Canadian Senator charged with bribery and 30 other charges for, among other things, accepting money from the Prime Minister’s Former Chief of Staff

By Christine Duhaime | July 18th, 2014

Mike Duffy, a Senator in Canada, has been charged with 31 criminal charges including bribery, breach of trust and fraud in connection with expense and travel claims, consulting contracts and a $90,000 payment he received from Nigel Wright, the former Chief of Staff of Canada’s Prime Minister.

There are three groups of charges.

The first set of charges stem from an examination of the travel and residence expense claims of the Senator initiated by Canada’s Senate Standing Committee on Internal Economy, Budgets and Administration following allegations in the media in February of this year that he may have inappropriately claimed for reimbursement, residence and per diem expenses. The Senator was called upon to repay the expenses, which he did, and which resulted in bribery charges.

The bribery charges stem from what Senator Duffy has termed a “payback scheme” whereby he alleges that Mr. Wright ­informed him of a scheme that had been concocted for the repayment of his expenses to the Senate that involved concealing the source of repayment funds through a loan from a bank. Senator Duffy said he agreed to the payback scheme.

According to Affidavit evidence filed by the RCMP, Mr. Wright decided that he would personally pay Duffy’s expenses on behalf of the Senator. But the payment was not made directly to the Senate. Instead, it was paid to the Senator’s lawyer in the firm’s trust account. The Senator then obtained a line of credit in the amount of $80,000 secured against his cottage on Prince Edward Island.  Using those funds and additional funds of his own, the Senator issued a cheque for $90,172.24 to the Receiver General of Canada to pay his expenses. His law firm then transferred, by wire, $90,000 to the bank in an account held by the Senator, and he subsequently repaid the line of credit.

The third group of charges are for contract payments allegedly made to an acquaintance of the Senator who is alleged to have done little work for the payments and are alleged to have been used to circumvent Senate oversight.

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How Canadian and US immigrants from China & Hong Kong move billions of dollars overseas

By Christine Duhaime | July 14th, 2014

Bloomberg News has a follow-up article here on last week’s story of how wealthy immigrants from China and Hong Kong use alleged money-laundering services offered by the Bank of China Ltd. to transfer funds to Canada and the US.

Last week, China Central Television broadcast a story alleging that the Bank of China offered a money laundering service to wealthy Chinese nationals whereby vast sums of money were wired to places like Canada in circumvention of China’s $50,000 currency exchange limit.

Following news of the story, transfers of currency from Chinese foreign nationals under the program were suspended in China. The Government of China subsequently asked the Bank of China for all of the transaction records of the immigrants who used the services including details in respect of where they emigrated, how much was removed, how it was removed, and the sources of funds.

According to the Bloomberg News article, HSBC Holdings Plc allegedly said that it offers Chinese clients a foreign mortgage service to avoid the currency conversion restrictions pursuant to which their clients deposit yuan with HSBC in China which is used for collateral for the issuance of a mortgage in jurisdictions such as the US or Canada.

The article does not address the obvious collateral financial crime issues in connection with the transfer of wealth schemes from China to Canada and the US for immigration purposes. Those issues are that even if the transfer of funds was in some manner approved by the Bank of China under a pilot project, or is permitted as a foreign mortgage, the sources of wealth still need to be confirmed as legitimate (in other words the banks need to confirm that none of the billions of dollars transferred or used as collateral are derived from corruption) and the clients need to be vetted as politically exposed persons. Most wealthy persons immigrating to Canada and the US from China are politically exposed persons.

A Vancouver realtor in the Bloomberg News article confirmed that there was an influx of funds from wealthy immigrants from China and Hong Kong to Vancouver that was used to purchase real estate. Real estate agents in Canada, unlike banks, do not have politically exposed person compliance obligations.

The request from the Government of China for the transactional and immigration records of the persons from China who immigrated to the US and Canada with billions of dollars in assets is going to be of concern to those who immigrated because China is apparently in discussions with the US to obtain asset information on its former citizens for the purposes of asset recovery. This may be part of a greater plan among G20 nations to start operating the denial of safe haven program which you can read about here.

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Bank of China accused of offering a money laundering service to prospective emigrants to places like Canada and US

By Christine Duhaime | July 10th, 2014

According to a report in the South China Morning Post here, the state television news organization of China, CCTV, has accused the Bank of China of offering a money laundering service to wealthy people in China to facilitate the removal of funds from China for immigration purposes in violation of the country’s currency restriction laws.

