HEZBOLLAH MONEY LAUNDERING OPERATIONS IN THE WESTERN HEMISPHERE

The international media today discussed the reports of a Hezbollah terrorist training camp, located in Northern Nicaragua, near the frontier with Honduras, where 30 cadre are reportedly preparing trainees for attacks upon the United States, in the event that America, or Israel, attempts to destroy Iran's illegal nuclear programme. This is extremely disturbing; Hezbollah Venezuela has existed for several years, but an organised Hezbollah presence in Central America presents a clear & present danger to the Continental United States.

There is an even more ominous aspect to this camp: buried in the reports about the camp is the information that it is also being utilised for money laundering activities. We know that one of Hezbollah's principal methods of financing its operation is the sale of cocaine, but are they also laundering the criminal proceeds of others ?

Regular readers of the blog will recall the seizure of millions of dollars, in the general area recently, in the possession of a well-prepared group of Mexican bulk cash smugglers, posing as media employees arriving to cover a criminal trial*. If Hezbollah is laundering Mexican cartel, or Colombian trafficker profits, it will probably be using commercial banks in Central America to accept the dollars, which means they will later transit US banking centres.

If you are a compliance officer at a North American bank that has correspondent relationships with Nicaraguan commercial banks, casas de cambio, or non-bank financial institutions (NBFIs), you may want to determine whether volume from those correspondents has increased of late, and whether your correspondent's clients have legitimate lines of business to justify the additional funds.
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*Bulk Cash Smugglers posed as Journalists en route to cover Money Laundering Trial

WIFE OF PONZI SCHEMER SCOTT ROTHSTEIN, AND HER ATTORNEY, CHARGED WITH MONEY LAUNDERING

Kimberly Rothstein, the wife of convicted billion dollar Ponzi schemer Scott Rothstein, was charged* with Conspiracy to commit Money Laundering, Witness Tampering, and Obstruction of Justice. Her civil attorney was also charged with these offences, as well as others. It is alleged that she hid Rothstein's assets, including a 12k diamond ring, from the Internal Revenue Service, who was garnering assets in the Rothstein law firm bankruptcy.

The defendants are accused of causing Scott Rothstein to lie under oath about the existence of the secreted assets, which were worth millions of dollars. Mrs. Rothstein was also charged with Obstruction of Justice. The money laundering occurred when they sold some of the jewelry, which was criminal proceeds of the massive Ponzi scheme Rothstein perpetrated.  He sold interests in bogus out-of-court, and court settlements, in non-existent sexual harassment and employment discrimination cases.

A single count was filed against all defendants, employing a Criminal Information, meaning that the defendants are probably cooperating with Federal prosecutors.
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* United States vs. Rothstein, et al,  Case No.: 12-cr-60204-RSR (SD FL).

INEPT BULK CASH SMUGGLER ARRESTED IN CONNECTICUT

His name is Jovanny Rosario, and he may have won the prize for world's dumbest bulk cash smuggler. Mr Rosario was stopped on Interstate 84, by Connecticut State Police,  at one o'clock in the morning, because he was driving without headlights. This is not a particularly bright move, as he was in the United States illegally, having been previously been deported after a felony conviction.

His automobile, a 2001 Mitsubishi Montero, a sport utility vehicle, was found to contain 28 bags of cash, totally an amount in excess of $500,000. Mr. Rosario, and his bulk cash, was turned over to the Department of Homeland Security.

Why on earth would someone assign a bulk cash courier job to an individual who would not survive a routine traffic stop, I wonder, and who drives at night without headlights ?

STANFORD GROUP CHIEF COMPLIANCE OFFICER CHARGED BY SEC

Bernerd Young, the former NASD (now FINRA) regulator who became Stanford Group's Managing Director of Compliance and Chief Compliance officer,  has become the subject of an administrative action, filed by the Securities & Exchange Commission. Young, together with other Stanford executives, has been charged with a number of securities law violations.

