Papua New Guinea: How good AML is pushing placement back to the gatekeepers

Effective anti-money laundering programmes in banks are moving the gateposts for placing dirty cash into the financial system back a few steps, into the offices of lawyers, accountants and other professional service providers.  Undercover reporters working with Global Witness have video-recorded two prominent lawyers in Papua New Guinea explaining exactly how to channel a large bribe to a government minister.

Corruption reaches “right to the top” in Papua New Guinea, a representative of the national anti-corruption task force states in the video posted above. Being a government minister is the fastest way to becoming a millionaire, one of the lawyers claims.

Papua New Guinea shares a resource rich island of New Guinea with the Indonesian provinces of Papua and West Papua. As noted by Global Witness,  despite its resource wealth, much of the money made from them fails to reach the majority of the population. Plagued by corruption, the people on the lowest rungs of the economy suffer while those at the top line their pockets.

Right to the top

While bribery may be a well-established norm in PNG, the method of channelling funds to corrupt politicians has evolved, largely due to more stringent anti-money laundering rules and closer transaction monitoring.

The days of  “banging a million bucks into a private account in Singapore” are over, one of the lawyers explained to the undercover reporter.

AML in banks is largely effective – huge investment in compliance expertise and monitoring software has pushed the threshold for placing dirty money into the system away from the banker and towards other professional services providers. Today’s enablers are lawyers, accountants, estate agents and others, employed to help disguise the funds before they reach the financial system.

Australia, according to Global Witness researchers, is providing an open door for anyone to place dirty cash in the country’s financial system. The Australian Federal Police have estimated that more than AUS200m (USD147m) laundered from PNG into Australia annually.

During a conversation with a prominent lawyer in Port Moresby, bribes are referred to as “ministerial improvements” and “mobilisation fees”. Paying bribes in large sums is ill-advised, as it attracts too much attention. “Small dribs and drabs”  – what some of us might call structuring – is recommended as an alternative method of getting the cash to the minister unnoticed.

False accounting – using inflated invoices for legal services – are touted as a method for sending bribe money to the intended recipient’s Australian bank account. The false invoicing method is well used to launder money, but this is the first time we’ve heard a law firm offer its own books to move the cash.

Alarmingly, this once again underscores how significant ‘gatekeepers’ – lawyers, estate agents, accountants – are in enabling financial crime. Both lawyers in this film quicky hid behind a veil of hypotheses once questioned by Global Witness after the recordings. They know how to do this, but for how long can they keep getting away with it? Lawyers and law firms for estate agents exposed in the ‘From Russia with Cash’ film know how to use the  law to protect their clients. But there is something more powerful going on here – an absence of ethics or simply the will to do anything for filthy lucre.

Being a politician provides the quickest route to becoming a property millionaire, one lawyer tells the Global Witness reporter. Well. you’ve got to stash the bribe money somewhere eh?


China publishes gallery of alleged financial fugitives

FCA china-financial-fugitives

China’s Ministry of Public Security has released information about economic fugitives (pictured) who were believed to be at large in other countries, including Australia. China Ministry of Public Security

The Communist Part of China’s crackdown on corrupt officials has created a wave of economic fugitives, who are fleeing China to escape trial. The Ministry of Public issued the photos above of alleged economic fugitives from China, many of whom are thought to be in Australia.

The Chinese diaspora is widespread. Since President Xi Jinping began his campaign to root out corruption from the Chinese Communist Party, stories of alleged financial criminals fleeing China to live with relatives in other countries have cropped up in the media. Last year, the focus was the US, thought to be a safe haven from extradition. Now the focus is Australia, another country which has an extradition treaty with China, but which has yet to ratify it.

In March this year, China reportedly gave the US a list of allegedly corrupt officials, thought to be in the US and asked for help in tracking them down. The Chinese government launched Operation Foxhunt  in summer 2014, in a bid to track down suspects on-the-run beyond China’s borders.

