The 2018 World Cup will only shed more light on corruption in Russia

By: Murad Hemmadi

Scandals have dominated the lead-up to the big event, and there’s little chance of the tournament itself going smoothly

At about 6 p.m. local time on June 14 at Moscow’s Luzhniki Stadium, with Vladimir Putin in attendance and hundreds of millions tuning in around the world, a player will tap the ball to a teammate and kick off the 2018 FIFA World Cup. However the Russian team fares at home, the tournament will likely go down as a bad play by the ruling regime.

Nations treat the hosting of mega sporting events as a marker of “entering the global community [and] being a global player in terms of trade and economics,” says Simon Darnell, an assistant professor at the University of Toronto. They’re looking to be recognized as “a country with international prestige, a leader, forward-looking.” The Putin regime must see the World Cup as a chance to showcase Russia’s resurgence. Instead, reputation-dinging scandals have dominated the lead-up, and there’s little chance of the tournament itself going smoothly.

There’s already the cost: a projected $13.8 billion in government spending. The total expenditure won’t be totted up until well after the tournament, but the 2014 Winter Olympics in Sochi cost four times as much as initially anticipated. The other side of the balance sheet is in bad shape, too—while the World Cup has traditionally been a commercial bonanza, FIFA has reportedly struggled to sign up large sponsors for 2018.

Meanwhile, European media outlets reported last summer that poorly paid and ill-treated North Korean labourers had been involved in building St. Petersburg’s Zenit Arena; according to a trade union, eight workers have perished on the site, among 17 killed at tournament venues in total.

The hosts have hardly been winning good press in other areas, either. Canadian lawyer Richard McLaren’s independent investigation for the World Anti-Doping Agency found an “institutional conspiracy” to cover up the use of performance-enhancing drugs by Russian Olympic and Paralympic athletes. As a result, the Russian team was banned in early December from competing at the 2018 Winter Games in Pyeongchang, South Korea.

Russian officials have vehemently denied these reports. But staging the World Cup is unlikely to illuminate Russia’s renewed relevance. Instead, it will shine the spotlight on a spectacular mess.

The Manafort money laundering charges: What’s in store?

By Stefan D. Cassella and Michael Zeldin

(CNN)Paul Manafort and Richard Gates are under a multicount indictment with each facing lengthy prison terms, if convicted. Money laundering is the most serious crime charged and is premised on Manafort’s and Gates’ alleged failure to register with the Justice Department as foreign agents.

While a money laundering case based on a failure to register as a foreign agent is not common, the allegations in the indictment, if proven, would appear to satisfy the requirements of the money laundering statute.
If convicted, not only would Manafort and Gates face the possibility of prison time, but they also could be required to forfeit any property, real or personal, involved in the offense or traced to it. (In Manafort’s case, this could reach up to $18 million.) How strong a case special counsel Robert Mueller has will be determined at their trial, currently scheduled to begin May 7, 2018. Both have pleaded not guilty to the charges.
It is, therefore, not surprising that Manafort’s lawyers have begun pushing back.
In their motion to modify the conditions of Manafort’s release pending trial, they have asserted that the money laundering charge is “based on an extremely novel reading of the money laundering statute.” Their argument appears to be that a money laundering case cannot be premised on a violation of the Foreign Agent Registration Act (FARA).

Two kinds of money laundering

The money laundering count alleges that Manafort and Gates conspired to violate two relevant provisions of the money laundering statute — the provision that prohibits international money laundering and the one that prohibits domestic money laundering.
Citing the international money laundering provision, the indictment alleges that Manafort and Gates conspired to transfer money into or out of the United States with the intent to promote the crime of failing to register as a foreign agent.
Citing the domestic money laundering provision, it alleges that Manafort and Gates conspired to conduct transactions involving the proceeds of the FARA violation with knowledge that the transactions were designed either to conceal or disguise the source of the money or to evade taxes.
The domestic and international money laundering provisions operate differently. Whereas the domestic provision looks rearward — focusing on the source of the money being laundered, in other words, the proceeds of illegal activity (otherwise known as “dirty money”) — the international one looks forward, making it an offense to use money derived from any source, legal or illegal, to promote a specified crime in the future.
Under the international provision, the money can be perfectly “clean;” the crime is in using it to break the law down the road.
For example, under the domestic money laundering provision, it would be a crime to launder drug proceeds by running the money through a complex series of bank accounts and shell companies with the aim of concealing the source of the money or the defendant’s connection to it. In contrast, under the international money laundering provision, it would be an offense to send untainted money from the United States to Mexico for the purpose of paying for a shipment of illegal drugs.
The Manafort and Gates indictment accuses the former Trump campaign officials of conspiring to commit both types of money laundering. With respect to the international money laundering allegation, it alleges that the defendants transferred money to the United States for the purpose of “promoting” their criminal act of failing to register as foreign agents for Ukraine. (“Promotion” is defined in the law as doing something that constitutes a step in the commission of a crime, or that facilitates a crime by making it easier to commit or harder to detect.)

