Bitcoin Hedge Fund and CEO Slapped With $2.5 Million Penalty for Ponzi Scheme

A New York federal court has ordered cryptocurrency hedge fund Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman to pay over $2.5 million for operating a fraudulent Ponzi scheme, according to an official announcement published Oct. 18.

GBI is a New York-based corporation and denominated Bitcoin (BTC) hedge fund incorporated in 2014. As stated on the company’s website, by 2015 it had 85 customers and 2,367 BTC under management.

The order is the continuation of the initial anti-fraud enforcement action filed by the U.S. Commodity Futures Trading Commission (CFTC) against GBI in September 2017. The CFTC charged GBI for allegedly running a Ponzi scheme from 2014 to 2016, telling investors that it had developed a computer algorithm called “Jigsaw” which allowed for substantial returns through a commodity fund. In reality, the entire scheme was a fraud.

Per the announcement, GBI and Gelfman fraudulently solicited over $600,000 from at least 80 customers. Moreover, Gelfman set up a fake computer “hack” to conceal the scheme’s trading losses. It eventually resulted in the loss of almost all customer funds.

The current order charges GBI and Gelfman to pay over $2.5 million in civil monetary penalties and restitution. GBI and Gelfman are ordered to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, respectively.

James McDonald, the CFTC’s Director of Enforcement, said that “this case marks yet another victory for the Commission in the virtual currency enforcement arena. As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”

Last month, the CFTC filed a suit with the U.S. District Court for the Northern District of Texas against two defendants for the allegedly fraudulent solicitation of BTC. Per the suit, defendants Morgan Hunt and Kim Hecroft were running two fraudulent businesses and misleading the public to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.

https://cointelegraph.com/news/bitcoin-hedge-fund-and-ceo-slapped-with-25-million-penalty-for-ponzi-scheme

Money Laundering Tactics Adapting to Colombia Cocaine Boom

By Parker Asmann

A new investigation says that record cocaine production in Colombia is causing criminal groups to diversify the ways in which they launder their money, reflecting the fragmented state of the country’s criminal world.

Criminal groups in Colombia are increasingly diversifying their traditional money laundering techniques involving real estate and large public works contracts, as well as new laundering methods involving cryptocurrencies and non-profit organizations, according to a report from the country’s national anti-money laundering body, the Financial Investigations and Analysis Unit (Unidad de Información y Análisis Financiero – UIAF), El Tiempo reported.

Such changes are occurring amid record cocaine production in the Andean nation.

The article reports that 40 trillion Colombian pesos (around $13 billion) of illicit money have been generated in Colombia, without specifying a time frame. Furthermore, every year 16 trillion pesos (around $5 billion) are moved through different money laundering schemes, according to the UIAF.

El Tiempo also received information that traffickers returning to Colombia and to drug-related activities after serving prison time in the United States have been increasing investment in rural properties since 2016.

The real estate boom that major urban centers like Medellín and Colombia’s capital city of Bogotá saw in the past has now moved on to smaller cities near major coca growing areas, such as Pasto in Nariño, southwest Colombia — the department with the most cocaine — and Popayán in the nearby Cauca department. Property records have grown by 300 percent in Pasto and Popayán alone, according to El Tiempo.

In 2017, Nariño department accounted for more than a quarter of the 171,000 total hectares used for coca cultivation last year, according to the United Nations Office on Drugs and Crime (UNODC). The UNODC also found that the number of coca hectares in Cauca department increased by 55 percent between 2016 and 2017.

On average, each hectare of coca produces 6.9 kilograms of cocaine, with one kilogram of cocaine selling for around 5 million pesos (about $1,600) in Colombia, meaning that a single hectare of coca could produce up to 35 million pesos in illicit earnings (about $11,500), according to El Tiempo.

While there are no official reports linking the real estate boom in Nariño and Cauca with the illicit money derived from increased cocaine production, Colombia’s outgoing superintendent of Notary and Registry (Notariado y Registro), Jairo Mesa, says he has no doubt about the links between what he calls the country’s “new urbanism” and illegal drug proceeds.