Citizens of China are only permitted to exchange up to $50,000 per year and remove it from China. According to the report, the Bank of China teamed up with immigration consultants allegedly to pitch for the money laundering services as part of several investor immigration programs targeted at wealthy people from China. The money laundering services apparently included helping clients disguise the origin of the funds.

According to the report, a Bank of China employee is alleged to have said: “We don’t care where your money is from or how you earn it, we can help you get it out of the country. We don’t care how black your money is or how dirty it is, we will find ways to launder it and shift it overseas for you.”

The Guangdong branch of the Bank of China allegedly informed a journalist that it had moved HK$7.5 billion from China so far in 2014.

A Swiss banker was quoted in the report as saying that it is an open secret that all banks in China and Hong Kong provide money laundering services for immigration purposes.

According to the Wall Street Journal, a few days ago, Liu Yunshan, one of China’s most powerful government officials, asked the government to address the problem of what is known in China as “naked officials” – officials whose families have moved overseas with vast sums of money from China. A Reuters news report says that the Bank of China in 2008 noted that up to 18,000 naked officials, mostly party officials, have removed US$133 billion from China.

The Wall Street Journal story noted that wealthy Chinese are moving to Canada and the US under investor immigration programs. And this report from CNN also says that proceeds of crime (the illegal removal of funds from China without permission) is destined for Canada, the US and Australia under their immigration programs.

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Wealthy immigration programs like EB-5 from China to US just got a lot less attractive with FATCA

By Christine Duhaime | July 6th, 2014

According to this article in the Wall Street Journal, the IRS and the government of China are negotiating an agreement whereby the US would provide financial information to the government of China on Chinese foreign nationals living in the US. The information provided to China will likely include asset, financial, corporate and personal information in respect of Chinese foreign nationals that are resident in or immigrated to, the US. It will also likely include other worldwide assets that are reported to the IRS by Chinese foreign nationals, not just information in respect of US assets.

The deal will likely cause a chilling effect on Chinese immigration to the US under the EB-5 program.

The deal is in exchange for China agreeing to implement the Foreign Account Tax Compliance Act (FATCA) which came into effect on July 1, 2014.

In respect of China, FATCA requires that Chinese banks, funds, investment firms, hedge funds, brokers and insurers report to the IRS the account balances and gross transactions of every US person, company, entity or other entity that has a US interest-holder of 10% or more, and deduct 30% of passthru payments for recalcitrant Americans in some cases.

On the 11th hour, China signed a FATCA agreement with the US Treasury which has yet to be finalized.

As noted by the Wall Street Journal, two types of people in China will be affected by FATCA:

  1. People who have US green cards or passports but haven’t disclosed their financial interests in China to the US, including retirement accounts, offshore accounts and trusts and life-insurance plans.
  2. Chinese foreign nationals who moved money out of China illegally in violation of the $50,000 limit on currency exchanges and/or who moved state assets or proceeds of crime from China.

About 80% of the US EB-5 investment for immigration visas were issued to Chinese foreign nationals, totalling about 71,000 people. Thousands more have green cards and do not report to the IRS.

The impact of FATCA on prospective immigration to the US from China is expected to be significant once its impact is understood in China. Chinese foreign nationals will quickly realize that the IRS and China have access to the details on their global wealth, including its movement.

The information sharing deal with the US will help China understand which of its foreign nationals hold assets worldwide and will help with asset recovery efforts. Moreover, it will likely result in regulatory action against global financial institutions and gatekeepers who dealt with proceeds of crime from China from politically exposed persons immigrating from China without undertaking the anti-money laundering due diligence required. The majority of foreign nationals from China leaving the country with vast amounts of wealth are politically exposed persons.

The penalties for failure to report overseas bank accounts on individuals can be as high as 50% of the amount in the account at the time of the violation, plus jail time.

Most firms doing business in China have not prepared for the regulatory compliance required under their anti-money laundering regimes for FATCA and will have to quickly catch-up once the deal is finalized.

According to Global Financial Integrity, China has been a victim of illegal money outflows totalling approximately $1.1 trillion in 2011, followed by Russia at $881 billion. The Chinese government has said it’s policy mandate is to recover those funds.

