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 partially lifts sanctions following Syrian earthquake.
- Nigeria and South Africa are added to the Financial Action Task Force’s ‘grey list’.
- Mexico’s former secretary of public security convicted by US of taking bribes from the Sinaloa Cartel.
South Korea: Prosecutors seek arrest warrant for opposition leader over bribery charges
On 16 February, prosecutors in South Korea requested an arrest warrant for Lee Jae-myung, leader of the Democratic Party of Korea, the main opposition party, as part of an investigation into bribery allegations against Lee. During his tenure as mayor of Seongnam between 2010 and 2018, Lee allegedly received bribes of over USD 12 million from six major corporations, and removed a profit-sharing term in two real estate projects enabling the property developers to earn extra profits of over USD 600 million illegally. Further, Lee allegedly transferred USD 8 million to North Korea via his associates to support a farm project and arrange a potential personal trip to the North. Lee reportedly denied all allegations.
Malaysia: Former finance minister summoned for ownership of offshore companies
Malaysia’s former finance minister Daim Zainuddin and other officials are reportedly being questioned by the Malaysia’s Anti-Corruption Commission after the International Consortium of Investigative Journalists’ 2021 Pandora Papers exposed their offshore assets. Authorities found offshore companies linked to several top officials and associates and are tracing Daim and his family’s links to 12 such companies to determine if they own assets acquired through government projects. Daim has denied the allegations asserting that these companies were disclosed and taxed. The Malaysia Anti-Corruption Commission, the tax department, and the police are requesting information from abroad to conduct further checks.
Indonesia: Country falls in Transparency International’s Corruption Perception Index
According to Transparency International’s latest Corruption Perception Index (CPI) released in February 2023, Indonesia has fallen to 110 out of the 180 surveyed countries, from 96 last year. The country also received its worse scoring in perceived levels of public sector corruption since 2014. In a statement, President Joko Widodo (Jokowi) pledged to re-examine Indonesia’s existing antigraft measures following the CPI ranking. Experts consider the latest CPI score to be a snapshot of the country’s failing fight against corruption under Jokowi’s leadership. He notably oversaw the controversial 2019 Corruption Eradication Commission bill that significantly reduced the antigraft body’s ability to investigate corruption cases.
NORTH & CENTRAL AMERICA
Mexico: Former Mexican secretary of public security convicted of taking bribes from El Chapo’s cartel
On 21 February, Genaro Garcia Luna (Luna), the former Mexican secretary of public security, was convicted of taking millions of US dollars in bribes from drug cartels by the US District Court for the Eastern District of New York. Between 2006 and 2012, he served as Mexico’s top law enforcement official with oversight over the federal police force, and has been credited as the architect behind Mexico’s war on drugs. The highest-ranking Mexican official that has ever been tried in the US, Luna was convicted of five counts of indictments charging him with engaging in a criminal enterprise, including six drug related violations. According to the US Department of Justice, he accepted bribes from Sinaloa Cartel, formerly run by Joaquin Guzman (El Chapo), in exchange for “protecting its drug trafficking activities and facilitating the importation of cocaine and other drugs into the US.” Luna was first arrested in 2019 after a former cartel member, Zambada, alleged he had paid bribes to Luna during El Chapo’s trial in early 2019. Luna’s conviction has caused controversy regarding his close ties with Washington.
United States: BUSD stablecoin investigated by SEC amid increased regulatory scrutiny
On 13 February, Paxos Trust Company (Paxos), a New York based blockchain and cryptocurrency company, announced that it had received a Wells notice from the US Securities and Exchange Commission (SEC), announcing that the regulator was considering enforcement action for failing to register its BUSD ‘stablecoin’ cryptocurrency as a security. BUSD is a fiat currency-backed stablecoin, issued by Paxos and Binance, a Cayman Islands-based cryptocurrency exchange. Paxos subsequently stated that it would no longer create BUSD stablecoins and would sever its relationship with Binance. Since the start of 2023, the SEC has increased its enforcement activity against cryptocurrency companies for issuing unregistered securities, targeting major cryptocurrency exchanges including Gemini Trust Company LLC, a US-based exchange, Nexo Capital Inc, a Bulgaria-based exchange, and Kraken, a US-based exchange. On 16 February, the SEC charged Terraform Labs, a Singapore-based cryptocurrency exchange, and its founder, Do Hyeong Kwon, with defrauding investors.