Back in February 2014, Financial Crime Asia reported on the expected surge of fugitives to Australia. Canada had apparently been the migrant’s destination of choice, until it scrapped an investment immigration programme for Chinese citizens after noticing a marked increase in the number of applications by wealthy Chinese Mainlanders.

In 2013, China’s anti-corruption body, the Central Commission for Discipline Inspection, investigated 51,000 people for corruption, bribery, embezzlement and abuse of power. It claimed a total of 30,420 officials were punished for violating new party rules aimed at avoiding pomp and ceremony, according to a report in the Sydney Morning Herald.

How to spot an economic fugitive

Government officials are politically exposed persons and, thereby, subject to enhanced due diligence measures by banks and other regulated institutions in Australia, Canada and other jurisdictions. Whether the alleged criminals will be subject to extradition or not for the crimes they may or may not have committed, their inclusion on the ‘wanted list’ is enough to merit further enquiries by financial institutions.  The photo gallery above presumably gives the names of the officials in Pinyin. Any list monitoring software worth its salt will be able to translate the names into the Latin alphabet and should be able to identify whether any of the names above correspond to accounts held at a financial institution.


States of terror – terrorist resourcing, groups vs lone wolves

The biggest terrorist stories to hit the global media in the last few weeks have been the Charleston and Tunisia attacks, carried out by individuals, at least one of whom had set out his intentions in a published manifesto. Rather than falling FCA - gunshopprey to a particular group and shouting out their message, Dylan Roof – the Charleston massacre suspect – apparently ‘self-radicalised’ by reading various on-line sources of extremist material. There is no information, as yet, on where Seifeddine Rezgui, the gunman in the Tunisian attack, acquired the gun he used but there are some links between him and the Ansar al-Sharia group in Libya. One US media outlet asked Charleston Police how Roof was able to get his hands on a gun. “We will not discuss that aspect of the investigation”  a spokesman told the press.

Meanwhile in Egypt, the government has adopted a ‘controversial anti-terror law‘ speeding up prosecutions for terrorist related acts, laying out more severe penalties for those convicted and increasing the powers of terrorism investigators to examine bank accounts. The new law is a direct response to the killing of state prosecutor Hisham Barakat in late June.

Investigating terrorist resourcing – who supplied the weapons, how and any connections to known terrorist groups – might unearth some significant connections and information on who is behind terror attacks.

Resourcing v Financing

Research into terrorism has begun to notice a difference in approaches to investigating where the  money comes from. Changing perspectives on terrorist financing might highlight more gaps in our understanding of terrorism, why and how terrorist acts are committed.

Terrorist organisations use far more than money to maintain operations leaning on industries and infrastructure (IS has hijacked oil production in Iraq), criminal partnerships (the proceeds of crime fund terrorism too), commodities and more to generate funds. Moreover, the financial system as we know it is a minor player in some of the countries where terrorist groups thrive.

“Our understanding of terrorist financing is simplistic – funds flood the banking system, if we find it we can stop terrorists,” says Brenda Collins of ManchesterCF.

Source: Manchester CF

Source: ManchesterCF

“The resourcing concept is a much better fit with the risk-based approach (RBA) than the financing concept. The resourcing model turns the focus to the behaviour, the geographies, the industries, the materials. The financing idea often automatically pushes people towards transactions, senders and recipients.”

To learn more about the mechanics of terrorist resourcing – how different terrorist organisations resource their operations, how terror groups acquire funding channels and the red flags that can reveal terrorist resourcing networks, click here.

Mention the Financial Crime Asia blog to ManchesterCF to find out on special offers on training programs.

Real estate and the promise of ready money – who cares if the cash is dirty?

