Razing Palmyra ensures the legacy of ISIS will live forever & will drive up terrorist financing for ISIS

By Christine Duhaime | May 26th, 2015

We knew Palmyra was an ISIS target

How the Islamic State managed to take control of Palmyra may become one of the most bizarre stories in modern warfare in years to come, especially if ISIS razes Ancient Palmyra.

It’s a bizarre story because there’s no way it should have happened.

ISIS has stated on several occasions that they are going to destroy the heritage sites of Syria and Iraq one by one. And then our heritage sites one by one. In Syria, the Crown Jewel is Palmyra. We have known for about 10 months that Palmyra was a key target of ISIS. And not just a key target but the key target.

How did we miss a convoy of white flagged ISIS trucks in the desert with 1,800 troops?

Knowing that, it appears that not only were there no Coalition troops in the vicinity to combat ISIS as they approached Palmyra, but it also appears there was no intelligence (or no one watching satellites) given to Coalition Central Command alerting them that there was a convoy of 1,800 ISIS troops in vehicles driving along the one and only highway to Palmyra in Syria on May 19, 2015. Recollecting of course that ISIS has specially equipped vehicles emblazoned with their logos and flags and drive in formation, such a convoy would be hard to miss. And such a convoy would be easy to blow up along the highway. If you factor in that Palmyra is smack in the Syrian desert, it makes even less sense. It defies belief that in 2015, we missed a convoy of ISIS vehicles moving along the highway in the middle of the desert towards Palmyra. If we missed Palmyra, what else are we going to miss?

Why ISIS will likely raze Palmyra

Unless prevented, ISIS will raze Ancient Palmyra. It has to. Ideologically, it cannot let it stand for several reasons: (a) it was the epicenter of a Kingdom run by a woman which must not (in the view of ISIS) be permitted to be sustained; (b) it’s of historical, cultural, religious and legal significance to the People of the Book (both of them) and for that reason it must be destroyed according to ISIS; and (c) ISIS is concerned with long-term damage and long-term gain, not short-term gains. Razing Ancient Palmyra keeps the legacy of ISIS alive for decades and decades to come and feeds terrorist propaganda long after they are gone. They will be hard pressed to give up an opportunity to destroy important symbols meaningful to us that ensure the survival of their legacy. The reason they took Palmyra is to preserve their legacy by destroying it.

Blowing up Palmyra will generate terrorist financing

Unfortunately, there is another reason ISIS will likely raze Palmyra. Every monumental destruction by any terrorist group, including ISIS, to infrastructure or sites that are important to the West (irrespective of whether they are also important to the people of Syria, which Palmyra is) generates a large influx of terrorist financing to the terrorist group. The more spectacular the event, the larger the cheques from donors. Blowing up the Crown Jewel will generate incredible terrorist financing for ISIS – sympathizers the world over will rejoice as they always do, with donations to fund more death and destruction.

What went wrong?

We may never have the answers as to why the Coalition forces did not defend Palmyra before ISIS reached it. And if Palmyra is razed, the average person will always wonder why nothing was done to prevent it from happening.

Here is a news report taken a few days after ISIS seized control of Palmyra and in it, a local asks: “How is it that American satellites missed them [ISIS]; the desert is like the palm of a hand and the militants and their trucks, pick-ups and tanks are moving. What is this Coalition doing then?”

Press TV: “Exclusive footage of ISIL held Palmyra”

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Digital Finance Conference to Include Hot Money Laundering Issues with FINTRAC & RCMP

By Christine Duhaime | May 24th, 2015

The Digital Finance Institute’s 1st Conference on FinTech and Banking Innovation is holding two sessions on anti-money laundering and regulatory compliance that will cover the latest topics in money laundering facing government agencies, regulators and financial institutions relevant to financial technology and innovation.

The session is approved by ACAMS for CLE credit for professional financial crime experts to attend, and is approved by the Law Society of British Columbia for CPD credit for lawyers to attend.

The first session is chaired by the Editor of ACAMS’ Money Laundering publication, Kieran Beer and will cover “Hot Issues in Anti-Money Laundering in Vancouver; a Potpourri Discussion on AML Compliance in Vancouver that impacts all financial institutions including FinTech such as Real Estate, Hot Money from China, Politically Exposed Persons, Terrorism and Risks from Transnational Criminal Organizations and Bitcoin” and includes speakers from the RCMP and FINTRAC, as well as ACAMS Certified Anti-Money Laundering Specialists.

The second session is devoted to digital currency and Bitcoin issues, including financial inclusion and regulatory matters and is chaired by the Financial Crime and AML lawyer for the digital currency company Ripple Labs, who recently negotiated their settlement with FINCEN, and will include prominent speakers in digital currencies, digital banking and digital innovation, including Sarah Martin from the Digital Currency Council and Ebru Pakcan from Citi Bank, both from New York City.

