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.

Turkish gold trader details money laundering scheme for Iran

Brendan Pierson

NEW YORK (Reuters) – A Turkish-Iranian gold trader described in a U.S. court on Wednesday how he ran a sprawling international money laundering scheme aimed at helping Iran get around U.S. sanctions and spend its oil and gas revenues abroad.

Reza Zarrab, who has pleaded guilty and is cooperating with U.S. prosecutors in the criminal trial of a Turkish bank executive, told jurors in federal court in Manhattan that he helped Iran use funds deposited in Turkey’s state-owned Halkbank to buy gold, which was smuggled to Dubai and sold for cash.

The testimony, given through Turkish interpreters, came on the second day of the trial of Halkbank executive Mehmet Hakan Atilla, who has pleaded not guilty.

U.S. prosecutors have charged nine people in the case, although only Zarrab, 34, and Atilla, 47, have been arrested by U.S. authorities. Prosecutors have said the defendants took part in a scheme that involved gold trades and fake purchases of food to give Iran access to international markets, violating U.S. sanctions.

The case has fueled tensions between the United States and Turkey, which are NATO allies. Turkish President Tayyip Erdogan’s government has said the case was fabricated for political reasons.

Standing before the jury in tan prison garb on Wednesday, Zarrab drew a multicolored diagram to illustrate the complex series of transactions he said he used to avoid scrutiny of U.S. banks and regulators. He explained how he falsified customs documents to make it appear that gold was bound for Iran, rather than Dubai.

Zarrab said Atilla was “the most knowledgeable person about the sanction rules” at Halkbank, and that he helped develop the scheme. He said Atilla and Halkbank’s then-general manager, Suleyman Aslan, instructed him how to carry it out.

“He made sure that the system and method worked,” Zarrab said of Atilla.

Zarrab said he began working with Halkbank on the scheme in 2012, after bribing Zafer Caglayan, then Turkey’s economy minister, to broker a deal with Aslan. He said Aslan had initially refused to work with Zarrab because he was too well known.

Zarrab said he paid Caglayan bribes amounting to more than $50 million.

Caglayan and Suleyman have also both been charged in the case. Turkey’s government has previously said that Caglayan acted within Turkish and international law. Halkbank has said that all of its transactions fully complied with national and international regulations.

Zarrab testified that before working with Halkbank, he handled Iranian transactions through Turkey’s Aktif Bank. He said the bank initially refused to let him open an account, but relented after Zarrab asked Egemen Bagis, then Turkey’s minister of European Union affairs, for help.

 Zarrab said Bagis set up a meeting between him and Aktif Bank’s general manager and that he was then allowed to open an account. However, Aktif Bank later shut down the account after receiving a warning from the United States, Zarrab said.

Reuters was not immediately able to reach anyone at Aktif Bank for comment after working hours on Wednesday.

Zarrab is expected to continue testifying on Thursday.

Follow the money: Here’s how money laundering works

, USA TODAY

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.

Placement

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.

Layering

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.

Integration

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.

https://www.usatoday.com/story/money/2017/10/30/follow-money-heres-how-money-laundering-works/813379001/

Rio Olympic head leaves prison; will face corruption charges

By STEPHEN WADE AP Sports Writer

RIO DE JANEIRO (AP) — Carlos Nuzman left prison on Friday after his arrest two weeks ago on eventual charges that he arranged bribes to land the Olympics he headed last year in Rio de Janeiro.

Nuzman walked from a Rio prison wearing a white polo shirt, accompanied by his defense team and watched by a handful of curious bystanders.

The 75-year-old Brazilian is to stand trial for money laundering, tax evasion, and racketeering, though it’s unclear how long that will take under Brazil’s slow-moving justice system.

 Brazilian and French authorities say Nuzman helped direct about $2 million to Papa Massata Diack to win votes to land the 2016 Olympics.

In the 2009 vote by the International Olympic Committee, Lamine Diack — Papa Massata Diack’s father — was a powerful IOC member from Senegal with sway over Africa’s voting bloc.

Rio’s Olympics, although a sporting success, left behind a half-dozen empty sports venues. The subsequent Paralympic Games needed a government bailout to be staged just weeks after the Olympics ended.

Nuzman’s local organizing committee still owes creditors between $30-40 million, and many of the projects built for the games are linked to corruption scandals blanketing Brazil.

Brazil’s Superior Court of Justice ordered Nuzman’s release, but his passports are being held — he is reported to hold three — and he cannot leave the country. He is also barred from contact with the IOC, the Brazilian Olympic Committee, and the local organizing committee.

He resigned last week from the Brazilian Olympic Committee, and his honorary membership has been suspended by the IOC.

Nuzman’s defense argued that the elderly Brazilian is in poor health and should not be held in prison.

The filings against Nuzman say he has undeclared assets in Switzerland, including 16, 1-kilogram gold bars. Prosecutors estimate his net worth increased 457 percent in his last 10 years as the Brazilian Olympic Committee president.

He headed that body for 22 years and also headed Rio’s 2007 Pan American Games.

“While Olympic medalists chased their dreams of gold medals, leaders of the Brazilian Olympic Committee stashed their gold in Switzerland,” prosecutor Fabiana Schenider said when Nuzman was arrested earlier this month.

Schenider added that the “Olympic Games were used as a big trampoline for acts of corruption.”

Leonardo Gryner, Nuzman’s right-hand man at the organizing committee, has also been charged by Brazilian prosecutors. So have both Diacks, former Rio governor Sergio Cabral, and businessman Arthur Cesar de Menezes Soares Filho.

