Sunday, August 31, 2014


Megaval Enterprises Ltd., which was one of the Venezuelan-based companies that had sub-accounts at Bank of America NA, in the Rosemont Financial Corp. forfeiture case, brought a civil action against the bank, in US District Court*, in Miami. Megaval was one of the money service businesses who used Rosemont   accounts, when trading Venezuelan bonds, and converting the proceeds into US Dollars. Megaval's account moved $45m, resulting in substantial fees for Bank of America.

Megaval's attorneys originally filed the action in state count ( Circuit Court)** in Miami, but later removed the case to Federal Court. The allegations:
(1) Negligence.
(2) Breach of Fiduciary Duty.
(3) Violations of Article 4 of the Uniform Commercial code (UCC), regarding acting in good faith and the exercise of ordinary care.

In essence, the plaintiff asserts that the bank gave it faulty advice, specifically instructing Rosemont that Megaval did not need to register, and obtain FinCEN and State of Florida money service business licenses; the bank said the plaintiff could rely upon Rosemont's licenses.

The seizure of $1.3m, from Rosemont's accounts, by the United States, for lack of MSB licenses, resulted in a $250,000 civil penalty, and cost the plaintiff middle six figures in attorneys fees.

Bank of America's attorneys have filed a motion to dismiss, stating:
(1) Megaval was not the bank's customer.
(2) The bank had no legal duty to advise Megaval of the Federal & Florida licensing requirements, or to render legal advice to a non-client.
(3) There are a number of other, technical deficiencies in the plaintiff's complaint.
(4) Two cases, involving similar facts, have been dismissed.

The Court has paused Discovery until late September, so that it can render a ruling upon the bank's motion. we will update our readers when an order on the motion is entered.
The takeaway for compliance officers in this case: always have your own outside counsel render a written opinion, on all important legal issues, before the bank gets involved in any matter where regulatory, or licensing, issues may appear. Why Megaval relied upon Rosemont's representation, to the effect that its clients could operate as MSBs, without registration, amazes me. Always consult your attorneys on any issue where interpretations upon the law will occur.
* Case No.: 14-cv-20909-KMW (SD FL).
** Case No.: 14-5483-CA (11th Cir. Ct. Miami-Dade Co. Fl).

Suggested reading:
The Bitter Lessons of Rosemont Capital Corporation


Irene Shannon, then known as Irene Stay, was a lowly bookkeeper at the Rothstein law firm. She had no university degree, or any financial experience, yet Rothstein appointed her as Chief Financial Officer, though in truth and in fact, she was only the CFO for the $1bn Ponzi scheme. Shannon, who pled guilty money laundering conspiracy and bank fraud, received the maximum sentence in US District Court in Fort Lauderdale yesterday: five years in Federal Prison.

Although her attorney requested a lesser sentence, the Court placed much of the responsibility for facilitating the actual movement of funds in the Ponzi scheme squarely upon her shoulders. Shannon diverted investor capital from escrow, into firm accounts, where it was used to pay firm bills, and maintain an obscene, opulent lifestyle for Rothstein, and others. She kited checks between banks, and wire $16m overseas, when Rothstein fled to Morocco.

Shannon's annual salary at RRA, Rothstein's law firm, was $250,000; her husband, who worked there also, earned $200,000 . She will remain out on bond until her surrender on December 1.    

Saturday, August 30, 2014


The case of Richard Chichakli, the Syrian-American accountant convicted of sanctions violations, has been scheduled for sentencing on November 14. The defendant, thought by many to have been Viktor Bout's primary money launderer and financial advisor, will be representing himself, with standby counsel available to assist. The Court has set deadline dates for the filing of sentencing memoranda.

Chichakli has a large number of Pro Se post-trial motions pending, including multiple motions for a new trial, all of which must be resolved prior to sentencing. The fact that the District Judge set the scheduling, and did not dispose of pending motions first, could indicate the Court does not regard the motions, some of which are rambling, and bereft of citations to authorities, as having any merit at law.

Viktor Bout, the other defendant, cannot be tried on the charges, because he was not extradited from Thailand for this case, but for the one in which he was convicted and sentenced in New York. His attorneys in Russia, after indicating that they were building a "dream team" of American specialists, failed to timely take his conviction to the US Supreme Court, and have not engaged any US lawyers to attack his conviction and sentence through a collateral proceeding, alleging that Bout cannot afford any more attorneys' fees. His primary Russian lawyer has promised to now make a truthful motion picture about Bout's life, but no concrete plans about such a film have been given to the Russian press, which avidly follows everything about Bout, who has many supporters there.


There have been persistent rumors about Chichakli and/or Bout going public about their reputed extensive activities, in the employ of the Central Intelligence Agency, in their defense, but no such information was ever disclosed. One issue appears to be whether classified information, relating to such operations, reportedly conducted on behalf of the US intelligence community, was seized in Bout's laptop, during his arrest in Bangkok, and if such information would reveal covert activities, of a sensitive nature, which Bout and Chichakli conducted. Hints from Bout's counsel appeared to indicate that powerful information would surface, at the appropriate time, during his case.

Friday, August 29, 2014


Joel Steinger, the principal owner of Mutual Benefits Corp., was sentenced to twenty years in Federal Prison today; he had previously entered a plea of guilty to two felonies in a case that was filed back in 2008. Prosecutors had asked for a 50-year sentence, in light of the 30,000 victims of his classic Ponzi scheme. The Court indicated that his guilty plea, which saved the government the cost of a trial, and his physical disabilities, were factor in the sentence, though his primary role, as the mastermind of the billion dollar Ponzi scheme, was listed in detail, by the judge during the proceeding, according to witnesses.

A Forfeiture Judgment was also entered against him for fifteen million dollars. Under current regulations, he must serve a minimum of 85% of his sentence, more if he commits any violations of BOP rules. He will get credit for the two years he has been in a South Florida hospital; his bond was revoked after he committed health fraud crimes while out on release. That means he must now serve fifteen years for his decade of crime, which many of his victims probably believe is insufficient punishment.



