SENTENCES FOR PONZI SCHEMERS CONTINUE TO RISE

For once, the punishment fits the crime. Sentences meted out for serious Ponzi schemes, in state court, appear to be on the rise, and are rapidly catching up with Federal sentences. In the State of California, James Koenig, of Redding, which is in Northern California, received a 42-year sentence, for causing a total investor loss of $90m, to over 400 investors, many of whom were elderly.

Koenig, whose company was named Assert Real Estate Corp., had a prior conviction for Mail Fraud, which of course begs the question:  where was the due diligence investigation that should have been performed on the fraudster ?

Mr. Koenig, in court during his trial

CHINA IS ARRESTING LAWYERS WHO ARE DEMANDING TRANSPARENCY FOR CHINESE PEPS

If you thought that China, after its new leader. Xi Jinping, promised to wipe out corruption among its leadership, is doing anything about it, think again. Chinese police have been arresting individuals who are demanding more transparency from Chinese PEPs, especially reports on their income and wealth. The government has even gone so far as to arrest people who are already under house arrest for agitating publicly for reform.

You need to conduct your own due diligence with Chinese PEPs who are opening new accounts overseas, at your bank. There certainly is no officially-generated information from China that you can trust, on PEP wealth. 

USTINOV'S ATTORNEYS APPEAL HIS EXTRADITION TO US FOR ARMS TRAFFICKING AND MONEY LAUNDERING

Mr. Ustinov, obviously unhappy with the court's ruling

Dimitry Ustinov, the fugitive Russian arms trafficker who made the mistake of flying into an airport in the Baltics, has, through his attorneys, filed an appeal of the Vilnius Regional Court order ordering his extradition to the US, to face arms trafficking and money laundering charges, which could result in his imprisonment for 20 years.  We will continue to monitor all developments in this case, including any new comments being issued by the Russian Government, and the final ruling by the Court of Appeal of Lithuania, when it is issued.

HAMAS CLOSES DOWN MEDIA FOR REPORTING THAT EGYPTIAN MUSLIM BROTHERHOOD HAS RELOCATED TO GAZA

You can forget about getting any objective news from the Hamas-controlled Palestinian Territory of Gaza. Hamas abruptly closed down both Al-Arabiya and Maan. These two Middle East-based news services reported that agents of Egypt's Muslim Brotherhood, have fled to Gaza, and are running operations against the new military government in Cairo. It seems that Hamas cannot handle the truth, when the truth hurts their image.

MISTRESSES OF CORRUPT CHINESE PEPS EXPOSE THEIR BENEFACTORS

It appears that the most popular articles in China these days are exposés of the free-spending habits of corrupt Chinese PEPs, told by their mistresses. While I am no fan of lurid journalism, there are a number of nuggets on these stories for compliance officers who wish to identify, at account opening, Chinese PEPs who are attempting to deposit criminal proceeds in their bank.

(1) Misrepresentation about their PEPs true occupation: If the new client tells you he is in the private sector, verify it through an absolutely objective source. Ignore business cards and credit cards as proof of employment.

(2) Spouse: If he tells you the beautiful young lady accompanying you is his wife, and she is substantially younger than the client, and sporting expensive clothing and accessories, watch out. There may be photos of the client, with his real wife, at social or official functions, on the Internet.

(3) Holidays: Corrupt PEPs, traveling on what they tell their wives are business trips, but in truth and in fact are holidays with the mistress du jour, are another clue that you may have a disguised PEP in front of you.

(4) Social interaction with the companion: Does the client's female company exhibit boredom, or is she overly solicitous of the client ?

(5) Joint account, yes or no: Does the client decline to have his spouse on the account, or does he see that she does not see, first-hand, the details of his financial transactions ?

Bottom line, while it is not the place of the new accounts officer, or compliance officer, to profile prospective clients just because they are traveling with a mistresses, many corrupt Chinese PEPs are know to do so on their international trips. Watch for it , as if my provide a valuable clue in identifying a PEP who says he is just an affluent businessman.   

NISMAN REPORT EXPLAINS WHY IRAN & HEZBOLLAH BOMBED AMIA IN ARGENTINA

Most of the Western commentators missed the most important conclusion reached by Argentinian prosecutor Alberto Nisman, in his recently released 504-page investigative report on the AMIA bombing, and Iran's expanding operation in Latin America. The evidence he collected led Nisman to conclude that the 1994 bombing was the result of Argentina's refusal to transfer nuclear technology to Iran. If this doesn't convince the world of Iran's true WMD intentions, nothing will.

For those readers who want a more detailed review of Nisman's analysis, there is a 31-page summary, available online here.
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WHERE IN THE US IS BO GUAGUA AND DOES HE HAVE HIS PARENTS' DIRTY MONEY ?

Now that Bo Xilai, the rising Chinese politician, has finally been charged with corruption, the question remains: does his son, Bo GuaGua, have his illicit wealth, and is it being banked in the Boston area ? Bo was reportedly a participant in the Boston Marathon, and he did attend Harvard. There's no news from China on the seizure of Bo Xilai's millions, and his attorney wife probably was able to move much of it out of China, so which American bank has it ?

