BOGUS KURDISTAN CURRENCY SHOWS UP ON THE INTERNET

Just in case you are contacted by anyone seeking to exchange currency from Iraqi  Kurdistan, these are totally bogus. The Kurdistan Regional Government is not issuing any bank notes. 

SHOULD OCC SANCTIONS FOR AML FAILURES AUTOMATICALLY INCREASE FOR NONCOMPLIANCE ?

How many times have you looked at a Consent Order, stipulated between the Office of the Comptroller of the Currency (OCC) and a national bank, and noted that the Order was handed down years ago, and never terminated ? This generally means that the sanctioned financial institution has not yet satisfied OCC staff, or auditors, regarding the strength and effectiveness of its anti-money laundering program, but that no further enforcement action has been taken; this is a major problem.

When a bank's officers and directors ascribe to the belief that civil fines & penalties are but the cost of doing business, and never take Consent Orders seriously, no substantive reform of an intentionally ineffective compliance program occurs.When a slap on the wrist is not sufficient, more punitive steps are in order, but they rarely, if ever, occur.

For example, a visit to the OCC website revealed that Intercredit Bank, NA, which is located in Miami, Florida, received a Consent Order back in 2010*, for what are stipulated to be BSA and SAR filing failures. The bank technically failed to admit guilt, though a $200,000 civil penalty was assessed, which would indicate serious violations, though they were not specified, which puts the banking public as a distinct disadvantage, as it does not know the extent of the violations. Why the secrecy,  will it embarrass the bank ? Other banks, as well as potential clients, should have access to the details.

Since the order appears to have not been terminated, obviously the deficiencies have not been corrected, to the satisfaction of the OCC. In four years, any number of additional AML violations could have occurred. If the order still remains in full force and effect, by definition, the deficiencies were not corrected timely, and there should be significant consequences. The banking public deserves to be assured that consent orders be obeyed in real-time, not in the indefinite future. Note: The bank's compliance department advises that the BSA-related case was terminated, and an inadequate capitalization order was then entered, which is still outstanding. The OCC website does not couple the termination with the order, which leads the reader to conclude that it still remains outstanding.

Should there not be automatically vesting additional fines for extended periods, when a bank is still non-compliant ? Otherwise, where's the incentive to improve. Spare the rod and spoil the [bank], to borrow a relevant phrase. Mr. OCC, where are you on follow-up ?

Safe & sound in this case ?

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*Intercredit Bank NA, Case No: AA-EC-2010-39

WILL PANAMA'S NEW REFORMIST PRESIDENT FIX THE COUNTRY'S BROKEN JUSTICE SYSTEM ?

Panamanians are placing all their hopes in newly-elected President Varela; the first thing that needs to be fixed is the country's broken and totally corrupt justice system. A case in point: an individual whose extradition to Canada has been in limbo for eight months, while the Supreme Court of Justice sits on all pending motions.

The prisoner, Dr. Arthur Porter, has taken the extraordinary step of suing the Government of Panama for $140m in damages. Porter, who is fighting extradition to face Canadian fraud charges alleging that he stole $22.5m, from a hospital construction project, also claims that he has been illegally denied medical car while in custody at one of Panama's prisons. Porter is the former head of SIRC, the watchdog committee that oversees CSIS, the Canadian intelligence service.

Dr. Porter

The justices of the Supreme Court of Panama have been implicated many times in bribery allegations. Did Porter's attorneys fail to pay up, to move the case forward ? We cannot say, by President Varela needs to clean house in the country's fatally flawed court system. Compliance officers who are familiar with Panama know that obtaining justice in Panamanian court system is generally not only impossible, but the failed efforts to do so are often prohibitively expensive, and take years before the aggrieved party realizes that he is just throwing good money after bad. The injustice is one of the factors which have caused County Risk for Panama to be elevated, as neither foreign entities, nor individuals, can recover their losses through the court system in the republic, given its utterly corrupt judiciary.

Porter in custody in Panama

RUSSIA UNHAPPY AFTER US GRABS SON OF DUMA MEMBER IN THE MALDIVES

Roman Seleznev and family

American law enforcement agents took the fugitive hacker Roman Seleznev into custody in the Maldives, and flew him to the closest US territory, Guam, where it seeks to remove* him to the continental United States, on serious criminal charges. There just one problem: Seleznev is the son of a prominent member of the Duma, the Russian Parliament, and the circumstances of his seizure have angered his father, who claims that the charges are unfounded, and that he requires medication for an existing brain condition, caused by an explosion. The defendant allegedly stole information on over 200,000 credit cards, resulting in a loss of just under $2m.

