Articles of Interest 091

Upsetting More than Regulators

If a bank fails to identify a money laundering scheme and report it properly to the authorities, is it liable for the losses incurred by those who fell victim to the scheme?

Legal risk traditionally meant the risk a bank faced in following the letter and the spirit of the law.  Does a new risk need to be added as a subsection of legal risk, namely civil litigation risk?

http://www.consumeraffairs.com/news04/2009/01/bofa_scam.html

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Bank Of America Sued In Internet Ponzi Scheme

Hundreds of millions of dollars collected in gigantic swindle

January 30th, 2009

Victims of an Internet-based Ponzi scheme have filed a lawsuit against Bank of America and the organizers of the scheme in the United States District Court for the District of Columbia.

Using elaborate misrepresentations, including numerous video postings on YouTube, organizers induced victims from around the country to purchase so-called "ad packages" from the following entities: AdSurfDaily, AdSurfDaily Cash Generator, Golden Panda Ad Builder, and La Fuente Dinero.

The scheme promised that participants could earn large rebates for viewing web advertisements and commissions for referring additional participants.

Hundreds of millions of dollars were collected from approximately 140,000 victims across the country, in amounts ranging from $500 to $250,000 at large rallies and through online deposits.

"We intend to hold all defendants accountable for this Ponzi scheme, including the Bank of America, and secure the return of all funds that were lost by innocent victims, said Steven N. Berk, a partner in the law firm of Chavez & Gertler LLP and a former federal prosecutor representing the plaintiffs in this case.

How does Bank of America figure into all of this?

The complaint alleges that a scheme of this magnitude could not have been possible without the involvement of a financial institution like Bank of America.

At least one other financial institution closed the accounts of the organizers for suspicious activity, according to a sworn government complaint. VISA also considered the enterprise suspicious and would not process charges directed to the scheme by would be victims. And the very popular PayPal payment system rejected efforts by participants to purchase "ad packages" using their system.

Nevertheless, the suit charges Bank of America, in the face of tell-tale signs of money laundering and other criminal conduct, provided both the imprimatur of legitimacy to the scheme and the banking infrastructure that facilitated many thousands of transactions for over two years.

Beginning in November of 2006, Bank of America allegedly allowed the scheme's main perpetrator carte blanche at the bank. The complaint claims the scammers opened and maintained at least 10 separate accounts for running an unlawful Ponzi scheme. These accounts were opened at a tiny Bank of America branch in Quincy, Florida under various "doing business as" designations.

The suit claims Bank of America looked the other way when these accounts amassed deposits in the tens of millions of dollars from thousands of individual transactions.

"We expect to establish that Federal banking regulations, including the Bank Secrecy Act, the USA Patriot Act and related anti-money laundering regulations, clearly required Bank of America to scrutinize the legitimacy of the tens, if not hundred of millions of dollars deposited into a branch in Quincy, Florida to fuel this scheme. Red flag after red flag was ignored by Bank of America. And with the assistance of Bank of America, this fraudulent scheme needlessly expanded" said Steven N. Berk, Counsel for the Plaintiffs.

Articles of Interest 090

Drugs and Guns

If there was any doubt that international narcotics could be intertwined with terrorist activity, the prosecution of Bashir Noorzai should answer all questions.

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News Release
FOR IMMEDIATE RELEASE
April 30, 2009
Garrison Courtney 
Office of Public Affairs
202-307-7977

Top Taliban Associate and Former Mujahideen Warlord Sentenced to Life in Prison on Heroin Trafficking Charges

APR 30 -- LEV L. DASSIN, the Acting United States Attorney for the Southern District of New York, announced that BASHIR NOORZAI, a former Mujahideen warlord and strong ally of the Taliban, was sentenced today to life in prison on heroin importation and distribution conspiracy charges. NOORZAI was found guilty of the charges following a jury trial before Federal Judge DENNY CHIN in September 2008. According to the evidence at trial:

NOORZAI, the leader of his namesake tribe, one of Afghanistan's largest and most influential tribes, owned opium fields in the southern province of Kandahar, Afghanistan, and had subordinates convert the opium into heroin at laboratories in Afghanistan's border regions. Heroin from these labs was later imported into the United States, hidden in suitcases and on ships. As early as 1990, NOORZAI had a network of distributors in New York City who sold his heroin.

During the Russian occupation of Afghanistan, NOORZAI raised his own army of Mujahideen fighters, financed and armed with drug proceeds. After the Russian army had quit Afghanistan, NOORZAI ruled western Kandahar, establishing and controlling his own police, border guards and courts.

NOORZAI met MULLAH MOHAMMAD OMAR in the 1980s while the two fought in the same Mujahideen faction. In the mid-1990s, when the Taliban was ascending to power in Afghanistan, NOORZAI used his influence in Kandahar to assist OMAR in securing the position of supreme leader of the Taliban. NOORZAI then provided the Taliban with arms, including AK-47 assault rifles, rocket propelled grenade launchers, and anti-tank weapons, as well as vehicles and a portion of the proceeds of his narcotics trafficking activities. In 2001, after the United States began military operations in Afghanistan, NOORZAI, at OMAR's request, provided the Taliban with 400 of his own fighters to wage a battle against Afghanistan's Northern Alliance in Mazar-e-Sharif.

In return for his financial and other support, the Taliban permitted NOORZAI to continue his drug trafficking activities with impunity. In addition, NOORZAI and his co-conspirators benefitted from advance knowledge of the Taliban's 2000 opium ban, and used that information to stockpile opium and sell it at a tremendous profit after the ban caused opium prices to spike.

At trial, NOORZAI was found guilty of both counts against him -- one count of conspiring to import heroin, and to manufacture and distribute heroin knowing that it would be imported into the United States, and one count of conspiring to distribute heroin.