Registration is www.digitalfinance2015.com.

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Defector to Islamic State releases e-book that sheds some light on trade-based terrorist financing

By Christine Duhaime | May 23rd, 2015

Ebook on ISIS

An ISIS defector from the UK has published an e-book called “A Brief Guide to the Islamic State” (2015 Edition) that is posted on a popular social media site used by ISIS to publish propaganda, called Internet Archive.

The Guide is consistent with ISIS terrorist propaganda messages: it gives information on life under the Islamic State to encourage recruitment to Syria; it reveals trade-based terrorist financing; and it ends with threats against the West.

More than anything else, the Guide begs a lot of questions that we should be asking about terrorism and commercial material support from other countries to ISIS controlled areas.

ISIS Trade-based terrorist financing still happening

One of the most disturbing parts of the Guide is that it makes it obvious that nothing appears to be being done in the way of stopping material support in areas controlled by ISIS and in particular trade-based terrorist financing.

The Guide says that in ISIS controlled-areas, new cars from Kia and Hyundia and motorbikes from China are imported and sold. It also says that defectors can buy the same electronics they can get in the West including cellular phones, computers, tablets and laptops. One of the questions this begs is what manufactures are selling technology to ISIS or for the benefit of ISIS? I get the point that perhaps sales are coming via conduit countries such as Lebanon, Turkey or Iraq but that’s immaterial. We all know by now, in trade-based terrorist financing, that conduit countries are a concern and we all know which are used for ISIS.

The Guide also says all apps are available for download but that some of the free ones are better (Kik, Skype, Ask.fm). Another question arises — surely Apple and Google, who are after all, American public corporations, have blocked IPs from Syria and Iraq in ISIS controlled areas and terrorists in the Islamic State cannot actually download or buy apps from them?

With respect to Skype, Ask.fm and Kik, terrorists say that the companies running those apps provide services to them in ISIS controlled areas. That’s a problem because those services are used to radicalize others to commit terrorist attacks against us in the West and to recruit defectors to Syria who are committing acts of terrorism there. We have the technology to block IPs – are corporations not actually doing that in ISIS -controlled areas?

If there is any doubt that ISIS is engaged in trade-based terrorist financing with foreign companies, the Guide says that eventually ISIS will re-build the destroyed manufacturing base so that it is “less dependent on foreign goods.”

This begs the question as to why we are not preventing corporations from outside ISIS areas from engaging in trade-based terrorist financing and why we are not preventing financial institutions from supporting terrorist financing, and prosecuting those that provide financial or other material support to ISIS?

With respect to manufactured goods, foreign trade cannot occur without substantial letters of credit involving financial institutions. How it is possible for ISIS, or any companies within their territory, to be able to obtain letters of credit from financial institutions is incomprehensible. There is no such thing as a company or organization in ISIS-controlled areas that is “independent” and not controlled by ISIS in some material manner, unless they operate underground. Bearing in mind that ISIS controls all of the financial institutions in its area of influence means that it also controls financial transactions involving foreign trade. This is not something we do not know.

Trying to convince defectors that life is normal

ISIS uses social media to recruit, encourage attacks in the West, socialize Westerners and for terrorist financing. You can read more about that here in our White Paper on the Twitter Terrorist. The Guide confirms that the social media campaign of ISIS is meant to “persuade.” So obviously is the Guide. It tells prospective defectors that in ISIS controlled areas, when they walk the street, they will be “loved” and supported, and that the people of Syria will seek their counsel and advice because they are symbols of liberation, suggesting that even the most unaccomplished defector will be a superstar in Syria.

ISIS terrorist propaganda on social media is usually contradictory on the issue of lifestyle. The Guide is similarly inconsistent. The Guide says that ISIS has successfully recruited defectors by honestly focussing on the hardship of life in Syria. But that’s not accurate. ISIS consistently paints a picture of how amazing life is and promises defectors a life of relative comfort. Even the Guide contradicts its own so-called hardship stance by devoting pages to describe how defectors can buy cafe lattés, cappuccinos, fruit and vegetables, American chocolate bars, new cars and motorcycles in land controlled by ISIS. According to the Guide, there is ample Internet access and the latest technology “gadgets” for sale. According to the Guide, life under ISIS is normal and you won’t want for much in the way of material things.

Threats to West

The Guide ends, as all ISIS terrorist propaganda ends, with the promise that ISIS will descend upon the streets of Washington, London and Paris to spill the blood of, inter alia, Americans, demolish Western landmarks, erase our history, and “most painfully” according to the Guide, convert our children who will then curse us. ISIS will succeed, according to the Guide, because Americans allegedly do not have the stomach to fight ISIS long-term.