Brazilian authorities say the country spent about $13 billion to organize the Olympics — a mix of public and private money — though one estimate suggested it spent $20 billion.

Weinstein Co. president linked to felon’s money laundering case

By Gene Maddaus, Variety

https://pagesix.com/2017/10/13/weinstein-co-president-linked-to-felons-money-laundering-case/

David Glasser has been Harvey Weinstein’s right-hand man for the better part of a decade. Now, after Weinstein’s spectacular downfall in a sex harassment scandal this week, Glasser has been put in charge of the mogul’s imploding entertainment company alongside Weinstein’s brother, Bob.

But Glasser, who serves as president and chief operating officer of the Weinstein Co., has long been dogged by legal issues that date back more than two decades. In the most serious case, Glasser’s former company was used to launder the proceeds of a massive stock manipulation scheme which, according to federal prosecutors, was connected to the Genovese crime family. The mastermind of the scheme, Roy Ageloff, pleaded guilty to securities fraud and was sentenced to eight years in prison. Ageloff also helped launch Glasser’s career as a producer, and even tried to produce a film with Glasser about his own life, to be titled “Sold Short.” Glasser was never charged with a crime.

Glasser’s legal problems have hindered his Hollywood career in the past. Two years ago, Glasser announced he would be leaving the Weinstein Co. to seek a “new opportunity.” A few weeks later, he reversed course and announced that he would stay on. According to sources familiar with the matter, Glasser was offered a top executive role at DreamWorks Animation. But after digging into his past, DreamWorks rescinded the offer. The sources say the board felt that Glasser’s legal troubles made it impossible for him to hold an executive job at a publicly traded company.

In a statement to Variety, Glasser says he was 24 when he met Ageloff and was unaware of his misconduct. He also denies that DreamWorks had rescinded the offer due to his legal issues. “This is simply not true, a rumor and you have no one on the record,” he says.

The revelations come as the Weinstein Co.’s future is teetering on the brink of collapse. Industry insiders are speculating about the company’s ability to produce projects, a possible sale or bankruptcy filing, and whether Glasser and Bob Weinstein may be the next to depart. Glasser tells Variety that he has not yet accepted the board’s offer to run the company, and is still weighing whether to stay.

A former child actor, Glasser broke into the producing business in the mid-1990s. In 1997, his company, Cutting Edge Entertainment, produced a film entitled “Fait Accompli.” One of the actors was Ageloff, who played the role of “Murt.” According to federal court filings, Ageloff invested $3.5 million in Cutting Edge in 1997 and 1998. He would go on to have a half dozen minor roles in films, all but one of which were produced by Glasser.

By 1997, Ageloff was already infamous on Wall Street for running high-pressure boiler rooms that touted obscure stock offerings. Ageloff and his partner, Robert Catoggio, ran the brokerage firm of Hanover Sterling, which employed more than 100 brokers in offices in Manhattan and Boca Raton, Florida. In July 1996, Fortune called Hanover a “lowlife brokerage firm,” and noted that the FBI was looking into questionable IPOs. Ageloff and his associates were indicted in June 1999, and accused of swindling investors out of $150 million in a series of “pump and dump” schemes. Prosecutors alleged that Catoggio funneled millions of dollars in proceeds to a captain in the Genovese crime family, whose stepson was one of the brokers who pleaded guilty. Ageloff pleaded guilty in 2000 and was sent to a medium-security prison in Florida in 2001.

At some point, Ageloff came up with an idea for a movie called “Sold Short,” about his career in the brokerage business. He turned to Glasser to produce it. According to a deal memo dated January 2002 — that is, a few months after Ageloff entered prison — Glasser agreed to make the film with a budget between $10 to $25 million. Glasser would pay Ageloff a producer fee of $500,000 upon commencement of principal photography. The film was never made.

According to Glasser, he produced only two films with Ageloff — “Fait Accompli” and “In the Shadows” — and did not become aware of Ageloff’s criminal conduct until much later.

“Years later we found out that he was being indicted for stock fraud on a old business that he had,” Glasser says. “Years later I was contacted by the team who prosecuted him, interviewed and they went through all my emails, correspondence and contracts. It was concluded that I had done nothing wrong other than got in business with the wrong guy and next time I should make sure I know where these investments are coming from. I was young and did nothing wrong here and in hindsight (I) learned a valuable lesson on vetting your investors.”

In September 2002, Glasser signed a note agreeing to pay $1.5 million by 2004 to the Ageloff Education Irrevocable Trust, which Ageloff set up to benefit his children. According to court records, Glasser put up 20% of his new company, Splendid Pictures, as collateral in the deal. A few months later, Glasser took a 20% equity stake in another company, a distributor named Syndicate Films International. Under a confidential agreement, he pledged to give Ageloff half of his proceeds from his stake in the company. The Ageloff trust later filed a federal suit against Glasser, alleging that he failed to pay the debt when it came due. Glasser did not contest the lawsuit, and a default judgment was entered in the amount of $1,622,821.

In 2008, shortly before Ageloff was to be released, federal prosecutors in Florida brought another case against him, alleging that he had hidden assets from the government and laundered money. The indictment does not name Glasser, but it does reference the $3.5 million investment of tainted money into “various movie productions” in 1997 and 1998.

