The latest news from our regional teams about financial crime, corruption, sanctions and other integrity issues. This bulletin covers recent investigations in Canada, Vietnam and Brazil and looks at some of the new powers granted to UK authorities by the Criminal Finances Act.


UK Criminal Finances Act 2017

From 30 September, the Criminal Finances Act 2017 gives UK authorities a number of new powers to tackle tax avoidance, evasion and economic crime. Three stand out:

  • A strict liability criminal offence has been created for failing to prevent the facilitation of tax evasion by “associated persons”. A firm will have committed an offence if it fails to prevent a client from evading tax in the UK or abroad. For the first time, liability will be attached to the company, and not just the individuals involved, for not implementing adequate controls to prevent the offence. The term “associated persons” is broad enough to leave a company liable for the actions of its advisors, brokers, accountants and agents acting on its behalf.
  • A modification to the Proceeds of Crime Act extends the definition of “unlawful conduct”, so that property obtained as a result of gross human rights abuses can be subject to civil recovery orders. Legal liability is likely to have increased around any funds or goods, including commodities, which could be deemed to be the proceeds of human rights abuses. It covers abuses which have occurred in the 20 years prior to the bringing of proceedings.
  • The introduction of unexplained wealth orders (UWOs), which are intended to facilitate the seizure of assets where there is a significant disparity between what an individual owns, and their known income. In March 2017, Transparency International identified London properties worth a total of GBP 4.2 billion which had been purchased by individuals with suspicious wealth. UK authorities are now able to apply to the High Court to demand evidence that such property was acquired legitimately: if such evidence is insufficient, or not forthcoming, those assets will be frozen.  UWOs may only be issued: to politically-exposed persons from outside the European Economic Area; if the court has grounds to suspect that the respondent is or has been involved in serious crime, or if the respondent is connected with someone who is. UWOs cover both property and respondents based outside the UK.
EU reform to crack down on “missing trader” and “carousel” fraud

The European Commission has proposed a reform to VAT rules across the bloc in an effort to combat cross-border fraud. Under the new proposals, suppliers would have to charge VAT on all EU sales. Missing trader intra-community fraud (MTIC) sees traders purchase goods VAT-free from a supplier in one country, add on VAT when they sell them on in another country, and then vanish without remitting the VAT to the government. Some suppliers and traders sell the same products through a loop of companies in different countries, and reclaim the VAT, in an activity known as “carousel” fraud. Historically, the EU’s carbon trading market has been affected by carousel fraud. The EU has identified MTIC as one of ten priorities in combatting organised and serious international crime between 2018 and 2021. The EU estimates that VAT fraud costs it EUR 50 billion a year in lost revenues, and says that the profits it generates are often laundered in the same way as other criminal proceeds. The EC’s proposal does not aim to harmonise VAT rates among member states, and it hopes to implement the reform by 2022.


Canadian investigation exposes the role of underground banks in international money laundering

On 19 October, Canadian authorities brought charges against several individuals in relation to an international money laundering operation in which Silver International Investment Limited, a Canadian money transfer company, allegedly operated as an underground bank by loaning crime proceeds to gamblers from Macau. International organised crime groups involved in the illegal drug trade regularly deposited large sums of cash with Silver International, which would transfer the funds to underground banks in China in return for a fee. Silver International would then loan cash to Chinese VIP gamblers, enabling them to bypass China’s tight capital export controls. Police identified over 600 bank accounts in China that Silver International either controlled or transacted with, and the company allegedly laundered USD 220 million in one year alone. Canadian authorities have reportedly called this “one of the most significant money laundering cases ever in Canada”.

Head of the Brazilian Olympic Committee charged for corruption

On 4 October, the head of the Brazilian Olympic Committee, Carlos Nuzman, was arrested by the Brazilian Federal Police in Rio de Janeiro. Mr Nuzman was arrested on suspicion of corruption, money laundering and participating in a criminal operation, after prosecutors reported that his estate had increased by 457 percent between 2006 and 2016 without any evidence of increased income. Brazilian and French authorities allege that Nuzman was a “central player” of an international corruption scheme, aimed at buying votes in awarding the 2016 Olympics, held in Rio de Janeiro. Nuzman was an International Olympic Committee (‘IOC’) member for 12 years and was reportedly one of the most prominent individuals responsible for bringing the games to Rio. On 18 October, Nuzman was charged and released on house arrest to await trial.

Asia Pacific

PetroVietnam scandal gathers momentum

Authorities in Vietnam continue to arrest executives at PetroVietnam, the country’s national oil firm, in the wake of a corruption scandal that erupted following the arrest of the company’s former chairman, Nguyen Xuan Son, in July 2015. Nguyen was sentenced to death in September 2017 on charges of embezzlement, abuse of power, and economic mismanagement in a mass trial involving 51 officials and bankers. During his former tenure as a director of state-owned OceanBank he was accused of approving millions of dollars of illegal loans. The case comes amidst a widespread anti-corruption campaign, which has been accused of being directed against allies of former Prime Minister Nguyen Tan Dung, who was ousted in 2016.

Sub-Saharan Africa

US lifts sanctions on Sudan

On 6 October, the US permanently lifted trade and financial sanctions on Sudan. In January 2017, the US administration had temporarily lifted the sanctions, and in July extended the review period by a further three months. US officials judged that Sudan had satisfied conditions on a five-track process, which included co-operation on counterterrorism, diplomacy relating to the conflict in South Sudan and humanitarian access to internal conflict-affected areas, in addition to Sudan meeting US demands to sever its diplomatic links with North Korea. Sanctions related to the conflict in Darfur such as asset freezes on Sudanese officials will remain in place, and Sudan remains on the US government’s list of ‘State Sponsors of Terrorism’.

US sanctions imposed on three South Sudanese officials

In September, the US placed sanctions on three current and former South Sudanese officials reportedly close to Salva Kiir, the President of South Sudan. The officials included South Sudan’s information minister, and former and current members of the South Sudanese army. All three officials were listed for allegedly undermining the peace, security and stability of South Sudan and obstructing the peace process, while the minister of information is also accused of complicity in attacks against UN missions. The individuals’ assets have been frozen, and US individuals are forbidden from engaging in transactions with them.

Middle East & North Africa

Israeli parliament debates updating anti-corruption legislation

The Israeli Parliament is currently debating legislation that would protect the Prime Minister for the duration of their term from any criminal investigation relating to fraud, bribery or breach of trust. The law would not apply to ongoing investigations, including the corruption probes in which the current Prime Minister, Benjamin Netanyahu, is a suspect. In a separate development, Israeli media reported that the police are investigating David Bitan, a member of Netanyahu’s Likud Party who serves as the chair of the governing coalition. The probe reportedly relates to allegations that Bitan accepted bribes during his tenure as deputy mayor of Rishon Lezion, a town in northern Israel.