NOORZAI, who faced a mandatory minimum sentence of 10 years, was sentenced by Judge CHIN to life imprisonment on each count in the Indictment. In sentencing NOORZAI, Judge CHIN found that he led a conspiracy involving hundreds of people, and that the conspiracy helped arm the Taliban with narcotics proceeds.

Prior to his arrest in 2005, NOORZAI had been designated by the Department of Justice to the Consolidated Priority Organization Target ("CPOT") list, a list of the most powerful and dangerous narcotics traffickers in the world. His successful prosecution is the result of a long-term investigation by this Office's International Narcotics Trafficking Unit, the Drug Enforcement Administration's New York Field Division, its Kabul, Afghanistan and Islamabad, Pakistan Country Offices, and
the New York Joint Terrorism Task Force, which includes special agents of the Federal Bureau of Investigation. The DEA's Special Operations Division also assisted in the investigation and prosecution.

"BASHIR NOORZAI's worldwide narcotics network supported a Taliban regime that made Afghanistan a breeding ground for international terrorism, a legacy that continues to destabilize the region," said Acting United States Attorney LEV L. DASSIN."Today's sentence definitively puts an end to Noorzai’s long criminal career."

The prosecution was handled by the Office’s International Narcotics Trafficking Unit. Assistant United
States Attorneys JOCELYN STRAUBER, ANJAN SAHNI, BOYD JOHNSON, and ANIRUDH BANSAL are in charge of the prosecution.

Articles of Interest 089

Lack of Proper Training

The former bank managers from Bank of China have been sentenced in the United States for laundering their embezzled funds through Hong Kong, Canada and Las Vegas casinos.  Sentences were imposed ranging from eight to twenty-five years in prison.

Given the general lack of creativity - especially when one has half a billion dollars at one's disposal - exercised by the BoC managers, money launderers would do well to seek the advice of others.  Where were multiple shell banks and international business corporations registered in faraway offshore financial havens?  Where were the hidden tricks that should be known to bankers employed with a global financial institution? 

Anti-money laundering training at BoC clearly does not delve into enough detail.

http://www.usdoj.gov/opa/pr/2009/May/09-crm-446.html

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FOR IMMEDIATE RELEASE
Wednesday, May 6, 2009
WWW.USDOJ.GOV

CRM
(202) 514-2007
TDD (202) 514-1888

Former Bank of China Managers and Their Wives Sentenced for Stealing More Than $485 Million, Laundering Money Through Las Vegas Casinos

Two former managers of the Bank of China and their wives were sentenced today after their convictions on Aug. 29, 2008, by a federal jury in Las Vegas on charges of racketeering, money laundering, international transportation of stolen property as well as passport and visa fraud.

U.S. District Judge Philip M. Pro sentenced Xu Chaofan aka Hui Yat Fai to 25 years in prison, Xu Guojun aka Hui Kit Shun to 22 years in prison, Kuang Wan Fang aka Wendy Kuang to eight years in prison and Yu Ying Yi to eight years in prison. All four defendants were sentenced to three years of supervised release and ordered to pay $482 million in restitution. Denaturalization proceedings against Kuang Wan Fang and Yu Ying Yi have been initiated by the government.

Evidence presented during the trial established the elaborate scheme to defraud the Bank of China of at least $485 million, orchestrated by former managers Xu Chaofan, Xu Guojun and a third former bank manager, Yu Zhendong aka Yu Wing Chung, who pleaded guilty in connection with this investigation and cooperated with the United States.  According to information presented in court, the scheme involved efforts by the bank managers to launder the stolen money through Hong Kong, Canada and the United States, among other countries, and then immigrate to the United States from China with their wives by obtaining false identities and entering into sham marriages with naturalized U.S. citizens.  Evidence also proved that the bank managers’ true wives, Kuang Wan Fang and Yu Ying Yi, assisted their husbands in laundering the proceeds of the fraudulent scheme and violated U.S. immigration laws by entering this country illegally and then securing U.S. citizenship and passports through fraudulent means. 

All five defendants were charged with engaging in a RICO conspiracy that began in 1991 and continued until October 2004 when the former bank managers and their wives were arrested.  The underlying racketeering activities included engaging in monetary transactions with stolen money, transportation of stolen money, passport fraud and visa fraud.  Evidence presented at trial established that the former bank managers created a number of shell corporations in Hong Kong and with the assistance of others funneled the bank’s money into these companies as well as numerous personal bank and investment accounts.  Assisted by their wives, relatives and others, the former bank managers then laundered the stolen proceeds through Canada and the United States.  Evidence presented at trial included a significant number of transactions with the stolen money through Las Vegas casinos, including bets at the casinos that ranged from $20,000 up to $80,000.

All five defendants also were convicted of engaging in a money laundering conspiracy and conspiracy to transport stolen money that began in 1998 and continued through October 2004.  These conspiracy charges focused on the laundering of the stolen money in the United States not only through casinos, but also through numerous bank accounts established in the United States by the defendants.

The two former bank managers were also convicted on three counts each of visa fraud – specifically, the possession and use of a fraudulently procured non-immigrant U.S. visa to enter and/or remain in the United States.  The two bank managers’ true wives were convicted of three counts each of passport fraud – specifically, the use of a U.S. passport secured through a false statement to enter or facilitate their stay in the United States.

"We will hold fully accountable those foreign nationals who abuse the financial systems of their home countries and who then, by fraudulent means, seek to live richly off their ill-gotten gains in the United States," said Assistant Attorney General Lanny A. Breuer.  "Despite the best efforts of these defendants to avoid detection, their scheme first to steal nearly $500 million from a Chinese bank, and then to hide themselves and the money in the United States, was exposed thanks to the tireless efforts of federal agents and prosecutors. With their hard work, and the work of countless others like them who are on constant guard against theft and fraud, the Department will continue to unravel the most complicated financial crimes."

