Global Trade

In this week’s Financial Crime Wave, a look at the rampant, unchecked graft coursing through global trade, key bills in Congress to improve the U.S. Treasury’s ability to fight financial crime, terror, new Justice Department enforcement policy for compliance, corruption failures, and more.


Foreign bribery rages unchecked in more than half of global trade: special TI report  

Global counter-corruption watchdog group Transparency International illuminates a further terrifying vulnerability in the world’s anti-financial crime framework – the gaping holes for both corruption, in addition to the already known issue of money laundering, in international trade. There are many losers and few winners when companies bribe foreign public officials to win lucrative overseas contracts. In prioritizing profits over principles, governments in most major exporting countries fail to prosecute companies flouting laws criminalizing foreign bribery.

What is missing is active enforcement. Transparency International’s new report, Exporting Corruption, finds that only 11 major exporting countries – accounting for about a third of world exports – have active or moderate law enforcement against companies bribing abroad in order to gain mining rights, contracts for major construction projects, purchases of planes and other deals. Country by country, the report names the top offenders as well as the flaws in national legal systems that allow this crime to continue unchecked. One of the most shocking examples exposed in recent years is the massive foreign bribery scheme carried out by the Brazilian construction conglomerate Odebrecht involving about US$788 million in bribes to government officials and political parties in at least 12 countries, (via Transparency International).


Trump signs order to enable sanctions for U.S. election meddling

Under fire over his handling of Russian election meddling, U.S. President Donald Trump signed an executive order on Wednesday meant to strengthen election security by slapping sanctions on foreign countries or people who try to interfere in the U.S. political process. The order, coming only eight weeks before congressional elections on Nov. 6, drew immediate criticism from both Republican and Democratic lawmakers as too little, too late. Trump signed the order behind closed doors with no reporters present, a rare departure from what has been his standard practice. “As I have made clear, the United States will not tolerate any form of foreign meddling in our elections,” Trump said in a statement.

Sanctions could include freezing assets, restricting foreign exchange transactions, limiting access to U.S. financial institutions, and prohibiting U.S. citizens from investing in companies involved, national security adviser John Bolton told reporters. Bolton said sanctions could be imposed during or after an election, based on the evidence gathered. U.S. intelligence agencies concluded that entities backed by the Kremlin sought to boost Republican Trump’s chances of winning the White House in the 2016 election against his Democratic opponent, Hillary Clinton. But Trump in July publicly accepted Russian President Vladimir Putin’s denials at a joint press conference after they met for a summit in Helsinki, (via Reuters).


DOJ’s new officially unofficial policy of aggressive cooperation, remediation for corruption failings may enable other federally regulated businesses to avoid criminal charges

A change in federal prosecutorial policy related to corruption failings could extend to other financial crime failures, even anti-money laundering and fraud, meaning some companies could find leniency if they admit openly, share fully and remediate aggressively, according to comments by one top official. Last November, Deputy Attorney General Rod Rosenstein announced a new enforcement policy. Under the new policy, businesses subject to the Foreign Corrupt Practices Act (“FCPA”) may avoid criminal liability by self-reporting wrongdoing, fully cooperating with Department of Justice (“DOJ”) investigations, and demonstrating timely and appropriate remediation of the conduct at issue. United States Attorneys’ Manual (“USAM”). More recently, the DOJ unofficially extended this new policy to other federal regulations. More specifically, John Cronan, the acting head of the DOJ’s Criminal Division, and Benjamin Singer, chief of the DOJ’s securities and fraud unit, stated that the DOJ would be extending this policy to “other contexts.” Cronan and Singer told attendees of the American Bar Association’s white collar conference that Barclays Bank PLC (“Barclays”) would be the first beneficiary of this extension of the new policy beyond the FCPA.