Ageloff pleaded guilty to money laundering and was sentenced to an additional five years behind bars. According to the plea agreement, his brother, Michael, received $160,000 in “movie money” in August 2002 from “an unindicted co-conspirator,” who is not named. The plea also states that Michael Ageloff received a $500,000 payout in 2003 from the sale of Cutting Edge Entertainment. He received two checks, in the amounts of $300,000 and $200,000, which the government alleged was part of the money laundering scheme.

Ageloff’s attorney, Daniel Brodersen, addressed the $3.5 million in movie investments in a pre-sentencing memorandum, arguing that New York prosecutors were aware of it when Ageloff entered his original plea in 2000. “Not all of the monies that the Defendant invested constituted illegal proceeds,” Brodersen wrote. “Furthermore, this investment and the Defendant’s corresponding interest in Cutting Edge Entertainment was fully disclosed to the court, the probation office, and the prosecution in the Eastern District of New York.”

“There has never been any attempt on the part of the Defendant to conceal these monies, his interest in Cutting Edge Entertainment, and the fact that he was defrauded by David C. Glasser, with whom he invested those funds in 1997,” Brodersen wrote.

Under the plea deal, Ageloff forfeited the $1.6 million judgment to the U.S. government.

“The United States was able to identify funds that flowed from that Ageloff trust account to Glasser,” says Dan Eckhart, the former federal prosecutor who handled the case. “Ageloff admitted the trust contained proceeds from his criminal activity in his plea agreement, and we were able to forfeit those assets.”

Glasser was not prosecuted, nor were others who allegedly received tainted money from Ageloff in the laundering case.

“If these weren’t proceeds involved in money laundering, the government wouldn’t have been able to seize them and obtain a forfeiture judgment,” says Eckhart, who is now a criminal defense attorney in Orlando.

Since then, Glasser has been paying down the debt to the government.

Glasser has been sued many other times over the years. Alec Baldwin sued him in 2001, alleging that he and other talent on “The Devil and Daniel Webster” had not been paid. The suit was later withdrawn, and the film was released several years later under a different title. In a 2002 interview with Variety, Glasser said he had always paid up eventually. His motto, he said, was “Be guilty of being late. Don’t be guilty of screwing someone.”

Glasser’s career moved ahead in spite of these issues. He took a job at Yari Film Group, which would later produce the movie “Crash.”

In 2005, Glasser met an investor named Jeff Cooper. In a meeting at Yari Film Group, he urged Cooper to invest in a new film venture, called Hi-Def Entertainment, which would be run by Glasser’s younger brother Phillip, who lived in Tennessee.

“He put on a dog and pony show,” Cooper recalls. “It was one lie after the other.”

Cooper says that he put faith in Glasser’s connections in the industry, and says that Glasser said he could divert promising material from Yari to Hi-Def.

“David was the key man,” Cooper says. “I wouldn’t have done it if it wasn’t for David.”

The only thing that ever came out of the company was a forgettable Jamie Kennedy film, “Kickin’ It Old School.” In 2008, Glasser left Yari Film Group for the Weinstein Co.

“When the opportunity with Harvey came along, Hi-Def Entertainment and I were left sucking pond water,” Cooper says.

Cooper says the recent revelations about Weinstein helped him understand why Glasser fit in there. When the two were at the Cannes Film Festival in 2005, he remembers Glasser making numerous vulgar remarks to women.

“We’d be in a car going down the street, and he’d be shouting obscenities to every girl we passed,” Cooper says. “It was totally unprofessional,” he says, adding that he felt pressured not to raise objections. “I turned the other cheek to it — business is business.”

Cooper lost his entire $500,000 investment, and sued for fraud. The case ultimately settled for a confidential amount.

Glasser disputes Cooper’s account, saying he only met him once and never promised anything.

“[T]his was thrown out of court three times,” Glasser says. “I finally settled with him for a tiny amount as this was a nuisance.”

He also adamantly denies Cooper’s claim about harassing women at Cannes.

Bob Yari, the president of Yari Film Group, had fonder memories of Glasser, who ran foreign sales for him for several years.

“He’s a real go-getter,” Yari says. “He was made for this business, in my opinion.”

Yari says he was well aware of Glasser’s reputation for lawsuits when he hired him.

“I spent a lot of time analyzing it and actually working with him to change those past ways,” Yari says. “I don’t think he was a wrongdoer. He was a wheeler-dealer and got himself into a lot of trouble.”

A True Tale of Drug Cartels, Money Laundering and Horse Racing

A True Tale of Drug Cartels, Money Laundering and Horse Racing

By 

In September 2010, bettors at the All American Futurity race in New Mexico watched the long-shot Mr. Piloto gallop to the million-dollar first prize by less than a nose, the second-closest win in the race’s history. Meanwhile, over the border in Mexico, a gang of drug traffickers from the Zetas cartel cheered the victory with whiskey, from a safe house. Mr. Piloto was registered to the company of a Dallas bricklayer named José Treviño Morales, but the money to buy him had come from his brother Miguel Treviño, alias “El Cuarenta,” a Zeta boss blamed for some of the worst massacres in Mexico’s drug war. Bloodstained dollars had gone from American drug users over the Rio Grande to cartel killers, and then back north into the American racing industry.

The true-life tale of the Zetas’ foray into quarter horses is masterfully recounted by the journalist Joe Tone in his debut book, “Bones.” He shines a light on an often overlooked corner of the blood bath ravaging Mexico: how cartel money is laundered in the United States. In this case, federal agents finally busted the operation, seizing more than 400 “narco horses,” which they auctioned off for $12 million. But with Americans estimated to spend $100 billion a year on illegal drugs, this is probably just the tip of an iceberg.