"The defendants sentenced today engaged in a complex scheme from across the globe, using U.S. banks and casinos to launder more than $485 million stolen from the Bank of China.  Financial crimes like these know no borders.  By partnering in investigations such as this one, the FBI and our law enforcement partners in the United States and abroad can combine our collective resource to most effectively attack this worldwide criminal threat," said Assistant Director Kenneth W. Kaiser, FBI Criminal Investigative Division.

Xu Chaofan, Xu Guojun, Kuang Wan Fang and Yu Ying Yi were charged on Sept. 21, 2004, in an 11-count indictment with conspiring to violate, and substantive violations of, U.S. immigration law.  The third former bank manager, Yu Zhendong, pleaded guilty to engaging in a racketeering enterprise on Feb. 18, 2004, and voluntarily returned to China, where he was convicted for embezzlement for his role in the bank theft.  Yu Zhendong’s true wife, Yu Xuhui (aka Fion Yu), pleaded guilty on April 26, 2005, to unlawfully procuring U.S. citizenship.  She has agreed to voluntarily relinquish her American citizenship, but was permitted to remain in the United States with the couple’s children as long as she does not commit another crime.  Yu Zhendong’s fake American wife, Shanna Yu Ma (aka Yu Shuzhan) pleaded guilty to submitting a false statement to the Immigration and Naturalization Service, now part of the Department of Homeland Security, in support of Yu Xuhui’s application for naturalization.  Both Ma and Yu were sentenced in December 2007 to terms of probation.

This matter was prosecuted by Trial Attorney Krista Tongring and former Trial Attorney Cynthia Stone and of the Criminal Division’s Organized Crime and Racketeering Section and Assistant U.S. Attorney Ronald Cheng of the U.S. Attorney’s Office for the Central District of California.  Organized Crime Strike Force Chief Eric Johnson of the U.S. Attorney’s Office for the District of Nevada served as local counsel.  Significant assistance was also provided by Kyle Latimer of the Criminal Division’s Office of International Affairs.  The U.S. Attorney’s Office for the District of Nevada provided significant support for the prosecution and coordination of witnesses from throughout the United States and overseas.  The case was investigated by the FBI’s Las Vegas Field Office and U.S. Immigration and Customs Enforcement of the Department of Homeland Security.  Essential support was also provided by the FBI’s offices in Beijing and Hong Kong.  The government of the People’s Republic of China, in particular the Ministries of Justice and Public Security along with the Hong Kong Department of Justice and Hong Kong Police Force, also provided substantial assistance in producing evidence and making witnesses available, both for testimony at trial and videotaped depositions.

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09-446

Articles of Interest 088

Word from on High

Times are tough for financial institutions but regulatory expectations remain the same in the realm of anti-money laundering and counter-terrorist financing.  Reporting entities in Canada – and abroad – would do well to ask their supervisory agencies and financial intelligence units how the public sector is assisting them to defray the enormous expense of mounting an effective financial crime risk management regime.  For those worried about solvency risk vs. legal / regulatory risk, this is a realistic question.

“Lack of money is the root of all evil.”

- George Bernard Shaw (1856-1950)

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http://www.investmentexecutive.com/client/en/News/ImprimerDetail.asp?Id=49265&cat=8&IdSection=8&PageMem=&nbNews=&IdPub=

Don’t cut costs at expense of anti-money laundering efforts: OSFI

Senior director says it’s vital to take all the steps necessary to deter criminal elements

Wednesday, May 6, 2009

By James Langton

Financial services firms must not cut back on their efforts to fight money laundering despite the recession and the pressure to reduce expenses, regulators say.

Speaking to an information session on the fight against money laundering and terrorism financing in Toronto on Wednesday, Nicolas Burbidge, senior director, compliance division of the Office of the Superintendent of Financial Institutions, noted that the financial services industry has made progress in recent years against money laundering, but, he pointed out that “as cash has become harder to launder, criminals have become more creative in their efforts.”

Moreover, he noted that the financial crisis and the economic downturn have impacted the financial sector: “We understand the pressures on management to perform and to reduce expenses, but this should not occur at the expense of your anti-money laundering and anti-financing financing program. Your controls, and financial intelligence provided to FINTRAC, are critically important for the continued fight against financial crime, and the integrity of the Canadian and global financial systems.”

Burbidge said that “it is vital that Canada’s financial system continue to be seen as taking all the steps necessary to deter criminal elements that may seek to use the Canadian financial system for their own ends.”

That includes a commitment to the fight from the private sector.

Important changes were made to Canada’s anti-money laundering regime in 2008, he noted, but some firms haven't adopted all the necessary changes.

“Although many financial institutions have now developed adequate plans to implement these changes, other institutions are still lagging in some key areas. We have had to underline the need for these institutions to apply adequate resources, controls and procedures to ensure effective compliance can be achieved. We will continue to take action as needed in this area,” he said.

A requirement for financial institutions to develop an inherent risk methodology, which enables them to identify situations that are at higher risk for money laundering and terrorism financing, is one of the biggest changes Burbidge noted. And, he reported that OSFI’s work “indicates that many financial institutions, large and small, are challenged by this requirement.”

He added: “It is critical to the success of the risk-based approach in your AML/ATF program that the assessment of money laundering and terrorism financing risk gets done right. The required controls flow from the assessment of risk, and if risks are not adequately identified, then controls are likely to be weak.”

Articles of Interest 087

Why Lay Money Laundering Charges?

Former fund manager Arthur G. Nadel promised investors the moon but failed to deliver.  In fact, he now faces a possible 280 years in prison, an unpleasant reality at the tender age of 76.

Authorities charged him with wire fraud, securities fraud and mail fraud, but not money laundering.  In this case, laying additional charges may be pointless, especially when efforts are already being made to recover the victims' losses.  Yet laying a money laundering charge would send a strong message to the securities markets industry that the problem does indeed exist.

