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Red Flag Bulletin | April 2021

Martin Devenish MBE, Penelope Jenkins 7 April 2021
7 April 2021    Martin Devenish MBE, Penelope Jenkins

Dealing in Uncertainty

Diligence and integrity risks in a recovering world – fraud, corruption and cybercrime explored through a new lens.

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The latest news from our regional desks about financial crime, corruption, sanctions, and integrity issues worldwide.

This month’s Red Flag Bulletin includes the following stories:
  • Brazilian Supreme Court annuls Lava Jato convictions against former president Luis Inácio Lula da Silva, raising concerns that other Operation Car Wash sentences may be revised;
  • Russian parliament passes bill allowing for ‘accidental corruption’ by state officials; and
  • Italian court acquits Eni and Royal Dutch Shell of corruption in relation to acquisition of Nigerian oilfield in 2011.

ASIA PACIFIC

India: Swedish vehicle manufacturer Scania implicated in bribery

On 9 March, German broadcaster ZDF and Swedish investigative television programme Uppdrag granskning (UG) reported that managers at Swedish vehicle manufacturer Scania had bribed senior Indian officials to secure bus supply contracts. The European outlets based their reporting on an internal investigation allegedly conducted by Scania. ZDF and UG further reported that, in 2016, Scania had supplied a luxury bus for the wedding of the daughter of Nitin Gadkari, India’s transport minister since 2014, and that the bus had not been fully paid for. Although Scania has admitted to misconduct by its staff in India, it stated that there was insufficient evidence for the manufacturer to file a criminal complaint. Gadkari has denied any connection to the purchase of the bus and reportedly sent legal defamation notices to ZDF and UG’s Swedish broadcaster on 12 March.

South Korea: Government targets insider property speculation by officials

On 11 March, South Korean prime minister Chung Sye-kyun announced the government would target officials who used insider knowledge to acquire land just before new state development projects were announced. A parliamentary committee had earlier identified up to 74 employees of Korea Land and Housing Corp. (LH), a government-owned property development corporation, who are suspected of insider property speculation. At least three LH employees have been officially summoned for questioning by police, and Korea’s minister of land, Byeon Chang-heum, who headed LH from 2019 to 2020, resigned in connection with LH’s implication in the scandal. Prime Minister Chung’s announcement follows criticism of sharply rising property prices in South Korea and comes ahead of by-elections for the mayors of Seoul and Busan, the country’s two largest cities, on 7 April 2021.


AMERICAS

Brazil: Supreme Court annuls Lava Jato convictions against former president Lula

On 8 March, Edson Fachin, a Brazilian Supreme Court justice, annulled the 2018 criminal conviction against Luis Inácio Lula da Silva, Brazil’s president between 2003 and 2010, on the grounds that the original court lacked the legal authority to try the criminal cases against him. Lula had been sentenced to 25 years in jail for corruption. On 23 March, a separate supreme court panel ruled that Sérgio Moro, a former justice minister and judge in the Lava Jato case, had been biased when sentencing Lula. The second Supreme Court decision annuls Lula’s convictions and requires new evidence to be submitted for an eventual re-trial. Both decisions can be reviewed by the Supreme Court’s plenary and would allow Lula to run as a candidate in the 2022 presidential elections. The decisions in Lula’s favour raise concerns that all of Moro’s sentences on cases related to Lava Jato could be revised.

Bolivia: Former interim president Jeanine Áñez arrested on sedition and terrorism charges

On 12 March, the Bolivian Federal Prosecutor’s Office ordered the pre-trial arrest of Jeanine Áñez, Bolivia’s interim president from November 2019 to November 2020, and members of her interim government. Áñez and her former ministers were arrested under sedition and terrorism charges for participating in a 2019 coup d’état to remove Evo Morales, Bolivia’s then-president, and for their role in the violent repression of ensuing protests. In November 2020, Áñez was replaced by Luis Arce, a member of Morales’s party, following a fresh presidential election. Añez has denied the allegations against her and claimed to be a victim of political persecution. Hundreds of thousands of Bolivians participated in protests in several Bolivian cities in response to Áñez’s arrest and denounced the judiciary for being ‘subordinated to the government of Arce.’