Photo

Miguel Treviño MoralesCreditU.S. Drug Enforcement Administration

In addition to following the drug money, Tone has found a great yarn. His finely-painted cast of characters includes a rookie F.B.I. agent hungry to make his name, a Texas cowboy fighting to keep his family business afloat and a talented Mexican horseman picking winners for a very dangerous boss. Tone weaves the threads together with skillful pacing and sharp prose, marking him as an important new talent in narrative nonfiction.

He is helped along by ample documentation of the case. While much of the narco world remains in the shadows, Treviño and his cronies were brought to trial in Austin, in 2013, in one of the most extensive lawsuits against a Mexican cartel to be heard in an American courtroom. (Major Mexican traffickers often don’t go to trial, because they cut deals.) Even though he builds on the reporting of Ginger Thompson, who broke the story in The New York Times, Tone adds some vivid details, recounting wiretapped phone calls and drawing the full back story from Lawson, the rookie F.B.I. agent who pursued the case. “Lawson could hear the horses if he listened closely,” Tone writes. “He was standing outside the black-iron gate with the horse silhouettes, at the bottom of a long driveway that led up to José’s brick homestead. It was a little after six in the morning, the earliest moment the court would allow them to raid without a judge’s permission.”

Photo

Tone digs deep into the colorful world of quarter-horse racing, a variant of the sport developed by white cowboys, Mexican ranchers and Native Americans. He also shows how some players in the horse industry reaped the drug money and went on to enjoy their profits; how those arrested were all Hispanic while some white horsemen doing similar things remained free; how José Treviño’s daughter, a college student who married a Marine, was caught up in the sweep.

Like many journalists of the drug war, Tone sheds doubt on the whole strategy of fighting the trade. “Better answers might lie in the halls of American power and influence — in the way drugs are regulated, drug users treated, drug traffickers sentenced.” He is right to push for more debate on how to stop the billions of drug dollars from funding the crime armies tearing Mexico apart. But law enforcement agents still need to keep hacking at the tentacles of cartel finances that stretch through the United States, where the blood wealth of narcos could be right before your eyes.

TRANSACTION LAUNDERING: CONTINUING ITS EVOLUTION

TRANSACTION LAUNDERING: CONTINUING ITS EVOLUTION

In mid-January, Global RADAR reported on the growth of transaction laundering, a troubling trend that began gaining relevance at the international level beginning roughly one year ago. Defined in a basic sense as the action whereby one e-commerce merchant processes payment card transactions on behalf of another merchant, transaction laundering (TL) is commonly viewed as a more sophisticated form of money laundering and has emerged as one of the largest threats facing the financial services sector today. Transaction laundering is also becoming the primary means for the funding of dangerous terrorist activities due to the relative ease at which the process can be undertaken and performed successfully. Unfortunately for financial institutions conducting business both domestically and abroad, federal regulators have turned up the metaphorical heat in regards to the strict compliance requirements banks of all sizes have been subjected to in recent years. The imposition of multi-million dollar fines against organizations with anti-money laundering (AML) failures has become commonplace of late, and the risks involved with the respective failures to detect and prevent illicit financial activity have only increased with the arrival of new, pervasive criminal measures.

Since our last update on this topic, the transaction laundering trend has continued to grow, both in prevalence and scope of practice. The article “The growing threat of transaction laundering”, cited in BSA News Now on September 20th, 2017, discusses the fundamentals involved with the new features of the practice, and touches on additional areas that surround the issue, such as the response by federal regulators to transaction laundering, and the overall scale of activities of this nature. The article notes, “The biggest transaction launderers are the purveyors of counterfeit merchandise, illegal drugs, sex services, and Internet casinos operating without a license” (Reuters, 2017). Through this practice, fake merchants are able to direct unauthorized transactions into legitimate payment networks while avoiding detection by both regulators and payment processors themselves in some cases. As was covered in the general definition provided earlier, front companies are one of the principal means used to cover for criminal activities, but pass-through companies and the use of funnel accounts have also grown in usage over the course of 2017. Pass-through companies function by processing credit card receipts for illicit activity through the use of a legitimate company’s payments processing account. The author writes that “this is done by embedding a payment link on the illegitimate company’s website and then manually entering the illicit sales into the payment system to make them harder to detect” (Reuters, 2017). Funnel accounts work by accepting credit card charges from companies engaged in illegal activity, and essentially entering legitimate payments for these companies on their own payment processing system.

The amount of laundered payments has continued to escalate, especially with the incorporation of these criminal efforts of this nature. Statistics provided in the article from the Electronic Transactions Association (ETA) show that “50%-70% of online sales for illicit drugs, counterfeit goods, and unlawful adult content involve some form of transaction laundering” (Reuters, 2017). Additionally, transaction laundering is also used by nearly 95% of illegal gambling websites to add card receipts into the payment system, a practice that reportedly accounts for billions of dollars annually. These striking findings have not gone unnoticed however, as the payments industry is beginning to introduce new measures to combat these illicit practices, and regulators have stepped up enforcement as well. As a result, the Financial Crime Enforcement Network (FinCEN), the bureau of the U.S. Treasury Department that combats domestic and international money laundering, terror financing, and financial crimes overall, has begun to crack down on financial institutions that use third-party payment processors. The article discusses one of a slew of measures developed by FinCEN to better establish beneficial ownership. In this circumstance, “FinCEN requires financial institutions (FIs) to verify the identities of all nominees with a 25% or greater ownership stake in any company for which they open an account” (Reuters, 2017). Regulators have had to adapt to these new forms of fraud, leading to increased fines and greater restrictions imposed on financial institutions, which have made navigating through the already complex realm of compliance even more complicated for banks and their respective compliance departments.