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Canada implements world’s first national Bitcoin law

By Christine Duhaime | June 23rd, 2014

New Bitcoin Law

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

At the end of this week, the Parliament of Canada approved what is likely the world’s first national Bitcoin law, and certainly the world’s first treatment in law of Bitcoin under national anti-money laundering law.

Late Thursday, Canada’s Governor General gave Royal Assent to Bill C-31, An Act to Implement Certain Provisions of the Budget Tabled in Parliament on February 11, 2014 and Other Measures (“Bill C-31“). Bill C-31 amends Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17 (“PCMLTFA“) to legislate over Bitcoin as a matter of anti-money laundering law.

Five Key Changes

The five most important aspects of Bill C-31 as they relate to Bitcoin are as follows:

  1. Regulates Bitcoin as MSB – Bitcoin dealing, more specifically referred to as “dealing in virtual currencies” in Bill C-31, will be subject to the record keeping, verification procedures, suspicious transaction reporting and registration requirements under the PCMLTFA as a money services business.
  2. Does not define “dealing in virtual currencies” - The phrase “dealing in virtual currencies” was left undefined and it is not known what the defined term will encompass in terms of business activities once defined by regulation.
  3. Registration with FINTRAC - Bitcoin dealers will be required to register with FINTRAC and if successfully registered, to implement a complete anti-money laundering compliance regime.
  4. Captures foreign Bitcoin companies targeting Canada – Bill C-31 extends to: (a) entities that have a place of business in Canada; and (b) entities that have a place of business outside Canada but who direct services at persons or entities in Canada. Bitcoin captured businesses in Canada, however, that provide services to persons or entities outside of Canada are exempt from Bill C-31 for those external services.
  5. Prohibits banks from opening accounts for Bitcoin entities if unregistered - Under Bill C-31, banks will be prohibited from opening and maintaining correspondent banking relationships with Bitcoin dealers that are not registered with FINTRAC. This is an extremely important aspect of Bill C-31 and Bitcoin businesses should ensure they understand what a correspondent banking relationship is in anti-money laundering law and how it can affect the provisions of banking services to them.

Under Canadian law, the fact that legislation received Royal Assent does not necessarily make it in force. Certain parts of Bill C-31 come in force on dates determined in Bill itself and others will come in force on a date determined by the Governor General. See “Next Steps” below for what the next steps in the legislative process involve in Canada.

The Details

Pursuant to the amended PCMLTFA, Bitcoin businesses that are the subject of Bill C-31 will be required to undertake the following obligations. For consistency, referred to below as a “bitcoin dealer”:

A. Report Suspicious Transactions

Bitcoin dealers will be required to report to FINTRAC every suspicious financial transaction and attempted suspicious financial transaction. There is no monetary threshold (i.e., dollar amount) that triggers the requirement to report a suspicious transaction.

A suspicious transaction is a financial transaction where the Bitcoin dealer has reasonable grounds to suspect is related to a money laundering offence or a terrorist activity financing offence or an attempted commission of any of those offences.

An attempted suspicious financial transaction is one which is suspicious but not completed. It may not be completed because the Bitcoin dealer refuses to complete it or the client decides not to complete it.

A money laundering offence involves using, transferring, delivering, transmitting, altering, dealing with or disposing of any property, or proceeds of property, with the intent to convert or conceal the proceeds, knowing or believing that they were derived from the commission of an indictable offence under the Criminal Code of Canada, R.S.C., 1985, c. C-46 or other federal legislation such as murder, child pornography, forgery, bribery or insider trading.

A terrorist activity financing offence involves providing, using or possessing property for terrorist activity, dealing with property owned by a terrorist group, facilitating a transaction involving terrorist property or providing financial or other related services either at the direction of a terrorist group or to financially benefit a terrorist group.

In order to trigger the suspicious transaction or attempted suspicious transaction reporting requirement, there must be reasonable grounds to conclude that the financial transaction is related to either a money laundering offence or a terrorist financing offence.

If a Bitcoin dealer, or its employee, knows that a financial transaction is related to a terrorist activity financing offence, it is prohibited from completing the transaction or providing any financial services. It must effectively freeze the property. This is akin to the sanctions laws that already apply to Bitcoin companies in Canada.

B. Report Terrorist Property Transactions

Bitcoin dealers will have to file with FINTRAC, a terrorist property report when it has property in its possession or control that it knows is owned or controlled by or on behalf of a terrorist or terrorist group; and when it has property in its possession or control that it has reason to believe is owned or controlled by or on behalf of a listed person.