The shift in money laundering techniques used by criminal groups in Colombia is likely tied to the departure of the now largely demobilized Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia – FARC) and the increasingly fragmented criminal landscape that the guerrillas’ exit ushered in.

The more localized makeup of criminal groups in Colombia and the large profits that are coming in amid record cocaine production may help explain the diversification of money laundering techniques and the substantial uptick in property records observed in smaller municipalities in departments that are strategic to the cocaine trade, such as Nariño and Cauca.

“The Mexicans are full of cash and paying quickly for cocaine, so these more regional groups in Colombia are likely looking for places close to their centers of operation to put their money,” Adam Isacson, a senior associate at the Washington Office on Latin America (WOLA) think tank, told InSight Crime.

This is in line with the historic behavior of Colombia’s most notorious drug trafficking organizations, such as the Norte del Valle, Medellín and Cali cartels, according to Douglas Farah, president of the national security consulting firm IBI Consultants.

“Colombian crime groups have traditionally loved to operate in areas where they know the terrain, have family, and know officials and their vulnerabilities,” Farah said. “As you go from large transnational groups to smaller regional groups, there’s not much protection for them in big cities.”

As Colombia’s criminal landscape continues to take shape, it appears that traffickers are adapting their money laundering strategies to best suit the current dynamics of the cocaine trade.

EU to Act on Visa-For-Sale Schemes After Warnings of Money Laundering Risks

BY FRANCESCO GUARASCIO

BRUSSELS (Reuters) – The European Commission said on Wednesday it will provide guidance to EU states on how to manage national schemes to sell passports and residency permits to wealthy foreign citizens, as campaigners and lawmakers warned of money laundering risks.

Government schemes to trade citizenship or residence rights for large investment are currently applied in 13 EU countries: Austria, Cyprus, Luxembourg, Malta, Greece, Latvia, Portugal, Spain, Ireland, Britain, Bulgaria, the Netherlands and France. Hungary has terminated its program.

“If you have a lot of money that you acquired through dubious means, securing a new place to call home far away from the place you stole from isn’t just appealing, it’s sensible,” Naomi Hirst of rights group Global Witness said.

She said checks on individuals that bought EU citizenship or residency permits were not satisfactory and exposed countries to corruption and money laundering risks.

The joint report by Global Witness and Transparency International urged the European Union to set standards for managing the schemes and to extend anti-money laundering rules, applied so far to banks or gaming firms, to all those involved in the visa-for-sale industry.

The European Commission will publish a report on schemes in EU countries by the end of the year, commissioner Dimitris Avramopoulos said on Wednesday. He said the report would offer guidance to member states on managing the programs, “including on necessary background checks for applicants”.

Acquiring these documents costs on average 900,000 euros, but Cyprus’ passport could cost up to 2 millions, the report said.

Cyprus has raised 4.8 billion euros ($5.51 billion) from its scheme, while Portugal could earn nearly a billion euros a year, according to figures cited in the report, called “European Getaway – Inside the Murky World of Golden Visas”.

EU states generated around 25 billion euros in foreign direct investment in a decade from selling at least 6,000 passports and nearly 100,000 residency permits, the report said using what it called conservative estimates.

“Money must not be the criterion for citizens’ and residents’ rights in the EU,” said EU lawmaker Sven Giegold, who sits on the assembly’s special committee on financial crimes.

“The trade in passports and visas by EU states must be stopped as soon as possible. These programs are a gateway to criminal money,” he added, echoing the view of other EU lawmakers.

The report said in Malta, which has raised 718 million euros from its scheme, applicants who have criminal records or are under investigation could still be considered eligible “in special circumstances”.

“Poorly managed schemes allow corrupt individuals to work and travel unhindered throughout the EU and undermine our collective security,” Laure Brillaud, anti-money laundering expert at Transparency International, said.

All the countries who run these schemes, except Britain, Cyprus, Ireland and Bulgaria, are part of the Schengen free-movement area which comprises 26 European states.

