JOINT IRAN-IRAQ FREE ZONE COULD BE A BOON FOR SANCTIONS EVADERS

Sabah Saleh al-Qaisi, the Commissioner of the Iraqi Ministry of Finance General Commission for Free Zones, has announced that he is engaged in talks with the Government of Iran, which he believes will lead to the creation of a joint Iraq-Iran Free Zone. Iraq, which already has three Free Zones in operation, recently approved additional zones, which are to be privately operated.

Any joint Free Zone, where Iranian goods could be covertly re-designated as of Iraqi origin, and where goods arriving for Iraq could be quietly and efficiently shipped into Iran, would seriously complicate international sanctions efforts and facilitate money laundering and terrorist financing.

it is also noteworthy that Iran's Arvand Free Zone allows Iraqi banks to open facilities there, and that complex (and opaque) financial transactions involving multiple Free Zones, in both countries, as well as a joint zone, would be nearly impossible to penetrate.

Whilst we would hope that Iraq might consider UN sanctions in this matter, the  rapid expansion of trade between these two countries shows that they are ignoring anything the UN, or the US, has in place in the way of sanctions. Therefore, there may come a time when trade by your bank clients with Iraq could approach an unacceptable level of risk.

WILL FRENCH COURT RULING INCREASE BULK CASH SMUGGLING ?

The Constitutional Court of France yesterday ruled on the constitutionality of France's new personal income tax rates. Observers of the movement of illicit cash know that tax law changes often stimulate "capital flight" of the proceeds of crime, for even if properly laundered in-country, increased taxes in a jurisdiction often act as a disincentive, and increased outbound bulk cash smuggling often follows.

Whilst attention has been directed at the fact that the 75% rate, for individuals earning over €1m ,was declared unconstitutional, due to the fact that it was imposed upon individuals, and not households, the Government of France immediately declared that it would act to close that loophole forthwith. Additionally, the Court upheld the 45% rate on households.

If I am an active money launderer in the EU, who cleans criminal profits in France, and then invests them, I am not happy with the Court's holdings. I therefore will be moving my Euro notes out of the country. Be alert to new clients, or existing small clients, seeking to make a substantial deposit, where the client either has a French passport, or speaks your language with a distinctive French accent. This is not to say that you are profiling French nationals, just that your staff be aware of the court ruling, should any cash deposits arrive.

RAISE COUNTRY RISK ON SUDAN, OR VERIFY END USERS

Reports emanating from the Sudanese Opposition claim that the government has entered into a classified agreement with Iran, through which a naval facility is to be built on the Sudanese Red Sea coast, strictly for the use and benefit the the Iranian Navy. Iranian warships have been seen at Port Sudan for several months, but the information indicates that the base will be elsewhere.

Add this information to the large Iranian presence in Khartoum, and the existence of several Iranian-manned weapons manufacturing sites in the Sudan, and you have an increased risk that any financial commerce with, or deliveries to, Sudanese customers, or its government, may involve Iranian companies or entities sanctioned by OFAC, the EU, the UN, and Canada.

For that reason, should you have customers who are trading with Sudanese buyers, or have financial intercourse with Sudanese businesses or NBFIs, you may want to obtain written assurances that your clients' goods are not ending up in the hands of sanctioned Iranian entities. You may also wish to have your clients find a part with experience in the region, to verify this information. Otherwise, I recommend that you raise Country Risk for Sudan at this time.

DON'T EXPECT YOUR RESEARCH TO UNMASK CORRUPT CHINESE PEPS

Recent announcements from governmental authorities in China indicates that negative Internet postings will be required to be removed promptly by Internet Service Providers, and that true names of Internet users will be mandatory. Even if you are using compliance staff who are competent in Mandarin, this present a problem.

Postings on corruption, and other crimes committed by Chinese Politically Exposed Persons (PEPs), they will either not appear, due to fear of punishment by the State, or will be summarily taken down by the ISP. Therefore, you cannot expect to find any negative information on Chinese PEPs, during your due diligence investigation. You may even fail to identify that new client as a PEP.

It is suggested that you will need to engage experienced investigators, in the field, probably in Hong Kong, to vet new affluent Chinese clients.