The US Attorney's Office in the Southern District of Florida, in responding to a request made by the attorney for Joel Steinger for home confinement, as a sentence for his guilty plea to running a $1.25bn Ponzi scheme at Mutual Benefits Corp., due to his chronic back problems, has cited extensive Federal case law that holds a criminal defendant who is disabled cannot use his disability to escape justice.

The reply goes on to assert that the 50+ year sentence, which reportedly was computed under the advisory Federal Sentencing Guidelines, should be imposed, lest Steinger, who has prior convictions and regulatory sanctions, be released to offend again. The harm that he inflicted upon his victims, many of whom lost their life savings, is also cited as grounds for a long sentence.

The defendant's sentencing is scheduled for this morning, and we will update our readers as soon as the
ruling is handed down.

Thursday, August 28, 2014


It has been my experience that Congressional staffers are generally highly educated, and extremely bright . I have been wondering all week how those staffers working for a certain Midwestern Congressman ever allowed HR 4986 to be filed. The bill would allow money service businesses to engage in money laundering, with regulatory oversight stripped away. Doesn't anyone look at the practical, real-world consequences of proposed legislation any more ?

The bill, whose intention is to pull Federal regulators away from their campaign against the predatory payday lending industry, which has been known to charge up to 800% interest on small loans extended to needy consumers caught between paydays, who have an urgent need for funds, could result in MSBs   freely engaging in money laundering and terrorist financing. Here's the nightmare:

(1) The bill provides that financial institutions would be prohibited from "restricting or discouraging" the opening of accounts for MSBs that hold a valid license, and are duly registered as a money service business, OR have an attorney's opinion letter, attesting to the fact that the firm is operating within the law. This means that the banks must provide service to MSBs, if they seek to open accounts.

(2) Regulators would be severely restricted from investigating such MSBs.

Anyone with even a rudimentary knowledge of money laundering techniques knows that this proposed law opens a hole in anti-money laundering large enough to drive a truck, laden with a trillion dollars in criminal proceeds, through it. I understand that the Congressman believes that payday lenders are currently being unfairly targeted by Federal investigators and regulators, but open the gateway for MSB money laundering is not exactly the way to do it. Please review the bill yourself, and call your elected representative, to advise him that this bill could undo decades of AML/CFT legislation. It is an absurd response to the efforts of regulators and law enforcement to rein in a usurious, predatory industry. Frankly, payday loans should be abolished, Mr. Congressman, unless the lenders clean up their practices.

Wednesday, August 27, 2014


The "search engine" you see above you is not available, unless you are a government law enforcement agency; known as ICReach, it accesses a collection of over 850 billion records,  all collected and maintained by the National Security Administration (NSA). The Google-like program allows US law enforcement to reach domestic records without a subpoena or court order, according to a number of sources that report on personal data and privacy.

It has a direct impact upon all of us in compliance, because confidential legal communications with your bank's outside counsel, the identity of a whistle blower who is giving you incriminating information on a client, user names and passwords that you are sending to correspondents, and any number of proprietary, confidential and restricted information, and client details, that you handle each day, in the performance of your job, can be accessed by numerous law enforcement agencies, without any judicial oversight. It makes the use of a trusted courier relevant, for important documents.  

If your reply is that they cannot use that information, because it was illegally obtained, think again. Many law enforcement agencies are adept at what its known as parallel construction, the attribution of intelligence to a known, legitimate source, such as a confidential informant. The illegally-obtained information is then said to have come from the legal source. Some commentators refer to this practice as information laundering, which is an appropriate designation.

Should you alter your present practices ? We cannot say, but we can no longer confidently communicate domestically, without the threat of interception. Though designed for counter-terrorism investigations, such resources are ripe for abuse. Big Brother is indeed watching.


Today's OFAC Civil Penalties notice* provides an important lesson for banks that rely upon their software to do it all. Sometimes that jack-of-all-trades software you are using is not as all-inclusive as you think. Have you ever checked it ?

Branch Banking & Trust Co., known to the public as BB&T, was processing a wire transfer for $25,000, for a Sudanese national that the bank determined was not a Specially Designated National, but the bank's AML/CFT software failed to record it when the officer input "Sudanese" into the program; the software could not accept that notation.

Why is this important ? It appears that the software in use by the bank could not flag any country sanctions information; OFAC pointedly listed Cuba, Myanmar/Burma, Iran and Sudan as examples that the program was not set up to record, report, or note, for any purpose. The software was deemed by OFAC to be inadequate with regard to the sanctions screening process.  Why wasn't this caught by compliance ?

The fine was minimal: $19,125, but the reputation damage sustained by being named & shamed on the OFAC CivPen list is serious; We all read those postings, and when we learn that a major bank has never checked its software to ensure that it kicked out potential sanctions violations, that bank's status in the industry suffers, and law enforcement agencies may check to see that there aren't any other problems over there.


Francisco Illarramendi
John Carney, the BakerHostetler partner who is the court-appointed Receiver in the Michael Kenwood Corp. hedge fund Ponzi scheme case, managed by its indicted operator, Francisco Illarramendi, has stipulated with the attorneys for defendant Moris Beacha, against whom carney had a $171m civil suit pending, to dismiss the civil action, against Beracha, and all related corporate defendants, with prejudice. This is a strangerturn of events, for which there is no publicly-available explanation.

The defendants, who were to have filed an Answer to the amended complaint by August 11, never responded, and we are unable to learn what their defenses were. We do not know whether there was a monetary settlement in the civil action, as searches of both the pleadings in the court file, as well as the original SEC suit, wherein Attorney Carney was appointed Receiver, are silent on any financial settlement.

Morris Beracha
Mr. Beracha, it is alleged by the receiver, kept Illarramendi's hedge fund afloat, by the infusion OF funds, when they were desperately needed to keep the Ponzi scheme solvent. The circumstances under which the dismissal was entered remain unknown at this time. There may be a confidential settlement in place, in which case, we will remain in the dark. It is also possible that Mr. Carney was unable to obtain sufficient evidence to link Beracha to the Ponzi scheme, and chose not to continue the suit.
John Carney, Esq.

