Bail denied for “little known lawyer” charged with money laundering who had $19 million in cash parked at his firm and home because he poses a serious threat to the financial health of India

By Christine Duhaime | January 8th, 2017

Rohit Tandon, the Delhi lawyer charged with money laundering just before Christmas after approximately $19.9 million was found in cash at his law firm office and home, was denied bail on Saturday and remains incarcerated. In denying bail, the Court said that the money laundering offenses “pose a serious threat to the financial health of the country” and would “affect the economy of the whole country.”

The Court went on to note that financial crimes “constitute a class apart, and need to be visited with a different approach.”

“So much cash, they needed three cars to haul it away.”

There was so much cash seized from Mr. Tandon’s law firm and home, the police needed six suitcases, four steel trunks and three cars to haul it away.

$13.6 million was seized from Mr. Tandon’s law firm in cash in October. His law firm was raided a second time in December and police located another $2.7 million in cash. Mr. Tandon’s home was also raided and an additional $3.6 million in cash was located. Additional raids took place at other locations.

Mr. Tandon was incarcerated after being charged with money laundering.

A safe at Mr. Tandon’s law firm.

Mr. Tandon alleges that he can account for the money and that some of it belongs to clients of his firm. But India has gone through what is called demonitization to control corruption and tax evasion and some of the cash located at Mr. Tandon’s office is currency that was not available for circulation.

Subsequent to the October raid, Mr. Tandon declared a sudden income of $24 million to tax authorities. Investigators have located two mansions he is alleged to own in Dubai and London, as well as three luxury homes in India.

The police became suspicious of Mr. Tandon after he hosted a lavish wedding for his son that was inconsistent with his reported income.

Mr. Tandon’s law firm has only been operational for two years and he is described as a “little known lawyer.”

A bank manager in India has also been arrested for money laundering in connection with the case for providing banking services to Mr. Tandon’s law firm in connection with the funds seized and is also incarcerated pending  trial.

The financial crime authorities are contacting banks in London and Dubai for asset freezes, according to the police.

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Nigeria gets ex parte asset recovery order for $153,000,000 in proceeds of corruption from PEP parked in banks

By Christine Duhaime | January 7th, 2017

The government of Nigeria will be able to recover $153 million in proceeds of corruption from Diezani Allison-Madueke, its former Minister of Petroleum, who was and remains a politically exposed person under anti-money laundering law.

The funds were alleged to have been stolen from the Nigerian National Oil Company when it was under her control as the petroleum minister. Nigeria’s national anti-corruption agency, the Economic and Financial Crime Commission, located the $153 million parked in three local banks, Sterling Bank, First Bank and Access Bank but it is unknown how much was removed from the country to London and Dominica.

The EFCC applied to Nigeria’s court on an ex parte application to seize the funds from the three banks.

Allison-Madueke fled Nigeria in 2015 where she was subsequently arrested on allegations of money laundering. She has a passport for Dominica which suggests there are funds parked there.

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Trial of PEP from Equatorial Guinea for money laundering in France; are Canada’s PEPs from Gabon next?

By Christine Duhaime | January 4th, 2017

Equatorial Guinea trial

Teodorin Obiang, the son of the President of Equatorial Guinea, is being prosecuted in France for allegedly laundering the proceeds of corruption in France. Mr. Obiang is also the Vice-President of Equatorial Guinea and is a politically exposed person. His trial is scheduled for June 2017.

He is accused of bringing $105 million into France using the financial system – money allegedly plundered from the country from oil sales, and using it to buy palatial Parisian properties and exotic cars. At the time he imported $105 million into France, his salary was $80,000 per year. His first lawyer, Olivier Metzner, was murdered and was found floating in the sea near Boëdic island in Gulf of Morbihan.

The President of Equatorial Guinea was the subject of a US Senate review on the use of lawyers for laundering proceeds of crime by politically exposed persons. Pursuant to that Report, Mr. Obiang hired US lawyers to set up companies for the purposes of laundering $100 million into the US through law firm trust accounts. Funds were used in the US for lavish expenses, such as a house in Malibu and a private jet, and to attend parties at the Playboy Mansion.

The Obiang family assets keep being seized around the world pursuant to this case, including a 76-metre luxury $100 million yacht seized just before Christmas in the Netherlands at the request of a Swiss Court.

Canadian connection to French & Swiss investigations & trials

The case is interesting for Canada because it mirrors a similar set of circumstances involving the leader of Gabon and his family, who are part of the same investigation in France looking at Obiang’s family for the movement of alleged ill gotten gains to the West through banks. The leader of Gabon was El Hadj Omar Bongo Ondimba, who is now deceased. His wife and daughter, Marie-Yva Astier and Yamilee Bongo-Astier, respectively, were granted Canadian citizenship. They are both politically exposed persons in Canada, and subject to enhanced scrutiny and verification of the source of their wealth by entities that report to FINTRAC.

The US Senate Report, described above, also dealt with the Bongo family and it found that the daughter opened several bank accounts in the US and made large cash deposits for the Bongo family members.  She also purchased vehicles at the request of her father.

In 2007, she asked the Commerce Bank in New York City to help her count money she had in her safety deposit box because she had too much –  all toll, she had $1 million in the safety deposit box in $100 bills wrapped in plastic. When questioned by the Bank, she said that the funds came from cash her father had brought into the US and given her. The bank reported that because she produced a Canadian passport and did not say who she was, they did not tie her to the President of Gabon or suspect she was a PEP. The US Senate found that her mother, Marie-Yva Astier, sent her additional money from Canada. The Bongos have ruled Gabon for 50 years. The Canadian, Ms. Bongo-Astier, is the sister of the current ruler of Gabon.

The French Courts ordered the seizure of assets of the Bongo family in April of 2016 while the investigation continues, including a villa in Nice, a mansion in Paris and several commercial properties. Ms. Bongo-Astier is said to be part of a family dispute over the division of the estate of the former leader, including hundreds of millions of dollars parked in Monaco. Canada agreed with the G20 to enforce the “denial of safe haven” movement, which is relevant here to the extent proceeds of corruption may have landed in Canada.

As a beneficiary of the vast estate of the former leader of Gabon, and of multiple corporations in Gabon, her net worth is said to be in the hundreds of millions of dollars, although she never seems to appear on lists of Canada’s richest people.

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2016 in Review

By Christine Duhaime | January 3rd, 2017

Every year, we like to give a summary of the most popular stories on our website measured by analytics of visits because it gives a sense of what issues are of interest to the anti-money laundering and counter-terrorist financing community globally and future trends.

