First of its kind PEP lawsuit? Lebanese lawyer sues Minister of Foreign Affairs for money laundering and taking state assets

By Christine Duhaime | November 9th, 2019

A Lebanese lawyer, Maitre Marwan Salam, has sued the Lebanese Minister of Foreign Affairs, Gébran Bassil, for corruption, money laundering and enrichment from state assets.

Massive protests have been taking place in Lebanon for several weeks over political corruption. Last month, the New York Times reported that the Lebanese prime minister, Saad Hariri, had sent a South African bikini model a wire transfer of $16 million and bought her two luxury cars. She earned $5,400 per year modelling. They met at a resort in the Seychelles where she was paid to attend and entertain rich men for a weekend.

Bassil and Hariri are government officials, and politically exposed persons in anti-money laundering law, meaning that they are at high risk for money laundering. They are at high risk because statistically it is PEPs who tend to use their positions of power to move state assets, including the proceeds of corruption, to another country, usually a safe haven island whose sole business is the protection of the identity of beneficial owners of trusts and corporations so that they can get bank accounts to move money without transparency.

The lawsuit seems to be the first PEP lawsuit of its kind.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Canadian jailbird was able to traffic in fentanyl internationally using Bitcoin, US authorities say, and launder money from jail

By Christine Duhaime | November 9th, 2019

A Canadian incarcerated near Montreal, Jason Berry, is facing extradition to the US over charges that, from jail, he trafficked fentanyl all over the world.

According to the extradition request, the fentanyl sold by Berry caused the death of several Americans, as well as Canadians from overdoses.

Berry is serving a 12 year sentence for previous drug trafficking offences. According to the charges, he used a cellular phone that was smuggled into prison to run the operation, access the darknet, place orders in China, move around his Bitcoin from exchanges, receive Bitcoin from drug buyers and send it to sellers in China.

Berry is alleged to have had accomplices who took care of the shipments from China and out to drug buyers. You can read more at the Journal de Montreal here.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Money laundering things on Instagram … a small warehouse of hundreds of millions of dollars in cash perhaps connected to Canada

By Christine Duhaime | November 9th, 2019

In the last five years, social media has emerged as one of the most important sources for financial crime investigations, particularly for red flags for money laundering, such as identifying patterns of wealth that are inconsistent with income, and in making connections between members of organized crime.

On one Instagram account, we located a person who posted a video of a small warehouse full of cash in Dubai – so much that it would be equal to hundreds of millions of dollars. When we asked if it was money laundering, the user replied on Instagram to us: “Yes…

Us: “Money laundering?”

Instagram user: “Yes…”

A few hundred million in laundered cash.

And later, he posted another video filling up a bathtub with cash.

Cleaning cash in a bathtub.

And in case you’re wondering, the Instagram account holder is from Azerbaijan but lives in Istanbul and Dubai and seems to be a diamond wholesaler.

And in case you are also wondering, yes, he has a base in Canada.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Cars, jets, casinos, mansions: 4 red flags for money laundering

By Christine Duhaime | November 5th, 2019
Private jet trip advertised for whopping US$80k one way!

Lots is often written about red flags within a sector to spot money laundering but not much is written about cross-sectoral red flags that can help investigators identify potential money laundering, where the combination of factors in different sectors may increase the probability of the incidence of money laundering. These red flags are about image – they speak to typologies consistent with a need for the overt demonstration of wealth. The following are four quick red flags that together, may indicate money laundering:

  1. A person enters a Vancouver casino with wads of cash and gambles with it, not concerned about losses and often with one or two colleagues who equally have wads of cash, especially coupled with evidence that the person has no employment income going through their bank account, or they may have consistent employment income but the amounts they are gambling at a casino exceed their reported employment income.
  2. A person appears on private jet manifests for international travel, usually with others, and like the casino activity, that person has no reported employment income consistent with the ability to pay for private jet trips internationally. We once worked on an investigation for a file and obtained flight manifests for a specific purpose but it helped provide evidence for a different purpose altogether which we wouldn’t have had otherwise, so don’t discount the value of researching whether a person hired private jets to travel and more importantly, who flew with them.
  3. A person rents or leases expensive fast cars, often paying for the car rentals in cash and as above, there is no reported income to support the ability to fund expensive luxury vehicles.
  4. A person moves into a multi-bedroom mansion and there is no reported income to support the expense.