A “terrorist group” is a trust, a partnership or a fund, an unincorporated association or an organization that facilitates or carries out any terrorist activity as one of its purposes or activities and includes anyone who is a “listed entity” on the Listed Entity list published by the Minister of Public Safety and Emergency Preparedness.

A “listed person” is a person, organization or entity who is designated as such by the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism.

Bitcoin dealers are prohibited from dealing with terrorist property in any manner or providing any financing or related services in connection with terrorist property.  Terrorist property is required to be immediately frozen.

The obligations in respect of sanctions and terrorist property are extremely important for Bitcoin companies because several agencies, including the IRS, have taken the position that Bitcoin is “property” and therefore every conceivable digital part of a Bitcoin transaction that involves suspected or known terrorist property or the property of a sanctioned person or entity must be frozen. It is self-evident that this presents enormous legal challenges as a matter of technology law and international law.

The obligations in respect of terrorist financing and economic sanctions are not new and do not arise solely in Canada by virtue of Bill C-31 – they have always applied to Bitcoin-related businesses and Bitcoin-related transactions.

C. Large Cash Transactions

Bitcoin dealers will be required to report to FINTRAC when they receive an amount of $10,000 or more in cash in the course of a single transaction, unless the funds are received by a public body or a financial entity. Two or more cash transactions of less than $10,000 each that are made within 24 consecutive hours that together total $10,000 or more, are considered one transaction of $10,000 or more if the Bitcoin dealer knows that the cash transactions are conducted by, or on behalf of, the same person or entity.

D. Electronic Funds Transfers

The Bitcoin dealer will be required to report to FINTRAC when it sends out of Canada at the request of a person, an electronic funds transfer of $10,000 or more in a single transaction or receives from outside Canada at the request of a person, an electronic funds transfer of $10,000 or more in a single transaction.

E. Politically Exposed Persons

When a Bitcoin dealer sends or receives an international money transfer of $100,000 or more, it must determine if it involves a politically exposed person (“PEP“) inside or outside of Canada, and if it determines that the funds involve a PEP, it must confirm the source of funds. Determining PEPs is a difficult part of anti-money laundering compliance because the obligation is a worldwide one and online search services that check PEPs are often not much better than the Internet.

Types of PEPs

There are now three different types of PEPs under Bill C-31, a foreign PEP, a domestic PEP and the head of an international organization.

Foreign PEP

A foreign PEP is a person who holds, or has held, one of the following offices or positions in or on behalf of a foreign state: head of state or head of a government; member of the executive council of a government or member of a legislature; deputy minister or equivalent rank; ambassador or attaché or counsellor of an ambassador; military officer with a rank of general or above; president of a state-owned company or a state-owned bank; head of a government agency; judge; and leader or president of a political party represented in a legislature.

It includes persons who are closely associated with the PEP in business or personally, such as family members, business partners, joint venturers, etc.

Domestic PEP

A domestic PEP is a person who holds, or has held, one of the following in Canada: Governor General, lieutenant general or head of government; member of federal or provincial Parliament; deputy minister; ambassador, attaché or their counsellor; military officer with a rank of general or above; head of federal or provincial Crown corporation; head of government agency; judge; or mayor.

It includes persons who are closely associated with the PEP in business or personally, such as family members, business partners, joint venturers, etc.

Head of International Organization

The head of an international organization means the head of such an organization established by a government and also includes their close associates and family members.

F. Ascertaining ID

Bitcoin dealers will have to undertake obligations to ascertain the identity of persons and companies using their services to complete certain financial transactions.

G. Records Retention

Bitcoin dealers will be subject to fairly onerous record-keeping obligations under the PCMLTFA.  They must keep large cash transaction records, records regarding third parties when certain transactions are conducted for third parties. They must also retain client identification information and client account documents such as signature cards, deposit slips, account operating agreements and debit and credit memos.  They also have to keep transaction ticket records for every foreign currency exchange regardless of the amount, and keep records of PEPs.

H. Risk Assessments

Bitcoin dealers will have to undertake a risk assessment to evaluate and identify, in the course of its activities, the risk of the commission of money laundering offences and terrorist activity financing offenses.  If the risk is high, the Bitcoin dealer must implement measures in writing to:

  • Keep client identification information up to date.
  • Monitor activities to detect suspicious transactions.
  • Mitigate the identified high risks.

