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Red Flag Bulletin | August 2021

Martin Devenish MBE, Penelope Jenkins 9 August 2021
9 August 2021    Martin Devenish MBE, Penelope Jenkins

Red Flag Bulletin

This month’s Red Flag Bulletin includes the following stories: Japan’s Mitsubishi Electric admits to long-running data manipulation; Hong Kong Customs uncovers suspected cryptocurrency money laundering ring; and Former president of El Salvador formally charged with illicit enrichment and money laundering.

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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:
  • Japan’s Mitsubishi Electric admits to long-running data manipulation;
  • Hong Kong Customs uncovers suspected cryptocurrency money laundering ring; and
  • Former president of El Salvador formally charged with illicit enrichment and money laundering.

Americas

EL SALVADOR: FORMER PRESIDENT SALVADOR SÁNCHEZ CERÉN FORMALLY CHARGED WITH ILLICIT ENRICHMENT AND MONEY LAUNDERING 

On 25 July, El Salvador’s attorney general’s office formally charged former president Salvador Sánchez Cerén (2014-2019) with illicit enrichment and money laundering during his term as vice president (2009-2014). Sánchez Cerén is accused of having received USD 530,000 in illegal payments as part of a USD 351 million embezzlement scheme. Salvadoran authorities formally charged nine further former ministers in the presidential administration of Mauricio Funes (2009-2014) for their suspected involvement in the embezzlement scheme. El Salvador’s attorney general has requested an INTERPOL Red Notice for the arrest of Sánchez Cerén, who left El Salvador in December 2020, and detained five other former ministers suspected of involvement in the scheme. Members of Sánchez Cerén’s political party – the left-wing Farabundo Martí National Liberation Front – have criticised the charges for being politically motivated. 

 

PERU: PEDRO CASTILLO DECLARED PRESIDENT AMID SUGGESTIONS THAT HE WILL ADOPT A MORE MODERATE ECONOMIC STANCE THAN INITIALLY SET OUT 

On 19 July, the Electoral Jury of Peru, Peru’s election commission, officially declared Pedro Castillo, a union leader representing the left-wing Perú Libre, as the country’s president elect. Castillo had won a run-off election on 6 June by a narrow margin, prompting his opponent, Keiko Fujimori, to contest the results, call the results illegitimate, and lodge several appeals aimed at annulling some votes over fraud accusations. Fujimori eventually publicly recognised Castillo’s victory. Castillo was sworn in on 28 July and has indicated his intent to reform Peru’s constitution. During his election campaign, he had also pledged to increase taxes on mining firms, but appears to have softened his rhetoric following the election, suggesting a more moderate, market-friendly approach. Fujimori had been arrested on money laundering charges in October 2018, prompting speculation that she may face a prison sentence following her defeat


ASIA PACIFIC 

JAPAN: MITSUBISHI ELECTRIC ADMITS TO LONG-RUNNING DATA MANIPULATION 

On 2 July, the CEO of Mitsubishi Electric, one of Japan’s largest companies, resigned after the company admitted to falsifying inspection data for air conditioners and train brake compressors for over 30 years. Mitsubishi has claimed that the equipment posed no safety risks and that the violations were contractual, not statutory. Despite being aware of the data falsification, Mitsubishi’s management did not disclose this information to shareholders until after the company’s AGM on 29 June. This is Mitsubishi’s second data falsification scandal since 2017, and a second major governance issue for corporate Japan in as many months following the revelation that Toshiba had colluded with officials to pressure foreign investors. 

HONG KONG: HONG KONG CUSTOMS UNCOVERS SUSPECTED CRYPTOCURRENCY MONEY LAUNDERING RING 

On 15 July, Hong Kong Customs announced that it had uncovered a suspected cryptocurrency money laundering syndicate, the first such bust in the city, following raids on four residences across Hong Kong on 8 July. The suspected ringleader and three others were reportedly arrested and subsequently released on bail. They are suspected of laundering HKD 1.2 billion (USD 155 million) in funds from early 2020 to May 2021 through shell company accounts with unnamed banks in Hong Kong and the use of an unspecified cryptocurrency trading platform. Around 60 percent of the funds reportedly flowed through Singapore. The virtual currency of choice was reportedly a ‘privacy coin’ issued by Tether, a controversial cryptocurrency whose price is pegged to the US dollar. The suspected criminal origin of the funds in question remains as yet undisclosed. 