As you build your case as an investigator, depending upon the type of investigation, obtaining PZT footage of the person gambling with records of how much they and the people they were with brought into the casino is a first step.

Depending upon your agency, private jet manifests are also straight forward and fast to obtain. The manifests are important because they tell you who the person does business with closely, which may lead to being able to trace money between those parties. Private jet agencies make their prices available for the public so once you have manifests, you can tell how much they paid for private jet trips.

There are not that many exotic car rental and lease agencies in most cities and so this is fairly straightforward, especially if you have already obtained car plates to identify the car model and make when you appear at the rental agency to seek records. Keep in mind that those who rent private jets aren’t likely to hail a cab when they land at their destination; rather they are likely to have rented an expensive exotic car at the airport so that their image of wealth is maintained.

Housing is more difficult to obtain information, especially if the housing is rented but not impossible because usually the home owner is the direct landlord and they can provide copies of rental agreements.

The final step is assessing the luxury lifestyle spending of the person versus their employment income. Even at a rudimentary level, the salaries of most positions are publicly known and do not vary to a large degree and so investigators can tally up the monthly spend on cars, jets, casinos and mansions and see if it corresponds with employment income. If they are not consistent, then there may be red flags for potential money laundering.

Also check for a criminal record in jurisdictions where the person studied or previously had a job. If the person has a criminal record, the risks are more elevated, and if they have been de-risked by a bank, it means that a financial crime team formed an assessment that they were high risk for financial crime.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Iran says its money laundering problem is in the billions of dollars

By Christine Duhaime | November 4th, 2019

The Foreign Minister of Iran, Mohammad Javad Zarif, today said that Iran’s money laundering problem was in the billions of dollars, and he implied that federal government agencies in Iran benefited from money laundering in Iran and were lobbying to ensure that the FATF’s recommendations were not adopted into Iranian law.

Although Zarif did not cite any examples of money laundering, he did say that the prosecution of the Sultan of Coins, and his execution, was an example of money laundering. The so-called Sultan of Coins was a currency exchanger named Vahid Mazloumin, who was executed in Tehran for financial crimes for currency conversations and for having two tons of Iranian gold coins in his possession, whose provenance was elusive. The sentence was criticized because holding gold in Iran is not a crime.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Growing protests over corruption in global hot spots means increased risks of the movement of proceeds of corruption from PEPs to the West

By Christine Duhaime | November 3rd, 2019

2019 seems to have been a record year for mass protests by citizens marching against national corruption – at least 10 countries have had massive protests in the last few months, many of which are ongoing.

Corruption at the national level is perpetrated by politically exposed persons (“PEPs“) who have access to the country’s coffers, and are often paid bribes for contracts, for work or favours, and who then use their positions of power to exit proceeds of corruption to other countries.

A Europol Report on Trends published in 2015, noted the increasing threat associated with wealth disparity (e.g., the rich getting richer) which they predicted would cause citizens to be more willing to accept criminal activities that target the wealthy if those crimes deprive the rich of their wealth, or that even the playing field.

The protests have a few things in common: calls for an end to corruption; addressing hunger; and the rising costs of living – all tied to wealth disparity. On the financial institutional side, the protests will accelerate the need for PEPs to move their ill-gotten gains to safe countries. For Canada, the highest risk is proceeds of corruption from Iran entering Canada through MSBs registered in Vancouver and Ontario, which follow a well-known process of laundering money for wealthy Iranian PEPs through Dubai.

Iran

Protests in Iran tied to corruption (and worsening economic conditions) have been ongoing for two years, and ramped up in early 2019. Iran has a significant wealth disparity issue with a few select PEPs who are very wealthy that live in North Tehran, and the rest who are not. Inflation grew by 30% in one year and the lack of federal banking regulations is impacting the economy, as are sanctions. Many Iranians are unemployed and one third of Iranians have no access to drinking water.