Risk assessments should involve an analysis of potential threats and vulnerabilities to money laundering and terrorist financing crimes to which a the Bitcoin business is exposed.  It should involve gathering information on the nature and extent of money laundering and terrorist financing crimes, and identifying weaknesses in anti-money laundering systems and controls that may make the Bitcoin business attractive to money launderers and persons engaged in terrorist financing.

I. Compliance Regime

Bitcoin dealers will be required to implement a compliance program to meet reporting, record keeping and client identification obligations under the PCMLTFA.  A compliance program is intended to help ensure that a Bitcoin dealer has an ethical and compliant culture, and to minimize risks to the business and its directors, officers and employees of criminal, civil or administrative liability.

An effective compliance program to address anti-money laundering and combating terrorist financing should have the following elements:

  • Designation of compliance officer – the compliance officer is a key element of the compliance program.  The compliance officer’s principal responsibility is managing and overseeing the operation of the compliance program.  Among other responsibilities, the compliance officer will oversee the  anti-money laundering and terrorist financing requirements under the PCMLTFA.
  • Adequate staff – the compliance program should allow for the allocation for adequate staff and financial resources to manage the compliance program.
  • Identification procedures – the compliance program should have specific procedures for client identification, including the information required, the course of action to be taken when a client refuses to provide information or the client can’t be identified, etc., in accordance with the obligations imposed by the PCMLTFA.
  • Identification of terrorist financing – the compliance program should have procedures for identifying terrorist financing activity or property under the PCMLTFA and for reporting such activity.
  • Written procedures - the program should procedures for the compliance plan, including for training and review of the effectiveness of the regime.
  • Record keeping – the compliance program should have policies and procedures with respect to record-keeping, including the type of document, who has responsibility for the maintenance of files, confidentiality, the type of information collected and the length of time each record is required to kept in accordance with the obligations imposed by the PCMLTFA.

J.   Criminal Offences, Fines, Penalties and Imprisonment

The offence provisions under the PCMLTFA are important to be cognizant of. Some obligations apply to the Bitcoin entity and others apply to employees of the Bitcoin entity. Failures to comply with certain obligations under the PCMLTFA are criminal offences and can subject directors, officers, employees and the Bitcoin entity to terms of imprisonment and fines. The largest fine is $2 million per occurrence for a repeat offence and a term of incarceration of up to five years. In addition, there are administrative penalties that can be imposed on the Bitcoin entity, directors, officers and employees. A due diligence defence is available for many criminal and administrative sanctions under the PCMLTFA. Bitcoin entities should obtain compliance advice in respect of their exposure and should understand the connection in Canada between the compliance regime and a due diligence defence.

Moreover, the PCMLTFA empowers the government to enter into any premises (other than a dwelling house) at any time, without notice or warrant, where there are reasonable grounds to suspect that there are records relevant to ensuring compliance with the PCMLTFA. When Bitcoin entities are required to keep records pursuant to the PCMLTFA, then there will be reason to believe that the office of every Bitcoin entity will have such records and hence be liable to being searched at any time without notice.

Next Steps

The next steps in the process is the finalization of Regulations in respect of the changes, a consultation period, drafting of Guidance in respect of the Regulations and the amendments, a consultation in respect of the Guidance, and then the amendments will be brought into force. It is estimated that this process will take from between six to twelve months.

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Vietnam improves its government anti-corruption and anti-money laundering supervision

By Christine Duhaime | June 22nd, 2014

By Christine Duhaime

Slowing Addressing Money Laundering Issues

The Government of Vietnam, through its State Bank, announced late last week that it was improving its anti-money laundering and anti-corruption supervisory regime by implementing changes to the functions, responsibilities and structure of the Banking Supervision Agency (“BSA“).

Effective August 1, 2014, a separate higher division of the BSA will be responsible for banking supervision and for the supervision and monitoring of all reporting entities that are required to undertake and report suspected money laundering or terrorist financing. It will also be responsible for training banks on detecting and reporting incidents of corruption.

The government intends to improve its compliance with international anti-money laundering standards and to prosecute underlying predicate offences and their corresponding money laundering offences.