Here are some of our statistics for 2016:

Most popular story –> although written in late 2015, the most visited page in 2016 was our story on HR158 involving the new US Visa Waiver Program Amendment restricting access to the US for foreign nationals or visitors who were in Iran, Iraq, Syria or Sudan. This story, which spawned a similar article we wrote in Quartz, resulted in humanitarian aid agencies and journalists taking up the issue of HR158, although it was too late.

2nd most popular story –> also written in 2015, the 2nd most popular story was comparing how some Chinese foreign nationals who move funds to Vancouver use a well-known money laundering technique called smurfing. That article spawned numerous articles in the international media and brought the term “smurfing” out from use as a money laundering term into general use in the media.

3rd most popular story –> Our next most popular story was on the diamond trade being used for money laundering.

The next most popular were on Mahmoud Reza Khavari, the violent ways debts are collected in Macau; and our primer on beneficial ownership, shelf companies and shell companies.

Most popular search term –> The most popular search terms on the site in 2016 were “sanctions”, “money and crime”, “HSBC PEP”, “What is the role of FINTRAC”, “high risk countries”, “ISIS”, “beneficial ownership”, and “loan sharking Macau.”

Unusual searches –> There were some interesting searches including:

  • “Hiring money mules China”,
  • “Can I visit US if I visited Iran?”,
  • “EB5 money laundering”,
  • “Gazientep ISIS”,
  • “Macau people who lend money”,
  • “Swallowing cash”,
  • “Are Toronto strip clubs money laundering operations”,
  • “Entering Canada with fake ID”,
  • “For sale BC shelf company”,
  • “Girl friend of PEP”, and
  • “Why does the west allow money laundering from China and Russia”.

Most visitors came from –> Canada, then the US, UK, India, Hong Kong, Singapore, China, France and surprisingly, UAE and Russia were close to the top among visitors.

Most visitors from the US came to read about how some Chinese foreign nationals move money to Canada. The most read stories in Canada were about structuring of money from China to Canada.

But people from China this year visited a range of stories from FinTech,  legislation and counter-terrorism.

Most people from UEA visited us to read the story on HR158 as it relates to Iranians. Russians came mostly to our main page, then to learn about politically exposed persons.

Demographics –> Most of our readers were male between the ages of 25-34. The banks with the most visits were Bank of America, Barclays, Bank of Montreal, TD Bank, Royal Bank, followed by most global US banks. In terms of law enforcement agencies, Canadian law enforcement visited our site more than any other country, which is a change from last year.

 

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$2,000,000,000,000 in Proceeds of Corruption Removed from China and Taken to US, Australia, Canada and Netherlands

By Christine Duhaime | January 2nd, 2017

The questions and answers I’ve been asked the most in 2016 about China:

Q: How much money has been removed from China in proceeds of corruption?

A: According to the Bank of China, way over US$120 Billion or CAD$160 Billion between the years 1995-2008. China appears to have quit sharing data officially after 2011 because it said at that time that the outflows of proceeds of corruption was severe enough to threaten its economy and its political stability.

However, a Chinese Commission later said this:

  • The amount more than doubled in 2010 to US$412 Billion (CAD$553 Billion);
  • In 2011, it was at US$600 Billion (CAD$806 Billion);
  • In 2012, it was at US$1 Trillion (CAD$1.3 Trillion); and
  • By 2013, it was at US$1.5 Trillion (CAD$2 Trillion).

China also has something called “grey” income, which means income earned (or acquired off the books – basically handed to someone in the proverbial suitcases) in China that is not reported on income tax reports, and that is held by its richest families. By 2012, the grey income was CAD$1.3 Trillion according to the China Society of Economic Reform. Some of the grey income inevitably ends up in other countries.

Money Laundering

So, over $2,000,000,000,000 is missing from China and because China says it’s proceeds of corruption, it’s a $2,000,000,000,000 money laundering problem.

Bigger than the economies of most countries

If you want a sense of how come China said in 2011 that the illegal removal of $2 Trillion from corruption payments threatens its economy, note that, according to Wikipedia, there are only a few countries in the world that have an economy of $2 Trillion or more and they are: US, Japan, Germany, UK, France, China, Italy, Brazil and Russia.

Another way of looking at it is that the proceeds of corruption that flew out of China and landed in the US, Canada, Australia and the Netherlands is more than the entire economies of each of over 100 countries including the economy of Spain, Mexico, South Korea, Australia, Turkey or Switzerland.

Q: How many Chinese foreign nationals are involved in moving proceeds of corruption out of China?

A: According to the Bank of China, about 16,000 to 18,000 officials with ties to the public sector were involved in moving proceeds of corruption illegally from China to other countries.

Q: What are the 4 top countries where Chinese foreign nationals move proceeds of corruption?

A: According to the Bank of China, US, Canada, Australia and Netherlands. Those four countries accounted for CAD$160 Billion in proceeds of corruption being moved out of China as of 2011, the last date that China was willing to publicly talk about the issue with specificity.

There is no reason to believe that the new figure of $2,000,000,000,000 in capital flight from China has shifted to other than those 4 top destinations in any material way.

Q: In Canada, where does the money end up and why? 

A: Vancouver is the preferred destination, by far, because of perceived more relaxed anti-money laundering on-boarding compliance and more importantly, easier access to better schools and lifestyle for children of Chinese foreign nationals.

Q: How is the money moved? 

A: According to the Bank of China, foreign nationals from China create fake business transactions with private companies that acquire bank accounts and the funds are transferred as ostensible business investments to the US, Canada, Australia, and Netherlands and they also buy real estate.

Q: Is there anything wrong with taking proceeds of corruption from China in Canada? 

A: In law, yes.

Public officials who are paid significant proceeds of corruption are almost 100% of the time, politically exposed persons from China who use private banking services. Our PEP laws require that banks, when on-boarding them, apply enhanced due diligence procedures to:

  • Determine the identity of all nominal and beneficial owners with access to the banking account (hard and expensive to do properly);
  • Subject them to enhanced scrutiny to detect financial transactions that may involve the proceeds of foreign corruption;
  • Determine the source of funds being deposited into the banking account and the purpose and use of such account;
  • Review the activity of the account to guard against money laundering; and
  • Report suspicious activity that may involve proceeds of foreign corruption.

Whether we are dealing with PEPs or not, banks in Canada must close an account where proceeds of corruption from China are parked in the bank account because, firstly, it is an offence to import the proceeds of corruption into Canada from China (and a predicate offfence to money laundering, which makes the proceeds a reportable money laundering offence) and secondly, it is also an offence to transfer, send, deliver, dispose or deal with proceeds of corruption from China with intent to convert it believing it, or part of it, was proceeds of corruption.

