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Daily Briefing: $1 trillion in dirty funds flows through Europe, new FBI Miami graft unit, and more

Friday, March 8, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
March 8, 2019

Quote of the Day: “Some are born great, some achieve greatness, and some have greatness thrust upon them.” – William Shakespeare

In today’s ACFCS Fincrime Daily Briefing, a counter-crime crusader says more than $1 trillion in illicit funds is flowing through Europe, FBI creates new graft unit in Miami, Goldman faces up to $9 billion in 1MDB fines, and more.

Please enjoy this unlocked story, part of the many benefits of being an ACFCS member.

Want to talk about industry trends, story ideas or get published? Feel free to reach out to ACFCS Vice President of Content Brian Monroe at the email address above. Now, on to more sweet sweet content!

Money laundering

Europe potentially besieged by $1 trillion in dirty money as laundering scandals widen: counter-crime crusader

Bill Browder, the investor who’s made a career of chasing money launderers, says the cases he’s brought against banks so far only represent a tiny fraction of the full amount in dirty money trying to get out of Russia and into the West – and that in many cases, they moved so quickly and easily due to missed red flags and lax financial crime compliance programs.

The Hermitage Capital Management co-founder, who says he has worked closely with law enforcement agencies across Europe, estimates that roughly $1 trillion in questionable funds from the East are either already inside the European Union or looking for loopholes to get in, ushered by a cabal of professional services providers, criminals and banks with weak anti-money laundering (AML) programs – or worse, actively aiding scofflaws cleanse illicit gains.

Browder this week filed his latest criminal complaint against a Nordic bank, alleging that Swedbank AB handled $176 million connected to the death of Sergei Magnitsky. Sweden’s Economic Crime Authority has confirmed receipt of the complaint, which is dated March 4, and says it’s now looking into the claims.

Browder’s complaint follows separate allegations that tie Swedbank to almost $6 billion in suspicious transactions.

Browder alleges that for years, criminals from the former Soviet Union turned to the Baltic units of Nordic banks to launder their money, enabling them to pay for Western luxuries such as private schools for their kids and expensive homes.

Browder has previously filed complaints against Danske Bank A/S, which is now being investigated in the U.S. for its role at the center of a $230 billion laundering scandal stemming from its Estonian branch.

Browder says the amounts linked to Danske only represent “one-quarter of the estimated flight capital” from Russia.

Browder says in the case of Swedbank, the “suspicious transactions went on for nearly a decade with no one stopping them.”

According to the complaint, which was also filed to the Swedish government and police, the signs of money laundering were hard to miss. Browder points to the location of corporate account holders in countries such as the British Virgin Islands and the Marshall Islands – historical tax and secrecy havens.  

Meanwhile, others registered in the U.K. “appear to have filed zero or no financial returns” even as they did transactions of “substantial dollar amounts” via their Swedbank accounts, he said.

Sweden’s FSA said on Wednesday that the picture emerging “confirms clearly that there have been deficiencies in the anti-money laundering work at Swedish banks’ Baltic operations, but it also indicates that these deficiencies mainly lie a few years back in time.”

Commenting specifically on allegations in Swedish media against Swedbank, the FSA said there appear to “have been serious deficiencies” in the lender’s controls against laundering.

Swedbank employees “failed to block and report suspicious transactions with multiple suspicious counterparties in large amounts, thereby facilitating the illegal activity,” the complaint alleges.

“Red flags were obvious” in a number of cases, raising suspicions that employees may have actively assisted clients in laundering money, according to the document, (via Bloomberg).

Monroe’s Musings:

Just when you thought the Nordic and Baltic brouhaha for which region would be king of the money laundering couldn’t get any uglier, it does. In the financial crime and compliance communities, Browder is a fearless figure, fighting to find and cripple the world’s top money laundering hubs.

But he is also fueled by what happened to his partner and friend, to honor his legacy and punish the Russian regime responsible and individuals involved. That explains his passion and purpose to bring complaints against banks and the controls in the countries housing them.

