Key news in this bulletin includes:

• UK investigation into Petrofac’s activities in Iraq and Saudi Arabia leads to guilty bribery plea by former sales executive;
• American founder of one of the largest foreign investment funds in Russia charged in Moscow with fraud; and
• Divergent assessments emerge about the source of a cyber-attack on the Australian parliament in run-up to May elections.

MIDDLE EAST & NORTH AFRICA

JORDAN: PUBLIC OFFICIALS CHARGED IN COUNTERFEIT CIGARETTES SCANDAL

In February, Jordanian authorities charged 29 individuals and more than a dozen companies with abuse of power, bribery, smuggling, tax evasion and money laundering in a case involving the production and sale of counterfeit cigarettes. Among the accused are prominent Jordanian businessperson Awni Mutee and several senior Jordanian government officials including former customs chief Waddah Al Hamoud. The initial investigation into the multimillion-dollar scheme was led by Jordan’s Integrity and Anti-Corruption Commission, which referred the matter to the country’s State Security Court, a military tribunal that handles serious criminal and terrorism cases. The so-called ‘cigarettes scandal’, which first emerged in July 2018, has featured heavily in local news and has intensified public outrage over widespread corruption in Jordan. In 2018, public calls for the government to meaningfully tackle corruption contributed to the largest protests Jordan has experienced since 2011.

 

ASIA PACIFIC

CHINA: US PRESSURE ON ALLIES TO BAN HUAWEI SUFFERS SETBACKS

Since being bailed on 11 December 2018, Meng Wanzhou, CFO of Huawei and daughter of founder, Ren Zhengfei, has been under house arrest in Vancouver. She faces potential extradition to the US to meet charges relating to her role in Huawei’s alleged breach of US sanctions on Iran. Trump has not ruled out dropping charges against Meng as a lever to secure a trade deal with China, raising the chance that her personal fortunes could be bound up in a much larger deal.

Against this backdrop, the US government has been lobbying its allies to reject Huawei’s 5G technology, claiming that the PRC government is using Huawei equipment to carry out espionage. These efforts suffered a setback on 18 February when the UK National Cyber Security Centre stated that the risks posed from using Huawei’s equipment are manageable. This view is seemingly shared by Germany, which has reportedly decided against an ouright ban. While Australia, New Zealand and Japan have effectively joined the US ban, Italy, Canada and South Korea remain on the fence.

AUSTRALIA: CYBER-ATTACK ON AUSTRALIAN PARLIAMENT

On 8 February, the Australian Cyber Security Centre, the Australian government’s cyber-security agency, identified a malicious intrusion into the computer network of the Australian parliament that affected the networks of Australian political parties, including the Liberal, Labour and National parties.

The Australian government has not yet attributed responsibility for the attack, and security services are still investigating its origin. Prime Minister Scott Morrison has stated that the attacks were committed by a “sophisticated state actor,” and Australian media sources have reported that China is likely to have perpetrated the cyber-attack. However, the FBI has assessed that the attack was carried out by the Mabna Institute, a private government contractor based in Iran whose members have previously been indicted in the US for attacks on the US and its allies.

The cyber-attack occurred three months before the federal election in May, and Australian and international media sources have raised fears that the attack could be part of an attempt to interfere with the vote.

CAMBODIA: COUNTRY RE-ADDED TO FATF ‘GREY LIST’

On 22 February, Cambodia was added to a watchlist of the Financial Action Task Force (FATF), a global inter-governmental watchdog. The country had been removed from FATF’s ‘grey list’ of jurisdictions with strategic deficiencies in 2015 but was re-added following concerns that it is highly susceptible to money laundering, especially the country’s booming casino and real estate sectors, which are not supervised by the Cambodian Financial Intelligence Unit. According to the 2017 Mutual Evaluation Report on Cambodia’s policies to counter money laundering and terrorism financing, the country’s judicial system is highly corrupt and has never prosecuted a money laundering case. The listing comes as the European Union (EU) started a formal process that could lead to the temporary suspension of Cambodia’s preferential access to the EU market due to concerns over its human rights record.

