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

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

Here's what's happened lately:

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

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

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

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

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

UNUSUAL DEVELOPMENTS IN RICHARD CHICHAKLI CASE

Richard Chichakli

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

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

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

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

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

PAKISTANI GOVERNMENT REPORT ON BIN LADIN RAID RELEASED

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

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

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

WHERE IS THE REST OF THE COUNTERFEIT MONEY PRINTED IN GAZA ?

Palestinian officer hold captured counterfeits

Hamas has announced that it has seized the equipment, and printing press, of a major counterfeiting organization, which was operating in the Palestinian Territory of Gaza. Reportedly, tracking the person engaged in passing a counterfeit 100 Shekel note in Gaza was instrumental in the investigation. Four individuals are in custody.

reverse

The total value of the counterfeit notes seized was 20m NIS, the equivalent of USD$5.5m. International banks, and forex firms that trade in Israeli currency, should be on the alert for any bulk shipment of notes. Obviously, if 20m was seized, there must be more of the counterfeiters' product in circulation, or stored. Watch for it.

Seized materials

NEW ARGENTINE FINANCIAL INSTRUMENTS ARE A MONEY LAUNDERER'S DREAM

On 1 July, Argentina began its controversial tax amnesty program, designed to attract the estimated $160bn in US Dollars that Argentines are believed to be holding*, in bulk cash, and abroad. Unfortunately, it is a boon for money launderers, not just in Argentina, but on a global basis.

The instrument, known as a Certificate of Deposit for Investment, or CEDIN, for its Spanish acronym, is purchased from the Argentine Government, for US Dollars, without any inquiry into Source of Funds, or who may be, ultimately, the beneficial owner of the funds. It is a pure tax amnesty, designed to recover the hidden dollars, with no questions asked about any possible tax liability. If dirty money is smuggled into Argentina, it can be turned into these instruments, all of which are guaranteed by the Central Bank of Argentina.

In the wrong hands, financial instruments such as this can be an extremely valuable asset. It can be carried around the world, exchanged in the tax havens of the world, in any of a variety of complex money laundering schemes, all used to legitimize criminal proceeds, and in many other ways that are useful to money launderers and financial criminals. This could prove to be a nightmare for law enforcement agencies seeking to follow the money of criminal organizations; all one need do is smuggle it into Argentina. The trail will end there.

Also, such instruments will, eventually, be cleverly counterfeited, notwithstanding the built-in protections, giving rise to a whole new category of fraud. Argentina, in its zeal to being in dollars held by its citizens, has opened up a Pandora's Box of opportunity for money launderers.

Anti-counterfeiting features of the CEDIN

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* The US Treasury estimates that one out of every fifteen dollars in circulation worldwide is held by Argentine nationals. How much of that is owned by ordinary citizens, and how much is criminal capital, is not known/ 

BANKS CONTINUE TO BE TARGETED IN PONZI SCHEME RECOVERY ACTIONS

Charles Ponzi

I note that a bank in the Carolinas has been named as a party defendant in yet another effort to recover money from victims of Ponzi schemes. It behooves compliance officers, and senior executives, at US banks, to be vigilant for possible Ponzi schemes among their customers.

Look regularly for clients who show more than one of these red flags:

(1) Rapid, unexplained success in their business.
(2) Large balances, with minimal outlays for expenses.
(3) Transfers overseas of funds, where the customer appears to have no international business.
(4) Repeated payments to company insiders that do not appear to be salaries.
(5) Customer seems to be extremely active in the social scene.
(6) Financial success that inconsistent with the customer's industry, or that enjoyed by his competition.

I am not saying that you need to be suspicious of customer success; just watch bank clients who seems to be on the fast-track a bit more carefully than others. Should you have any suspicions, consult with outside bank counsel immediately, for your lawyers will want to initiate an investigation after seeing your evidence.

The sooner you exit a suspicious client, the lower your risk of involvement as a defendant in a subsequent Ponzi scheme recovery action.

