152 - The Infiltrator

Robert Mazur has written a book entitled, "The Infiltrator". It's a gripping tale of how he and United States Customs brought down a major money laundering operation run for the benefit of the cocaine cartels of the late eighties. Even more impressive is his contribution towards the fall of the Bank of Credit and Commerce International ("BCCI"), otherwise known as the Bank of Crooks and Criminals International.

Anyone involved in the profession of financial crime risk management should read this book. The others who enjoy thrillers and the fact that truth is often odder than fiction should do the same.

151 - Object? Then Create Your Own

If the FATF continues to march to the sound of one drummer - the United States - then it runs the risk of alienating its many members, most of whom are committed to fighting money laundering by employing objective mechanisms and processes.

The FATF has been steered in too many directions that coincide with the political objectives of a very few. Examples include:

1. Designating Iran for special sanction as a money laundering and terrorist financing hub, yet the nations of the most ardent funders of terrorist activity - including Saudi Arabia, Kuwait and other "allies" for the "War on Terror" - remain unscathed.

2. Including weapons of mass destruction ("WMDs") in the FATF mandate when this is clearly a matter for intelligence services.

3. Ignoring hotbeds of money laundering activity because of a country's support for another political hotbed issue. In other words, old school politics.

If the FATF veers too far from its original intent, others may decide to take matters into their own hands. Ecuador may have trouble leading the pack. Others won't.

"I wouldn't want to join any club that would have me as a member..."

- Groucho Marx

Ecuador To Propose Latam Group To Fight Money Laundering

QUITO (Dow Jones)--Ecuador will propose that the Group of Rio create a Latin American body to fight money laundering, President Rafael Correa said over the weekend.

The Correa proposal is an answer to Ecuador's inclusion on a list of nations with deficiencies in their ability to curb money laundering and terrorist financing.

"What arrogance! And why? Because we have relations with Iran. That's it," Correa said during his weekly media address.

Last week the Financial Action Task Force, or FATF, said Iran, Angola, North Korea, Sao Tome and Principe, Ecuador, Ethiopia, Pakistan and Turkmenistan have those deficiencies.

On Friday the U.S. Treasury Department said it supports the call to increase efforts to combat money laundering and terrorist financing.

"We will take a vigorous protest to the Group of Rio, as well as important initiatives, such as making up our own group to fight against the drug trafficking, money laundering and terrorist financing, without depending on the tutelage of powers outside of the region," Correa added.

Ecuador's Private Banks' Association has said it strictly adheres to norms referred to by the FATF.

Earlier, Foreign Minister Ricardo Patino said the country "completely rejects this perverse insinuation" from FATF.

The Financial Action Task Force's placing of Ecuador on its list of "noncooperative" countries in the battle against money laundering and terrorist financing will have a negative effect on the price of Ecuadorian bonds by reducing the willingness of bondholders to continue to hold them, Credit Suisse Group (CS) said Monday.

"This should also have a negative effect on foreign direct investment and, combined with the most recent default, will likely limit even further the country's ability to tap markets and/or obtain significant multilateral financing in the foreseeable future," it said.

The Group Of Rio is an international organization of Latin American and some Caribbean states.

Argentina, Mexico, Bolivia, Brazil, Chile, Colombia, Ecuador, Venezuela, Nicaragua, among others are in the group.

-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653; mercedes.alvaro@dowjones.com

150 - Political Money Laundering Explained

An excellent explanation of money laundering within the American political system by the Alabama Policy Institute. Over six hundred Political Action Committees (PACs) in Alabama alone?!?

Democracy in action, Southern-style.

http://www.alabamapolicy.org/gary_blog/print.php?id_art=343

Alabama Senate Should Keep Their Promise to Ban PAC-to-PAC Transfers

February 20, 2009

Viewpoints by Gary Palmer

Just because something is legal does not mean it is ethical. In Alabama, it is legal to engage in political money laundering so it’s no wonder the state ranks 49^th in the nation for campaign finance disclosure. Overall, Alabama gets a grade of ‘F’ on the latest report card on state disclosure laws published by the Campaign Disclosure Project. The grade and ranking are well justified.