The only part of that which is true is that in the West, we have sanitized ISIS’ Reign of Terror and already we do not appear to have the stomach to meet them face on in terms of the atrocities they commit.

Atrocities committed by ISIS

The atrocities committed by ISIS include:

  • The rendering of over 9 million Syrians homeless and either internally or externally displaced. That’s more than the whole of the population or Switzerland or Austria. Imagine ⅓ of the population of Canada or all of Sweden on the move on foot who have been instantaneous made financially excluded and homeless searching for water, food, shelter and safety. The Syrian refugee crisis is unsustainable and involves more than just Syria. Four million children who are not getting an education is a recipe for disaster in terms of future terrorism mitigation. 
  • The reinstitution of the practice from earlier times of the sale of young girls and women into slavery to men who have joined or are sympathetic to ISIS, and to foreign men willing to pay the price. Locals in Syria and Iraq say upwards of 40,000 to 50,000 young girls have been sold and bartered from ISIS, some to Turkey and Saudi Arabia.
  • The killing of tens of thousands of people for a wide-range of alleged crimes or simply for being, in the view of ISIS, the wrong religion, the wrong gender or for asserting certain rights.
  • The destruction of significant parts of the critical infrastucture of Syria that experts estimate will take 30 years to rebuild.
  • The erosion of the rule of law and human rights in what is left of Syria and Iraq under the control of ISIS, including the elimination of rights for the whole of the female population who have been financially and governmentally excluded from society.
  • The indoctrination of hundreds of thousands of young children in Syria and Iraq on the ISIS way of life, including ingraining in them a disrespect for the rule of law and human rights.
  • Less important than any of the above, but still important, the destruction of antiquities in Syria that are irreplaceable that form part of our shared history of humanity.

One of the reasons why I don’t think we should sanitize ISIS conduct is because Western children are already watching their Reign of Terror on social media (see the White Paper on this point). When parents and the media fail to discuss the ISIS phenomena openly, children are left to process ISIS’ horrific movies they download online out of context. We run the obvious risk that they will be assimilated and terrorist conduct will no longer shock their conscience.

In my opinion, the tide against ISIS’ propaganda will only turn if and when we have the leadership and courage to show clips of ISIS’ Reign of Terror in the media and by governments and discuss it in context of our values, namely the rule of law, democracy and constitutional rights.

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The other ugly side of human smuggling ~ the terrifying fake refugees with terrorism on their mind in the EU and Canada

By Christine Duhaime | May 18th, 2015

ISIS allegedly smuggling its people as refugees to EU

According to a report today in RT, the Libyan government has obtained intelligence that the Islamic State is using human smuggling operators from Libya to move its people to the European Union to commit terrorist acts, who are disguised as refugees to access the EU and bypass security and passport controls. Allegedly, ISIS affiliates in Libya are also demanded 50% of the revenues taken from the human smugglers for protection and access. This report also confirms that ISIS is actively in the human smuggling business and has generated about $300 million in revenues for arranging smuggling operations.

The Canadian experience – Refugees with terrorism on their mind

ISIS’ strategy is not new. Terrorists have used human smuggling operations to circumvent passport and international security controls consistently in the past.

For example, according to news reports from refugee claimants at the time,  members of the Liberation Tigers of Tamil Eelam paid between $20,000 – $40,000 each to be smuggled into Canada aboard the MV Sun Sea in August 2010, and claimed refugee status and poverty, when they arrived in Vancouver. In order to gain access to Canada, some of the alleged refugees on board the MV Sun Sea, destroyed their passports. The LTTE is a listed terrorist group in Canada.

Another of its members, Suresh Sriskandarajah, claimed refugee status successfully in Canada but unbeknownst to intelligence officials at the time, was sympathetic to the LTTE and was actively providing terrorism material support for the LTTE from the US and Canada. He was eventually extradited from Canada to the US for terrorist financing and coaching other terrorists on how to circumvent border controls to infiltrate a foreign country to smuggle in weapons for the commission of acts of terrorism.

Infiltration of a Canadian bank by LTTE

The capacity of terrorists, or sympathizers of terrorist causes, to infiltrate countries and organizations should not be underestimated. Financial institutions are particularly at risk.

A third illustration involving Canada being used by alleged refugees with terrorism on their minds involves a large and prominent international Canadian bank. It was infiltrated by a member of the LTTE in Toronto who obtained employment with the bank for the express purpose of obtaining the personal information of judges and politicians in Ontario. He subsequently used that personal information to contact prominent individuals on behalf of the LTTE to threaten them, and went so far as to contact a judge presiding over a case involving the LTTE. He was not prosecuted for a terrorist-related offence, unfortunately.

