by Oxfam. Oxfam researchers said governments around the world are slashing corporate tax rates and allowing “extreme forms of tax dodging” in order to attract investment. They warned that this race to the bottom is “starving countries out of billions of dollars needed to tackle poverty and inequality.” Oxfam ranked the countries by looking at their tax rates. They also considered whether the countries offer unfair tax incentives, and whether they cooperate with international efforts to curb tax avoidance, for example by agreeing to increase financial transparency. It said Bermuda was the worst, with Cayman Islands second to worst and the Netherlands third, (via CNN).


AML pressure, scrutiny not going anywhere soon, so programs should be a priority

The anti-money laundering (AML) function for financial institutions, such as banks and broker-dealers, should be among the largest functions in a compliance department, if not the largest – and it won’t be going away for several reasons, even with a pro-business president about to take the helm because regulatory expectations, pressure and penalties will still be there. The major global institutions may employ several hundred or more people as AML officers at all levels, with the largest concentration at the analyst or associate level. Traditionally, most of these AML officers are responsible for the core AML functions of transaction monitoring and client onboarding, both of which are incredibly time-consuming and require substantial resources in order to manage the expansive franchises of the major institutions Evolving regulatory expectations, along with actual recent enactments such as the new NYDFS AML monitoring have further increased the onus on these institutions to not only execute on these responsibilities, but to ensure that they are reasonably designed and, ultimately, are able to effectively handle the task at hand. These changing demands require the hiring of individuals with a new set of skills, namely those whose strengths lie in the statistical, analytical and technological realms, (via E Financial Careers).


With medical, personal use of cannabis allowed in California, will banks finally open up?

Now that California will have significant regulation of both its medical and adult use cannabis industries under the Medical Cannabis Regulation and Safety Act and Proposition 64 (the Adult Use of Marijuana Act), respectively, questions are turning to what will happen with California cannabis banking. As the largest state, it’s hugely important California cannabis businesses be able to secure bank accounts (at a minimum). But will they be able to given the federal illegality of cannabis? Despite what we don’t know regarding how California will regulate cannabis businesses, if the FinCEN guidelines from 2014 hold up and if there are some enterprising financial institutions willing to experiment, we think the answer will be yes.

Because cannabis is federally illegal, most banks and financial institutions want nothing to do with it. Not only is there potential criminal liability for banks under the federal Controlled Substances Act for aiding, abetting, and conspiracy for taking cannabis money, there may also be liability under the Bank Secrecy Act for money laundering. Until 2014, there was no real banking solution for the cannabis industry because of these federal criminal law issues; if you didn’t lie to get a bank account, it was likely only a matter of time before the bank would shut down your account after discovering that you were engaged in state-sanctioned cannabis cultivation, manufacturing, or distribution, (via Above the Law).