Seleznev faces a 29-count criminal indictment** in US District Court in the State of Washington; note that it has been pending since 2011:

(1) Bank fraud.
(2) Intentional Damage to a Protected Computer.
(3) Possession of fifteen or more Unauthorized Access Devices.
(4) Trafficking in Unauthorized Access Devices.
(5) Aggravated Identity Theft.

I compute that the maximum sentence that he could receive, if he is ultimately sentenced on only one count of each of the charges, would be 57 years. Additionally, the US Attorney, Seattle, press release states that he has also been indicted, on RICO charges, in the District of Nevada. He is exposed to a potential 50-year sentence there.

Seleznev, according to the indictment, installed malware (malicious computer code) on the computers of American business, causing some of them to later close, after the extent of the credit card theft resulted in a lack of patron confidence. He sold the card information through a notorious Russian Internet forum. Look for the US Attorney's Office to seek a long prison term, due to the extensive damage that he caused.

The defendant has already retained local counsel in Guam; curiously enough, he is an attorney specializing in tax matters. His Removal to the Western District of Washington, to face the charges there, will certainly occur, notwithstanding any efforts by his lawyer to avoid his facing the music. President Putin recently warned russian nationals to avoid traveling to any country from where they could conceivably be extradited to the United States, but Seleznev took a holiday in the Maldives. The specific law enforcement agency who captured him has been named: the United States Secret Service.

For readers who wonder why the long trip to Guam: it is apparently the closest American territory, for the United States has no possessions or dependencies in either Africa or Asia, only in the Pacific, or in the Caribbean.***

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*Petition for Writ of Removal filed under Case No.: 14-mj-00056-1 (D Guam).
** Case No.: CR-11-070-RAJ (WD WA) .

*** Outside of the fifty US states, there are only Caribbean and Pacific Ocean territories.

Location of US territories

VIKTOR BOUT'S RUSSIAN ATTORNEY CLAIMS HE HAS NO FUNDS TO PURSUE LEGAL CHALLENGES TO HIS EXTRADITION AND CONVICTION

In yet another media interview, convicted arms traffickers Viktor Bout's Moscow lawyer has asserted that he is without funds to obtain justice. He is again asking for sixty million rubles ($1.75m) to retain a  preselected"dream team" of America attorneys. Bout has long alleged that his extradition from Thailand was legally flawed, and that his conviction, in Federal Court in New York, which was affirmed on appeal, was purely political, and violated the law. The time has long passed for him to bring his convicted before the US Supreme Court, and any remedy that his attorneys contemplate must therefore be outside the normal appellate process.

His wife, who is presently in Thailand, seeking a new hearing in his original extradition to the United States, has reported to the press that Bout has lost all telephone privileges for a period of 21 days, allegedly for making an error on his written request for telephone time. He is serving a 25-year sentence at USP Marion, and is quartered in a special "communications" unit, designed to deny imprisoned terrorists any access to the outside world, and where all external contact is extremely limited. His former attorney, Albert Dayan, has stated that he intends to lodge a formal compliant about his mistreatment in custody.

Aerial view - USP Marion

UNITED STATES OPPOSES RICHARD CHICHAKLI'S MOTION FOR A NEW TRIAL

The United States Attorney's office in New York City has filed a memorandum of law in opposition of the Rule 33 motion, filed by defendant Richard Chichakli, seeking a new trial, on the grounds of newly discovered evidence. The Government is asserting that no such grounds exist that would support the granting of a new trial by the Court, under existing Federal case law.

Mr. Chichakli's position:

(1) That witness Henry Gayer, who was involved in the abortive purchase of aircraft by Chichakli, perjured himself at trial. He alleges that Gayer knew, in advance, that Chichakli was on the OFAC Specially Designated Nationals (SDN), meaning that any transaction was illegal, and subject to being blocked.

(2) That Gayer knew about Chichakli's status from a visit to his website.

(3) That Gayer lied about when he learned this fact, when he testified on the witness stand, at Chichakli's Federal criminal trial.

The Government, in its brief, after first establishing that the law specifies that perjured testimony can only result in a new trial, under the grounds of newly-discovered evidence, under the most extraordinary circumstances, went on to show that trial testimony indicated that the witness only learned of Chichakli's OFAC sanctions later, and had no prior knowledge. Exhibits were appended to the memorandum to substantiate the US position, including interviews of the witness by government agents.