 

MALAYSIA: FORMER MINISTER CHARGED WITH CRIMINAL BREACH OF TRUST AND FUND MISAPPROPRIATION 

On 22 July, Syed Saddiq, a Malaysian MP and former youth and sports minister (2018-2020), was charged with two counts of criminal breach of trust and one of misappropriating electoral funds. The breach of trust charges relate to Saddiq’s former role as head of the youth wing of Bersatu, the political party led by current prime minister Muhyiddin Yassin. Saddiq allegedly withdrew MYR 1 million (USD 323,000) of the youth wing’s funds without obtaining permission in March 2020. The misappropriation of electoral funds charge relates to Saddiq’s alleged misappropriation of MYR 120,000 (USD 28,400) in 2018. If found guilty, he could face up to 10 years in prison. Saddiq has denied wrongdoing and claimed the charges are a politically motivated attempt to secure his support at a fragile moment for Muhyiddin’s government as Parliament reconvened on 26 July after a seven-month hiatus.  


EUROPE 

SPAIN: CAIXABANK AND REPSOL IMPLICATED IN INDUSTRIAL ESPIONAGE AND BRIBERY INVESTIGATION AND EXONERATED 

On 8 July, Spain’s High Court placed Spanish bank Caixabank and Repsol, a Spanish oil and gas company, under formal investigation for industrial espionage and bribery. The court investigated whether Caixabank and Repsol had hired José Manuel Villarejo, a former Spanish police commissioner, to spy on Luis del Rivero, the then-chairperson of Sacyr, a Spanish infrastructure company and competitor of Repsol. The suspected industrial espionage took place between 2011 and 2012 and was allegedly designed to prevent Sacyr and the Mexican state-owned oil company, Pemex, from taking over Repsol. At the time, Caixabank was a major shareholder of Repsol. On 29 July, the Spanish High Court found that Caixabank and Repsol had not been responsible for hiring Villarejo, placing liability with the bank and petroleum company’s security directors instead. Villarejo is currently implicated and under investigation in relation to 27 different criminal cases in Spain. 


MIDDLE EAST AND NORTH AFRICA 

SAUDI ARABIA: ANTI-CORRUPTION AUTHORITIES ARREST 122 INDIVIDUALS SUSPECTED OF INVOLVEMENT IN CORONAVIRUS HEALTHCARE FRAUD 

On 14 July, the Saudi Control and Anti-Corruption Authority (Nazaha) announced the arrest of 122 people in relation to allegations of bribery and healthcare fraud. The individuals were indicted for illegally providing or procuring falsified COVID-19 vaccination certificates that enable access to public buildings and participation in the annual Hajj pilgrimage, which was scheduled for later in July. Nine officials from the Saudi Ministry of Health are accused of bribery, forgery, and money laundering and have pleaded guilty in the case. Additionally, 21 individuals are accused of acting as intermediaries, and 92 people are accused of using the illicit service. For the second year since the start of the COVID-19 pandemic, Saudi authorities have severely restricted the numbers permitted to perform the Hajj. 

 

IRAQ: UK SANCTIONS IRAQI FORMER GOVERNOR AS PART OF ITS GLOBAL CRACKDOWN ON CORRUPTION   

On 22 July, the UK government imposed economic sanctions, including a travel ban and asset freeze, on Nawfal Hammadi Al-Sultan, who served as the governor of the province of Nineveh, northern Iraq, between 2017 and 2019. Al-Sultan was removed from office in May 2019 and subsequently sentenced to five years in prison in February 2021 for embezzling USD 3.4 million of public funds through fake public works schemes during his term in office. These funds had been intended for the reconstruction of Nineveh following its destruction by ISIS. The UK sanctions targeting Al-Sultan were imposed under the Global Anti-Corruption Sanctions Regulations 2021, introduced in April 2021, and have been commended by the US government.  


RUSSIA AND CIS 

RUSSIA: SWISS AUTHORITIES CLOSE DECADE-LONG ‘MAGNITSKY CASE’ INTO RUSSIAN MONEY LAUNDERING SCHEME 

On 21 July, Swiss authorities closed a criminal case, opened in 2011, linked to a high-profile tax fraud uncovered by the late Sergei Magnitsky, a Russian lawyer. In 2008, Magnitsky claimed that Russian officials had used Hermitage Capital, an investment fund owned by US businessman Bill Browder, to perpetrate a USD 230 million tax fraud and subsequently launder the proceeds through Swiss banks. Magnitsky was arrested on tax evasion charges – widely perceived as fabricated – and died in a Russian prison in 2009 after allegedly being mistreated. The Swiss criminal case has been tarnished by corruption allegations against the Swiss authorities, including the conviction in 2020 of a senior Swiss official for accepting bribes from Russian authorities in exchange for sharing confidential details of the case. Browder, who submitted the original criminal complaint, criticised the Swiss authorities and intends to appeal the decision. The Swiss criminal case has not led to charges. 

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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