Brazil: Federal police investigates illegal gold mining and money laundering
On 10 February, the Brazilian federal police launched an investigation into an alleged criminal organisation which has reportedly laundered at least USD 12 million from the illegal gold market in Brazil over the past two years. In the first phase of the operation, named Operação BAL, Brazilian authorities conducted eight search and seizures in the states of Roraima, northern Brazil, and Pernambuco, northeast Brazil. Amongst the targets was the sister of Antônio Denarium, the state governor of Roraima (2019-present). In recent months, the mining sector in Brazil’s north, and in Roraima specifically, has been subject to several ongoing investigations by the Brazilian federal police and the prosecutor’s office, many of which relate to illegal mining in protected indigenous lands, and money laundering.
Ecuador: Prosecutor announces corruption charges against former president Lenín Moreno
On 22 February, Ecuador’s attorney general Diana Salazar announced that she would present bribery and corruption charges against 37 individuals, including the country’s former president, Lenín Moreno (2017-2021). In addition to Moreno, six of his family members are suspected in alleged acts of corruption that occurred between 2009 and 2018 in relation to the Coca Codo Sinclair hydroelectric project, Ecuador’s largest hydroelectric dam. According to Salazar, Synohydro, a Chinese company responsible for the construction of the dam, paid USD 76 million in bribes to public officials in order to secure the contract. Moreno, who was the country’s vice-president between 2013 and 2017, denied any involvement in the alleged corruption.
MIDDLE EAST & NORTH AFRICA
Syria: Partial lifting of sanctions relating to earthquake relief
On 9 February, the US OFAC partially lifted sanctions on all transactions related to the Syrian relief response to the recent 7.8 magnitude earthquake. In doing so, OFAC released a general license which authorised such transactions until 8 August 2023. Private donors and organisations seeking to send humanitarian funding to Syria were no longer required to pre-emptively prove to OFAC that the transaction was exempt from sanctions, but could be made to do so if OFAC requested. The license did not authorise transactions relating to petroleum products of Syrian origin or transactions that involved individuals whose properties and interests were blocked as part of the US’s Syria sanctions regime.
This followed calls from the President of the Red Crescent in Syria Khaled Habbouti on 7 February, for increased international support to the relief effort in Syria, where around 6,000 citizens had reportedly died as a result of the earthquake.
Libya: Prime ministerial candidate calls for Scottish government to seek out embezzled national wealth
On 26 February, Fathi Bashagha, prime minister of Libya’s Government of National Stability – one of two rival governments in the country – called for Scottish authorities to increase efforts to identify billions of US dollars alleged to have been stolen from Libya in the 1990s. Libyan officials began cooperating with the Scottish police in 2014 to investigate claims that Ali Dabaiba, a government official under ousted leader Muammar Gaddafi (1979-2011), had awarded more than 3,000 contracts with an inflated cost of GBP 25 billion to Scottish entities that he was connected to. Bashagha called for “tangible results” from the investigation to punish what he saw as the theft of Libya’s national wealth. His calls came amid wider support for stability in Libya and particularly for free and fair elections to take place in 2023.
France: Judicial investigation into Gemalto NV’s government contracts in Africa
On 7 February, France’s National Financial Prosecutor’s office confirmed that the Netherlands-headquartered digital security company Gemalto NV, is under judicial investigation for alleged bribery and corruption in its African operations. Preliminary investigations reportedly commenced in 2021 following a report by Tracfin, the French financial intelligence and anti-money laundering unit, which raised concerns over Gemalto’s foreign contracts. The full judicial probe, launched in June 2022, covers around ten government contracts won by Gemalto between 2015 and 2019 in the Democratic Republic of Congo, Cameroon, Gabon, Niger, Senegal, and Uganda. Gemalto was acquired by Thales Group, the French multinational defence and technology conglomerate, in 2019, and renamed Thales DIS. The contracts under investigation are reported to have been won prior to Thales Group’s acquisition of the company. Thales Group is reportedly cooperating fully with investigative authorities.
Nigeria, South Africa: Financial Action Task Force adds countries to grey list
On 24 February, the Financial Action Task Force (FATF) added Nigeria and South Africa to its list of Jurisdictions Under Increased Monitoring, informally referred to as the ‘grey list’. Countries are added to the grey list when the FATF, an inter-governmental body that sets standards on tackling money laundering and terrorist financing, determines that they need to increase efforts. Grey listed countries have committed to resolve the deficiencies in their regimes, and the FATF monitors them more closely. Being added to the grey list can deter foreign investment, and increase international banks’ due diligence requirements when transacting with clients from grey-listed jurisdictions.