 Also still a puzzle is the scope of the role played by the enigmatic Spanish investor, Javier José Ardura Gomez. If you are not familiar with this aspect of the Illarramendi scandal, you can access the complete text of our earlier article here*.


if you want to know why yours truly is so disturbed about the fact that Hamas' senior money launderer's destroyed automobile contained a treasure trove of US currency, take a closer look at this photo, taken at the scene before Hamas agents moved witnesses away. The notes lying on the road at the bottom of the photo are Benjamin Franklins, the US$100 note.


The Office of Foreign Assets Control (OFAC) has posted a notice, on the Treasury website, to the effect that it will be limiting use of its  Sanctions List Search Tool,* a free feature that some in the compliance industry choose to employ when checking prospective clients.

The announcement stated:

"In order to ensure that all users of the Sanctions List Search Tool have a similar search
experience, OFAC is now managing the number of searches that a user may conduct
within a short period of time. users exceeding the number of searches allowed will
have their search access temporarily suspended for a few moments. The vast majority of
users should see no change in their search capabilities."

Obviously, some compliance officers are making it a practice to search, repeatedly, for checking multiple customers on the search tool. Good compliance officers should be trained to always access several of the better commercial off-the-shelf databases of high-risk individuals and entities first, and only to refer to OFAC to verify information. it should not be used as the primary search asset. The commercial databases generally have additional information, including aliases and media coverage, which an experienced compliance officer should examine first. Your mission includes the elimination of false positives, and many commercial searches will minimize your erroneous conclusions about subjects that you are checking for. It is submitted that you will needlessly be working on what you later determine to be false positives if you limit yourself to using the OFAC Sanctions List Search Tool as your primary asset.

Additionally, information on high-risk individuals or entities that have not yet made it to the OFAC list comes from the commercial databases, and you may decline a client due to that information, which operates  as a valuable risk management device. Prospective clients not on OFAC this year may still pose a threat. Do you really want to wait until 2016, when they are sanctioned ? You will have brought them in as clients two years prior, if you limit yourself to OFAC-sanctioned parties.


Joel Steinger, whose billion dollar Ponzi scheme, Mutual Benefits Corp., went from being the industry leader, to being closed up by court action, is to be sentenced later this week, and his counsel has filed a document captioned Joel Steinger's Statement of Acceptance of Responsibility*, signed by Steinger. The text reads as follows:

" I accept responsibility for my actions in the two cases in which I have pleaded guilty. I know that what I did was wrong. I also know that I must now face the consequences of what I have done. I accept this responsibility and I accept these consequences. I regret the harm done by my actions. I ask for the opportunity to show that I can turn my life around and become a productive member of society."

Acceptance of responsibility will generally result in a small reduction in the calculation of his guidelines sentence, which, though no longer mandatory, still provides guidance for the Court in the pronouncement of sentence.

Though one can never predict how a judge will rule at sentencing, you can expect a long term of imprisonment, due to the defendant's leadership position in the Ponzi scheme, the extraordinary number of victims, the efforts that the defendant made, over a period of years, to influence pending investigations, government officials, and his personal role in illegally reducing the life expectancies of insured whose policies his company sold, in the secondary market for life insurance, an investment that the Eleventh Circuit Court of Appeals later ruled was an unregistered security.

Will Mr. Steinger's sentence exceed those of Scott Rothstein, Allen Stanford, or even that meted out to Bernard Madoff ? Stay tuned.

*Filed August 25, 2014.

Tuesday, August 26, 2014


A number of reliable witnesses have seen full pallets of brand new shrink-wrapped US currency, being unloaded from a container, in the Palestinian Territories. Where on earth did these new greenbacks, fresh from the United States Mint, come from, I ask ? Which US banks are involved ?

Obviously, the pallets first are shipped, intact, from a major American financial institution to a correspondent bank in the Middle East. My educated guess is Turkey or the UAE, though Qatar comes up as the principal financier of Hamas. One wonders what these Middle Eastern banks tell their opposite numbers in America, as to exactly why they need all this US currency, and how the reasons for the shipment are documented by the banks' compliance divisions. Is the profit so lucrative that the greedy US banks ignore the reality that the probable end users are most likely sanctioned entities, individuals, or jurisdictions.

The idea that the latest series of US $100 notes are being distributed to in Gaza, to Hamas officials is bad enough, but I cannot accept the fact that US bankers actually facilitated this act, which is the provision of material support to a specially designated terrorist organization, on way or the other.


The photograph of the dollars falling out of the automobile of the deceased Hamas money launderer, shown on this blog earlier this week, is a pointed reminder of one thing : Hamas leaders have received a huge infusion of US Dollars, from their patrons in the Middle East, and they are not sharing it with the residents of Gaza. Reports that humanitarian shipments, of food and other necessities, have been diverted by Hamas leaders, for the use of themselves and their immediate families, while Gaza residents do without, illustrates the level of systemic corruption that exists in the Palestinian territory of Gaza.

Palestinian leaders will certainly be looking to secrete their wealth, irrespective of the postwar situation in Gaza. That always means moving their hoard of cash into foreign financial institutions, which has been a tradition since the late Yasser Arafat, who held untold millions in European bank accounts, allowed his political allies to help themselves, so long as they remained loyal to him. These new greenbacks, sent form Qatar and other supporters of Hamas, will be going somewhere as soon as the smoke lifts.

To insure that you do not willingly bank Hamas money, remember these points:

(1) Many Palestinian leaders have dual citizenship; they will present passports from EU countries, or those elsewhere in the Middle East, when opening accounts. Check the place of birth, to rule out the possibility that you are looking at a Palestinian PEP, seeking to open a personal account with dollars.

