Danske Flags More Than $230 Billion in Transactions Related to Money Laundering Probe

By Patricia Kowsmann & Drew Hinshaw

COPENHAGEN—Denmark’s largest bank found more than $200 billion in transactions at its Estonian branch and suspects a “large portion” of it was related to money laundering, often from Russia. The CEO stepped down as a result of the year-long investigation.

Danske’s CEO Thomas Borgen said “it is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia,” adding the investigation didn’t find breaches of his legal obligations. Mr. Borgen will stay until a replacement is appointed, the company said.

The size of the scandal has hammered its shares and raised concerns about a bank that holds more than a third of the country’s customer deposits.

Danske’s woes began in early 2017 when the lender became embroiled in a series of money-laundering cases involving its branch in Estonia, a eurozone country formerly part of the Soviet Union that became a preferred destination for money launderers, particularly from Russia.

On Wednesday the bank said about €200 billion of money ($233 billion) moved through the Estonian unit from 2007 to 2015. A large part of the payments were likely suspicious, it said. Investigators looked at 15,000 customers, before focusing on 6,200 who they believe deserved serious scrutiny for signs of money laundering. Of that 6,200, “the vast majority of these customers have been deemed suspicious,” the report concluded.

“There is suspicion that there have been employees in Estonia who have assisted or colluded with customers,” the bank said in a press release.

Danske has been slow to respond to the growing scandal, and it only launched an in-depth investigation into the matter in September of last year. The branch is the subject of investigation by U.S. authorities, and Danish and Estonian prosecutors.

Denmark’s banking supervisor in May reprimanded Danske for weak controls and ordered it to hold $800 million more in capital. In its ruling it described repeated inaction from the bank’s management. It said warnings were softened when passed on to the board. Despite being warned of trouble within its portfolio of nonresident customers in 2013, the bank didn’t start shutting the accounts down almost two years later, according to the supervisor.

Danske said Wednesday that the investigation found a number of former and current employees, both at the Estonia branch and in the headquarters, “didn’t comply with legal obligations” of their employment. It has reported some to the Estonian authorities, including the police.

https://www.wsj.com/articles/danske-banks-finds-more-than-200-billion-in-transactions-at-branch-suspected-of-money-laundering-1537345254

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.

Russia-Linked Money-Laundering Probe Looks at $150 Billion in Transactions

By Bradley Hope, Drew Hinshaw, and Patricia Knowsmann

Denmark’s largest bank is investigating whether companies with ties to Russia used it to launder money, examining $150 billion in transactions that flowed through a tiny branch in Estonia, according to people familiar with the matter.

The $150 billion figure, covering a period between 2007 and 2015, has been presented to the bank’s board of directors and would equal to more than a year’s worth of the corporate profits for the entire country of Russia at the time. The flows would have stayed in the branch for only a short time before leaving Estonia, according to a person familiar with the investigation, so they might not show up in deposit statistics, which reflect the balance at the end of month and not from day to day.

“Any conclusions should be drawn on the basis of verified facts and not fragmented pieces of information taken out of context,” Danske Bank Chairman Ole Andersen said in a statement. “As we have previously communicated, it is clear that the issues related to the portfolio were bigger than we had previously anticipated.” The bank says the results of its probe are being finalized.

Shares in the bank fell as much as 7% on Friday after The Wall Street Journal reported on the size of the amounts involved.

The U.S. has paid close attention to the ways Russia’s wealthy have taken money out of the country, according to U.S. officials, especially since sanctions imposed during the invasion of Crimea in 2014. Sanctions were strengthened following determinations of Russian meddling in the 2016 U.S. presidential election and again earlier this year.

Washington has watched illicit money flows channeled through European-regulated banks to the West. In February, the Treasury Department declared Latvia’s ABLV bank an “institutionalized money laundering” operation where weapons dealers and corrupt politicians from former Soviet Union countries sent their money into Europe. ABLV denied knowingly laundering money and later collapsed.

In 2017, Deutsche Bank agreed to pay nearly $630 million to settle investigations by U.K. and New York regulators into Russian equity trades that transferred $10 billion out of that country in violation of anti-money-laundering laws.

