2 July 2019

8 min read

Red Flag Bulletin | July 2019

Red Flag Bulletin | July 2019 placeholder thumbnail

Key news in this bulletin:

  • Sensitive files sent to wrong email addresses in hack on WeTransfer file sharing service;
  • Major Chinese banks face exclusion from US financial system over sanctions exposure; and
  • Russia introduces draft legislation to reduce risk of pre-trial detention for businesspeople accused of business misconduct.



Global: WeTransfer security breach results in files being sent to wrong users

On 16 and 17 June, a security glitch affecting the WeTransfer file sharing service meant that files were being shared with the wrong recipients. This was particularly problematic as WeTransfer is an international platform that is specifically used for sharing files considered private and sensitive. WeTransfer indicated that the incident was caused by a malicious hacker.



US: NASA systems hit by cyber intrusion

The US space agency confirmed that its Jet Propulsion Laboratory (JPL) had been hacked by attackers who stole data from one of the agency’s major mission systems. The breach occurred in April 2018, but was disclosed in an audit of the agency that was published in June 2019. The access was of particular concern as it raised the possibility of actors “potentially gaining access and initiating malicious signals to human space flight missions that use those systems.” The audit uncovered basic security omissions at NASA, including system administrators without security certifications, a lack of bespoke IT security training, and no round-the-clock incident reporting capability at the JPL.



Algeria: Former government ministers arrested on corruption charges

Since the beginning of June, Algerian authorities have arrested several prominent politicians on charges of corruption. Those arrested include former prime ministers Ahmed Ouyahia and Abdelmalek Sellal and former trade minister Amara Benyounes, who face a range of charges including embezzlement of state funds and favouritism in awarding of state contracts. Their arrests form part of a wider anti-corruption drive, believed to be directed by the Algerian military, which began following the resignation of Algeria’s long-time President, Abdelaziz Bouteflika, in April 2019. Prominent businesspeople have also been swept up in the crackdown, most recently Mourad Oulmi, CEO of Volkswagen’s local Algerian partner, SOVAC, and Hassan Larbaoui, CEO of Global Group, which assembles and distributes vehicles in Algeria for South Korean carmakers Kia and Hyundai. Arrests of more businesspeople and politicians implicated in corruption during the Bouteflika era are expected over the coming months.


UAE: Government tightens regulations to fight money laundering

In June, the UAE will introduce a new anti-money laundering reporting platform, with a particular focus on the real estate sector, in order to combat perceptions among foreign investors that it is a hub for illicit funds. The UAE also updated its penal code to widen the scope of its anti-bribery provisions and to increase penalties for bribery offences. This comes in the same month that the Kingdom of Saudi Arabia became the first Arab country to be granted full membership of the Financial Action Task Force (FATF), a global anti-money laundering organisation, due to its progress in implementing FATF’s anti-money laundering and terrorist financing provisions.



PRC: Central Bank moves to strengthen cross-border anti-money laundering cooperation

On 19 June, the People’s Bank of China (PBoC) – the central bank of the People’s Republic of China (PRC) – announced that it would work with the international community to cooperate on anti-money laundering regulation, financial information exchange, and asset recovery. The announcement followed a report by the FATF that the PRC accounts for a large proportion of international money laundering, and between 2014 and 2016, the PBoC reportedly recovered USD 1.25 billion in laundered funds from more than 90 countries. The PRC, which assumed the presidency of the FATF on 1 July 2019, enacted new anti-money laundering and counter-terrorism financing regulations for online financial institutions in January to reinforce punitive measures and upgrade regulatory mechanisms.


PRC: Major banks face exclusion from US financial system over sanctions exposure

On 25 June, three major PRC banks faced US government action after they failed to comply with subpoenas in a US investigation into North Korean sanctions violations. The Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank (SPDB) were allegedly associated with a Hong Kong company that US authorities accuse of laundering over USD 100 million for North Korea’s Foreign Trade Bank.  Most seriously, SPDB could face exclusion from the US financial system, with a total ban on US dollar transactions. This is not the first time that Chinese banks have fallen foul of Washington’s sanctions on North Korea. In 2017, the Bank of Dandong was cut off from the US financial system after the US Treasury accused it of acting as an intermediary for North Korean companies involved in the country’s nuclear weapons programme. Similar threats against PRC banks could serve as a bartering chip in future trade negotiations, as economic relations between Beijing and the Trump administration continue to sour.



Russia: Draft legislation introduced to protect businesspeople from detention

A deputy in the Russian State Duma has introduced draft legislation to stop criminal charges being brought against businesspeople in certain cases of fraud, embezzlement and other business misconduct in Russia, as part of a wider effort to stem increasing law enforcement pressure on the business community. Under existing legislation, Russian investigative authorities can initiate criminal proceedings and arrest a company’s senior management if an individual at the organisation is suspected of an economic crime. The initiation of criminal cases against rivals is a common feature of Russian business disputes. Such cases often result in long periods in pre-trial detention for the accused, offering significant means for well-connected businesspeople to blackmail and extort assets from rivals. Duma deputy Rifat Shaykhutdinov, who reportedly introduced the bill on President Putin’s advice, stated that the changes aim to protect businesspeople from automatic investigation, while still allowing Russian law enforcement to focus on the real perpetrators of criminal activity. The proposed changes follow the arrest of US investor Michael Calvey in February this year on allegations that he embezzled USD 38 million from Russian bank Vostochny Bank. The charges are widely thought to have been initiated by Russian investors with whom Calvey has been engaged in a lengthy corporate dispute.


Russia: Former senior state anti-corruption official sentenced for bribery

On 10 June, Dmitriy Zakharchenko, a former acting deputy chief of the Russian interior ministry’s anti-corruption directorate, was sentenced to 13 years in prison on corruption charges and ordered to pay a USD 1.8 million fine. Zakharchenko was arrested in September 2016, after Russian authorities discovered over USD 120 million in cash in his Moscow flat during a raid. According to law enforcement, a significant portion of this cash constituted embezzled funds from PAO Nota-Bank, a Russian bank that lost its banking licence in 2015, and bribes from various Russian companies, including a subcontractor of Russian Railways, the Russian state-owned railway operator. In return for these bribes, Zakharchenko is reported to have used his influence in the anti-corruption directorate to protect his accomplices from prosecution.


Kyrgyzstan: Former president indicted for corruption and stripped of immunity

On 27 June, a Kyrgyz parliament voted to lift the immunity of Almazbek Atambayev, the president of Kyrgyzstan from 2011 to 2017, following his indictment for multiple counts of corruption  relating to his presidency. Atambayev has denied the allegations against him, claiming that they are politically motivated, and a result of a personal conflict with Sooronbay Jeenbekov, the current president of Kyrgyzstan. Former senior officials who served under Atambayev have also come under pressure, including Kubanychbek Kulmatov, a former mayor of Bishkek who is also currently being investigated by the Kyrgyz authorities  for corruption.



Kenya: Government websites hacked

In early June 2019, several websites belonging to the Kenyan government were hacked, disabling their functionality. The hackers uploaded their logo to the affected websites and tampered with the IP addresses. There was speculation that the cyber-attack may have compromised regulated information, although the Kenyan government indicated that the websites were not connected to any government databases or systems. It took over 24 hours for Kenya’s government to recover the websites. The motive for the cyber-attack is still unclear.

The latest news from our regional desks about financial crime, corruption, sanctions, and integrity issues worldwide.

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