The DOJ began investigating Barclays after it obtained information suggesting that Barclays employees had misused confidential information to manipulate the price during Hewlett-Packard’s (“HP”) potential acquisition of a United Kingdom-based company. Employing what is commonly referred to as “front running,” Barclays employees were able to manipulate the foreign exchange market to Barclays’ benefit, causing HP to lose millions of dollars. Following Barclays’ voluntary disclosure, “thorough and comprehensive” internal investigation, and creation of a compliance program that would identify and remediate any similar conduct in the future, the DOJ declined to pursue formal charges or a deferred prosecution agreement. Instead, the DOJ required the company to pay $12.9 million in restitution to HP and disgorge any profits. Notably, the DOJ officials contrasted the Barclays settlement with other recent cases where the businesses under investigation were unwilling to admit wrongdoing and thus ultimately received significant penalties under deferred prosecution agreements. The Barclays result is important not only as an illustration of the new DOJ policy, but also in its apparent expansion beyond the FCPA to other federally regulated areas, (via Schnader Harrison Segal &Lewis).


FinCEN to potentially gain more teeth to investigate international, crypto-based crimes, while Fed faces greater oversight related to certain financial firms, with passage of two House financial services bills

The House of Representatives passed two bills from the Financial Services Committee recently, one focusing on strengthening the U.S. Treasury’s ability to gather and share information with foreign financial intelligence units to cripple criminals and terror groups using crypto assets to support their illicit networks, while a second could bring more oversight of a federal regulator related to certain insurance-related financial holding companies.

H.R. 6411, the “FinCEN Improvement Act of 2018,” sponsored by Rep. Ed Perlmutter (D-CO), requires the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to work with foreign financial intelligence units to thwart the use of virtual currencies used by terrorist groups for illicit activity and money laundering. The bill passed by voice vote.

H.R. 5059, the “State Insurance Regulation Preservation Act,” sponsored by Keith Rothfus (R-PA), creates a definition of an Insurance Savings and Loan Holding Companies (ISLHC) and creates a regulatory framework that would limit the Federal Reserve’s oversight of ISLHCs, also passed by voice vote, (via the U.S. Congress).


Federal judge says SEC rules apply to initial coin offering

A federal judge in Brooklyn refused to throw out a case in which a defendant argued two cryptocurrencies were beyond the reach of federal securities laws. Bitcoin and ether are the only digital assets the SEC has explicitly said are exempt from Securities law, and are instead viewed as commodities. The judge in this case denied the motion to dismiss, and said current securities laws should be clear enough for a jury to decide, (via CNBC).


Zero-day exploit revealed online for dark web-enabling Tor browser, with experts exhorting to path now

Zerodium, the infamous exploit vendor that earlier this year offered $1 million for submitting a zero-day exploit for Tor Browser, has publicly revealed a critical zero-day flaw in the anonymous browsing software that could reveal your identity to the sites you visit. In a Tweet, Zerodium shared a zero-day vulnerability that resides in the NoScript browser plugin comes pre-installed with the Mozilla Firefox bundled in the Tor software. NoScript is a free browser extension that blocks malicious JavaScript, Java, Flash and other potentially dangerous content on all web pages by default, though users can whitelist sites they trust, (via the Hacker News).

National Security

Young Russians keep getting queried on Tinder if they are spies, while the U.S. government warns employees of cozying up to Russian and Chinese spies

Swiping right in Washington, DC, has apparently become an issue of national security. Young Russians living, working, and studying in the nation’s capital are facing an increasingly suspicious climate in the Trump era, and their Tinder dates reportedly keep asking if they’re spies, according to Politico. Russia’s interference in the 2016 presidential election has been the catalyst for a lot of the rekindled anti-Kremlin paranoia. But this trend seems to have escalated after the July arrest of Maria Butina, a 29-year-old alleged Russian spy who’s accused of offering to trade sex for political access.

In many cases, these young Russians believe questions about whether they’re spies are just playful jokes, but they’ve also reportedly faced discrimination from landlords and employers, Politico reported. Moreover, the counterintelligence community seems to view dating apps as a legitimate threat in this regard. In this context, young people in Washington with security clearances are being warned by counterintelligence experts to be wary of connecting with Russian or even Chinese nationals on apps like Tinder, (via Business Insider).