Although new methods of fraud detection and prevention continue to be developed in the financial industry, criminals are quick to adapt and alter their own approach to capitalize on loopholes and areas that can be exploited.  One of the only ways to detect and prevent transaction laundering is to do your due diligence into a merchant’s website, their volume of business, and other areas such as age of the website and merchant codes used. These screening of these areas are often covered by comprehensive, automated AML services however, so research and investment into one of these technologies can ultimately be quite beneficial to financial institutions, and in the fight against transaction and money laundering altogether.

 

WEEKLY ROUNDUP

 

CRYPTOCURRENCIES CALLED OUT BY BIG BANK CEO

Earlier this week at a banking conference in New York, Jamie Dimon, CEO of JP Morgan, openly denounced cybercurrencies such as the ultra-popular Bitcoin that have taken the world by storm in recent years. In candid fashion, Dimon shared his critical opinion of the growing industry, stating his firm belief that the currency is a “fraud” that will inevitably fail because “you can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart” (Athow, 2017). Dimon points to the greater sense of anonymity provided to individuals through Bitcoin and other cryptocurrency options as one of several potentially problematic components that would benefit financial criminals attempting to launder funds without being apprehended.

Dimon’s comments have angered the masses in the crypto-community, as many have found the seasoned financial veteran’s views to be antiquated and uneducated in this regard. The executive’s comments are also ironic considering that they come from someone who runs a financial intermediary, the same entities that are being removed from financial transactions made through various cybercurrencies. The comments were also surprising in that while “Mr.Dimon openly criticizes Bitcoin, JP Morgan is quietly advancing its own, proprietary crypto ledger, Quorum” which is based on the cyber currency Ethereum (Athow, 2017). Regardless of the strange circumstances that surround this criticism, many believe that the comments that came from an individual as renowned as Dimon had a significant negative impact on the 6% drop in the value of Bitcoin seen last week. We will simply have to wait to see if the effects of these comments continue to bring about more negative outcomes in the coming weeks, or if this instance was simply a blip on the radar for a currency steered for long-term success.

 

SCAMS EMERGING FOLLOWING HURRICANES

Following the tragic hurricanes that wreaked havoc in the Caribbean, United States, and other parts of the world in the last month, a post-storm period generally designated for recovery and aid can often be a time of great profit for scammers and financial criminals preying on the weak and naïve. A report from Forbes highlights several scams that criminals often employ in their attempts to con the victims of natural disasters and other catastrophic events. The primary areas exploited following disasters have been found to be charities and donation services. The Department of Justice’s National Center for Disaster Fraud recently “issued a statement to the public to be aware of fraudulent activity related to relief operations and funding for victims”, as a reported “743 domain names containing the phrase ‘Irma’ and most include a combination of the words ‘help,’ ‘relief,’ ‘victims,’ ‘recover,’ ‘claims,’ or ‘lawsuits’” were registered as of September 7th, according to The Center of Internet Security (Peck, 2017). Crowd-funding pages are commonly created to raise money for victims, but unfortunately in many cases these funds never make it to those that are in need. Many believe that more of these potentially-malicious domains are likely to arise in the coming weeks as more hurricanes are on the horizon.

Other scams commonly run by criminals are the posing as insurance representatives, Federal Emergency Management Agency (FEMA) officials, and local power company employees in attempts to con citizens out of funds and valuable information. In addition, individuals often offer help with unlicensed home repairs and other services, only to never perform the service(s) after being paid up-front. The article offers solutions to many of these issues however, including verifying the licensing information of individuals arriving at your home or business, avoiding making cash donations (as legit charities almost never require cash payments), and exercising caution and always researching an individual and/or organization before donating.

 

SEVERE LAUNDERING OCCURRING IN AUSTRALIAN BANKS

Earlier this week, Australian federal and state investigators revealed the findings of their recent investigations into regional financial crime that do not bode well for the financial services sector, nor the major banks of Australia. The investigations discovered that “Australian crime gangs launder up to $5 million AUD ($4 million USD) per day through major banks”, due in large part to failures seen in the anti-money laundering procedures found within these respective institutions (Southurst, 2017). The findings involve Australia’s four largest banks: Commonwealth Bank (CBA), ANZ, National Australia Bank (NAB) and Westpac. Commonwealth Bank in particular has been the subject of international headlines recently due to the severe civil penalties the organization faced earlier this summer for allegedly allowing hundreds of millions of Australian dollars to be laundered by way of cash deposits made through the intelligent deposit machines that the bank employs.

In addition to the shocking laundering findings, it has also been reported by local media outlets that Aussie “crime syndicate members have acquired franchises in mid-tier banks, like Bendigo Bank and Bank of Queensland” (Southurst, 2017). Many of these issues fall on failures within compliance departments, specifically in regards to know your customer (KYC) requirements that are not being met, and a lack of information sharing amongst regional financial institutions and law enforcements agencies. In addition, the creation of shell companies to facilitate the movement of illicit funds has made the task of keeping up with this activity very difficult for banks with fully-functional and adequate compliance departments, let alone smaller banks that have far fewer AML capabilities at their disposal. Unfortunately, this now-negative connotation that accompanies Australian banks has led to an increased sense of public mistrust in the world’s sixth largest country, with a resolution to these issues currently being nowhere in sight.