Since last year, NATO has positioned troops in three former Soviet Union republics—Estonia and its neighbors Latvia and Lithuania, all bordering Russia. In return, the U.S. has asked those governments to crack down on illicit Russian money flowing into the West through their banks, according to U.S. officials. That understanding was hammered out after Russia’s 2014 annexation of Crimea.

Danske’s Estonian branch is the subject of criminal investigations in Denmark and Estonia, prosecutors in the countries said. The Danish Financial Supervisory Authority reprimanded the bank for weak controls in May and ordered Danske to hold about $800 million more in capital, but didn’t issue a fine.

Shell companies, including many registered in the U.K., controlled most of the accounts in question, and many of the accounts had links to people in Russia and former Soviet Union countries, people familiar with the matter said. The U.K.’s Financial Conduct Authority isn’t probing the bank, according to a person familiar with the matter.

Danske Bank’s Estonian office in Tallinn.
Danske Bank’s Estonian office in Tallinn. PHOTO:INTS KALNINS/REUTERS

Estonia, a former Soviet Republic of 1.3 million people, became a European Union member in 2004 and joined the euro in 2011. Like its Baltic neighbor Latvia, it quickly became a way station for funds from other former Soviet states. The $150 billion figure is a substantial sum considering Estonia’s entire banking system reports total deposits of €17 billion ($19 billion).

At Danske, clients would typically move funds among several companies with accounts at its Estonia branch before transferring the money to accounts in banks in Turkey, Hong Kong, Latvia, the U.K. and other countries, one of the people familiar with the investigation said.

Danske’s management dragged its feet dealing with the issue, according to a report filed by Danish regulators this year, ignoring complaints from internal whistleblowers and correspondent banks, which made international payments and transfers on its behalf.

Estonian regulators complained to Danish counterparts as early as 2012 and compiled a 200-page report in 2014 detailing the local branch’s extensive failures to ask even basic questions about the source of its clients’ income.

“There were many red flags,” said Kilvar Kessler, chairman of the management board of Estonia’s banking supervisor, the Finantsinspektsioon.

It was only after another bank refused to deal with Danske’s Estonian unit that the bank shut down “nonresident” Estonian accounts in 2015.

Danske Chief Executive Thomas Borgen was in charge of international banking—including in Estonia—during part of the period under investigation. He was promoted to run the bank in 2013. He declined to comment.

Denmark’s Berlingske newspaper earlier reported around $8 billion of illicit money went through the Estonian branch. The Financial Times reported this month that some $30 billion flowed through the Estonian branch in the year 2013. In both instances, Danske said it needed time to look into the reports.

Danske’s investigation is overseen by the bank’s legal counsel and assisted by forensic accountants at PricewaterhouseCoopers LLP and consultants at Ernst & Young LLP. Both firms didn’t immediately respond to requests for comment. Promontory Financial Group, a unit of International Business Machines Corp. , and Palantir Technologies Inc. are also helping in the probe and declined to comment.

Such large sums were able to slip by European regulators’ watch for years largely because of a series of design flaws in the Continent’s anti-money-laundering systems, said James Oates, the founder of Cicero Capital, a financial adviser in the Estonian capital of Tallinn.

“Everybody was looking the other way because they thought they were covered, and it turns out they weren’t,” said Mr. Oates.

Danske Bank’s Estonia branch isn’t directly supervised by the European Central Bank, which in any case lacks the authority to investigate money-laundering cases. Estonian authorities, meanwhile, say that because Danske operated as a branch—and not a subsidiary with a legal entity based in Estonia—they had limited authority and incomplete information.

Parent bank Danske said in a September 2017 statement that the Estonia branch “operated very much as an independent unit, with its own systems, procedures and culture regarding anti-money-laundering measures.”

https://www.wsj.com/articles/danske-bank-money-laundering-probe-involves-150-billion-of-transactions-1536317086

Feds freeze millions in assets linked to stolen Venezuelan oil funds laundered in South Florida

Federal prosecutors have frozen hundreds of millions of dollars in South Florida luxury real estate and other assets linked to a network of Venezuelan business people and former government officials charged with laundering more than $1 billion that U.S. authorities say was stolen from the country’s vast oil income.