Caribbean: Caribbean nations see rise in fraud, Ponzi, and pyramid schemes throughout COVID-19 pandemic

Since the start of the COVID-19 pandemic, fraudulent investment schemes have ‘proliferated’ throughout the Caribbean, costing investors hundreds of millions in lost funds. Many of these schemes are carried out through messaging platforms including WhatsApp and Telegram, making enforcement of existing laws against pyramid schemes difficult in countries such as St. Vincent, Grenada, and Jamaica. Meanwhile, in jurisdictions including Antigua and Barbuda and Guyana, existing regulation against fraud is insufficient to tackle complex financial fraud. Much of these schemes’ success can be attributed to the Caribbean’s ongoing economic struggles, which are strongly linked to a decline in tourism in the region.


RUSSIA AND CIS

Ukraine: US imposes sanctions on Ihor Kolomoyskyi for alleged corruption

On 5 March, the US Department of State imposed sanctions on Ihor Kolomoyskyi, an influential Ukrainian businessman, for his ‘involvement in significant corruption’ as the governor of Ukraine’s eastern Dnipropetrovsk region between 2014 and 2015. The sanctions prohibit Kolomoyskyi, his wife, and two children from travelling to the US. Although the sanctions relate specifically to Kolomoyskyi’s controversial tenure as governor, the US government also expressed concerns about Kolomoyskyi’s ‘ongoing efforts to undermine Ukraine’s democratic processes.’ The Ukrainian presidential administration welcomed US efforts to help ‘overcome [Ukraine’s] oligarch-dominated system,’ but did not mention Kolomoyskyi specifically.

Russia: Parliament passes bill allowing for ‘accidental corruption’

On 10 March, the Russian State Duma approved in its first reading a bill designed to ease anti-corruption laws for state officials under certain circumstances. According to the bill, MPs, employees of state-owned companies, judges, and other state officials would not be held responsible for corrupt actions during natural disasters, pandemics, strikes, military conflicts, and terrorist acts. A special commission would then decide whether a corrupt action was ‘accidental’ and committed during ‘uncontrollable circumstances.’ The new law does not apply to bribery, which remains a criminal offence, but provides protection against dismissal for violating certain anti-corruption measures, such as filing income declarations. The State Duma is scheduled to vote on the bill’s second reading on 8 April 2021.


EUROPE

Italy: Eni and Shell acquitted of corruption in Nigeria

On 17 March, a court in Milan acquitted supermajors Eni and Royal Dutch Shell, Eni’s current and former CEOs Claudio Descalzi and Paolo Scaroni, and eleven other senior managers at the companies of allegedly paying a bribe of USD 1.1 billion to politicians and intermediaries in Nigeria to acquire the OPL 245 offshore oilfield in 2011. The court announced the acquittal for all the accused on the grounds that ‘the fact does not exist’ (Il fatto non sussiste), finding that there was no criminal case to answer. Transparency NGOs criticised the judgment, and the Italian public prosecutor and Nigeria, which was a civil party in the case, may file an appeal against this decision. The Milanese court had previously convicted two intermediaries in the OPL 245 sale of corruption, and criminal proceedings relating to the 2011 deal are ongoing in Nigeria and the Netherlands.