The UK welcomes wealthy foreign investors, but does it really care where their money comes from? Estate agents in London’s super expensive neighbourhoods are apparently agreeing to house purchases with ‘corrupt’ Russian politicians.FCA London Property

If you are in the UK, tune in to Channel 4 this evening to watch a revealing documentary about what really goes on between agents and super rich buyers. In ‘From Russia with Cash‘,  undercover reporters pose as an ‘unscrupulous’ Russian government official “Boris’ who wants to buy a house in London for his mistress, ‘Nastya’. Despite ‘Boris’ making is clear to the agents that his funds are not from a legitimate source, the estate agents he deals with are apparently happy to go ahead with the sale and even recommend ways for ‘Boris’ to keep a low profile, according to the Guardian report.

Channel 4’s reporters used hidden cameras to film meetings with estate agents, who talked openly about previous dealings with foreign clients, government ministers – politically exposed persons, and the amount of deals which are made with some degree of anonymity. Politically exposed persons (PEPS) are individuals with access to national coffers, funds which belong to the electorate. They are government officials, their families, their associates and beyond.

Property, or real estate, is widely recognised as the best way to invest. So it should be no surprise that the proceeds of crime have found a natural home in bricks and mortar. Rules on investing and moving dirty cash are well publicised. In the UK and many other countries, Financial institutions, lawyers, accountants, dealers in high value goods and real estate agents are required to report transactions of dubious origin – those which could be hiding the proceeds of crime – to law enforcement. The penalties for not reporting suspicious transactions are severe for the institution and the individual.

Corruption and billionaires  

FCA - TITransparency International’s ‘Unmask the Corrupt‘ campaign looks closely at how UK property launders funds for corrupt individuals, many of whom are politically exposed persons. Funds designated for schools and hospitals – ‘Boris’ claims his money comes from a government health budget – is sent to offshore havens, shrouded in secrecy and then passed on to ‘enablers’ or gatekeepers in the UK who advise and facilitate investment. The thing is, the practice is nothing new. This is how the big money has always moved – the only difference is that now it is under scrutiny.

Forbes, the register of all things super-rich, lists London as third in the world of ‘Billionaire Cities‘.  Five of the remaining nine are Asian cities – Hong Kong, Tokyo, Shanghai, Singapore and Mumbai sit alongside Paris, Moscow, New York and Sydney. If the corrupt are managing to get money into the UK property market, they are certainly managing it in the other countries on this list.

Will the estate agencies and law firms mentioned in this programme be investigated and will this give rise to increased scrutiny of the real estate sector in the UK? Financial Crime Asia is keen to find out.

Abu Dhabi proposes 50 year zero tax zone?

A report in the Khaleej Times from 1st July on proposed regulation for the Abu Dhabi Global Market hides an interesting nugget, way down in paragraph six.

A palace overlooks Abu Dhabi Yacht Club - a high roller's playground?  Image:

A palace overlooks Abu Dhabi Yacht Club – a high roller’s playground? Image:

“Abu Dhabi financial zone will offer a zero-tax environment for 50 years. In the launch phase, the financial hub will benefit from Abu Dhabi’s natural strength, ie private banking, wealth management and asset management and will grow according to market demand to eventually become a broad based financial hub.”

Great news for private and corporate clients who want to take a break from paying taxes, but how does this sit with the rest of the world’s focus on tax crimes? Will parking funds in the ADGM and avoiding coughing up your dues in the place you make your money be OK? Time will tell.

Abu Dhabi is a part of the United Arab Emirates, a member of the Financial Action Task Force’s regional body – MENAFATF.



Indonesia bans use of dollars, foreign currency

As of July 1st, Indonesian banks and businesses can no longer accept foreign currencies. Stable currencies, with the

US dollar leading the pack, were widely used across the country to sidestep fluctuations in the Indonesian Rupiah (USD1=IDR13,300).

New rules brought in by Bank Indonesia, the central bank, with the aim of re-enforcing ‘macro-economic stability‘ in the country.

