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:
- US introduces range of sanctions targeting Iranian sanctions evasions, human rights abuses, and weapons procurement;
- CFTC files civil lawsuit against cryptocurrency exchange Binance and its CEO Changpeng Zhao for knowingly violating compliance controls; and
- Italy implements EU Whistleblowing Directive.
China: Former president of China Merchants Bank charged with bribery and insider trading
On 1 March, Tian Huiyu, former president of China Merchants Bank, was charged by Chinese authorities over alleged bribery and insider trading. He allegedly used his positions at China Cinda Asset Management Co and CMB to extort bribes in exchange for loan approvals and project undertakings, according to a statement published by the Supreme People’s Procuratorate. Tian was arrested and expelled from the Chinese Communist Party in October 2022. He was reportedly also investigated for taking a profit in lithium-ion battery giant CATL when the bank made a pre-IPO investment in the company. The case against Tian is part of president Xi Jinping’s campaign launched in late 2021 to clean up financial misconduct in China. It is not known whether Tian has denied the charges.
Malaysia: Former prime minister charged with corruption and money laundering
On 10 March, Malaysia's former prime minister Muhyiddin Yassin was charged with corruption and money laundering related to the alleged misappropriation of a Covid economic recovery fund. Muhyiddin, who now leads an opposition coalition against the current Anwar Ibrahim administration, is accused of taking bribes totalling MYR 237.5 million (USD 53.5 million) on behalf of his party and laundering a total of MYR 195 million (USD 43.9 million). Muhyiddin pleaded not guilty to all seven charges and claimed that the case against him is politically motivated. He is the country’s second leader to be indicted after leaving office – former PM Razak Najib began a 12-year jail term in August 2022 after the top court upheld his corruption conviction in relation to embezzlement from the 1MDB state development fund.
Philippines: Former social security officials sentenced for loan fraud
On 3 March, Sandiganbayan, the anti-graft court of the Philippines, sentenced three former officials of the Government Service Insurance System (GSIS), a state-owned organisation which provides social security benefits to government employees, and an executive of a private property developer to between 12 and 20 years in prison for corrupt practices. The offence could be traced to 2001, when the three officials reportedly colluded with the private developer and awarded PHP 293 million (USD 5.4 million) worth of housing loans to 544 unqualified borrowers, for them to purchase residential or commercial units from the developer. The prosecutors also found that during the process, the officials had offered kickbacks to some borrowers using their housing loan service, and falsified applications by appropriating the names of other government employees covered by the GSIS scheme.
Ecuador: Constitutional court approves opposition lawmakers’ request to impeach president
On 16 March, a group of opposition legislators in Ecuador formally requested to hold impeachment hearings against President Guillermo Lasso on allegations of corruption. According to the request, signed by 59 lawmakers, the president is accused of being involved in corruption at state-run companies. In particular, he is accused of extortion and embezzlement at three public companies: Petroecuador, the country’s state-owned oil company; Flota Petrolera Ecuatoriana, which manages Ecuador’s oil prospection fleet; and Empresa Coordinadora de Empresas Públicas, an Ecuadorian state-owned company responsible for overseeing Ecuadorian state-owned companies. Lasso denied any wrongdoing. On 29 March, Ecuador’s constitutional court approved the request in relation to the embezzlement allegations, allowing the impeachment hearing to proceed in parliament.
Dominican Republic: More than a dozen politicians and former government officials arrested on corruption charges
On 19 March, the Dominican Republic’s Office of the Attorney General announced that, following a large-scale raid, 19 people – including politicians and former cabinet members – were arrested on fraud, bribery, money laundering, and illegal campaign financing charges. The investigation, dubbed Operación Calamar, found that the former government officials were part of a complex corruption scheme that embezzled over USD 345 million from various governmental agencies. Among the detained, most of whom served under former President Danilo Medina (2012-2020), are the former Minister of Finance; the former Minister of Public Works; the former Administrative Minister of the Presidency; and the former Comptroller. If found guilty, the defendants could face a 20-year prison sentence. It is not known whether the defendants have denied the charges. The charges are part of commitment by President Luis Abinader to remove “deep-rooted” public corruption, which has resulted in numerous investigations against former public officials.
US: CFTC files civil lawsuit against cryptocurrency exchange and its CEO for knowingly violating compliance controls
On 27 March, the Commodity Futures and Trading Commission (CFTC), the US regulator of derivative markets, filed a civil lawsuit against three corporate entities that operate digital asset exchange platform Binance and Changpeng Zhao, the company’s owner and CEO. The lawsuit alleges that the defendants knowingly violated US regulations and compliance controls designed to prevent illicit financial activity such as money laundering and terrorist financing. The CFTC also alleges that, despite reporting to restrict US customers from trading on its platform, Binance – at Zhao’s direction – devised a scheme to circumvent compliance and trading controls to maximize corporate profits. In response to the allegations, Zhao reportedly stated that, while Binance disagrees with the CFTC’s characterization of several issues in the complaint, the company will continue to collaborate with US and international regulators. In addition to monetary penalties, the CFTC lawsuit seeks permanent trading and registration bans for Zhao and his companies.
ZAMBIA: Auditor general arrested over alleged corrupt practices
On 9 March, Zambia’s Anti-Corruption Commission arrested and charged the country’s auditor general, Dick Sichembe, for engaging in corrupt practices. Sichembe was accused of having corruptly obtained USD 54,475 million through false pretences between 2018 and 2021. Subsequent media reporting indicates that 17 other individuals at the Ministry of Finance were also arrested by the Anti-Corruption Commission in relation to the same allegations. These arrests come following an investigation conducted by the Anti-Corruption Commission in February 2023, which was spurred by a special audit of the Ministry of Finance’s integrated financial management information system. This case is one of many endorsed by Zambian President, Hakainde Hichilema, in an attempt to crack down on corruption. Although President Hichilema ran on an anti-corruption ticket and his efforts have resulted in the arrest of numerous government figures, he is yet to secure any high-profile convictions. Sichembe has since been released on bail, and will reportedly appear before a Zambian court over the charges. Sichembe did not comment to the press.