Continue reading
Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

Over 20% of lawyers in UK not complying with anti-money laundering law

By Christine Duhaime | November 1st, 2019

According to this article in the Financial Times, 20% of lawyers in the UK are not complying with federal anti-money laundering laws. Unlike the US and Canada, in the UK, lawyers are reporting entities and must conduct bank-level AML to onboard and report suspicious and other threshold financial transactions externally. The findings come amid concerns that professional money launderers (accountants, lawyers, hawalas and bank officials) are facilitating international money laundering wittingly or unwittingly.

Continue reading
Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

“Take the money and run, and blame someone else” – a digital currency exchange founder’s exit strategy

By Christine Duhaime | October 28th, 2019

The brother

A criminal complaint filed in the Southern District of New York by the FBI against Konstantin Ignatov, an executive who operated a digital currency exchange and launched an initial coin offering (“ICO“) called OneCoin, sheds some light on the sometimes murky world of digital currency exchange founders.

The money

The ICO and its associated programs, raised approximately €4 billion from investors from 175 countries, and was represented to investors as a legitimate digital currency on its own Blockchain that could be mined. In fact, investigators learned that it did not have a Blockchain, was not actually a digital currency and could not be mined.

The proceeds of the ICO were allegedly laundered through 21 countries, including the Cayman Islands, Jersey and Ireland.

The sister

OneCoin was co-founded by Dr. Ruja Ignatov, Konstantin Ignatov’s sister. She is an Oxford graduate and worked at McKinsey. Both are from Bulgaria. The complaint states that Ruja Ignatov acquired intelligence and unauthorized access to law enforcement information in Bulgaria, presumably about an investigation into OneCoin, and went dark. She has since disappeared. And apparently so has much of the money paid by investors for OneCoin.

Sister likes diamonds; brother likes tattoos

The complaint alleges that, at sales events to pitch OneCoin, the Ignatovs represented that the OneCoin Blockchain was “transparent” and had anti-money laundering compliance built-in, none of which was true. Such sales pitches took place in the EU, Colombia, Singapore and Argentina. On Instagram, Konstantin Ignatov has posted photos of himself beside a OneCoin-branded airplane in Paraguay, driving a Porsche, on yachts and in exotic places in the world.

The founders of OneCoin also created a digital currency exchange called Xcoinx to ostensibly list the coin, which later also went dark.

The charges

Konstantin Ignatov has been charged with wire fraud pursuant to a criminal complaint and Ruja Ignatov has been indicted for money laundering. She is known as the “crypto queen.”

Apparently, even though the exchange and the business were insolvent because the funds raised were not left in the business or used to create Blockchain technology, its founders continued to solicit funds from the public and while the founders were pumping out information to raise money for OneCoin, they were sending various emails to each other that some of the coins were “fake”; that they could manipulate trades on Xcoinx; and that they knew that what they were telling the investing public was “shit.”

Let’s “blame someone else”

The complaint describes how the founders discussed an exit strategy and suggested that one exit option could be that they “take the money and run and blame someone else.” Under this exit strategy, they would take the money at that time (18 months ago) and long after, would blame someone else for the crime. It sometimes happens in criminal law that a person points the finger at someone else a year or two later, not contemporaneously with a now-alleged theft, to deflect from them when they become aware of a law enforcement investigation.

Muslim investors targeted

One of the unique strategies of OneCoin was it promoted itself as a digital currency that was compliant with Islamic finance, apparently with a certificate from the Al-Huda Center of Islamic Banking and Economics. In the UK, Muslim investors believed it was legit and invested in it.

Count the crypto, not the money

Normally, when the pubic invests in ICOs or sends funds to a digital currency exchange, the digital currencies bought for customers or investors, are held in trust in the pooled wallet of the exchange, and preserved until such time as investors make requests to exit out their digital currencies. Irrespective of if actual cash is missing, the key determinant for an exchange for investigative and audit purposes, is whether or not it has, in its pooled wallet, all of the digital currencies bought and not redeemed or transferred out, by its customers at any given time. In other words, does the pooled wallet balance have all the crypto it is supposed to have.