It is the Criminal Code of Canada, in conjunction with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, that govern in respect of reporting and closing the bank account.

A: And in ethics, yes.

Exporting proceeds of corruption bankrupts countries and deprives the people who live there of wealth.

The most unfortunate example of how PEP laws are ignored when it comes to proceeds of corruption is Viktor Yanukovych, the former President of the Ukraine, who went from earning $2,000 per month to allegedly earning $200 million per month in five years, and is alleged to have parked over $12 billion in private bank accounts in the EU. That was more money than Bill Gates, the founder of Microsoft, was making and he’s the richest person in the world. Not one financial institution managing Mr. Yanukovych’s private bank accounts thought it was odd that he was earning more than Bill Gates running an impoverished country or took steps to confirm that his incredible newly earned wealth was not proceeds of corruption. They didn’t apply enhanced scrutiny – they applied no scrutiny.

Our thoughts here on why an extradition treaty with China will help Canada return the treasury of China back to its people.

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UK’s sweeping new law targeting bankers, lawyers, advisors, offshore professional directors, nominees with fines; and “public shaming” for enabling offshore tax evasion

By Christine Duhaime | January 1st, 2017

Wide, Wide Net for Enablers

Starting today, parts of the UK’s Finance Bill 2016 came into effect which allows the HMRC to go after so-called “enablers” who help UK tax payers avoid taxes using offshore schemes, services or arrangements, such as bank accounts, investment or broker accounts, trusts, companies, directors / officers or nominees.

The amendments introduce a “name & shame” procedure and civil penalties for anyone, including lawyers, bankers employees, investment firms, accountants, incorporation firms and introducers who help individuals, trusts, funds or companies avoid taxes offshore and for other forms of non-compliance in respect of inheritance, capital gains and income tax.

The name and shaming will be like a “perp walk” only online, so that a bank, law firm, advisor or other enabler will be forever located on an online search and is intended to hurt lawyers, accounting firms and banks where it hurts most – reputation.

Foreigners Beware?

Its important to note that offshore taxation and legal advice, and financial services provided to UK companies, shareholders, funds or individuals by necessary implication, always involves persons, firms, banks, advisors, introducers, enablers and incorporation services firms situated offshore (i.e., not in the UK) and so foreign persons, firms, entities and enablers should not automatically assume that the legislation does not apply to them if they are in other countries such as Canada, Guernsey, Cayman Islands, Dubai, The Cook Islands or the US.

If it did not apply to offshore enablers, the Bill would have little effect, although we have not come across any statement by the Financial Secretary on the issue of extra-territoriality of the Bill.

Am I Caught? 

The Bill captures people who enable others to avoid taxes using offshore mechanisms, including people who design, merely market or facilitate tax avoidance and specifically includes:

  • What the UK government calls the “whole supply chain of advisors and intermediators” who work in the flow from those who “develop offshore tax avoidance arrangements or schemes” to the tax payer who uses such arrangements or schemes to pay less tax than Parliament intended.
  • People who introduce tax payers to offshore tax avoidance schemes.
  • People who facilitate offshore tax avoidance arrangements
  • People who “develop, advise or assist” professionals develop offshore tax avoidance schemes and arrangements.
  • People who earn money from  offshore tax avoidance arrangements.
  • Banks and their necessary employees in the offshore tax avoidance machinery.
  • Trustees and their necessary employees in the offshore tax avoidance machinery.
  • Lawyers and their necessary employees in the offshore tax avoidance machinery.
  • Accountants and their necessary employees in the offshore tax avoidance machinery.

And also includes those who, for offshore tax avoidance:

  • Open bank accounts.
  • Provide legal services and legal documents.
  • Provide notary services and Powers of Attorney (the POA if a significant one).
  • Set up trusts and companies.
  • Act as professional trustees.
  • Act as professional corporate directors.
  • Act as nominees for offshore entities.
  • Help move money or assets, including by taking in placements or investments in other countries.
  • Provide planning services for offshore tax avoidance.
  • Act as a middleman or introducer, regardless of whether they are an advisor or not.
  • Complete currency conversions.
  • Hold funds in escrow or trust.

Considering that an enabler can be liable for merely introducing parties and for services that were careless, as opposed to deliberate, and may include foreign firms, advisors and middlemen, the Bill appears to the most sweeping ever enacted by a country to address tax evasion.

Clearly, the HMRC worked through all of the players who set-up and facilitate offshore trusts, and offshore private companies in order to map out those caught by the legislation.

Careless to Deliberate Conduct

The fines imposed can be quite significant, up to 100% of the amount of taxes avoided. Liability flows for a range of conduct including being careless to actual deliberately enabling tax avoidance.

The rationale behind the amendments is to “raise the stakes” to ensure that enablers, who the UK Government has said historically took the position that they will not be prosecuted, will be required to pay the costs of tax avoidance and be shamed by being named for assisting tax evaders use offshore arrangements.

Interestingly, the conduct is for tax avoidance, as opposed to the more serious tax evasion although it includes tax evasion as well as tax avoidance.

Tax evasion is a predicate offence to a money laundering offence (hence a reportable incident as a suspicious transaction to a FIU) but also, all tax evasion offenses are also money laundering offenses.

In order to be potentially liable, the lawyer, banker, advisor or enabler must have encouraged, assisted or facilitated a person to avoid taxes or be non-complaint in respect of offshore taxes.

An example would be a lawyer acting as a corporate nominee, a protector or a global bank providing offshore director services under numbered companies in order to obfuscate the beneficiaries of a trust if it leads to tax avoidance in the UK.

A Move to Just Lawyers as Advisors for Anything Offshore

Interestingly, we could not find any submissions by law firms or law societies in respect of privilege, or even the extra-territorility of the Bill in the debates in the UK Parliament.

Privilege does not attach to advice that is given in furtherance of criminality or fraud but often advice may be inter-twined as between advice that unwittingly was used for criminality and other parts of advice so the issue is of importance in the administration of justice when it comes to legislation impacting lawyers and law firms.

We suspect that, because only lawyers’ communications are protected by privilege (as opposed to advisors, trustees, protectors, banks, accountants whose advice is not), the Bill will result in a global move towards having anti-money laundering compliance and tax advice where they touch on offshore jurisdictions, be provided by external law firms so that communications (those that are privileged) can be safeguarded.