(2) A Palestinian leader recently pointed out that many family names of Palestinians indicate that their family's country of origin, in the dim past, was elsewhere in the Middle East. For example, a common last name in the Territories is Al-Masri, literally meaning from Egypt. Other last names show origins from countries such as Saudi Arabia. They may be seeking to pose as nationals from other countries. If so, their regional dialect of Arabic will probably betray them as Palestinians. Ask your bank staff to tell you from which country the prospective client is really from, after speaking to him at length.

(3) Lawful residents of your country, of Middle eastern origin, who mysteriously come into serious wealth, and seek to deposit it into their existing accounts. They could be front men for Hamas agents. Ask them how they came to come into possession of so much US currency, and to show you the precise business transactions that resulted in such a windfall.

Hamas leaders; both reputed billionaires

In short, expect to see efforts from corrupt Hamas officials, PEPs all, to hide their new-found wealth outside their country. My best guess is the most commonly-used European tax havens or offshore financial centers, but they could come to major banks in London, Vienna or Paris; Watch for them. 


Joel Steinger, whose Mutual Benefits Corp. was once the darling of the life settlement industry, while all the time being no more than a massive Ponzi scheme, will be sentenced at the end of August, and his attorney has filed a Pre-Sentence Memorandum on his behalf. He has requested home confinement (house arrest), due to his client's "extraordinary physical impairment," which has resulted in 27 months spent in custody, basically chained to a hospital bed. It is doubtful whether his handicap will be considered, given the victim losses.

The defendant has a degenerative spinal condition, which his counsel argues has resulted in associative partial paralysis. The argument for home confinement asserts that it would be less costly to the Government than imprisonment. Although his Guidelines sentence is not yet known, due to the extraordinary amount of victim losses, and his prior offenses, it could be as high as 360 months to life imprisonment.

The argument for sympathy, due to his medical condition, is overshadowed by the enormity of his crimes, which deprived many of his victims without their life savings. Will he receive a sentence similar to that meted out to Bernard Madoff, whom he has been compared to ? We cannot say, but sentencing details will be posted here as soon as they become available.

Monday, August 25, 2014


Reports from The Republic of Ecuador, which has a long history of economic problems, are, in my humble opinion, sufficient grounds to increase your assessment of Country Risk at this time. Here are the latest problems to surface:

(1) The National Assembly of Ecuador has reportedly passed legislation that authorizes the government to issue what it calls electronic currency, meaning that it can pay all its bills, including the salaries of government employees, without funds on hand, but through a digital currency that it creates. This new form of currency is not supported by dollars on deposit, physical currency on hand, reserve currencies, precious metals, or any other backing. It allows the government to, in essence, create wealth to pay its obligations.

What effect this will have on Ecuador's troubled economy cannot be estimated at this time, but any new large money supply could result in rampant inflation, which the government could not address, so long as it continues to pay its bill with currency it creates; The consequences could be serious.

(2) New legislation that prescribes prison time, of up to seven years, for the publication of information or news that spreads "economic panic" (whatever that means) will, effectively, be the death knell for all investigative reporting, as well as reporting of any negative news which could in any way affect the economy. This means that one can no longer depend upon local news sources when conducting due diligence of individuals or corporate entities from Ecuador. This creates a major problem for compliance officers at international banks, who are seeking to approve Ecuadorians as new clients.

Actually, either one of the above is sufficient ground to back away from any further financial exposure in Ecuador. Conduct your own investigation, but take a close look at Ecuador for Country Risk adjustment. Look at its recent economic troubles, including prior defaults on foreign debt,  existing debt, and the new issues detailed above. 


Venezuelan Air Force C-130 Hercules, loading aid packages for Gaza

Last Wednesday, August 20, a shipment of twelve tons of what were represented to be humanitarian aid, donated by Venezuela, was delivered to the Palestinian Territory of Gaza, at the Rafah Crossing with Egypt. We know about the date of the delivery only because an Israeli Air Force F-16 directed a missile or bomb at the convoy, which strangely did not explode upon impact, and there was press coverage by Venezuela, attempting to portray itself as a victim of Israeli aggression.

Since we are well aware that Israel routinely delivers "knock on the door," or pointed warnings that high explosives will soon follow, to residential structures in Gaza, before destroying them, the question arises: was this a warning to Venezuela, and was it because of the suspected contents of the cargo ?

Even though there was no public release of this information by the United States, Israel remembers very well that, in the aftermath of the last conflict with Hezbollah, it was Venezuelan pilots, on business jets, that covertly delivered the US Dollars to Syria, after which it was transported overland into Lebanon, and distributed in $10,000 increments to Shiite Lebanese who had lost their homes in the war with Israel, and not Iran, as was commonly believed.

 Given that Qatar is now Hamas' primary patron and financier, and that it is having a difficult time delivering those greenbacks into Gaza, due to global sanctions in place against Hamas, is it not reasonable to assume that Venezuela has, once again, stepped up as a proxy ? Was there a bulk cash delivery of dollars hidden within the 12 tons of "humanitarian aid," I wonder ?

Was the humanitarian delivery a cover for bulk cash smuggling ?

Sunday, August 24, 2014


Bottom of photograph: US Dollars
The picture above shows what is the result of an aerial attack upon a senior Hamas financial official that Israel has identified as Muhammad Al-Aoul, who is believed to be one of that terrorist organization's money launderers and cash couriers. While his automobile is charred, you can easily see the rain of US Dollars flowing out of the car at the bottom of the photograph. The Israeli Air Force may have ended his life, but the evidence of his sordid occupation remains for all to see. His remains are obscured from view, but it appears that he must have been literally swimming in money.

After 49 days of fighting, exactly where is Hamas getting its resupply of greenbacks ? We know for a fact that Qatar, unable to use the usual pipeline afforded by the Arab Bank (now fighting for its financial life in US District Court in NY), and the tunnels from Sinai having been destroyed by the Egyptians, has resorted to unusual tactics. We know that it has used charitable, humanitarian and medical relief teams coming into Gaza, and employed them as covert delivery agents.

However, one must assume by now that Israeli intelligence has uncovered most, or all, of these routes. What will Qatar do now ? Probably find some unsuspecting bank to transfer dollars to what appears to be an uninvolved third party, who will itself have a new method of delivery.