Among the targeted assets are at least 17 South Florida homes, condos and horse ranches ranging in total value from $22 million to $35 million, based on property assessments in public records and real estate market estimates.

They include a condo in the Porsche Design Tower in Sunny Isles, a residence on Hibiscus Island overlooking Biscayne Bay, four homes in the exclusive Cocoplum neighborhood of Coral Gables, and two ranches in the wealthy equestrian community of Wellington in Palm Beach County.

Also facing federal forfeiture: More than $45 million that has already been seized by U.S. authorities in the past year, along with additional deposits at City National Bank of New Jersey and other financial institutions in the Bahamas, England and Switzerland.

This week, the U.S. Attorney’s Office filed a motion to freeze the assets of nine defendants recently charged with conspiring to commit money laundering by transferring funds from Venezuela’s state-owned oil company, PDVSA, to South Florida, the Caribbean, Europe and Central America for their personal enrichment. Some of the defendants are close to the nation’s president, Nicolás Maduro, who is also under investigation, the Miami Herald has learned.

Their assets — including the Porsche Design Tower condo owned by former PDVSA legal counsel Carmelo Urdaneta Aqui — are typically listed in other people’s names or corporate companies to disguise the defendants’ ownership interests, prosecutors say.

U.S. District Judge Kathleen Williams granted the prosecution’s motion, which prevents the defendants from selling their assets. The Feds can seize the properties only if they secure convictions through plea deals or at trial.

Only two of the nine defendants charged so far are in custody. Matthias Krull, a German national who resided in Panama and also worked as a private-wealth management banker in Switzerland, pleaded guilty on Wednesday in Miami federal court to conspiring to commit money laundering. Krull, 44, who was arrested last month at Miami International Airport and is being held at the Federal Detention Center, admitted in court that he was involved in at least $550 million worth of money-laundering activities.

Krull, represented by lawyer Oscar S. Rodriguez, is cooperating with Homeland Security Investigations and the U.S. Attorney’s Office, according to his plea agreement. By pleading guilty, Krull faces up to 10 years in prison instead of potentially twice that amount of time under an indictment charging the other eight defendants. Krull’s sentencing hearing is set for Oct. 29 before U.S. District Judge Cecilia Altonaga.

The only other defendant in custody is Miami-based investment broker Gustavo Adolfo Hernandez Frieri, 45, who was arrested last month in Italy and is facing extradition. Hernandez, 45, a Colombian-born naturalized U.S. citizen, is accused of using his Miami financial firm, Global Securities Advisors, and another firm, Global Strategic Investments, to launder money with false mutual-fund investments. A Homeland Security investigator says in a criminal affidavit that the two brokerage companies, which are listed as having offices at 701 Brickell Ave., are “affiliated” and were used by Hernandez for meetings with members of the money-laundering network.

Representatives of Global Strategic Investments insist Hernandez has had no involvement in the firm, which is headed by Hernandez’s brother, Cesar.

The remaining seven defendants, including two former PDVSA senior officials accused of pocketing bribes as part of the alleged massive money-laundering scheme, are in Venezuela or other foreign countries.

The Miami criminal case is the largest money-laundering racket — totaling at least $1.2 billion — ever alleged against former Venezuelan officials and business people, some of whom are close to Venezuelan President Maduro. Maduro himself is also under investigation, along with his three stepsons and a TV network mogul, Raúl Gorrín, who also owns a Cocoplum home that he recently put on the market for $8 million. But Maduro, the stepsons and Gorrín have not been charged in the ongoing investigation.

Even if Maduro, who became president after Hugo Chávez’s death in 2013, is ultimately charged, it’s unlikely he would be brought to the U.S. for prosecution. But the probe could add to the political challenges already facing the embattled president. Maduro has been the focus of months of protests over his country’s failing economy.

