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:
- UAE at risk of grey listing by Financial Action Task Force over inadequate AML and terrorist financing controls;
- German financial regulator imposes first fine following introduction of new legislation tackling Euribor rate-rigging; and
- South Africa’s Zondo Commission releases first volume of findings that implicate top officials and businesspersons in corruption.
MIDDLE EAST AND NORTH AFRICA
UAE: RISK OF GREY LISTING BY THE FINANCIAL ACTION TASK FORCE OVER INADEQUATE CONTROLS
On 4 January, Bloomberg reported that the UAE risks being placed on a grey list of countries that have failed to maintain adequate AML and terrorist financing controls. The list of 23 countries is compiled by the Financial Action Task Force (FATF), an intergovernmental organisation which develops AML and anti-terrorist financing policies, and subjects listed countries, such as Syria, to increased oversight. Emirati officials have claimed that the UAE has implemented earlier FATF recommendations and increased the government’s ability to halt flows of laundered funds. The UAE’s addition to the grey list would impact the country’s status as one of the region’s leading financial hubs as banks and financial institutions would be required to review or revise their risk ratings and due diligence for persons in the jurisdiction. The FATF is due to make its decision in spring 2022.
NICARAGUA: US AND EU SANCTION OFFICIALS FOLLOWING DISPUTED ELECTION
On 10 January, the US Treasury and EU sanctioned six Nicaraguan government officials, including employees of TELCOR, the country’s telecoms regulator, and of ENIMINAS, Nicaragua’s state mining company. The US and EU further imposed visa restrictions on 116 officials they considered “complicit in undermining democracy in Nicaragua”, including mayors, prosecutors, and law enforcement officials. The sanctions were imposed in response to president Daniel Ortega (2007-present) being re-elected for his fourth consecutive term in an election that has been widely denounced as fraudulent. Immediately following the election in November 2021, the US had previously frozen the assets of nine Nicaraguan officials whom it accuses of corrupting the democratic process.
GERMANY: GERMAN FINANCIAL REGULATOR IMPOSES FIRST FINE FOLLOWING INTRODUCTION OF NEW LEGISLATION TACKLING RATE-RIGGING
On 29 December, BaFin, the German financial regulator, fined Deutsche Bank EUR 8.7 million for failing to implement measures to prevent rate-rigging between 2019 and 2020. This fine is the first of its kind imposed by BaFin following the enactment of new legislation designed to combat manipulation of the Euro Interbank Offered Rate (Euribor), an averaged, inter-bank benchmark for interest rates used by Eurozone banks. The legislation was introduced in response to the high-profile manipulation of the London Interbank Offered Rate (Libor) by several financial institutions in 2012. Media commentary on the recent BaFin fine suggests that the regulator has been under increasing pressure to impose greater penalties after its perceived failures and lack of oversight in the Wirecard scandal.
RUSSIA AND CIS
RUSSIA: US AND UK PROPOSE SANCTIONS ON RUSSIA IN CONNECTION WITH UKRAINE CRISIS
On 12 January, US senators from the Democratic Party introduced a bill threatening to impose new sanctions on Russia in the event of further Russian military aggression in Ukraine. The measures are in response to increasing military hostilities along the Russian-Ukrainian border, which have led to fears in the international community of a Russian invasion of Ukraine. The proposed sanctions would target the Russian banking sector, prohibiting transactions in Russian sovereign debt and targeting international companies that offer secure payment services to Russian banks. The sanctions would also target senior Russian government and military officials, including President Vladimir Putin. The US and Russia are currently in negotiations over a potential diplomatic resolution to the conflict, with Russia seeking assurances that Ukraine will not be admitted into the North Atlantic Treaty Organisation (NATO). On 30 January, the UK announced plans to introduce new legislation broadening the scope of sanctions against Russia.
SOUTH AFRICA: FIRST VOLUME OF STATE CAPTURE REPORT IMPLICATES TOP OFFICIALS AND BUSINESSPERSONS IN CORRUPTION
On 4 January, South Africa's Judicial Commission of Inquiry into allegations of state capture, corruption, and fraud under former president Jacob Zuma (the Zondo Commission) released the first of its findings. The result of a three-year investigation, this first report details the capture of state institutions and abuse of procurement processes through the appointment of compromised officials to key positions. Around 20 individuals are recommended for prosecution, including: Dudu Myeni, former chairperson of state-owned South African Airways; Brian Molefe, former CEO of state-owned utility company Eskom; and Tom Moyane, former commissioner of the South African Revenue Service. Several private sector companies are also implicated in wrongdoing. While strongly criticised, Zuma was not recommended for prosecution. Action following the report’s recommendations is not automatic as the decision to pursue criminal charges rests with law enforcement. The report’s second and third volumes are due to be released in February 2022.
MALAWI: LAND MINISTER REMOVED AMID CORRUPTION ALLEGATIONS
On 27 January, Malawian president Lazarus Chakwera formed a new cabinet from which the country’s former minister of lands, Kezzie Msukwa, was notably absent. Msukwa had been arrested on 31 December in connection with allegations that he received bribes to facilitate land deals involving a UK-based Malawian businessman. He was released the following day after the High Court suspended his arrest and subsequently ordered a judicial review of the case, which remains ongoing. Chakwera, who was elected in 2020 on an anti-corruption platform, dissolved his cabinet on 24 January following public criticism over the failure to dismiss Msukwa. Over the course of 2021, Chakwera was also compelled to dismiss the then-minister of labour, Ken Kandodo, and the then-minister of energy, Newton Kambala, who had also been subject to separate allegations of corruption and abuse of office.
SOUTH KOREA: OSSTEM IMPLANT EMPLOYEE ARRESTED ON SUSPICION OF EMBEZZLING USD 185 MILLION
On 8 January, an employee in the finance department of leading South Korean dental implant company Osstem Implant was arrested on suspicion of embezzling KRW 221 billion (USD 185 million) from the company in 2021 and manipulating its accounts. He reportedly used the funds to purchase 855 gold bars and invest KRW 300 billion (USD 248 million) in a Korean gaming company by using contracts for differences (CFDs). Trading in Osstem Implant shares was suspended on 3 January after the company’s management was notified of the reported embezzlement. On 18 January, the Korea Exchange, where Osstem Implant is listed, announced it would decide in April whether to delist Osstem Implant as a result of poor internal controls.
MYANMAR: AUNG SAN SUU KYI FACES NEW CORRUPTION CHARGES
On 14 January, Myanmar’s government filed five new corruption charges against former State Councillor of Myanmar Aung San Suu Kyi. According to this latest set of charges, while in office, Suu Kyi abused her power when she authorised the hire and purchase of a helicopter by Myanmar’s former social welfare, relief and resettlement minister. Suu Kyi has been charged with several other counts of corruption as well as with violating the Official Secrets Act, and could potentially face at least 150 years in prison. She has been detained by Myanmar’s military since February 2021 following a military coup. Suu Kyi’s supporters claim the charges against her are politically motivated and designed to legitimise the military junta’s takeover and to prevent her from returning to politics.