Archive for May, 2007

Russia Customs sues Bank of New York

Monday, May 28th, 2007

In the middle of May, a USD 22.5 billion lawsuit against the Bank of New York for money laundering was filed by Russia, which reopened a scandal rocking the world of finance in the end of the 1990ies. 

According to Federal Customs Service lawyer Maxim Smal, from 1996 to 1999 the Bank of New York took part in a money laundering scheme. This caused Russia suffer USD 22.5 billion worth of harm.

A series of Russian money-laundering scandals began in 1998, when the tax authorities of the United States and the Federal Bureau of Investigation (FBI) launched a probe into the laundering of USD 7 billion through a Bank of New York account.

Russian-born American residents, former Bank of New York vice president Lucy Edwards and her husband Peter Berlin, opened the bank account in 1996 to allow billions of USD in funds to be channelled out of Russia escaping paying taxes. The investigation led to vast media coverage and a series of related money-laundering probes all over the world.

The Bank of New York rejected the new case and claimed that it had not seen the complaint. It also said that, taking into account its knowledge and experience, the suit is totally without merit, and even frivolous, therefor the bank is going to defend it vigorously.

It also should be taken into consideration that the events related to the lawsuit happened more than 10 years ago and were resolved by the company. In November 2005, the bank paid USD 38 million in order to settle the case in a US court – USD 12 million was a compensation to victims and USD 26 million was a fine.

In July 2006, Berlin and Edwards pleaded guilty to conspiracy in money laundering and other crimes, and they were sentenced to half of a year of house arrest and fines that accounted for USD 725 000.

The Russian customs service’s lawyer Smal confirmed that the new case was based on money laundering activities caried out by Berlin and Edwards via their account in the Bank of New York account with the damage of USD 7 Billion. As to the origin of the figure of USD 22.5 billion, Smal made little comment saying just that this is how they evaluate the damage.

The Bank of New York is the oldest bank in the USA with assets of USD 103.4 billion.

Anti-Money Laundering specialist to joins KPMG

Thursday, May 24th, 2007

Former federal prosecutor and banking executive Teresa Pesce has joined KPMG LLP’s Forensic Practice as a leader of its Anti-Money Laundering service line. She will also provide assistance in direct criminal and regulatory investigations for customers.

Richard H. Girgenti, KPMG’s national practice leader for Forensic stated that Teresa Pesce brings to KPMG her more-than-15-year experience in investigating fraud and money laundering and that her financial-services industry and law-enforcement experience will be helpful for KPMG to maintain its leadership position in the anti-money laundering service and the related services.

Girgenti announced the addition of 2 former Internal Revenue Service special agents, James Dowling and Don Temple, in January.

Teresa Pesce will be responsible for the daily operations of the anti-money laundering practice, advising clients on conducting internal corporate investigations and assisting with law enforcement and regulatory investigations, including financial fraud and the Foreign Corrupt Practices Act (FCPA).

Previously, Pesce was executive vice president, heading the North American anti-money laundering unit for HSBC, the global financial services company. She created new compliance programs, policies and procedures. Before HSBC, Pesce had spent 11 years with the U.S. Attorney’s office in New York City, and had taken the position of the supervising attorney on all anti-money laundering matters for 4 years.

Money Laundering Warning at ACCA Anti-Money Laundering seminar

Sunday, May 20th, 2007

On May 8, 2007, an Anti-Money Laundering seminar was hosted by the Association of Chartered Certified Accountants (ACCA).

Nigel Stoddard of the Financial Investigations Unit of the Fraud Squad addressed audience there to warn it about money laundering. According to him, money launderers were using more sophisticated and complex means to conceal their proceeds from criminal activity. He also said that, to combat this problem, the assistance of professionals is needed.

Stoddard reminded of the Proceeds of Crime Act, 2000, under which all financial institutions and some businesses are required to report to law enforcement all the transactions that seem complex, unusual or large, either completed or not. The businesses required to report suspicious transactions are those dealing with real estate, couriers, gaming, jewellery, motor vehicle sales, pool betting and the national lottery online betting games.

Offshore vs Onshore. What’s the difference?

Tuesday, May 15th, 2007

Money laundering is often conceptually linked with offshore, therefore the term “offshore” itself is worth discussion. This has already been discussed, indeed, however, new valuable information regarding this has recently emerged.

When talking about offshore companies and onshore companies, business, bank accounts, transactions, whatever else, for some reason “offshore”often has a negative connotation, while “onshore” – a positive one. Does this have any grounds? Probably not, as the International Trade and Investment Organisation (ITIO) commissioned a report with quite a peculiar statement.

On May 1, 2007, the ITIO, which is a group of small countries with international financial centres across Europe, the Caribbean, Latin America, the Pacific and Asia. I, released a report entitled “Assessing the Playing Field“ stating that there is no big difference between offshore and onshore financial centres and disproving that offshore centres have weaker regulation standards than onshore ones. The report is based on an analysis of objective data compiled by the Organisation for Economic Cooperation and Development.