In Alabama, no voter can really be certain who is really influencing the candidates on the ballot on Election Day. Supposedly, state campaign finance laws require full disclosure of the source of contributions to political candidates. But because the state also allows unlimited transfer of political contributions among political action committees (PACs), millions of dollars are being invested in political candidates by big money special interests completely out of sight of Alabama voters.

PACs in and of themselves are not the problem. In fact, PACs serve a useful purpose. Small business owners or individuals who can not make sizeable contributions to help elect good people to office can form a PAC which allows hundreds or even thousands of people to pool their contributions so their voices can be heard.

The problem with PACs under Alabama’s current campaign finance laws is that wealthy individuals and powerful special interests that care nothing about good government have established literally hundreds of PACs for the purpose of selecting candidates who are beholden to them and hiding their campaign contributions from Alabama voters. Powerful special interests such as Alabama Education Association and gambling interests disguise contributions by passing money through other PACs with names that give no hint to the voter as to the real source of the money behind a candidate or the agenda behind the money.

For instance, in 2006 the Gannett News Service reported that Alabama gambling kingpin Milton McGregor gave $603,000 to the Alabama Voice of Teachers for Education (A-VOTE) which is the education union PAC run by Paul Hubbert. A-VOTE then passed $603,000 to another education union PAC, the Fund for Alabama’s Children and Education, which then sent $503,000 to Alabamians For a Better Plan.

In 2008, Hubbert ran education union PAC money through several other PACs in an attempt to defeat two Republican State School Board candidates who had both supported ending the corrupt practice of “double dipping” – legislators holding jobs or contracts with the two-year colleges while also being paid for serving in the Alabama Legislature. Some estimates indicate that in the primary and general election, Hubbert and the education union may have run over $500,000 through other PACs in an attempt to stack the State Board of Education with pro-double dipping members.

Clearly, hiding the source of campaign contributions from voters is wrong. In fact, the issue is so obviously wrong that during the 2006 election both the Democrats and Republicans promised that banning PAC-to-PAC transfers would be a top priority. Yet, going into the third legislative session since that election, the Democrat-controlled State Senate has killed every attempt to pass any legislation that would truly ban the despicable practice of shuffling campaign contributions through transfers.

In the current legislative session, the Democrats and Republicans in the Alabama House of Representatives have once again kept their campaign promise to ban PAC-to-PAC transfers by passing Rep. Jeff McLaughlin’s (D-Guntersville) bill by a vote of 98-0. They passed a similar bill in both the 2007 and 2008 legislative sessions only to see the Democrats in the State Senate substitute another bill that, for intents and purposes, legalized a different form of the practice of hiding the money from voters.

The substitute bill would have allowed transfers to political parties and principle campaign committees with no limit on the number of principle campaign committees and no requirement for full disclosure of the identity of individuals and/or interest groups providing the money.

While the Senate Democrats’ substitute bill would have banned transfers between PACs, it would not have banned transfers to PACs from political parties or from principle campaign committees. In reality, this bill would open the door for hundreds of new organizations to form, in addition to the 600-plus PACs that already operate in Alabama.

Given that Alabama is now ranked fourth in the nation in public corruption, you would think that Alabama politicians would have some motivation to lower the ranking by bringing real transparency to our elections. One step in the right direction would be the passage of a ban on all transfers of political money that conceal the identity of the contributor.

The people of Alabama have a right to know who is funding candidates for office because knowing who is funding the candidate will tell us who is really influencing our state government.

Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

February 20, 2009

Note: This column is a copyrighted feature distributed free of charge by the Alabama Policy Institute. Permission to reprint in whole or in part is hereby granted, provided that the author and API are properly cited. For information or comments contact: Gary Palmer, Alabama Policy Institute, 402 Office Park Drive, Suite 300, Birmingham, Alabama 35223, (205) 870-9900, e-mail garyp@alabamapolicy.org. To subscribe or unsubscribe to this column, please e-mail joannel@alabamapolicy.org.