 

CITATIONS

Athow, Desire. “JP Morgan CEO Publicly Denounces Bitcoin as ‘currency for

Criminals’.” TechRadar. TechRadar Pro IT Insights for Business, 15 Sept. 2017. Web.

Liu, Winnie. “The Growing Threat of Transaction Laundering.” Dealbreaker.

Thomson Reuters, 19 Sept. 2017. Web.

Peck, Liz Frazier. “In The Wake Of Harvey, Irma And Equifax – 3 Strategies Criminals

Are Using To Run Scams.” Forbes. Forbes Magazine, 14 Sept. 2017. Web.

Southurst, Jon. “Gangs Launder $4 Million a Day Through Aussie Banks:

Police.” Bitsonline. 15 Sept. 2017. Web.

In The Wake Of Harvey, Irma And Equifax – 3 Strategies Criminals Are Using To Run Scams

Over the past month we have experienced three separate and horrific disasters. Hurricanes Harvey and Irma caused catastrophic flooding, widespread destruction and death. The Equifax hack left 143 million people vulnerable to financial devastation.  As if these losses aren’t tragic enough; sadly, disasters are a prime time for criminals to run scams. As Colleen Tressler, Consumer Education Specialist at the FTC stated in a recent post, “One thing we’ve learned at the Federal Trade Commission (FTC) is that scams often follow the news – especially when there’s a natural disaster, like Hurricane Harvey, in the headlines.” In fact, the FTC has an entire page dedicated to current scam alerts.

While different types of scams appear after a disaster, criminals seem to employ similar techniques to attempt to con victims:

Charities / Donations: The Department of Justice’s National Center for Disaster Fraud issued a statement to the public to be aware of fraudulent activity related to relief operations and funding for victims.

    • As of September 7th, The Center for Internet Security had observed the registration of more than 743 domain names containing the phrase “Irma” and most include a combination of the words “help,” “relief,” “victims,” “recover,” “claims,” or “lawsuits.” They go on to state that some appear malicious and the domains themselves appear suspect, so it warned that these domains should be viewed with caution. They believe more domain registrations related to Hurricane Irma are likely to follow in the coming days.
    • Be on the watch for bogus crowdfunding pages to raise money for the victims . Although some are legitimate, and sites like GoFundMe have protection policies in place, some crowdfunding sites do little to vet their fundraisers, and there are obviously scams that get through.
    • Watch out for fake copycat charities. Scammers can create websites to mirror those of legitimate charities, or they use a name that is similar to a legitimate charity, but not exact.
    • What to do:
      • Always exercise caution before opening related emails, clicking links, visiting websites, or making donations to hurricane relief efforts.
    • Research the organization before donating. Try to contact them, check if they are listed on the Better Business Bureau website or ask people you trust if they are familiar with the charity. You can also check give.org or charitynavigator.org.
    • Avoid cash donations if possible.  Rarely will a legitimate charity require cash. Pay by credit card or check. Always make checks payable to the charity, not to individuals.

Imposters: The opportunities for criminals are limitless here. But the intent is always the same; they pretend to be an official of some sort to con you out of money and/or personal information.

  • Scammers may attempt to con you by posing as insurance representatives, a bank official, the Federal Emergency Management Agency, the SBA or law enforcement.
  • Police in Florida are warning of an actual scam where two men posing as power company workers stole nearly $13,000 in jewelry from a 95-year-old woman.
  • Following a hurricane, scammers often show up offering to help with tree removal and home repair work.
  • What to do:
    • Never give out personal or financial information to someone you don’t know. This goes for over the phone as well as in person.
    • If someone calls requesting money or information, ask for their name, title and a number where you can call them back . Most con artists will hang up here. If they provide this information, do your research before returning their call.
    • If someone comes to your house offering home repair or tree removal after the hurricane, verify their license and insurance and research the company before hiring them. Be sure to get multiple estimates and never pay the full amount or a large deposit upfront.

Phishing Emails: Unfortunately, phishing emails are something we deal with on a regular basis, but the threat increases after a big news event or disaster. NY Attorney General Eric T. Schneiderman warned New Yorkers to remain cautious about hacking and phishing attempts by cybercriminals following the Equifax data breach. “In addition to taking measures to protect their credit cards and bank accounts, New Yorkers should also think twice before clicking on any suspicious links claiming to be from Equifax or financial institutions,” Schneiderman said in an announcement. Several current phishing scams related to the Equifax hack to look out for are:

    • Phishing emails that claim there is a problem with a credit card, your credit record, or other personal financial information.
    • Phishing emails that claim to be from Equifax, where you can check if your data was compromised.
    • What to do:
      • Don’t respond to unsolicited emails and avoid clicking on any links they contain.
      • Only open attachments from senders you know and trust.
      • If an email appears to come from Equifax, do not click on any links. Instead, type the web address directly into your browser or call the company directly.

If you’ve already been a victim of one of these scams, below are resources that can help:

  • Victims of identity theft can report it on the FTC’s IdentityTheft.gov site.
  • Various scams and complaints can be reported on the FTC Complaint Assistant site.
  • Report crimes and file complaints at the  National Center for Disaster Fraud, established after Hurricane Katrina by the U.S. Department of Justice to investigate prosecute, and deter fraud.
  • Internet-based fraud and crimes can be reported to the FBI’s Internet Crime Complaint Center at www.ic3.gov.

L.A. school board chair faces money laundering charges

The board president of the USA’s second-largest school district faces felony money laundering charges after prosecutors said he illegally donated more than $24,000 to his own 2015 school board campaign — and claimed the money came from more than two dozen donors.