It is alleged that Young, and the other respondents:

(1) Filed misleading and incomplete offering documents.

(2) Improperly incentivised Stanford sales staff to push the sale of Stanford International Bank's Certificates of Deposit.

(3) Failed to disclose that Stanford Group was financially dependent upon the CDs generated by Stanford International Bank.

"Bernie" Young

The offences charged include SEC Rule 10b-5 [fraud], and violations of the Securities Act, the Exchange Act, and the Advisors Act.

The relief requested:

(A) A Cease & Desist order, which we presume will permanently ban him from acting as an officer or director of any public-traded company in the United States.

(B) Paying Disgorgement of the funds he received from Stanford Group.

(C) Paying a Civil Penalty.

Readers who wish to review the complete text of the SEC proceeding can find it here.

If you are a compliance officer, the next time that someone in management asks you to rubber-stamp a matter that you know is improper, show him or her this article. (and post the image below at your desk as a reminder of the consequences of compliance malpractice).

Compliance officer who failed to say, "No means no." 

"GODMOTHER OF COCAINE" ASSASSINATED IN COLOMBIA

Griselda Blanco, the notorious fugitive Colombian drug kingpin, who was arrested in the United States after she went to an informant for the Drug Enforcement Administration to launder her money, was slain in Medelliín, Colombia yesterday. Blanco, who is believed to have invented the motorcyclist drive-by assassin technique, where the victim is shot by a passing cyclist, died after sustaining two bullets to her head. Apparently, someone chose to end her life the same way she had dozens of others dispatched. Every time we think that the old "Miami Vice" days of drug violence and death are over, we see events like this.

Blanco, dubbed the Godmother of Cocaine by the press, is believed responsible for the infamous 1979 Dadeland Massacre, where three gunmen in her employ, deployed from a van advertising party supplies, sprayed a Crown Liquor store in Miami's upscale Dadeland Mall with MAC-10 automatic weapons fire,  killing two rival drug traffickers, in the process destroying the store and killing innocent civilians in the store and mall.  She was incarcerated in the New York and Florida for two decades, for her many crimes, and deported to her native Colombia after her release.

She is alleged to have ordered the killing of dozens of competitors in the drugs trade,  subordinates who slighted or cheated her, and one of her three husbands, and is generally thought to have been the first kingpin to engage in narcotics smuggling, in large quantities, into the Continental United States.

CHINA IS BUILDING ON ISLAND CLAIMED BY THE PHILIPPINES

The Chinese military installation on Mischief Reef

According to the Philippine Department of Foreign Affairs, China is building new structures on Mischief Reef, which is a territory long claimed by the Philippines. China reportedly occupied the prized atoll in 1994, whilst Philippine naval vessels were absent, due to inclement weather. It has ignored the objections of the Government of the Philippines, and is in violation of the Declaration on the Conduct of Parties in the South China Sea (DOC).

Mischief Reef lies only 230 km. from Palawan, and therefore is well within the Exclusive Economic Zone of the Philippines. If any country has a historical and legal claim to Mischief Reef, it is the Philippines. This new Chinese action, adding to what is obviously a military fortification, will only increase tension with Manila, and also operate to raise Country Risk for the Philippines.

 

TURKEY SAYS KURDS IN SYRIA SUPPLIED BY IRAN AND SYRIA

The Government of Turkey has publicly stated that Kurdish elements in Northern Syria, who are now in control of most of the ethnically Kurdish region there, have been receiving arms and assistance from both the Syrian regime and Iran. Free Syrian Army spokesmen have even accused armed Kurds in the frontier villages with controlling this area, and excluding the Syrian Opposition by force.

This information poses a threat to any NGO or private entity that is supporting Kurds in Syria, for although the Kurdistan Workers' Party, the Turkish-based PKK, is a designated terrorist organisation, its Syrian affiliate, the PYD, is not recognised in the West as a terrorist group. It appears safe to support and supply the PYD; Unfortunately, this assumption is incorrect.