The president’s stepsons, Gorrín and others are suspected of receiving hundreds of millions of dollars in funds from Venezuela’s national oil company that were transferred to bank accounts set up in other people’s names in Europe.

On Wednesday, it was disclosed that about $200 million in the country’s oil funds was transferred overseas to the president’s stepsons in the name of Mario Enrique Bonilla Vallera, a Venezuelan businessman who U.S. authorities say was a “straw” owner of their bank accounts. Bonilla, who was added as a defendant to the new indictment, is also listed as the registered officer for three Florida businesses whose mailing addresses are linked to one of the four Cocoplum residences being seized by federal prosecutors, state records show.

Maduro, his stepsons and Gorrín, however, were not identified in the court hearing or in case records.

The alleged money-laundering conspiracy began in December 2014 with a currency-exchange scheme to embezzle $600 million from PDVSA obtained through bribes and fraud, the criminal affidavit says. The defendants used an associate, who would later become a confidential source for the feds, to launder a portion of the PDVSA funds. By May of 2015, the conspiracy had doubled to $1.2 billion embezzled from Venezuela’s national oil company.

In early 2016, the associate approached Homeland Security investigators in Miami about cooperating and becoming a confidential source, according to the affidavit. The source agreed to wear a recording device to launder $78 million in PDVSA funds that he had received from a loan contract with the national oil company.

The federal probe, called Operation Money Flight, was launched with the initial focus on the defendants’ efforts to launder a portion of the $78 million. That investigation uncovered the broader money laundering, according to the affidavit.

The eight defendants named in the complaint are accused of embezzling funds from Venezuela’s oil income and exploiting its foreign-currency exchange system to amass illegal fortunes in the United States and other countries. To leverage their profits, the defendants took advantage of their access to the Venezuelan government’s foreign-currency exchange system, which offers a far more favorable rate than the everyday market. The system was used to convert dollars and euros to bolivars and then back to dollars and euros as the defendants stole from the country’s oil riches for overseas investments in Florida, Europe and other parts of the world.

A factual statement filed with Krull’s plea agreement Wednesday jibes with the initial criminal affidavit that was unsealed upon his arrest last month. The court records put Krull in the middle of the money-laundering racket as the go-to banker for the Venezuelans and others. Some met with Krull at the banker’s Panama office as well as at Gorrín’s office in Caracas and condo on Fisher Island in Miami.

While Maduro is not mentioned by name in any court records, there are references to him as “Venezuelan Official 2” and to his stepsons, according to multiple sources familiar with the probe. His stepsons — Yosser Gavidia Flores, Walter Gavidia Flores and Yoswal Gavidia Flores — though also unnamed are described by the sources as receiving an estimated $200 million in funds stolen from the nation’s national oil company, Petroleos de Venezuela, S.A., or PDVSA, that were wired to a European bank in late 2014 and early 2015.

The deposits for his three stepsons — the grown children of Maduro’s wife, Cilia Flores, from previous relationships — were among 10 wire transfers totaling about $600 million, according to the affidavit by Homeland Security Investigations. Flores is not mentioned by name in any court records either.

The affidavit says the wire transfers were made from PDVSA, with about $265 million going to accounts linked to the complaint’s lead defendant, Francisco Convit Guruceaga, a Venezuelan billionaire businessman. He and other members of the wealthy class are often referred to as the “boliburgués,” an elite politically connected group in Venezuela. An unnamed conspirator also received some of the money, according to the affidavit filed by Assistant U.S. Attorney Francisco Maderal.

Roughly $200 million went to the grown stepsons of Venezuelan Official 2. Sources say that Venezuelan Official 2 is Maduro.

Court documents say another $80 million went to “Conspirator 7.” Sources familiar with the affidavit told the Herald that Conspirator 7 is Gorrín, owner of the Globovision television network in Venezuela. Gorrín, who has close ties to Maduro and the late president Chávez, has been sharply criticized for turning a pro-opposition news network into one more friendly to the president.