Based on the conclusions made in the report, ITIO Deputy Chair Malcolm Couch says that “it’s time to stop treating small countries with finance centres as different” adding that “big countries have no moral or legal edge over small ones”. He also suggests that ”large countries should stop stigmatising small and developing ones”, because there is no factual basis for that. According to Couch, both large and small countries should continue “to work on a cooperative and fair basis” as well as to participate in the OECD’s Global Tax Forum aimed at helping each other tackle tax evasion and criminal and terrorist financing.

The report suggests that large countries should open up access to the international network of double taxation treaties to small ones.

MROS Reports on Suspicious Financial Transactions in Banking Sector sets Record

Friday, May 11th, 2007

April 17, 2007, the Money Laundering Reporting Office Switzerland (MROS) published a press release to inform that it received fewer reports on suspicious transactions in 2006 than in 2005. However, the quality of reports improved. Despite the decreasing overall number of reports, reports on suspicious financial transactions from the banking sector reached a record high in 2006.

In 2006, 619 reports on suspicious financial transactions were submitted to MROS – the number of reports decreased 15.1%, as compared with 2005. On Tuesday, the 9th MROS Annual Report 2006 which includes this data was published.

The payment transaction services sector accounted for a high share of 26.5% of the total reports in 2006. The quality of reports improved, and more reports forwarded to the authorities for further handling. In 2006 just 15% of the cases forwarded were dismissed, as opposed to 34% in 2005.

In general, suspicious-transaction reports in 2006 were of quite good quality, accordingly, 82% of reports were passed on to the authorities for further investigation.

The Money Laundering Reporting Office Switzerland (MROS), agency at the Federal Office of Police, is Switzerland’s central money laundering office, which serves as a relay and filtration point between financial intermediaries and law enforcement agencies. In accordance with the Money Laundering Act, it is responsible for receiving and analyzing suspicious activity reports related with money laundering. If necessary, MROS forwards reports to law enforcement agencies.

MROS also deals with publishing annual statistics on developments in anti-money laundering, counter-terrorist financing and fighting organized crime in Switzerland.

The Reporting Office is a member of the Egmont Group combating money laundering and terrorist financing.

Olympians involved in Money Laundering

Monday, May 7th, 2007

In accordance with Associated Press, Olympic gold medal star Tim Montgomery, his coach Steve Riddick and business associate Nathaniel Alexander of Portsmouth were charged with money laundering, conspiracy and bank fraud in New York. Some of the 8 co-defendants had already pleaded guilty and were supposed to testify against the 3.

Riddick, Montgomery and Alexander had purportedly laundered more than USD 3 million out of USD 5 million illegally obtained by means of stealing and counterfeiting checks procured by the co-defendants. The attorneys of the 3 were expected to argue that they had known nothing about the scheme.

On April 9, 2007, Montgomery pleaded guilty to conspiracy in a scheme of multimillion-dollar bank fraud and money-laundering. Montgomery expressed his regrets regarding the role he had played in that episode and being sorry to have disappointed many people.

He allegedly deposited 3 bogus checks worth a total of USD 775 000. He also was accused of helping Riddick deposit other checks worth about USD 905 000 and accepting a USD 20 000 fee for his role.

According to defense attorneys, he could be sentenced to 37-46 months in prison. Sentence will be announced on November 1.

Tim Montgomery, 32, was a track star, once considered the fastest man in the world until his world record was erased because of the BALCO steroid scandal. A former 100-meter world record holder and a 2000 Olympic gold medalist retired in 2005 after the Court of Arbitration for Sport for doping linked to the investigation of BALCO banned him from track and field for 2 years. He never tested positive for drugs and claims never knowingly taking any banned substances.

Montgomery’s coach, Riddick, a 1976 Olympic medalist, has maintained his innocence.

Insider Trading & Money Laundering

Wednesday, May 2nd, 2007

Insider trading (or insider dealing) is often regarded as something connected with money laundering. While the offence of insider trading may not predicate the offence of money laundering, the offence of money laundering could arise in case inside dealing involves engaging in a business transaction that involves property acquired with proceeds of illegal activity. Also, insider trading may be related in corruption, which may be related to money laundering. Therefore, insider trading is quite worth discussion.

First of all, it is worth indicating that insider trading is a term that includes both legal and illegal conduct. However, most people usually associate it with illegal conduct.

Legal insider trading is when corporate insiders (including directors, officers, employees) buy and sell stock in their own companies. When trading in their own securities (like bonds or stock options), they usually must report their trades to the Securities and Exchange Commission.

Illegal insider trading generally regards buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, when having some material nonpublic information about the security at one’s disposal. The prevention of insider trading is widely considered to be an important function of securities regulation.

However, some economists and legal scholars consider that insider trading should be absolutely legalized because insider trading based on material nonpublic information benefits investors by means of introducing new information into the market more quickly. They also suggest that insider trading has nothing to do with crime as it has nothing to do with victim – a willing buyer and a willing seller agree to legally trade – so who’s the victim?

Still, pros and cons of insider trading are not the subject under consideration here. What is important is that if illegal insider trading is connected with money laundering it must be identified and punished.