Securities fraud

SEC charges pharma billionaire with penny stock fraud

Pharmaceutical billionaire Phillip Frost, 81, who parlayed stakes in small pharmaceutical companies into a $2.8 billion fortune, allegedly participated with “a group of prolific South Florida-based microcap fraudsters” in promoting two penny stocks, the Securities and Exchange Commission said today. The SEC is charging 10 individuals, including Frost, with manipulating the stocks of three companies by trading shares to create the illusion of liquidity and using paid-for posts on the website Seeking Alpha and Internet message boards. The SEC says that the effort resulted in profits of $27 million, while retail investors were left holding worthless shares.

Investigators allege an investor named Barry C. Honig served as the ringleader of the scheme. In each of three cases, the SEC says, Honig orchestrated the purchase of shares at steep discounts. The participants would buy shares in coordination with each other, driving prices up. The group would control the actions of management without disclosing that they were in control. Then they would arrange for the publication of promotional articles to juice the stock price further. Frost is the chairman and chief executive of OPKO Health, a $2.7 billion (market capitalization) maker of vitamin-D-based drugs, growth hormone, and clotting factor for hemophiliacs. Shares in the company dropped 18% after the SEC announced that it was pressing charges, (via Forbes).

Insurance fraud

Kentucky farmer indicted in $1 million crop insurance fraud

A Kentucky farmer allegedly scammed more than $1 million through fraudulent crop insurance claims and other illegal acts. A federal grand jury has indicted Christopher G. Hickerson, 45, according to The Lexington Herald-Leader. Hickerson raised tobacco, winter wheat and soybeans on his farm in Fleming County, Ky. The grand jury alleged that Hickerson hid his tobacco production from insurance companies in order to claim damage to the crop. The claim was sufficient to trigger larger payments funded by the government through the Federal Crop Insurance Corporation, the Herald-Leader reported.

Among the charges returned on the indictment against Hickerson were two counts of conspiracy to commit crop insurance fraud. The first count alleged that Hickerson conspired with others to obtain phony quality adjustments on tobacco presented to graders as belonging to him. In fact, the grand jury alleged, the tobacco belonged to others in an attempt to inflate Hickerson’s loss claim. The second count accused Hickerson of getting crop insurance policies in others’ names in order to take advantage of their “new producer” status, the Herald-Leader reported. A new producer can receive a higher guarantee for crop insurance than someone with a history of loss claims, (via the Insurance Business Mag).

Information sharing

Banks’ sharing of financial crime data raises questions on ethics

Banks, regulators and law-enforcement agencies are sharing more intelligence through voluntary networks to deter money laundering and terrorism financing. As the practice spreads, so do the risks of data mishandling, observers said, (via the WSJ).

Terror Finance

Terrorists not having much luck raising money through cryptos, fiat still the most preferred

According to witnesses who testified before the U.S Congress Subcommittee on Terrorism and Illicit Finance, crypto hasn’t taken root as the go-to financing method for terrorist groups who still prefer to use fiat. Technological incapability to utilize crypto at the basic level and the improved tracing methods were cited as among the top reasons that have made these groups shun crypto. When cryptos first started gaining mainstream traction, they were inseparable from criminal activities. Be it drug dealing, human trafficking or as ransom, cryptos quickly became a darling of the criminal world. According to some reports, crime was pushing around 90 percent of the crypto volume less than five years ago. This has changed as the government’s ability to trace a crypto transaction increases.

Cash still runs the terrorist financing activities, one of the expert witnesses explained to the subcommittee. Yaya Fanusie, the director of analysis for the Foundation for Defense of Democracies Center on Sanctions and Illicit Finance revealed that terrorist groups including the infamous Islamic State and al-Qaeda have already attempted to fund their activities by raising cryptos but with very little success, (via Nulltx).