IS SPAIN A CLEAR AND PRESENT DANGER TO GIBRALTAR ?

Recently declassified documents from 1982 have shown that then-UK Prime Minister Thatcher was concerned enough about Spain's intentions regarding Gibraltar to dispatch additional fighter aircraft to the British Overseas Territory, during the Falklands crisis. Is the current brouhaha about Spanish warships in Gibraltarian territorial waters much ado about nothing, or has Spain taken a look at Chinese moves in the South China and East China Seas, and decided that the time is ripe, because the UK is not considered ready to respond ?

Whilst this may sound like an academic exercise, the residents of Gibraltar are not amused, and officers at international banks who deal with financial services firms in Gibraltar would do well to remember what has happened to the former Portuguese territories of Goa. The disruption in ongoing matters that might occur if Spain took action on its claim to Gibraltar would be a nightmare, and when the inevitable tax authority is installed, it would spell the end of the territory as a financial centre, in my humble opinion.

Though the possibility of such action may be low, that was the prevailing opinion regarding the Falklands before the invasion. Compliance officers at financial institutions with exposure, pending matters, or assets, in Gibraltar, would be well advised to remember that sometimes the unthinkable does occur, and to monitor the political, and military, situation accordingly. Whilst it is probably premature to consider raising Country Risk for Gibraltar, you need to keep an eye on unfolding developments.

MONEY LAUNDERING THROUGH RESIDENTIAL REAL ESTATE TRANSACTIONS

The National Association of Realtors (NAR) has published a set of guidelines* for its members, regarding the red flags of money laundering in residential real estate transactions. Covered are:

(1) Geographic Risk
(2) Customer Risk
(3) Transaction Risk

Though at a basic level, it is suggested that this short paper be provided to your bank clients who are realtors, because it also details the (optional) use of a SAR, and the mandatory filing of a Form 8300, in real estate transactions. You may also want to circulate it to your bank staff who handle real estate settlements and closings.
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*Anti-Money Laundering guidelines for real Estate Professionals

NGO ACCUSES PALESTINIANS OF WAR CRIMES

Islamic Jihad

Human Rights Watch, which has published an extensive report* on the recent conflict in Gaza, has concluded that Palestinian terrorist groups committed war crimes when they unlawfully targeted civilian  population centres. Palestinian armed groups fired more than 1500 rockets at Israel, of which 800 hit illegal targets, including Jerusalem, where a number of Muslim holy sites are located.

The HRW report stated;

1. The Palestinian rocket and missile attacks violated the Laws of War**.
2. Harming civilians was the main aim of Palestinian armed groups.
3. The Palestinians demonstrated an intent to commit War Crimes, when their press releases boasted about their pending attacks on civilian population centres, rather  than military targets.
4. There was no legal justification for launching rockets at populated areas.
5. Firing the rickets from densely populated areas in Gaza, near homes and businesses, invited Israeli counterattacks that would needlessly injure and kill Palestinian civilians. The injured Palestinians, who were unnecessary collateral damage, were publicised by Hamas, for its own propaganda purposes.
6.  Involved were: Hamas, Islamic Jihad, and the Popular Resistance Committee.
7. Retaliating against Israeli attacks on rocket sites, by firing on population centres, is illegal under international humanitarian principles, and the Laws of War.

Hamas

Not included in the report, but important nevertheless, is the fact that Iran supplied the technical assistance for Gaza terrorist groups to build long-range rockets, which were then fired upon Tel Aviv and Jerusalem, cities which contain no military targets. Thus, Iran is also guilty of War Crimes.

The report concluded that the attacks were unlawful, and that those responsible should be punished. Whilst justice may never be served on the terrorist leadership, the illegal attacks on civilians most likely polarised the Israeli Government, and its people, and set back any peace prospects for years, which means that Country Risk on the Palestinian Territories should be increased at this time.

Popular Resistance Committee

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*Human Rights Watch
** The 4th Geneva Convention specifically protects civilians in times of war, including conflicts in which war has not been declared. 