The stability of the US dollar and the euro also makes them appealing to financial criminals, from black marketeers to bribe payers. In Indonesia, paying for a hotel in USD, or other luxury goods or services, was widespread. Dollars and euros come in higher value denominations and are easier to transport. The ban on using foreign currency for domestic transactions within Indonesia will have some impact on financial crime. How will the drug lords and corrupt officials spend their cash in Bali and Jakarta if the can’t use dollars? It will be interesting to see how this is enforced and to what extent. Will the first people to be prosecuted be the high-rollers who live by the dollar? Or smaller businesses and individuals trying to save a few rupiah?

India: Trader arrested on laundering charges

Officers from India’s Enforcement Directorate have arrested a man on suspicion of laundering INR190m (USD3m).  Ajit Jain, a trader from Mumbai, faces charges under the Prevention of Money Laundering Act (PMLA).Mumbai

The funds, according to reports, stem from a large scale fraud.

The case dates back to a 2013 report made by Canara Bank about a similar sum of money defrauded from some of its clients. The accused allegedly helped to channel funds to the unknown person behind the fraud, using both the banking system and hawala.

Read the story in the Economic Times.

A mansion fit for a PEP

FCA mansion-on-the-heath-3-small

Who lives in a house like this? The dining room at Kenwood Gate

The brilliant Organised Crime and Corruption Reporting Project has published a ‘through the keyhole’ report into the USD25m home owned by the family of Ilham Aliyev, the President of Azerbaijan and the former vice-president of the Azerbaijan’s State Owned Oil Company (SOCAR).

Delving into ownership registers, the OCCRP has unearthed that the house is in fact owned by an Isle of Man registered company called Beckforth Services Limited.

Beckforth Services Limited is owned by President Aliyev, his wife Mehriban and their daughter Leyla Aliyeva. Leyla is registered as owning all of the shares in Beckforth. All three list their address in Baku as 73 Neftchilar Avenue, Baku which is also the SOCAR registered office in the capital. Neft means oil, Neftchilar apparently means Oil Workers.

Aliyev reportedly earns a salary of around USD230,000 per annum. As an elected official, neither he nor his wife can run businesses, which seems fair enough. The report doesn’t mention whether they can own property or not.

The house on Hampstead Heath was acquired in 1998. This was seven years after the fall of the Soviet Union, which had governed Azerbaijan from Moscow for the previous seventy years. At the time President Aliyev was the VP at SOCAR; Azerbaijan’s oil and gas sector. This year, Aliyev spoke at the Caspian Oil and Gas Exhibition. The President’s ties to the sector are still strong – unsurprisingly as this has been responsible for the country’s high economic growth, according to the CIA World Factbook.

Watch this video for the full picture.

Readers could be forgiven for thinking that the high economic growth and booming Azeri prosperity symbolised by the emblematic Flame Towers, and the clutch of extremely high value goods outlets opened in Baku has been spread across the country.

FCA Italian ShoesThis  2012 report from the New York Times offers an insight into Baku’s luxury goods market, with Italian high-end designer goods topping the scale.  It makes an interesting observation which sheds light on how different countries record trade levels. ‘Between 2003 and 2009, Italy recorded exports to Azerbaijan of roughly $1.6bn ; during the same period, Azerbaijan recorded imports from Italy of $857m.’ If the figures are correct, some USD143m in imports went astray. That’s a lot of hand-stitched shoes.


When Basic AML Training Just Isn’t Enough

Deutsche Bank is reportedly leading an internal investigation into an alleged USD6bn laundry, using ‘relatively FCAbasictrainingsimple transactions’ to clean cash. Simple transactions used to launder money should be easy to identify – if the software does not pick it up, then the employees handling the transactions should be able to spot a suspicion. Basic anti-money laundering training would guide someone to tell their AML team if something in a transaction does not look right. What if it did, and the message is still not getting through?


Regulated financial institutions spend money on ineffective training programmes; employees spend time attending training sessions that offer no new information on the subject or on how to approach the issue at hand. There are a myriad reasons why training programmes do not have the desired effect, but why do firms still use them?