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For Immediate Release April 28, 2009

United States Attorney's Office Southern District of New York Contact: (212) 637-2600 Former Hedge Fund Manager Arthur G. Nadel Indicted on Fraud Charges LEV L. DASSIN, the Acting United States Attorney for the Southern District of New York, announced that ARTHUR G. NADEL, 76, of Sarasota, Florida, was indicted today on securities, mail, and wire fraud charges stemming from a ten-year scheme to defraud investors out of millions of dollars. NADEL previously was arrested in this case on January 27, 2009. As alleged in the fifteen-count Indictment filed in Manhattan federal court: From 1999 through January 2009, NADEL perpetrated a scheme to defraud investors in six different funds: (a) Victory IRA Fund Ltd.; (b) Scoop Real Estate LP; (c) Victory Fund Ltd.; (d) Valhalla Investment Partners; (e) Viking Fund, LLC; and (f) Viking IRA Fund, LLC (collectively the "Funds"). NADEL solicited prospective clients to invest in the Funds by making various misrepresentations about the performance and value of the Funds, including that the net asset value of each of the Funds was tens of millions of dollars. NADEL also claimed to investors that his purchases and sales of securities in the Funds had generated cumulatively more than $271 million in gains. In truth, NADEL’s trading resulted in an overall net loss in the Funds. To further the scheme, NADEL created and caused others to create false and fraudulent client account statements, among other documents, that reflected fictitious positive returns consistent with the returns NADEL represented to investors he had achieved. Based, in part, on NADEL's false statements, from 1999 through January 2009, more than 350 clients invested more than $360 million with the Funds. NADEL received tens of millions of dollars in management fees and performance incentive fees and, moreover, transferred and caused to be transferred millions of dollars in investor money in the Funds to accounts and entities that he owned and/or controlled. The investors in the Funds did not authorize NADEL to make these transfers, and NADEL failed to disclose them. NADEL is charged with six counts of securities fraud, one count of mail fraud, and eight counts of wire fraud. Each securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. The mail fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. Each wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. If found guilty on all counts, NADEL faces a combined statutory maximum sentence of 280 years’ imprisonment. NADEL is also subject to mandatory restitution. The Indictment includes forfeiture allegations which would require NADEL to forfeit the amount of money involved in the charged crimes. NADEL is currently detained pending his meeting bail conditions set by United States District Judge DENISE L. COTE following NADEL's January arrest. NADEL is expected to be arraigned on the Indictment by United States District Judge JOHN G. KOELTL on April 30, 2009. Mr. DASSIN praised the work of the Federal Bureau of Investigation, and thanked the United States Securities and Exchange Commission for its assistance. He added that the investigation is continuing. Assistant United States Attorneys REED M. BRODSKY, MARIA E. DOUVAS, and JEFFREY ALBERTS are in charge of the prosecution. The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Articles of Interest 086

Read the Small Print

It would appear that “Californian financier” Danny Peng forgot to read the small print on the enclosed form, in particular Section II Part 27.  A Currency Transaction Report applies to both cash coming in to a financial institution and cash going out.  Structuring transactions is considered “not cricket”.  If you’re going to allegedly defraud your investors of millions and then get rolled by the cops, don’t run down to the bank branch with a duffel bag and hope to fill it with cash before making a run for the border.

“One should absorb the colour of life, but one should never remember its details. Details are always vulgar.”

- Oscar Wilde, "The Picture of Dorian Gray"
Irish dramatist, novelist, & poet (1854 - 1900)

For financial institutions dealing with dubious private equity firms, ManchesterCF’s Financial Crime in Capital Markets course may be of interest.  For further information, visit  http://www.manchestercf.com/Files/MCF_Financial_Crime_Cap_Mkts.pdf

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If you are not interested in receiving the “Articles of Interest” e-newsletter from ManchesterCF, please reply to this message and write in the subject heading “Remove Subscription”.  Your e-mail address is never provided to outside third-parties.  If you wish to forward this message, please include all contents of this message to the receiver.  The contents of this electronic message are confidential and are intended for the recipient only.  If you have received this message in error, please contact the sender and delete the message.  All contents of this electronic message are protected by copyright where appropriate  – © Copyright ManchesterCF 2009

An overview of ManchesterCF is available athttp://www.manchestercf.com/Files/ManchesterCF_Overview.pdf

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http://online.wsj.com/article/SB124104989372970935.html#printMode


APRIL 30, 2009, 8:34 A.M. ET

Peng Confined to His Home
By MARK MAREMONT

California financier Danny Pang was released on a $1 million bond and confined to his Newport Beach home with electronic monitoring, according to a spokesman for the U.S. attorney in Los Angeles.

Mr. Pang, 42 years old, was arrested Tuesday on charges he structured dozens of large cash withdrawals in a way to avoid triggering federal reports designed to combat money laundering.

The criminal charges are separate from civil allegations filed Monday by the Securities and Exchange Commission that Mr. Pang ran a massive international fraud involving hundreds of millions of dollars. Mr. Pang stepped down earlier this month as CEO of Private Equity Management Group, or PEMGroup, of Irvine, Calif. His attorney has denied the SEC's fraud charges.

The release conditions were set Wednesday by a U.S. magistrate in Santa Ana, Calif. 

Articles of Interest 085

Who can you trust?

The global investment industry currently faces hard times.  In 2007, Goldman Sachs CFO David Viniar famously stated that daily market activities in some securities were 25 standard deviations from the norm.  It would appear that the bizarre is the new norm within today’s financial markets.

The United States Federal Bureau of Investigation (FBI) has laid fraud and money laundering charges against Anthony Vassallo, 29, for allegedly duping members of his church via a Ponzi scheme into investing USD40-million in a “hedge fund” returning 3.5% a month.  Former NFL star Clyde “Peter” Hall, 70, pleaded guilty to fraud (but not money laundering), as he had peddled phoney banking instruments worth millions of dollars to investors.  When the phoney investments went awry, he then charged investors for the service of attempting to recoup the same investor funds he had pilfered.  For both news releases, please see attached.