RUSSIAN THREATENS SANCTIONS AGAINST VIKTOR BOUT PROSECUTORS AND JUDGES

The Minister for Foreign Affairs of the Russian Federation, Sergey Lavrov, has stated, in remarks to Russia's Parliament, the Duma, that the prosecutors, and members of the judiciary, who were responsible for the extradition, arrest and conviction of suspected arms trafficker, Viktor Bout, should be sanctioned by Russia. Minister Sergey Lavrov made that statement after the United States Congress passed the Magnitsky Bill, which denies US visas to a short list of Russian Government officials, and members of the judiciary and law enforcement, who were responsible for human rights violations against Magnitsky, who attempted to blow the whistle  against systemic corruption in Russia.

 Bout's Russian supporters in government prepared to retaliate in kind, by publishing a list of sanctions; Russia's own list of the individuals who extradited and returned Bout to face a US criminal trial.


Minister Lavrov was quoted as saying:

"Individuals who have been involved in the illegal kidnapping of Russian citizens, including Viktor Bout ... in Thailand ..., have been proposed to be included on the list."

Will the Duma enact such a law, and what will it do to the careers of the Americans who are believed to be on that list ?  Will their international travel be eventually restricted ? What if the work of these law enforcement officers and judges ends up into countries, in connection with  other cases . Will they be arrested and extradited ? Watch this blog for the answer.

ARE GIBRALTAR TENSIONS A CAUSE FOR CONCERN ?

Incursions, by Spanish warships, into British Gibraltar territorial waters, have increased tensions between the Uk and Spain of late. Spain claims that it is enforcing EU directives on environmental management of European nature sites located in Gibraltar's waters, which it disputes.

The UK has stated that it in compliance with European environmental directives, and it has sent British warships to patrol the waters surrounding Gibraltar. The new year marks the anniversary of the 1712 signing of the Treaty of Utrecht, whereby Gibraltar was ceded to the United Kingdom.

Spain's position on sovereignty is that it has never renounced its claims to Gibraltar. Compliance officers who are responsible for periodically reevaluating Country Risk on European territories would be well advised to follow Spanish actions regarding Gibraltar in 2013.

LAWYER DETAINED ON MONEY LAUNDERING CHARGE APPEALS

Marco Antonio Delgado, the prominent El Paso attorney charged* with laundering drug profits of a Mexican cartel, has, through his counsel, moved to revoke his Order of Detention, and filed a Notice of Appeal from the ruling of the United States Magistrate ordering pretrial detention. The case is unusual, for it has been alleged that Delgado was a Cooperating Individual (CI) who strayed into unauthorised criminal activity, whilst he was working with US law enforcement**.

Delgado's lawyer, in his extensive motion, stated that his client did not have access to a large amount of money, that he had no extensive international contacts, and that he was charged with a non-violent offence, and neither a flight risk nor a danger to the community. He is a naturalised US citizen, but has lived in El Paso for an extended period time, engaged in the the practise of law.

The US Attorney's Office, in its response, stated that he had considerable ties to Mexico,  that there were no combination of conditions that would assure his attendance at trial, and that he had once told an associate that he would flee to, and live in, the Turks & Caicos Islands, where he had a connection with a local law firm, which was reportedly engaged in assisting him with laundering. Details of his alleged money laundering activities appear in the government's reply.

We shall continue to follow this case on the Financial Crime Blog, as it is of great public interest.
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* United States vs. Marco Antonio Delgado, case No.: 12-cr-02106 (WD TX).
**Lawyer arrested in $600m Money Laundering case was a US Government Informant

WATCH FOR HIGH NET-WORTH CHINESE WOLVES/PEPS IN SHEEPS' CLOTHING

Reports that China has banned lavish and expensive events for its military leadership, both at home and abroad, has certainly been noticed by the country's wealthy elite, which includes many Politically Exposed Persons (PEPs). A close look at the activities of the country's governmental leaders, including relatives and business associates, is anticipated. Garish displays of wealth that exceed their reported salaries are now hazardous to your survival in China. This new initiative, though a positive step, has made our job, as compliance officers, more difficult; Here's why.