If you have clients who are doing business with customers who are sending funds from, or through banks in Qatar, I would take a real hard look at those transactions, lest you end up sending dollars to the surviving Hamas money launderers, and being identified from documents found by some Israeli infantryman searching the corpse of a Hamas officer next month. Dealing with Qatar in 2014, when you know that it is Hamas' paymaster, is high risk, by definition.


Counsel for the Russian hacker Roman Seleznev, who has been charged with a number of serious felonies in US District Court in the Western District of Washington (Seattle) has objected to his placement in the Special Handling Unit of the local Federal detention facility. You may recall that the Court, after making a determination that there were no combination of release terms which would guarantee his attendance at trial, ordered him held in pretrial detention. He could also be considered a escape risk.

The Court, mindful of the defendant's special skills, meaning that he could obtain identity documents for international travel, and that he potentially has access of millions of dollars, has further ordered that he be confined in isolation. Obviously, his wealth and experience might allow him to influence other inmates to assist him in illegal activities, while he remains awaiting trial, in this and other Federal case, and the fact that he is the son of Valery Seleznev, a a prominent member of the Duma, the lower house of the Russian Parliament, has not escaped the attention of the US Department of Justice.

The Bureau of Prisons has deemed Seleznev a security risk, and placed him within its most secure unit, sharing a cell with another inmate, but kept from contact with the general inmate population, and has rendered a report to the Court, which information was filed*. The defendant can take an administrative appeal of his SHU confinement, but he has not done so to date.

*Government's Submission Re: BOP Housing, filed August 22, 2014.


An $8m civil suit, as well as criminal charges, filed against the Attorney General of Panama, Ana Belfon, serves as yet another painful reminder that the rule of law is rarely followed in the Republic of Panama. Country Risk remains high for Panama, so long as the judicial system, and its components, remain outside the law.

The case involves the refusal of the Attorney General to release $4.2m, held since 2012, in connection with money laundering charges brought in Panama and Nicaragua, against members of the Jerez family. Though all the defendants were acquitted in the courts of both countries, the Attorney General refused to release the funds back to their owners.

On June 2, 2014, the Third Criminal Court ordered that the seized funds be forthwith returned to the defendants. The Attorney General has refused to comply, and argued that the funds were still being retained, due to the Nicaraguan criminal cases, though the same had been concluded.

The claimants have now brought an $8m civil suit against Ana Belfon, who is an appointee of departed  (and utterly corrupt) Panamanian President Ricardo Martinelli. A criminal compliant has also been lodged against Belfon, who has previously been accused of unlawfully retaining millions of dollars of funds of defendants, without any legal or procedural justification.

So long as these types of direct violations of the rule of law continue to occur in Panama, American and EU bankers, foreign businessmen, and potential investors, should be extremely wary of any financial exposure in the country, as obtaining legal redress usually takes years to complete, and is generally unsatisfactory. Both the court system, and the prosecutors who are responsible fort enforcing the laws of the country, are generally corrupt, inefficient, and susceptible to pressure from local power brokers, rendering the judicial system useless.

Friday, August 22, 2014


If you have any active corporate clients at your bank who have minority owners that have SDN status, you must immediately revisit those relationships, and recalculate whether OFAC's new interpretation of its regulations now bars you from doing business with them. Please consult Treasury's Revised Guidance on Entities Owned by Persons whose Property and Interests are Blocked*. What you formerly regarded as acceptable minority ownership of an entity by a blocked individual may no longer be true, due to the revised Guidance methods of calculation.

OFAC is now aggregating ownership percentages, including both direct and indirect ownership of related entities, which could include parents, subsidiaries, and related companies, and you need to be extremely careful here, including ownership interests, in  an overabundance of caution, lest you get cited later for banking an entity that you should have exited.

Since these calculations involve not only mathematics, but a careful interpretation of the language of the Guidance, it is recommended that you assemble a complete list of all entities who bank with you, with ownership details, and promptly give them to your outside bank attorneys for an opinion of counsel on all the relevant clients.

Otherwise, OFAC warns that any entity that you keep as a client, who should now be exited, could become the subject of sanctions, or even enforcement action; Watch yourself here.



The spin masters as Standard Chartered are hard at work;  media stories originating from the bank now boldly confess that their AML program was flawed for the past two years. Any good anti-money laundering program never relies upon one asset to protect a bank from suspicious transactions. To assert that the bar was set too low, so as to avoid false positives, and that this caused the errors, strains credibility. What about the compliance officers who were supposed to be the gatekeepers ? Why did they fail to catch this ?

The reports state that a large number of suspicious Hong Kong transactions were approved, notwithstanding that China is a well-known jurisdiction for sanctions evaders, is extremely disturbing. Where the blazes were the bank's compliance officers in all this ? Checking the boxes, instead of actually looking at the transactions, or were their warnings disregarded ? That is the most important question here. Was it compliance malpractice, or management greed that resulted in the massive violations, not just in recent years, but earlier, when the bank was hit with the first major civil penalty.

If there ever was a case where the responsible parties need to go to Federal Prison for Willful Blindness, this is it.  There's no individual accountability here, just a huge fine, which the bank can easily absorb, out of profits; Justice has not been served.

Thursday, August 21, 2014


Much has been made of late, in the Panamanian press, about the need for the Republic of Panama to improve its compliance with Anti-Money Laundering and Countering  the Financing of Terrorism, so as to be removed from the Financial Action Task Force "Grey List" in June 2015.While there is a full list of subject that Panama must improve upon*, The issue of bearer shares remains not only the biggest obstacle to getting off the grey List, but it could propel Panama back into the Black List in 2015. Allow me to explain.

Panama's Law 47 (2013) provides for a system of custody for bearer shares, effective next year. Shareholders must deposit their certificates with specific approved custodians, such as attorneys, banks and licensed broker-dealers. Those custodians are then required to notify the authorities of the identities of the Beneficial Owners. Unfortunately, it is those custodian-gatekeepers who benefit the most financially from the financial business of their anonymous corporate clients, and they have never demonstrated any willingness to adhere to the strict letter of the law, when it comes to protecting that extremely lucrative business.