This means that well-intentioned donors from the EU and North America could become exposed to:

(1) Providing financial and materials support to a designated terrorist entity, should it be claimed that the  PKK is the end user of the support, which may include weapons.

(2) End up violating Syrian and/or Iranian sanctions, for the reason that the Kurds in Syria could be deemed to be acting in concert with the Assad Regime.

Either of the above would be catastrophic for the donor agencies or NGOs, and could result in serious reputation damage for the financial institutions involved. Therefore, any bank clients that are involved in providing financial or material support to Kurdish elements inside Syria must be thoroughly checked out forthwith, and in the absence of clear and convincing evidence that there is no cause for concern, those accounts should be closed, after consultation with bank counsel.

IRANIAN OIL BEING SOLD IN LATIN AMERICA AS VENEZUELAN

Brokers and traders in Venezuela have been acquiring Iranian oil, and vending it as Venezuelan origin, to buyers in Latin America, according to well-established sources inside Venezuela. Additionally,  a number of other Iranian products are being passed off as Venezuelan, and being openly sold to customers in Latin America.

These transactions expose every Latin American and European financial institution involved to major US sanctions, including, but not limited to, criminal indictment of senior staff who authorised payments, through Venezuelan third parties, to Iran. Given the "knowable" requirement that the United States attaches to Iran sanctions violations, have the Latin American payor banks failed that test ? It will be interesting to see which Venezuelan banks have been acting as pass-throughs, and sending the payments to Iran, since many of them have US branches, which are now at risk.

The problem with non-petroleum Iranian goods, sold in Latin American as Venezuelan, is worse: have the purchasers made diligent search and enquiry into whether there is the actual capacity, in Venezuela, to manufacture the goods at issue ? If not, the negligence of the purchasing entities, or countries, becomes an aggravating factor.

Whether the United States will broaden its sanctions evasion investigation, due to these sales is
unknown, but I would not want to be the managing director at any of the Latin American companies that are buying these "Venezuelan" products, made in Iran.

RAISE COUNTRY RISK FOR LEBANON

Events in an increasingly unstable Lebanon are driving the country straight towards high risk status, which is a level that represents a clear and present danger when calculating Country Risk .

(1) Al-Qaeda's Syrian leadership has overtly threatened Hezbollah for its support of the Assad regime. It also has accused Hezbollah of conducting the Hariri assassination in Lebanon. It has warned Lebanese Shiites to disassociate themselves from Hezbollah.

(2) Hezbollah itself is having serious problems; income from its criminal activities is down, aid from Iran has decreased, due to its declining economy, caused in large part by international sanctions, and its support for the Syrian Government, a major arms source.

(3) The Northern Command of the Israel Defence Forces has warned that Hezbollah may seek to take advantage of the chaos in Lebanon caused by the adjacent Syrian Civil War, and make a move to effectively take over the country, or move into the frontier with Israel. The United Nations Forces in the South Lebanon area have had problems with Hezbollah since it arrived.

(4) The United States, which had previously avoided regulatory action before the Lebanese-Canadian Bank scandal, recently seized $150m in sale proceeds, due to Hezbollah criminal activity and money laundering tied to the bank. Expect further US law enforcement and/or regulatory action.

Does all of this mean that Lebanon is headed towards another civil war,  or the next Hezbollah-Israel War, or  worse ? Factor all of the above threats when assessing Country Risk, particularly if your bank clients are engaged in substantial business with Lebanese companies, or your bank is itself involved in correspondent relationships there; Watch this one.

PANAMA'S PRESIDENT LINKED TO IRAN ?

Nobody in Panama seems to want to talk about the relationship between Panamanian President Ricardo Martinelli and the sanctioned regime in Iran. The US Department of the Treasury Office of Foreign Assets Control, or OFAC, designated six Panamanian corporations are fronts for the government-owned Iranian maritime transport, the Islamic Republic of Iran Shipping Line, or  IRISL. A closer look at those companies is disturbing.

