Welcome to This Week In Compliance: GAN’s weekly news roundup, where we curate the latest stories on compliance and anti-corruption to keep you informed. This week we cover the deal between the U.S. Department of Justice and a fugitive Malaysian financier to recoup embezzled funds from the 1DMB investment fund worth USD 1 billion. Read the full story and more news below:
U.S. strikes deal to recoup USD 1 billion from Jho Low in 1MDB scandal:
The U.S. Department of Justice (DOJ) struck a deal this week with fugitive Malaysian financier to recoup approximately USD 1 billion of money embezzled from the embattled 1MDB investment fund. The agreement does not contain an admission of wrongdoing nor does it release Low from other criminal charges in connection to the case. Among the assets Low will forfeit are a luxury boutique hotel in Beverly Hills, CA, and properties in New York and London valued at USD 700 million. Low, who has been accused of orchestrating the theft of USD 4.4 billion from the 1MDB development fund connected to former Malaysian Prime Minister Najib Razak, continues to be a fugitive subject to an Interpol red alert. He is believed to be living in China. In addition to Low, Tim Lessner, Goldman Sachs’ former south-east Asia chairman, pleaded guilty to federal fraud charges last year and forfeited USD 43.7 million. Goldman Sachs is cooperating with prosecutors in their investigation. The bank has set aside USD 516 million to cover potential penalties but has publicly said that penalties may reach USD 2 billion.
EY accused of gold money cover-up:
According to a whistleblower who spoke to BBC, EY failed to report suspicious activities at one of the world’s largest gold refineries, Kaloti, and altered a compliance report to hide the crime. According to the accusations, EY failed to flag USD 5.2 billion paid out by Kaloti in cash and also helped Kaloti cover up a crime in which they disguised gold bars as silver to avoid limits on gold in Dubai. EY was hired by Kaloti in 2017 to review Kaloti’s compliance with regulations on the control of gold after the company was accused of buying 3.6 tonnes of gold from a money-laundering criminal group. As a result of the 2017 investigation, 27 individuals from the criminal group were jailed in France. A former EY lead auditor who was involved in the case stated that the auditing firm identified the suspicious transaction but decided not to report it to the authorities. While EY stated that their work in 2017 brought to light Kaloti’s non-compliance issues and eventually resulted in the remediation of the issues, the firm is currently being accused by the whistleblower of rewriting a report on the incident. EY has stated that their reporting was in line with all accounting standards and that they reported the breaches to relevant authorities. However, under the Proceeds of Crime Act, accountancy companies are required to report any suspicious activity to the police, which EY failed to do.
Estonia launches criminal probe into Swedbank money laundering scandal:
After being under investigation by Swedish and Estonian financial watchdogs, a formal investigation by the Estonian police and the public prosecutor’s office was officially launched this Tuesday. The probe is investigating Estonia’s role as a transit country in a money laundering scheme related to Danske Bank’s 2017 scandal. While Swedbank dismissed its former CEO earlier in 2019 and accepted the resignation of its chairman, no person has been charged with a crime at this point in the investigation. Swedbank has declined to comment on the allegations and also removed three of its top executives in September 2019.
EU intends to end corruption monitoring scheme in Bulgaria, but not in Romania:
After joining the EU in 2007, both Romania and Bulgaria were placed under the so-called Cooperation and Verification Mechanism over concerns that the two countries had significant problems with corruption (and organized crime in Bulgaria) and that their judiciaries were not capable to uphold the rule of law. The European Commission now wants to end the scheme for Bulgaria but won’t do the same for Romania over concerns about backsliding on judicial reforms. Before the proposed changes are made, the member states and the European Parliament will get to have their say in the issue.
International Olympic Committee releases guidance for reporting mechanisms in sports:
The International Olympic Committee (IOC) in cooperation with the United Nations Office on Drugs and Crime (UNODC) published the “IOC-UNODC Reporting Mechanisms in Sport: A Practical Guide for Development and Implementation” this week. The publication contains information on good practice for sports organisations with regard to receiving and handling reports of wrongdoing, including competition manipulation, harassment, doping and corruption. The report recommends considering the types of channels available to people as the interface available and trustworthiness of the organization operating the reporting mechanisms influence reporting rates. The guide furthermore contains concrete advice on supporting principles that sports organizations must apply for these reporting mechanisms to function properly and what application of these principles means in practice.
Transparency International exposes UK as money laundering haven:
According to global anti-corruption watchdog, Transparency International (TI), the U.K. allowed GBP 325 billion of suspicious money to flow through the country’s financial system. According to TI’s investigation, around 600 U.K. companies, banks, schools, and individuals were complicit in helping corrupt individuals park dirty money in real estate, luxury cars or art. The Organized Crime and Corruption Reporting Group (OCCRP) reported that more than GBP 4.1 million of suspicious funds were given to 178 educational institutions. In addition, GBP 8.3 million was disbursed to 37 architecture and design companies via anonymous shell companies with Baltic accounts. The total sum included suspicious payments to 81 law firms, 118 luxury goods, and services firms, 86 banks and 62 accountancy firms. According to TI, the findings showcase the insufficiency of the UK’s AML supervisory regime and the need to establish more stringent regulation in sectors such as private design, architecture, and PR firms who currently fall outside of anti-money laundering rules.
Brazil prosecutors seek $1.32 billion in fines from dozens accused of crimes:
One of Brazil's most prominent businessmen, Joesley Batista, is being linked to a public investigation in which 12 individuals are being accused of fraud, money laundering and corruption in relation to an investment fund linked to Batista. While Batista, who is the biggest shareholder in Brazil’s JBS SA meatpacking company, is not being accused of the crimes, the individuals are facing fines amounting to USD 1.3 billion. The information gathered by the public prosecutors is based on several plea deal bargains - including one signed by Batista two years ago. In his plea bargain, Batista admitted to engaging in criminal acts in exchange for not being prosecuted by U.S. authorities. Batista also gave a public statement declaring his commitment “to help Brazilian authorities fight corruption”. The fund under investigation in the case is a timber investment and private equity fund that reportedly received suspicious large-scale contributions from the pension funds of Petroleo Brasileiro SA and Caixa Economica Federal’s Funcef fund.