The compliance problem is that Bo GuaGua probably has a number of valid passports, all with aliases, and his bankers may not even know who he is. Many children of Chinese PEPs attend university in the United States under well-established aliases, so that their classmates, and the media, do not know who they are. Their fellow students might not take kindly to the presence of the child of a major human rights violator, or multi-millionaire "public servant." Many universities actually cooperate with this charade.

 Additionally, the tuition is often far more than their family legally earns, so you can easily figure out their involvement in corruption in China. Bo GiaGua, a well known playboy in both the UK and the US, was notorious for his night life, the cost of which was substantial.

So, here is his photo; who is the banker who is attending to his every need, even though his attorney mother was convicted of murdering a British businessman, and his father stands accused of corruption ? And why is this person, having now completed his education in the US, and probably holding a substantial amount of dirty money, allow to live in America indefinitely ?

LITHUANIAN COURT AGREES TO EXTRADITE INDICTED RUSSIAN ARMS TRAFFICKER TO US

The Vilnius District Court has granted a petition of the Lithuanian General Prosecutor's Office, acting upon an American request, to extradite, to the United States, Dimitry Ustinov, a Russian arms trafficker who arrived at the Vilnius Airport, and was taken into custody. He was reportedly indicted on 25 March, in the State of Delaware, and charged with money laundering, and the export of restricted military equipment from the United States.

The Russian Government has already expressed its displeasure with the ruling of the Lithuanian court, and relations with the United States are already suffering, due in part to the Viktor Bout case, so expect them to deteriorate further.  Ustinov does have a right of appeal, but most appeals of extradition decisions are not reversed, so you can expect to see Ustinov in an American courtroom shortly. This could adversely affect any American corporation, or individual, who has the misfortune to find himself in a Russian court this year, so you may want to consider raising Country Risk for Russia.

DON'T VATICAN FINANCE TYPES KNOW WHAT MONEY LAUNDERING IS ?

If Monsignor Scarano, the senior Vatican official incarcerated in a Rome prison, facing money laundering charges, is typical of those in Vatican City who are in charge of financial affairs, then they need a tutorial in  Money Laundering 101. Scarano has reportedly sent a note to the Pope, denying that he was engaged in money laundering, and asserting that he "tried to help someone who asked for help."

If someone asks you to help them bulk cash smuggle twenty million Euros in from Switzerland, and you find nothing wrong with that request, then you should not hold a position of financial responsibility anywhere. Obviously, the experts hired to bring Vatican City into compliance with banking best practices have their work cut out for them. Could they please schedule mandatory, universal lectures there, at their earliest convenience ?

BO XILAI CHARGED WITH CORRUPT ACTIVITIES IN CHINA

Bo Xilai

Sixteen months after his arrest, and after his wife's conviction of murdering a British businessman, China has finally gotten around to charging Bo Xilai, on of its former senior leaders, with corruption and abuse of power. The son of a prominent Chinese patriot, Bo Xilai is accused of bribery and embezzlement in the amount of $4m, according to reports published in China, where the press operates under strict government controls.

The case, which drew the compliance world's attention to the fact that many senior Chinese leaders build huge illicit fortunes, and often seek to place them outside China, raised awareness in the West of the potential problems banks face when accepting wealthy Chinese PEPs. Questionable activities of Bo's wife, who lived and worked for a while in the United Kingdom also surfaced during her murder trial, as well as the fact that their playboy son was being educated in the West, at a cost far above Bo's official salary.

Whether the long delay in charging Bo Xilai with criminal activities was due to the fact that China was going through one of its periodic leadership changes, and that bringing criminal charges would have embarrassed the Chinese Government, I will leave for historians to ponder. What is important about the case is that it was a wake up call on banking wealthy Chinese PEPs for international financial institutions. Serious inquiries into Source of Funds, and the true nature of the customer's occupation in China, are now being routinely asked at account opening, where the prospective client is, or possibly could be, a PEP. Enhanced due diligence has become the order of the day, with any new, affluent Chinese national who is seeking to open an account anywhere outside the Peoples' Republic. 

COLOMBIA WARNS AGAINST DMG 2012 "TRIPLE YOUR MONEY IN LESS THAN 10 DAYS "

The Superintendent  of Finance of Colombia has issued an alert on DMG 2012, which claims to be the successor to convicted Ponzi schemer David Eduardo Murcia Guzmán's DMG. The Colombian regulator advises that the new DMG 2012 is unlicensed and is illegally accepting money from the investing public.

On a related note, Murcia's Colombian attorney has stated that his client does not know where the billions of dollars that he stole from investors are at the present time. We have previously reported that much of his illicit wealth remains in the Republic of Panama, where it was invested by some of his associates, who converted much of it to their own use and benefit.

COURT CONFERENCE SOUGHT IN CASE AGAINST RICHARD CHICHACKLI

The Assistant United States Attorneys in the pending Federal criminal case against Viktor Bout's alleged money launderer, Richard Chichakli, have requested that the Court set a date for a conference, on unspecified grounds, which is the first public development in proceedings that would suggest his cooperation with the authorities. Chichakli, who is charged with violating US sanctions, was extradited from Australia, but the case has not moved forward expeditiously, giving rise to suspicions that Chichakli does not intend to go to trial.