He is a true partner to law enforcement and his actions, words and will should inspire AML compliance professionals around the globe to better attack their job with the zeal of a zealot – even if and when your superiors don’t support or understand why this mission and this community is so important.


Goldman faces penalties as high as $9 billion in 1MDB case, with key determinant being strength, culture of compliance

A “tough legal setup” for Goldman Sachs Group Inc. in the 1MDB case – putting it mildly – may result in fines of as much as $9 billion, Citi analysts Keith Horowitz and Eileen Shao wrote in a note, adding that a critical aggravating, or mitigating, factor for investigators and regulators will be the commitment to financial crime compliance programs – and any lack thereof.

The scandal, centering on the firm’s raising money for a Malaysian state investment fund, has been weighing on Goldman’s stock price for months, they said. Shares are probably “fairly valued” now, given the continued overhang. Since November, Goldman’s “underperformance represents about $12 billion of lost market cap, which we attribute largely to 1MDB concerns.”

Citi estimates Goldman will receive penalties ranging from $1.5 billion to $9 billion, and assumes a base case of $4 billion to $5 billion, though business activities are unlikely to be suspended.

Onerous fines and restrictions may depend on perceptions about Goldman’s compliance structure, Horowitz and Shao said. “If regulators view this more as an isolated incident and believe Goldman has an effective compliance program, consistent with Goldman’s stated position, then the fine would be on the lower end of the range.” Citi’s more bearish scenarios “get to the culture of the firm.”

Investors may have “initially downplayed the severity of the scandal as they believed the issue would be isolated to the conspirators and have limited direct impact on Goldman itself.” That changed when news of a potential connection to Lloyd Blankfein, alleging the then-CEO attended meetings with Jho Low, began to surface on November 8, they said.

Goldman fell 11 percent over the next two trading days “as the market started to price in the implications that knowledge of Goldman’s role in the 1MDB conspiracy may have been greater than originally thought.”

Horowitz and Shao note Goldman has said Blankfein doesn’t recall any one-on-one meeting with Low, and the bank hasn’t “seen any record to suggest such a meeting occurred,” (via Bloomberg). To read ACFCS coverage of 1MDB, click here.

Monroe’s Musings:

The 1MDB case is a further cautionary tale for banks large and small when dealing with massive, at-times opaque sovereign wealth funds (SWFs) and other securities vehicles that are tied to millions and billions of dollars and are at the higher end of the financial crime risk scale because they could be infiltrated by politically-exposed persons (PEPs) and their relatives and close associates.

The depth of chicanery involved was revealed in 2017, when the U.S. government issued a hefty, 251-page, $540 million forfeiture complaint detailing the financial crime compliance vulnerabilities and tactics – including evasion by customers, support by corrupt insiders and dishonest senior management – that allowed a small cabal of individuals to pilfer $4.5 billion from 1MDB in what many are calling the world’s largest fraud.

Critical to the scheme was outwitting bank financial crime compliance officers so the group could get the money out of 1MDB as quickly as possible using high-dollar wire transfers. At the outset, the group created shell companies with names very similar to large, well known energy and investment firms so they could make it appear the massive wires were normal.

But in actuality, the firms were controlled by the group and had no relation to the real, more prominent companies. Those are just some of the tactics the group used in a bid to dupe wire and AML teams.


“She never looks back” – Inside Elizabeth Holmes’ chilling final months as the founder of the foundering blood-testing firm Theranos

At the end, Theranos was overrun by a dog defecating in the boardroom, nearly a dozen law firms on retainer, and a CEO grinning through her teeth about an implausible turnaround. Elizabeth Holmes, appeared to know exactly what she needed to do. It was September 2017, and the situation was dire.

Theranos, the blood-testing company that she had dreamed up more than a decade ago, during her freshman year at Stanford, was imploding before her very eyes. 

John Carreyrou, an investigative reporter at The Wall Street Journal, had spent nearly two years detailing the start-up’s various misdeeds—questioning the veracity of its lab results and the legitimacy of its core product, the Edison, a small, consumer blood-testing device that supposedly used a drop of blood to perform hundreds of medical tests.