Not all uses of offshore taxation is tax avoidance or tax evasion but the Bill risks forcing firms that are not law firms, to open up their records to various governments around the world who will likely adopt similar laws.

However, one should recollect the testimony provided to the US Senate on correspondent banking in which banks said: “There is no reason for offshore banking to exist if not for tax evasion or other financial crimes.”

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Does privilege really prevent lawyers from reporting money laundering?

By Christine Duhaime | December 30th, 2016

In Canada and the US, lawyers are not subject to anti-money laundering reporting obligations like they are in most other countries. One of the most frequent reasons given for this by lawyers is that to require us to report certain financial transactions to a financial intelligence unit is inconsistent with, and would undermine, legal privilege.

However, privilege does not cover advice obtained from lawyers for a criminal or fraudulent purpose, or in cases where the advice is sought that has nothing to do with legal advice, such as asking a lawyer for business advice, valuation advice or when using trust accounts as a deposit-taking institution (depositing funds in a trust account for banking purposes to avoid using a bank and yes, this happens). It also does not apply for non-clients, although the lawyer should tell a person attempting to give him or her unsolicited legal details that may be confidential that they do not want to receive the communication and that no privilege attaches as far as the lawyer is concerned.

In anti-money laundering law, the key reporting obligation is the one that arises in cases where there are reasonable ground to suspect that a financial transaction is associated with a money laundering or terrorist financing offence. In respect of the latter, all lawyers must already report terrorist financing now to the federal government, and freeze terrorist funds.

Law of Privilege

Let’s look at privilege. The law of privilege can be straight forward in most cases, especially in Canada.

First of all, the privilege belongs to the client and not to the lawyer or the law firm. Hence, a client can waive privilege expressly or by accident by disclosing otherwise privileged information to a third party (a non-lawyer).

In essence, the law of privilege is that communications received by a lawyer or advice given that is within the ordinary scope of professional employment is protected and its disclosure cannot be compelled in any court of law or equity. The reason for the rule is that privilege is necessary for the administration of justice because clients have to be able to confide in experts in jurisprudence in respect of their rights and obligations.

However, any communication or advice that is criminal or intended to further a criminal purpose injures the interests of justice and the administration of justice and is not protected by privilege. In fact, such a communication or advice is not even within the scope of “professional employment” of a lawyer and cannot be covered by privilege. No lawyer can be, or is, in the business of furthering criminality. If a client obtains advice from a lawyer by fraud or deception (eg., does not tell the lawyer the real reason for the advice) and it later emerges that the advice was for a criminal or fraudulent purpose, the advice is not protected by privilege.

Another way of saying it is that while there is privilege protecting communications between a lawyer and client, it disappears if the relationship is abused. A client who consults a lawyer for advice for the commission of fraud or for criminality “will get no help from the law. He must let the truth be told” (US Supreme Court Justice Cordozo). Our Supreme Court has held that “communication made in order to facilitate the commission of a crime or fraud will not be confidential, regardless of whether or not the lawyer is acting in good faith.” The US Supreme Court has held that advice rendered by lawyers in good faith, if used to accomplish an unlawful purpose leaves the communication unprotected by privilege and in essence, a lawyer’s ignorance of a client’s misconduct does not protect the client from his or her wrongdoing.

In a nutshell, for anti-money laundering reporting purposes (our topic here), if the communication or advice is in respect of criminality or fraud by the client, whether or not the lawyer is aware of it, no privilege attaches to the advice or communication. So, if the lawyer suspects that a financial transaction involves money laundering, that appears to fall within the exception to privilege and ergo, privilege becomes irrelevant since no privilege would attach to advice given in furtherance of a money laundering financial transaction.

Sample Situations where Privilege May or May Not Apply

Here is a handy chart of real life situations in corporate, fraud and money laundering law that have arisen (click on the charts below for a larger view) where you can see when privilege does and does not apply. It’s also a good reference so that you know what types of things can erode privilege, for example, sharing advice with investment bankers, accountants and other people involved in transactions and deals, erodes privilege and is not recommended but it’s simply a quick synopsis of a complex area and is not legal advice. The difference in the chart between cases when privilege does not apply are: where it applied but was waived (by an affidavit describing advice, for example); or where it never applied because the advice was for criminal activities.

Privilege Law Tips

Privilege protects legitimate advice sought and is essential for the administration of justice and clients should take all steps to protect it.

In order to protect privilege, particularly in the corporate setting, clients should ensure there is early involvement of external counsel in sensitive or complex cases. Lawyers should be judicious to document the confidentiality of all communications – that means Memorandums and emails should be labeled “Privileged and Confidential,” but only in those cases where the communications are privileged and confidential.  Communications from the lawyer should be restricted internally and externally to avoid accidental waiver. It should be noted that labeling communications that are not protected, such as those in furtherance of criminality, will not make them privileged.

Canadian and foreign clients (banks especially) should be careful about dealing with external lawyers in other countries where privilege is not as strong as in Canada when they contemplate sharing advice or files. That is because the external sharing in other jurisdictions with more relaxed privilege laws will weaken the privileged nature of documents. In Switzerland, for example, privilege of legal communications does not apply to in-house counsel at banks, NGOs and other institutions.

Only Lawyer’s Advice is Protected

Banks often believe that accounting or advisory firms that provide anti-money laundering advice or compliance reviews are protected by privilege but that is one example where there is no privilege attached to the advice because legal privilege can never attach to advice from non-lawyers, no matter how qualified such advisors may be to give compliance advice.

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The definitive guide to anti-money laundering compliance at casinos and regulated online gambling sites for casinos, investors, regulators, banks and players

By Christine Duhaime | December 29th, 2016

Duhaime Law and the Gaming Security Professionals of Canada jointly published a Q&A on money laundering for casinos and online regulated poker websites, written by Christine Duhaime, BA, JD, CAMS.

The Q&A is reproduced below.

1. Executive Summary

Money laundering is a process in which so-called ‘dirty money’ from the proceeds of crime is transformed into ‘clean money’ or legitimate money or other assets, such as cars, art, homes or investments. Money laundering typically occurs in three stages: placement, layering and integration. In Canada, money laundering is a criminal offence that covers all three stages of money laundering activity.

The structure of gambling in Canada differs in important ways from many other jurisdictions, including the United States. In Canada, gambling is legal only when it is supervised and managed by a provincial or the federal government. Commercial casinos may only be operated under the management of a provincial government. Gambling activities that are authorized in Canada are regulated, including provincially operated gambling websites.