Since the proper identification of PEPs represent one of the principal risks compliance officers encounter, the risk level have just gone up for corrupt Chinese PEPs. The odds are that you will not be seeing as many Chinese nationals toting Hermés Birkin handbags, and wearing designer clothing, lest their hidden wealth be observed overseas, and reported. They will come in to open a new account, and probably want to make an initial substantial deposit of currency, in Pounds, Dollars or Euros. Their apparel may not match their wealth, which could provide a clue to who they really are.

Four wives, ten children

As you know, a smart PEP will conceal the fact that he or she is related to a senior government officials who is taking bribes and kickbacks; they will claim to be successful in private business. Your task will be to vet them and their allegedly successful business.

Watch for these techniques:

(1) Expect Chinese PEPs to reach out further than they have been, to heretofore untried schemes. in their attempts to place dirty money in your bank. Watch for brand-new NGOs and charitable organisations with no history, and with no tax exemption of record in your jurisdiction. They are bogus.

(2) Is the prospective new customer represented by local blue-chip/white shoe lawyers and law firms who are known to handle upscale clients ? If they can afford to engage the best, the cheap clothing is but a charade.

(3) Does the new customer have a part-time residence in your country, which serves as the mailing address for his statements ? Check out how much he paid for it in the county public records library online.

Beware the individual whose profile contains inconsistencies; he may just be a low-key PEP, pretending to be a Chinese businessman, and suitably dressed down, with a cheap watch.

PANAMA LOOKS INTO ITS BANKS

Reliable reports from the Republic of Panama indicate that the government is examining licensed Panama City financial institutions anew, with an eye to cleaning up any issues that its investigation uncovers. Whilst details are not available, it is anticipated that some of these problems will be identified, and dealt with by regulatory agencies, its able Attorney General, and its law enforcement agencies:

(1) Money laundering of narcotics and other criminal profits. Since tough Mexican laws have made it extremely difficult for narco-traffickers to deposit US Dollars into Mexican banks and Casas de Cambio,  US Dollars have been flowing into Panamanian banks, courtesy southbound bulk cash smugglers. Other funds come north from Colombia, uninterrupted by the authorities, and are deposited.

(2) Flight capital of dubious origin, arriving by private plane, from Venezuela. Whilst some of the money represents bribe and kickback "income," other shipments, which are promptly accepted at Panama's dirtiest banks, are drug trafficking proceeds, and the obscenely excessive charges, added by
the Bolivarian Elite, to government contracts they hold, by virtue of their cosy relationship with President Hugo Chavez.

(3) Hezbollah drug profits, being repatriated to Beirut, in support of the activities of that designated global terrorist organisation, They are being moved through at least three local Panama City banks.

Will Panama's Attorney General, and its regulators, shut down these operations ?    

WILL PRISON SENTENCES FOR COMPLIANCE OFFICERS NOW RISE ?

                                                

The ten years in Federal Prison, meted out this week, to Peter Madoff, the Chief Compliance Officer at Bernard L Madoff Securities, could represent the shape of things to come, for compliance officers who either facilitate, or allow to occur through inaction, criminal activities where they work. Whether the defendant, who extensively cooperated with the authorities, knew about the massive Ponzi scheme being perpetrated by his brother, or not, he did not get away with a light sentence.

The size of his sentence got my attention, because it may provide a clue how the Federal judiciary now regards compliance transgressions and sins. Remember well that, after Bernard Madoff received his 150 year sentence, in the aftermath other Federal Judges sentenced Allen Stanford, and other Ponzi schemers, to long sentences not previously seen in white-collar cases. Will convicted compliance officers now be looking at sentences much longer that the two to four years, which seemed to be the norm ?

This is an important issue, because compliance officers whose decisions, are often trumped by senior management types, interested only in the profit picture, can be exposed to criminal prosecution, and who could easily become Collateral Damage, due to aggressive prosecution of banking misconduct.

Will we now see increased sentences of compliance officers ? We cannot say for sure, but we will be watching. Let's see what the next convicted compliance officer gets at sentencing.

ARE YOUR CUSTOMERS' DELIVERIES ENDING UP IN SYRIA ?