Refugio “Ref” Rodriguez, president of the Los Angeles Unified School District school board, could spend up to four years and four months in jail if convicted on the charges.

The Los Angeles County district attorney’s office detailed the charges against Rodriguez, 46, on Wednesday. He’s charged with three felony counts of conspiracy, perjury and other charges.

The case is the result of a months-long investigation into donations to Rodriguez’s successful first-time school board campaign in 2015, the Los Angeles Times reported. He became board president last July.

Rodriguez told a reporter on Wednesday that he couldn’t discuss the case, but in a statement later released by the district, he said: “As the product of an immigrant family, nobody has more respect for the integrity of the American justice system than I do. I have cooperated with authorities and hope these issues will be resolved expeditiously and fairly.”

Rodriguez said his commitment to L.A.’s students, teachers, parents and families “remains unwavering.”

In a statement, David Holmquist, the district’s general counsel, noted that the allegations “are not connected to any District business. However, we will cooperate, as needed, with the District Attorney’s Office.”

The case against Rodriguez was the result of an investigation by the city’s Ethics Commission, the Times reported. Investigators said that shortly after he filed to run for office in 2014, Rodriguez gave $26,000 to a cousin working as a campaign volunteer. He told the cousin, Elizabeth Melendrez, to have family members and friends make contributions to the campaign using the money.

Melendrez ultimately persuaded 25 of Rodriguez’s relatives and friends to donate between $775 and $1,100, for a total of $24,250.

Rodriguez later reported that he’d raised $51,001 in individual donations, but prosecutors say nearly half of that was Rodriguez’s own money.

Melendrez, who was also charged, could serve up to three years in jail.

Records show that at least a dozen of the contributors worked for Partnerships to Uplift Communities, the L.A.-based charter school organization that Rodriguez co-founded, the Times reported.

KTLA-TV reported that the probe grew out of a March 2015 whistleblower complaint.

Ripple CEO Brad Garlinghouse explains why the world has barely scratched the surface with cryptocurrencies

Brad Garlinghouse is the CEO of Ripple — owner of XRP, the fourth-most-valuable cryptocurrency. That currency is now worth almost $9 billion after starting the year being valued around $250 million. I spoke to Brad last week about the explosion in popularity of cryptocurrencies this year, whether we are in another dot-com era, and what he sees as the long-term role for cryptocurrencies to play in our world.

Here’s an edited version of our conversation from last week (and audio of our discussion is located here on my podcast).

Eric Jackson: You joined Ripple a couple of years ago as COO and are now CEO. What attracted you to the company?

Brad Garlinghouse: It reminds me of the dot-com era in that this is a transformational platform that will affect far more industries than are aware today. Blockchain technologies will change transactions in a broad way.

I had been exposed to bitcoin early. I thought the consumer application of it felt, to me, further away. I thought there would be faster adoption of the blockchain in the enterprise space and with banks.

When you look around Silicon Valley at new companies, there are very few ideas that are going to make a dent in the universe. But when I met with [angle investor] Chris Larsen, his vision was to enable the Internet of Value. There are secondary and tertiary implications of that vision which I think even people at the company aren’t aware of yet.

Jackson: Why did you decide to focus initially on wire transfers at banks?

Garlinghouse: The term “wire transfers” dates back to the 1800s. It’s based on an antiquated system. The friction of moving value remains surprisingly high. XRP is built to solve a payments problem. And we can help make that a much more Internet-ready process.

Jackson: What makes it easier for your customers to do wire transfers with XRP than their old SWIFT process?

Garlinghouse: We are selling these banks a financial process that allows them to transfer money with each other and settle the transaction in a matter of seconds versus days. The cost to do that is dramatically lower. The visibility into the whole process is much higher. I could send you a wire transfer today, but there’s no Fedex tracking number for that transaction. Yet, we expect on-demand alerts and notifications of what’s happening with some process. So we sell our software to banks to do this sending and receiving in real-time at massive scale.

Some in the bitcoin community have always taken an anti-government, anti-fiat, anti-bank approach to their philosophy. Ripple takes the orthogonal side of each of those. I don’t think governments or banks are going away in my lifetime. Most governments are going to continue to have Know Your Customer and Anti-Money Laundering rules. That’s not going away. We also believe there’s a powerful role that digital assets can play but that fiat currencies are going to continue to exist. Because we’ve engaged banks, governments and regulators and educated them on how digital assets can benefit them, we’ve found a receptive audience. We’ve signed up 90 banks now including the Bank of England, the Fed’s Faster Payment system, and many others.

Jackson: Some libertarian critics have said Ripple/XRP is centralized (vs. decentralized), that transactions can be reversed, and that identity is known (vs. hidden).

Garlinghouse: When I hear those criticisms, I usually think that those people aren’t up to speed on exactly what we’re doing. With respect to centralization, if Ripple (the company) went away tomorrow, the XRP ledger would continue to exist and trade. So it is decentralized. Ripple provides validation on the XRP ledger but we’re not the only one. Participants in that ledger can choose to rely on us as a validator or others. The choice is in their hands.

On the topic of reversing transactions, today banks can always choose to reverse a transaction if the other bank agrees. The transaction will still have happened, but it will get reversed in another transaction.

On identity, banks require identity verification. I and Ripple don’t have visibility on the identity of all transactions happening on the XRP ledger, but we can identify transactions between our banking customers using our technology because they require it. There are some cryptocurrencies out there that provide anonymous transaction between users, but we operate in a sphere of banking, laws and regulation and we abide by those. We think the market opportunity for the non-black or gray market is much greater and in the trillions of dollars. Ripple is going after that opportunity.

