Las Vegas Sands agrees to pay $47 million to avoid money laundering prosecution

By Christine Duhaime | August 27th, 2013

The U.S. Department of Justice (“DOJ“) announced that it has resolved its money laundering investigation into the Las Vegas Sands Corp. pursuant to which Sands will pay US$47 million to avoid criminal prosecution in connection with funds gambled by high rollers at its Venetian casino in Las Vegas.

The DOJ was investigating Sands for failure to file suspicious activity reports (“SAR“) under the Bank Secrecy Act in respect of at least one high roller – Zhenli Ye Gon. The Bank Secrecy Act requires casinos with annual revenue of at least US$1 million to file a SAR for every transaction or group of related transactions totaling US$5,000 or more, when the casino knows, suspects, or has reason to suspect that the transaction:

  • Involves funds derived from illegal activity, or is intended to conceal funds derived from illegal activity;
  • Is intended to avoid or prevent the filing of a Currency Transaction Report for Casinos;
  • Has no business or apparent lawful purpose, or is not the sort in which that particular customer would normally be expected to engage; or
  • Involves the use of the casino to facilitate criminal activity.

Ye Gon, a Chinese-Mexican businessman, lost more than US$125 million at multiple casinos in Las Vegas. He received as much as US$100 million at the Sands which was allegedly proceeds of crime tied to the illegal manufacture of synthetic drugs. In March 2007, US$207 million cash was seized from Ye Gon’s residence in Mexico by law enforcement authorities – the largest-ever seizure of cash.

According to the evidence gathered by the DOJ, Ye Gon allegedly took steps to actively avoid detection of money laundering and used classic anti-detection methods. Among other things, he wired money to Sands and its subsidiary companies from two different banks and seven different Mexican money exchange houses, known as casas de cambios. The wire originators included several companies and individuals the Sands could not link to him, and according to the DOJ, Ye Gon also transferred funds from Mexican casas de cambios to a Sands subsidiary in Hong Kong for subsequent transfer to Las Vegas. In many instances, Ye Gon’s wire transfers lacked sufficient information to identify him as the beneficiary. The Sands also allowed Ye Gon to transfer funds several times to an account that did not identify its association with the Venetian, specifically an aviation account used to pay pilots operating the company’s aircraft.

The DOJ has signaled that more investigations into casino anti-money laundering compliance are forthcoming.

U.S. lawyer pleads guilty to conspiracy to evade taxes in connection with Swiss bank accounts held by U.S. clients

By Christine Duhaime | August 23rd, 2013

Tax Evasion Plea

Edgar Paltzer, a lawyer called to the bar in Switzerland and the U.S. with the Zurich firm of Niederer, Kraft and Frey, pleaded guilty today in New York to conspiracy to evade taxes and faces up to five years in prison.

According to Mr. Paltzer’s indictment, the bank with whom he was associated, had over $2 billion in assets under management, 40% of which belonged to U.S. taxpayers. Also according to the indictment, Paltzer instructed clients not to disclose offshore funds and gave them advice on how to avoid anti-money laundering reporting requirements, both to avoid detection by the IRS.

Mr. Paltzer has agreed to testify for the U.S. government in respect of his former clients, which raises interesting questions of both confidentiality and privilege.

A U.S. court also ordered that five vaults controlled by Mr. Paltzer with UBS AG in Zurich be sealed for an interim period while the IRS investigates to whom they are registered.

Since the IRS began its crack-down on tax evasion, more than 35 firms or advisors have been criminally charged with conspiracy in relation to tax evasion or money laundering, sometimes both.

French government concerned over potential money laundering with vineyard purchases

By Christine Duhaime | August 12th, 2013

Tracfin report highlights money laundering

In its annual money laundering report, France’s Traitement du Renseignement et Action Contre les Circuits Financiers Clandestins (“Tracfin“) expressed concern over money laundering risks associated with the sale of France’s most renowned wineries to investors from China, Hong Kong and Russia. The concern stems from the increase in suspicious transaction reports filed with Tracfin by professionals in connection with the transactions for the acquisitions of wineries. According to Tracfin, the investment transactions are structured through complex layers of corporations, several of which are incorporated in foreign jurisdictions that are known as tax havens.

Flow of funds tied to immigration from Asia

The bulk of the transactions are for immigration purposes whereby foreign nationals from Asia obtain immigration status in France by investing in businesses, namely buying vineyards and wineries in France. Tracfin recommends that lawyers, estate agents and others undertake heightened due diligence to ascertain client identity, including beneficial ownership of the corporate vehicles used to acquire French wineries and that they confirm the source and legitimacy of the funds from Asia before completing the transactions.

Use of beneficial ownership and tax havens

Complex corporate structuring in business transactions with layers of foreign corporate entities is a red flag for money laundering and tax evasion, particularly where there are beneficial ownership concerns or tax havens involved. With respect to Asia, confirmation of source of funds for investment or immigration purposes continues to be an ongoing problem.