Casinos, similar to banks and other areas of the Canadian economy traditionally viewed as vulnerable to money launderers, are closely regulated with respect to money laundering and terrorist financing risks. Casinos operate within a highly regulated legal environment and are subject to the supervision of provincial government regulators as well as the oversight of the federal anti-money laundering regulator. Provincial lottery corporations, which are agents of the government created to manage gambling, establish and implement operating standards, policies and procedures to ensure the compliance by casinos with applicable laws, and in particular anti-money laundering requirements.

To date there are no known cases in Canada where a person has been arrested, charged or convicted of a money laundering offence that directly involves a casino.

Government and businesses have responded in various positive ways to money laundering concerns to preserve the integrity of the gambling industry and Canada’s financial system. This response has included: membership on the part of Canada in the Financial Action Task Force (“FATF“), an international inter- governmental body focused on money laundering; enacting federal proceeds of crime legislation; strengthening the Criminal Code of Canada (“Criminal Code”); establishing the Financial Transaction and Reports Analysis Centre of Canada (“FINTRAC”), the independent federal financial intelligence unit that oversees compliance with proceeds of crime legislation; and, imposing various reporting and other obligations on reporting entities, which include casinos. Under this anti-money laundering regime, casinos report on large cash transactions, suspicious transactions, casino disbursements, and electronic fund transfers. Casinos also conduct extensive customer identification; undertake ongoing audits and training programs; and, monitor for and put in place controls to detect and mitigate against common money laundering methods.

The anti-money laundering regime protects casinos and Canadians, as well as our financial system, from money laundering and other financial crime risks.

2. What is money laundering?

Criminals launder money to hide its illicit origins by bringing that money into the legitimate economy. Money laundering has traditionally been viewed as a three-stage process.

In the first, or placement stage, proceeds of crime are introduced into the Canadian financial system. Placement usually occurs by breaking up large amounts of cash into smaller sums that are then deposited into various accounts at financial institutions or used to purchase a series of monetary instruments such as travelers’ cheques or money orders. In the case of a casino, placement could be attempted through the purchase and cashing in of chips without play in an attempt to disguise proceeds of crime as gambling winnings, however as will be discussed below this practice is not permitted in Canadian casinos.

In the second, or layering stage, money is converted (or moved) through a web of transactions to disguise it from its source and ownership. Money may be channeled through the purchase and sale of investments, or wired through a series of accounts at various banks across the globe.

In the third, or integration stage, the money is re-integrated into the Canadian economy as apparently legitimate funds and may be used to purchase real estate or luxury assets or to invest in business ventures.

In Canada, money laundering is a criminal offence and it includes using, transferring, delivering, transmitting, altering, dealing with or disposing of property, or proceeds of property, with the intent to convert or conceal the proceeds, knowing or believing that the proceeds were derived from the commission of an indictable offence. Some of the key indictable offences include insider trading, terrorist financing, drug trafficking, bribery and prostitution. When money from that type of criminal activity is earned or generated, that money is proceeds of crime.

3. What type of gambling is legal in Canada?

In Canada, gambling is legal only when it is supervised and managed by either the provincial or federal government. Gambling activities that are authorized in Canada are regulated. Gambling activities that are not conducted or licensed by the provincial or federal government, or contravene the Criminal Code, are not permitted in Canada.

There are generally four types of regulated gambling in Canada: (a) land-based gambling, such as takes place at casinos, bingo halls, fairs or charity events; (b) lotteries, such as Lotto 6/49; (c) online gambling through websites operated by the provincial lottery corporations; and, (d) betting on horse races at federally- regulated horse-racing tracks or online through the approved horse-racing system.

4. Is all online gambling available in Canada regulated by the provincial governments?

Websites that are operated by provincial governments are regulated and authorized to provide services to Canadians. Offshore online gambling websites that are not authorized by provincial governments to operate in Canada are operating in contravention of the Criminal Code. Unregulated online gambling websites have not been made subject to Canada’s anti-money laundering legislation that protects consumers and the integrity of gambling. As a result, Canadian money laundering controls apply only to on-line gambling websites operated by a province.

5. How do regulated gambling venues take bets in Canada?

How registered gambling venues take in bets depends upon the type of gambling that takes place and where. At casinos, a person can play the slot machines or table games. In order to play the slot machines, a person buys “tokens” usually by inserting cash directly into a machine and places bets on the slot machine using these tokens. In order to play table games, a person buys casino chips and places bets using the casino chips.

In Canada, some lottery corporations operate online regulated gambling websites. A person can gamble online by playing a variety of games, such as lottery, keno, casino games, sports betting and bingo. In order to play online at a regulated gambling site, typically a person must register for an account online, and once the account information, including confirmation of the identity and location of the individual, has been verified the player can deposit funds to his or her account. Money deposited into a player’s account can then be used to buy virtual tokens to place bets on casino games, bingo or purchase lottery tickets.

6. How do regulated gambling venues pay out winnings to players who win?

How winnings are paid to players depends upon the type of games played. If a person played the slot machines at a casino and won, the casino pays winnings in cash or with a casino cheque. A slot machine payout is paid by the casino as cash, or the casino issues a cheque to the player. If a person played table games at a casino and won, he or she can redeem the casino chips for cash or a casino cheque for the amount equal to the verified winnings.

Typically on provincially regulated online gambling sites, a player who plays casino-style games and wins earns virtual tokens, equivalent to dollars which are deposited into the player’s online account or wallet. Winnings are then paid by the lottery corporation via direct deposit into the player’s nominated bank account if the amount is below $100,000. Generally, if the amount is $100,000 or more, the lottery corporation operating the site will deliver a cheque in person to the winner.

7. What are the money laundering risks at casinos?

Casinos, similar to banks and other areas of the Canadian economy which may be vulnerable to money laundering, are closely regulated with respect to money laundering and terrorist financing risks. There are no known cases in Canada where a person has been arrested, charged or convicted with a money laundering offence that directly involves a casino. Casinos operate within a highly regulated legal environment and are subject to the supervision of provincial government regulators as well as to the audit powers of FINTRAC, the independent federal government agency that is Canada’s financial intelligence unit (“FIU”).

Casinos in Canada follow “know your customer” (“KYC”) rules and have stringent anti-money laundering controls in place to detect and report suspicious transactions. In addition, casino staffs are trained to recognize indicators of potential money laundering that may be tied to a serious criminal offence. In those circumstances, lottery corporations report to FINTRAC when there are reasonable grounds to suspect that a gambling transaction or attempted transaction is related to the commission of a money laundering offence.