($1 = 0.8708 euros)

North America’s most unaffordable city cracks down on dirty money

Vancouver’s red hot housing market has prompted authorities to introduce a series of transparency measures aimed at uncovering the owners of homes in Canada’s most expensive real estate market.

One new probe will scrutinize dirty money in the province of British Columbia’s real estate, horse-racing and luxury car sales industries, according to Attorney General David Eby who announced the investigation in late September, Bloomberg reported. Finance Minister Carole James also appointed an expert panel to examine money laundering in the housing sector.

These probes, which are expected to be complete by March, follow a similar review of the province’s casinos.

“There is good reason to believe the bulk of the cash we saw in casinos is a fraction of the cash generated through illicit activities that may be circulating in British Columbia’s economy,” Attorney General David Eby told reporters late last month. “We cannot ignore red flags that came out of the casino reviews of connections between individuals bringing bulk cash to casinos, and our real estate market.”

Similar calls to action have been made south of the border. Earlier this month, two U.S. senators — Chris Van Hollen of Maryland and Sheldon Whitehouse of Rhode Island — sent a letter to the Government Accountability Office, calling for an investigation into the potential vulnerabilities of existing U.S. money-laundering provisionsas they pertain to real estate.

Last month, The Real Deal‘s quarterly magazine in South Florida dove into a $1.2 billion Venezuelan money laundering case in which federal authorities are looking to seize 16 high-end properties. [Bloomberg]—Kathryn Brenzel

European countries have been ‘oblivious’ in fighting money laundering, says Latvian minister

By Silvia Amaro

European countries have failed to address financial crime and it is time to take action, the Latvian finance minister told CNBC Wednesday.

The Latvian ABLV, the Danish Danske Bank and the Dutch ING have all recently been involved in scandals over money laundering and financial crime. Dana Reizniece-Ozola, finance minister of Latvia said that these cases have “opened a Pandora’s box” and asked banks do to more to prevent such situations.

“Countries in the European Union have been oblivious in fighting financial crime,” the finance minister told CNBC’s “Squawk Box Europe.”

“Something has to be done, not only at the national level but also at the European level, like probably strengthening the EBA (European Banking Authority),” she suggested.

In the case of ABLV, the U.S. Treasury accused the bank earlier this year of “institutionalized money laundering,” including allowing its clients to conduct business with parties connected to North Korea, which would violate sanctions imposed by the United Nations on the country. At the time, ABLV said the accusations were based on assumptions and information that was then unavailable to the bank.

When the scandal emerged earlier this year, European institutions were criticized for not having the means to oversee and prevent money laundering in the financial system.

This issue has been under further scrutiny after the head of the Danish lender, Danske Bank, resigned last week following a money laundering investigation into the bank. Earlier this month, ING agreed to pay 775 million euros ($910.20 million) in penalties for failing to stop several companies to allegedly launder money over a six-year period.

Separately, German regulators on Monday ordered Deutsche Bankto take internal actions to prevent money laundering.

“The game cannot be won only by one side playing, only by the government playing. The private sector, namely banks themselves have to participate and demonstrate a strong dedication,” Reizniece-Ozola said, adding that “this is the right time” to take action.

CEO of Denmark bank quits amid an alleged $233 billion money-laundering investigation

By Renae Merle

The chief executive of Danske, Denmark’s largest bank, resigned Wednesday after a year-long internal investigation into money laundering found $233 billion in suspicious transactions moving through the bank’s tiny branch in Estonia — nearly 10 times larger than that country’s gross domestic product.

Danske said that CEO Thomas F. Borgen will continue in his position until his successor is named.

The scandal has rocked Denmark as suspicions grew that Danske had become a hub for Russian money laundering. The eye-popping figure, which was released in a report Wednesday by a law firm hired by the bank’s board, could make the case for one of the biggest money-laundering cases in history.

That report, by the firm Bruun & Hjejle, said the bank ignored years of signals about problematic transactions at its Estonia branch, including a warning in 2007 about “criminal activity in its pure form” involving “billions of rubles monthly.”