BACK-TO-BACK EARTHQUAKES IN INDONESIA COULD PROVIDE COVER FOR ILLICIT MONEY TRANSFERS

Two earthquakes, both with a magnitude of 6.0, have struck Indonesia; reports are incomplete, but there are deaths, injuries and property damage involved. Note well that both money launderers and terrorist financiers target natural disasters as opportunities for them to place funds during the chaos. They bank upon the fact that relief funds are welcome, and that overworked bank staff rarely check  all the incoming payments, believing them to be a response to the disaster.

Watch charitable organizations, and payments that purport to be related to the relief; they may be diverted to the use of criminal organizations, or terrorist groups. 

MASSACHUSETTS COURT ORDERS APPELLATE PROCEEDING AGAINST LAWYER WITH COCAINE DISTRIBUTION CONVICTION TO PROCEED

When a lawyer, who is an officer of the court, is convicted of a felony, he has a duty to advise all states where he is admitted to practice law, of that fact.  The Massachusetts Supreme Judicial Court, the highest court in that state, has ordered that an appeal* taken by the state bar, in a bar discipline case, against a lawyer who was convicted of Conspiracy to Possess, with Intent to Distribute, Cocaine, in Federal Court in Florida, proceed. The case has generated a great deal of interest, as the attorney's conviction came to light during his representation of a defendant in a Federal criminal case in New York.

 Michael W. Burnbaum, a former US Attorney, failed to notify Massachusetts, where he was still admitted to practice, of his 1997 conviction, a requirement in that state. Bar attorneys last year brought discipline proceedings against him, in the Massachusetts Supreme Judicial Court, requesting that he be suspended for a period of five years, the penalty that the Florida Bar imposed upon him, when he resigned there, after his conviction. It is known as reciprocal discipline.

A single judge of the Massachusetts Court entered an order of suspension for three years;  the Bar then appealed. Under bar discipline rules, appeals that appear to have no merit at law are handled in a modified, and expeditious, manner, without the filing of briefs. After due consideration, the Court ruled that the Bar had presented valid issues, and has ordered briefs filed, and tentatively set oral argument for October.

Had Burnbaum been honest with Massachusetts fourteen years ago, his suspension would have been long over, and the privilege to practice law restored. There is one additional wrinkle; it appears that he has been named as an unindicted conspirator in a $6.7m fraud case in US District Court in New Jersey. What this will this do to his chances of being readmitted to practice in Massachusetts in the future in not known.

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* In the matter of Michael W. Burnbaum,  Case No.: 11352 (MA 2013).

FATF REPORT ON ATTORNEY MONEY LAUNDERING IS INSTRUCTIVE

The new Financial Action Task Force (FATF) report on attorney money laundering, titled Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals* contains many excellent examples of how lawyers, both knowingly and unwittingly, facilitate money laundering and terrorist financing.

The report's most valuable section discusses these issues:

(1) Misuse of trust accounts by clients and attorneys.
(2) Real property purchases.
(3) Creation of companies and trusts.
(4) Management of companies and trusts.
(5) Managing client affairs & making introductions.
(6) Use of litigation in furtherance of money laundering and terrorist financing.
(7) Use of specialized legal skills.

I recommend that you review this report if you are a compliance officer. It will explain a number of tactics used by lawyers for criminal organizations that you may not be aware of.

Note that the title includes all legal professionals, not just attorneys. Paralegal assistants, and notaries in civil law jurisdictions, often perform a large portion of routine legal tasks, and one must remember that some of them are instrumental in creating the schemes used to launder client money.
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*The report can be accessed here

COURT APPROVES HSBC BILLION DOLLAR SETTLEMENT

Readers who wish to review the complete text of the Order in US v.s HSBC Bank USA, NA and HSBC Holdings PLC* can find it here**.
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* Case No.: 12-00763-JG (EDNY).
**Memorandum and Order

NEW LIBERTY RESERVE WEBSITE IS OPERATIONAL

It appears that the American efforts to shut down the unlicensed virtual currency entity, Liberty Reserve, have resulted in the company reinventing itself in another jurisdiction. Readers have reported that the new website, www.libertyreserve.cz/ is operational, and that they have already been able to do business online there.

