5 July 2023

15 min read

Red Flag Bulletin | July 2023

July 2023
Red Flag Bulletin | July 2023 placeholder thumbnail


This month’s Red Flag Bulletin includes the following stories:

  • Brazilian retailer Americanas admits to USD 4.55 billion fraud;
  • Leading Australian casino operator Crown Resorts agrees to pay USD 294 million fine for AML/CFT failings; and
  • Qatar and Morocco bribery allegations lead to criminal charges against Italian politician.



US: SEC files charges against crypto exchange Binance for securities violations

On 5 June, the US Securities and Exchange Commission filed charges against Binance Holdings Ltd, the operator of the world’s largest cryptocurrency exchange, as well as its founder Changpeng Zhao and affiliated companies for 13 securities violations. Zhao and the companies are accused of operating unregistered exchanges and broker-dealers, misleading investors, and the unregistered offer and sale of crypto assets. The SEC notably claims that Zhao and Binance allowed US customers to trade on the global Binance platform despite public statements that this would be prohibited, and that they secretly transferred customers’ assets to an entity controlled by Zhao. On 17 June, the SEC reached an agreement with Binance to allow US customers to withdraw assets while the litigation is ongoing.

Brazil: Brazilian retailer Americanas admits to USD 4.55 billion fraud

On 13 June, one of Brazil’s largest retailers, Americanas SA, issued a notice to the market in which it admitted that the BRL 21.7 billion (USD 4.55 billion) inconsistencies in its financial statements initially disclosed in January 2023 were the result of fraudulent accounting practices by the company’s former executive team. According to Americanas, an independent committee hired by the company’s board to investigate the matter found that seven former executives, two banks – Itaú Unibanco and Banco Santander – as well as two audit firms – KPMG and PwC – participated in a scheme to understate the company’s debts and artificially inflate profits with the aim of increasing the distribution of bonuses and dividends. In January 2023, the company filed for bankruptcy, claiming to have over BRL 40 billion (USD 8.38 billion) in debts, and has been subject to ongoing scrutiny from Brazil’s securities commission, a special parliamentary inquiry commission, and federal prosecutors.

Colombia: Former presidential candidate charged with corruption

On 13 June, Colombia’s federal prosecutor’s office announced that Óscar Iván Zuluaga Escobar (Zuluaga), a right-wing presidential candidate in 2014, was charged with financing his campaign with USD 1.61 million in illegal contributions from the Brazilian construction conglomerate Odebrecht. The funds were reportedly used to hire the Brazilian publicist Duda Mendonça and were transferred on Zuluaga’s behalf directly from Odebrecht to an account held by Mendonça in Panama. Zuluaga lost the presidential elections to Colombia’s former president Juan Manuel Santos (2010-2018) in a runoff vote in 2014. In 2016, Odebrecht admitted to paying over USD 788 million to various government officials and political parties in Latin America to secure public infrastructure contracts. Zuluaga has not responded to the charges publicly.

US: Department of Justice files criminal charges against Chinese manufacturers of fentanyl precursor chemicals

On 23 June, the US Department of Justice announced charges against four China-based companies and eight of their employees for crimes related to the manufacture and distribution of fentanyl precursor chemicals. This is the first time the US has brought criminal charges against Chinese companies for their role in the production of fentanyl – a highly addictive painkiller at the heart of the US opioid crisis. The companies charged in three separate indictments include Hubei Amarvel Biotech Co Ltd, Anhui Rencheng Technology Co Ltd, Anhui Moker New Material Technology Co, and Hefei GSK Trade Co Ltd. The DOJ alleged that the defendants knowingly manufactured, marketed, and distributed chemicals for the production of fentanyl by drug traffickers in the US and Mexico. The DOJ claimed that the defendants used “masking molecules” to conceal the precursor chemicals, and mislabelled packages and falsified customs forms to prevent detection at the US and Mexico border crossings.



Australia: Leading casino operator agrees to pay USD 294 million fine for AML/CFT failings

On 30 May, Australian casino giant Crown Resorts agreed to pay an historic penalty of AUD 450 million (USD 294 million) over breaches of anti-money laundering and counter-terrorism laws at its Melbourne and Perth casinos. In reaching an agreement, Crown Resorts has admitted to its failure to assess money laundering and terrorism financing risks facing its casinos, as well as the lack of appropriate systems and controls in place to mitigate the risks. The group also acknowledged it did not have a transaction monitoring program appropriate for the size and complexity of its business. The penalty is subject to the approval of the federal court, but if approved, will be the highest fine paid by a casino globally.

PRC: Former deputy governor of China’s central bank arrested for suspected bribery

On 20 June, China’s top prosecutor announced that Fan Yifei, a former deputy governor of the country’s central bank, had been arrested on suspicion of bribery. According to state media, the leading anti-corruption watchdog revealed that Fan had exploited his position to generate illicit profits through loan financing and accepting property in an unauthorised manner. Fan, who became the deputy head of the People’s Bank of China in early 2015 and oversaw the fintech and payment sectors, is one of the highest-ranking finance officials affected by the country’s sweeping anti-corruption crackdown, which has already brought under investigation over 1.5 million officials from all areas of industry and government in the PRC.

Indonesia: Corruption Eradication Commission investigates agriculture minister over bribery allegations

On 26 June, Indonesia’s anti-corruption watchdog, the Corruption Eradication Commission, interrogated the country’s agriculture minister Syahrul Yasin Limpo as part of investigations into allegations that officials from the agriculture ministry were asked to pay fees to Syahrul to secure promotions. This is the second case of its kind to involve a Partai Nasional Demokrat (NasDem) politician, leading some political commentators to speculate that the allegations are politically motivated ahead of the 2024 presentation election. This investigation remains ongoing. Syahrul has denied the allegations.