It also stated that documents the defendant claims prove up his assertion were made available to him  prior to trial, notwithstanding his allegation that he failed to discover them until after trial. Additionally, potentially inconsistent statements of the witness, regarding a prior transaction with the defendant concerning an Indonesian transaction, were insufficient grounds for the granting of a new trial. It does not rise to the level required for a new trial.

 On its face, it appears that Chichakli's motion has no merit at law, but it is up the trial judge to decide. Some observers believe that the flurry of motions filed since the trial is intended to give the defendant more grounds to assign as error on appeal.

Only after all the pending post-trial motions are disposed of, including the Court's ruling on a recent psychiatric evaluation of the defendant, can he be sentenced.  

ISIS SHIPPING CRUDE OIL TAKEN FROM IRAQ INTO KURDISH REGION FOR SALE

ISIS-occupied regions of Iraq & Syria

The radical Islamist group ISIS apparently is not satisfied with the millions that it stole from the banks in Mosul, when it occupied the city. Iraqi oil media are reporting that it is delivering Iraqi crude, which has been extracted from captured facilities located in territory that it occupies, to buyers in the Kurdistan Region.

 A figure of $1m per day has been given for the profit that ISIS is "earning" from selling the stolen crude. Both the central government in Iraq, and the United States, have objected to Kurdistan independent sales of oil on the international market, and the fact that a designated terrorist group is supplying it with crude will add a potential terrorist financing issue to the controversy.

T-Shirt for sale online, made in Indonesia 

PANAMA'S GOVERNMENT HAS A $300m BUDGET SHORTFALL

The Panamanian press is reporting that the Government of the Republic of Panama has revealed that it is, in essence, insolvent. There is a $300m gap between funds available, and what is necessary to currently run the government. Public employees will not be receiving their salaries, which could lead to a serious disruption in the economy, as well as civil unrest. Panama, which has a history of riots when a domestic crisis erupts, could descend into chaos.

The outgoing administration of Ricardo Martinelli has been accused of massive corruption, including the illegal diversion of large government accounts into the pockets of senior officials. Charges of widespread participation, by corrupt PEPs, awarding favorable government contracts, resulting in kickbacks, are part of the reason that the government treasury is depleted.

Compliance officers whose banks are financially extended in Panama  should be monitoring closely monitoring the situation, as the government's failure to obtain additional funding could seriously disrupt the economy, as well as the domestic stability of the country.

THE "BAD SEED OF PANAMA" LEAVES SECURITIES REGULATOR TO WORK FOR AGENCY'S PRINCIPAL TARGET

Ignacio Fabrega de Obarrio

Ignacio Fabrega, a senior official at The Superintendency of Securities (Smv), Panama's Securities regulation agency, just recently tendered his resignation, as the country inaugurates its new president. Where is he now ? Working at the offices of Financial Pacific, the broker-dealer that his former agency was charged with investigating, in a massive insider trading scandal, involving some of the country's most powerful public officials, including its newly-departed president, Ricardo Martinelli.

Señor Fabrega has what one might call a "colorful" work history:

(1) He reportedly laundered cash, at Banco Universal, for the convicted Colombian Ponzi schemer, David Eduardo Helmut Murcia Guzmán. You will recall, from our previous articles, that Murcia did business with the American expat, Gary Lundgren. Lundgren is known to have a close relationship with Fabrega .

(2) He owned and operated a pawn shop, that was closed down by the authorities, for fencing stolen firearms and jewelry.

(3) He was arrested, but never prosecuted, when police officers discovered that he was transporting a large shipment of automatic weapons in his private automobile.

(4) According to reliable banking sources, he worked for, and was terminated at, three Panamanian banks, amid allegations of the theft of funds, and fraud. He was never prosecuted on any of these charges, possibly because he is believed to be linked to Panama's powerful organized crime group, many of whose members are of Middle Eastern descent. He is also conveniently related to the partners at one of Panama's largest, and oldest, law firms.

How someone with these "credentials" ever passed the screening procedures for the Secretariat of Securities I cannot say, but in a country where corruption is widespread in government agencies, I expect that he was recommended for the position, by someone whose advice cannot be ignored.

Getting back to our story: the day after Fabrega resigned his government position, he is found at the headquarters of Financial Pacific, a securities firm that reportedly facilitated lucrative insider trading, on behalf of several sitting Panamanian ministers, his close business associate, Gary Lundgren, and Ricardo Martinelli. Apparently, he was offered a position, and he accepted, according to Fabrega's interview in a Panamanian newspaper. How do you say conflict of interest in Español ?