This is the determinant because customers do not send money for ICOs or to exchanges for it to be held in cash. They send it on the expectation and the representation that the exchange or ICO, is holding for them, virtual currencies that they can transfer out at some point in the future. Arguably, digital currency exchanges cannot be deposit-taking to hold cash in a wallet on an exchange unless licenced or exempt from licensing under banking legislation. The only thing they hold, and can hold, are digital currencies and those are in the exchange’s wallet.

Another reason why it is the pooled wallet balance that is the determinant is because some exchanges may gamble or leverage pricing, taking a risk on customer funds. Ethics aside, if they make a windfall on such gambles, they may have excess cash. The opposite may happen and the gamble was a bad one but regardless, they must still have all of the customers’ digital currencies in the pooled wallet, irrespective of risky behaviour they may have engaged in.

So in investigations into digital currency exchanges, or for auditing, one first counts the crypto.

But in this case, count the money

However, in this case, investigators could only follow the money because it appears that there was never any crypto and never any pooled wallet. It appears from the criminal complaint and the indictment, that the Ignatovs did not even buy any digital currencies with funds sent by investors, or create a virtual currency (OneCoin) or convert funds they received into the equivalent number of OneCoins, or give the coins liquidity, as promised to investors.

And follow the receipts for exotic cars, private jets and casino gambling

At the end of the day, Ruja Ignatov’s recommendation to “take the money and run, and blame someone else” can only go so far. When they take the money, some digital exchange and ICO founders don’t so much run as spend and they spend wildly, following precisely the same money laundering typologies the world over, namely they: buy or lease exotic expensive racing cars; move into mansions; travel on private jets; buy expensive watches; and gamble with wads of cash at casinos, all of which is traceable back to them from casino records, travel records and car lease receipts.

A branded little jet for Konstantin. He was #happy and having a #goodmorning
Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

BC residents warned about virtual shares promoted on WhatsApp

By Christine Duhaime | October 23rd, 2019

The British Columbia Securities Commission has issued a warning about the purchase of virtual shares of a company tied to app games that are being marketed to investors who speak Mandarin in the Vancouver area. Virtual shares are not based on any corporate assets and the shares are only capable of being subscribed to on mobile apps. It also appears that no share certificates are issued, all of which is inconsistent with the Business Corporations Act.

Two promoters have been named – FullCarry and International Money Tree. The way the game works is that investors are told that with rising demand (hyping the stock on the app), the price will be driven up and will allegedly split at a certain point, allegedly generating income for subscribers.

The subscription works like a pyramid scheme where subscribers are given bonuses for new investors they find.

FullCarry is a BVI entity based in Dubai and IMT is in Singapore.

Share this Post:
  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email

8 questions you may have had about the movie “The Laundromat” and yes, there are British Columbia connections

By Christine Duhaime | October 21st, 2019

Part 1 – Background

Skip this Part 1 if you know about Mossack Fonseca and shell and shelf companies.

The movie “The Laundromat” is about lawyers and big law firms and the system that fuels offshore money movements, often involving the proceeds of crime.

The movie is about a big law firm called Mossack Fonseca that was based in Panama. It didn’t appear to have provided much in the way of legal services; rather it sold the services of, inter alia, hiding wealth in little offshore tax havens through the use of what are called shell and shelf companies.

The way it worked and still works today at some big law firms, is that the law firm flips shelf or shell companies to a client which are incorporated in a jurisdiction known for lax anti-money laundering compliance and tax evasion. These little jurisdictions are countries whose sole resource is providing a place to allow for incorporation where the identity of the directors, officers and shareholders are protected from disclosure, with a bank account. The two must go together (the offshore shell with a bank account) because the shell by itself is not the actual service the client of such services wants – it wants to move money and do it anonymously. The bank account is the critical piece for such persons – the thing of value – the shell merely sits over the bank account and is the figurative key to the often looted treasure.

The money such persons are moving is either illegally acquired or legally acquired, but either way the person wishes to hide it sometimes to defeat the rule of law. But it wasn’t just tax havens involved. British Columbia was a significant corporate host jurisdiction for Mossack Fonseca, where over 1,100 companies were set up.