Sending defectors back to commit acts of terrorism

ISIS, also a listed terrorist group like the LTTE, has allegedly said in the past that they are sending defectors from the West back home and coaching them to claim, inter alia, that they became disenchanted with ISIS’ brutality, and barely escaped alive trying to leave ISIS-controlled areas, in order to be believed by law enforcement and permitted back to their former countries. The story from the Libyan government is consistent with ISIS’ stated plan of sending defectors back to the West, who are trained in terrorism, including infiltration methods.

The consistent terrorist-related conduct should be noted, namely: (a) the payment by the terrorist organization for a terrorist recruit to be relocated (whether by smuggling or otherwise) to the target country; (b) the arrangement by the terrorist organization for the transportation of the recruit; (c) the training and coaching by the terrorist organization of the recruit on (i) lying to gain entry into a foreign country as a refugee; (ii) the destruction of identification documents; and (iii) committing acts of terrorism, whether it be obtaining employment at a key institution to steal personal information for extortion purposes, providing material support or financing, or plotting destruction of critical infrastructure.

Transnational criminal organizations

Federal law enforcement agencies have said consistently that there are connections between ISIS and transnational criminal organizations, not only in human smuggling but in the trafficking of humans, identity documents and drugs. All of these activities generate proceeds of crime which must be laundered by terrorist groups through the formal banking system and typologies for human smuggling are important for banks to follow. The current refugee-smuggling operations are a mix of smuggling and trafficking - smuggling is a crime against a border and is transportation-based. Trafficking is a crime against a person and is exploitation-based. Human smuggling and trafficking involves multiple players, all of whom use the financial system such as recruiters, sending brokers, staging brokers, receiving brokers, business owners and business managers.

Threats to banks & government agencies of infiltration for personal data

Terrorist organizations are most interested, at this point, in infiltrating databases of financial institutions for client information to conduct focussed attacks on prominent individuals in the West. Although they are trying cyberhacking to gain access, to the extent that fails, they are also motivated to recruit sympathizers who work at financial institutions in the West to undertake this activity for them. They are also interested in hacking social media sites for personal information of targeted persons.

Red flags

Some of the key red flags are:

False asylum seeker red flags:

    • Alleged refugees who could pay a hefty fee to be smuggled yet claim poverty when claiming asylum when they land in a foreign country. It may suggest a terrorist organization funded the smuggling operation or their passage – their circumstances are inconsistent with the ability to pay a smuggling fee.
    • Alleged refugees who have no identification whatsoever and are fuzzy on who they are, where they are from, how they arrived at the country of departure, who their relatives are, how their relatives can be contacted and the like. These are the people who, despite having no material information on their life for government agencies to verify, ask to use a telephone to contact residents in the country of landing.
    • Alleged refugees who have a mobile phone that is still operational when they land.
    • Individuals who defected to ISIS and are attempting to return, or their family members.
    • Alleged refugees who are immediately contacted upon arrival by persons in the country of landing, who are not relatives.

Infiltration of banks or government agency red flags:

    • Employees who access client personal information at government agencies or banks in the following ways (patterns that make no sense and suggest illegal access to personal data of client):
      • Client lives out of town & did not visit the branch or contact the financial institution.
      • Too many searches for client information by the employee (that means they are searching for people and personal information, rather than legitimately serving a client).
      • Too many reviews of client spending activities (that means they are stalking clients and learning where they shop, eat, travel).
      • Rapid searches for people (that means they are afraid of being detected and are culling as much information as possible).
      • Searches that occur after business hours when supervisors are gone for the day.
      • Searches for client personal data that occur on an unmonitored computer of another person who did not log-off.
      • Searches that involve high ranking, prominent persons or persons with power or social status in the West such as government officials, politicians, law enforcement personnel, media personality and judges.

Human smuggling & trafficking businesses red flags:

    • Business accounts that have international wires or significant cash deposits that are unusual for that business type.
    • Financial activity related to customers and or businesses that are indicative of human trafficking  (e.g., multiple, ongoing payments to Internet classified advertising services or credit card charge activity that is in even dollar amounts and occurs between 10 pm and 6 am).
    • Cash deposits into one account from multiple locations across countries that identify transaction patterns potentially indicative of money laundering, terrorist financing or other suspicious activity that may be linked to human smuggling/trafficking.
    • Consumer accounts with deposits and/or withdrawals in geographical regions different than where the account relationship was established (typically low-value relationships but significant number of account relationships – 1:1 cash-in/cash-out ratio).
    • Large payments to foreign companies that are inconsistent with the amount of product received from these companies.
    • Unusual withdrawal, deposit or wire activity inconsistent with normal business practices, or dramatic and unexplained change in account.
    • Leasing of high-end luxury vehicles and extravagant trips paid by electronic funds transfer from business bank accounts.
    • Numerous incoming wire transfers or personal checks deposited into business accounts with no apparent legitimate purpose.
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Will there be “heads on a stick?” Wealthy economic fugitive from China allegedly a PEP & prominent developer in Vancouver with bank accounts

By Christine Duhaime | April 30th, 2015

More AML fines? 