They do so because they have little choice. A robust regulatory environment, a requirement to train all employees on the risks associated with financial crime and the spectre of a large financial penalty for not doing so have backed banks and other regulated firms into a corner. Gone are the days of leaving all knowledge of money laundering, terrorist financing, sanctions busting and bribery to the compliance department. In the present environment, we have to train all employees, management, directors and the C-suite on financial crime risks. And this, as compliance officers know, comes at a great cost to a bank.

Compliance generates no revenue – the compliance department is a straight-up cost centre. Although the argument that having an effective compliance programme in place could save you a few million dollars in regulatory fines is quickly gaining ground, compliance officers – it appears – are still bound by tight budgets. This is sometimes to the detriment of quality training, forcing compliance officers to compromise on the standard of training they want to deliver to employees.

Compliance budgets are larger than they were a few years ago. The coffers are deep enough to attract and retain talented individuals to maintain good compliance procedures in banks, and to ensure that every employee has at least a basic grasp of anti-money laundering, sanctions and anti-bribery and corruption requirements – how it works and who the ‘bad guys’ are. But compliance training where employees sit through another session on placement, layering and integration and learn nothing more relevant to their role, do not encourage anyone to think in terms of risks posed to their business line.

Beyond the money laundering cycle

Basic training has done a great job; meet bank staff from any division in a corporate, retail or investment firm and they will be able to trot out the three stages, and this was not the case five years ago. Except now, the information comes by rote – it is learned, absorbed, recalled when asked but is it really embedded into how bank employees do their jobs?

FCAadvancedtrainingAdvanced or more specific AML/CTF training courses on the market should address the particular risks posed by different areas of banking. Looking into trade based money laundering operations using examples and knowledge from people who have worked in trade financing first hand, not simply adding a few slides to a power point describing false invoicing would be a good start; but this is rarely the case.

It’s about the people, stupid

Global AML efforts are now hinged upon a risk based approach – the basic principle of applying most resources where the greatest risks lie. To do this, employees need to understand the risks – what they look like, where and when they can occur. The emphasis must be on engaging the learners.

“To combat financial crime and terrorist financing, the people who work with clients must be aware of the risks. Not just compliance and the firm’s financial intelligence unit, but front line business people in an institution.” Kim Manchester, a compliance veteran and CEO of ManchesterCF told Financial Crime Asia.

This rings true. The customer facing employees – whether private banking relationship managers or traders creating OTC derivatives – know their client well enough to offer them precisely the right product at the right time. They also should be able to know with the same precision when a deal does not add up. Compliance officers can erroneously believe that ML/TF is not an issue for some of the more sophisticated financial products. Let’s take derivatives as an example. Some compliance officers do not consider AML/CTF something that derivatives traders need to be concerned with and so they did not need training on this area.

This is a huge oversight which could end up costing a financial institution. Mis-priced derivatives contracts can be used as an instrument to launder money and to channel funds to bribe takers. If the traders who engineer these products are able to recognise and report unusual activity – such as a price that does not chime with the market – compliance training is hitting the mark. But if these traders are sitting through a course which spends only a fraction of the time looking at how financial criminals try to manipulate sophisticated products, they might never spot a suspicious transaction. AML/CTF training must reach far beyond the basic stages and into the specific business lines run by banks on the markets. Because this is where the real financial crime takes place.

Do we need to redefine predicate crimes?

A report from the Arab News portal this week looks at the Deutsche Bank AG probe into possible money laundering via FCR - Laundromattransactions made by some of its Russian clients.

“Transactions conducted over a period of years are being investigated, and the sum could exceed $6 billion, the source said, adding that the internal probe of the possible abuse being conducted by Deutsche Bank is in its initial stages.”

The article mentions that launderers used ‘relatively simple transactions’ in USD and RUB, but does not elaborate on the details. But this admission is, in itself, telling. Launderers have not needed to create sophisticated constructs to clean the proceeds of crime. So will this be a wake up call for all financial services firms to start paying more than lip service to anti-money laundering? Or perhaps we need to redefine criminality, to reinforce the message on what is allowed and what is not.