Mossack Fonseca also had a stable of nominee directors, officers and shareholders like a stable of horses. For a handsome fee they would come out of the stable and appear on the corporate records to fake to be the director, officer or shareholder of a shell. Mossack Fonseca pimped out those services, and if asked, secured bank accounts for the shell and shelf companies they sold.

On occasion, the shells used bearer shares. A bearer share is one where the owner of the share is its possessor, meaning that whomever is in possession of the share is the shareholder of that share. There is nothing illegal or wrong with bearer shares except that only the company knows who the shareholders are. They are like a promissory note in that rights arise upon presentment. British Columbia’s corporate legislation allows for the issuance of bearer shares. In practice, no one ever uses bearer shares. It’s because to use them, one still has to engage with the corporation and they do not give a person any rights to a bank account where the money is parked.

It wasn’t just Mossack Fonseca that drove the creation of shell and shelf companies – 90% of its clients were big law firms and accounting firms in Germany, Canada, Hong Kong, China, the UK and other places, who were asking them to provide such services, and were advising their clients in their offices about the bona fides (or not) of the practice.

In 2014, a reporter named Ken Silverstein wrote an explosive article about Mossack Fonseca which launched inquiries into the law firm for the first time.

Then in 2016, a John Doe acquired 11 million documents from Mossack Fonseca illegally and disclosed them to the media. The law firm did not bring an injunction application to stop the publication of the files on the basis of privilege and confidentiality. Today it would lose such an application because of the criminality now known to be associated with some files, but back then, it may not have. The leak and trove of documents became known as the Panama Papers.

The Panama Papers reverberated around the world because it disclosed more widely, the practice of law firms that flip shelf and shell companies, and how those entities are used to move around the wealth of politically exposed person anonymously, in disregard of PEP laws and anti-money laundering law. Lawyers at big law firms who practice in the area of corporate finance, immigration for wealthy persons and taxation were familiar with shell and shelf companies (they flip them for hundreds of thousands of dollars each) but regular lawyers and the public were not aware of such practices.

Mossack Fonseca did provide some legal services  – among other things, they set up new corporate entities that were not shells for some clients, where the company had a real underlying business and the directors, officers and shareholder were legitimate.

Part 2

8 Questions you Maybe Had About the Movie “The Laundromat”

1. When Gary Oldman and Antonio Banderas, who play Mossack and Fonseca, respectively, say that there are many more law firms all over the world still in business exactly like them (that flip shells and shelfs to hide who is behind companies to allow them to move money anonymously), is that true? 

Yes. Probably not so much in the US but many big law firms assist with the creation of shell companies, flip shelf companies and set up bank accounts for clients to give them anonymity. Many still use little offshore tax havens and help clients park money there.

2. John Doe, played by Meryl Streep, says that the problem is “the massive pervasive corruption of the legal profession” and that the fact that the Panama Papers was the event that shed light on what lawyers do is cause for concern. Has anything changed? 

It’s hard to say. The US government has signalled that it is prepared to prosecute lawyers who flip shell and shelf companies, and those foreign lawyers who worked with Mossack Fonseca to create shells associated with criminality. It is also the big accounting firms with massive offices in little island tax havens that drive a lot of this work. In the US, the American Bar Association has faced criticism for not supporting changes that address the problem and that would help prevent people from breaking the law.

3. John Doe, played by Meryl Streep, says that as a result of the legal profession, global instability could be around the corner. What does she mean?

She means that the law firm (and the lawyers around the world that fed the machine that was Mossack Fonseca), serviced politically exposed persons who removed millions of dollars, sometimes hundreds of millions from their countries and moved those funds out through banks and shell companies to other countries, and that the corruption underlying that activity and the bankrupting of poorer countries, will lead to civil unrest. EURPOL, for example, has said that if wealth disparity grows, there will be disrespect for the law that leads to global instability.

4. Mossack and Forseca say, in the movie, that what they did was make assets safe from scrutiny by supplying shell companies located where the laws are favourable on islands in the middle of the ocean. Is that true?