What it takes to get a conviction

Accordingly, to obtain a conviction on the charge of conspiracy to commit international money laundering, the prosecutors would have to prove that the defendants entered into an agreement to bring money into the United States for the purpose of promoting the FARA violation — for instance, to pay for lobbying services on behalf of the government of Ukraine that would have required Manafort and Gates to register as foreign agents.
The prosecutors would not have to show that the money that they brought into the United States was derived from any earlier crime.
The international money laundering transactions listed in the indictment that Manafort allegedly conducted were from Cyprus, and to a lesser extent, from the Grenadines and the United Kingdom, to the United States. These transactions allegedly occurred over a period of several years and enabled Manafort and Gates to purchase millions of dollars worth of luxury goods, personal services and real estate.
On the other hand, the domestic money laundering statute does require the Government to prove that the money the defendants conspired to launder was the proceeds of a crime. Because the indictment alleges that the defendants conspired to launder the proceeds derived from their failure to register as foreign agents, the prosecutors would have to prove the following to obtain a conviction for the domestic money laundering conspiracy:
First, they would have to show that Manafort and Gates committed or intended to violate FARA and that this offense generated or was intended to generate some proceeds. (“Proceeds” is defined as money (or other property) that the defendants obtained as a consequence of the offense, or that they would not have been able to retain but for having committed the offense.)
For example, the prosecutors might argue that the consulting fees that Manafort and Gates earned were criminal proceeds because Manafort and Gates would not have been able to continue to earn them except for their continued evasion of the requirement to register as foreign agents.
Second, the prosecutors would have to show that the defendants agreed to conduct financial transactions that involved the proceeds derived from their failure to register as foreign agents.
Finally, the government would have to show that the defendants agreed to conduct the financial transactions knowing that they were designed to conceal or disguise the illegal source of the money or their connection to it, for example, through the use of shell companies and offshore accounts, or to evade taxes.
Whether the government can prove the allegations against Manafort and Gates will be determined at trial. Meanwhile, the two men remain under house arrest and are required to wear GPS monitoring devices.

Demonetisation Has Failed to Tackle Black Money

Representative image. Credit: PTI

Government’s claim that a reduction of currency in circulation is proof of greater transparency is based on the flawed belief that a lower cash to GDP ratio indicates less corruption.

At its first anniversary, most of the analysis of the success or failure of demonetisation was connected to the objective of tackling black money. This was the raison d’etre that appealed to everyone and, therefore, the popular touchstone to judge its performance. As a result, the government’s claims about what demonetisation has done to the use of cash have not got the critical scrutiny they require. Yet, after the initial November 8 announcement, this was the objective the government seemed to most stress. So let’s look closely at this specific set of facts.

In the essay he posted on his blog on November 7, the finance minister said: “India has taken a big leap in digital payment during 2016-17”. To illustrate or prove his point he cited three facts.

First, in 2016-17, there were 110 crore transactions, valued at 3.3 lakh crore and carried out by credit cards, and a further 240 crore transactions, coincidentally once again valued at 3.3 lakh crore and carried out by debit cards. In the previous year, the value of transactions for debit and credit cards was 1.6 lakh crore and 2.4 lakh crore respectively.

Second, the total value of transactions with pre-paid instruments increased from Rs 48,800 crore in 2015-16 to Rs 83,800 crore in 2016-17.  In terms of volume, the number of such transactions during the same period increased from 75 crore to 196 crore.

Third, during 2016-17, the National Electronic Funds Transfer handled 160 crore transactions valued at 120 lakh crore, an increase from the 130 crore transactions worth 83 lakh crore in the previous year.

The finance minister believes this is impressive and calls it “a big leap in digital payments”. However, the details given by the National Payment Corporation of India (NCPI) to the Indian Express paint a very different picture. The NPCI figures prove that whilst digital transactions increased significantly after demonetisation was announced, a year later they were either back to where they were in November 2016 or had, at least, declined substantially.

The total value of digital transactions according to the NPCI in November 2016 was 94 lakh crore. They reached a high point of 149 lakh crore in March 2017 and then fell to 107 lakh crore in July 2017. In August, they were almost the same at 109 lakh crore. However, in September, they rose to 124 lakh crore but collapsed in October to 99 lakh crore. The October figure is accurate only until the 29th of that month.

Much the same is true of the volume of digital transactions. They were 671.49 million in November 2016, rising to 957.50 million in December, before falling to 862.38 million in July and, thereafter, remaining stable. In October they were 863.9 million.

So, the NPCI data shows that in value terms, digital transactions in October 2017 were almost exactly what they were in November last year. In volume terms, however, they increased by nearly 42% between November and December but, thereafter, declined significantly and flattened out.

More importantly, the NCPI data includes all debit and credit card usage as well as pre-paid instruments and NEFT. It also includes Bhim and UPI, e-wallets and Paytm. Which raises the question, did Mr Jaitley tell only half the story?