NEW API SEMINAR

API is pleased to offer an educational seminar entitled “Foundations for American Leadership.” For more information, please visit www.alabamapolicy.org or contact Jo Anne Lindley at 205-870-9900.

149 - Determining Suspicions

Mr. Shah had his money frozen and, as a result, incurred enormous costs. Banks would do well to digest the court's ruling on what constitutes a reasonable suspicion under anti-money laundering legislation, described as "draconian" by the author, and rightly so.

This argument will play out in courts across the globe, as banks can wield tremendous impact by freezing funds on the basis of a "reasonable" suspicion. Woe befalls the bank whose suspicions are indefensible and who is deemed negilgent by a court.

After all, in this economy, why would a bank not be the apple of the court's eye?

http://www.lawsociety.org.uk/newsandevents/news/view=newsarticle.law?NEWSID=426167

Shah v HSBC – civil liability in money laundering

Tuesday 16 February 2010

Following the Court of Appeal's judgement in the case of Shah v HSBC earlier this month, the legal press has been filled with dire warnings that solicitors will have to justify every report they make, with client's given free reign to sue for damages when a transaction is held up awaiting consent.

A closer reading of the judgement would suggest that the situation may not be quite that bad.

Solicitors who appropriately consider concerns of money laundering and ensure that their clients are given proper legal advice as to their own legal position under money laundering legislation should notice little difference in practice.

The facts of the case

Mr Shah transferred funds from his Credit Agricole account to his existing HSBC account. He advised HSBC that there had been a problem with identity fraud and so he was transferring the funds for a short time while the identity issue was resolved.

A few months later he asked HSBC to transfer the funds back to a Credit Agricole account and for other funds to be paid to a creditor.

In both cases he was told that this would be delayed while the bank complied with its UK statutory obligations.

The bank had made a suspicious activity report (SAR) and received consent some days later for the transfer, while the second instruction was cancelled by Mr Shah.

Mr Shah had assets in Zimbabwe and Zimbabwean officials became concerned about the decision by the bank not to release the funds.

About a month and a half after the first SAR had been submitted, Zimbabwean officials demanded an explanation from Mr Shah about the funds. Mr Shah spoke with the bank at this time and was told that he had been under investigation but that this was now completed.

Mr Shah's solicitors sought a further explanation but the bank refused. The Serious Organised Crime Agency (SOCA) advised the solicitors that there was no criminal investigation of Mr Shah.

No further information about the handling of his accounts was provided to Mr Shah and the Zimbabwean authorities proceeded to seize $331 million of Mr Shah's assets.

Mr Shah alleged:

• irrationality
• negligent self-induced suspicion
• mistake
• a breach of duty of care to act promptly and
• a breach of duty to keep him informed as agent.

What the court decided

The court confirmed the test of suspicion as set out in the cases of Da Silva and K Ltd. For the purposes of the Proceeds of Crime Act, a suspicion does not have to be on reasonable grounds, just that the possibility has to be 'more than fanciful'.

The key point to remember, however, is what the suspicion is about. You must hold a suspicion that a person is engaging in money laundering.

It is not sufficient simply to suspect that the client is unusual or that the transaction seems 'fishy'.

While what is colloquially referred to as ‘the smell test' is a useful tool for fee earners; as money laundering reporting officer (MLRO), you must suspect that existing criminal property is involved in the transaction or in a person's possession, before you can form a suspicion of money laundering.

Following Anwoir's case, there are two ways you may form a suspicion of existing criminal property:

• If you know or suspect that a specific type of criminal conduct, such as fraud, tax evasion, drug trafficking, is occurring and you suspect such conduct has generated property.
• If there are such a cluster of warning signs which cannot be satisfactorily explained so that the manner in which you are asked to handle the funds gives rise to an irresistible inference that the funds must be criminal in origin.

The court concluded that if the bank suspected money laundering then Mr Shah had little prospect of success for the actions for irrationality, negligently self-induced suspicion or mistake, because of the low threshold test of suspicion,.