8. What are the money laundering risks on provincial online gambling websites?

It would be exceedingly difficult to launder proceeds of crime on Canadian regulated online gambling sites. Online websites have extensive controls in place to prevent this from occurring both during the player on- boarding process (account opening) and when games are played online. For example, the amount of money a player can deposit to play online is capped and all transactions are monitored and recorded using cutting- edge technology. Only residents of a province offering regulated online gambling and whose identity and residency have been verified by a lottery corporation may gamble at online websites operated by that lottery corporation. This removes any possibility of anonymity, which is a significant deterrent for any person attempting to launder proceeds of crime online.

Provincial lottery corporations also have controls in place on their online gambling websites that restrict the source and amount of funds deposited into each player’s account. In most instances, player funds deposited at online websites are deposited directly from Canadian financial institutions. Under Canadian anti-money laundering laws, those financial institutions have a parallel obligation to undertake their own due diligence with respect to anti-money laundering compliance, and in that way, players’ funds used for online gambling with lottery corporations have an additional layer of financial crime oversight.

9. What role do lottery corporations and Canadian gambling jurisdictions play in anti-money laundering?

In Canada, provincial lottery corporations are responsible for implementing an anti-money laundering law compliance program that meets federal standards. These programs include detailed operating standards, policies and procedures that help to ensure compliance by casinos with anti-money laundering law obligations. Casino staff report player and transactional information to lottery corporations, who then analyze and consolidate the information, and file reports with FINTRAC. Lottery corporations conduct operational audits of gambling venues under their jurisdiction and may notify law enforcement when there are reasonable grounds to suspect that a gambling transaction or attempted transaction is related to the commission of a money laundering offence.

10. What role does FINTRAC play in the anti-money laundering legal regime with casinos?

When lottery corporations and casinos have reasonable grounds to suspect that a transaction is related to a money laundering offence, they have an obligation to report the financial transaction to FINTRAC. FINTRAC collects, analyzes and assesses all of the reports submitted to it to assist in the detection, prevention and deterrence of money laundering across Canada.

Lottery corporations are not authorized by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (“PCMLTFA”) to intervene or prevent money laundering from occurring at casinos or online. Lottery corporations are prohibited from informing a person that they may be the subject of a suspicious transaction report.

When FINTRAC collects and analyzes information provided to it by lottery corporations through reports, it must disclose this information to law enforcement agencies in Canada where it has reasonable grounds to suspect that the information would be relevant to the investigation or prosecution of a money laundering offence. However, FINTRAC is prohibited from sharing the results of its analyses with lottery corporations or other reporting entities, and therefore FINTRAC cannot inform lottery corporations if it has evidence of money laundering occurring at casinos. The flow of information with respect to suspicious transactions tied to money laundering offences is unidirectional in the sense that the information flows from lottery corporations to FINTRAC on suspicious activities, but not from FINTRAC to lottery corporations.

11. How has government and business responded to money laundering concerns?

Government and business have responded in various positive ways to money laundering concerns to preserve the integrity of the gambling industry and Canada’s financial system.

12. Government Response – The FATF

The Financial Action Task Force, an inter-governmental policy-making body, was established in 1989 by the G-7 to establish anti-money laundering and counter-terrorist financing policy. The FATF studies money laundering in various sectors and prepares recommendations on anti-money laundering law for member countries that are issued on a regular basis. The FATF also undertakes assessments of the strengths and weaknesses of a country’s anti-money laundering controls and makes suggestions for improvement.

The FATF recommendations require that countries, such as Canada, adopt laws that require that financial transactions be monitored for criminal activity and that certain reports be submitted to government agencies, for example in cases of large cash transactions. The recommendations also require that, for certain transactions, customer identity be verified to reduce financial crime. The FATF recommendations also require that member countries criminalize money laundering.

Proceeds of Crime Legislation

The FATF’s recommendations are incorporated into Canada’s anti-money laundering legislation, the PCMLTFA and the Criminal Code. The objective of the PCMLTFA is to combat the laundering of proceeds of crime and counter-terrorist financing activities by requiring that reporting entities, such as casinos, follow client identification rules and report certain transactions to FINTRAC in a timely manner. It also requires that reporting entities keep detailed records of financial transactions and player activity. The PCMLTFA applies to many sectors in addition to casinos, such as banks, credit unions, insurance companies, accountants, real estate and securities brokers.

Establishment of FINTRAC

In 2000, Canada created FINTRAC, the FIU. It operates as an independent federal government agency that reports to the Minister of Public Safety and Emergency Preparedness and the Minister of Finance.

FINTRAC’s objectives are to:

  • collect, analyze, assess and disclose information to assist in the detection, prevention and deterrence of money laundering;
  • ensure that personal information under its control is protected from unauthorized disclosure;
  • enhance public awareness and understanding of money laundering; and,
  • ensure compliance with the record keeping, verifying identity, reporting and registration requirements of the PCMLTFA.

FINTRAC discloses information to law enforcement from reports it receives from reporting entities like banks and casinos if it has reasonable grounds to suspect that the information would be relevant to the investigation or prosecution of a money laundering offence.

FINTRAC is not an investigative body and it does not have powers to gather evidence, lay charges, seize and freeze assets or create watch lists of suspected money launderers. It also does not investigate or prosecute suspected offences. It does, however, conduct reviews and audits of reporting entities to ensure they are meeting their anti-money laundering law obligations and may assess penalties for violations of the PCMLTFA.

13. Reporting Entities’ Response to Money Laundering Concerns, including the Gambling Sector

Businesses that are reporting entities have responded to money laundering concerns by implementing comprehensive anti-money laundering compliance programs. Reporting entities include financial institutions, credit unions, insurance brokers, realtors, securities dealers and casinos. Compliance programs at reporting entities, including casinos, enable those sectors to identify the risks of proceeds of crime being laundered through financial transactions and to mitigate those risks. Among other things, compliance programs include procedures that set out the requirements for reporting entities to report to FINTRAC in a timely manner where they have reasonable grounds to suspect that a gambling transaction or attempted transaction is related to the commission of a money laundering offence.

The obligations of regulated gambling entities under the PCMLTFA are as follows.

Reporting Large Cash Transactions

Reporting entities, including casinos, must report large cash transactions to FINTRAC. A large cash transaction occurs when a casino receives cash of $10,000 or more in a single transaction from a client for gambling purposes, or when it receives 2 or more large cash transactions of less than $10,000 each that are made within 24 consecutive hours, that together, total $10,000 or more. Lottery corporations must report all
such large cash transactions, including those under the ’24-hour rule’, if the lottery corporation knows that the transactions were conducted by or on behalf of the same person or entity. A large cash transaction is not necessarily evidence of money laundering however; large cash transactions may be an indicator of money laundering in some circumstances.