When financial markets turn downwards, incidents of fraud will rise.  When financial markets plummet off a cliff, reality takes a back seat.  If you can’t trust a Mormon or an NFL star, who can you trust?

“May you live in interesting times.”

- Chinese curse, date unknown

To expand employee knowledge in capital markets financial crime is to bolster the firm’s defences against implication in an expensive and damaging financial crime event.  For further information on ManchesterCF’s Financial Crime in Capital Markets course, visit http://www.manchestercf.com/Files/MCF_Financial_Crime_Cap_Mkts.pdf

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If you are not interested in receiving the “Articles of Interest” e-newsletter from ManchesterCF, please reply to this message and write in the subject heading “Remove Subscription”.  Your e-mail address is never provided to outside third-parties.  If you wish to forward this message, please include all contents of this message to the receiver.  The contents of this electronic message are confidential and are intended for the recipient only.  If you have received this message in error, please contact the sender and delete the message.  All contents of this electronic message are protected by copyright where appropriate  – © Copyright ManchesterCF 2009

An overview of ManchesterCF is available at http://www.manchestercf.com/Files/ManchesterCF_Overview.pdf

Articles of Interest 084

Proceeds of Arrrr...

Ransom payments must end up somewhere.  Some have been dropped from the skies onto the decks of hijacked ships.  Others have been arranged via intermediaries with dark backgrounds, usually out of “security” or “risk management” firms based in London.  It now seems likely that firms and financial institutions in Dubai and certain African cities assist pirates in laundering their proceeds of crime.

One would assume a suspicious transaction report would follow a ransom payment.  Such conduits must expose obvious paper trails, especially since the problem of piracy off the Horn of Africa has been front page news for so long.  Will the pirates’ banks face sanction from the FATF or Western policy makers?  Will the bank sanction tool be deployed by Washington in response to the problem?

Financial institutions in Western financial markets should ensure their respondent or correspondent banks in these regions do not employ parrots or peg-legged seafarers.

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http://www.independent.co.uk/news/world/africa/pirates-the-80m-gulf-connection-1671657.html


April 21, 2009

Pirates: the $80m Gulf connection

By Kim Sengupta In Nairobi and Daniel Howden Africa correspondent
Crime syndicates laundering vast sums taken in ransom from ships and their crews hijacked in Horn of Africa

Organised piracy syndicates operating in Dubai and other Gulf states are laundering vast sums of money taken in ransom from vessels hijacked off the Horn of Africa.

Investigators hired by the shipping industry have told The Independent that around $80m (£56m) has been paid out in the past year alone – far more than has previously been admitted. But while some of this money has ended up in the pirate havens of Somalia, millions have been laundered through bank accounts in the United Arab Emirates and other parts of the Middle East.

The so-called "godfathers" of the illicit operations, according to investigators, include businessmen from Somalia and the Middle East, as well as other nationalities on the Indian sub-continent. There have also been reports that some of the money from piracy ransoms has gone to Islamist militants.

The security company Idarat Maritime, which specialises in maritime protection, is working with leading Lloyd's underwriters to formulate safeguards for shippers. Christopher Ledger, a former Royal Marine officer and a director of the firm, said: "There is evidence that syndicates based in the Gulf – some in Dubai – play a significant role in the piracy which is taking place off the African coast. There are huge amounts of money involved and this gives the syndicates access to increasingly sophisticated means of moving money as well as access to modern technology in carrying out the hijackings. This is an international problem and the shipping companies need to ensure that their crews learn how to deal with it."

Investigators have discovered that the pirate gangs are exploiting information available to the shipping industry to plan their attacks. Front organisations are believed to have signed up to the Lloyd's List ship movement database, and sources such as Jane's Intelligence, to ascertain protective measures being undertaken by the shippers. In addition they have bought equipment to monitor radio traffic.

A few well-funded pirate syndicates have experimented with a "stealth" paint such as AR 1, invented by a German scientist living in the UAE, which is credited with making boats difficult to spot via the long-range radar of cargo liners.

It is not clear whether the use of the paint has been effective in helping hijackings, but its use, say the security companies, shows that the pirates are seeking out advanced technology and have the means to acquire it.

Andrew Mwangura, a piracy expert in the Kenyan port of Mombasa, says the gun-wielding Somalis who are fighting and dying in the hijackings are the just the front men of larger syndicates. "They are just the small fish. The big sharks operate out of places like Dubai, Nairobi and Mombasa," he said.

Mr Mwangura, who has observed the rise of piracy while running the East African Seafarers Assistance Programme, says that what began as a localised response to illegal fishing and dumping of toxic waste in Somali waters has evolved into organised crime.

A former merchant seaman, he has been involved in attempts to negotiate the release of hostages and is sought out by diplomats, shipowners and the pirates themselves. He says the profits have drawn in "high-ranking figures" from the semi-autonomous Puntland region and members of the now defunct transitional government of Somalia. "We strongly believe that Mombasa- and UAE-based Somali businessmen are also part of the network."

Neil Roberts, a senior official with Lloyd's Market Association, and the secretary of "the war committee" of Lloyd's and the insurance industry, said: "We are certainly seeing a lot of sophistication in the way piracy has developed. Attacks are being carried out 400 to 600 miles out at sea. This shows the pirates have access to pretty detailed information of ship movements. They certainly have access to the internet and information that is helping them. The question of UAE connection is certainly talked about in the industry and people have been looking into it."

There are also concerns that some of the piracy money may have ended up with Islamist militants both in Somalia and abroad. However this has not been acknowledged because shipping companies would be breaking laws on funding terrorism by paying ransoms.

Stephen Askins, senior partner with the law firm Ince & Co, which specialises in the subject, said: "Current anti-terrorist laws make it illegal to make payment to those who carry out such acts motivated by politics or ideology.

"This does not apply to victims of extortion in criminal cases. We know the US State Department is looking at upgrading piracy to a possible political act but this will make it very difficult for shipping companies to free the many members of crew who are still being held and the cargo being held as well. We know people are looking at those who are subsidising the pirates and we will have to see what happens."