Will the failures by banks to comply with the politically exposed person (“PEP“) regime cost them another round of billion dollar fines? I’m beginning to think it might in the context of the growing number of Chinese economic fugitives that appear to be in Vancouver, Toronto and New York.

PEPs

A PEP is a foreign national who is politically exposed. Banks everywhere, including in Canada, are required to actively ask foreign wealthy clients about their sources of wealth when on-boarding them to confirm if they are PEPs and that the funds are legitimately acquired. As you can imagine, its expensive to implement and comply with PEP laws and some banks rely on so-called “checking” or “vetting” services that we all know are no more effective that Google to identify PEPs, or don’t do any vetting of PEPs or source of wealth at all. PEPs are at high risk for money laundering and other financial crimes which is why banks are required to vet them and their sources of wealth.

Alleged fugitive on Interpol list living richly in Vancouver under alias

The South China Morning Post published a story today that one of Vancouver’s leading property developers, Michael Ching Mo Yeung, is living in Vancouver under an alias, and is wanted by China for allegedly removing tens of millions of dollars in state assets to Canada. According to the SCMP, Mr. Yeung, the president and CEO of Mo Yeung International Enterprises Ltd., is actually Cheng Muyang, the son of a former high ranking Chinese government official tied to allegations of corruption.  Proceeds of crime from his alleged corrupt conduct have not been recovered by China. Father and son were, and are, both PEPs. According to the SCMP, Mr. Yeung magically earned over $10 million over a short period of time in Hong Kong with which he used to immigrate to Canada. Cheng Muyang is on Interpol’s list of wanted fugitives.  Mr. Yeung alleges he is not Cheng Muyang, despite the identical facial features, but apparently admitted he is related to him. Therefore, even if he is not Cheng Muyang, he is still a PEP attached to Cheng Muyang. My guess is that the SCMP is not wrong on this issue.

PEPs that cannot confirm wealth are unbankable

The reason I think ignoring PEP rules will cause regulatory issues for banks is because assuming the allegations against Mr. Yeung are true and he is Cheng Muyang, if PEP rules were followed, a Vancouver bank would have known after five minutes of  due diligence that Mr. Yeung was a PEP and would have been unable to ascertain through independent verification that his wealth was legitimately earned or acquired. Had banks done their jobs under PEP law, he would have been unbankable. Yet it appears that Mr. Yeung has numerous corporate and personal bank accounts all over Vancouver which he uses to develop properties, pay lawyers and live in Vancouver unimpeded. If he is Cheng Muyang, that’s a serious financial crime problem and a regulatory and reputational problem for banks. And its a bigger problem for government agencies and foreign relations.

Suspect PEPs in Canada continue to have bank accounts

China is searching for hundreds of economic fugitives who are PEPs, a large number of whom, it appears, are living in Canada. That as PEPs, they obtained banking relationships in Canada without hiccups with what China alleges is proceeds of crime and laundered billions of that proceeds of crime through Canada’s banking system, is astounding.

Heads on a stick

In the anti-money laundering banking compliance world, we talk often about the pressure on prosecutors, especially in US,  to produce what the head of the OCC referred to as “heads on a stick”, meaning parking criminal responsibility for AML/CTF failures by banks on the heads of individual officers and directors of those banks.

My guess is that the US will take an active role in this file, and in particular, PEP compliance by banks vis a vis wealthy PEPs from China and that this may be the file where a few top heads at banks will roll. Why? Because it is a highly politicized file in several countries that is causing enormous embarrassment to governments that unwittingly opened their doors to wealthy foreign nationals with proceeds of crime.

Importance of file for China

This file is incredibly important for China on many levels and from what I can tell, foreign government agencies are failing to understand that, and the resentment of China over the acceptance of foreign countries of their fugitives with proceeds of crime.

To wit, today China’s Minister of Foreign Affairs, Hong Lei, agreed to answer just four questions for the Chinese media and chief among them was the case of Cheng Muyang. Here is the Q&A:

“Q: Media reports suggest that Michael Ching, a real estate businessman in Canada is Cheng Muyang on China’s wanted list of corrupted officials fleeing overseas. Can you confirm this? If so, is China asking for his extradition?

