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Red Flag Bulletin

Martin Devenish MBE 5 November 2020
5 November 2020    Martin Devenish MBE

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:
  • Nigeria’s President sends historic bill to National Assembly which would privatise the state oil company;
  • Peru’s congress votes to begin new impeachment proceedings against President Vizcarra for alleged corruption; and
  • US charges Russian intelligence officers over involvement in ‘NotPetya’ and other major cyber-attacks.

Asia Pacific

China: Anti-corruption watchdog promises to target overseas funds

China’s top anti-corruption body announced that it will increase efforts to target funds sent overseas by corrupt officials. In a post titled “Overseas Is No Haven for Transferring Assets”, the Central Commission for Discipline Inspection (CCDI) committed to punishing money laundering and confiscating assets that have been acquired illegally. According to the post, various government documents already require officials to declare their foreign assets and whether their spouses or children are based overseas. It also suggested that monitoring and reporting mechanisms for large overseas remittances may be extended to the family members of officials. The CCDI stated that Chinese authorities had already extradited 7,381 fugitives from 120 different countries, and recovered CNY 19.6 billion (USD 2.93 billion). Officials who have been apprehended in recent years include Wu Jianrong, the former chairman of the Shanghai Airport Authority, who was sentenced to 12 years in prison in January 2020 for accepting more than CNY 20 million (USD 2.99 million) in bribes, and failing to report more than HKD 3 million (USD 387,000) held by his wife in Hong Kong.

Singapore: Study ranks country third in region in corporate governance transparency

In October, the Securities Investors Association Singapore and the Centre of Governance, Institute and Organisations at the National University of Singapore Business School published a study indicating that companies listed on the Singapore Exchange are less transparent in corporate governance than their peers in Thailand and Malaysia. The city-state was previously ranked second in studies conducted in 2016 and 2018. Companies were scored on several factors, including their internal commitment to anti-corruption initiatives such as training programmes, and whether they disclose political contributions and maintain whistle-blowing channels. Singapore’s reputation as Southeast Asia’s financial hub has been tainted in recent years, following several high-profile cases of companies having poor management or accountability practices. In 2018, Singapore-listed commodity trader Noble Group was delisted after it was accused of accounting fraud and breaching disclosure requirements. In April this year, it was revealed that Singapore oil trader Hin Leong Trading had not disclosed about USD 800 million in trading losses. The company is now facing action from creditors and has since been placed under judicial management.

Philippines: Task forced created to probe corruption within public works department

On 19 October, Philippine public works secretary Mark Villar announced the formation of an inter-agency Task Force Against Graft and Corruption (TAG) to probe alleged rampant corruption in the Department of Public Works and Highways (DPWH). The announcement came days after Philippine President Rodrigo Duterte criticised widespread corruption in the DPWH, claiming that no projects in the department starts without an illegal transaction. In a televised speech, Duterte also called on viewers to report corruption, promising that he would show no mercy to wrongdoers. The probe into DPWH is one of several large-scale investigations in recent months. In September 2020, a task force led by the Philippine Justice Department submitted a 177-page report detailing negligence by Philippine Health Insurance Corporation, including in its implementation of a controversial interim reimbursement mechanism, a prepayment scheme to assist hospital affected by unexpected events such as the COVID-19 pandemic.

Sub-Saharan Africa

Nigeria: Oil reform bill is sent to National Assembly

President Muhammadu Buhari has sent the draft Petroleum Industry Bill (PIB) to the country’s bicameral National Assembly. The PIB proposes that shares in a reformed Nigerian National Petroleum Corporation be sold on the market, that new regulatory bodies be created, and changes to deep offshore royalties which were made last year be amended. Amid ongoing pressure for reforms in the oil sector, the government has said it aims to expedite the passage of the PIB. Nigeria’s Senate, the legislature’s upper chamber, completed a second reading on 3 November before debate was adjourned for a month. In October, the minister of state for petroleum resources, Timipre Sylva, announced that the House of Representatives, the lower chamber, would not debate the bill until early 2021, but indicated that there is consensus within the National Assembly to fast-track the process.