However, the court ruled that a client should be able to require the bank (or law firm) to prove that the suspicion held was of money laundering, rather than a general suspicion that the client posed a reputational risk or that the transaction was simply 'fishy'.

With respect to the breach of a duty of care to act promptly, the court pointed out that even if consent had been sought by the bank to hold the money initially, further consent would be needed to transfer the funds and this could only occur once instructions to transfer the funds had been received.

The court dismissed this aspect of the appeal.

With respect to the question of failing to keep the client updated, the court was of the view that particularly once the moratorium period was completed, the risks of tipping off or prejudicing an investigation must diminish and the common law duty of an agent to account to their principal must begin to regain prominence.

The exact point at which the client is entitled to more information and whether that would have avoided the loss suffered were issues to be considered in a trial, not through summary judgement.

It seems one of the important reasons for the Court of Appeal in allowing the appeal, albeit on limited grounds, was to ensure that there was some judicial oversight of these very draconian laws.

Meeting civil claims effectively

When considering making a suspicious activity report, it is good practice to document why you suspect there is existing criminal property and what acts you suspect constitute money laundering.

The judgement suggests that you will not have to prove that these were true or that they were reasonable, you will merely have to show that you held those suspicions.

The nature of transactions conducted by solicitors mean that while time is normally of the essence, there will often be time to make a report on a suspicious transaction and obtain consent prior to the time for completing the transaction.

Ensuring fee earners advise you of concerns promptly will help you consider making reports in a timely manner and minimise disruption to retainers.

The scope of the tipping off provisions and the prejudicing an investigation provision has been narrowed since December 2007. Solicitors are able to speak with their client about money laundering laws, explain the client's position under those laws and in appropriate circumstances give them advice on how to obtain consent for the completion of transactions.

Where a client is fully advised of their own legal position, they are less likely to be able to proceed on a claim relating to a lack of information. A solicitor does not need to explain their own obligations under POCA to fully advise the client on the client's position.

148 - Shutting Down the Black Market

Anti-money laundering legislation is very useful for tin pot dictators when confronted with a black market for their currency. The failings of the government's central bank and/or monetary policy has created black markets throughout history, especially in Latin America.

For President Hugo Chavez, imposing anti-money laundering rules upon a black market currency exchange ticks several boxes:

(1) "We're fighting the good fight as told to us by governments around the globe. Aren't we a compliant nation?"

(2) "Our central bank's incompetence is not exposed by open air markets for currency, gold and other stores of value! It's merely money launderers who engage in such financial black magic!"

(3) "Once we shut down a physical building, the black market currency exchange problem is solved. They'll never move next door or down the road to continue operations! Viva la revolucion!"

http://www.vheadline.com/readnews.asp?id=88335

Venezuela closes illegal gold trading and money laundering racket

Venezuelanalysis (Kiraz Janicke): The Venezuelan government has moved to close and expropriate the historic La Francia building, alleged to be a centre for illegal gold and money trading, near the southwest corner of Plaza Bolivar in downtown Caracas, following orders by Venezuelan President Hugo Chavez during his weekly television show Alo Presidente last Sunday.

In addition to La Francia, Chavez also ordered the expropriation of five other commercial buildings, some of which were already vacant, bordering Plaza Bolivar as part of a plan to recover the historic centre of the city.

La Francia, where about 90 jewellery stores are located, is notorious for its scores of unauthorised brokers and agents who trawl the surrounding streets offering to buy and sell dollars, euros, gold and illegally mined gemstones. Tourists frequently report being robbed or swindled by the money traders.

Milena Bravo, rector of the University of the Oriente (UDO), which has owned La Francia since 1969 and receives BsF 300 000 per month in rent from the tenants protested the government measure arguing it was illegal. However, Venezuelan law allows for expropriations with compensation in the interests of "public utility."