Let’s come to the government’s boast that post demonetisation, the cash to GDP ratio has fallen from 11.3% to 9.7%. In his blog essay, Jaitley added the reduction of currency in circulation is of the order of 3.89 lakh crore. In his press conference, the finance minister said this is proof India is a cleaner and more transparent economy and the capacity for corruption has significantly diminished.

his conclusion hinges on the interpretation that countries with a lower cash to GDP ratio are less corrupt whilst the higher the ratio the greater the potential for corruption. However, the ranking of countries in terms of their cash to GDP ratios, uploaded on June 29, 2017, in Kenneth Rogoff’s The Curse of Cash, doesn’t bear this out.

The country with the highest cash to GDP ratio is Japan with a figure of 19.40%. It also happens to be one of the least corrupt. Almost at the bottom is Nigeria, with a cash to GDP ratio of 1.55%. It’s one of the world’s most corrupt.

According to the same ranking, Singapore, Switzerland, Hong Kong and the whole of the Eurozone have cash to GDP ratios significantly above India’s. They’re also significantly less corrupt. On the other hand, Argentina, Colombia, South Africa and Brazil have cash to GDP ratios that are around half or less India’s but they’re perceived to be as corrupt.

The truth is the cash to GDP ratio is not a test of corruption or corruptibility because how much cash you hold doesn’t make or tempt you to be corrupt. What matters is the character of the people handling cash and what they do with it. That, in turn, is determined by the incentives or disincentives to encourage or deter corruption.

Regardless of what our cash to GDP ratio is or might become, our system encourages corruption. This is the core problem that has still to be tackled.

Karan Thapar is a senior journalist and television commentator

This article originally appeared in The Tribune and is republished with permission.














British shell companies linked to 52 money laundering scandals

sec A pedestrian walks past Britain’s Treasury building in central London

LONDON: British shell companies have been linked to 52 money laundering scandals involving 80 billion pounds (US$105 billion) in the past 14 years, according to researchers at campaign group Transparency International.

Tax evasion and financial crime has shot to the top of the international agenda in recent days following reports based on leaked documents from Appleby, a prominent offshore law firm founded in Bermuda.

But the report from Transparency International’s UK arm said it’s not just Caribbean islands that are used to hide illicit money flows and that Britain was a key link in many of the largest corruption scandals of recent years.

Fraudsters in eastern Europe and elsewhere often channel money through UK-registered entities because they appear to many people as more legitimate than tax haven-registered companies, the non-governmental body said.

The UK Treasury declined immediate comment on the report. Britain says it is doing more than most countries to tackle illicit money flows.

It is the only country to have introduced a functioning, publicly-available register of true beneficial owners of companies.

However, the system is poorly policed. Companies House, the body which overseas British corporate records, does not have the resources to verify the information submitted to it.

Also, successive British governments have sought to make it easy to register companies, for example allowing people to do so online and without verifying their identification, in the hope this spurs entrepreneurship.

This has led to a small industry of formation agents establishing blocks of companies and partnerships which they then make available to overseas parties.

Transparency International found that around half of the 766 companies alleged to have been involved in money laundering schemes were based at just eight UK addresses.

“Financially these scandals could amount to 80 billion pounds or more in illicit wealth, with some of them threatening the financial stability of whole economies. The human damage inflicted on the victims of these crimes is still being counted,” the report said.

(US$1 = 0.7631 pounds)

(Reporting by Tom Bergin; Editing by Adrian Croft)

Source: Reuters


Saudi Anti-Corruption Sweep Leads to High-profile Arrests


By Becky Anderson and Sarah El Sirgany, CNN

Riyadh, Saudi Arabia (CNN)Saudi Arabia’s newly formed anti-corruption committee has arrested at least 17 princes and top officials, according to a list obtained by CNN and cited by a senior royal court official.

The list includes Prince Alwaleed bin Talal, the billionaire businessman who owns 95% of Kingdom Holding, which holds stakes in global companies such as Citigroup, Twitter, Apple and News Corp. Reports of his arrest saw $750 million wiped off Prince Alwaleed’s fortune Sunday.
At least 38 former, current, and deputy ministers, have been arrested on accusations of corruption. CNN has obtained the names of 17 people on the list including formal head of the royal court Khaled Al-Tuwaijri, Saudi media mogul Waleed Al-Ibrahim and Prince Turki bin Nasser.
Badr Asaker, the bureau manager of Crown Prince Mohamed bin Salman, tweeted the list of arrested businessmen, princes and officials early Sunday. The list was also independently obtained by CNN.
In addition, three ministers were removed from their positions, and tens of former ministers were detained as part of the new anti-corruption campaign initiated by King Salman bin Abdulaziz Al-Saud, according to Saudi-backed broadcaster Al-Arabiya.
King Salman ordered the new anti-corruption initiative as part of an “active reform agenda aimed at tackling a persistent problem that has hindered development efforts in the Kingdom in recent decades,” a press release from the Saudi Ministry of Communications said.

Follow the money: Here’s how money laundering works


Special counsel Robert Mueller followed the money to file a criminal conspiracy and money laundering indictment against President Trump’s former campaign manager Paul Manafort and his associate Richard Gates for activities predating their joining the campaign.