The bank is likely to face huge fines and investigations around the globe, including a criminal probe in Denmark and other legal action by European and U.S. investigators. The bank has lost about 30 percent of its market value this year, including a 3 percent drop Wednesday, as it scrambles to contain the growing crisis.

Denmark is also threatening to draft tougher penalties against money laundering.

“It is important to get one of the toughest levels of fines in Europe to signal we’re taking this very seriously, because this case has damaged Denmark’s image a lot,” Lisbeth Bech Poulsen, a spokeswoman for the opposition Socialist People’s Party, told Reuters. Financial penalties should be increased by up to 700 percent, Poulsen said.

The report said that the investigation still does not know much will ultimately be deemed illicit of the $233 billion that has been identified. So far, Danske has investigated 6,200 high-risk customer accounts but has many thousands more to go, according to the report. Almost all of those customers have been reported to authorities. “Overall, we expect a significant part of the payments to be suspicious,” the bank said.

Still, the sheer volume of the transactions should have raised alarms, said Nienke Palstra, an anti-money laundering campaigner for Global Witness, a London-based nonprofit organization. “There is no way that senior management would not have noticed that,” she said.

“There is no doubt that the problems related to the Estonian branch were much bigger than anticipated,” Ole Andersen, chairman of Danske’s board, said in a statement. “The findings of the investigations point to some very unacceptable and unpleasant matters at our Estonian branch.”

Danske’s branch in Estonia, a Baltic former Soviet Republic, operated independently from the rest of the bank with its own information technology system and many documents written in Estonian or Russian, according to the 87-page report. But there were “serious” indications of problems that the Danske never acted on. The branch, for example, had a lot of nonresident customers who “carried out large volumes of transactions that should have never happened,” according to the report. The bank said it suspects that some employees helped or collaborated with the customers.

In 2007, the Russian Central Bank warned that it was concerned some of its customers were connected to money laundering or other potential crimes estimated at “billions of rubles monthly,” according to the report. About 177 customers could be involved in what is known as the “Russian Laundromat,” an alleged money laundering scheme, and the investigation is also reviewing allegations of $230 million tax fraud involving “high-ranking officials in the Russian Government,” the report says. In 2013, a whistleblower, an employee at the Estonia branch, reported that “the bank knowingly continued to deal with a company that had committed a crime,” according to the report.

The bank did not launch its internal investigation until 2017.

Danske said it has since improved its anti-money laundering operations and would donate about $230 million in profit to a foundation to combat financial crime.

Borgen, the chief executive, said in a statement that ”it is clear that Danske Bank has failed to live up to its responsibility.”

“I deeply regret this,” Borgen added. “It has been clear to me for some time that resigning would be the right thing to do, but I have held off the decision, because I have felt a responsibility for seeing the bank through this difficult period toward presentation of the investigations.”

https://www.washingtonpost.com/business/2018/09/19/ceo-denmark-bank-quits-amid-an-alleged-billion-money-laundering-investigation/?noredirect=on&utm_term=.32438ad11264

Kent police captain charged with operating gambling house, money laundering

KENT — Lorain County authorities have charged a Kent police captain and his wife with money laundering and racketeering in a grand jury indictment related to their interest in alleged illegal gambling at so-called “internet cafes.”

James W. “Jayme” Cole, 52, and his wife Audrey Cole, 45, both of Stow, were indicted Wednesday by a Lorain County grand jury on three counts of engaging in a pattern of corrupt activity — commonly called racketeering — which are all first-degree felonies; seven counts of money laundering, all third-degree felonies; four counts of illegal casino gaming, all fifth-degree felonies; and four counts of operating a gambling house, all first-degree misdemeanors.

Cole has been a Kent police officer since July 1988, according to his personnel file, released by the city and reviewed Thursday by the Record-Courier following a public records request.

According to the Elyria Chronicle-Telegram, a Lorain County grand jury was convened following an investigation and a series of raids Aug. 15 in multiple Northeastern Ohio counties.

“These indictments are the result of an ongoing investigation involving numerous law enforcement agencies including the Ohio Casino Control Commission, the Lorain County Sheriff’s Office and a number of other area police agencies,” Lorain County Prosecutor Dennis Will said.