A:  Staying abroad does not mean being able to stay outside the law. The Chinese government is determined to crack down on corruption. No matter where the corrupts flee, the Chinese side will bring them to justice. Absconders like Cheng Muyang are bound to receive due punishment.”

Government relied on bank compliance

If government agencies are smart, they will say that they rightfully relied on regulated banks to have identified and vetted  PEPs and their funds under national anti-money laundering laws designed for that purpose. And if they were smarter still, they would start to insist on greater compliance by banks in anti-money laundering law in order to preserve the integrity of the banking sector.

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China to issue guidance for light online payment solutions to preserve emerging FinTech

By Christine Duhaime | April 29th, 2015

The Government of China has announced that it is issuing legal guidance to lightly regulate online payment systems, what it terms as “internet finance.” The guidance will be prepared by the People’s Bank of Canada and will contemplate a regulatory framework for governance.

The impetus for developing guidance is driven by the explosive growth in online financial services and payments in China. Not surprisingly, China is the world’s largest peer-to-peer lending market with 1,400 peer-to-peer lending platforms that have raised $18 billion.

Interestingly, a member of the Chinese government called for light regulation to ensure that innovation in FinTech is preserved and not overly regulated, allowing companies to manage risks.

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Mother of the Girlfriend of Mayor of Vancouver held on corruption charges in China

By Christine Duhaime | April 25th, 2015

In the latest twist in the continuous coverage of high-ranking Chinese foreign nationals who immigrated to Vancouver, the mother of the girlfriend of the Mayor of Vancouver has been incarcerated over corruption charges in China.

Here is the story as reported in South China Morning Post.

The Mayor, Gregor Robertson, has a girlfriend who is a current or former (details seem fuzzy on her status), Chinese foreign national named Wanting Qu, who prefers to be called just “Wanting”. She is a singer and is a “tourism ambassador” for Vancouver and her ultimate boss is the Mayor. The Province newspaper is pursuing the story of the appointment of Wanting by the City of Vancouver.

Below is a picture of “Wanting” from her Instagram account.

Wanting’s mother, Qu Zhang Mingjie, was a Chinese government official, specifically the Deputy Director of the Development and Reform Commission of the City of Harbin, China. In September 2014, she was fired from her position and is now incarcerated in China facing a criminal trial. She is alleged to have sold state property at discounted rates to purchasers impliedly in exchange for benefits paid to her. Wanting immigrated to Canada several years ago and told the media that her mother financially supported her studies in Canada. That flow of funds from mother to daughter, from China to Vancouver, and from whence they were derived, may be an issue.

The story is fascinating from a financial crime perspective because Qu Zhang Mingjie is a politically exposed person in anti-money laundering law. As her daughter, so is Wanting. And the Mayor, as Wanting’s boyfriend, is also a politically exposed person under the FATF policy guidance.

As a politically exposed person (“PEP”), banks in Vancouver, Hong Kong and China that provide services to Wanting, and her mother, are and were, obliged to treat them as high-risk clients and vet and confirm the source of their funds above a certain threshold. That is because, pursuant to policy and research by the FATF, G20 and others, politically exposed persons are at a higher risk for the commission of financial crimes. With respect to parents and children, financial crime typologies show that politically exposed parents often transfer proceeds of crime to their children,  hence children are PEPs by definition. Financial crime typologies in respect of Chinese foreign nationals indicate that they often transfer proceeds of crime to places like Vancouver to pay for the education of their children and buy them luxury homes and cars.

With respect to the Mayor, as a FATF designated politically exposed person, his banks in Vancouver and elsewhere are also required to treat him as a PEP. The downside with dating a PEP is that you become one too.

Most global banks are de-risking PEPs outright because of the expense and regulatory risk of servicing their accounts and of the often impossibility of ascertaining source of funds pursuant to proceeds of crime legislation, and the continuing obligations on banks vis a vis PEPs.

The Government of China is now fully aware of the PEP regime and what is required of Western banks when they bank PEPs.

There is no allegation that Qu senior transferred any of the alleged proceeds of corruption, if there are any, to Qu junior. But if Qu Zhang Mingjie is convicted of corruption, the Government of China will likely be tracing funds she transferred to Vancouver. It knows that she transferred funds to Vancouver because, as noted above, her daughter told the media her mother funded her studies in Vancouver. The only question will be, if she is convicted, how much money she sent to her daughter in Vancouver; when; whether the funds exceeded $50,000 annually and were sent with Government approval; whether the funds were proceeds of corruption; and whether the banks treated the accounts as PEP accounts.