His attorney, New York criminal defense counsel Marlon Kirton, has entered his Notice of Appearance, after an unusually long delay, and filed no pleadings that indicate that he intends to present a defense to the charges. Bout himself cannot be tried at this time, for he was not extradited to face these specific charges, and US law forbids it.

On another note, Viktor Bout's wife, Alla, has reportedly formed a nonprofit entity, called Return Home Foundation, that will seek to assist Russian nationals who are involved in criminal cases abroad. Mr. Bout is currently serving a 25-year sentence in the United States, and he is appealing his conviction on several grounds, including charges that the United States engaged in bribery and blackmail, to obtain his extradition from Thailand. Bout was convicted of illegal arms trafficking, and conspiracy to kill Americans abroad.

SEC ISSUES ALERT FOR PONZI SCHEMES USING VIRTUAL CURRENCY

The Securities & Exchange Commission has issued an alert for investors, regarding entities operating Ponzi schemes that utilize virtual currency*. At the same time, it took action, in United States District Court in Texas, against an alleged $4.5m fraudster, who offered Bitcoin investments, in a Ponzi scheme that collapsed. Note that the company was called Bitcoin Savings & Trust.

It is suggested that you review the complete text of the SEC alert, by visiting the hyperlink below.
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*Ponzi Schemes using Virtual Currencies

US FINES HOUSTON TEXAS OIL DRILLING COMPANY FOR IRANIAN SANCTIONS VIOLATIONS

The United States is paying particular attention to US companies in the petrochemical sphere, as their goods and services can aid and abet the Iranian oil industry. A Houston, Texas company that shipped goods to the United Arab Emirates, and sought to ship more, was fined $84,420 by US Treasury, for multiple violations of Iranian sanctions.

The company acted "with reason to know that the shipments were intended specifically for supply, transshipment or reexportation, to an oil drilling rig located in Iranian waters." Readers can view the complete text on the OFAC website, under Financial Sanctions, at http://www.treasury.gov/

IS PANAMA BURNING ?

With the explosion of anti-corruption public sentiment in the Republic of Panama, the people are demonstrating their unhappiness with a government where most of the ministers, and their president, are accused of insider trading, among many other crimes and misdeeds. Add this to the total failure of the local law enforcement and financial regulatory community, when it comes to rampant and universal money laundering, and you have a recipe for disaster.

The United States has studiously avoided any involvement in Panama since it intervened to remove and arrest General Noriega, so you cannot expect any help there. The EU is also ignoring the issue of institutionalized money laundering in the banks. What is to be done ?

The only card left to play is a return to the FATF NCCT list; name & shame Panama as a non-compliant country for money laundering and terrorist financing. The question is, does the Financial Action Task Force have the stomach to return to the blacklist as a enforcement ands reform tool ? Let us hope that someone there is paying attention, for only a radical solution will work. 

THE BITTER LESSONS OF ROSEMONT FINANCIAL CORPORATION

Lest we forget:

(1) Money service businesses can NEVER think that they can circumvent US regulators through artful use of the accounts of a registered MSB. Both FinCEN and state regulators will find you, one way or the other; Shortcuts never work out.

(2) Your US relationships are only as good as your US partner is honest; Ramakrishna Vyasulu, Rosemont Financial's CEO (and not its owner) was caught trying to launder $1m if what he thought was drug proceeds.

(3) your US financial partner will roll over on you in a New York minute, if he is caught breaking the law, and he will not be punished nearly as strongly as you will be. Vyasulu cut a sweetheart deal with DOJ in Massachusetts, whilst his clients has $200m seized, and it was costly and time-consuming to get only most of it back.

(4) If it is discovered that you have any dodgy clients, expect years of investigation, and no clean bill of health later, should you be lucky enough to escape the criminal justice system.

(5) Your legal fees, in any dispute with US regulators and law enforcement, will be obscenely high; forego this nightmare by not giving them cause to seize your US accounts, investigate you ad nauseum, damage you in the media,  and ultimately keep some of your hard-earned profits. 

WILL EU BANKS NOW INTERDICT HEZBOLLAH FUNDRAISING ACTIVITIES DUE TO THE SANCTIONS NOW IMPOSED ?

The sanctioning of Hezbollah's so-called military wing, by the European Union, is a major step in the right direction, but it begs the question: How will EU banks protect themselves from terrorist financing activities, now that fundraising is illegal ?

Obviously, there is a well-established program of fundraising, operated by Hezbollah agents in the EU, and these pipelines must now be identified, and closed down, forthwith, lest there be exposure to charges of providing material support to terrorism. One must assume that compliance officers at international banks, located in the EU, whose clients transfer funds to Lebanon, for any reason, are initiating a broad-based review of such clients, their lines of business, and whether the payments they send to the Middle East ultimately end up in Beirut, in Hezbollah accounts.

LEBANON AGAINST EU TERRORIST DESIGNATION FOR HEZBOLLAH

If you thought that there were any responsible government officials left in Lebanon, think again. The country's president has asked the caretaker foreign minister to instruct its EU representative to advise the European Union that it opposes its pending designation of Hezbollah as a terrorist organization. He has been quoted as stating that Hezbollah is "an essential component of Lebanese society." Does that make Lebanon a failed state, due to the admittedly central role being played by Hezbollah ?