In a government agency where one staff member was stabbed, while en route to inspecting evidence at Financial Pacific, another resigned after receiving death threats, and a whistleblower was imprisoned without trial, one might not want to become affiliated with this company. Perhaps Ignacio Fabrega knows something that we do not.

COMPLIANCE DEFICIENCIES CAN TRANSLATE INTO LOSS OF VALUE FOR PUBLICLY-TRADED BANKS

A quick look at NASDAQ quotes shows that the 25% hit that the price of stock of the Bancorp Inc., of Delaware, suffered when regulators landed hard upon it, for deficiencies in its compliance program, continues. Bancorp is a major player in the prepaid card industry, and the nature of the business requires a higher level of AML/CFT monitoring, lest your products end up facilitating financial crime or terrorism. One wonders whether the directors at this financial institution, whose stock is publicly traded, considered this when choosing to participate in high-risk business oveseas, which was probably against the advice of their compliance department.

Shares of Bancorp stock , which had come close to $20 per share, and were around $16 at the time that regulatory action was announced, immediately dropped to eleven dollars per share, and have been stuck there ever since. Add to this the fact that no less than nine law firms are out there trolling for clients who are minority shareholders, for the purpose of filing a class action against bank officers and directors responsible for the compliance deficiencies found by regulators. These events drive home the need to maintain a banking best practices level compliance program, lest you be targeted, not only by regulators, but by ambitious civil law firms. 

PRESIDENT OF BILLION-DOLLAR PONZI SCHEME LIFE SETTLEMENT FIRM RELEASED FROM FEDERAL PRISON EARLY

Readers who have been following the story of Peter Lombardi, the former president of Mutual Benefits Corp., and who, as such, fronted for the true owners, who were perpetrating a massive Ponzi scheme, the Bureau of Prisons website reports that he was released from Federal Prison last week. Mr. Lombardi's twenty-year sentence was quietly reduced this year, to eighty months, which did not sit well with the many investors who were victims of the Ponzi scheme. He had originally pled guilty, but still received the maximum sentence from the Court.

The sentence reduction was entered by the Court for his Substantial Assistance in other cases brought by the United States Attorney's Office in Fort Lauderdale. His availability to testify against the Mutual Benefits owner, Joel Steinger, may have contributed to Mr. Steinger's decision to change his plea to guilty; he is to be sentenced later this year, and is the last major defendant remaining in the long list of Mutual Benefits employees, and professionals who assisted them, who have, or presently are, serving prison terms for their role in the Ponzi scheme, which irretrievably damaged the image of life settlement investments as a safe, and lucrative, means of obtaining a high return.

Life settlements are investments in existing life insurance policies of elderly (and often ill) individuals. A case brought subsequent to the implosion of Mutual Benefits* held that life settlements are securities under US law, and thus require registration with the Securities & Exchange Commission.
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*SEC vs. Mutual Benefits Corp., 408 F.3d 737 (11th Cir. 2005).

A FINAL NOTE ABOUT THE ROYAL BANK OF CANADA

If you had any illusions about the possibility of compliance reform at the Royal Bank of Canada, don't hold your breath. The bank has abruptly closed the account of one of my best information sources about compliance deficiencies there, and I have been informed it was done strictly because management is upset when anyone speaks up about the bank's AML problems.

  

WHEN WILL RUSSIA RETURN KONIGSBURG TO EUROPE ?

While the old colonial powers of Europe have long ago divested themselves of enclaves, Russia stubbornly holds onto European territory that it seized in 1945, and has yet to relinquish possession of. Kaliningrad, the name given to that portion of East Prussia around Konigsberg that was not made a part of post-war Poland, remains basically a Russian military base under occupation, abruptly and illegally incorporated into the Soviet Union, in a unilateral move not accepted by the United States and the United Kingdom at the time. Kaliningrad's final status was to be negotiated at a future peace conference, After Potsdam, but the Russians refused to withdraw from any captured territory after 1945.

Known as Krolwiec in Polish, and Karaliaucius in Lithuanian, the former German territory historically had substantial Polish and Lithuanian populations. Seventy years after the end of the Second World War, this anachronism should be equitably divided between Poland and Lithuania, and the Russian military bases there dismantled.With the independence of the Baltic Countries, the territory is cut off from Russia proper, was never part of Russia, and history requires that it be returned.

 Such a move would go far to reduce the distrust that exists between Russia, on the one hand, and the Eastern European and Baltic countries on the other hand, and thereby reduce Country Risk in the region. A Russian military base does not belong within the European Union.