Carreyrou had even revealed that Theranos relied on third-party devices to administer its own tests. Theranos, which had raised nearly $1 billion in funding for a valuation estimated at around $9 billion, now appeared less a medical-sciences company than a house of cards, (via Vanity Fair). To read the U.S. Department of Justice indictment, click here.

Monroe’s Musings:

This Vanity Fair piece is an excellent read, with details aplenty about what happens when a company and its charismatic, quirky founder, spin a tale taller than what reality allows them.

But this wasn’t any ordinary company failing due to a lack of sales, resources or revenues – as the funds here were in the billions of dollars and promises to investors less than reliable. This failure resulted in criminal charges from federal investigative and securities agencies.

This story makes clear, with outstanding play-by-play details – including pinning a company’s hopes on the inspirational power of a not-yet-housebroken “wolf” – that there is a difference between desperation and deception, lessons for banks holding the accounts of Silicon Valley tech giants with delusions of grandeur.


FBI creates new counter-corruption unit in Miami to focus on growing graft in South America, continue regional momentum in major cases  

In a bid to crimp the growing grip of graft and money laundering involving overseas jurisdictions and bribes as a course of business to win over susceptive foreign governments, the FBI this week created a new squad of agents based in Miami, a regional counterbalance and “force multiplier” against grand kleptocracy.

The squad starting this month will marshal its resources not only in South Florida and the immediate environs, but also more broadly in South America, a frequent target of many international corruption cases.

Two of the corruption unit’s biggest settlements have come from the region in recent years.

Last year, state-owned Brazilian energy firm, Petrobras, paid more than $85 million to settle allegations executives doled out hundreds of millions of dollars in bribes to politicians and political parties. 

In 2016, Brazil-based construction behemoth Odebrecht and another petrochemical firm agreed to shell out more than $3.5 billion to resolve charges they greased the palms of politicians around the globe through an interwoven web of shell companies and shadowy transactions.

“The international corruption squads were created to combat international corruption by addressing foreign bribery, kleptocracy, and international antitrust matters,” the FBI said in a statement.

“Investigations conducted by these squads generally focus on criminal acts occurring outside U.S. borders but having a nexus to the U.S.,” according to the agency. “The squads routinely partner with foreign law enforcement and FBI legal attaché offices as a force multiplier to combat international corruption matters.”

The newly created Miami International Corruption Squad will be staffed with senior agents, forensic accountants, and personnel who “have extensive experience conducting complex white-collar crime and corruption investigations.” 

The Miami squad will be joining several others based in the FBI's heftiest field offices — Washington, New York and Los Angeles.

The chief focal point of the unit will be looking for foreign or domestic violations of the U.S. Foreign Corrupt Practices Act, a decades old law that has sharply bore its teeth in recent years when firms attempt to bribe foreign officials.  

But that is only part of the initiative. Federal investigative agents would be hamstrung without whistleblowers and the companies themselves self-reporting potential failures – a move that could significantly drop future penalties, all the way to nothing.

That is why expanding awareness of actions that could violate the FCPA is so important. The agency has been engaging in an aggressive outreach program in industries most at-risk for violating counter-corruption protocols, including energy, pharmaceuticals and more, (via the FBI). To read more, click here.

Monroe’s Musings:

This is an important move for the FBI and will spearhead partner investigations with other U.S. agencies, including the Department of Justice and its team that goes after complex international money laundering cases.

The Americas have been a frustrating bastion of corruption for many years, with the rule of law hurting businesses, individuals and the overall economy. As one expert stated: without countering corruption, there can’t be a foundation for the rule of law to fight money laundering and other financial crimes.

Why? Because no matter the hard work by law enforcement, prosecutors or judges, the best work of these professionals can be quickly undone by their opposite, their anathema, corrupt investigators, prosecutors or judges on the take.

The same can be said for legislators and politicians. If a politician is in the pocket of a greedy corporation or worse, a narco cartel, they will never craft and follow through on creating strong laws to combat money laundering, corruption and fraud – vital weapons that could arm AML compliance professionals, the current global vanguard on the frontline of fighting financial crime. 

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