 

RUSSIA CIS

RUSSIA: PROMINENT US BUSINESSMAN ARRESTED ON EMBEZZLEMENT CHARGES

On 21 February, Russian prosecutors charged Michael Calvey, a US investor and founder of Baring Vostok Capital Partners (BVCP), one of Russia’s largest investment funds, with large-scale fraud. Calvey allegedly embezzled USD 38 million from Vostochny Bank, a Russian bank in which BVCP holds a majority stake. Calvey has denied all charges and claimed that they are a result of a dispute with Vostochny’s minority shareholders, who reportedly maintain connections to Russia’s security services. US diplomats have reportedly been denied access to Calvey. Several prominent Russian businessmen have expressed public support for Calvey amid fears that his arrest will deter foreign investment in the country. If convicted, Calvey faces a prison sentence of up to 10 years.

RUSSIA: SENATOR ARRESTED DURING PARLIAMENTARY SESSION ON SUSPICION OF ORDERING TWO MURDERS

On 30 January, Rauf Arashukov, a senator representing the Karachaevo-Cherkessia Republic in the south-west of Russia, was dramatically arrested during a meeting of the Federation Council, the upper chamber of the Russian parliament, on suspicion of ordering two contract killings. The victims of both of these alleged murders were beaten and then fatally shot in Karachaevo-Cherkessia in 2010. Following their deaths, families of the victims demonstrated outside regional governmental buildings for Arashukov’s arrest, but these protests seemingly fell on deaf ears – until last month. The arrest has prompted prominent opposition leader Alexei Navalny’s anti-corruption foundation, the FBK, to release a report on the role of organised crime in Russia’s south-western Caucasus region. In the report, the FBK alleges that a small group of powerful families control virtually all the resources allocated to the area: the Arashukovs’ influence is reportedly equaled only by that of the Kaitovs, who allegedly organised the murder of seven people in 2004.

GEORGIA: TBC BANK INVESTIGATED FOR ALLEGED MONEY LAUNDERING

On 9 January, the Office of the Prosecutor General of Georgia announced that it had launched a criminal investigation into TBC Bank, Georgia’s largest retail bank, regarding USD 17 million in transactions occurring in 2007 and 2008 which allegedly showed signs of money laundering and other illicit activity. The National Bank of Georgia, Georgia’s central bank, imposed a fine of GEL 1 million (USD 374,793) on TBC and ordered the removal of TBC co-founders Mamuka Khazaradze and Badri Japaridze from their positions as chairman and deputy chairman, respectively, of TBC’s supervisory board. TBC Bank has denied the allegations and initially challenged the fine in court, however on 21 February, TBC reported that it had agreed to pay the fine, and both Khazaradze and Japaridze have resigned from the supervisory board. They will maintain their positions as chairman and deputy chairman, respectively, of the board of directors of TBC Bank Group Plc, the UK-incorporated 100 percent shareholder of TBC Bank.

 

NORTH AMERICA

USA: COGNIZANT TO PAY USD 25 MILLION OVER BRIBERY CHARGES

Cognizant Technology Solutions, a US outsourcing company, has agreed to pay a USD 25 million fine for bribery by two of its executives. The Securities and Exchange Commission (SEC) accused them of facilitating payments to an Indian government official from Tamil Nadu state to enable the construction of a corporate campus in the region, violating FCPA. The SEC agreed not to prosecute due to Cognizant’s cooperation, remediation, and payment of the fine.

USA: YAHOO SETTLEMENT PROPOSAL OVER DATA BREACH REJECTED BY US JUDGE

In October 2018, Yahoo agreed to pay a USD 50 million settlement over one of the largest data breach cases in history. Over three billion accounts from the provider were affected by the incident, having their personal information and emails disclosed or stolen. In late January 2019, US District Judge Lucy Koh from San Jose, California, rejected the settlement offer, over an alleged repeated lack of transparency by Yahoo. She also noted her August 2018 approval of a settlement over Anthem Inc, a health insurer, for a data breach that affected approximately 79 million people. In comparison, the amount paid by Anthem Inc (USD 115 million) for far fewer victims was more than twice the amount offered by Yahoo.

 

LATIN AMERICA

BRAZIL: VALE DAM COLLAPSE

On 25 January, a Brazilian mining-waste dam owned by Vale SA, a mining company, collapsed killing more than 150 people. Following the disaster, the Minas Gerais Court of Justice blocked BRL 11 billion (USD 2.93 billion) of Vale’s assets for environmental damages and assistance to victims’ families, and eight Vale employees allegedly involved in the security and stability of the dam were arrested. Further, the Comissão de Valores Mobiliários (CVM), the Brazilian securities and exchange regulator, opened an investigation into Vale’s executives. Vale had previously been fined BRL 250 million by the administrative arm of Brazil’s Ministry of Environment for environmental damages caused by the collapse of another dam in Minas Gerais in 2015, which also led to the death of 19 people.