The number of large cash transaction reports submitted to FINTRAC from reporting entities across Canada has been steadily increasing. Table 1A, below, shows the number of large cash transaction reports submitted to FINTRAC per sector in Canada during the period from 2010-2013, inclusively.

Table 1A: Large Cash Transaction Reports in Canada

REGULATED SECTOR

2010-2011

2011-2012

2012-2013

Total

Financial Institutions (All)BanksCredit UnionsCaisse Populaire

7,056,564

6,384,073

234,337

435,154

7,935,527

7,243,585

241,168

450,774

8,391,790

7,725,450

235,605

430,735

23,383,881

21,353,108

711,110

1,316,663

Money Services Businesses

30,416

31,735

32,616

94,767

Real Estate

22

25

18

65

Casinos

52,717

53,762

56,707

163,186

Securities Dealers

0

5

3

8

Dealers in Precious Metals and Stones

391

701

682

1774

Life Insurance

1

4

8

13

Total of all sectors

23,643,694

FINTRAC must disclose to law enforcement the information it receives from large cash transaction reports in circumstances where it has reasonable grounds to suspect that the information would be relevant to the investigation or prosecution of a money laundering offence. Table 2A shows how many large cash transaction reports were referred to law enforcement from FINTRAC in Canada during the period from 2010-2013, inclusively.

Table 2A: FINTRAC Disclosures to Law Enforcement in Canada

2010-2011

2011-2012

2012-2013

Total FINTRAC disclosures sent to law enforcement and federal agencies

1,635

2,005

2,204

FINTRAC disclosures that involved at least one report from a casino relevant to the disclosure

305

352

331

Reporting Suspicious Transactions

Reporting entities, including casinos, report suspicious transactions and attempted suspicious transactions to FINTRAC when they have reasonable grounds to suspect that a financial transaction is related to a money laundering offence or terrorist financing offence. Reasonable grounds to suspect means that a casino employee has credible evidence to support his or her belief that the transaction is tied to a serious criminal offence, known as an indictable offence, such as drug trafficking. Being able to identify a suspicious transaction in a casino requires that casinos have knowledge of their clients.

Casinos have anti-money laundering controls in place across Canada, and these controls serve to effectively identify suspicious financial transactions and reduce the risks of casinos being used as a venue for laundering proceeds of crime. The anti-money laundering regime and oversight of lottery corporations and regulated gambling activities in Canada make casinos an unattractive place for laundering proceeds of crime for criminals. A suspicious transaction report is not evidence of money laundering activity, rather it serves as evidence of potential suspicious financial activity that may be tied to an indictable offence. Whether a suspicious financial transaction can be tied to money laundering is a determination made by law enforcement and prosecutors in the judicial process.

Reporting Terrorist Financing Transactions

Reporting entities, including lottery corporations in Canada, cannot accept property, including money, from any source if they believe that it is related to terrorist activity. Lottery corporations must file terrorist property reports with FINTRAC, the Canadian Security Intelligence Service and the RCMP when the lottery corporation has property in its possession or control that it knows is owned or controlled by or on behalf of a terrorist or terrorist group, as well as any information it has about a transaction or proposed transaction in respect of such property. Lottery corporations have parallel obligations under other federal statutes in respect of terrorist financing activity.

Reporting Casino Disbursements

Lottery corporations across Canada file casino disbursement reports to FINTRAC each time they make a disbursement of $10,000 or more in a single transaction or through multiple transactions to the same person in any consecutive 24-hour period, including gambling winnings. For example, lottery corporations file these reports when a player redeems slot machine tickets or chips for $10,000 or more, or when the casino issues a cheque to a winner for $10,000 or more.

Reporting Electronic Funds Transfer

Reporting entities, including casinos, file reports with FINTRAC when they receive or send international electronic funds transfers of $10,000 or more for a player.

Know Your Customer Obligations

Reporting entities, including casinos, must implement and follow KYC rules. These are identification procedures in place at casinos in Canada that ensure that the gambling sector is not abused for financial crimes, such as money laundering. To ascertain player identity, casinos verify picture identification documents such as driver’s licenses or passports. Casinos keep records of financial transactions and of player identity in order to comply with the PCMLTFA and to preserve the integrity of gambling by knowing who their customers are.

KYC rules operate to protect players, as well as the casinos and the public from financial crimes, and encourage a more effective gambling experience. Under KYC rules, players buying in at a casino for $10,000 or more, or gambling online at lottery corporation websites, must be verified by lottery corporations.

Casinos also follow KYC rules in other instances, such as when a player opens an account, signs a signature card, converts foreign currency in the amount of $3000 or more, completes large chip redemptions over $10,000, requests an electronic transfer of $1000 or more, has a large slot machine payout, or requests a payout cheque.

Audits & Training

Casinos conduct routine audits of their policies, procedures, risk assessments and training programs to ensure they are current with the latest money laundering trends and risk factors and by law, must have an independent audit of their anti-money laundering regime completed at least once in each 24 month period. Casinos also have comprehensive training programs for their employees and executives on anti-money laundering procedures. As the first line in the defence against money laundering, casino employees play a critical role in preventing financial crime from occurring at casinos.

14. Preventing Common Methods of Money Laundering

There are a number of common methods money launderers around the world use to attempt to launder money. A few of the more common methods are set out below.

Refining – this money laundering method involves the attempted exchange of small bills for larger ones and may be carried out by several individuals who attempt to convert the bills at a number of different casinos in order not to raise suspicion. The aim of refining is to decrease the bulk of large quantities of cash. Attempting to feed large sums of cash in an amount below the reporting threshold into slot machines and cashing out for casino cheques would be a type of refining.

Casinos in Canada have procedures in place to prevent refining from occurring. For example, slot machines are programmed to limit the amount a person can buy-in at any one time, and this therefore prevents refining activities. When playing card games, casinos prevent refining from occurring by requiring that customers buy casino chips. Both of these methods of refining are closely monitored by trained casino employees and reported to FINTRAC when there are reasonable grounds to suspect that the transaction or attempted transaction is related to the commission of a money laundering offence.

Chip purchases – this method occurs when a person attempts to buy casino chips and cash them out for a casino cheque after minimal play. Criminals may travel to another province to attempt this method and they may divide this activity into two separate tasks – one group will attempt to buy casino chips while another later attempts to redeem them for casino cheques.