The President of Lebanon, in his objections to designating Hezbollah, due to its terrorist action within the EU, in Bulgaria, said that such a ruling would be "taken in haste, and without reliance upon objective and firm evidence" of responsibility for the Bulgarian Bus bombing. Is he serious ? What about all the other known terrorist actions committed by Hezbollah ?

If the country's leader is acting as an apologist for one of the Middle East's worst terrorist groups, it obviously controls the national government; under those circumstances, you should seriously consider raising Country Risk for Lebanon, as the risk levels for having any financial exposure in that country have now increased.

PONZI SCHEMER ZENG CHANGJIE, CHINA'S MADOFF, SECRETLY EXECUTED BY LETHAL INJECTION

The late Zeng Changjie

Bernard Madoff, Scott Rothstein, and the other American fraudsters, count your blessings.
Hunan Businessman Zeng Changjie, convicted of fraud and "illegal fund-raising activities,' China's code word for a Ponzi scheme, was reportedly secretly executed last Friday, without affording him his legal right to say farewell to family members. Zeng, whose $460m Ponzi scheme is said to have imploded, leaving 57,000 victims, was given a lethal injection, but the details about his execution were suppressed in China.

Zeng has been referred to, in Chinese media, as its own version of Bernard Madoff.  Since 2011, it is estimated that there have been 4170 convictions in China, for Ponzi scheme operation, and many of those defendants have reportedly been executed, though statistics about such crimes are not published in China. We do not know how many of these individual were financial consultants who made bad investments, and later engaged in Ponzi activity, in an effort to cover up their losses. Apparently, execution does not seem to be deterring aspiring Ponzi schemers in the Peoples' Republic.

Zeng's daughter, protesting his death, and her denial of a final visitation with him

BEIRUT AIRPORT 12 KILO COCAINE SEIZURE CAME FROM NIGERIA

The seizure, at Beirut's Hariri Airport, of twelve kilograms of cocaine, which had arrived from Kano, Nigeria, should serve as a reminder that the repatriation of narcotics profits, to Latin America, can easily be accomplished from banks located in the Middle East. Whether these drugs were destined for the growing European market is not known, but irrespective of the location of the end users/consumers,  paying for them from a Beirut bank is generally a low-risk transfer.

Whether the payment, through Panama or to banks in the tax havens of the Caribbean, is disguised as an international trade transaction, or some other fictitious business reason, the repeat nature of these types of transactions sometime will signal their true nature. Always make further inquiries, when there are wire transfers that appear to be unusually repetitious in their nature, or which do not seem to be similar to those others, in that trade or industry, that you have experienced from those jurisdictions.

Remember that good money launderers always seek to clothe their illicit transfers with legitimate covers, but that you may find some aspect of the transfers to be inconsistent with the industry that it professes to be involved in. 

SHOULD COUNTRIES BAN PEPS FROM HOLDING OVERSEAS ACCOUNTS ?

That new Russian law, rammed through by its leader, Vladimir Putin, has prohibited government officials from holding any overseas bank account ,is crazy; or it is ? Perhaps Putin is on to something. Those of us that are frankly sick and tired of watching corrupt foreign PEPs parade around the premier shopping malls of the United States, buying the best luxury goods that money can buy, and living the high life, notwithstanding their small salaries, welcome such a law in the developing world.

I, for one, would be happy if Miami was no longer periodically inundated by wealthy PEPs from Latin America, including the hemisphere's poorest country, the Republic of Haiti, with their multiple mistresses, posh US homes, and fat bank accounts, while their nation drowns in post-disaster poverty. Multiple-entry visas for such PEP-playboys who divert donations, rape development money, take bribes and kickbacks, and steal international aid, needs to come to an end.

Why not make the closure of overseas bank accounts a requirement for accepting government employment in the countries of the developing world, ? For these are jurisdictions where corrupt PEPs are seldom charged, due mainly to corruption in the courts, and the power and influence that these PEPs wield in government. Thank you, Mr. Putin; great idea.

AIDING AND ABETTING PONZI SCHEME COSTS BANK OVER HALF A BILLION DOOLLARS

A settlement of a claim against it, and a final settlement, with the trustee charged in assembling assets for victims of the Scott Rothstein Ponzi scheme, in the respective amounts of $54m and $72m,  bring the total amount of reported payments, court settlements, and settlements with the trustee to over $500m, for TD Bank. The bank was allegedly the primary financial institution for Rothstein's artful $1.2bn Ponzi scheme, where he fabricated, and sold, interests in bogus court, and out-of-court settlements for sexual harassment and employment discrimination and it is accused of aiding and abetting the fraud.

A half a billion dollars, the total cost to the bank, certainly the largest amount that a bank has been damaged in Florida, due to a Ponzi scheme, and an abject lesson to any banker who is mesmerized by the high volume of business, and lets the money get in the way of compliance. Good clients must always be checked periodically, just to insure that their wealth is legitimate.

Also, there is no way to compute the actual cost of reputation damage, meaning customers who have exited the bank, lost new clients, and other opportunities that will not visit the bank, due to the bad press it has received. TD Bank shareholders, whomever they are, will lose, due to a shrinking profit picture; bank clients may experience increased costs. Whether branches will be closed is anybody's guess, but it certainly will take the bank some time to adjust to the staggering cost.