Simply put, money laundering is a common technique used by financial criminals and others to hide illegal gains.

“You’re taking ill-gotten gains and ‘washing’ them by transforming them into funds that can’t easily be connected to the original source,” said John Byrne, the former executive vice president of the Association of Anti-Money Laundering Specialists, a crime prevention group.

More than 200 federal crimes can be legal predicates for money laundering Byrne added in a Monday interview.


After amassing illegal gains, financial criminals typically place the money into the financial system in ways designed to avoid drawing the attention of banks, financial institutions or law enforcement agencies. This is the stage of the washing process most vulnerable to detection, according to a 2014 federal inter-agency manual compiled by the Federal Reserve, Office of the Comptroller of the Currency and other agencies.

Placement techniques include structuring currency deposits in amounts below the $10,000 reporting requirement for banks, or commingling the illicit funds with money from legal activities.

The indictment filed by Mueller’s team alleges that Manafort laundered more than $18 million he received for acting as an agent of a pro-Russia political party in Ukraine and failed to report the work and income as federal laws require. Gates allegedly transferred more than $3 million from offshore accounts to other accounts he owned.


After the funds enter the financial system, the money is layered, or shifted through a series of transactions designed to create confusion and complicate the paper trail for investigators.

Examples include exchanging monetary instruments for larger or smaller amounts, or wiring or transferring funds through numerous accounts in one or more U.S. or foreign financial institutions.

Some foreign accounts may be so-called “shell companies” — entities that have no physical presence apart from a mailing address and generate no independent economic value, according to advisories from the Financial Crimes Enforcement Network, part of the U.S. Department of the Treasury.

The indictment filed by Mueller’s investment team lists 17 domestic businesses or limited liability companies allegedly owned or controlled by Manafort and Gates. The indictment also identifies 12 entities in Cyprus, and three others in the United Kingdom or the Caribbean islands of the Grenadines.

The indictment also identifies scores of transactions from 2008-2014 in which Manafort allegedly wired more than $12 million from the foreign accounts to vendors for personal expenses without paying taxes on the income.


This final stage is used to help shield financial criminals by providing a plausible explanation for where the money came from. Examples of integration include purchasing and reselling real estate, investment securities, or other financial assets with money from illicit activity.

The indictment lists four Manafort real estate properties and a life insurance policy that collectively are subject to forfeiture because investigators linked them to his alleged illegal activity and money laundering.

The properties include a luxury home in Water Mill, N.Y., part of the Hamptons area on Long Island’s East End, as well as residences in Brooklyn, Manhattan and Arlington, Va.

Trying to crack down on money laundering through real estate transactions, the Financial Crimes Enforcement Network in February renewed requirements for title agents to identify all people behind shell companies involved in all-cash deals for expensive properties in New York City, the Miami, Fla., San Francisco, and San Diego area, along with San Antonio, Texas.

Paul Manafort, Once of Trump Campaign, Indicted as an Adviser Admits to Lying About Ties to Russia

WASHINGTON — President Trump’s campaign chairman, Paul Manafort, was indicted Monday on charges that he funneled millions of dollars through overseas shell companies and used the money to buy luxury cars, real estate, antiques and expensive suits.

The charges against Mr. Manafort and his longtime associate Rick Gatesrepresent a significant escalation in a special counsel investigation that has cast a shadow over Mr. Trump’s first year in office.

Separately, one of the early foreign policy advisers to Mr. Trump’s presidential campaign, George Papadopoulos, pleaded guilty to lying to the F.B.I. about a contact with a Russian professor with ties to Kremlin officials, prosecutors said on Monday.

The special counsel, Robert S. Mueller III, was assigned in May to investigate whether anyone close to Mr. Trump participated in a Russian government effort to influence last year’s presidential election. Monday’s indictments indicate that Mr. Mueller has taken an expansive view of his mandate.

The indictment of Mr. Manafort and Mr. Gates makes no mention of Mr. Trump or election meddling. Instead, it describes in granular detail Mr. Manafort’s lobbying work in Ukraine and what prosecutors said was a scheme to hide that money from tax collectors and the public. The authorities said Mr. Manafort laundered more than $18 million.

Manafort used his hidden overseas wealth to enjoy a lavish lifestyle in the United States without paying taxes on that income,” the indictment reads.

Mr. Gates is accused of transferring more than $3 million from offshore accounts. The two are also charged with making false statements.

“As part of the scheme, Manafort and Gates repeatedly provided false information to financial bookkeepers, tax accountants and legal counsel, among others,” the indictment read.

Mr. Papadopoulos admitted that in a January interview with the F.B.I., he lied about his contacts with a Russian professor, whom he knew to have “substantial connections to Russian government officials,” according to court documents. Mr. Papadopoulos told the authorities that the conversation occurred before he became an adviser to Mr. Trump’s campaign. In fact, he met the professor days after joining the campaign.

The professor took interest in Mr. Papadopoulos “because of his status with the campaign,” the court documents said.