Nigeria: Central bank governor arrested and accused of misappropriating state funds

On 10 June, Nigeria’s central bank governor Godwin Emefiele was arrested shortly after being suspended by the country’s president. In a filing from 20 June, the Department of State Services accused Emefiele of misappropriation of state funds, breach of trust, and incitement of violence. Emefiele’s suspension and arrest followed allegations by allies of Nigerian President Bola Tinubu, who took office in May, that Emefiele purposefully attempted to sabotage Tinubu’s presidential campaign by introducing cash withdrawal restrictions and swapping out old bank notes, which led to severe cash shortages. Emefiele has not been formally charged, and he has not commented publicly on his suspension and arrest. The action against Emefiele forms part of a broader economic and financial sector reform by Tinubu, who also suspended the chairman of the Economic and Financial Crimes Commission, the Nigerian anti-graft organisation, for suspected abuse of power on 15 June.


Latvia: Latvian subsidiary of major Swedish bank settles Crimean sanctions violation case for USD 3.4 million

On 20 June, the Latvian subsidiary of the major Sweden-headquartered bank Swedbank (Swedbank Latvia) agreed to pay USD 3.4 million to settle a sanctions violation case brought by the US Office of Foreign Assets Control (OFAC). OFAC accused Swedbank Latvia of violating US sanctions by not disclosing 386 apparent sanctions violations after a Crimea-based shipping company repeatedly transferred funds via the bank’s online banking portal to US-based financial institutions over 2015 and 2016. Swedbank Latvia had onboarded this client prior to the imposition of US sanctions on Crimea in 2014, but reportedly failed to notice logins to online banking from a Crimean IP address, instead accepting assurances from the client that they were no longer based in Crimea. Swedbank Latvia stated that, since 2016, it has significantly improved its sanctions compliance controls, including by blocking IP addresses in sanctioned jurisdictions from accessing its services. The settlement comes following news that suspected sanctions violations in Latvia rose 23-fold from 2021 to 2022.

Russia: EU adopts 11th sanctions package

On 23 June, the Council of the European Union adopted its 11th package of sanctions against Russia. This new package is focused on combatting the growing evasion of EU sanctions and aims to strengthen bilateral and multilateral sanctions cooperation. Among the specific aims of the package is preventing the circumvention of sanctions through the restriction of targeted exports to countries re-selling goods to Russia; previously, such circumvention has occurred through tech companies based in Armenia, China, Syria, the UAE, and Uzbekistan. The EU has also added Chinese entities to a list of companies helping Russia’s war effort by supplying banned components to Russia’s military sector. The latest EU sanctions also aim to expand a transit ban on goods and technology through Russia to third countries, specifically aircraft components and other dual-use goods.



Qatar, Morocco: Bribery allegations lead to criminal charges against Italian politician

On 21 June, Andrea Cozzolino, an Italian member of the European Parliament, was charged with public corruption, criminal organisation and money laundering and extradited to Belgium. Since late 2022, the Belgian federal prosecutor's office has been conducting an investigation into attempts by Qatar and Morocco to illicitly influence decision making in the European Parliament. Cozzolino is one of several parliamentarians suspected of taking bribes, alongside former MEP Pier Antonio Panzeri and former Vice-President of the EU Parliament Eva Kaili, among others. Cozzolino had been under house arrest in Italy since February 2023. He has denied the accusations.

Algeria: Former prime minister and health minister convicted of corruption

On 21 June, former Algerian prime minister Noureddine Bedoui (March-December 2019) and the country’s former health minister Abdelmalek Boudiaf (2013-2017) were sentenced to five years in prison and fined USD 7,383 each. The two men were convicted following a corruption probe into the construction of an international airport in Constantine, northeast Algeria. Bedoui has denied the charges, while Boudiaf’s response is ambiguous.



Albania: Anti-corruption investigative body strengthens cooperation with European Public Prosecutor's Office

On 29 June, the Special Anti-Corruption and Organised Crime Structure of the Republic of Albania (SPAK) – an independent Albanian anti-corruption investigative body – signed a working arrangement with the European Public Prosecutor's Office (EPPO) to enhance judicial cooperation and information exchange in corruption and organised crime investigations. Concluded against the backdrop of Albania’s candidacy to the EU, the new working arrangement grants SPAK access to additional resources and expertise from European partners. In practical terms, the arrangement assumes co-operation between EPPO and SPAK’s investigators to prosecute cases of corruption involving high-level public officials, as well as the provision of training to SPAK.

UK: New law regulating cryptocurrencies enacted

On 29 June, the UK enacted the Financial Services and Markets Act 2023 (FSMA), which recognises cryptocurrencies and stablecoins as a regulated financial activity. Under the FSMA, the UK Treasury, Financial Conduct Authority, Bank of England, and Payments Systems Regulator will be able to introduce and enforce rules to regulate the crypto sector. The act also enhances scrutiny of financial services regulators and safeguards cash access. The UK Treasury has commented that the FSMA leverages the country’s post-Brexit legislative independence from the EU to potentially unlock GBP 100 billion in investments to boost the British economy. The FSMA follows the EU's Markets in Crypto-Assets Regulation (MiCA), which entered into force in June 2023.

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

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