There are many long-standing issues with Vietnam’s financial crime regime which the government has been attempting to resolve. Chief among them are as follows:

  • Vietnam’s FIU, the Anti-Money Laundering Information Centre (“AMLIC“) is part of the State Bank of Vietnam and lacks independence.
  • The AMLIC is under-staffed. It has 23 employees in a country of 95 million people.
  • Not enough sectors report under anti-money laundering laws to the AMLIC.
  • Significant predicate offences occur in Vietnam at alarmingly high rates – according to its law enforcement agency, they are prostitution, drug trafficking, corruption, gambling, human trafficking of children, weapons trading and manufacturing of counterfeit goods.
  • Legal persons (e.g., companies, firms, organizations, foundations, etc.) are not subject to criminal liability under Vietnam’s Napoleonic Code based penal law.
  • Vietnam lacks laws for the freezing of assets that have teeth.
  • Vietnam lacks the resources to investigate and prosecute financial crimes.
  • Vietnam does not have an economic sanctions regime tied to its anti-money laundering laws.
  • Vietnam does not a politically exposed persons regime.
  • For a three year period ended 2008, Vietnam’s FIU received only 58 suspicious transaction reports.
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DYK on high rollers at Macau casinos

By Christine Duhaime | June 21st, 2014

Here are some interesting facts on high roller gamblers who frequent Macau casinos:

  • 90% of the gamblers in Macau are from China.
  • 1% of players in Macau, the high rollers, account for 30% of annual gross gaming revenue.
  • The economy of Macau is entirely dependent upon gambling, players from China and specifically, the high rollers from China (dependence on single industry; single source; and single segment of market).
  • Protecting the anonymity of high rollers in Macau is the primary consideration for high rollers and the credit extended to gamblers by junket (or VIP) operators is done without a paper trail.
  • Almost all of the high rollers from China are gambling with proceeds of crime from at least one offence, namely the removal of currency from China in contravention of the currency foreign exchange restrictions which limit to $50,000, the amount a person or company can exchange annually, but often the funds gambled are derived from other predicate offences such as bribery and embezzlement of state assets (57%) or fraud (14%).
  • The majority of high rollers from China in Macau are government officials and officials from state-owned companies, usually in the banking sector.
  • Only 25% of high rollers from China who gamble in Macau are non-government persons; thus 75% appear to be politically exposed persons in money laundering law.
  • 93% of high rollers from China are male and they lose on average $3.3 million gambling in Macau, using mostly proceeds of crime.
  • The majority of high rollers (consistent with gamblers worldwide), do not believe that the house always wins and believe that Baccarat, the game of choice, is one of pure chance when the casino is involved.
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“Criminal Minds” in casino money laundering – behavoral profiling casino clients for money laundering detection

By Christine Duhaime | June 20th, 2014

Is it possible to detect a money launderer in a casino using behavoral profiling techniques in the style of the popular TV show “Criminal Minds”?


In the anti-money laundering compliance world, we already know that the typical money launderer in a casino, or other regulated gambling environment, is not a mobster. But who is he? Or she? A lawyer? Judge? Investment fund manager? Banker? To find out who a typical casino money launderer is, you can attend the Canadian Gaming Summit in Vancouver from June 23 – 25, 2014 where Christine Duhaime will be discussing money laundering in the regulated gaming environment with the British Columbia Lottery Corporation and Ontario Lottery Gaming. With respect to behavioral profiling of casino clients, fell free to call us.

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Canadian company acquires PokerStars and says acquisition will expedite entry into US online gambling market but there may be gambling law issues

By Christine Duhaime | June 13th, 2014

Acquisition of PokerStars

A Canadian company, Amaya Gaming Group Inc., announced it has entered into a $4.9 billion deal to acquire all of the shares of Oldford Group, the Isle of Man company that operates PokerStars and Full Tilt Poker. The transaction will be financed by a $2.1 billion credit facility underwritten in part by Deutsche Bank AG, Barclays Bank PLC and Macquarie Capital (USA) Inc.

PokerStars was founded by Canadian Isai Scheinberg.

Amaya said that it believes the transaction will expedite the entry of PokerStars and Full Tilt Poker into the regulated US online gambling environment.

In my view, the acquisition will likely not expedite the entry of PokerStars or Full Tilt Poker into the US regulated online gambling market.  PokerStars and Full Tilt Poker were the subject of serious financial crime allegations in the US that may be irreconcilable with regulated gambling in Canada and the US.

