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TOKYO — Loose overseas regulation of virtual currencies has prompted increased money laundering among some designated Japanese organized crime groups, with the Mainichi Shimbun confirming one case where a total of some 30 billion yen was funneled through various overseas exchanges since 2016.

While the Japanese government has recently moved to strengthen measures against money laundering, these are limited to the country’s boundaries. Grasping the situation of money being transferred through anonymous overseas accounts is a problem that cannot be solved without international cooperation.

In a bar on the second floor of an old building just off a street bubbling with nightlife in Tokyo’s Akasaka district, a 30-something member of a designated organized crime group and a Chinese man have agreed to meet once a month. The bar is a haven for people who exchange information about virtual currencies online through members-only blogs and social media sites to meet face-to-face. Japanese and English fly back and forth with specialized terms relating to cryptocurrencies mixed in.

“There were no problems,” says a Chinese man to the gang member on a night in mid-April as he hands over a USB drive. On the drive is a data file named “ZDM” filled with numbers and English notations. This is the record of money laundering using the difficult-to-trace currencies “Zcash,” “DASH” and “Monero.”

The file begins from June 2016, and shows the gang’s capital at a total of 29.85 billion yen post-laundering. The most recent record for February shows a total of some 130 million yen run through the system via several hundred transfers. The amount was lower than normal, but due to scandals surrounding cryptocurrency exchanges at the time, the gang member simply commented, “We didn’t want to draw any attention to ourselves, so this will do.”

The men then move to a room in an apartment building within walking distance called “base camp.” There, eight men and women stare into computer screens. The Chinese national reveals they are Japanese in their 20s and 30s — mostly engineers and students. These members first convert the group’s capital to blockchain currencies such as Bitcoin and Ethereum at Japanese exchange operators. These groups spread out the virtual currency by sending the money to five or six accounts held at exchange companies that do not require identification documents like a passport to open an account, such as the Russian exchange “YoBit.”

From there, the Bitcoin or Ethereum is converted into “Zcash,” “Dash” and “Monero” — ZDM. In terms of privacy protection, trading logs in the blockchain for these three currencies are not made public, and both the sender and receiver of the money can do business anonymously. The members used several exchange operators to move the virtual currency over dozens of transactions to cover their tracks, with collaborators in Russia making the last transaction into the local physical currency.

The personnel and equipment is all provided by the gang. “We have bases just like this all over the Tokyo area,” the gang member explains. “The most important thing is to process the money in small amounts.”

It has been less than 10 years since virtual currencies came onto the financial scene. Still, the Chinese man says, “Gangs were attracted to the anonymity associated with cryptocurrencies from the beginning. Now, its use is not limited to just money laundering, but is also being used as a venture to generate capital.” Of the total of 29.85 billion yen recorded returned to the group via foreign exchange operators in the file he gave the gangster, he commented, “I was given roughly 35 billion yen. Five billion yen was the service fee.”

“It’s a typical money laundering scheme. In a way, I’m not surprised,” said a senior official at the Financial Services Agency (FSA). “If you are going to do something illegal, then everyone knows to use the ‘three anonymous siblings,'” the official continued, referring to Zcash, DASH, and Monero. In Japan, the only cryptocurrency exchange that dealt with the three siblings was scandal-hit firm Coincheck Inc., from which thieves siphoned off 58 billion yen worth of “NEM” currency. However, after Coincheck was bought out by Monex Group Inc., the new owner expressed its intention to cease trading in those virtual currencies.

The FSA now administers the revised Payment Services Act, which was introduced in April 2017. The new law required cryptocurrency exchanges to register with the agency and for users to provide proof of their identity. In addition, divided asset management and allowing for outside monitoring of accounts was also introduced. Following the Coincheck case, the FSA inspected cryptocurrency exchanges to find many problems in the anti-money laundering measures taken by those domestic firms, issueing orders to improve their business operations. .

However, even with the revised laws, nothing can be done to regulate the operating practices of exchange firms overseas. Once the money is wired abroad, it is difficult to grasp the whereabouts of the currency from Japan, especially when accounts that do not require official identification to open are used.

“It’s nearly impossible for Japan to handle the problem alone,” the FSA official explained. “Even if trade is restricted to only domestic transfers or monitoring is enhanced, it’s still not enough to counter money laundering. It would be best if all the group of 20 industrial and emerging nations and regions (G-20) would take the same steps toward prevention.”

Some countries are already moving in this direction. The Chinese government shut down exchange offices, while the South Korean government outlawed the practice of exchange operators issuing their own virtual currency to raise capital — or “initial coin offerings (ICO).” Meanwhile, India is set to outlaw the trade of cryptocurrencies all together, and the European Union is drafting legislation that would prioritize the protection of users. The United States is considering revisiting how the system is structured.