Simply put, we cannot trust the designated custodians to be be the gatekeepers of the truth; they will, most likely, name front men and professional nominees as the Beneficial Owners of the Panama Corporations, while protecting the true owners, all the way to the bank. It is not a coincidence that banks in the United States and Canada are now advising that they cannot accept Panamanian corporations as new clients, and are closing existing accounts, far ahead of the implementation of the FinCEN regulations, requiring them to Know their Beneficial Owner and Control Person.

Will the whole Panama Bearer Share nightmare explode next June, and result in Panama being moved to the FATF Black List ? Unless Panama takes reforms its corporation laws, and eliminates Bearer Shares,  there will be no accurate method of identifying the true owners of Panamanian corporations. In that case, send Panama to the Black List, please, for it deserves to be there.
(1) Criminalize money laundering, in accordance with international standards.
(2) Criminalize terrorist funding properly.
(3) Create the legal framework and mechanism to freeze terrorist assets.
(4) Strengthen the Financial Analysis Unit.
(5) Expand the requirement to report suspicious transactions to all financial institutions, professionals and other industries.
(6) Improve international cooperation in the exchange of information with intelligence units in other countries.


While the United States has been preoccupied with events in the Middle East,  reliable sources in Latin America continue to remind us of the clear and present danger posed by the existing missile facilities in the Bolivarian Republic of Venezuela. The undersigned, who has been covering the development of offensive missile bases in Venezuela, on this blog, for several years, has seen the United States first deny the existence of such missile sites, and much later, admit that they have become operational, but ignore the threats that they pose, not only to neighboring Colombia and Panama, both American allies, and the location of US assets, but to the Continental United States itself.

Military threats, that could serious damage the domestic economy, must be taken seriously for the purposes of Country Risk. Unless the potential threat of Venezuelan missile bases is dealt with, the United States, which has studiously ignored Latin America, and specifically Venezuela, since Hugo Chavez came to power in 1999, faces an assessment of increased Country Risk. It simply cannot be ignored for risk management purposes.

Perhaps Israel's successful Iron Dome anti-missile defense system, much of which was subsidized through American financial assistance, needs to be replicated,and deployed in Miami, New Orleans and Houston. Do we really want to find out how serious Venezuela's threat is after the missiles strike ?


A number of European and North American nationals have been detained by the authorities in the Republic of Panama. These individuals have not been charged with a crime, and the circumstances of their detention seem to suggest that they are not legally arrested, either. All have  received demands for payment of large sums of what are characterized as "fines," as a precondition for their release from custody, in what amount to extortion, as they do not appear to have committed any crimes.

Though not directly stated, it has been inferred that, should they not pay the civil "penalty" demanded, that they will be charged with criminal activity. One wonders what happened to the reform platform upon which Panama's President Varela was elected to office this year.

Unless this disturbing practice is immediately halted, lost compliance officers responsible for calculating Country Risk for their institutions will have no choice but to increase it for Panama to the highest level. If foreign businessmen and expats in Panama fear arbitrary arrest, then the country's successful offshore financial center will lose much of its attractiveness,  as investors will seek other venues.

Wednesday, August 20, 2014


Readers who wish to review the complete text of the recent New York State Department of Financial Services Consent Order, can access it here*.

Tuesday, August 19, 2014


Reports I am receiving,  from bank customers in the United States and Canada, have confirmed that financial institutions in North America are declining to open new accounts for Panamanian  corporations, and are advising existing Panamanian corporate clients that they will be exiting the account relationship. Don't act so surprised; FinCEN's recent Notice of Proposed Rule making*tells us that shortly, banks with be required to identify the beneficial ownership of corporate clients, be knowledgeable about the client's business activities, and the nature and purpose of the client relationship, and know who controls the company's business operations.

This might be a little difficult, as Panamanian corporations have bearer shares, making positive verification of shareholder and control person identities impossible. Therefore, the risk levels of banking a corporation whose beneficial owners cannot be ascertained, are unacceptable. I salute those banks, for having the foresight to shut down those accounts early on, and for refusing to open new ones, for Panamanian companies, many of whom are shells, formed for an illicit purpose, be it tax evasion,  money laundering, concealment of assets, or hiding the proceeds of crime.

Panamanian attorneys have resisted reforming corporation laws; perhaps now customer pressures will force them to seek legislative change, lest they lose all their foreign clients. The Republic of Panama needs to abolish the ability of corporations to issue bearer shares, which only exist to hide the truth. Panama needs to bring its corporations out into the sunshine.
*Financial Crimes Enforcement Network: Customer Due Diligence Requirements for Financial
Institutions. Can be accessed at:


The Superintendency of Securities (SMV), the Securities regulator for the Republic of Panama, has reportedly filed criminal charges against a former director of that agency, Ignacio Fabrega de Obarrio. It is alleged that Fabrega, known as the "Bad Seed of Panama," transmitted confidential information, relating to corporations regulated by the agency, to those corporations. Furthermore,  the SMV states that he have regulated entities suggested answers to pending inquiries being brought by his agency, and advised such companies on how to deal with customer complaints.

Fabrega's controversial departure from the agency*, earlier this year, which was noteworthy in that he immediately went to work for a company under investigation, highlighted the system corruption that was present in Panamanian government agencies, under former President Ricardo Martinelli; He has denied the allegations. The case is being brought by the Anti-Corruption Prosecutor's office.

Reform efforts, by newly-elected president Juan Carlos Varela, are proceeding with all deliberate speed, the presence of some "lame-duck" ministers, curiously appointed to long terms by the departing president, Martinelli, may somewhat delay widespread reform of government agencies and departments.