In late 2017, Gorrín tried to broker an exit strategy with the Trump administration for Venezuela’s beleaguered government, according to various Washington sources, by peddling the idea that Maduro and other key government leaders might be willing to negotiate a transition in Venezuela in exchange for amnesty. He also retained Ballard Partners — the firm of President Donald Trump’s former Florida lobbyist — ostensibly to help his Venezuelan TV network company expand into U.S. markets.

Gorrín’s lawyer in Miami, Howard Srebnick, denied any wrongdoing by his client.

Feds Order Wells Fargo To Pay $3.4M In Fines

Winston-Salem Journal (NC)

This time, the agency ordered $3.4 million in customer restitution related to investment advice provided from July 2010 to May 2012 by Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC.

The agency said Wells Fargo neither admitted nor denied the charges in the settlement.

Regulators said the Wells Fargo units provided “unsuitable recommendations of volatility-linked exchange-traded products and related supervisory failures.”

It determined some Wells Fargo representatives recommended the products “without fully understanding their risks and features,” in particular “mistakenly believing that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn.”

In fact, the agency said, volatility-linked ETPs typically are considered short-term trading products that degrade significantly over time and “should not be used as part of a long-term buy-and-hold investment strategy.”

The agency issued a regulatory notice to financial institutions that reminds them “of their sales practice obligations relating to these products.”

The agency said it took into consideration that Wells Fargo “took remedial action to correct its supervisory deficiencies in May 2012, prior to detection by FINRA and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs.” The bank assisted the agency in its investigation.

“FINRA seeks restitution when customers have been harmed by a member firm’s misconduct,” Susan Schroeder, executive vice president of the agency’s enforcement department, said in a statement. “We also credit firms that proactively detect and correct issues prior to detection by FINRA, as Wells Fargo did in this matter.”

Wells Fargo confirmed the settlement in a statement.

“We are committed to helping our clients achieve their investment goals through advice that is regularly reviewed and aligned to their objectives and risk tolerances,” according to the statement.

“In cooperating fully with FINRA, we have made significant policy and supervision changes, including the discontinuation of the ETPs in focus.”

On Dec. 22, five Wells Fargo financial-services units were fined a combined $5.5 million by FINRA “for significant deficiencies relating to the preservation of broker-dealer and customer records in a format that prevents alteration.”

Wells Fargo Securities LLC and Wells Fargo Prime Services LLC were jointly fined $4 million. Wells Fargo Advisors LLC, Wells Fargo Advisors Financial Network and First Clearing LLC were jointly fined $1.5 million.

In 2013, FINRA ordered Bank of America Corp. and Wells Fargo to pay fines and restitution to settle charges that investor clients were pushed into investments that were inconsistent with their risk preferences. The Wells Fargo Advisors unit was fined $1.25 million and ordered to reimburse $2 million in losses to 239 customers.

In May 2012, FINRA imposed more than $2.7 million in fines and penalties on Wells Fargo Advisors for investment-related violations stemming from January 2008 to June 2009. Some of the violations were related to Wachovia Securities, which Wells Fargo took over at the end of 2008.

Wells Fargo was fined $2.1 million and ordered to pay $641,489 in restitution.

Also affected at that time were Citigroup ($2 million fine and $146,431 in restitution), Morgan Stanley ($1.75 million fine and $604,584 in restitution), and UBS ($1.5 million fine and $431,488 in restitution).

Wachovia, now Wells Fargo, sold risky nontraditional exchange-traded funds to customers who did not want that type of investment strategy, FINRA said.

FinCEN Issues Advisory on Widespread Public Corruption in Venezuela

FinCEN Issues Advisory on Widespread Public Corruption in Venezuela

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

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

Background

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

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

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

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

Impact and Regulatory Obligations

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

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

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

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

Conclusion

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

https://www.lexology.com/library/detail.aspx?g=1b0f91d1-43b9-4031-83e7-fbf2ed5768ab

Three Orlando area lawyers suspended, including former Cay Clubs attorney

Three Orlando area lawyers have been suspended in the most recent action by the Florida Bar, including one that provided legal advice to the Cay Clubs Ponzi scheme in the Florida Keys.