Yes. Shell companies they set up are in little islands in the middle of the ocean which have favourable laws; usually favourable to defeat the law that is. But they did other things that are problematic such as doctoring corporate documents to change ownership, or remove ties to a person or corporation or back-dating them. They admitted to back-dating corporate documents and have said that it is “a well-founded and accepted practice”. If corporate documents are back-dated, the ability of law enforcement to successfully peel away the onion to ascertain who is behind a shell, becomes harder. Such practices are not consistent with corporate legislation, tax laws, or financial crime laws either. Mossack Forseca charged fees and a per-document price to back-date corporate resolutions, registers, shareholders and such, as a disbursement from a menu of services.

5. Was there a Boncamper in Nevis who worked with Mossack Forseca to front some shells and did they really doctor documents to remove him?

Yes, Malchus Boncamper was an accountant in St. Kitts and Nevis, who acted as a nominee (fake officer or director) for a number of shells for Mossack Forseca. He was arrested for money laundering and pleaded guilty in the US. For ten years, he laundered the proceeds of crime from a fraudulent scheme that sold fake insurance. He banked in Liechtenstein.

After his arrest, Mossack Forseca did a kind of a “cleanse” pursuant to which they cleansed the corporate records of many shells in which Boncamper was a nominee to remove his existence from those shells. Doing that invalidates all previous corporate actions, including consent resolutions which must be unanimous to be effective. When a lawyer goes back and cleanses resolutions to change the name of a nominee, who did not consent to a resolution or to any corporate actions, then there is not consent for the resolution.

St. Kitts and Nevis is a little island where Chinese foreign nationals are, according to legend, told by immigration lawyers that they could buy citizenship for a price commencing at $250,000 where no questions were asked and no expertise existed on the AML side, and where banks and law firms were friendly. Rich politically exposed Chinese foreign nationals were told by immigration lawyers that they could come to Vancouver to park money because they became part of the Commonwealth if they were citizens of St. Kitts and Nevis, and that’s why St. Kitts and Nevis is popular – its an entry point to Vancouver.

6.  In the movie, when Mossack says that with a shell company, the window is in the BVI and the room is in China, what does that mean?

What it means is that for Chinese foreign nationals, for example, they may have a trust set up under the laws of Guernsey which is controlled by a shell in another jurisdiction, such as the BVI, with bank accounts in Vancouver. When law enforcement, or someone doing an investigation for an asset recovery, attempts to determine where assets are and who controls them, they could be looking through many windows that are illusory because the room (the assets) are not what the view in the window is showing. So, for example, the room is China and one window is Guernsey, another window could be BVI and a third window is Vancouver for the exact same family of PEPs from China.

7. Is it true that Bo Xilai and Gu Kailai were clients of Mossack Forseca? 

Yes. This article describes how they moved money from China illegally to France through shells.

8. Obama says in a news clip in the movie that what Mossack Forseca did was legal. Is that true? 

Yes and no. It is legal to set up a company, even in little tax havens. It is legal to flip a shelf company for hundreds of thousands of dollars, although it is not the practice of law. It is legal to flip a shell company, but that is also not the practice of law. This is as opposed to incorporating a company fresh, which is legal and is the practice of law.

If a service is not the practice of law, the advice is neither privileged nor confidential and is similar to advice received from an accounting firm (not protected).

It is not legal to doctor corporate records. It is not legal to switch out officers, directors, shareholders of shell companies without the underlying corporate approvals or to back-date corporate records. It is not legal to knowingly flip shells and shelf entities, and secure bank accounts for clients to commit crimes or to facilitate the commission of crime, such to launder money, evade taxes or commit securities fraud. It is not legal to set up a whole corporate structure to obfuscate ownership and directors on purpose to provide anonymity to move money offshore to defeat or circumvent the laws.

In some countries, it is also not legal to accept or deal with the proceeds of crime or deposit such proceeds into a law firm bank account, so unless the services were provided for free, legal services can’t be provided, with the constitutional exception of providing legal services to defend an accused in a criminal proceeding.

Share this Post:

  • Facebook
  • Twitter
  • LinkedIn
  • Print
  • email