SOUTH AFRICA: Public Protector clears president of wrongdoing in connection with Phala Phala scandal
On 11 March, the Public Protector, an independent South African oversight body which investigates improper conduct in state affairs, cleared South African President Cyril Ramaphosa of any wronging in connection with the February 2020 theft of ZAR 8 million (USD 440,000) from his Phala Phala game farm in South Africa. President Ramaphosa had faced allegations conflict of interest between his personal business interests and his constitutional obligations as president due to his involvement in the Phala Phala scandal – which allegedly included storing a large amount of cash in sofa cushions and failing to report the theft to the South African Police Service. The Public Protector found the allegations to be unsubstantiated. This comes amidst ongoing domestic political opposition in response to a stagnating economy and rolling blackouts across the country: on 20 March, the Economic Freedom Fighters (EFF), a far-left South African opposition party, organised a “national shutdown”, calling for President Ramaphosa’s resignation.
Italy: EU Whistleblowing Directive implemented
On 9 March, Italy implemented the EU Whistleblowing Directive by introducing legislation that will require all public and private sector companies with more than 50 employees to establish confidential internal reporting channels. Organisations in certain sectors such as financial services and data protection will need to comply regardless of headcount. The law extends protection to whistleblowers who are not employees, taking into account self-employed workers, freelancers, volunteers, trainees, shareholders, and ‘facilitators’ such as colleagues or relatives of the person reporting. Italy’s new law expressly prohibits retaliation against whistleblowers and Italy’s National Anti-Corruption Authority can fine companies up to EUR 50,000 for reprisals. The EU Whistleblowing Directive was introduced as a universal and comprehensive protection standard across the bloc in December 2019. A year after the implementation deadline of December 2021, only 13 member states had adopted the relevant legislation.
Montenegro: Alleged cryptocurrency fraudster and creator of TerraUSD stablecoin arrested
On 23 March, Montenegrin police arrested Do Kwon, the former CEO and co-founder of Terraform Labs, which developed the TerraUSD and Luna cryptocurrencies. TerraUSD, a supposed stablecoin, and its related cryptoasset Luna crashed in May 2022, which led to an estimated USD 40 billion loss for investors. In September 2022, South Korean Police issued an arrest warrant for Kwon, stating he had violated capital market rules. Shortly after he was arrested in Montenegro, US federal prosecutors in New York also charged Kwon with eight counts of fraud. Both South Korean and US authorities are reportedly seeking Kwon’s extradition. It is not known whether Kwon has denied the charges filed in South Korea and the US.
MIDDLE EAST AND NORTH AFRICA
Iran: US sanctions target sanctions evasions, human rights abuses, and weapons procurement
Throughout March, the US government imposed new sanctions targeting Iran. The Department of State designated six entities for engaging in the sale or transport of Iranian petroleum or petrochemical products. The US Treasury’s OFAC sanctioned 39 entities alleged to be part of a multi-jurisdictional shadow banking network that granted several sanctioned Iranian entities access to the international financial system. The designated entities allegedly represented a complex sanctions evasion network that used front companies incorporated in Hong Kong, Singapore, and the UAE to orchestrate the sale of billions of US dollars' worth of petrochemicals from Iran. In coordination with the UK, EU, and Australia, OFAC also designated eight Iranian regime officials responsible for serious human rights abuses, including abuses that enable internet censorship and the violent repression of peaceful protestors. In addition, OFAC targeted four entities connected to Iran’s Ministry of Defence for providing weaponry to Russia in its war in Ukraine.
RUSSIA AND CIS
Russia/US/Italy: Son of regional governor extradited to the US on sanctions evasion and money laundering charges, flees house arrest
On 21 March, an Italian court ruled to extradite Artyom Uss, the son of the governor of Krasnoyarsk region in central Russia, to the US, where he is wanted on sanctions evasion and money laundering charges. The US authorities accuse Uss of smuggling Venezuelan oil and exporting US military technology to Russia. He was arrested in Italy in October 2022 at the request of the US. Shortly afterwards, a Russian court arrested Uss in absentia on charges of money laundering and requested his extradition to Russia. Uss pleaded innocent to the US charges and asked to be extradited to Russia. The Russian charges against Uss have been interpreted as an attempt to prevent his extradition to the US as Uss’s defence lawyers have claimed that the US charges are motivated by his father’s senior political position and the possibility of using him in a prisoner exchange. On 22 March, Uss fled house arrest in Italy. Italian media has speculated that his escape may have been facilitated by the Russian security services.
Kazakhstan: Measures to be introduced to prevent the transit of sanctioned goods into Russia
In April 2023, Kazakhstan will introduce an online system designed to monitor all goods entering the country and track them until they reach their final destination. The new system is reported to be principally aimed at preventing sanctioned goods from entering Russia through Kazakhstan and represents the most concerted effort by Kazakhstan to demonstrate its compliance with western sanctions. While Kazakhstan itself has not imposed sanctions against Russia, it is reported to have introduced this measure as part of its efforts to clamp down on sanctions evasion. Russia and Kazakhstan have deeply interconnected economies and no customs checks across their 7,600-kilometer border. Given these ties, Kazakhstan has been one of the key routes through which sanctioned goods, such as consumer electronics, have entered Russia during the last year, and Russian timber has been exported to Europe in violation of EU sanctions.