Vigilance is the order of the day regarding unwitting (or irresponsible) client violations of Syrian sanctions, due to transshipment through Iraq. Remember that Iraq abstained from Arab League sanctions upon Syria, as well as that organisation's suspension of membership of the Assad regime. Iraq dearly needs Syria's exports of foodstuffs, and as such can be depended upon to ignore the onward transfer, into Syria, of goods that the sellers honestly believed were destined for Iraq. The fact that Iraq is wallowing in systemic corruption only makes the matter worse, for bribes, and illicit compensation, often result in lost or destroyed records, and officials who profit from such shipments over the frontier.

It is suggested that, where your bank clients are engaged in exports to Iraq, that have increased substantially of late, that you, and they, jointly  them examine their history of trade to the customer, to determine whether the spike could represent drop shipment into Syria.

New client business, involving Iraq, also deserve a hard look. Whilst end user certificates are generally ineffective where sanctions are involved, you may wish to have an agent or independent representative enquire, inside Iraq, as to the ultimate destination of the subject goods. Remember also that some of them could be going to Iran, and you do not need that problem haunting you years later, and only discovered when US or EU law enforcement agents audit the client's accounts at your bank, looking into Syrian or Iranian shipments.

NEW ZEALAND BILL ELIMINATES NON-RESIDENT DIRECTORS

 

Readers who wish to review the complete text of pending New Zealand legislation which will require that corporate directors must reside in New Zealand, can finds it on the country's legislative website*. The proposed law, which is intended to give Kiwi law enforcement agencies and regulators access to directors, also add criminal penalties, is worth a read.
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* It is known as the Companies and Limited Partnerships Amendment Bill
   http://www.legislation.govt.nz/default.aspx

BEWARE CLIENT TRANSACTIONS INVOLVING IRAQI BLEND

If you have clients engaged in the purchase of petroleum products from the Middle East, be aware that Iran artfully circumvents existing international sanctions by shipping its ample supplies of fuel oil abroad, and designating it "Iraqi Blend," to confuse buyers. reliable statistics indicate that the National Iranian Oil Company receives $410m per month on the illegal sales made to unsuspecting foreign purchasers, many of whom are totally ignorant of the fact that they have just violated global sanctions.

The transactions are often handled by Gulf-based middlemen, thereby shielding the identity of the Iranian sellers from the purchasers. Much of the fuel oil is shipped to the United Arab Emirates, through a variety of covert schemes, including:

(1) Ship-to-ship transfers in the Persian Gulf; the oil is then delivered to the UAE for sale.
(2) Discharging the oil at obscure Gulf ports.
(3) Direct shipment from Iran to the UAE, during which journey the vessel operator disengages its transponder/GPS location devices, so that no monitoring of the passage is possible.

The fuel oil is offered at a large discount, making it extremely attractive for potential buyers who need supplies of the product. Experts says that the density of the fuel oil betrays its Iranian, and not Iraqi, origin, but apparently none of the buyers are conducting tests; the prices are understood to be the reason.

Records of regular shipments, by Iranian-owned tankers, and storage in Malaysia and Singapore, indicate that Asia has become a favoured destination for the sanctioned product, which is later sold as being of Iraqi origin.

Should any of your bank clients be engaged in this type of transaction, you will want to ensure that your payments are not ultimately going to Iranian-controlled financial institutions in the Middle or Far East. considering the proliferation of sanctions targeting Iran's petrochemical industry, you want to be very careful here.

National Iranian Oil Company logo

BISHOP/PONZI SCHEMER TO GET 40 YEAR SENTENCE FROM FEDERAL JUDGE

Martin Sigillito, an attorney and bishop in the American Anglican Church, is to be sentenced to 40 years in Federal Prison, according to a Sentencing Memorandum filed in his case* by the Chief Judge in the Eastern District of Missouri.

The defendant is alleged to have swindled investors out of $56m, in a fraudulent "British Lending Programme" scheme, which purported to return 17-48% on non-existent UK real estate loans to developers. His office generated fictional loan documents purportedly prepared and executed in the UK, to give investors a false sense of security. The fraud later fell apart, and his assistant reported him to the FBI when she realised that it was a Ponzi scheme.



