News & Press: Financial Crime Wave

Brazil’s watchdog looks for links between HSBC and Petrobras scandals, and more

Thursday, February 19, 2015   (0 Comments)
Posted by: Brian Kindle
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In this week’s Financial Crime Wave, Brazil’s watchdog looks for links between HSBC undeclared accounts and Petrobras bribery scandal, FinCEN issues largest casino penalty ever, Hong Kong lawmakers urge authorities to ban bitcoin, and more.


A former SNC Lavalin executive was released on $200,000 bail after appearing in a Montreal courthouse on charges including bribing a foreign official. Sami Bebawi, the former vice president of construction, is charged with fraud, extortion, bribing a foreign official, obstruction of justice, possession of the proceeds of a crime and money laundering. He is suspected of laundering $33 million between 2001 and 2012 through international projects. Authorities have seized several of his properties and frozen his bank accounts, including six properties in Montreal (via CBC).

Brazil’s tax watchdog is probing for links between undeclared accounts with HSBC and the Petrobras corruption scandal. The agency, known as Receita Federal, is investigating whether a dozen people involved in the kickback scheme with the state-run oil company had accounts in Switzerland with HSBC’s private bank. Among those suspected of having secret accounts are a former manager of Petrobras, an illegal money changer, and two executives from engineering and oil equipment firms that had contracts with Petrobras. Receita launched a broader investigation to determine whether Brazilians were involved in opening over 6,600 undeclared accounts with HSBC’s Swiss private bank (via Reuters).

Former Panamanian President Ricardo Martinelli allegedly inflated $45 million in contracts through social programs during his administration. Martinelli, whose term ended in July, flew his private jet from Panama to Guatemala to Miami last week after the Supreme Court agreed to back an investigation. His plane then continued to Italy, according to a Panamanian newspaper, La Prensa. Panama’s nine Supreme Court judges ruled unanimously last week to allow a special prosecutor to investigate claims that Martinelli ordered the head of Panama’s National Assistance Program to inflate and approve contracts to buy dehydrated food. New president Juan Carlos Varela took office in July promising to crack down on corruption (via Bloomberg).

Despite Mexico being one of Latin America’s most strident and vocal countries in championing initiatives to crack down on corruption, that has happened in large measure only on paper. The country has a host of policies, agencies and protocols for the prevention of fraud and bribery, but these measures have broadly failed to negate the notion that business can only be done with graft payments, as evidenced by the endemic rates of corruption-tinged crimes. ACFCS looks at how corruption can do more than just repel business revenues, it can bring shame to a nation when criminals kill civilians by buying the law (Read more here).

Tax Evasion

HSBC has published apologies in several newspapers in light of allegations that the Swiss private bank unit helped clients all over the world evade taxes. The ad is a letter signed by Chief Executive Stuart Gulliver, which says recent coverage has been a “painful experience.” The United Kingdom’s (UK) Treasury Committee is planning to conduct an inquiry into the claims. The HM Revenue and Customs met with police with the Serious Fraud Office to expand the scope of its investigation into Swiss tax accounts held with HSBC. In the letter from Gulliver, addressed to bank customers and staff, he attempted to reassure current and potential clients that the Swiss private bank operation had been “completely overhauled” since the alleged activities took place some eight years prior (via BBC).

The UK's tax agency stated on Thursday they are planning on investigating allegations that HSBC’s Swiss private bank helped clients evade taxes, though the original whistleblower involved in bringing the data to light, Herve Falciani, stated the HMRC should have known the details back in 2010. HSBC has come under renewed scrutiny after investigative journalists sifting through the acquired data released a report purportedly revealing bank staff going out of their way to recruit clients to aid in evading taxes and even having links to corrupt foreign officials and arms traders. Several other countries, including the United States, are also potentially following suit (via BBC).

Allegations that HSBC’s Swiss private banking operations shielded customers from taxes in a shadowy maze of shell companies and coded accounts coincide with reported misconduct at many of the world’s largest financial institutions, all with one recurring theme: egregious conduct by an institution’s own insiders. The cases illustrate an irony at the heart of many financial crime scandals in recent years – even as some departments strove to improve compliance and keep out risky customers, there were legions of employees side-stepping internal controls, or colluding among themselves in chatrooms to exchange more than currencies. ACFCS looks at the growing threat and challenges of KYE, or know-your-employee, controls, which borrow heavily from classic know-your-customer provisions (Read more here).

Money Laundering

The Supreme Court of Canada unanimously ruled on Friday that certain portions of the country’s anti-money laundering and terrorist financing law will not apply to lawyers, on the belief that such a dynamic could tear asunder their duty to represent clients. The ruling stated that lawyers should not be required to collect and send potentially suspicious information on clients to the government. Canada included lawyers in AML rules in 2001, when they were required to report suspicious client activity to the country’s financial intelligence unit. Since then, lawyers have challenged the requirement, though no penalties were imposed on lawyers by authorities as the legal wrangling played out (via Reuters).

Clashes between executives worried about trimming rising anti-money laundering compliance costs and internal investigators with old-school, law enforcement backgrounds and approaches have led to an exodus of dozens of key managers over the past year at JPMorgan Chase & Co., according to several current and past unnamed members of the investigations group. The bank, which has paid billions of dollars in penalties tied to financial crime control failures, is attempting to retool compliance with a greater focus on automated systems and program efficiency. Some former managers reportedly believe that approach could backfire by focusing more on the quantity of alerts processed rather than quality of intelligence sent to federal investigators (via Reuters).