PokerStars and Full Tilt Poker were already in the US online gambling market so there is no “entry” at play, rather, it’s the “re-entry” in the US gambling market which is the issue.

And that is the $4.9 billion question.

The integrity of gambling

The gambling industry is one of the most heavily regulated and controlled sectors in the US and Canada. Regulated gambling is premised on the preservation of the integrity of gambling. In order to preserve the integrity of gambling, regulators vet and approve persons and entities to ensure that the approval of a participant will not, directly or indirectly, adversely affect the actual or perceived integrity of gambling. As part of that process, persons and entities are investigated for, inter alia, financial soundness, reputational risks and financial crime history and their close associates are also investigated for the same concerns to ensure that they are suitable. A gambling licence or registration, as the case may be, is a privilege and as such gambling licensees are expected to conduct their affairs with the utmost integrity and honesty, and in the public interest. A history of  financial crime, or allegations thereof that are sufficiently serious, raise issues of integrity.

Black Friday criminal indictment

On April 15, 2011, the US Attorney and FBI unsealed a criminal indictment against eleven people associated with PokerStars and Full Tilt Poker on allegations that they deceived, or directed others to deceive, US banks into processing billions of dollars in online gambling payments disguising the funds as payments to fictitious merchants. Included among the indictees were Mr. Scheinberg, and two other Canadians – Nelson Burtnick and Ryan Lang. Eight of the defendants were arrested and several pled guilty to various financial crimes. The indictment arose from the fact that both companies were providing online gambling services to US persons in the US.

Specifically, the indictment alleged that certain defendants fraudulently circumvented the Bank Secrecy Act and the Unlawful Internet Gambling Enforcement Act by disguising payments from US gamblers as payments to fictitious online merchants selling other goods and services, lied to banks about the nature of their businesses and set up fictitious corporations, in order to open bank accounts to accept bets from US players.

A US bank, SunFirst Bank, was named in the indictment and the story of its take-down by the bank’s anti-money laundering specialist is legendary in financial crime circles, and was the subject of several stories in the US media last year, including USA Today. At last year’s ACAMS Financial Crime Conference, the bank’s anti-money laundering specialist informed attendees that she repeatedly told the bank that is was required by law to file suspicious activity reports for suspected financial crimes in respect of PokerStars and Full Tilt Poker and was threatened by bank officers not to do so.

World Compliance issued a white paper here that addresses the case of SunFirst Bank from an anti-money laundering perspective.

Black Friday civil complaint over money laundering

In 2011, the US also filed a civil complaint against PokerStars and Full Tilt, seeking to recover US$3 billion in civil penalties for money laundering. Asset restraining orders were issued against more than 76 bank accounts in 14 countries, including Canada, to freeze the accounts on the basis that the funds were proceeds of crime.

The civil complaint and criminal indictment by the US Attorney citing anti-money laundering law violations was a clever legal manoeuvre because the US guessed correctly that most foreign online gambling operators at that time had little to no understanding of international anti-money laundering and counter-terrorist financing laws.

Settlement agreements

In 2012, the US entered into a settlement agreement with PokerStars and a separate settlement with Full Tilt Poker in the civil forfeiture action (which had alleged bank fraud, wire fraud, money laundering and illegal gambling offenses).

Under the terms of the settlement with Full Tilt Poker, it agreed to forfeit its assets to the US to resolve the action. An amended complaint filed in that action alleged that Full Tilt Poker defrauded players by misrepresenting to the public that player funds it held were safe, secure and available for withdrawal at any time. US Attorney Preet Bharara at the time said that Full Tilt was a “global Ponzi scheme.” The US has stated that Full Tilt Poker did not maintain funds sufficient to repay all of its players and instead, utilized player funds to finance more than US$400 million in dividend payments to Full Tilt’s owners.

The US Attorney retained a claims administrator to oversee claims by what it characterized as “victims of the fraud committed by Full Tilt Poker against US players that was set forth in both the civil money laundering and forfeiture action.”

Under the terms of the settlement with PokerStars, it agreed, inter alia, to forfeit US$547 million to the US and assume Full Tilt Poker’s liability for the approximately US$184 million owed by Full Tilt to foreign players.

Status of indicted Canadians affiliated with PokerStars & Full Tilt Poker

According to the US Attorney, charges against Isai Scheinberg and two others are pending because they are at large.