The question remains; why didn't someone in the bank's compliance department notice, and report, the obvious red flags of Ponzi ?

  

APPEALS COURT SCHEDULES ORAL ARGUMENT IN VICTOR BOUT CASE

For those legal experts who thought that Viktor Bout's appeal of his conviction was frivolous, and without any legal merit, be advised  that the Second Circuit Court of Appeals has scheduled Oral Argument in the case for 10 AM, on 22 August. The hearing, where each side will be given ten minutes to make its case, will be at the United States courthouse in Manhattan, at Foley Square.

UNFINISHED BUSINESS IN ROTHSTEIN PONZI SCHEME: TD BANK'S DISCOVERY VIOLATIONS

The Court may have finally approved the bankruptcy plan for Rothstein, Rosenfeldt Adler, Scott Rothstein's law firm vehicle for his massive Ponzi scheme, but the reputation damage suffered by TD Bank, the bank that served as his primary financial institution, is still not over. The monetary settlements, by victims, and by the Trustee in Bankruptcy, which brings to an end most of the litigation, are not the only black eyes sustained by TD Bank. There's the discovery issue, which is most troubling, and brings up damaging ethical issues.

Attorneys for one group of the victims, who were counsel of record in a bitter lawsuit, appear to have shown that the bank stonewalled, in producing discovery that would implicate it as a willing facilitator of Rothstein's complex Ponzi scheme, through which wealthy investors were deceived into purchasing bogus settled claims for sexual harassment, or for discrimination. This violation, of evidence production rules, appears to have occurred in two separate lawsuits.

What this means is that it is alleged that the bank deliberately withheld incriminating documents from the plaintiffs. Ethical lapse ? Of course. Evidence of an in-house corporate culture that placed profit ahead of compliance with the law ? Possibly; in any event, the matter of sanctions, for the bank's discovery violations are still pending. One wonders just how much damage the bank has sustained, in the financial community, and the legal community, and whether it will affect its reputation, and profit picture, in the near future.

This is merely one more illustration of the dangers involved when a bank does not identify a Ponzi scheme early on, and exit the client, notwithstanding the lucrative nature of the client's business. There may be damaging information on file, and when someone breaks the rules by withholding it, the problems increase exponentially.

FRAUDSTERS SELL BOGUS INVESTMENTS USING US$100 BILL WITH PHOTO OF CONVICTED PONZI SCHEMER

Remember DMG ? A New Colombian criminal enterprise, trading on the the billion dollar Ponzi scheme perpetrated by the convicted DMG owner, David Eduardo Murcia Guzmán, is using the fraudster's likeness, on that bogus US$100 bill advertisement that Murcia created, to sell "investments" promising a 100-150% return on investment. Don't investors in Colombia read the newspapers ? 

Murcia, who was convicted in both Colombia and the United States, and sits in an American prison, and who gave the "money" away as an advertising stunt, will certainly be unhappy, when he learns that fraudsters are using his name to fleece the investing public.

I am also wondering what the US Secret Service, over at the  TreasuryDepartment, also thinks about someone selling, through what is represented to be a negotiable instrument, faux US currency, carrying the picture of a notorious Ponzi schemer, where Benjamin Franklin appears on the real note. It may not be an attempt at counterfeiting, but there must be a Federal felony in there somewhere.

The source of the image

MANY PANAMANIAN PEPS ARE NO LONGER WELCOME IN THE UNITED STATES

The individual pictured above, on the left, Solomon Shamah, is the Panamanian Minister of Tourism. Yes, that is a Colombian mugshot, for the minister, a naturalized Panamanian, has been linked to arms trafficking in his native Colombia. The other individual, in the photo on the right, is Ramón Martinelli, a cousin of the Panamanian president; he was arrested for money laundering in Mexico.

The dirty little secret among Panama's governing elite: many Panamanian ministers have had their US visas revoked. This extreme action generally takes place only after the US Department of State receives evidence, from a law enforcement agency, that the subject is engaged in criminal activity. American authorities do not want individuals engaged in narcotics trafficking, or money laundering, visiting thre United States, where they could engage in further crimes, or in laundering their illicit wealth.

Some of the former Panamanian ministers have quietly, and quickly, resigned their offices, to avoid visa revocation, but others have decided to stay in power, and have lost their US visa privileges indefinitely. This is one of the reasons to avoid banking Panamanian PEPs, as many are under criminal investigation by American law enforcement agencies.

If you have a high net-worth Panamanian client who advises you that he is sending someone in his behalf, to your US bank, to conduct his banking business, you may want to find out whether he is no longer welcome to visit, and if so, what activities is he allegedly engaged in. Bank clients who hare barred from visiting the United States are too high risk to retain as customers.    

SEIZURE OF MISSILE-LADEN NORTH KOREAN SHIP COULD RESULT IN AN INCREASE IN COUNTRY RISK FOR CUBA AND VENEZUELA

Missile components on display in Panama.

The government of the Republic of Panama has seized a North Korean vessel that attempted to transit the Panama Canal, when sophisticated missile components were found on board by inspectors. One must assume that the shipment was destined for North Korea's ongoing illegal ballistic missile program.