Corporate transparency

After several temporary stays, FinCEN now no longer requires banks to collect beneficial ownership information on certain account renewals, rollovers

On September 7, 2018, after considerable industry feedback and two issuances of temporary relief, the Financial Crimes Enforcement Network (FinCEN) issued permanent relief to the banking industry from the requirement to collect beneficial ownership information on certain accounts that automatically renew or rollover. The relief is provided in response to industry concerns that treatment of renewals and rollovers as “new accounts” was inconsistent with current industry practice and “[a]ny delay by the customer in providing the required beneficial ownership information could result in account closure and a corresponding loss of needed liquidity or financial stability (in the case of a loan account) or loss of investment benefit (in the case of a CD).

Ultimately, FinCEN instructed the industry that it would permanently relieve covered institutions from the requirement to identify and verify beneficial ownership information for “new” accounts on or after May 11, 2018 that result from the following:

  • CD rollovers;
  • loan renewals, modifications, and extensions (e.g., setting a later payoff date) that do not require underwriting review and approval;
  • commercial line of credit or credit card account renewals, modifications, or extensions (e.g., setting a later payoff date) that do not require underwriting review and approval; and
  • safe deposit box rental renewals.
  • FinCEN’s permanent exceptive relief changes the requirements of the beneficial ownership rule in two ways:
  • removing the obligation to collect beneficial ownership information when an account opened before May 11, 2018 rolls over or renews after May 11, 2018, as if it were a new account; and
  • removing that same obligation for rollovers, modifications, extensions, and renewals of such accounts opened after May 11, 2018, (via Arnold & Porter).

Tax evasion

In historic first, former Loyal Bank executive pleads guilty to failing to comply with Fatca

Federal authorities Tuesday secured a guilty plea involving Adrian Baron, the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, an off-shore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines for failing to comply with the Foreign Account Tax Compliance Act (Fatca).  Baron was extradited to the United States from Hungary in July 2018. Fatca is a federal law enacted in 2010 that requires foreign financial institutions to identify their U.S. customers and report information about financial accounts held by U.S. taxpayers either directly or through a foreign entity. The law’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate the commission of federal tax offenses. The case relied heavily on cooperation with foreign authorities, including the City of London Police; the U.K.’s Financial Conduct Authority and the Hungarian National Bureau of Investigation. He faces five years in prison.

According to court documents, in June 2017, an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank.  The undercover agent informed Baron that he did not want to appear on any of the account opening documents for his bank accounts at Loyal Bank, even though he would be the true owner of the accounts.  Baron responded that Loyal Bank could open such accounts and provide debit cards linked to them. In July 2017, the undercover agent again met with Baron and described how his stock manipulation scheme operated, including the need to circumvent the IRS’s reporting requirements under Fatca.  During the meeting, Baron stated that Loyal Bank would not submit a Fatca declaration to regulators unless the paperwork indicated “obvious” U.S. involvement. Subsequently, in July and August 2017, Loyal Bank opened multiple bank accounts for the undercover agent.  At no time did Baron or Loyal Bank request or collect Fatca Information from the undercover agent, (via DOJ).

False reporting

Wells Fargo reportedly facing DOJ probe of wholesale-banking unit for falsely updating beneficial ownership details to meet FinCEN deadline

Wells Fargo & Co. is facing a Department of Justice investigation into whether employees in the company’s wholesale-banking business improperly altered customer data related to capturing beneficial ownership information to meet a U.S. Treasury deadline, a person familiar with the matter told the Wall Street Journal. “This particular situation involved a new process and a new required document called Certification of Beneficial Owners that our team members have to complete to help ensure we know our customers,” said Alan Elias, a spokesman for the San Francisco-based bank. “We’ve recognized that in certain circumstances additional training and new procedures were needed and have now been applied.”