The Chinese government is actively seeking recovery of proceeds of crime removed from China and parked in Vancouver. China just released a list of the top 100 Chinese foreign nationals who left China with proceeds of crime derived from corruption and apparently over 25% of them parked the proceeds of crime in Canada, mostly Vancouver. It is not an understatement to say that the jurisdiction most under scrutiny in China for the illegal removal of state assets is Canada – specifically Vancouver.

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China and US agree to cooperate to help China track down & repatriate “economic fugitives”

By Christine Duhaime | April 13th, 2015

Late last week, at a meeting in Beijing, the US and China agreed to continue cooperating in the removal of Chinese foreign nationals from the US who are suspected of having immigrated with proceeds of corruption. The meeting took place between Meng Jianzhu, Secretary of the Central Politics and Law Commission, and national police chief Guo Shengkun, and US Secretary of Homeland Security Jeh Johnson.

Both countries affirmed a commitment to work closely with law enforcement agencies to improve information sharing on repatriation and economic fugitives and provide status updates on active fugitive cases.  China said it was working expeditiously to verify names of its foreign nationals who immigrated to other countries “illegally” to  facilitate their return.

Interestingly, press reports said that both countries are looking at databases to identify Chinese foreign nationals that book travel and request travel documents from other countries to catch them, obviously, wherever they may be in the world. The actual return of such persons is being done by China.  China’s anti-corruption agency said that more than 500 fugatives were brought back to China last year, along with more than 3 billion yuan. Just how they are “brought back” without a formal extradition process remains a mystery. Some Chinese foreign nationals living in Vancouver allege that the Chinese secret police are in Vancouver ferreting out economic fugitives and are seeking their return unlawfully.

Chinese authorities said many countries are supporting its efforts to track down and extradite Chinese foreign nationals who have left China with proceeds of crime. Two such operations, “Sky Net” and “Operation Fox Hunt”, have identified economic fugitives that China is seeking to have returned, together with their assets. During the Beijing talks, the US affirmed it would not provide a safe haven to Chinese foreign nationals suspected of entering the US with proceeds of crime.

The talks also touched on counter-terrorism, intellectual property rights, maritime law enforcement and cyber-security.

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A financial crime failure & why Chinese media are fascinated with hot money flowing into real estate in Canada, the US and EU by Chinese immigrants

By Christine Duhaime | April 9th, 2015

Fascination with hot money leaving China

The Chinese media continue to be fascinated with the story of Chinese immigrants to Vancouver, Toronto, New York, LA and Paris who are buying up luxurious mansions, countless condos, and wineries worth tens of millions of dollars, often with cash, and the greater emerging story – that China is coming after them for a variety of financial crimes.

I get the fascination.

Every non-wealthy person I’ve met in China greatly resents that countries like Canada and the US accept wealthy Chinese immigrants with dirty money. They don’t understand how it is possible that countries that they admire for being corrupt-free, accept their citizens with proceeds of crime, and reward them with permanent residence. Its at odds with what they believe our values are. Imagine the difficulty in being an anti-money laundering lawyer from Canada in China at the receiving end of that conversation.

The story is a fascinating one from a financial crime perspective because it evidences a problem we don’t want to acknowledge –  that anti-money laundering laws that are supposed to prevent the illicit removal of billions of dollars in state assets or proceeds of corruption from China to places like Canada, the US and France, are being ignored.

Ukraine as an example

We saw the same problem with the Ukraine where $70 billion in state assets was removed in 3 years to offshore tax havens and to Switzerland by government officials.

In that case, Ukraine’s former President, Viktor Yanukovych, went from earning $2,000 per month before entering politics in 2009 to amassing a personal fortune of $12 billion by 2013 which he parked overseas. Yanukovych was a politically exposed person (“PEP“). Despite the impossibility of earning that amount legitimately on his President’s salary, not one global financial institution appears to have done what anti-money laundering law requires in that case, which is to de-risk the account, close it, and report his financial transactions to the relevant FIUs. A year after Yanukovych fled from the Ukraine, not one of those financial institutions appears to have been prosecuted or sued for the recovery of state assets. Meanwhile, the Ukraine’s economy is on the brink of disaster and it could use its $70 billion back from the banks that wired it out to tax havens to feed people and rebuilt its infrastructure.

China clearly does not want to follow in the Ukraine’s footsteps and it is going after state assets.

My guess is that China at first will be friendly, to secure the return of its foreign nationals, then I suspect it will be less friendly, by suing financial institutions in conduit countries (Hong Kong and offshore tax havens) and in destination countries (US, Canada, France) to recover state assets that have been spent. The extent to which banks are liable for breaches of anti-money laundering law that causes economic losses to a foreign country will be an interesting legal issue. It would be a tort claim where importantly, the focus will be on the standard of care exercised by senior bank executives.