 

EUROPE

EU: COMMISSION EXPANDS FINANCIAL CRIME BLACK LIST FOR 23 COUNTRIES

On 13 February, the European Commission expanded its ‘blacklist’ of countries considered a threat due to weak controls for terrorism financing and money laundering.  The additions follow a stricter methodology for identifying high-risk countries, created by the 5th Anti-Money Laundering Directive in July 2018.

The additional countries are Saudi Arabia, Libya, Botswana, Ghana, Samoa, the Bahamas and the four United States territories of American Samoa, US Virgin Islands, Puerto Rico and Guam. Companies and banks operating under EU anti-money laundering regulations will be required to enhance their risk management frameworks and due diligence procedures when dealing with entities based in these countries. The existing countries on the list are Afghanistan, North Korea, Ethiopia, Iran, Iraq, Pakistan, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen. Bosnia, Guyana, Laos, Uganda and Vanuatu were removed as part of the most recent update.

The additions have been met with opposition in the US, UK and elsewhere. On 13 February 2019, the US Treasury Department ordered US banks to disregard the recently updated EU blacklist, calling into question the EU’s methodology. Saudi Arabia’s inclusion on the list has been met with opposition from the US and UK, who expressed concern over the implications for their trade relationships with Saudi Arabia. Riyadh also rejected the kingdom’s inclusion on the blacklist, citing its commitment to combating money laundering and terrorism financing as a strategic priority. The European parliament is expected to vote on the additions in March.

UK/IRAQ/SAUDI ARABIA: SFO INVESTIGATION INTO PETROFAC LEADS TO GUILTY PLEA

In early February 2019, David Lufkin, a former executive at Jersey-headquartered oilfield services provider Petrofac International Ltd, pleaded guilty to 11 counts of bribery. The charges related to corrupt payments the company allegedly made between October 2011 and February 2013 to win contracts in Iraq and Saudi Arabia, worth more than USD 4 billion. Lufkin’s case forms part of an investigation into Petrofac, its subsidiaries and employees for bribery, corruption and money laundering, launched in 2017 by the UK’s Serious Fraud Office (SFO). Just over a week after Lufkin’s guilty plea, Maroun Semaan, the co-founder of Petrofac, was posthumously accused by the SFO of complicity in six of these counts of bribery. According to prosecutors, Semaan acted with Lufkin and others to offer financial incentives to Iraqi and Saudi officials. The investigation is ongoing.

CYPRUS: GOVERNMENT AMENDS GOLDEN VISA REQUIREMENTS FOLLOWING EU CRITICISM

In February 2019, Cyprus’s cabinet approved changes to its ‘golden visa’ scheme, following EU criticism of the scheme for lack of transparency. The scheme allows foreign nationals to acquire Cypriot citizenship in exchange for investment, without residing in the country. Cyprus’s golden visas have received scrutiny for their role in enabling money laundering activities, tax evasion and corruption, particularly from Russia, Ukraine and the Middle East. The new rules, aimed at enhancing the scheme’s credibility, include enhanced due diligence on applicants, a requirement that applicants obtain a Schengen-area visa, and the exclusion of applicants previously rejected by similar schemes in other EU countries. Although citizenship by investment programmes are often criticised by non-governmental organisations, many EU countries, including Spain and the UK, continue to offer similar schemes.

 

SUB-SAHARAN AFRICA

FRANCE/GABON: ‘ILL GOTTEN GAINS’ INVESTIGATION TURNS SPOTLIGHT ON THE BONGO FAMILY

In January, French authorities searched properties belonging to the Bongo family, the presidential family of Gabon, as part of the biens mal acquis (“ill-gotten gains”) investigation. This investigation, started in 2010, seeks to determine whether extensive French assets held by certain African presidential families are the proceeds of corruption and other criminal activity. This latest search reportedly focused on Paris properties acquired by Omar Bongo, the now deceased former president of Gabon, in the 1970s. One of the properties reportedly searched was the residence of Pascaline Bongo, the incumbent president’s sister. Thus far, the investigation has mostly focused on the presidential family of Equatorial Guinea resulting in Teodorin Obiang, the president’s son, being convicted of money laundering and corruption in absentia, and consequently receiving a three-year suspended prison sentence in 2017. The most recent search signifies a move in focus towards the Gabonese presidential family. In January 2019, the Djiboutian presidential family was also included in the wider investigation.