The UK National Crime Agency (NCA) is probing the link between luxury homes and money laundering. The NCA has asked Her Majesty’s Revenue and Customs why 100 million pounds was raised in one year from a higher-than-expected revenue tax off luxury homes, almost five times more than expected by the government. Homeowners paying the tax of as much as 143,750 pounds a year can keep their identities hidden through trusts and overseas shell companies (via Bloomberg).

The US Financial Crimes Enforcement Network (FinCEN) imposed a $10 million penalty on the Trump Taj Mahal casino in January for anti-money laundering failures. The settlement is the largest penalty FinCEN has ever levied on a casino, reinforcing the agency’s commitment to regulating the gambling industry. Taj Mahal admitted to violating anti-money laundering protocols after a bankruptcy proceeding uncovered failings in its compliance control policies.  At one point, the IRS told the casino there were discrepancies between names and social security numbers of some customers. Other casino operators have been subject to recent federal government investigations involving money laundering laws, including Wynn Resorts Ltd., Las Vegas Sands Corp., and Caesars Entertainment Corp. (via Wall Street Journal).

A report from Israel’s Justice Ministry this week said that money launderers in Israel are financing terrorism. The government is aware of the “gray market,” the unregulated segment of the financial sector, as seen by recommendations issued by a team within the Justice Ministry this week. According to one estimate, Israel’s gray market has an annual turnover of 150 billion shekels ($39 billion). There are six clerks in the Finance Ministry who are responsible for the money changing sector and oversee at least 2,200 registered money changers. The clerks only do 30 audits a year on average, demonstrating a lack of oversight in this segment of the Israeli economy (via Haaretz).

Thirty-two people from the United States and Mexico are accused of running a multistate gold-for-cash scheme that laundered more than $100 million in US profits for Mexico’s powerful Sinaloa drug cartel, according to a complaint unsealed last week. The cartel launderers used cash from drug sales to purchase scrap and fine gold then sent it to metal refineries in Florida and California. The refineries then transferred payments for the gold directly to Mexico. The complaint describes intense pressure lower-level schemers felts from higher-up cartel bosses (via The Guardian).

US and Indian officials committed to improve information-sharing on illicit financial flows last week, after Indian authorities uncovered that billions of dollars tied to Iranian oil export funds had moved out of an Indian bank in a possible money laundering scheme. Indian officials said the case centers of state-controlled UCO Bank, where they believe suspects from Iran and Azerbaijan, after entering India on student visas, set up a maze of shell companies to garner more than $3 billion from the financial institution. The scheme used advances secured against export invoices never accompanied by deliveries, with funds wired to places like Dubai and Hong Kong. US Treasury Secretary Jack Lew said the two nations would collaborate to combat “threat finance” after his meeting with Indian Finance Minister Arun Jaitley earlier this week in Mumbai (via Reuters).

Criminals laundering through international trade channels continue to find success, chiefly due to the broad challenges in creating controls while allowing robust economic throughput. The solution, say experts, taking a combined approach of information exchange, data analysis and government intelligence to more effectively parse out trends globally and get that information to local and foreign partners. On the ground, if banks become more familiar with trade-based money laundering schemes, they can be more effective at uncovering organized crime operations and the companies they control, particularly by requiring more details and transparency from customers to discern the value of actual items and conclude if they make sense. ACFCS analyzes what banks do and don’t have access to in the trade transaction chain and what ways they can better collect and collate the available data sets (Read more here).


The US Securities Exchange Commission (SEC) asked Chinese company Alibaba for more information about a dispute with China’s State Administration for Industry and Commerce (SAIC). The SAIC had initially released a report that criticized Alibaba for lack of oversight over fake items sold in its online marketplace platform. The SAIC then publicly backed down after the report, but the SEC is still asking for more details about the potentially illicit items. The SEC has jurisdiction with the Chinese company because it is listed on the New York Stock Exchange and has raised $25 billion in its initial public offering last year. The company said it was cooperating with the SEC’s informal inquiry (via The New York Times).

Chesapeake Energy Corp. filed suit Tuesday alleging that its founder and former chief executive officers (CEO) stole confidential company information during his last months in the role. The company claims that Aubrey McClendon stole trade secrets for the benefit of creating a new oil and gas company. The company says it discovered McClendon’s actions through a forensic analysis of his email account. A 2012 investigation found that McClendon had taken but not publicly disclosed $1.55 billion in personal loans from a major financier of the company. The internal investigation found “no intentional wrongdoing,” but McClendon stepped down in 2013 (via Reuters).

Lawmakers in Hong Kong urged authorities to ban Bitcoin after an online fraud involving the virtual currency tricked investors out of approximately $387 million.  More than 25 people reported the incident at police headquarters, spurring the call from legislators to prohibit the currency. The Hong Kong Monetary Authority has also urged people to exercise caution when investing with bitcoin. The company at the center of the scam, MyCoin, describes itself on its website as a “leading global bitcoin trading platform and application service provider.” MyCoin promised clients a return of HK$1 million over a four-month period, based on a $HK 400,000 investment that would produce 90 bitcoins on maturity (via Reuters). 

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