The following details were provided by the Florida Bar and court records:

William Scott Callahan, Winter Park, was suspended for one year, retroactive to April 20. Callahan was subpoenaed and agreed to cooperate in a federal fraud investigation involving the Cay Clubs vacation rental scheme. He had been a partner at a law firm that handled closings for the company. In the course of his duties supervising the closing agents, Callahan violated Bar rules.

According to court records, Callahan made misleading statements, and when he learned the principals of the company were omitting pertinent information from the closing documents, he failed to warn them, failed to obtain additional legal opinions and failed to withdraw from further representation. Callahan received immunity from prosecution in return for providing information. (Florida Supreme Court Case No. SC17-539)

Michael Kevin Rathel, Orlando, suspended for one year. According to the Florida Bar and court records, Rathel bought a house after persuading the seller to hold a second mortgage for $100,000 needed by Rathel to pay the purchase price. Rathel promised to repay the seller and pledged his current home as security for the mortgage. Rathel sold his current home without telling the seller or repaying the seller’s second mortgage. Commencing in or about 2010, Rathel failed to file and pay his personal federal and corporate tax returns in a timely manner. In another matter, Rathel failed to timely respond to an inquiry about a Bar complaint. Suspension is effective 30 days from a March 23 court order. (FSC Case No. SC16-1024)

http://www.orlandosentinel.com/business/brinkmann-on-business/os-bz-florida-bar-suspensions-20170530-story.html

Photo: Florida Bar

 

South L.A. charter school founder charged with embezzlement, money laundering

The head of a now-defunct South L.A. charter school has been charged with embezzlement and money laundering, accused of funneling roughly $200,000 from the school to a company she owned, prosecutors said Thursday.

Kendra Okonkwo, 51, was charged with misappropriation of public funds, grand theft by embezzlement, money laundering and keeping a false account, according to a news release issued by the Los Angeles County district attorney’s office. Her son, 29-year-old Jason Okonkwo, is accused of approving fake invoices to further the plot and faces the same charges, prosecutors said.

Kendra Okonkwo founded the Wisdom Academy for Young Scientists near the Watts neighborhood in 2006, but the school quickly became a target of regulators and lost its charter in 2016. She and her son were arrested in Los Angeles on Thursday morning and remain jailed in lieu of $145,000 bail, according to Deputy Dist. Atty. Dana Aratani, who is prosecuting the case.

From January 2012 to March 2014, approximately $201,000 was transferred from the school to an unnamed business run by Okonkwo, according to the district attorney’s office. The money was then transferred to her personal bank account, prosecutors said.

Her son approved a number of fake invoices, purportedly for the purchase of school supplies and food from his mother’s “shell company,” that documented the transfer of money, prosecutors said.

Okonkwo did not immediately return a call seeking comment, and it was not immediately clear if she or her son have retained attorneys.

Both face up to six years in prison if convicted. A court date has yet to be scheduled.

The school operated under the authority of the Los Angeles Unified School District until 2011, when the district declined to renew the school’s charter, citing violations of education code and conflicts of interest.

Okonkwo agreed to step down as the school’s director as part of an agreement with the county to stay in operation, but she named several relatives and associates to key positions at the school.

That move, according to the findings of a 2014 state audit, allowed her to retain control and benefit from transactions at the academy.

According to the audit’s findings, Okonkwo, her family members and close associates received about $2.6 million in payments from the school. None of the employees in question indicated any financial interest in school affairs on required conflict-of-interest statements, the audit said.

Among the audit’s findings, the organization leased two properties owned by Okonkwo’s holding company, paying more than $1 million in rent over six years. The school also paid Okonkwo $228,665 in severance, unused vacation and a vehicle lease despite a lack of documents to support the amount.

The audit also found the school had paid more than $158,800 to a company owned by a relative of Okonkwo. The payments were supposedly for school supplies, but state auditors could not confirm that the school received any of the materials for which it paid.

Aratani said prosecutors began reviewing Okonkwo’s conduct and business dealings after the audit results were released. An arraignment could take place as early as Friday, he said.

