Q & A on Extreme Vetting

By Christine Duhaime | February 12th, 2017

The Executive Orders issued by the US Government for immigration and subsequent statements by the administration indicate that the Department of Homeland Security is starting a process of “extreme vetting” of prospective immigrants, refugee claimants and non-immigrant visa applicants. From a terrorism perspective, here is a Q&A about “extreme vetting.”

What is “extreme vetting”?

Extreme vetting is not in place yet. In the weeks to come, what extreme vetting will involve is that when a person from those 7 countries, and any other situation that may be determined to be high risk, attends a US Embassy for an interview to visit or immigrate to the US, according to what we know so far, they will be required to provide:

  • A list of the websites they have visited;
  • A list of social media they are members of with their passwords for access;
  • A review of those people who the applicant follows, and who follows the applicant on all social media platforms, together with checking of those followers and followed persons against global security databases for risks and such;
  • The contact list on their cellular phone which will be vetted as against those lists maintained in the global security database;
  • The telephone numbers the applicant has called or received calls from, again which will be vetted as against global security databases; and
  • The same type of vetting for emails, as for telephone numbers.

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US President signs Financial Crime Executive Order to, among other things, bring foreigners to “Face Justice in the US”

By Christine Duhaime | February 11th, 2017

Come Face US Justice

On Thursday, the US President signed an executive order to protect the US from transnational criminal organizations and, inter alia, to tackle financial crimes.

The executive order is entitled “Enforcing Federal Law with Respect to Transnational Criminal Organizations and Preventing International Trafficking.” Its purpose is to dismantle international organized crime.

Thwarting Organized Crime for Certain Offences

Pursuant to the order, the new US government policy is to strengthen enforcement of the law to stop international criminal organizations and groups that undertake the following types of illegal activities:

  • financial crimes – the Order does not identify them but typically these include tax evasion, insider trading, terrorist financing, financial fraud, sanctions avoidance and illegal gambling;
  • concealing or transferring proceeds of crime (the money laundering offence);
  • IP theft;
  • corruption;
  • cybercrime; or
  • illegal smuggling of foreign nationals, wildlife, weapons or drugs.

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World Check being sued over database of personal information

By Christine Duhaime | February 4th, 2017

A number of persons and organizations are allegedly preparing to sue Thomson Reuters, the organization that runs World Check for wrongly listing them in a database as a financial crime risk. World Check created (apparently without informed consent at least under Canadian law), an online global database that purports to provide anti-money laundering, sanctions and counter-terrorist financing mitigation advice by selling, for a fee, the personal and other information of people.

According to news reports, World Check listed a nine-month-old baby as a politically exposed person even though the baby did not have a bank account, was not opening one anytime soon and lacked the legal capacity to access financial services in any event.

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The smuggling of rhinoceros horns to China

By Christine Duhaime | January 22nd, 2017

The prosecution of wildlife smuggling is rare and especially if it involves a Canadian. But last year, Xiao Ju Gian, was sentenced in New York for 30 months incarceration for smuggling rhinoceros horns, elephant ivory and coral from the US into Vancouver, from which he abused the Canadian financial system.

Xiao Guan lived in Richmond, British Columbia and operated an antiques store called Bao Antique Ltd., from which he imported and sold smuggled goods. He also claimed to have an import business in Hong Kong. Over a one year period, he bought and smuggled illegally acquired wildlife with a value of over $500,000 in Ohio and Florida and sold the goods in China, after transporting them illegally, first to Vancouver. In one case, he bought one rhinoceros horn from the US for $30,000 and sold it to a Chinese foreign national who flew from China to Vancouver to buy it for $42,000. The Chinese foreign national then smuggled the rhinoceros horn out of Canada.

Guan was part of a sting operation in New York that involved the sale of rhinoceros horns to him by an undercover agent for $45,000 in 2014. As part of the undercover deal, Mr. Guan, who also lived in China, instructed his wife, Tie Jun Jian, in Richmond, British Columbia, to wire a $1,000 to the undercover agent in New York for a deposit. For SWIFT purposes, the wire transfer was noted as: “for a watch” in order to avoid scrutiny by the bank and law enforcement.

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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.

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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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Canadian owner of Dream Casino in Dominican Republic ordered released from prison

By Christine Duhaime | January 7th, 2017

According to news reports in the Dominican Republic, Antonio Carbone, who was incarcerated in the Dominican Republic for almost two years after being charged with attempted murder, was ordered released from jail. His lawyer said he is in fear of his life.

Carbone is a beneficial shareholder of Dream Corporation which legally owns a series of casinos and gambling enterprises in the Dominican Republic and Jamaica. Although a beneficial shareholder, his shares are held by another person, probably because of Carbone’s previous criminal record which would have been an impediment to operating casinos (more here). Together with his brother, the Carbones are the majority shareholders of the Dream Corporation.

Carbone received worldwide attention when Canadian billionaire Michael DeGroot sued a number persons connected to Dream Corporation, including the Carbones, Edward Kremblewski and Andrew Pajak, to recover over US$111 million he lent to the Dream Group to invest in casinos in the Dominican Republic.

An Ontario Supreme Court Justice found there was a prima facie case of fraud against the defendants, and a Court-appointed receiver found numerous instances of the missing funds, numerous failures to report to Mr. DeGroot and that over $21 million of DeGroot’s money had simply disappeared into thin air.

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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.

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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.

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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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