Another participant in the Rothstein case will most likely be going to prison. Frank Preve, who reportedly sent $154m in investor money to Scott Rothstein's Ponzi scheme, while at Banyon Capital, regarded as a major feeder fund for the bogus legal settlements sold by Rothstein, has agreed to enter a plea of guilty to Conspiracy to Commit Wire Fraud*. The maximum sentence for this crime is five years in Federal Prison and a $250,000 fine.

Preve allegedly secured $20m in new money, during the last four months before the Ponzi scheme collapsed, when he know that Rothstein was not meeting his obligations to investors. Losses of the Ponzi scheme have been estimated at $1.4bn.
* Case No.: 14-cr-60159-JIC (SD FL).


If you read about imminent actions, by New York regulators. against bank consultants for "sanitizing" reports about bank clients, and were disturbed, you were not alone. The intentional deletion of negative information from reports of bank examinations, conducted by consultants, renders these reports, which are to be filed with regulators, misleading and even meaningless.

The two most damaging actions taken by bank consultants are, frankly, shocking:

(1) The consulting firm deleted information that explained the wire-stripping policy of Bank of Tokyo-Mitsubishi UFJ, whereby the names of all Iranian clients were removed by the bank, to avoid detection of sanctions violations.

(2) The consulting firm removed, at Standard Chartered's request, its recommendations for procedures which were designed to identify and interdict money laundering.

When banks have the ability to return draft reports to consultants, with paragraphs that they find objectionable, because they point out existing flaws, and the consultant delete them, the system is broken. This occurs because the banks pay the consultants' fees; this is a clear conflict of interest.

Perhaps it is time to tale the responsibility for examining banks, to see whether prior misconduct has been eliminated, away from the consulting industry altogether. Let government regulators alone assess whether a bank is playing by the rules.

Monday, August 18, 2014


The leaders of Hamas and Turkey

A sideshow in the the current conflict between Hamas and the State of Israel; Media reports from the Middle East today detailed multiple arrests, in Israel, of suspected Hamas operatives involved in an operation aimed at eliminating the Palestinian Authority as the governing body in the West Bank, and replacing it with Hamas. The plotters planned to engage in a massive bombing campaign inside Israel, aimed at destabilizing the PA to the degree that it would be ineffective, opening the door for Hamas agents to take command, and thereafter rule the territory.

This is relevant to compliance, because Palestinians who were Hamas members were commanding the operation from outside the territories, in countries where they presently reside ; the countries named included Turkey and Jordan. This means that Palestinian expats, wherever located, include active Hamas agents engaged in terrorist operations.

Given the background of those expats known to involved, it would be prudent for you to check your Palestinian expat bank clients:

(1) Have any of them been convicted of terrorist crimes in Israel, and subsequently been released and deported ?

(2) Have any of them been sending large sums to the Middle East, under circumstances that would suggest that these payments were not made in the ordinary course of business ?

(3) have any of them been identified with Hamas ?

This is certainly not paranoia; given the magnitude of the case described above, it is reasonable to suspect that there are other terrorist operations in planning, or actually in progress.  If you do not have a good picture of precisely whom your affluent Palestinian clients are, it is time that you conduct enhanced due diligence, so as to rule them as as possible Hamas financiers, or field agents.


The Financial Crimes Enforcement Network (FinCEN) has issued an Advisory* captioned Advisory to US Financial Institutions on Promoting a Culture of Compliance. I recommend that you take a few minutes to review it, as it summarizes the agency's current guidelines on compliance programs.

Here are the principal points that the Advisory makes:

(1) Leadership should be engaged.
(2) Compliance should not be compromised by revenue interests.
(3) Information should be shared throughout the organization.
(4) Leadership should provide adequate human and technological resources.
(5) The program should be effective and tested by an independent and competent authority.
(6) Leadership and staff shall understand how their BSA Reports are used.



If you remember the 2006 conflict, between Hezbollah and Israel, which resulted in massive damage to civilian homes in Lebanon, due to the fact that the terrorist organization fired rockets from residential areas, you will recall that payments of $8000 to $10,000 in cash, were made to each affected resident. Contrary to what appeared in the media, the source of the US Dollars was not Iran, but Venezuela. Pilots who flew those missions, on behalf of the Government of Venezuela, stated that they came into an airport in northern Syria, and that the cash was then transported, via surface, into Lebanon, by Hezbollah. I would still like to have a word with those Miami bankers who supplied that cash; they were never charged with providing material support to terrorism, even though the details of those flights were known to the US Government.

Now, we are in 2014, and again, a supporter, in this case, Qatar, has stated that it will pay $1000 to each Gazan who lost his home, due to Israeli attacks, which were responding to outgoing Hamas rockets and missiles. One wonders exactly where Qatar will get that cash, and who will supply it ? What US banks are involved in sending bulk cash that it knows are going to Hamas, before any of it ends up in the hands of residents of Gaza ?

 Moreover, will Hamas actually tax the payments ? It levied a 20% tax on all inbound smuggled goods that came through the tunnels from Egypt. Perhaps they need some of that money to pay for the luxury accommodations, at Qatarian hotels, for their absentee leaders, who pampered themselves, while their compatriots died, after Hamas rocket attacks  were launched from their neighborhoods.

Will the United States again give American bankers a free pass for sending US Dollars to terrorists ?

Sunday, August 17, 2014


Every week, OFAC names & shames American business that are involved in international trade. usually, it is for Iran sanctions violations, but also Cuba and Sudan show up regularly, and other jurisdictions from time to time. The civil fines can be high, often being in the millions of dollars, and you can add on the reputation damage that the companies suffer, from the negative publicity,  especially when it is stated that the corporation sought to conceal the violation.

In the vast majority of the listed violations, it is prominently listed that the offending company did not have a functioning compliance program, to deter trade with sanctioned jurisdictions, individuals or entities. This is often computed as an obviously aggravating factor in determining the amount of the civil penalty, though not required by law or regulation.

The time has come to contact your bank clients who are engaged in regular international commerce, and ask them to certify that they are operating a functional, effective compliance program, which insures that they do not, directly or indirectly, do business with, for for, a sanctioned entity, individual or jurisdiction, as end user of their products or services. You might want to be particularly assertive about obtaining such a certification, which should be signed by the president, or managing director, and the designated compliance officer, from clients who trade with Venezuela, Colombia, or the countries of the Middle East.