Last year, Okonkwo agreed to pay $16,000 in fines as part of a settlement with the state’s Fair Political Practices Commission after she was found to have established leases for the school at buildings she owned and used public funds to renovate those properties.

“In this matter, Okonkwo engaged in a pattern of violations in which she made, used or attempted to use her official position to influence governmental decisions involving real property in which she had a significant financial interest,” the commission said last year.

When the county began the process of revoking the school’s charter in 2014, Okonkwo claimed she was being “slandered.”

“I’m not a soldier; I’m not a politician. I’m just an educator,” she said at the time.

http://www.latimes.com/local/lanow/la-me-ln-charter-school-founder-charged-20170518-story.html

Photo: My News LA 

Russia probe: Senate requests Trump documents from agency that monitors money laundering

The Senate panel has requested information about President Donald Trump and his top aides from a financial intelligence unit in the Treasury Department that imposed a $10 million civil penalty on Trump Taj Mahal in 2015 for multiple violations of money-laundering laws.

The Senate Intelligence Committee wants to see any information relevant to its Russia investigation the Treasury agency has gathered, including evidence that might include possible money laundering, according to a committee aide who spoke on condition of anonymity. Also at issue: to what extent, if at all, people close to Vladimir Putin have invested in Trump’s real estate empire.

The request, made in recent weeks, comes as part of the Senate’s investigation into whether Trump associates colluded with Russian meddling in the U.S. election. The FBI is also investigating that issue, but that probe is now under a cloud after Trump fired FBI Director James Comey.

 White House spokesman Michael Short said the president is confident the investigation will exonerate his campaign.

“There’s a process, and that process is moving forward, and we’re confident that once it’s complete everyone will again see that there is no `there,’ there when it comes to alleged collusion.”

Treasury’s Financial Crimes Enforcement Network has assisted in the ongoing FBI counterintelligence investigation into Trump administration ties with Russia, multiple U.S. officials have said. A former senior Treasury official said that agency would have the authority to demand from any bank with a U.S. branch, including foreign banks, relevant records of transactions by Trump, his family members or his associates. FinCEN also maintains databases of reports of suspicious and cash transactions.

Trump’s ownership in the Taj Mahal was sharply reduced in 2009 when he resigned as chairman of the company owning the Atlantic City casino after it was reorganized in a bankruptcy. His remaining stake was wiped out when the company was acquired in 2014 by billionaire financier and Trump advisor Carl Icahn, who shut down the casino in October.

FinCEN imposed a $10 million civil penalty in 2015 against Trump Taj Mahal Casino Resort for “willful and repeated violations of the Bank Secrecy Act,” and ordered the casino to conduct “periodic external audits to examine its anti-money laundering” compliance program and “provide those audit reports to FinCEN,” according to a Treasury Department statement announcing the penalty.

FinCEN “collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes,” the agency says on its website.

The Senate committee’s request covers any potentially relevant information about Trump, his family, his businesses and his associates, the aide said. Such a request presumably would cover copies of the Taj Mahal audits.

In a consent order, Trump Taj Mahal admitted to having “willfully violated” reporting and record-keeping requirements under the federal Bank Secrecy Act from 2010 to 2012.

FinCEN’s complaint said violations had been revealed by the Internal Revenue Service as far back as 2003. In 1998, FinCEN assessed a $477,700 civil penalty against Trump Taj Mahal for currency transaction reporting violations.

“Trump Taj Mahal received many warnings about its deficiencies,” then-FinCEN Director Jennifer Shasky Calvery said in the 2015 statement. “Poor compliance practices, over many years, left the casino and our financial system unacceptably exposed.”

The penalty became an unsecured claim in Trump Taj Mahal’s bankruptcy proceeding, which was originally filed in September 2014.

Under the Bank Secrecy Act, casinos are required to report suspicious transactions of $5,000 or more. Trump Taj Mahal failed to file about half of the required suspicious activity reports during periods covered by two reviews by the Internal Revenue Service, according to the consent order.

http://www.cnbc.com/2017/05/10/russia-probe-senate-requests-documents-from-money-laundering-watchdog-agency.html