One of the raids was on Cole’s home in Stow. Agents of the Portage County Drug Task Force served a search warrant there Aug. 15 on behalf of Lorain County authorities and seized records and cash, according to a law enforcement official who asked not to be identified due to the ongoing investigation.

Cole was placed on paid administrative leave the following day after the Kent Police Department was made aware of the investigation, Kent police spokesman Lt. Mike Lewis said. That changed to unpaid leave on Wednesday when Cole was arrested.

Lewis and Police Chief Michelle Lee said they have no reason to believe Cole committed any crimes in Kent or Portage County.

Cole became a Kent police officer after attending the Hiram Police Department Basic Police Academy in late 1987. He briefly worked as a dispatcher for both Hiram and Chagrin Falls police before Kent police hired him in July 1988.

He served on road patrol, earning Officer of the Year in 1994 along with a Meritorious Service Award, and was the department’s MADD Officer of the Year every year from 1990-94.

Cole was promoted to sergeant in July 1998 and to lieutenant in June 2006, serving both as a patrol supervisor and later as the department’s spokesman. He was promoted to captain in 2011.

In recent years, howeverm Lee’s performance reviews of her second-in-command cited Cole for “unreliability,” including missing several overtime shifts in 2015-16 and failing to show up for a shift on Halloween 2016 — one of the busiest nights of the year for Kent police.

Only one disciplinary item was included in Cole’s personnel file: An internal departmental investigation in 2012 resulted in a two-week suspension without pay, restitution to the department and the loss of his take-home vehicle after Lee discovered the captain was using it for personal matters.

https://www.ohio.com/news/20180920/kent-police-captain-charged-with-operating-gambling-house-money-laundering/1

The EU Has a Problem With Dirty Money

https://www.bloomberg.com/view/articles/2018-09-18/the-european-commission-misses-an-opportunity-on-money-laundering

After a string of scandals, the European Commission has unveiled new plans to crack down on money laundering. It’s right to take this problem seriously — but its proposals are weak. Instead of setting up a new agency and equipping it to do the job, Europe plans to keep relying on national authorities, some of which aren’t up to the task.

Banks in Denmarkthe NetherlandsLatvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea. The EU has moved to centralize banking supervision, but money laundering has remained a national responsibility. It was the U.S. Treasury Departmentthat found out that ABLV, a Latvian lender, was involved in “institutionalized money laundering,” prompting EU authorities to withdraw its banking license. And a report by the European Banking Authority (EBA) concluded that the Maltese regulator had “failed to conduct an effective supervision” of Pilatus Bank, a lender with links to Iran.

In principle, there’s nothing wrong with national regulation of international financial crime. The U.S. Treasury’s Office of Terrorism and Financial Intelligence deals with money laundering. But some EU governments, concerned about the reputation of their respective banks, have taken an unduly lax approach. A common EU agency would be less susceptible to local pressure. Also, EU banks can set up branches across the union on preferential terms thanks to its so-called passporting system — so EU banking is intrinsically cross-border, strengthening the case for more centralized supervision.

Brussels wants to give new powers to the EBA, so that the agency can tell national supervisors to investigate cases and consider possible sanctions. This is a step in the right direction. But the EBA isn’t equipped for the job. The London-based agency is primarily responsible for designing stress tests and overseeing prudential rules. Some aspects of money laundering fall under its review, but it currently has just two officials assigned to the task. The EU wants to add 10 more. That isn’t enough.

Most important, the EU wants domestic regulators to stay in charge. It would have been better to harmonize the rules, create a new agency, and give it lead responsibility for investigating offenders. The EU has missed an opportunity to move to a better system and improve its reputation for sound financial supervision.

Credit Suisse censured by watchdog over anti-money laundering failings

By Ralph Atkins

Credit Suisse has been censured by the Swiss financial watchdog for failings in anti-money laundering, in the latest slapdown of a European bank over the handling of suspected illicit finance.