In turn, Mayor of the central Caracas district of Libertador, Jorge Rodriguez, challenged the rector to explain the dilapidated state of La Francia, which is classified as a heritage building and to clarify what the building was being used for, pointing out that many of the tenants did not have legal title or leases, or licences to be carrying out the activities they were involved in.

National Assembly deputy, Adel El Zabayar, alleged that the activities in La Francia have a "strong influence on what we call the parallel foreign exchange market, from there begins the source of speculation the purpose of which is sabotage."

Venezuela introduced foreign exchange controls in 2003 after a politically motivated oil industry lockout and capital strike that attempted to overthrow the democratically elected Chavez and saw billions of dollars flow out of the country. Since then Venezuela has experienced billions of dollars in illegal capital flight through the parallel market, where the dollar currently trades at 1.5 times the official rate.

Noel Alvarez, the current president of Venezuela's business chamber FEDECAMARAS, which led a failed coup against Chavez in 2002, said business sectors had declared an "emergency" following the measure which they described as an attack on private property.

A scuffle also broke out between some bystanders supporting the measure and some workers concerned about losing their jobs as the mayoralty of Libertador took control of the building on Tuesday. Approximately 1,500 employees are estimated to work in the building.

However, Rodriguez assured that a census of the workers was being carried out and steps would be taken in order to guarantee job security. "That same Sunday I gave the instruction to the director of urban control of the mayoralty of Caracas in order to carry out a census of workers and invite them to a meeting in order to achieve all the necessary agreements," he told state television channel VTV.

147 - Divorce is the Bane of Many a Money Launderer

Another example of divorce claiming a successful money laundering operation? What's more dangerous - the financial intelligence unit or a disgruntled spouse?

Divorced readers may not provide a rhetorical reply.

Couple admit multi-million pound money laundering operation

9:21am Tuesday 9th February 2010

By Wiltshire Times Reporter

A husband and wife from a village near Trowbridge ran a company which laundered millions of pounds for illicit gambling in North America, a court had been told.

Net Payment Solutions, which was operated by Gavin and Louise Lazarus, was used for shifting huge sums to and from Canada and the USA.

Now the company, based in Steeple Ashton, has had more than a million pounds confiscated after being prosecuted for money laundering.

And a judge at Swindon Crown Court also imposed a nominal fine of £250 on the company, at a hearing on Monday.

Kerry Musgrave, prosecuting, said Gavin Lazarus, 39, was the director of the firm and his 37-year-old wife Louise, from whom he is now estranged, was the company secretary.

She said Net Payment Solutions was set up early in the decade with the assistance of Maurice Rose, a member of the couple’s extended family.

The company ran a number of bank accounts in Euros and US dollars with Lloyds TSB but in 2005 the bank became suspicious and closed them down.

She said the couple were advised by their accountant as well as friends and family that it was for fear of money laundering.

But they continued to operate as before, she told the court, having transferred their business to another bank.

Miss Musgrave said they would have been aware that what the company were doing was wrong as the money came from illicit gaming.

She said between the end of June 2005 and the start of July 2007 about $16m was paid into the accounts and $14.5 went out.

During that time she said the couple were allowed to withdraw $400 a month.

She said the major transactions were frequently for five figure sums which could never be construed as the stakes or winnings from small time gambling.

Much of the money came from and went to companies the couple had never heard of in North America which it is thought were owned or run by Maurice Rose.

Miss Musgrave told the court the public interest in prosecuting the company was to seek an order under the Proceeds of Crime Act.

She said if the firm was fined the court could confiscate the £1,313,684.33p which was still in the bank when the courts froze it.

The couple, who both gave the court an address on High Street, Steeple Ashton, pleaded guilty to money laundering in their capacity as the company.

Charges against them personally were dropped when the company pleaded guilty to the offence.

Alex Daymond, for Gavin, said that is a nominal fine were imposed the couple may put the cash into the company to settle it.

However there is no power to force the company, which has had its assets confiscated, to pay the fine such as the threat of a jail term.

Judge Douglas Field fined the company £250 and ordered the confiscation of the £1,313,684.33p which is the sum in the frozen company account at current exchange rates.

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