Switzerland: FINMA rejects cryptocurrency broker’s banking licence application, partly due to insufficient anti-money laundering controls

On 17 March, the Swiss Financial Market Supervisory Authority (FINMA) informed Swiss cryptocurrency broker Bitcoin Suisse that it considered the company’s application for a banking licence to be ‘ineligible for approval.’ FINMA cited concerns about the company’s current anti-money laundering controls, alongside other unspecified issues, as reasons for its rejection. Bitcoin Suisse has suggested that it might re-apply for a banking licence after addressing the concerns raised by FINMA. The regulator previously awarded banking licences to two other cryptocurrency companies – Seba Crypto and Sygnum – in 2019, and Switzerland has an overall positive and progressive attitude towards cryptocurrencies and their regulation.

Malta: Former chief of staff charged with money laundering, fraud, and corruption

On 20 March, Keith Schembri, chief of staff between 2013 and 2019 to former Maltese prime minister Joseph Muscat, was charged with eleven counts of wrongdoing including money laundering, corruption, falsifying documents, and giving false testimony in court. Schembri was charged alongside ten others and 20 companies, many of which Schembri is linked to. He pleaded not guilty to all charges but was refused bail. Schembri had previously been named in allegations regarding the murder of Daphne Caruana Galizia, a Maltese journalist, as well as in reports of alleged kickbacks relating to passport sales. Caruana Galizia was murdered in 2017 after she revealed evidence of widespread corruption in Muscat’s inner circle, including involving Schembri.


SUB-SAHARAN AFRICA

DRC: US reinstates sanctions against Israeli businessman Dan Gertler for activities in the DRC

On 8 March, the US Treasury reinstated sanctions against Israeli mining tycoon Dan Gertler for his alleged corruption offences in the Democratic Republic of Congo (DRC). The Biden administration revoked a licence issued in January 2021 by the administration of former US president Donald Trump that unfroze funds held by Gertler in US financial institutions and permitted him to conduct business with US entities until 31 January 2022. The US State Department issued a statement claiming that Gertler had ‘engaged in extensive public corruption,’ referencing his mining activities in the DRC during which he is reported to have improperly colluded with the country’s former president, Joseph Kabila, with whom he held close ties. Global and local anti-corruption and human rights groups have commended the revocation of the licence, stating that it will strengthen both US and Congolese anti-corruption efforts.

Tanzania: Where to after the death of President Magufuli?

On 17 March, Tanzania announced the death of president John Magufuli, who had assumed power in 2015. Magufuli was a polarising figure and his death has received mixed reactions. Supporters mourned the loss of a leader credited for cracking down on corruption and overseeing strong economic growth. However, Magufuli had been increasingly criticised for repressing human rights and freedom of speech, and for deterring foreign investment into the country, notably through laws imposed on the extractives sector in 2017 and aimed at promoting resource nationalism. Magufuli’s vice president, Samia Suluhu Hassan, was sworn in on 19 March to serve the remainder of Magufuli’s second term, which ends in 2025. Hassan, Tanzania’s first female president, is viewed as less authoritarian than her predecessors, but any attempts to change Magufuli’s policies in the short term will likely face resistance from key figures within the party.


MIDDLE EAST AND NORTH AFRICA

Saudi Arabia: 241 arrested by Saudi authorities amid ongoing anti-corruption drive

On 14 March, Nazaha, Saudi Arabia’s anti-corruption agency, reported that it had arrested 241 people on various charges, including bribery, forgery, and abuse of power, as part of the Kingdom’s ongoing anti-corruption drive. Those arrested are reported to have included employees of various ministries, including the ministry of interior and the ministry of health, and officers in the Royal Guard, including a retired major general, a colonel, and a lieutenant. Reports indicate that the value of the crimes amounted to SAR 400 million (USD 107 million) and included cases of suspects awarding public tenders to companies belonging to them and their acquaintances. 757 individuals were reportedly investigated as part of the proceedings, which form the latest development in Crown Prince Mohammed bin Salman’s anti-corruption purge, now entering its fourth year.

To discuss this article or other industry developments, please reach out to one of our experts.

Martin Devenish MBE
Martin Devenish MBE Board Director Email Martin
Penelope Jenkins
Penelope Jenkins Associate Email Penelope

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