Still, it is unclear if all nations will take the same steps toward countering money laundering and other crimes. While the G-20 did decide in March this year to improve the system and come out with concrete measures to do so by July, it seems that it may still take time until agreement and enactment of those new rules is realized.

https://mainichi.jp/english/articles/20180514/p2a/00m/0na/002000c

American conman jailed for a year for money-laundering offences in Singapore

SINGAPORE – An American conman, who scammed a singer-songwriter behind Faith Hill’s hit “Breathe” of US$600,000 (S$788,000), was jailed for a year in a Singapore district court on Monday (April 23) in connection with money laundering offences.

Deputy Public Prosecutor Nicholas Khoo noted that the case involving David John Plate, 53, marked the first time that an overseas scammer was convicted of such offences here.

The court heard that in July 2014, Plate tricked Ms Mary Holladay Lamar, 50, a fellow American and singer-songwriter based in Britain, into believing that US$600,000 which she gave to him would be loaned to a company, Globomass Limited. She was promised repayment with interest of at least 30 per cent. Instead, Ms Lamar ended up on the brink of bankruptcy.

In an exclusive e-mail interview with The Straits Times, Ms Lamar said that she was first introduced to Plate by a long-time friend with whom she had not been in touch for four years.

She said the ordeal nearly destroyed her.

She told ST: “It destroyed my business, my relationship with my family. When (the scammers) weren’t sending the interest payments, my mother sold her only property and had only $20,000 left.”

On April 9, Plate admitted in court to one count each of abetting an alleged accomplice, who was named in court as Singapore permanent resident Sandrasegaran Vasimuthu, 56, to receive US$45,000 and to transfer US$10,000 from this amount to another man. Four other similar money laundering charges were taken into consideration during sentencing.

After making off with Ms Lamar’s money, Plate sent an e-mail on July 22, 2014 to someone named Andrew Philpott from a British firm, Captive Risk, saying that the money would be going into the company’s bank account.

Plate instructed Mr Philpott to “turn this around straight away”, providing him with details of three bank accounts for the transfer of funds.

One of them belonged to Mr Sandrasegaran’s Singapore-registered company, Aglobal Management. Captive Risk transferred US$45,000 to Aglobal’s bank account three days later.

Later on the same day, Plate e-mailed Mr Sandrasegaran, asking him to transfer US$10,000 to a Bank of America account belonging to one Todd Peterson.

DPP Chong Yonghui had earlier told the court: “The said e-mail also contained the bank account details of two other persons for the accomplice to transfer monies. In total, the accomplice was instructed to transfer monies to five bank accounts including that of the accused.”

Ms Lamar flew to Singapore on June 6, 2015 and made a police report. Plate was arrested when he arrived here on a social visit pass on Feb 23 last year.

On Monday, DPP Khoo urged District Judge John Ng to jail Plate for a year, stressing that he had made no restitution.

Plate’s lawyer, Mr Amogh Chakravarti, who was assigned under the Criminal Legal Aid Scheme, pleaded for his client to be given nine months’ jail, telling the court that his client was unable to make restitution “owing to his present financial situation.”

Ms Lamar told ST that she was ruined financially at an age when she should be retiring.

She said: “(Plate) is the man who stole Breathe. I wrote something beautiful. My music changed peoples’ lives, but he has stripped the feeling of that from me.”

Mr Sandrasegaran has yet to be charged.

Report: Putin family used Estonian bank for money laundering

COPENHAGEN, Denmark – A Danish newspaper said Tuesday a whistleblower warned the management of Denmark’s biggest bank in 2013 that family members of Russian President Vladimir Putin and Russia’s spy agency were using its Estonian bank branch for money laundering.

Denmark’s Berlingske daily says the leaked internal report indicated that the Danske Bank leadership knew “of far more serious conditions than previously stated.”

The paper adds that Danske Bank in 2013 shut down 20 Russian customer accounts following a whistleblower report alleging that its Estonian branch possibly had been involved in illegal activity. The clients’ identities were kept secret at the time.

The paper shared details of the scheme with the Organized Crime and Corruption Reporting Project, a group of anti-corruption reporters, and Britain’s Guardian newspaper.

The Guardian said that a different group of firms, mostly registered in London, were involved, including Lantana Trade LLP, which had filed “false accounts.” The British daily said the ultimate owners of Lantana and related partnerships were Russians but “their identities were hidden behind a series of offshore management firms based in the Marshall Islands and the Seychelles.”

It was not clear how the investigative reporters connected Putin’s family members and Russia’s Federal Security Service to the transactions.