Sigillito allegedly earned $6.3m in the Ponzi scheme. He was charged with multiple counts of:
Wire Fraud
Mail Fraud
Conspiracy
Money Laundering

His sentencing is on 28 December, but the Court has already stated what his sentence shall be, in a scathing document that details all the enhancements given to him, on account of his egregious conduct with respect to the 140 investors who were victims in his scheme. He used his religious position to draw victims into the fraud.
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* United States vs. Sigillito, case No.: 11-cr-00168-LRR (ED MO).

NIGERIAN COURT CONVICTS TWO LEBANESE BULK CASH SMUGGLERS

The Defendants

Two Lebanese nationals, engaged in attempted bulk cash smuggling from Nigeria to Lebanon, have been convicted of money laundering by the Federal High Court in Lagos. The defendants, Talal Hammoud and Hassan Rmaiti, were arrested when they attempted to depart Murtala Muhammed International  Airport with over $2m in currency, without reporting it to authorities. They both entered pleas of guilty to the charges.

Their conviction was announced by Nigeria's Economic & Financial Crimes Commission (EFCC). Airport authorities have been interdicting larger numbers of bulk cash smugglers attempting to leave Nigeria of late, bound for the Middle East. Arrests for money laundering are increasing in the country, a positive note in a nation with rampant corruption amongst Politically Exposed Persons (PEPs), who often seek to place their ill-gotten gains overseas.

PALESTINIAN TERRITORIES POSE INCREASED RISK IN 2013

Hamas 25th Anniversary logo

If you were entertaining any hopes of a peace settlement next year, between Israel and either of the two rival Palestinian organisations, Hamas and Fatah, for risk management purposes, do not hold your breath. Recent actions and statements, coming from Gaza and the West Bank, indicate the opposite.

First, the titular leader of Hamas, in a major policy speech in Gaza, was as inflexible as ever in his fiery rhetoric, claiming the entire territory of Israel for Palestine, and calling upon Palestinians to employ armed conflict, to reach that goal.  You can disregard comments he recently made to American media, which subtly appeared to accept the two-state solution agreed to by previous Palestinian leaders, or at least a long-term ceasefire.

New Fatah logo

Second, though Fatah, and Mr. Abbas, the PA Premier, officially claim to seek to implement the previous peace accords, the newly-redesigned logo for Fatah boasts a return to terrorism and violence, to individual claims to return to properties that are within what is now Israel, and a claim to all of Israeli territory. This is not the standard of a peacemaker, but one of an organisation that endorses violence. Note the gun barrel, headscarf covering the entire territories of Gaza, the West Bank and Israel, and a key, representing the Palestinians claim to return to their pre-1948 lands, that are now inside Israel. The dove in chains is particularly symbolic, and disturbing.

It is suggested that, should your bank have clients who are engaged in major transactions with Israel, or if you have significant financial exposure, on pending client matters involving Israel, that you regularly monitor the political, as well as military, situation, for Country Risk assessment purposes.

UBS NAMED BANK OF THE YEAR TWICE ?

In a strange twist of fate, UBS has been designated "Bank of the Year 2012 Switzerland" by The Banker, a prominent industry publication. Another entity so honoured the bank for 2012, Euromoney for "Best Domestic Cash Manager Switzerland 2012." Obviously,  the candidates for these awards are considered many months in advance, but one must wonder, in a year when so much information was released about misconduct and criminal activity within the bank, what the Awards Committees were thinking.

"TELEVISA" BULK CASH SMUGGLERS FOUND GUILTY

Some of the defendants, in custody, and in court.

The eighteen Mexican bulk cash smugglers who attempted to move $9.2m through Nicaragua, posing as Televisa media journalists, en route to cover a criminal trial, have themselves been found guilty by a Nicaraguan judge. Their well-planned scheme was reportedly foiled when Nicaraguan authorities, acting upon a tip, detained, interrogated and searched them at the frontier.

The defendants, who have been convicted of money laundering, organised crime, and international transport of illegal substances, face a maximum sentence of fourteen years in a Nicaraguan prison, according to some calculations; other experts claim that they could get 30 years. Still unresolved is the fact that one of them was said to have made several calls to a senior Televisa executive, who denies any involvement.