North Korea has openly threatened both the United States, and South Korea, with attack this year, and the efforts, by any country, to assist the DPRK missile program, will be regarded by the US as a hostile act. The fact that the vessel came from Cuba indicates that it is facilitating the North Korean weapons development program; This will not go unnoticed in the United States.

Cuba, which is not known to manufacture advanced weaponry, would most likely have acquired the missiles from Iran, either directly, or in coordination with Venezuela. You can expect an American response to the fact that Cuba is actively assisting the DPRK, and if it is learned that Venezuela had a hand in it, sanctions or other strong measures could also be imposed upon that nation.

Watch this incident unfold; when the United States takes action against  one or both countries, assess the situation, and decide whether to increase Country Risk on Cuba and Venezuela.        

MASSIVE FEE REQUEST IN ROTHSTEIN PONZI SCHEME

It has been reported that the huge fee requests, in the law firm bankruptcy* associated with the Scott Rothstein Ponzi scheme, in Fort Lauderdale, Florida, will be met with major objections. The bankruptcy trustee, his law firms, and cost reimbursements are alleged to be extremely high, and the issue is whether the award of these fees will result in a less than full recovery for the victims. You may recall that a probable 100% recovery has been announced by some of the creditor attorneys involved in the case. I saw a reference to the fact that $30m on fees are to be requested; this sounds clearly excessive, but the details have not yet been made public.

This is yet another reason to catch suspected Ponzi schemers early on, as any recovery actions, to reimburse the victims, will necessarily be costly. Banks whose customers fall victim to such schemes, and who fail to spot the red flags of Ponzi activity, could lose valuable clients, when their investment capital is impaired, or even wiped out, by such fraudulent schemes. You protect your bank, and your clients, by checking out even the smallest possibility that a Ponzi scheme exists.
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*In Re: Rothstein, Rosenfeldt, Adler (Bkcy. SDFL).

WATCH RECENT JAPANESE ACTIONS REGARDING CHINA WHEN UPDATING COUNTRY RISK ASSESSMENTS

The reported release of a Japanese Government white paper that was blunt and direct, when it came to accusations of Chinese ambitions, in disputed territory, administered by Japan, could signal a more nationalistic Japanese approach in the future. Furthermore, Japanese plans to change the country's restricted self-defense force, and replace it with a military having more power, is extremely disturbing.

Should China take economic action against Japan, such as it has done before with Rare Earth metals exports limitations, and deny Japanese companies access to the lucrative Chinese markets, the economic consequences to Japan would be severe. My readers know that I am no supporter of China's recent military expansion into what are international waters, and illegal territorial moves, but historically, the disputed  islands administered by Japan, that were received from the US, are definitely Chinese territory.

Continued Japanese saber-rattling will only result in Chinese counter-moves, which could damage Japan's economy. If Japan continues to play the military card, raising Country Risk would be not only appropriate, but necessary.

SENIOR PANAMANIAN PEPS AND PRESIDENT ALL NOW HIGH RISK

The evidence disclosed by a Panamanian whistleblower, which has implicated most of the heads of the country's ministries, and its president, in a massive insider trading scandal, when you add in the other corruption issues, have effectively eliminated these individuals as suitable bank clients, hereafter unable to open or maintain any bank accounts outside of the Republic of Panama. The Financial Pacific scandal, which continues to rock Panama, indicates that all the ministers, and the President of Panama, Ricardo Martinelli, illegally earned millions of dollars, much of which is located in secret bank accounts not linked to its true owners.

The evidence is said to be so extensive, and damning, that the government has violated the human rights of the whistleblower, and her family, including denial of the right to counsel, has attempted to suppress media coverage, all in a futile attempt to deny the information to the public.

Since senior PEPs often choose to have their subordinates move their dirty assets out of the country for safekeeping, I humbly suggest that compliance officers at international banks that observe any Panamanian nationals seeking to initiate a new account relationship, take a hard look at the new client; is he or she a PEP, by any broad definition of the term ? They may be attempting to hide these illicit profits outside Panama. The prudent action is to decline their business, so long as corruption among ranking Panamanian officials remains the way they choose to do business.

One more point: You do not want to be named in North American media for banking illegal insider trading profits, when investigators from Canadian market regulatory agencies, such as IIROC, and the Ontario Securities Commission, or Canadian law enforcement agencies, come around, for the mining securities involved were traded in Canada. Accepting any large deposits, from prominent Panamanian PEPs, at this time, is unwise. If you  do not fully understand why, ask your outside bank counsel to explain the potential for liability, as well as the potential for serious reputation damage.

BANK ACCOUNTS OF ACCUSED VATICAN OFFICIAL FROZEN

Italian media has reported that the two bank accounts, held by Monsignor Nunzio Scarano, the senior Vatican officials accused of participation in a €20m bulk cash smuggling conspiracy, have been frozen. Scarano's efforts to be allowed to be released to house arrest failed, and he remains in Italian custody. One of his co-conspirators, an Italian intelligence agent, was to employ a private jet to smuggle in the bulk cash. Scarano told a friend that he was to receive a €2.5m "commission" for his illicit services.

Scarano is also under investigation in another case, involving the exchange of a large amount of cash for bogus "charitable donation" checks, in an €560,000 apparent money laundering operation, paying off debt on a personal residence he owned . He was purportedly using the second bank account for a foundation, where he claimed he was accepting money from the public for a hospice-type facility.