Major General Julian Thompson, the chairman of Idarat and a former commander in the Royal Marines, added: "What we can say is that these people are not just fishermen who have taken up a bit of piracy as a hobby. The people in ultimate charge of some of the groups have access to some pretty good information and they are well organised. Dubai seems to be the place which has a part in this."

Articles of Interest 083

10.324%

The New York branch of Doha Bank in Qatar has run afoul of authorities in the United States to the tune of USD5-million.  Their track record is not good.  They did not seem to understand FinCEN’s perspective on high risk countries and businesses.  They acted as correspondent bank to nefarious institutions located in evil countries.  Their review of wire transfers was manual (!) for approximately 350 payments per day worth USD67-billion per annum.  Their independent testing lacked independence.  Over a five year period, 89% of their suspicious activity reports (totalling approximately USD7.4-billion) were late in filing.

Average daily oil exports for Qatar (2007 est.) = 1.026 million barrels   (CIA World Factbook)
Today’s price of Crude Oil = USD47.20   (April 21, 2009, NYMEX)
Fine as percentage of today’s oil production (est.) = 10.324%
Whimsical shrug of indifference = Priceless

In order to prevent such crippling sanctions in the future, Doha Bank should consider implementing ManchesterCF’s Advanced Anti-Money Laundering Course (Correspondent banking) - http://www.manchestercf.com/Files/AAMLC_CorB_overview.pdf

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Assessment of civil money penalty - http://www.fincen.gov/news_room/ea/files/Doha.pdf

http://www.fincen.gov/news_room/nr/pdf/20090421.pdf

For Immediate Release
April 21, 2009
 
 
FinCEN and OCC Assess Civil Money Penalties
Against the New York Branch of Doha Bank

WASHINGTON — The Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) today announced the assessment of concurrent civil money penalties, each $5 million, against the New York Branch of Doha Bank, Doha, Qatar ("the Branch"), for past violations of the Bank Secrecy Act (BSA).  The Branch, without admitting or denying the allegations, consented to payment of the civil money penalties, which will be satisfied by a single payment of $5 million to the U.S. Department of the Treasury.
 
In September 2006, due to Bank Secrecy Act (BSA) program deficiencies, the OCC issued a Cease & Desist Order (C&D Order), by consent, to the Branch.  The C&D Order mandated a look-back of wire transfers, demand drafts, and pouch items processed by the Branch.  The look-back was completed in January 2008 and covered transactions that took place at the Branch between May 1, 2004, and January 16, 2007.
 
The OCC based its assessment of a $5 million civil money penalty, and the issuance of the C&D Order, on the Branch's failure to maintain a compliance program reasonably designed to assure and monitor compliance with the recordkeeping and reporting requirements of the BSA, and other related BSA compliance violations.  Specifically, the Branch did not adequately identify, research, report, and monitor suspicious activities occurring through the Branch’s funds transfers, pouch activity, demand draft services, and correspondent relationships, and did not adequately audit and independently test such activities.  The Branch also failed to conduct sufficient due diligence on its foreign correspondents.  The look-back mandated by the C&D Order confirmed the BSA program deficiencies cited in the C&D Order.
 
“It is critically important that institutions have effective systems in place to identify and report suspicious transactions in a timely manner, especially with regard to higher-risk products and services,” Comptroller John C. Dugan said.  “Today’s action signifies our ongoing commitment to the goals of the BSA, and will help ensure that all institutions remain vigilant in the fight against money laundering and other illicit activity.”
 
In assessing a $5 million civil money penalty, FinCEN determined that the Branch failed to implement an adequate system of internal controls to ensure compliance with the BSA and manage the risk of money laundering or other suspicious activity, or to conduct independent testing to allow for the timely identification and correction of BSA compliance deficiencies.  The absence of effective internal controls and independent testing at the Branch resulted in numerous violations of the requirement to timely report suspicious transactions, and the extended period of time over which the violations
occurred impaired the usefulness of the suspicious activity reports to law enforcement investigators.
 
FinCEN Director James H. Freis, Jr., noted, “Despite the current economic and resource challenges that many banks may face, Bank Secrecy Act (BSA) compliance efforts must not be diminished.  Timely, complete, and accurate Suspicious Activity Reports (SARs) are critical tools available to law enforcement as a means to deter and detect criminal activity.  Used in conjunction with additional financial intelligence, SARs help law enforcement to ferret out criminal elements and combat fraud that threatens our financial system.  As such, failure to follow BSA rules deprives law enforcement of valuable information in the investigation and prosecution of crime.  FinCEN continues to collaboratively ensure that all financial institutions follow BSA rules which in turn serve to protect our financial system.”
 
Copies of the agencies' CMP enforcement actions are attached.  
 
# # # 

Articles of Interest 082

A Launderer’s Best Friend

For those who maintain that the jewellery business should not be burdened with anti-money laundering regulations, the following article from the New York Times suggests otherwise.

“I have never hated a man enough to give his diamonds back.”

- Zsa Zsa Gabor

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http://cityroom.blogs.nytimes.com/2009/03/20/high-value-low-weight-perfect-for-laundering-money/?pagemode=print

High Value, Low Weight. Perfect for Laundering Money. 

By JENNIFER 8. LEE 

Diamonds are a criminal’s best friend, or so argue federal investigators. The Treasury Department’s auction of 605 diamonds on Friday was part of a larger series of auctions of items seized as part of investigations. 

“For a transparent sales method, they like auctions,” said Rick Levin, whose firm handled the diamond auction. 

This is one of the rare times that his firm has handled a diamond auction, Mr. Levin said; usually, the treasury auctions involve “cars, boats, planes, Rolexes and Ferraris,” he said. 