Danske Bank told The Associated Press it had carried out “a thorough investigation to get to the bottom of the events at that time in our Estonian branch,” adding it had no comments “until the investigation has (been) finalized.”

“Furthermore, we are unable to comment on specific customers, but the entire portfolio in question (non-residents) has been closed down,” the bank said in a statement.

Danske Bank earlier had acknowledged illegitimate transactions at its Estonian branch in 2011-2014, including money-laundering schemes, involving billions of dollars from Azerbaijan.

“As we have previously said, on the basis of what we know now, we should have done this faster. Today, we have a very different and stronger control setup in Estonia,” the bank added.

Meanwhile, Estonia’s financial watchdog said it suspects Danske Bank’s Estonian branch of misleading the Baltic country’s authorities.

The Financial Supervision Authority said it is considering a new investigation into the branch’s activity in relation to money laundering, Estonian public broadcaster ERR reported Tuesday.

The Estonian regulator did conduct inspections at the branch in 2014 during which it found extensive and systematic violations of anti-money laundering rules.

It also noted at the time that Danske hadn’t sufficiently analyzed the nature and activities of its client Lantana Trade LLP.

 

Money laundering linked to drug trade a ‘structural’ issue: SFU criminologist

Structural changes are required to clamp down on the unregulated private lending networks that drug traffickers are using to launder their illicit gains, a Simon Fraser University criminologist says.

A recent Globe and Mail investigation identified people connected to the local fentanyl trade who are also private lenders, using Vancouver-area real estate to clean their cash.

Neil Boyd, a criminology professor at SFU, said the complexity of these private lending networks and similar white-collar crimes make them notoriously hard to prosecute.

“Sometimes you can uncover it, but to prosecute it, to get the evidence, to go to court and convince a judge is incredibly difficult,” Prof. Boyd said.

“The resources required to prosecute in this area are really considerable, in contrast to a lot of the street-level crime that shows up in our courts. I think the solutions there are at the level of structure, putting in place systems that make this movement of money much more accountable.”

The Globe investigation identified, for example, Ying Zhang, Zhi Guang Zhang and Wei Zhang, a trio of private lenders that has issued millions of dollars in registered mortgages and short-term loans. In all, The Globe identified 12 private lenders associated with the illicit drug trade and other crimes.

Just as a bank does, they grant a loan, then register a land-title charge against the borrower’s real estate equal to the value of the debt, plus interest. The charge, which gives them a stake in the real estate, remains in place until the debt is cleared. If the property is sold, the loan is paid out from the sale proceeds, in clean money, all seemingly legal.

Except these financiers are unregulated and unlicensed, and the loans they grant are in cash likely derived from drug deals or other crimes. The Zhangs charge interest rates of up to 39.6 per cent, with some private lenders demanding up to 120 per cent. In the spring of 2016, police seized from the Zhangs a total of $660,970 in small bills – with traces of fentanyl and other street drugs – after watching them conduct business in and around Vancouver.

They were not charged with any crimes, but the money was seized as proceeds of crime under B.C.’s Civil Forfeiture Act. The Globe has contacted the Zhangs for comment, but has received no response.

“I don’t think there’s any doubt that people in law enforcement would like to act against this kind of predatory conduct, but I think the problem is structural,” Prof. Boyd said. “It’s almost like a shadow economic system that operates: It’s not legitimate, but how you control that system is going to require international co-operation and, in all likelihood, pretty significant restrictions against private lending.”

Staff-Sergeant Darin Sheppard of the RCMP’s Federal Serious and Organized Crime Synthetic Drug Operations, said while the scale of the issue is not yet known, it’s common for traffickers to look for new ways to launder cash. A popular newer method is through cryptocurrencies such as bitcoin.

“Drug trafficking and money laundering go hand in hand, and any method that organized crime can find to legitimize their money, they’ll likely take,” Staff-Sgt. Sheppard said. “[Private lending] is just another example.”

While people such as the Zhangs may be on police radar for an apparent connection to the local fentanyl trade, Staff-Sgt. Sheppard said the difficulty lies in drawing a direct line that would result in a conviction.

“Some of the anonymity factors that go along with all the ways that money is laundered pose challenges, as is trying to draw that line from Point A to Point B when money is being filtered, or layered, through the community,” he said.

Staff-Sgt. Sheppard said regulatory changes, such as stronger reporting requirements from all financial institutions, including private lenders, would help in investigating and prosecuting these crimes.

Attorney-General David Eby called the findings of The Globe’s investigation “very serious and deeply troubling,” and said a review expected to be complete by the end of March will be informed by its revelations.

When asked why the lenders identified by The Globe have not been charged, Mr. Eby said police are “very engaged” in an “active investigation.”