China immigrant investors controlling wineries in France

The Tracfin report noted, in particular, concern from China. Chinese investors now own 50 of the most prestigious vineyards in Bordeaux, and will soon be the largest nationality group controlling winemaking, particularly in Bordeaux. The French properties owned by Chinese investors include Chateau Bellfont-Belcier and Chateau de Gevrey-Chambertin.

People’s Bank of China addresses money laundering issues

The Tracfin report comes as China has expressed parallel concerns over the massive outflow of funds to foreign countries. In May of this year, the Deputy Governor of The People’s Bank of China, Li Dongrong, said the specter of money laundering and outflows of funds from China was being raised to the national strategic level in China for resolution. Mr. Li was the keynote speaker at the first international anti-money laundering conference held in China last month and expressed the bank’s commitment to tackle money laundering issues in China and across the Asia-Pacific region.

Holy See issues new anti-money laundering motu proprio

By Christine Duhaime | August 10th, 2013

Vatican Strengthens Anti-Money Laundering

Pope Francis issued a new anti-money laundering motu proprio effective today to implement the recommendation of Moneyval in respect of the prevention of money laundering, terrorist financing and proliferation of weapons of mass destruction.

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HSBC closes bank accounts of consulates over risks that include exposure to money laundering

By Christine Duhaime | August 5th, 2013

HSBC Cancels Bank Accounts of Consulates

HSBC has given notice to several consulates and the Vatican that it is closing their accounts within 60 days. No reason has been officially cited for the cancellation of the client bank agreements but it is likely as a result of the exposure such accounts hold for financial institutions for money laundering and corruption.

Consulates by definition deal with funds from politically exposed persons (“PEP“) which present higher risks of corruption and money laundering because of the possibility that they may abuse their position and influence to carry out corrupt acts, such as accepting and extorting bribes or misappropriation of state assets and then use domestic and international financial systems to launder the proceeds.

There are reputational risks for accepting funds belonging to PEPs if it later emerges that the funds were proceeds of crime. And there are also operational, legal and concentration risks, all of which are interrelated and factor into a bank’s decision to open or close high-profile accounts. The accounts of PEPs are more expensive to maintain for banks by reason of the enhanced and continual due diligence and monitoring required.

The closure of the bank accounts is creating chaos for consulates worldwide.

MUHC McGill P3 infrastructure case garners another arrest for financial crime

By Christine Duhaime | August 2nd, 2013

Wife of Dr. Arthur Porter out on bail

Pamela Porter, the spouse of Dr. Arthur Porter, has been released on bail in Montreal after spending more than two months in jail. Ms. Porter is charged with conspiracy and money laundering for Dr. Porter.

The money laundering charges stem from what is emerging, if the allegations are accurate, to be the largest public-private partnership (“P3“) corruption case, and the first P3 money laundering case, in Canada. The case arises from the $2.013 billion financing of the McGill University Health Centre (“MUHC“), one of the largest hospital infrastructure projects in the world under the legislative authority of Infrastructure Quebec (the “McGill P3 Project“).

Allegedly, a Canadian engineering firm paid $22.5 million as a bribe to Dr. Porter in connection with the financing to ensure it would receive the winning construction and long-term management contracts.

In 2012, MUHC was raided by police as part of its investigation. Apart from the corruption allegations, the McGill P3 Project financing estimates represented to Infrastructure Quebec were incorrect and as a result, the real cost to build and maintain the McGill P3 Project pursuant to a P3 model went from being $33 million less expensive than if built by the public sector, to $10 million more expensive, according to the Auditor General of Quebec.

The application of due diligence in respect of Dr. Porter and others associated with the McGill P3 Project raised issues because he and his spouse were foreign politically exposed persons in and outside of Canada (“PEP“) in all countries under anti-money laundering legislation as as result of his status as special ambassador for Sierra Leone, his country of origin.

As a PEP, financial transactions and dealings with Dr. Porter (and his spouse) would have required enhanced due diligence, and in particular, at the time of the McGill P3 Project transaction. Banks processing the alleged $22 million bribe from Canada, and banks receiving it in the Bahamas for Dr. Porter would both have anti-money laundering obligations to comply with, including the reporting of a suspicious transaction that was not consistent with the recipient’s employment income.

P3s are, contractually speaking, a method of delivering and funding public services using a capital asset where project risks are shared between the public and private sector, wherein the service delivery objectives of the government are aligned with the profit objectives of the private partner. The effectiveness of the alignment depends on a sufficient and appropriate transfer of risk to the private partners. In the P3, the government specifies the quality and quantity of the service it requires from the private partner and depending upon the model, the private partner is tasked with the design, construction, financing, operation and management of the capital asset and the delivery of a service to the government or to the public using that asset. An essential element of P3 projects is integrity of the players, the process, and the project. Preserving the integrity of the procurement process for P3 contracts is essential to maintaining public confidence in P3 projects.

