HSBC faces $250 million suit over alleged ‘blind eye’ to fraud

This week’s Crime Wave covers an exposé on a money laundering scheme dubbed “the Laundromat” that moved $20 billion in illicit proceeds from Russia, Colorado politicians who are accepting campaign contributions from the legal marijuana industry, the rise of “masquerade” fraud, and much more.

Money Laundering

Russian oligarchs, organized crime funnel billions through “Laundromat” of shell companies and Moldovan courts – According to an exposé released by the Organized Crime and Corruption Reporting Project, corrupt Russian officials and members of organized crime operations have used a scheme dubbed “the Laundromat” to launder $20 billion in illicit proceeds over the last four years. The scheme utilizes fictitious loans between networks of shell companies to funnel so-called “black” money from Russian entities into a bank in Latvia and later into other institutions in the European Union. The success of the Laundromat relied on the complicity of judges in Moldova, who would “certify” the fake debt of shell corporations and issue orders requiring repayment of loans. This allowed funds to move out of Russia and into EU financial institutions under the guise of legitimate debt repayment. UK shell companies were frequently used as part of the process. Moldovan law enforcement are investigating several judges and others in connection with the Laundromat. Read more here (via OCCRP).

In US state of Colorado, banks won’t take marijuana industry money, but politicians will – Recent data from the US Financial Crimes Enforcement Network indicated that all but a few banks are still refusing to accept funds from marijuana businesses in states where the drug has been legalized, over fears of running afoul of federal money laundering laws. According to the Colorado Watchdog, Some politicians in Colorado don’t share those qualms. US Representative Ed Perlmutter of Colorado attended a fundraiser organized by a marijuana trade group last month. Colorado’s other delegate to the House of Representatives, Diana DeGette, as well as Senator Mark Udall, have also accepted donations from marijuana businesses and industry associations, according to data from the Federal Election Commission (FEC). So far, contributions from legal marijuana providers have been fairly small, but the $600 million industry is growing fast in Colorado. To date, the FEC has not issued any guidance on the legality of campaign contributions from the marijuana trade. Read more here (via the Colorado Watchdog).


HSBC faces $250 million civil suit over accusations it was ‘blind’ to fraud by customer – The liquidator of a bankrupt investment firm is suing UK financial giant HSBC in a Manhattan federal court, alleging the bank turned a “blind eye” to the fraudulent activity of one of its customer. The lawsuit stems from the collapse of SLS Capital, a company connected to the notorious British entrepreneur David Elias, which sold shares in bonds backed by life insurance policies. Buyers of the so-called “death bonds” could collect a portion of the benefits when the insured person died. The complaint alleges that HSBC, which acted as custodian of insurance policies packaged into SLS’s death bonds, ignored warning signs that Elias appeared to be running a “Ponzi scheme” and was illegally taking money out of the company. Elias died in 2009, leaving a string of bankrupt companies and accusations of fraudulent activity in his wake. Read more here (via Courthouse News Service).

With fraudsters posing as company executives, ‘masquerade’ fraud is on the rise – In a combination of social engineering and old-fashioned trickery, fraudsters are impersonating company executives to perpetrate wire fraud schemes targeting small businesses in the US, UK and Canada. Termed “masquerade” fraud, the scheme starts with the perpetrators using social media or a businesses’ website to identify high-level executives of a company. From there, the fraudsters hack into the company’s email system to send a message to subordinates with instructions to wire company funds to a third-party account. Unsuspecting employees carry out the fraudulent transfer, often not realizing they have been duped until long after the funds are withdrawn. Often, the fraudsters are operating out of Nigeria. Fraud prevention experts advise companies to implement business processes, like multi-channel authorization before wire transfers are carried out, to protect against such schemes. Read more here (via NerdWallet).

Bahrain’s FIU sees more SARs in 2014 – The financial intelligence unit of Bahrain recorded a fifty percent increase in suspicious transaction reports in the first half of 2014, raising concerns about money laundering and terrorist financing in the Middle Eastern country. The Financial Intelligence Doctorate received 354 reports by June of this year, from banks, money exchanges, insurance companies and the Industry and Commerce Ministry. The director of the FID stated that Bahrain’s prime location and attractiveness to investors has made it a nexus for money laundering. However, he said, Bahrain is also the first country within the Gulf Cooperation Council that has issued a decree on money laundering and terrorist financing. Read more here (via Gulf Daily News).


Head of the International Monetary Fund targeted for investigation in connection with $527 million corruption case – French prosecutors have opted to place Christine Lagarde, chief of the IMF, under formal investigation as part of a wider probe into a massive French government payout to business mogul Bernard Tapie. Largarde faces allegations of “negligence” in her previous role as France’s finance minister, where she helped oversee a $527 million government payment to Tapie to settle a civil suit the businessman had brought against a state-owned bank. France’s Court of Justice of the Republic is investigating the payout for alleged corruption, amid allegations that the administration of the country’s former president helped broker the settlement to curry favor with Tapie. Lagarde has called the decision to place her under investigation “totally without merit” and said she will not resign from the IMF. Read more here (via the Telegraph).

South Korean law enforcement arrest three legislators minutes before hearing to grant immunity – In a dramatic scene played out before TV cameras, three South Korean lawmakers were arrested on corruption charges on the floor of the country’s National Assembly. The arrests came minutes before a special midnight legislative session called to consider whether the trio should receive immunity from prosecution. The three men were charged with accepting kickbacks and undeclared campaign contributions from government contractors. South Korea is ratcheting up the pressure on graft and bribery of government officials after a state investigation found that corruption played a role in an April ferry disaster that left 300 dead. Read more here (via the FCPA Blog).


KPMG to aid Indian mutual fund industry for FATCA compliance – Domestic mutual funds in India have brought in auditing giant KPMG to help them prepare for FATCA, the Foreign Account Tax Compliance Act. Indians residing in the US and investing in products offered by the 10 trillion Rupee mutual fund industry. The market regulator Securities and Exchange Board of India asked fund houses and other market intermediaries to register with US authorities and obtain a Global Intermediary Identification Number to comply with FATCA by the end of the year. India signed an ‘in substance’ agreement with the US in April to combat possible tax evasion by Americans through Indian financial institutions. Read more here (via Business Today).

Virtual Currency

Ross Ulbricht aka Dread Pirate Roberts hit with three new charges in Silk Road case – The man behind the Silk Road, a black market bazaar where customers used bitcoins to buy illegal products anonymously, is facing three new charges, including trafficking in phony identification. Ross William Ulbricht was also charged with Internet drug trafficking in a revised indictment in Manhattan federal court. Silk Road was shut down by US authorities in 2013. Ulbricht is scheduled for trial Nov. 3 on other charges of computer hacking and money laundering. Ulbricht pleaded not guilty in February and has denied the allegations. Read more here. (via Bloomberg).