Mr. Manafort and Mr. Gates surrendered to the F.B.I. early on Monday and were due in court in the afternoon. Money laundering, the most serious of the charges, carries a potential prison sentence of up to 20 years.

Mr. Manafort has expected charges since this summer, when F.B.I. agents raided his home and prosecutors warned him that they planned to indict him. That warning raised speculation that Mr. Manafort might try to cut a deal to avoid prosecution. A senior White House lawyer, Ty Cobb, said last week that the president was confident that Mr. Manafort had no damaging information about him.

People close to Mr. Manafort, including his former business partner Roger J. Stone Jr., have said he had nothing to offer that would help prosecutors build a case against Mr. Trump.

“He’s not going to lie,” Mr. Stone said in September.

Mr. Gates is a longtime protégé and junior partner of Mr. Manafort. His name appears on documents linked to companies that Mr. Manafort’s firm set up in Cyprus to receive payments from politicians and businesspeople in Eastern Europe, records reviewed by The New York Times show.

Attempts to reach Mr. Gates on Monday were not successful. A spokesman for Mr. Manafort did not immediately respond to a request for comment.

Mr. Manafort, a veteran Republican strategist, joined the Trump campaign in March 2016 to help keep delegates from breaking with Mr. Trump in favor of establishment Republican candidates. Mr. Trump soon promoted him to chairman and chief strategist, a job that gave him control over day-to-day operations of the campaign.

But Mr. Trump fired Mr. Manafort just months later, after reports that he received more than $12 million in undisclosed payments from Viktor F. Yanukovych, the former Ukrainian president and a pro-Russia politician. Mr. Manafort spent years as a political consultant for Mr. Yanukovych.

American intelligence agencies have concluded that President Vladimir V. Putin of Russia launched a stealth campaign of hacking and propaganda to try to damage Hillary Clinton and help Mr. Trump win the election. The Justice Department appointed Mr. Mueller III as special counsel in May to lead the investigation into the Russian operations and to determine whether anyone around Mr. Trump was involved.

Mr. Trump has denied any such collusion, and no evidence has surfaced publicly to contradict him. At the same time, Mr. Trump and his advisers this year repeatedly denied any contacts with Russians during the campaign, only to have journalists uncover one undisclosed meeting after another.

The New York Times revealed in July that Mr. Manafort and others close to Mr. Trump met with Russians last year, on the promise of receiving damaging political information about Mrs. Clinton.

Bitcoin Scam Ends in Jail as Immigrant’s American Dream Fades

By: Erik Larson

A Florida software engineer who came to the U.S. from Ukraine as a teenager seeking the American dream was sentenced to 16 months in prison for his role in building an illegal bitcoin exchange — one that allegedly laundered money for a global hacking ring.

Yuri Lebedev, 39, was the technology guru behind, which tricked banks into processing bitcoin transactions by disguising them as restaurant-delivery charges and online purchases of collectible items. Lebedev was convicted in March of conspiracy and fraud following a monthlong trial in Manhattan.

U.S. District Judge Alison J. Nathan on Friday said Lebedev had abused his “impressive technology skills” to trick financial institutions, making them “unwilling participants in the scheme.” was allegedly set up for use by a group of hackers who targeted financial and publishing firms including JPMorgan Chase & Co. and Dow Jones & Co. in a series of attacks in 2014. Lebedev wasn’t accused of money laundering or involved in the hacking, but his role in operating the exchange was critical, prosecutors said.

Lebedev, wearing a black suit, stood before sentencing to say he regretted getting involved with All he wanted to do, he said, was create “cutting edge technology” and build something “that would make me exceptional.”

“I got carried away,” Lebedev said, adding he realizes now “there are no shortcuts.”

Less Time

Nathan gave Lebedev considerably less time than the maximum of 10 years recommended by U.S. sentencing guidelines, finding he was neither a leader nor a mastermind, and noting he had no criminal history.

“He did what he was told to do,” Nathan said.

The man giving the orders was’s operator, Anthony Murgio, who was sentenced to 5 1/2 years in June. He pleaded guilty in January and said he ran for the hacking scheme’s main Israeli architect, Gery Shalon, the self-described founder of a criminal enterprise that stunned Wall Street.

Prosecutors said the unregistered exchange sold bitcoins that were used in illegal online transactions and as payment in ransomware attacks. Lebedev’s role was to set up an array of servers that used to process its transactions, a critical element of the scheme that required constant attention to avoid detection by the banks, the U.S. said.

To help dodge regulators, Lebedev also conspired with his boss to bribe a New Jersey pastor to let them take over a credit union that was run out of a church, and use it to help legitimize the exchange’s operations. The scam eventually ruined the business, which is liquidating.

Better Life

It’s all a far cry from Lebedev’s goal of creating a better life for himself in the U.S., according to court papers. Born in Russia and raised in Ukraine, he was abandoned by his alcoholic father when he was 8 and raised by his scientist mother. After winning awards in biology, math and physics, he was selected to move to the U.S. as an exchange student at age 16.