Some workers added information to internal customer records without the clients’ knowledge, a person briefed on the situation said in May. The bank discovered the improper activity and reported it to the Office of the Comptroller of the Currency, the person said. Wells Fargo has struggled to move past a wave of scandals, which led to a Federal Reserve ban on increasing assets until the lender fixes its missteps. The problems began erupting in 2016, when regulators said the bank had opened millions of accounts without customers’ permission, leading to a public outcry and spurring additional scrutiny. Incorrect fees in the firm’s wealth-management unit and inconsistent pricing in the foreign-exchange business came next. Last month, the bank disclosed another round of lapses, saying it faces a U.S. inquiry into its purchase of low-income housing credits and conceding it may have unnecessarily foreclosed on about 400 homeowners, (via Bloomberg).


A tabulation of counterterror costs since 9/11: $2.8 trillion and climbing

After a small group of forlorn men huddled in the middle of Afghanistan succeeded in their plan to strike the World Trade Center towers and the Pentagon, America declared a global war against them. That war has sucked almost $3 trillion dollarsfrom the US, according to a study by the respected Stimson Center here. That figure includes expenditures for homeland security efforts, international programs, and the wars in Afghanistan, Iraq, and Syria — and it does not include fiscal 2018. With that money, we’ve killed Osama bin Laden and a number of his lieutenants and followers. We have captured a number of his followers. We and our allies have killed many of those who sprang up to wave the black flag of Islamist nihilism from Afghanistan, Uzbekistan, Iraq, Syria, Egypt, Somalia, Nigeria, Mali, Philippines, Britain, Netherlands, France, Germany and, yes, a few in America.

But terrorism persists, as it does as long as its root causes and enablers remain. The British learned this in Northern Ireland. Israel has learned this. America has learned this in confronting white nationalists and other extremists, including the few broken souls who have killed their countrymen in the name of Islam. Pakistan and India have learned this. And no one knows this better than the people of Afghanistan, whose country remains a central place in our troubled world of counterterrorism, (via InHomeland Security).


SEC hits tech firm with nearly $14 million FCPA penalty

United Technologies Corporation agreed Wednesday to pay the SEC $13.9 million to resolve charges that it violated the FCPAby making illicit payments in its elevator and aircraft engine businesses. United Technologies subsidiary Otis Elevator Co. bribed Azerbaijani officials for public housing elevator sales in Baku, the SEC said(via the FCPA Blog).


Experts uncover online security flaw that could allow hackers to spoof addresses in web browser

A security researcher has discovered a serious vulnerability that could allow attackers to spoof website addresses in the Microsoft Edge web browser for Windows and Apple Safari for iOS. While Microsoft fixed the address bar URL spoofing vulnerability last month as part of its monthly security updates, Safari is still unpatched, potentially leaving Apple users vulnerable to phishing attacks, (via the Hacker News).


In wake of Danish, Dutch, French bank probes, penalties, EU looks to crack down on money laundering

EU policymakers are targeting a tightening of rules against financial crimes after a series of European banks were involved in suspected cases of money laundering, a confidential report shows, a move coming on the heels of major probes and penalties involving Dutch and Danish institutions.  The report, seen by the Times of Malta, seeks to streamline the monitoring of banks within the European Union. This report, which was drawn up for the European Commission by a panel of experts, says the European Central Bank should continue preparations and conclude a multilateral memorandum of understanding with all relevant authorities tasked with fighting money laundering by January 10, 2019.Malta has found itself in the EU’s crosshairs following a European Banking Authority (EBA) report criticizing the Financial Intelligence Analysis Unit’s (FIAU) supervision of Pilatus Bank in 2016.

In its report, the EBA took the FIAU to task over its failure to sanction Pilatus after preliminary findings by the unit raised concerns about the bank’s lack of compliance with anti-money laundering laws. The FIAU has in turn accused the EBA of drawing broad conclusions based on a single case. Measures proposed in the Commission’s new report include guidelines on how to address money laundering at banks and more cooperation among the several European Union and national agencies that are responsible for countering financial crime and supervising banks. The report says the Commission may examine an option to establish a single EU supervisor against money laundering, which would allow a centralized supervision similar to that exercised by the European Central Bank over eurozone banks’ financial stability, (via the Times of Malta).