The officers and directors include the president's two sons; the lawyers who formed the companies has long been regarded as the president personal law firm, VM & E. The vessels involved were reportedly previously registered through Isle of Man companies, but were transferred after this became public knowledge. They got new names, and new front companies in Panama.

The question remains: since the president's sons blindly follow his lead, what is the extent of the relationship between President Martinelli and the Government of Iran ? Given that Panamanian corporations are quietly but openly trading with Iran, is it because he has given a green light to such sanctioned commerce ?

WILL MONEY LAUNDERERS EXPLOIT NEW TAIWANESE-CHINA FINANCIAL LINKS ?

Two of China's largest banks, the Bank of China and the Bank of Communications, quietly opened offices in Taiwan this summer, as a part of the closer financial relationship that is developing between the two countries. Additionally, a new agreement reportedly executed in August will allow Taiwanese financial institutions to clear Chinese currency transactions. Two Taiwanese banks have reportedly opened branches in China, including the Bank of Taiwan.

Whilst we welcome the strengthening of financial ties between two countries that otherwise engage in bellicose political exchanges, this good news will soon come to the attention of experienced money launderers operating in Asia, and they will be looking to take full advantage of any potential opportunity to place, move and clean dirty money from China, whether it be criminal profits, or the proceeds of corrupt activities.

Though it is premature to look for evidence of cross-strait money laundering, employing these new financial connections, you can be sure that a variety of options is already being considered, especially by money launderers acting on behalf of corrupt Chinese PEPs seeking to move their ill-gotten gains offshore forthwith, in light of the fear generated by the Bo Xilai scandal.

Therefore, Compliance officers at international banks who have relationships with Taiwanese financial institutions, or whose clients regularly conduct substantial trade with Taiwanese companies, would do well to brief bank front line staff to be vigilant for changes in volume and character of transactions from Taiwan, lest they unwittingly allow your bank to become a back-door for illicit Chinese "flight capital."

ARE US REGULATORS NOW TARGETING VENEZUELA ?

The take-no-prisoners approach to Iran  sanctions violations, which US regulators have visited upon a number of European international banks, now appears to have focused upon Venezuela's well known and highly organised pattern of sanctions evasion. It is possible that there is a political basis for this zealous enforcement effort, because a Presidential Election looms in November, and the Republican Party has been quite vocal about how it plans a sea change in how it will deal with Venezuela, in large part because of its close toes to Iran.

Whilst we do not know whether this is the underlying cause, one must assume that US law enforcement agencies are closely examining international transactions involving Venezuelan banks, looking for evidence of sanctions violations. Since many Venezuelan companies have extensive trade with the United States, all major Venezuelan banks have either correspondent relationships, or actual branches or subsidiaries in North America. Increasingly, signs are pointing to ongoing criminal investigations of Venezuelan financial institutions, some of whom are pointedly ignoring the risks of covert financial transactions with sanctioned Iranian banks and government entities. The profits those banks are deriving are simply not worth the risk, in my humble opinion.

Therefore, compliance officers at US banks with regular contact with Venezuelan financial institutions would be well advised to take a hard look at wire transfers:  Caracas-US-Middle East . You do not want to be caught with your proverbial pants down by American regulators or law enforcement; be careful out there.

LEADERSHIP SHUFFLE AT FINCEN POINTS TO US FOCUS ON IRAN SANCTIONS EVASION PROGRAMME

The forced resignation of James Freis, the Director of FinCEN, was rumoured to have occurred due to his reported failure to move swiftly on Iran sanctions evasions issues. Now, the appointment of a senior Justice Department official with both seizure expertise, and experience prosecuting what the agency  describes as "professional money launderers" serving international organisations, means that FinCEN is expected to make a greater contribution to America's recent focus on banks that facilitate Iran sanctions evaders. She is expected to assume her new position in September.