But investigators seize an eclectic set of items. In the last two years, Mr. Levin has auctioned horses in Arizona, cab medallions in Boston and 54,000 pounds of smoked frozen scallops in Baltimore on behalf of the federal government. This auction was held in New York in part because of the diamond district, where the diamonds were originally seized as part of an investigation into a Colombian drug cartel. 

Diamonds provide a popular means for laundering money because they have high value, low weight and no odor. In addition, the fractured, decentralized nature of the diamond industry means they are difficult to trace. A 2003 General Accounting Office report on terrorist financing [pdf] discussed at length how diamonds had been used for financing in drugs and arms dealings. 

As a result, the Internal Revenue Service requires jewelry retailers to comply with anti-money laundering regulations. 

New York’s diamond district, as one of the centers of the industry, has been involved in a number of criminal investigations. In August 2003, a 76-year-old New York diamond jeweler, Yehuda Abraham, was indicted on charges of conspiring to operate an unlicensed money remittance system that would be used in the purchase of a shoulder-fired missile. 

These diamonds were from a case where Roman Nektalov, a diamond district dealer, was arrested in 2003 and later convicted as part of a Colombian drug investigation called Operation Meltdown. His son, Eduard Nektalov, was also indicted , but he was assassinated on a busy New York Street before he went to trial. 

In the money-laundering scheme that was the target of Operation Meltdown, drug traffickers and money brokers exchanged cash for gold and diamonds that were smuggled to Colombia by couriers or in cargo, according to prosecutors. Once there, goods were sold for Colombian pesos, which were then delivered to the narcotics dealers. 

Diamonds also pop up in national security contexts, such as terrorist financing and war. The General Accounting Office report suggested a connection between Hezbollah and a part of the Lebanese diamond trading network in West Africa. It also noted that Al Qaeda first set up diamond mining and trading companies during the 1990s in Kenya and Tanzania, though they were never fully developed. 

The diamonds that were auctioned on Friday are relatively modest in size, ranging from half a carat to two carats. The are not particularly rare or remarkable (unlike others). “Not huge, but hopefully affordable,” Mr. Levin said. They might make a nice engagement ring for someone who is looking for a bargain, he said. “Something for everyone.” 

The proceeds from the sale will go to the Department of the Treasury’s Asset Forfeiture Fund and the Criminal Investigations Division of the Internal Revenue Service.

Copyright 2009 The New York Times Company Privacy Policy NYTimes.com 620 Eighth Avenue New York, NY 10018

MARCH 20, 2009, 5:26 PM 

Articles of Interest 081

Why bother?

A lawyer in Miami is fighting accusations that the black market peso exchange was employed to pay legal fees in Florida.  Joseph DeMaria, a Florida attorney, states the following to the Daily Business Review:

DeMaria said it's disingenuous for prosecutors to denigrate the parallel money market.

"Much of Brickell Avenue [in Miami] was built with drug money. Does that mean you take down all those financial institutions?" he asked. "Sometimes the government has gone too far with the black market peso exchange."

If a well-known vehicle for narcotics-related money laundering becomes a standard fixture within the Floridian economy, does one simply shrug, accept its presence and live with the consequences?

“If something is too hard, give it up. The moral, my boy, is to never try anything.”

- Homer Simpson

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Black Market Peso Exchange at Issue in Kuehne Money-Laundering Case
John Pacenti/Daily Business Review
March 09, 2009

The defense team for indicted Miami attorney Ben Kuehne isn't resting on its laurels after winning crucial pretrial battles against federal prosecutors.

A money-laundering conspiracy count defended by the Justice Department has been jettisoned, charges were dropped against a co-defendant, and the defense team won a magistrate's recommendation to discard a wire fraud charge.

The government and Kuehne now are squaring off on the five remaining money-laundering counts alleging the attorney used the black market peso exchange to funnel $5.2 million from the family of Colombian drug kingpin Fabio Ochoa to Miami to pay defense attorney Roy Black. He had hired Kuehne to vet the money because defense attorneys may not knowingly accept crime profits as legal fees.

Court papers on the money movements filed last month give the best glimpse yet of how the trial may play out in September before U.S. District Judge Marcia Cooke in Miami.

Kuehne ended up as a government target for clearing the Ochoa family money in exchange for a fee of $197,000 from Black. Kuehne investigated the funds with Colombian attorney Oscar Saldarriaga and accountant Gloria Velez, who were indicted along with him. Prosecutors allege 46 of 57 payments that passed through Kuehne's trust account also moved through the black market exchange.

There is little argument that the exchange has been used for years by drug traffickers to launder money and long before that by Latin American businesses to protect assets, exchanging their country's more volatile currency for dollars and more recently euros. Not surprisingly, Latin American governments want to encourage businesses to keep their money at home to support their developing economies, and there are a number of restrictions on currency exchanges.

But in the 1980s, Colombian drug traffickers started to use this parallel market to wash their ill-gotten gains, exchanging dollars made in the United States on cocaine and marijuana sales into pesos.

The latest Kuehne fight is now centered on what a jury will hear about the storied history of the exchange.

"This so-called black market peso exchange, which is known as the parallel market, is a term drawn up by law enforcement," said Velez attorney Henry Bell of South Miami. Bell's client, an accountant, was dismissed from the case last month by Cooke for a speedy trial violation.

"In and of itself it is not illegal, and there have been some attempts to paint with a broad brush that even the mere use of the black market peso exchange means the defendants are up to no good," Bell said.

Joseph DeMaria, a Miami attorney with the Tew Cardenas law firm and a former federal prosecutor, said he has defended legitimate businesses whose assets were seized by the government for using the black market exchange. He said it's wrong for the Justice Department to simply equate using the exchange with helping drug dealers.

"What they [prosecutors] usually do is grab the money, and then you have to negotiate with them. But in the Kuehne case they took it a step forward," DeMaria said.