Casinos have procedures in place to prevent this technique from occurring in Canada. Moreover, where there is minimal play, casino policy may result in a refusal to issue a cheque or even a ban on future play for the individual involved if money laundering is suspected. Where a cheque is issued casinos will clearly state on the face of the cheque whether the amount is from casino winnings or merely the return of a player’s funds used to buy-in. Lottery corporations report to FINTRAC when there are reasonable grounds to suspect that the chip purchase transaction or attempted transaction involves minimal play and is related to the commission of a money laundering offence.

Currency exchanges – under this money laundering method, a person may attempt to exchange foreign currency at casinos often in groups, by dividing the foreign currency into smaller amounts to be exchanged for Canadian currency at casinos, using multiple casino locations to avoid suspicion.

Across Canada, the use of casinos as a vehicle to exchange currency rarely occurs. In fact, casinos do not allow customers to exchange currency without playing games at the casino.

Electronic funds transfer – under this money laundering method, a person may send electronic wire transfers from one city or country to another to avoid the need of physically transporting currency, which allows them to arrange a multitude of cross-border transactions per day, making it difficult to trace the funds back to their source.

In Canada, this money laundering technique is addressed by casinos having severe restrictions on outbound electronic fund transfers (usually only to an account in Canada in the name of the player) and usually only allow inbound electronic fund transfers from an account held in the name of a player whose identity has been rigorously ascertained and verified by a lottery corporation under anti-money laundering procedures.

Structuring or smurfing – Under this money laundering method, a person will work with many others to wash proceeds of crime at multiple locations in amounts under the $10,000 reporting threshold to avoid detection. Often smurfing occurs through ATM machines.

Casino employees across Canada are trained to monitor for and report instances of smurfing, including structuring or smurfing behaviour. Any suspected structuring of transactions will be reported to FINTRAC including the identity of the individual involved.

15. Conclusion

In order to prevent casinos, land based or online, from being targeted by criminals for laundering proceeds of crime, Canadian gambling jurisdictions have implemented robust countermeasures, including policies, procedures and training that allow for the detection and reporting of such transactions, which in turn deters criminals from using casinos for money laundering.

Land based casinos have security and surveillance personnel on the premises who monitor players around the clock to detect attempts at money laundering. Virtually every transaction at a casino in Canada is video recorded, making casinos one of the highest risk locations to potential money launderers.

Canada’s strict enforcement of anti-money laundering law, the requirements of which are described above, and the presence of security and surveillance personnel at casinos, and the inability of criminals to complete large financial transactions anonymously with cash, chips or by converting currency or electronic funds transfers, makes Canadian casinos unattractive to would-be money launderers.

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Backpage.com CEO & shareholders criminally charged with money laundering

By Christine Duhaime | December 23rd, 2016

CEO & Shareholders Charged

The Attorney General of California announced today that her office has filed new criminal charges against the CEO of Backpage.com and two of its controlling shareholders, charging them with 26 counts of money laundering and 13 counts of pimping children out for prostitution in connection with the website Backpage.com.

According to the Attorney General, certain financial institutions refused to provide financial services to Backpage.com because of the connection to the activities sold on Backpage.com.

US$46 million was received by Backpage.com for California transactions alone that were for escort -prostitution related ads in a 3 year period.

Alleged Fake Companies

The defendants allegedly created multiple corporate entities to get bank accounts and launder money from Backpage.com transactions when they were refused payment processing services. In several of the pimping charges, the persons involved were minors under the age of 16. The compliant alleges that Backpage.com had prostitution-related revenues and created an “online brothel”, and derived support from child prostitution (in Canada, what we call living off the avails of prostitution).

According to the criminal complaint, American Express allegedly provided services to Backpage.com until May 2015 when it decided to cancel its merchant number. Backpage.com allegedly created a website called Postfastr.com and Truckrjobs, applied for an Amex merchant code and a Stripe merchant code under those names, and instructed its users to use their American Express cards at those sites to buy credits which would be accepted by Backpage.com.

According to the criminal complaint, the CFO of Backpage.com was made the President of the new entities created to obtain financial services to process ads sales for escort-type transactions of Backpage.com (the Amex anti-money laundering due diligence for beneficial ownership seems to have missed that it was the same officer).

Canada? 

Backpage.com operates in several cities in Canada but it is not known whether Canadian financial institutions have declined to provide merchant services to its large Toronto and Vancouver sites these types of services or whether they are concerned with respect to the money laundering implications arising from the allegations in the criminal complaint.

Bitcoin for Credits

People can buy credits to use Backpage.com with bank debit cards that are converted to Bitcoin (see here and here) through services that act as a payment processor (intermediary) so that ads can be purchased indirectly without alerting the credit card companies (or law enforcement presumably) as to the purchases or the person behind transactions (the person selling prostitution services who would lose their bank account if a bank learned they were depositing the proceeds of crime in their account).

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US indicts foreign national for laundering money from Iran through Canada, US, Korea and parking it in expensive real estate

By Christine Duhaime | December 18th, 2016

The US federal government has filed an indictment against a foreign national, Kenneth Zong, who resided in the US for allegedly laundering over $1 billion from Iran through Canada, the US and a number of other countries in violation of international sanctions law that prohibit providing financial services to Iranian foreign nationals in Iran and to Iranian banks. According to the federal indictment, the laundered funds were parked in real estate in Alaska and used to buy luxury vehicles, including a Porsche and a Bentley.

Mr. Zong is alleged to have concocted a scheme of moving money from Dubai (Iranians move money from Iran to Dubai without impediment), and from there to Korea and then to several countries, including the US and Canada on behalf of Iranians.

In order to make the scheme seem legitimate, Mr. Zong allegedly engaged in trade based money laundering, creating fake invoices for the purchase of marble from the Middle East under an Iranian controlled shell companies incorporated in Dubai called KSI Ejder Anchore and MSL & Co. Investment Trading Dubia, and then through another shell company in Kish Island, Iran, to justify why funds were being received and laundered from Iran in other countries through his bank accounts.

Mr. Zong is alleged to have set up other shell companies to move money including Dynamic First, AutoPex, Gem Art Corporation and Topex Corporation.

Mr. Zong allegedly was paid $17 million for laundering $1 billion over the course of several years. According to a civil complaint, Mr. Zong’s son met an Iranian foreign national at university who was the person who convinced the Zong family to engage in laundering funds from Iran.

Mr. Zong was indicted on 47 counts for a number of offenses including money laundering and is facing extradition from South Korea to Alaska.

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