Vatican sources stated that the investigation, into suspected money laundering through the Vatican bank, formally known as the Institute for Works of Religion, or IOR,  has widened, to include other targets, which have not yet been publicly identified.

Monsignor Scarano

FEDERAL JUDGE REFUSES TO GIVE NEW TRIAL TO CONVICTED CHECK CASHER, NOTWITHSTANDING THAT PONZI SCHEMER WITNESS LIED ON THE STAND

The US Government apparently, at times, uses Ponzi schemers to make other cases. Juan Rene Caro*, whose money service business, La Bamba Check Cashers, illegally assisted construction companies in evading payroll and social Security taxes, and mandatory insurance, through the adroit use of shell companies, is currently serving eighteen years in Federal Prison, for CTR violations involving $132m.The construction companies paid their illegal alien workers. through checks payable to shell companies, which Caro's company cashed, thereby evading Federal tax withholding, and insurance payments, on the laborers. Caro's conviction was affirmed on appeal.

 His attorney then asked for a new trial. The grounds: one of the principal witnesses against him at trial lied on the stand. Who was this person ? master Ponzi schemer Nevin Shapiro, now serving his own prison term of twenty years, on charges that include money laundering, for his $930m operation.

Caro's attorney moved for a new trial, based upon these grounds:

(1) Shapiro, who borrowed money from Caro to repay illegal gambling debts, committed perjury at Caro's trial, when he testified that he was in the grocery brokerage business, when in truth and in fact, he was running a Ponzi scheme. Shapiro currently owes $82m, as and for Restitution.

(2) Shapiro was actually under Federal investigation in New Jersey, for his Ponzi scheme activities. the US Attorney in Miami denied that his office knew about the New Jersey investigation, and therefore did not disclose it to Cano's attorney, in violation of Brady** and possibly Giglio***.

The Court denied the motion, even though the Ponzi schemer advised the court, in a letter, that he had committed perjury.

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*Case No.: 08-cr-20444 (SD FLA).
** The prosecutor is obligated to disclose, to the defense, any information that might affect the credibility of a witness, or be favorable to the accused. Brady vs. Maryland.

*** The prosecutor is required to disclose, to the defense, any information about arrangements, with the witness, involving immunity, or other similar favorable treatment, to be received in exchange for his testimony. Giglio vs. United States. Did Shapiro derive a benefit from his testimony ? 

FULL RECOVERY BY VICTIMS OF PONZI SCHEME COMES AT THE EXPENSE OF THE SCHEMER'S BANKS

It has been reported that there will be an anticipated 100% recovery for victims of the Scott Rothstein/Rothstein Rosenfeldt Adler Ponzi scheme. Such a result, which is extremely rare in this type of crime, should serve as a lesson to the financial community, for it is largely occurring as the result of judgments, and payments, by Rothstein's primary bank, TD Bank.

When a bank, pleased with large balances and substantial business, from a major client, fails to regularly perform due diligence on that client, it will miss the red flags of Ponzi activity, or other financial crime. The fallout, when attorneys, or trustees seek to recover for victims, often targets the financial institutions that facilitated the crimes. If the bank cannot show that it checked out its major clients thoroughly, and often, the vultures will attack.

The whole problem would have been prevented, had the bank, as soon as the indicia of Ponzi activity appeared, years ago, exited the client relationship. Unfortunately, the bank failed to act. Why an obscenely successful attorney, who reportedly rarely was at the courthouse, was not the subject of semi-annual due diligence, is beyond me. Now the bank has paid the price for that negligence. Kindly make sure this does not happen at your bank.

WHERE TO VERIFY THE NEGATIVE INFORMATION YOU HAVE COLLECTED IN AN INQUIRY

Let's assume that, during your due diligence investigation of a prospective bank client, you find negative information,* in an article or sanctions summary, that is sufficiently serious to disqualify the individual or entity as a client. What do you do next ? You validate that information, from an official source, for your file, so that, should there be an audit, or a question arises about the accuracy of your information, you can support your conclusion with an official record.

Here is where you go, in the US, to obtain the evidence you need to verify the accuracy of your information:

(1)Federal criminal arrests and convictions: Federal criminal cases are available online at Public Access to Court Electronic records, PACER. Visit http://www.pacer.gov/  Since Federal law does not allow defendants to seal or expunge records, even cases where there is no conviction remain available to you. I consider this a primary source of information, not merely on your subject, but his or her associates as well. Organized crime ties are sometimes discovered by looking at co-defendants, and others, linked to your subject, in case files of your subject.

(2) State court criminal arrests and convictions: most local and country records are available online, at little or no cost, but they generally do not contain the actual pleadings, like PACER does, but you can still access the dockets, to verify both arrests and convictions.

(3) Information about fraud, Ponzi schemes, and other white collar crimes: Again. PACER has the details of Federal crimes you want, but state court online services rarely offer the pleadings. Civil fraud and white collar cases are great resources on PACER. if you are searching for a civil judgment entered against your target in state court, in many states, attorneys for the victims record certified copies in the Official Records register where the defendant resides, to obtain a lien on assets. Check out the website of the local government for online services, to find official records libraries.

(4) Federal Tax Liens: These are recorded in the local county Official Records registers.