North Korea

U.S. indicts North Korean programmer for cyber attacks and intrusions, wielding new virtual sanctions powers

United States federal prosecutors and the country’s chief sanctions body have teamed up to harness new powers to go after foreign cyberattackers, both levying charges and a severe blacklisting. On September 6, 2018, the U.S. government announced the unsealing of a criminal complaint filed in the U.S. District Court Central District of California (Los Angeles)  charging Park Jin Hyok (aka Jin Hyok Park and Pak Jin Hek), a North Korean citizen, for his participation in a conspiracy to conduct multiple destructive cyberattacks around the world resulting in damage to massive amounts of computer hardware, and the significant loss of data, money and other resources. According to the complaint Park participated in a government-sponsored hacking team known as the “Lazarus Group” and worked for a North Korean government front company, Chosun Expo Joint Venture (aka Korea Expo Joint Venture or “KEJV”), to support the DPRK government’s malicious cyber actions.

The conspiracy’s malicious activities include the establishment of the malware used in the 2017 WannaCry 2.0 global ransomware attack; the 2016 theft of $81 million from Bangladesh Bank; the 2014 attack on Sony Pictures Entertainment (SPE); and various other attacks or intrusions on the entertainment, financial services, defense, technology, and virtual currency industries, academia, and electric utilities. Simultaneously, Treasury Secretary Steven Mnuchin announced that the Treasury’s Office of Foreign Assets Control (OFAC) designated Park and KEJV under Executive Order 13722 based on the malicious cyber and cyber-enabled activity alleged in the criminal complaint. Park was a computer programmer and worked for more than a decade for KEJV, which had offices in China and N. Korea.  It is affiliated with Lab 110, a part of the N. Korean military intelligence.  The conspiracy also engaged in malicious cyber activities, utilizing spear-phishing campaigns, destructive malware attacks, exfiltration of data, theft of funds from bank accounts, ransomware extortion, and propagating “worm” viruses to create botnets, (via IELR).

Human trafficking

The way forward to end human trafficking: Canadian government discussion paper

Canada is working to see how it can better tackle the rising scourge of human trafficking in its borders and strengthen partnerships to crush international trafficking operations, according to a just released report. The discussion paper aims to help ensure that the new national strategy is evidence-based, and supports the prevention of this crime and the protection of its victims. For its perpetrators, it is a low risk, highly profitable endeavor believed to be one of the fastest growing crimes on a global basis, according to the United Nations Office on Drugs and Crime (UNODC). Canada’s laws prohibit trafficking in persons for any exploitative purpose, regardless of whether the trafficking occurs wholly within Canada or whether it involves the bringing of persons into Canada. Project PROTECT has also shed light on the scope of human trafficking in Canada.

Launched in early 2016, this partnership between Canadian banks, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and law enforcement, has supported the identification and reporting to law enforcement of financial transactions that are suspected of being related to the laundering of illicit proceeds associated with human trafficking for sexual exploitation. The volume of suspicious transaction reports provided by financial institutions to FINTRAC related to Project PROTECT has significantly increased every year, and has resulted in more financial intelligence disclosures by FINTRAC to domestic and international law enforcement agencies. This financial intelligence assists law enforcement in their investigations of money laundering and human trafficking. In the past three years, the number of suspicious transactions banks have sent to FINTRAC related to human trafficking have soared from 26 to 143, (via Public Safety Canada).

Shell companies

Beware of corporate ‘ghosts’ as they may end up scaring compliance teams when they launder money

Ghost companies: an insightful, creative look at how criminals use shell, ghost companies to launder money and that at times ridiculous names they called these crooked corporates, (via Graham Barrow).

Due diligence

When engaging in cross-border due diligence, every detail counts, even the small ones

In international business, to avoid, legal, financial and reputational pitfalls, it’s important to sweat the “small” stuff, according to one expert, who detailed several key due diligence and best practice steps to take to ward of future fumbles, including gathering the appropriate information and verifying vital components, gauging the openness and willingness of the parties involved to share information and answer more detailed questions, and more, (via MassPoint).