If the client delays delivery of such a document, you should advise them that you may be required to raise their level of transactional risk. In the most extreme, high-risk cases, you may want to exist the client, especially where you have previously filed SARs on one or more of their wire transfers.

While it is true that there is, at present, no legal requirement that non-financial entities maintain a compliance program,  as a practical matter, if they do have one, they has best do so immediately. Your clients' risk levels can impact your own institution , so ensure that your clients are protected, as their compliance programs also protect your bank. 


Did any Israeli Defense Forces paratroopers find examples of the brand-new US$100 notes on the bodies of Hamas terrorists in Gaza, during their recent incursion ? According to reports that have surfaced in the Middle East, there are accusations that the United Arab Emirates, which supports an ousted Fatah leader, smuggled in millions of dollars of the new bills, using a medical team ostensibly posted to Gaza to treat casualties.

The money, which was allegedly to be used to install the UAE favorite candidate for leadership, reportedly when the conflict in Gaza was ripe for a change, ended up being distributed to unpaid government workers, who were not receiving any salaries, in case, in amounts of up to USD$800 each. That's why I an wondering aloud whether any Israeli soldiers picked up any of these new bills, which heretofore had not been seen anywhere in Gaza.

My last query: how did Abu Dhabi get it hands on millions of dollars of new US banknotes ? I am curious as to which US bank was responsible for shipping these new notes to the Middle East, during a period of turmoil, and what legitimate business reason, if any, justified that shipment ? I know that bulk cash exports, bank-to-bank, are normal events, but given that the end users of the money are individuals who are with a Specially Designated Global Terrorist organization, Hamas, I certainly would like to know who facilitated this operation, which I consider a violation of the Federal criminal law proscribing individuals, or entities from Providing Material Support to Terrorism.


Readers who have been following the case of the Russian hacker, Roman Seleznev*,  whose arrest and extradition on multiple charges involving the theft of information regarding millions of credit cards of Americans, may be interested in this important detail: his laptop computer, seized when he was detained by US law enforcement, reportedly showed that he had been accessing Federal court information, seeking to learn about possible indictments pending against him.

He obviously was searching the PACER online system, for Public Access to Court Electronic Records, a subscription service provided to the public, who can access cases in US District Court, Court of Appeals, US Supreme Court, US Bankruptcy Court, and other Federal courts,including all the actual pleadings filed electronically by counsel. It is one of the best due diligence research tools available to the compliance officer, for Federal law does not allow defendants to seal or expunge their files, meaning that all Federal criminal history is generally available for due diligence investigations. Civil cases provide negative information about fraud or litigation which might result in a decision not to accept a potential client.

Seleznev could not locate his file, open since 2011, because in Federal cases where the defendant is not yet in custody, everything is sealed by the Court, upon request of the US Attorney's office handling the case, specifically to prevent fugitive to learn about the charges pending against them, and engage in unlawful flight to avoid prosecution. So, Seleznev apparently was unable to learn anything helpful to him.

Seleznev's efforts to obtain release from custody were unsuccessful. After a hearing, the US District Judge in Seattle made Findings of Fact and Reasons for Detention as follows:

(1) The defendant is a Russian citizen, and there is no extradition treaty between Russia and the US.
(2) The defendant has no ties to the Western District of Washington.
(3) The defendant has very limited contacts with the US.
(4) The defendant has extensive world travel.
(5) The defendant has substantial assets abroad.
(6) The evidence against the defendant is strong.
(7) The defendant has substantial computer skills, which could aid him in obtaining a passport, and make it easy for him to flee if released .

Reportedly, counsel for Seleznev asked for home confinement with extremely restrictive conditions, but the Court found that there were combination of restrictions which would guarantee his appearance at trial, which has been sent for October 16, 2014.  The Court has ordered that he be confined separately from other inmates. Obviously, his access to even part of the $17m that was allegedly stolen, was part of the Court's concerns about Seleznev's possible influence over others incarcerated with him.
*United States vs. Roman Seleznev, Case No.: 11-cr-00070-RAJ (WD WA).

Friday, August 15, 2014


He's about to start his second year at Columbia Law School in New York, which is costing him around $250,000 over three years, though his father's government salary, before he was imprisoned for corruption, was the equivalent of $19,020, and his mother was not working in her profession, as an attorney. She is now serving a prison sentence for murdering a prominent British businessman, by poisoning him, allegedly because she deemed him a threat to her son, though exactly why has never been disclosed.

How can he afford this expensive school, and how did he pay for his earlier education in the UK, and at Harvard ? His family's illegal assets are conservatively estimated at $136m, reportedly gained through bribes and kickbacks acquired by his parents. Is Bo managing these illicit assets, and if so, should this fact prevent him from being admitted to the practice of law in the United States ? And what, please, was his role in the murder of Neil Heywood ?

Professor Joseph Cheng Yu-Shek, of City University of Hong Kong, was quoted as saying: " ... with both parents in prison, the family would need someone to manage the family's financial assets outside the country." Any 'financial assets' held by Bo Xilai's family are criminal proceeds, and managing them, in any way, so as to conceal their beneficial owners, constitutes money laundering.

Though he is registered at Columbia under an alias, Bo Kuangyi, which he arrogantly asserts is also a name given him by his grandfather, one of Communist China's founders, he will graduate a year from June, and the question that I pose is this : is such a person, who has avoided returning to his homeland, to evade whatever fate the authorities have in mind for him, ethically and morally unqualified to be admitted to the bar, in the United States ? He has been lavishly supported by dirty money for a decade or more, and he is probably in control of at least some of the illicit wealth. Does this alone not make him unsuitable to become an officer of the court ?

 Lawyers in America have a poor enough image; let's not tarnish it further by allowing any of these obscenely wealthy sons of corrupt Chinese PEPs to enjoy the advantages of a system where the rule of law actually exists.