In September 2012, Canadian Nelson Burtnick, who was a director of payments for PokerStars and Full Tilt Poker, pled guilty to conspiracy to commit unlawful online gambling, bank fraud, money laundering and gambling offenses in connection with a scheme to deceive banks into processing hundreds of millions of dollars of online gambling transactions.

The other Canadian, Ryan Lang, a payment processor who worked with PokerStars and Full Tilt Poker, pled guilty to money laundering, fraud and gambling offenses in connection with a scheme to deceive banks into processing hundreds of millions of dollars in online gambling transactions.

Given the above, there is no question that there will be issues at least raised in respect of gambling integrity in the US (and in Canada if it is in play territorially). The merged entity will have to address those issues.

If Canada is not in play as a jurisdiction of registration but if PokerStars offers or offered online gambling services to Canadians in Canada, then Canada becomes material for the purposes of opinions required to close the transaction for the lenders and their counsel and Canada also becomes material for US registration.

The $4.9 billion question & my gambling law take on the announced deal

Whether the financial crime issues can be resolved satisfactorily to secure the gaming registration in the US of PokerStars and/or a merged Amaya -PokerStars entity remains to be seen and will not be answered for likely another year or so after an expensive and intensive investigation by gaming regulators as part of an application process has concluded.

Here’s what a gaming and financial crime regulatory attorney would tell the underwriters:

  • The gambling registration in the US or Canada of PokerStars, Full Tilt Poker or a merged entity which includes them, will not be expedited. Amaya, in its securities disclosure documents has said that gaming registration takes 12 – 18 months and therefore with the addition of PokerStars and Full Tilt Poker and the added regulatory vetting involved internationally, any registration approval is at least two years away. A lot can happen in online gambling in two years, including the introduction of other entities into the US who may be able to get registered faster and with less friction.
  • The Chief Anti-Money Laundering and Compliance Officers at Deutsche Bank AG, Barclays Bank PLC and Macquarie Capital (USA) Inc. may find their task challenging if asked to sign off on the financing and in approving the offering documents for the debt securities subscription. As a preliminary matter, managing the due diligence phase of this transaction will be challenging.
  • Counsel providing opinions for closing in respect of the financing may find it challenging in dealing with legal issues surrounding gaming registration and the financial crime issues alleged in the indictment. Moreover, if theoretically, PokerStars provides online gambling services to Canadian players in Canada contrary to the Criminal Code, it will present a problem in respect of obtaining an opinion for closing, particularly given that the opinion will have a $4.9 billion price tag attached to it.
  • The material risk factors in the disclosure documents will likely grow and one should watch for significant sections on the financial crime allegations and gaming registration issues emerge, as well.
  • If Amaya is registered as a gaming services provider in British Columbia or Ontario, gaming regulators in those jurisdictions will be required to re-investigate it for issues related to gaming integrity as a result of its marriage with PokerStars and Full Tilt Poker. In Canada, the integrity of gambling is even more important because the government conducts and manages gambling under the Criminal Code.
  • The securities regulators in Canada in jurisdictions in which Amaya is a registered issuer may ask questions about the transaction and the litigation history of PokerStars and Full Tilt Poker.


You can read more at the Guardian here.

As accurately noted by the Guardian, the news release says that Isai Scheinberg’s son pioneered the online gambling industry but it was his father who helped to pioneer the online gambling industry. The actual pioneer of online gambling was an American lawyer, Ruth Parasol, who founded PartyPoker.

The deal is an exceptionally good one for PokerStars and its founder but appears less beneficial in my view for Amaya and its shareholders.

You can read more about Amaya on SEDAR here.

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World record in money laundering sentencing

By Christine Duhaime | June 12th, 2014

A Malaysian Court has set a world record in money laundering law by sentencing a business executive to a term of imprisonment of 1,942 years for laundering proceeds of crime.

Lim Long Yew, the CEO of Asia Ceramic Marketing Sdn Bhd, was convicted of accepting and holding proceeds of crime in the corporate bank account over a twelve month period. He was charged with close to 500 criminal counts and sentenced for each count, hence the long prison sentence.

However, the Malaysian Court ruled that the defendant could serve his sentences concurrently which will reduce the time to close to ten years.

The 1,942 year jail sentence is the longest ever meted out for any financial crime or money laundering conviction in the world and is a cautionary alert for North American and EU businesses engaging in business in Malaysia.

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