Finma, the financial supervisor, identified weaknesses in a number of corruption scandals, including those involving the world football body Fifa, the Brazilian oil company Petrobras and the Venezuelan oil company PDVSA.

The failings highlighted were the latest in a wave exposed recently at European banks, which have included revelations that as much as $30bn of Russian and former Soviet money flowed through the Estonian branch of Danish lender Danske Bank in a single year.

Last week, the finance director at ING resigned after the Dutch bank was fined €775m for weak controls on preventing money laundering.

On Monday, Finma demanded remedial steps at Credit Suisse to improve procedures, which would be monitored by a independent third party. Under Swiss law, Finma does not have the power to impose fines.

The criticism from Finma comes as a blow to Tidjane Thiam, who took over as chief executive of Credit Suisse in 2015 and has pushed through a sweeping restructuring to refocus the bank on managing the wealth of the world’s rich.

Credit Suisse acknowledged Finma’s conclusions in what it described as “legacy cases”. It had commissioned its own reviews of the incidents, “and has co-operated with Finma throughout the process, taking proactive remediation measures”.

The scandal at Fifa erupted in May 2015 with the dramatic arrest of top football officials at a Zurich luxury hotel. US and Swiss law authorities subsequently launched probes into allegations of criminal misconduct, bribery and corruption, which called into question Fifa’s future.

Finma said that since 2015 it had been investigating “several banks” in relation to suspected corruption involving Fifa, Petrobras and PDVSA. Its investigation at Credit Suisse examined the period from 2006 to 2016 and found shortcomings, including in identifying clients, determining beneficial owners, categorising riskier business relationships and in documentation.

“The identified shortcomings occurred repeatedly over a number of years, mainly before 2014,” Finma said.

To combat money laundering effectively, the watchdog said, all relevant departments “must be able to see all the client’s relationships with the bank instantly and automatically”. Credit Suisse had made progress in implementing such a “single client view”, Finma said, “however this overview is still to be extended outside the compliance unit”.

Separately, Finma said the bank had failed to adequately record and monitor risks arising from a business relationship with a “politically exposed person” and the responsible client “relationship manager”, who had since been criminally convicted.

Finma’s statement did not identify the individuals involved in the case but one person familiar with the matter said it referred to Patrice Lescaudron, a former Credit Suisse client adviser, who was convicted in a Geneva court in February for abusing the trust of clients, including Bidzina Ivanishvili, a former prime minister of Georgia.

Finma said the relationship manager, who had been “very successful in terms of assets under management”, breached the bank’s compliance regulations repeatedly over a number of years. “However, instead of disciplining the client manager promptly and proportionately, the bank rewarded him with high payments and positive employee assessments. The supervision of the relationship manager was inadequate due to this special status,” the regulator said.

Sistine Chapel Choir under investigation for money laundering

The Vatican has launched an investigation in the Sistine Chapel Choir, after claims that members of the world-renowned choir may be involved in embezzlement, fraud and money laundering.

The Vatican issued a statement on Wednesday confirming that Pope Francis had authorised an investigation into possible financial irregularities in the choir, which is one of the world’s oldest singing groups.

The statement came just hours after a report in La Stampa newspaper about the choir, which said Vatican magistrates were investigating the choir’s manager, who is a layman, and its director, who is a priest, on suspicion of embezzlement, fraud and money laundering.

The Vatican statement said only that the pope had authorised the investigation several months ago and that it was continuing.

Efforts by Reuters to reach the two men for comment were unsuccessful. La Stampa website also had no comment from them.

Last May, the choir, which is made up of men and young boys and has a recording contract with a major label, performed at the gala opening of an exhibit at the Metropolitan Museum of Art in New York called “Heavenly Bodies: Fashion and the Catholic Imagination.“

Its summer tour of the United States was cancelled without official explanation in July.

Founded in 1471, it is believed to be the world’s oldest choir, with roots going back to the Schola Cantorum instituted by Pope Saint Gregory the Great around the year 600.

https://www.theguardian.com/world/2018/sep/13/sistine-chapel-choir-under-investigation-for-money-laundering

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