(5) Foreclosure judgments, final judgments and liens: Official records in the county where the property or the defendant resides.

(6) Federal Securities problems: http://www.sec.gov/, the SEC website, for civil and regulatory matters involving individuals or corporate entities.

(7) Sanctions: If an individual is listed as OFAC sanctioned in an article or other secondary source, pull down the entry at the official site. www.treasury.gov/ to confirm. Remember that there are de-listings of sanctioned parties. Always check to confirm active sanction status.

(8) Poor financial condition of individual or entity: PACER for bankruptcy records, Official Records
for judgments and liens from banks and other creditors.

With the foregoing resources, one can validate the negative information obtained, and document its accuracy.
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* My personal preference for the source of negative information in due diligence inquiries can be found here.  

FORMER JULIUS BAER BANKER PLEADS GUILTY IN SAN FRANCISCO

The United States continues with its "take no prisoners" policy towards Swiss bankers, many of whom are engaged in the facilitation of tax evasion, by wealthy Americans. Pius Kampfen*, a Julius Baer employee for 40 years, and who became a citizen in 2006, has pled guilty to failing to disclose his personal foreign (Swiss) bank account, in US District Court in San Francisco. American citizens must declare whether they hold any bank accounts, outside the United States, in excess of $10,000.

The defendant is obviously cooperating with the authorities, as he signed a Waiver of Indictment, and does not have an attorney listed. Sentencing is set for the 4th of October; he could receive a maximum sentence of five years. The question is whether he is being asked to identify American tax evaders whom he dealt with at Julius Baer, and other Swiss bankers who are assisting them, in exchange for favorable treatment at his sentencing.

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* Case No. 13-cr-00369-JST (ND CA)

WITH THE REGIME CHANGE IN EGYPT, HAMAS NEEDS A NEW BULK CASH PIPELINE

Since the Army takeover in Egypt replaced a government dominated by the Muslim Brotherhood, Hamas has lost its most important ally. it has also lost most of its avenues for bringing in bulk cash.

Here's what's happened lately:

(1) Egypt closed the Rafah Crossing into Gaza last Friday. This was the primary entry point for bulk cash entering that territory.

(2) The Egyptian Army has destroyed or closed fifty of the tunnels used to smuggle arms and ammunition into Gaza from Sinai. Those tunnels have been employed in the past to smuggle in dollars.

(3) Three Hamas agents have been killed at the border with Gaza, and approximately 150 arrested by Egyptian forces, after Hamas obeyed a Muslim Brotherhood directive to engage the army in terrorist attacks.

Obviously, Hamas now needs a new route into Gaza for currency. Since neither the legal crossing from Egypt, nor most of the smuggling tunnels are available for that purpose, it requires a new avenue. Remember that when dealing with NGOs, charities that operate in the Gaza Strip, international bodies, and even United Nations agencies, as well as any organization that has the right to enter Gaza. Individuals at even the most altruistic nonprofit entity can be co-opted or corrupted as bulk cash smugglers. Watch for any new activity, such as unusually large currency exchanges, or cash withdrawals, by such entities.

Hamas needs to bring in cash, especially now that both Iran & the Muslim Brotherhood have apparently stopped assisting it in paying government salaries, and to fatten the pockets of its corrupt senior officials. 

UNUSUAL DEVELOPMENTS IN RICHARD CHICHAKLI CASE

Richard Chichakli

What is going on in the Federal criminal case*, in New York, involving Richard Chichakli and Viktor Bout** ?  The mystery deepens; A review of the court file indicates:

(1) Notwithstanding that he is in custody, in the United States, no attorney or public defender/legal aid lawyer has filed a Notice of Appearance, or any pleadings, on his behalf.

(2) A transcript was filed, on the 3rd of July, indicating that a hearing was held, in the case, on the 4th of June, but there are no filings to indicate what the subject was, or what the outcome was.

Chichakli, who is believed to have been Viktor Bout's CFO, and chief money launderer, may be cooperating with American law enforcement authorities, who do not wish to alert any individuals under investigation about the nature of his substantial assistance, but the court file does not show any sealed pleadings or documents. Rumors continue to circulate to the effect that Chichakli was an intelligence agent while he worked with Bout, but no evidence of this has surfaced.

The case remains a mystery.
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* Case No: 09-cr-01002-WHP (SDNY).
** This is the second case involving Bout; he was convicted in the first one, but American law on extradition precludes his arrest, at this time, on the second case, as he was not specifically extradited for that one. 

PAKISTANI GOVERNMENT REPORT ON BIN LADIN RAID RELEASED

A copy of what is said to be the classified 336-page report, of the Abbotabad Commission, a Pakistani Government inquiry into the raid that resulted in the death of AQ leader Osama bin Ladin, has been released by Al-Jazeera. The report alleges that Bin Ladin entered Pakistan in early 2002, after escaping US efforts to capture or kill him, and that he resided in Abbotabad from 2005, until his death.

The commission attempted to learn how bin Ladin was able to live, undisturbed, in an area where there had been previous captures of AQ leaders and staff, and how the US military was able to enter, operate, and exit, the country, without either detection or interdiction.

Readers who wish to review the complete text of the report can access it here*.
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*Abbotabad Commission Report