“America has been given a genius from the Ukraine,” his math teacher said at the time, according to defense filings.

“Yuri, with his mother’s support, made the brave decision to move to the United States — without having a single relative or acquaintance in America — in order to improve his life,” his lawyer said.

Lebedev moved in with a host family in Georgia, according to court papers. After high school he double-majored in physics and computer science at Valdosta State University, and obtained post-graduate degrees including a Masters of Science and Physics from Florida State University, court papers show. He met his wife at college. They have three children.

Complex Web

Lebedev’s attorney, Eric Creizman, cited the wide-ranging nature of the scheme to portray his client as a husband and doting father who got caught up in something too big for him to recognize. In court papers, he described Lebedev as an “unlikely criminal defendant.”

But prosecutors used the idyllic life Lebedev had built against him in seeking a tough sentence, saying he wasn’t like criminals who needed money or had other such motivation to break the law.

“He basically could have ridden out the script for his life,” Assistant U.S. Attorney Won S. Shin said at the sentencing. People in Lebedev’s position “are even more culpable.”

Family and friends sent letters to the court supporting Lebedev, all of which described him as a man devoted to hard work and to his children. His host family said Lebedev tutored their child in math, while a college pal relayed how Lebedev washed dishes to avoid using a credit card for living expenses.

Shalon’s global network allegedly stole information on more than 100 million customers of banks and publishing firms and generated hundreds of millions of dollars in illicit proceeds from pump-and-dump stock scams and online gambling.

Murgio operated the exchange with Lebedev from about 2013 to 2015 through a front company, the Collectables Club Private Member Association, which lists Murgio’s West Palm Beach address, court papers show. At Murgio’s sentencing hearing, he wept and said he’d “screwed up badly.”

The case is U.S. v. Murgio, 15-cr-00769, U.S. District Court, Southern District of New York (Manhattan).


Hiding in plain sight: Why Hong Kong is a preferred spot for North Korea’s money launderers

By Joshua Berlinger, CNN

Hong Kong (CNN)Easey Commercial Building is an unassuming mid-rise office tower on Hennessy Road, an artery that runs through Hong Kong’s busy Wan Chai district. The structure sits among scenery that’s classic Hong Kong: bright lights, tall buildings, people rushing about.

But camouflaged in the normalcy is a business that seemingly exists in name only.
At least, Unaforte is supposed to be there. That is the address listed on its publicly available corporate filings provided to the Hong Kong government. When CNN visited the office, it found neither Unaforte nor its listed company secretary, Prolive Consultants Limited.
Instead, room 2103 was home to a seemingly unrelated company: Cheerful Best Company Services. Only one man was there when CNN stopped by, and he said a representative for Prolive Consultants only comes by every so often to pick up mail. He had not heard of Unaforte.
The United Nations Panel of Experts on North Korea — the body charged with monitoring sanctions enforcement on the hermit nation — said in two recent reports that Unaforte opened and owned a bank in the North Korean city of Rason. That is likely a violation of the latest UN Security Council resolution banning joint international ventures with North Korea, according to Christopher Wall, a lawyer who specializes in international trade law and a partner at Pillsbury Winthrop Shaw Pittman in Washington, DC.
Unaforte is not unique. It’s just one of a handful of front companies identified by the United Nations, nongovernmental analysts and US law enforcement that help North Korea access the global financial system.
Front companies — also known as shell companies — are legitimate corporations that do not possess significant assets or maintain active business operations. Some serve licit business purposes — helping foreign companies establish a foothold in overseas markets, for one, or reap foreign tax benefits. Others help to conceal the true ownership of a business or the parties involved in illicit transactions.
Here’s an example: say business A wants to sell business B something potentially unlawful, like military-grade hardware. If investigators were already monitoring business A, business B could pay a front company for the weapons instead of business A. Or business B could create its own front company to pay business A’s front company, making the network even bigger and more nebulous.
North Korea is believed to use these types of practices to cover up much of its trade, from selling coal and fuel to exporting weapons.
“The (North Korean) regime accesses the international financial system through front companies and other deceptive financial practices in order to buy goods and services abroad,” Sigal Mandelker, the undersecretary for terrorism and financial intelligence at the US Department of the Treasury, said in Senate testimony on September 28.
Hong Kong is one of two business jurisdictions (along with the British Virgin Islands) where the UN Panel of Experts on North Korea has seen the largest share of North Korean-controlled front companies operating, said Hugh Griffiths, the panel’s coordinator.
“You can just count them up in our reports — Hong Kong is the preponderance,” Griffiths told CNN.
The city is no stranger to those looking to make a quick buck by skirting the law, whether it was the pirates who roamed the South China Sea in the 16th century or the Triads who spread their tentacles following Chinese Civil War, while the city was still under British control.
Today, Hong Kong is governed as a special administrative region of China. When the British handed control of the city to Beijing in 1997, the agreement was to run Hong Kong according to a policy known as “one country, two systems.” It promised Hong Kongers their own political system — with more individual liberties, market freedoms and lax corporate oversight and reporting requirements — would in large part continue as is, but Hong Kong would become part of China.
“It should come as no surprise that Hong Kong is featured so prominently in our report,” Griffiths said. “It’s the closest major international financial center to North Korea. It’s the closest major offshore international financial center to North Korea. And historically, it’s been a center of global and regional trade … and with fewer questions asked and looser regulation than, say, Beijing.”
CNN reached out to both Hong Kong police and its Joint Financial Intelligence Unit for comment on the United Nations reports, Unaforte and shell companies in Hong Kong altogether and was told “police do not comment on individual case(s).”