As money launderers become more adept at disguising their operations within legitimate commerce, identification of their complex schemes becomes ever more difficult. Today, more than ever, "skim milk masquerades as cream," when it comes to money laundering. Ever since Mexico severely restricted the ability of narcotics organisations to deposit US Dollars, these illicit profits have been traveling further south, in search of a friendly bank.

Sentencing has been scheduled for mid-January. Was their ultimate destination the banking centres of Panama City ? We cannot say, but the defendants' bold and well-executed plan might have succeeded, had Nicaraguan border authorities not had advance notice of their arrival.

WATCH FOR IRANIAN SANCTIONS EVASION THROUGH GEORGIA

Though pro-Western Georgia maintains close ties with the United States, and aspires to eventually join NATO, its proximity to Iran, and its need to find resources and trading partners outside of Russia, have resulted in the expansion of Iranian diplomatic facilities in Georgia, and the abolishment of visa restrictions upon Iranian nationals. Iranian tourists are reportedly a common sight in Georgia, Although one does wonder if any of them are actually IRGC* Quds Force agents.

Most sources have seen evidence of the reluctance of Georgian banks to open accounts for Iranians, but the expansion of trade and tourism will give Iranian companies more access to the Georgian financial system. Whilst there has been no evidence uncovered thus far,  implicating Iranian entities in the use of banks in Georgia to evade international sanctions, sources indicate that the use of Georgian front companies and individuals has occurred. Moreover, there is a large complement of Iranian Georgians, who still speak their native language, through whom trade sanctions evasion could potentially be facilitated, should Iran "request" their assistance and cooperation.

Note well that Iranian oil is openly transported through Georgia, to Black Sea ports, where it can be shipped out to end users, thereby evading existing global sanctions against Iran. Given that geography has given Georgia a hostile and powerful neighbor to the north, it is reasonable to assume that, without a consistent Western presence, the country will encourage ties with Iran, to ensure its survival. These will include international trade.

Therefore, it is suggested that you be alert to the following:

(1) Have you seen any unusual financial transactions involving your clients and Georgia's banks ?
(2) Has the volume of your clients' trade with Georgia, especially involving food items, increased ? Remember, Georgia has only 4,000,700 people.
(3) have any of your clients shipped technical items to Georgia that could be considered dual-use products useful in Iran's sanctioned WMD and ballistic missile programmes ?
(4) Do you have any Georgian expats trading, high volume, to their home country ?
(5) Are any of your bank clients receiving funds from foreign banks located in Georgia ?

If any of the above answers is positive regarding a customer, it is suggested that you immediately conduct an Enhanced Due Diligence investigation, to rule out trade with Iran.
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* Iran Revolutionary Guards Corps.


    

ALERT ON MOVEMENT OF HEDGE FUNDS TO MALTA

The migration of a large number of hedge funds to the Republic of Malta, since 2010, could result in an increase in Country Risk. Hedge funds domiciled in some European, and well as all the major Caribbean tax havens, have been moving to Malta. Others have not made the complete switch, but have chosen to move their back office operations, such as accounting and customer relations, to Malta.

Whilst much has been made of the transparency of this offshore financial centre, I fear that the wholesale relocation of hedge funds, far from their original Caribbean island headquarters, will attract additional illicit capital. Professional money launderers, operating for Western Hemisphere narcotics trafficking organisations, may decide that covert investments of their clients' "flight capital" will be that much harder for law enforcement to investigate, let alone uncover and interdict, now that they are more physically remote from the United States, in an independent European jurisdiction, where the additional delays in access to information may provide a critical advantage.

Given the extraordinary methods to which money launderers must go, to ensure success, when placing criminal proceeds in hedge funds, many will welcome the fact that the repository of their clients' well-placed dirty money has found a safer home. They may feel secure enough to artfully place additional client money in Malta-based hedge funds in the future.

Compliance officers charged with the calculation of Country Risk for Malta are advised to factor the additional risk of money laundering, through an increased number of Maltese-domiciled hedge funds, when deciding whether to raise it for the Republic of Malta for 2013.