Check it out yourself; and I trust that the US Department of Justice finds a way to shut down the website in the Czech Republic forthwith.
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PONZI SCHEMER'S WIFE'S TRIAL DELAYED A SECOND TIME

Being the wife of a Ponzi schemer can be hazardous, if prosecutors learn that you have crossed the line from innocent spouse, into criminal activity, they may indict you, long after your husband shuffles off to prison.

Kimberly Rothstein, the trophy wife of convicted Fort Lauderdale attorney/Ponzi schemer, Scott Rothstein, who faces a sentence of five years in Federal Prison, for attempting to conceal from the bankruptcy trustee, and ultimately sell, millions of dollars of jewelry, paid for by the scheme, has had had her sentencing hearing delayed, for the second time.

Mrs. Rothstein, who, along with those of her co-conspirators who have already pled guilty*, is obviously being saved for testifying against those who are taking the case to trial. She will have to suffer the embarrassment of returning to the community, after serving what will be a shortened sentence, where everyone will remember her greedy role in the billion dollar case, for a long, long time.

I wish everyone who was ever tempted to participate in a Ponzi scheme could follow her journey; from court testimony, to a conviction, to her serving her sentence, and then, coming out of prison, serving years of Supervised Release, before gaining her complete freedom. Her future is not bright; her husband is serving a 50-year sentence.
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* Scott Saidel, her former attorney, and Stacie Weisman, her close friend.

RAISE COUNTRY RISK FOR VATICAN CITY, AND WATCH TRANSACTIONS WITH IOR

While we rarely comment on Country Risk for non-state entities, recent events have compelled us to do so.The resignation of the director of the Institute for Religious Works (IOR), more commonly known as the Vatican Bank, and his deputy, in the wake of an emerging money laundering scandal that has resulted in the arrest of a senior Vatican official, means that one may assume that the bank probably has other, unresolved, issues involving financial crime, and that these issues impact Country Risk in a negative manner.

Given the central role of the IOR in Vatican City, you would be sell advised to examine all transactions involving your bank and IOR, and to raise Country Risk for the city-state.

REPORTS SAY BITCOIN HAS REGISTERED AS AN MSB WITH FINCEN

Media reports claim that Bitcoin, the virtual currency, has registered as a money service business, with the Financial Crimes information Center, FinCEN. Assuming that this is true, it may signify that the virtual currency industry is ready to concede that it must be regulated, meaning that banking best practices compliance will be necessary. How exactly will that be accomplished online, I wonder ?

One final question; since FinCEN registration must be accomplished within six month of beginning operation, and Bitcoin has been around for much longer than that, will charges of operating an unlicensed MSB be filed, as was done with Rosemont Financial ? The Rosemont case was a nightmare for that company's clients , as they had massive funds seizures, resulting in costly settlements with DOJ.

MONITOR TRANSACTIONS TO NEW EU MEMBER CROATIA

As of today, 1 July, Croatia is a member of the European Union. Though it is not yet a member of the Eurozone, and maintains its national currency (the Kuna) at this time, it is anticipated and expected that it will transition to the Euro, on schedule, in two or three years.

The issue is that good money launderers have been known to move assets into, and make investments in,  new member countries, before they join the Eurozone, knowing that, in the hustle and bustle of exchanging currency, when it does occur in the near future, is a valuable opportunity. It is impossible to ask every Croatian who has kept cash at home to document the Source of Funds of their savings; lack of staff, other fiscal responsibilities, and the chaos of the event, all add up to a gap that can be exploited.

Therefore, should you notice bank clients, who heretofore had no trade or other business in Croatia, moving funds there, or making substantial investments, you may wish to take a closer look at your customer.