A secretary and a director

When Unaforte’s company particulars show up in Hong Kong’s publicly available corporate records, the name of just one individual appears. He holds a passport from the small Caribbean island of Dominica. A passport number is there, but not a phone number.
Those details shed light on Hong Kong’s incorporation requirements. To start a company in Hong Kong, one needs at least one director (has to be an actual person) and a company secretary (which can either be a person or another company, but must be based in Hong Kong), according to the Companies Registry website.
Though the company’s registered office must be in Hong Kong, they are allowed to share an office with their company secretary and neither technically has to operate out of that address, an official with the Hong Kong Companies Registry told CNN on the phone. But doing that is considered a “red flag” for money laundering investigators.
“These practices, while legal, lend themselves to North Korean efforts to camouflage the real identity and nationality of those who stand behind these registered entities,” said Griffiths.
C4ADS, a Washington-based nonprofit firm which conducts data-driven analysis of security issues, identified 160 North Korean front companies in Hong Kong in a 2016 report. And Sayari Analytics, another firm that uses open data to monitor the connections between firms, has identified more than 100 entities in Hong Kong linked to sanctioned North Korean ones.
The system wasn’t designed for wrongdoing; rather, it makes Hong Kong an easy place for companies abroad do business, as they do not have to incur the cost of setting up a new shop, according to David Webb, a former investment banker who is now a Hong Kong-based activist investor.
“It’s common and it’s not a sign of wrongdoing itself,” Webb said.
To service offshore clients, there are plenty of secretarial services that provide company directors abroad with assistance. They often serve as company secretaries for their clients.
Prolive Consultants, the company secretary for Unaforte, appears to be one such company.
“As a company that offers secretarial services, we do not interfere with our clients’ business. What we do is just to help collect clients’ business registration certificates and forms, assist them,” said Amy Lam with Prolive Consultants, whose phone number CNN obtained after visiting the Easey Building office.
When asked by CNN what type of business Unaforte is engaged in, Lam said: “We do not interfere with what kind of business our client does. Whether they are successful or not, or whether their business is profitable or not, we don’t know.”

Ledgers and credits

The sale of about $6 million worth of refined sugar in 2009 helped bring another company doing business with Pyongyang to the attention of American authorities.
North Korea was ostensibly doing something simple: buying a food staple. But they did it through a complicated, labyrinthine transaction involving North Korea, Dandong Hongxiang Industrial Development (DHID), a bank and a Canadian company, according to a 2016 criminal complaint.
That’s because if companies like DHID or Unaforte are doing business in dollars, it means their transactions are likely to go through the United States at some point (unless they’re conducted in cash).
Companies that are sanctioned in most cases cannot easily conduct transactions in the dollar, as US banks have to back those deals and would filter and flag sanctioned entities, Anthony Ruggiero, an expert in the use of targeted financial measures at the Foundation for the Defense of Democracies, told CNN.
The DHID charges revealed that to get around US prying eyes, North Korea uses a complex ledger and credit scheme to hide North Korea’s involvement in dollar transactions, Ruggiero explained to Congress in September.
Thirteen of DHID’s front companies were located in Hong Kong. Eleven shared the same registered address in Wan Chai, less than a kilometer away from the Easey Commercial Building, the indictment said.

FinCEN Issues Advisory on Widespread Public Corruption in Venezuela

FinCEN Issues Advisory on Widespread Public Corruption in Venezuela

The Financial Crimes Enforcement Network (FinCEN) released an advisory on September 20, 2017, to alert financial institutions of widespread public corruption in Venezuela and the methods Venezuelan senior political figures may use to move and hide corruption proceeds.1

The advisory also identified red flags that may assist financial institutions in identifying suspicious activity that may be indicative of Venezuelan corruption, including the abuse of Venezuelan government contracts, wire transfers from shell corporations, and real estate purchases in the South Florida and Houston, Texas regions. The FinCEN advisory also reminds financial institutions of their obligations to monitor, detect, and report such conduct.