Prosecutors unsealed the indictment in February 2008, alleging Kuehne washed tainted drug money through the exchange. Kuehne went through a wholesale flower exporter, Hernando Saravia, who was an informant working with the Drug Enforcement Administration. Saravia exchanged $1.8 million worth of Ochoa family pesos for dollars used in U.S. drug stings.

"With the exception of the dollars that the U.S. government placed into its own undercover accounts and wired to Mr. Kuehne, the government has no fact evidence that the dollars acquired in parallel market transactions in the case were drug proceeds," attorneys for the defendants argued in a Feb. 6 motion.

Kuehne is represented by Miami attorney Jane Moscowitz of Moscowitz & Moscowitz and John Nields of Howrey in Washingto n. Kuehne has become a cause celebre among peers who see his prosecution as an attempt to chill legal representation for drug traffickers and other high-profile defendants. Kuehne's clients included Vice President Al Gore in the 2000 presidential recount litigation.

Now his own attorneys are challenging the use of a key government expert, retired DEA agent Donald Semesky, who they say will testify that most of the dollars that Colombians get from the exchange are from narcotics trafficking. "Agent Semesky's proffered testimony is woefully insufficient" and is intended to fill a gap in evidence, the Feb. 6 defense motion states.

Kuehne argues a federal bankruptcy court in New York recently rejected the government's characterization of the exchange as utterly corrupt.

DeMaria said it's disingenuous for prosecutors to denigrate the parallel money market.

"Much of Brickell Avenue [in Miami] was built with drug money. Does that mean you take down all those financial institutions?" he asked. "Sometimes the government has gone too far with the black market peso exchange."

Justice Department attorney Robert Feitel responded Feb. 23 that Kuehne used Mexican currency exchange companies as well as Saravia. He said it's not up to Cooke in pretrial proceedings to resolve differences among expert witnesses.

And the New York bankruptcy case invoked by the defense is vastly different from the case at hand, Feitel argues.

"Evidence will show that in order to raise money to pay Roy Black's legal fees, the Ochoas sold a farm for $10 million to [Luis] Hernando Bustamante Gomez, one of the leaders of Colombia's North Valley Cartel." He was extradited in 2007 and made a deal with Washington prosecutors last October.

The government also alleges Kuehne was well-versed in knowledge that criminal proceeds were sent through the exchange.

Besides attacking the expert, Kuehne's lawyers are trying to strike a paragraph from the indictment that states Colombians are required to use banks, not the exchange, to purchase U.S. currency except for "personal use, travel and personal investments."

In a Jan. 28 motion, Kuehne argues the statement is prejudicial and patently false: "If true, it would mean that Colombian law makes it illegal to purchase United States dollars on the parallel market to pay for legal fees. In fact, however, it is lawful to purchase dollars on the parallel market to pay for legal fees."

At this point, the Justice Department needs some kind of a win in the case.

Cooke already dismissed a money-laundering conspiracy charge, finding Kuehne was protected as an attorney under an exception in federal law.

U.S. Magistrate Judge Ted Bandstra also has recommended dropping a wire fraud charge because the Colombian government never made a legal claim to any Ochoa assets.

Velez was removed from the case when Cooke found her constitutional right to a speedy trial had been violated. Prosecutors indicted her, but kept the charges secret for two years while building their case against Kuehne. Feitel wants to appeal Cooke's adverse rulings but has had trouble obtaining final approval from Washington.

He still hasn't backed off Velez. In the battle over the expert, the government's response said Velez was key, falsifying documents to make it look like money coming from the sale of an Ochoa farm stemmed for livestock sales.

Bell said his client always maintained she believed that parallel market transactions are legitimate. Just saying the exchange is used by drug dealers does not relieve prosecutors of their burden to prove defendants knew that specific transactions were illegal, he said.

"The government hopes to beat the drums of 'black market peso exchange' and 'Ochoa' in an attempt to get around its burden," he said.

http://www.law.com/jsp/nlj/PubArticlePrinterFriendlyNLJ.jsp?id=1202428875196

Articles of Interest 080

War booty

Captain Nguyen of the United States Army distributed American aid dollars to the wrong people.  Instead of handing over the cash to Iraqis and Afghanis for reconstruction, he diverted the funds to his bank accounts (poorly, hence the structuring flags) and then proceeded to purchase luxury cars, electronics and furniture (more flags against usual spending patterns, undoubtedly).

At least the United States Postal Service has proven it can securely deliver cash through the mail.

“I don't know what effect these men will have upon the enemy, but, by God, they frighten me...”

The Duke of Wellington
1769-1852

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US officer 'stole Iraq aid funds'

A US army captain has been charged with stealing nearly $700,000 intended for emergency reconstruction efforts in Iraq and Afghanistan.

Michael Dung Nguyen, 28, is accused of stealing the money and sending it back home while he was stationed in Iraq between April 2007 and February 2009.

He allegedly spent the money on luxury cars, electronics and furniture.

He has pleaded not guilty to charges including theft of government property and money laundering.

At a district court hearing, prosecutors claimed Nguyen stole $690,000 (£484,575) from the Commanders' Emergency Response Program (Cerp) - a pot of money designated to local commanders in Iraq and Afghanistan for urgent relief and reconstruction needs.

They allege Nguyen, who was working as a battalion civil affairs officer in Iraq, mailed bundles of $100 bills back to his home in Oregon state.

When he returned he opened numerous bank accounts and deposited the money in small amounts to avoid detection, the prosecutors claim.

He is also accused of attempting to launder the cash by buying a luxury BMW car and a 2009 model Hummer truck as well as computers, electronic equipment and furniture.

US Attorney Karin Immergut said the charges indicated a "flagrant and reprehensible disregard" of US military principles.

Nguyen is due to stand trial in May. If convicted, he could face up to 30 years in prison and a $500,000 fine.

Story from BBC NEWS:

http://news.bbc.co.uk/go/pr/fr/-/2/hi/americas/7927581.stm

Published: 2009/03/06 07:33:50 GMT

© BBC MMIX