Cases like the MUHC – Porter prosecution call into question the integrity of provincial P3 projects and the government’s role in ensuring that persons associated with P3 contracts do not have integrity issues. Transparency is vitally important to mitigate against financial crime.

The Montreal Gazette wrote the following with respect to transparency:

“Riahd Ben Aissa, who headed the company’s construction division and was its original point man for the MUHC project, was arrested earlier this year in Switzerland in connection with allegations of corrupt practices unrelated to MUHC work. Also of concern is that the firm hired to excavate the land at the hospital’s Glen Yard site, Louisbourg SBC SEC, was headed by construction magnate Tony Accurso, who currently faces charges of fraud, corruption, bribery and conspiracy. His firms have previously been guilty of tax evasion. Further investigation revealed a number of anomalies in the bidding process. These include rules of secrecy that prevent an open examination of the bids to loopholes that allowed major partners in the consortium to bid on both the McGill as well as the Universite de Montreal hospital projects.

The lack of transparency in the process and allegations of financial crime increase the cost of doing business in Canada. According to several news reports in the US financial press, the MUHC P3 scandal is having a chilling effect on project finance bonds and is making debt more expensive in Canada.

Lawyer subject to sanctions by U.S. for support to listed drug kingpins

By Christine Duhaime | July 31st, 2013

Lawyer added to OFAC List

The U.S. Department of the Treasury has designated a lawyer, Jose Antonio Nunez Bedoya, to its Specially Designated Nationals List (“SDNL“). Mr. Bedoya was added to the SDNL for incorporating several companies on behalf of members of Mexican organized crime, the Sinaloa Cartel, in an effort allegedly to create front companies to facilitate the laundering of assets and funds. Two other persons and three entities were designated with Mr. Bedoya today.

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Lawyers arrested in largest mafia crackdown in Roman history

By Christine Duhaime | July 26th, 2013

Mafia Crackdown in Rome

Italian police arrested over 120 people today in its largest crackdown on mafia activities around Rome, including several lawyers alleged to have undertaken transactions and incorporated companies on behalf of the ‘Ndrangheta. According to the police, the ‘Ndrangheta ran multiple gambling operations and drug trafficking operations, and laundered the proceeds through front-companies. Approximately $200 million of assets were seized from 5 businessmen as suspected proceeds of crime in connection with the arrests.

Camorra mafia added to list of blocked transactions

By Christine Duhaime | July 24th, 2013

Mafia funds must be frozen

The U.S. Department of the Treasury today added several members of the Camorra mafia to its Specially Designated Nationals List (“SDNL“).

As a result of the designation to the SDNL, all property (money, securities, and other property) of the designated Camorra in the U.S. or in the possession or control of a U.S. person, or U.S. company must be immediately frozen and cannot be dealt with in any way.

The sanction applies to a U.S. person, a U.S. incorporated company or entity, a U.S. based partnership, joint venture, trust, group or any organization (even if Canadian parented) and any foreign branches of any of those entities.

Banks, funds, brokers, trust companies and in particular, charge and credit card companies in the U.S. or situated elsewhere but with a U.S. parent or U.S. connection (such as American Express charge cards), need to take extra precautions to confirm they are not holding funds belonging to the Camorra designated today (or the Camorra designated by previous Executive Orders).

The Camorra operate internationally and are involved in serious criminal activity including money laundering, extortion, human smuggling, kidnapping, corruption, and counterfeiting.

The Camorra were identified as significant transnational criminal organization by President Obama in 2011 pursuant to Executive Order 13581, which requires the blocking of the property of transnational criminal organizations.

The designated persons are Marco Di Lauro, Mario Riccio, Antonio Mennetta, Mariano Abete and Rosario Guarino.

American Express settles over Cuban sanctions issues

By Christine Duhaime | July 24th, 2013

$5.2 million settlement

American Express Travel Related Services Company, Inc. (“Amex“) has entered into a settlement agreement to pay US$5.2 million to settle potential civil liability for apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. §§515.201(b)(2) (“CACR“). The CACR broadly prohibit trade and investment with Cuba by any person subject to the jurisdiction of the U.S.

Dealing with funds from Cubans

Amex dealt with property (money) owned or controlled by Cuban nationals contrary to the prohibitions in the CACR. Specifically, Amex arranged for travel for Cuban nationals and accepted their money to do so over a five-year period. Amex had previously been fined for sanctions violations for apparently similar, if not identical, facts.

Pursuant to the notice issued by the U.S. Department of the Treasury in respect of the settlement, Amex demonstrated reckless disregard for the CACR and suffered from a lack of oversight by its U.S. management over its foreign employees and offices and failed to implement effective compliance measures after its first sanctions issues in 1995 and 1996 despite having represented to the Office of Foreign Assets Control (“OFAC“) that it would do so.