Venezuela has been in political and economic turmoil due to the deterioration of its democratic and constitutional order. FinCEN warns that widespread corruption may further destabilize its economic growth and stability. In recent years, financial institutions have reported to FinCEN suspicions that transactions may be linked to Venezuelan public corruption, including government contracts. As a result of these reports and other relevant information, FinCEN considers all Venezuelan government agencies and bodies, including state owned enterprises (SOEs), vulnerable to public corruption and money laundering. According to FinCEN, the Venezuelan government appears to use its control over large parts of the economy to enrich government officials and SOE executives, their families, and associates. FinCEN, therefore, believes that there exists a high risk of corruption involving Venezuelan government officials and employees at all levels, including those managing or working at Venezuelan SOEs.2

FinCEN warns that transactions involving Venezuelan government agencies and SOEs, particularly those involving government contracts, can potentially be used as vehicles to move, launder, and conceal embezzled corruption proceeds. SOEs and their officials may also try to use the U.S. financial system to move or hide proceeds of public corruption. In an effort to thwart the movement of these proceeds, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has recently designated as persons engaged in, or materially assisting, sponsoring, or supporting, public corruption various Venezuelan SOEs, including: National Center for Foreign Commerce (CENCOEX), Suministros Venezolanos Industriales, CA (SUVINCA), the Foreign Trade Bank (BANCOEX), the National Telephone Company (CANTV), the National Electric Corporation (CORPELEC), and the Venezuelan Economic and Social Bank (BANDES). As scrutiny of these enterprises increases, FinCEN warns financial institutions that corrupt officials may try to channel illicit proceeds through lesser-known or newly-created SOEs.

FinCEN also identified red flags that may help financial institutions identify corrupt schemes:

  • Transactions involving Venezuelan government contracts that are directed to personal accounts;
  • Transactions involving Venezuelan government contracts that are directed to companies that operate in an unrelated line of business (e.g., payments for construction projects directed to textile merchants);
  • Transactions involving Venezuelan government contracts that originate with, or are directed to, entities that are shell corporations, general “trading companies,” or companies that lack a general business purpose;
  • Documentation corroborating transactions involving Venezuelan government contracts (e.g., invoices) that include charges at substantially higher prices than market rates or that include overly simple documentation or lack traditional details (e.g., valuations for goods and services). Venezuelan officials who receive preferential access to U.S. dollars at the more favorable, official exchange rate may exploit this multi-tier exchange rate system for profit;
  • Payments involving Venezuelan government contracts that originate from non-official Venezuelan accounts, particularly accounts located in jurisdictions outside of Venezuela (e.g., Panama or the Caribbean);
  • Payments involving Venezuelan government contracts that originate from third parties that are not official Venezuelan government entities;
  • Cash deposits instead of wire transfers into the accounts of companies with Venezuelan government contracts;
  • Transactions for the purchase of real estate—primarily in the South Florida and Houston, Texas regions—involving current or former Venezuelan government officials, family members or associates that are not commensurate with their official salaries; and
  • Corrupt Venezuelan government officials seeking to abuse a U.S. or foreign bank’s wealth management units by using complex financial transactions to move and hide corruption proceeds.

Impact and Regulatory Obligations

The recent FinCEN advisory also reminds U.S. financial institutions that in order to meet their due diligence obligations that would apply to activity involving certain Venezuelan persons, they should generally be aware of public reports of high-level corruption associated with senior Venezuelan foreign political figures and those associated with them; they should assess the risk of laundering the proceeds of public corruption associated with specific particular customers and transactions; and they should be aware of OFAC designations related to Venezuela.

FinCEN also recommends that financial institutions take reasonable, risk-based steps to identify and limit any exposure they may have to funds and other assets associated with Venezuelan public corruption, taking care not to put into question a financial institution’s ability to maintain or continue otherwise appropriate relationships with customers or other financial institutions. FinCEN warns, however, that such steps should not be used as the basis to engage in wholesale or indiscriminate de-risking of any class of customers or financial institutions.

The FinCEN advisory also reminds financial institutions of the applicable regulatory obligations that are intended to facilitate the discovery and disclosure of attempts to move and hide corruption proceeds from Venezuela:

  • Enhanced Due Diligence Obligations for Private Bank Accounts: Covered financial institutions maintaining private banking accounts for senior foreign political figures are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption, consistent with obligations under Section 312 of the USA PATRIOT Act (31 U.S.C. § 5318(i)) and FinCEN’s regulations implementing that Section.
  • General Obligations for Correspondent Account Due Diligence Money Laundering (AML) Programs: U.S. financial institutions must comply with their general due diligence and AML obligations,3 ensuring that their due diligence programs, which address correspondent accounts maintained for foreign financial institutions, include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity involving accounts in the United States.
  • Suspicious Activity Reporting: A financial institution is required to file a suspicious activity report (SAR) if it knows, suspects, or has reason to suspect a transaction involves funds derived from illegal activity, or attempts to disguise funds derived from illegal activity; is designed to evade regulations promulgated under the Bank Secrecy Act (BSA); lacks a business or apparent lawful purpose; or involves the use of the financial institution to facilitate criminal activity, including foreign corruption.


FinCEN emphasizes that reports and information from financial institutions are critical to stopping, deterring, and preventing the proceeds tied to suspected Venezuelan public corruption from moving through the U.S. financial system. Accordingly, companies should remain vigilant of these risks and ensure their due diligence and monitoring programs are up-to-date and comply with all relevant regulatory obligations.