ROYAL BANK OF CANADA AND THE TWENTY BOXES OF MONEY ORDERS IT ACCEPTED FOR DEPOSIT

I am still waiting for the Royal Bank of Canada to explain to the public how it accepted twenty boxes of American money orders at its Montreal office. Repeated media queries for comments, over a period of months, have either been ignored, or met with excuses of unavailability of public relations staff. If there ever was a case where a bank should be charged with money laundering by the US Department of Justice, this is it.

If you are not familiar with the details, let me briefly detail the case:

(1) An organization of Cuban fraudsters, having stolen hundreds of millions of dollars through massive Medicare fraud, desired to hide their ill-gotten gains in Cuba, where it would be safe from American law enforcement seizure and forfeiture actions.

(2) Inasmuch as direct transfers of funds are illegal under US law, they opened fifteen bank accounts in a number of countries, including accounts opened at Royal Bank of Canada, in its Havana offices.

(3) They enlisted the services of a US citizen who operated a check-cashing business in Florida; Oscar Sánchez.

(4) The relevant portion of this case involved the purchase of literally hundreds of  money orders, from various sources in the United States; all were for amounts under $10,000, so as not to trigger any reporting requirement under US law.

(5) The money orders, contained in twenty boxes, were shipped to the Royal Bank of Canada office in Montreal, where they were accepted, and deposited in the shell company accounts of the fraudsters.

(6) Some of the money orders were consecutively numbered, and many bore the names of obvious aliases. One glaring example was listed as having been purchased by "Bill Clinton."  All were accepted by the Royal Bank of Canada.

(7) Pursuant to standing orders placed at account opening, all funds deposited were immediately wire transferred to Royal Bank of Canada accounts in the Caribbean, and then onward to accounts within the Republic of Cuba.

(8) Over $31 million was laundered, and transferred into Cuba in this manner by, RBC. There is no evidence that any due diligence was performed on the Source of Funds, which were, in this case, the proceeds of crime, or that the background of the account owners were checked; There was zero compliance.

(9) All this information was later disclosed by the money launderer himself, who entered a plea of guilty in US District Court in Miami, rendered Substantial Assistance, and is presently serving a sentence of four and one-half years. The leader of the fraudsters skipped out to Cuba, where he cannot be extradited, nor the money attached.

I find this case to be one of the most egregious examples of compliance malpractice that I have ever seen, in over thirty-five years of money laundering, and AML, experience. Was the profit picture so lucrative, that it blinded bank management to the truth ? There should be consequences for the bank.

One final observation: American money launderers will continue to exploit the fact that RBC has branches in a large number of tax havens, and in Cuba, so long as it fails to discharge its compliance responsibilities. For US-based compliance officers, perhaps it is now high time to raise Country Risk for Canada.

  

WHAT IS TO BE DONE WITH BNP PARIBAS COMPLIANCE OFFICERS ?

If you were offended when I not only outed the fired senior compliance officers at BNP, but posted their photographs on my blog, then you missed the point. I see that the spin doctors have already started to apologize for them, citing the fact that compliance actually blew their whistles several times, but were ignored, in favor of what BNP management retorted were "historic" profits and relationships. That does not let the "kindly" compliance officers off the hook, my friends.

Remember, unless want to be charged, disciplined, fired, or indicted, along with greedy senior management, do not stay at a financial institution that will not follow your recommendations. It's that simple; you resign forthwith. The longer you stay at a bank violating international sanctions, or engaged in money laundering or terrorist financing, the greater the chances that you, too, will go down with the ship, when it is torpedoed by American law enforcement.

I am sorry, I have no sympathy for those highly-paid compliance officers, who allowed the bank to send wire transfers, involving sanctioned countries, into the US financial structure, with the notation:

" Do NOT list, in any case, the name of Sudanese entities, on messages transmitted to American banks, or to foreign banks installed in the US." There are worse examples in the Statement of Facts*.

These compliance officers aided and abetted massive, organized sanctions violations involving Sudan, Cuba and Iran. They belong in Federal Prison, and I trust that the Department of Justice will not bow to political pressure, and do its duty. They need felony convictions, to keep them out of the financial sector in the future. Anything less is just folly.

 Only when compliance officers genuinely fear prison will they pressure their banks to put profits behind compliance with the law. I understand "too big to fail," regarding banks, but why not charge the compliance officers who were part of the problem ?
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*http://www.justice.gov/opa/documents/paribas/statement-of-facts.pdf