If China is successful in such a litigation, it may open the floodgates to hundreds of similar lawsuits. Would China win? It’s hard to say but banks systematically do a poor job on PEP legal compliance and, despite the Ukrainian example of a global PEP failure, don’t appear to be improving in this area. Banks have two achilles heels at the moment – PEP legal compliance and counter-terrorist financing legal compliance.

Chinese foreign nationals are PEPs

With respect to wealthy Chinese immigrants, they enter the immigration stream without 3rd party independent verification of the source of their wealth and most, if not all, are politically exposed persons.

PEPs are at a higher risk for financial crimes, such as laundering proceeds of crime, yet few financial institutions treat wealthy Chinese foreign nationals immigrating as PEP clients and verify source of funds.

When wealthy Chinese foreign nationals buy real estate in Canada or France, many real estate agents and developers who sometimes accept cash for the purchase of million dollar homes by foreign nationals from China do not report the transactions to FINTRAC or TracFIN, as required.

Pursuant to the G20 denial of safe haven arrangement, China has put pressure on Canada, the US and the EU to cooperate in tracking down funds moved to Toronto, New York, LA, Toronto, Paris and Dubai by Chinese foreign nationals for repatriation.

Money laundering concerns

There are three money laundering concerns that arise with wealthy Chinese foreign nationals immigrating, as follows:

  1. The Chinese PEP usually removes funds from China in violation of the foreign currency export restrictions and to the extent that is a criminal offence in China, the proceeds of that transaction are proceeds of crime, and every bank accepting those funds has accepted proceeds of crime. The key legal issue is whether the circumstances in which the removal of funds is criminal – in China, it depends.  Assuming the criminal offence is triggered with that particular currency export, when such a PEP enters a foreign country with funds or wires it to another country, they have laundered money through the bank.
  2. The Chinese PEP often has a high level government job with a salary that does not match their wealth, and their wealth may be derived from bribery payments. PEPs also often have businesses with revenues that do not match sales, indicating that payments in bribery are likely the source of wealth. When such a PEP  wires funds derived from bribery to a foreign country, the PEP has laundered proceeds of crime through the bank.
  3. The Chinese PEP often brings large sums of cash into Canada, the US or the EU in suitcases and fails to file a currency report with immigration officials when they enter the foreign country. This is an offence under the proceeds of crime legislation.

I think the days are coming to an end when wealthy immigrants from China can immigrate without:

  1. Proving that the source of funds is legitimate and is not proceeds of corruption. I have probably seen most of the schemes many prospective immigrants create to attempt to prove source of funds – they are easy to detect on Chinese banking and corporate records;
  2. Immigration agencies demanding that there be independent verification and certification of source of funds by financial crime experts to protect the integrity of the financial system from being used for the importation of proceeds of corruption;
  3. Banks and wealth managers proactively undertaking PEP due diligence and treating the accounts of PEPs with heightened scrutiny, as required; and
  4. Financial Intelligence Units, such as FINTRAC, cracking down on real estate agents and developers who process large cash transactions and do not file the requisite reports.

Sing Tao Daily

Here (and below) is the latest story on the money laundering concerns of Chinese immigrants buying luxurious homes, in Sing Tao Daily.

We are quoted in the story discussing the issue in Canada.

圖文:本報記者孫銘雪

專家指稱 現金交易 當局不知情

潛逃美國的中國貪官喬建軍與前妻趙世蘭,涉嫌在大溫地區購置房產洗黑錢,已遭美方起訴,但喬建軍目前仍在逃。有反洗黑錢專家指出,大溫房市確定成為部分中國黑錢的洗錢天堂,但她認為這些貪官不要心存僥倖,嚴打行動可能讓他們大吃一驚。
防洗黑錢專家、溫市律師杜希米(Christine Duhaime)周二接受《星島日報》訪問時表示:「大溫房市確實成為部分中國貪官或不法所得的洗錢天堂,她經常聽聞地產經紀描述有買家,帶著裝滿現金的行李箱來購買房產。此行為雖不犯法,但構成可疑洗錢行為,必須依法通知加拿大金融交易及報告分析中心(Financial Transactions and Reports Analysis Centre of Canada,簡稱FINTRAC)。

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Business in Vancouver Covers Vancouver Real Estate Sector Money Laundering Concerns

By Christine Duhaime | April 8th, 2015

Business in Vancouver has an interesting story here on the increase in real estate investment in Vancouver by wealthy Chinese foreign nationals here.

There are concerns that the funds invested in the real estate sector in Canada may be proceeds of crime from numerous sources, including potential bribery or corruption. Over $1.08 trillion has been removed from China in the past ten years and Canada remains a key destination for those funds.

We are quoted in the article in respect of the financial crime risks.

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