 Jennifer Shasky Calvery was the chief of the DOJ Asset Forfeiture & Money Laundering Section, which reportedly seizes over $1.5bn annually. Look for increased cooperation between FinCEN,  US law enforcement agencies, and other Federal and state regulators, in their campaign against financial institutions that assist Iran in its circuitous methods of evading international sanctions against its prohibited Weapons of Mass Destruction and ballistic missile programmes.

It would be prudent to assume that seizures of US assets of foreign banks accused of facilitating illicit Iranian transactions will now increase. Many major foreign banks have US branches, subsidiaries, agencies, and representative offices, whose accounts are vulnerable to seizure by US law enforcement agencies. Additionally, correspondent accounts of foreign banks, located within US financial institutions, can also be forfeited. Since literally every major foreign financial institution has access to the US financial structure, their US assets are at risk if they violate Iran sanctions.

WATCH FOR MONEY MOVEMENT BEFORE FARC/ELN PEACE TALKS WITH COLOMBIA

The President of the Republic of Colombia has announced that formal peace talks will commence in the near future, in Norway, between representatives of the Colombian Government and the Revolutionary Armed Forces of Colombia, the FARC, a designated global terrorist group. It is believed that emissaries from the National Liberation Front, or ELN, Colombia's smaller terrorist organisation, will also be invited to attend.

Since the talks could start as early as September, Compliance officers at international financial institutions who have Colombian correspondent banks should immediately ramp up their inspection of all large transactions exiting Colombia. Should the FARC and ELN come to an agreement with Colombia, it is fair to assume that some of the FARC leadership will be moving some of the organisation's massive narco-profits overseas, and far from the reach of the Government of Colombia.

Another possibility: Other, more radical elements of the FARC or ELN may decline to accept any government amnesty, spin off from the main units, and seek to continue their campaign against Colombia from abroad. They will need funds to operate, and may seek to hide them in offshore financial centres.

A final thought: a number of the Communist FARC members, having enjoyed obscene capitalist profits form the organisation's drug trafficking, may wish to go private, into the narcotics business, and will need seed capital.

Bottom line:  compliance officers at international financial institutions with Colombian correspondent banks, or clients conducting international trade, will want to carefully examine all large transactions originating in, transiting through, or returning to, Colombia, to ensure that the money is not FARC or ELM " flight capital."

IS A CHINESE-PHILIPPINE NAVAL ENGAGEMENT INEVITABLE ?

Strong words this week, from one of China's generals, infer that naval combat, between his country and the Philippines, is probable, is extremely disturbing and unsettling for compliance officers who are computing Country Risk, as well as the banks whose clients are involved in ongoing international trade with both nations. PLA Major General Luo Yuan, in discussing the dispute over the Scarborough Shoal (Panayag Shoal), who was referring to a possible naval engagement between China and the Philippines, intimated that such action would be forthcoming.

Students of Asian history will recall that, according to China, one of the causes of the Sino-Vietnamese War, of 1979, was Vietnam's continued possession of the Spratley Islands. Though the Scarborough Shoal lies only 124nm. from the Philippines, therefore lying and being within the country's Exclusive Economic Zone (200nm.), China has claimed it, together with all other islands, reefs and shoals in the South China Sea (West Philippine Sea).

Any military actions between the two countries, albeit how minor it be, could have far-reaching consequences for the Philippines. Will it expand into land warfare in the Philippines ? China executed a total "scorched earth" policy when it withdrew from the Vietnamese territory it occupied during the short conflict in 1979, which resulted in high casualties on both sides. Obviously, there are nationalistic elements in China that favour military action, to demonstrate the country's resolve in support of its sovereignty claims over all of the South China Sea. The Philippine military, weakened through years of systemic corruption, and with outdated equipment, is no match for China.

Compliance officers at international financial institutions with business in the Philippines should watch Chinese media closely; if the rhetoric and jingoism increases, you may want to advise management to reduce the bank's exposure.