Jackson: Tell me about that opportunity. Is it just the wire-transfer opportunity or is this the thin edge of the wedge into other opportunities?

Garlinghouse: Any time you are building a business and you see a transformative opportunity, you get excited about all the adjacent opportunities, but you have to think of insertion points. But you can’t boil the ocean or spread your peanut butter too thin. Today, the world sends $155 trillion across borders. If we solve this payment opportunity, we enable this Internet of Value and should have lots of other opportunities beyond that.

When Amazon started, it just focused on books. They chose a vertical, got really good at it, and expanded to other verticals. We see lots of other compelling verticals to go after in the blockchain space.

Bank liquidity is measured in the trillions of dollars. And using a digital asset to change the nature of how banks can reduce their costs and needs for liquidity is transformational in a multi-trillion dollar way. Our focus in this part of bank payments is like Amazon’s initial focus on books. At some point, as we gain momentum, we will lean into other vertical markets. We think the XRP ledger is so much more performant in throughput, speed of transactions, and cost per transaction.

Jackson: Why is the XRP ledger able to handle scale of transactions so much better than other cryptocurrencies?

Garlinghouse: Bitcoin today takes about 4 hours to complete a transaction. XRP takes 3.7 seconds. Bitcoin can handle 3-4 transactions per second. XRP can handle 1,500 transactions per second. The reason is that they were designed for different use cases. The XRP uses a consensus of validators to confirm a transaction. The bitcoin blockchain uses a proof of work framework and that limits its performance. That positions us well. And the XRP numbers are only improving — and our engineers are working on that while not in a civil war about the future of the currency.

Jackson: I spoke to David Sacks a few weeks ago, and he said he thought the blockchain was going to be adopted more quickly in the developing world than here where the financial system is more built out and mature. Do you see that with the banks you deal with?

Garlinghouse: I would compare this to the telecommunication systems that have developed. We’ve seen many emerging countries leapfrog by going straight to the current technology while I still have dropped calls in Silicon Valley. The same will be true that governments and financial institutions will go directly to where the blockchain technology can take you. In Ripple’s experience, we have seen many emerging countries lean in stronger and earlier.

Jackson: You created XRP because you want to sell your software to the banks, but now many investors are trying to determine how to properly value cryptocurrencies. What do you think is the right way to value a cryptocurrency?

Garlinghouse: I definitely lived through the dot-com bubble. Josh Hannah wrote a post about that bubble and what’s going on with cryptos today. Most people think a future discounted cash flow is the best way to value a company. But digital assets are a commodity trading on supply and demand. There’s fixed supply and increasing demand. I think you’re going to continue to see more demand. In the future, I think you’ll be able to buy bitcoin or XRP in your Schwab account. People are looking at the success Ripple has been having as a company, and I think that’s increased the value of XRP. We want to keep focusing on making XRP a valuable payments tool, and that value will increase accordingly.

I’m voting with my feet and pocketbook on the future increased value of cryptocurrencies. One thing I’d like to point out is that gold is not worth $9 trillion because of its future discounted cash flows. There are some uses for gold, like jewelry, but it’s basically a store of value. I’m not a blanket bull on all digital assets. I don’t know where the price of these digital assets [is] going in the short-term, but over the long arc of time I’m very bullish. I do think a comparison with gold is appropriate on a store of value basis. Gold is worth $9 trillion today. Bitcoin is worth $75 billion.

Jackson: What are the pros and cons of a Ripple IPO?

Garlinghouse: It’s a flattering question to get. I want to make sure we have the right managerial maturity, infrastructure, and ability to forecast properly. We’ve been around for 4.5 years. At some point it will make sense. Just not today.

Jackson: Will you go after Visa?

Garlinghouse: The transformative thing about blockchain technology is that it allows two parties to complete a transaction faster than before. We are able to deliver Visa-like scale today with our technology. We certainly feel that the future is bright for us. It’s hard to predict how Visa will evolve, but they are based on an older paradigm.

Jackson: Is XRP going to be involved in Internet of Things?

Garlinghouse: If you go back to my idea of enabling the Internet of Value, I am very excited about our ability to play in this. There are undoubtedly going to be use cases for microtransactions taking place between devices in the future, and we want to be there.

Jackson: Can you give us an example?

Garlinghouse: Sure. There are going to be a lot of devices that are economic actors. Your self-driving car needs to self-fill itself up at the self-serving gas station. How? Maybe it’s going to be with the Visa network and NFC. But I live south of San Francisco and drive into the city for work. What if there are some days when I’m late for work and am willing to pay 5 cents a car to pass everyone in front of me. What tech is going to let me do that? It won’t happen with today’s antiquated financial rails. This will absolutely be possible in the future with this new technology that we’re working on. Think of the use cases of the internet today versus what we thought was possible 20 years ago. There are so many more things possible than we thought. It’s going to be the same way with all these new digital assets.

Jackson: Back in the dot-com era, there were many companies that flamed out and a few Amazons and Pricelines. Is that going to be the same here in the crypto space?

Garlinghouse: Yes. I think that comparison is 100 percent correct. The reason that some will succeed and others won’t all comes back to utility. You have to solve a real problem to create disproportionate outcomes. There are going to be several situations where it’s winner take all.

It’s very hard to predict what’s going to happen in the next three to five months, but it’s pretty clear that there’s going to be real value created in the next three to five years.