Americas

US: Mexican military official arrested for drug trafficking, corruption

On 15 October, the US Drug Enforcement Administration (DEA) arrested former Mexican defence minister General Salvador Cienfuegos Zepeda (Cienfuegos) on charges of drug trafficking and money laundering. Under the administration of former President Enrique Peña Nieto (2012-2018), Cienfuegos oversaw the military’s involvement in Mexico’s ‘war on drugs.’ The DEA has accused Cienfuegos of working with a violent offshoot of the Beltran-Leyva drug cartel from 2015 to 2017, redirecting the military’s efforts away from the cartel and helping to arrange maritime transport for drug shipments. Current President Andrés Manuel López Obrador (AMLO) has declared the war on drugs to be over, but the conflict continues. Cienfuegos’ arrest bolsters AMLO’s campaign to discredit previous administrations by exposing corruption in the highest ranks. It also calls into question the role that the US has played in Mexico’s war on drugs. The investigation will likely scrutinise companies which have contracted with Cienfuegos’ military since 2012, potentially undermining defence co-operation between the countries.

Peru: President Martin Vizcarra faces new impeachment proceedings over alleged corruption

On 2 November, Peru’s Congress voted to approve a motion to start impeachment proceedings against President Martín Vizcarra, over allegations that he received kickbacks worth around USD 640,000 from two companies in exchange for government contracts while he was governor of Moquegua state. Vizacarra has denied the allegations, which emerged around a month after he avoided impeachment over another scandal.

Bolivia: First President elected after succession crisis

In October, Luis Arce was elected President of Bolivia, a year after the beginning of a succession crisis that invalidated the result of the 2019 presidential election. In November 2019, Evo Morales resigned as Bolivia’s President after facing mass protests following allegations of electoral fraud in an election the previous month. Morales sought political asylum in Mexico and later moved to Argentina where he has been living in exile. Arce, from Morales’ MAS party, secured enough votes to be elected without a second round of voting.

Europe

Holy See: Former cardinal accused of misdirecting Vatican funds

Recent months have seen a number of developments in a long-running scandal involving Giovanni Angelo Becciu, a former cardinal of the Roman Catholic Church and the Holy See’s former deputy secretary of state (2011-2018). Becciu has been the subject of an internal Vatican investigation for several years over his management of the Holy See’s finances as deputy secretary of state. He has been accused of misdirecting Vatican funds to businesses owned and operated by his brothers, to have made unauthorised and loss-making investments totalling USD 725 million, and to have paid a EUR 700,000 bribe to a witness in a sexual abuse case against the Australian cardinal George Pell. In June, the Holy See filed extortion and embezzlement charges against Gianluigi Torzi, an Italian financier also reportedly involved in the transactions. Becciu, who denies any wrongdoing, resigned from his position as cardinal in September. In October, at the request of the Holy See, Milanese police arrested an Italian woman who received payments of EUR 500,000 from Becciu while he was deputy secretary of state.

Bulgaria: Anti-government protests seeking PM’s resignation pass hundredth day

October saw the hundredth consecutive day of anti-government protests in Bulgaria. Protestors decry state capture by oligarchs and are seeking the resignation of Prime Minister Boyko Borisov, his government, and chief prosecutor Ivan Geshev. The protests began in July, when Bulgarian prosecutors raided the offices of presidential aides to the President Rumen Radev on suspicion of influence peddling and disclosure of state secrets. Radev, who opposed Geshev’s appointment in 2019, has often criticised Borisov’s centre-right government for failing to uproot corruption and has criticised prosecutors for cherry-picking investigations and for working closely with the government. In turn, Geshev has accused Radev of links to Vasil Bozhkov, a fugitive Bulgarian businessman facing criminal charges in Bulgaria, whom Geshev alleges is driving the protests. In October, the EU Parliament passed a resolution condemning corruption and democratic backsliding in Bulgaria, which has been under the government of Borisov and his centre-right party, Gerb, since 2009. Nevertheless, the EU’s lack of resolute condemnation has been criticised by activists and news outlets, after the European People’s Party, a centre-right bloc in the European Parliament of which Gerb is a member, sprung to Borisov’s defence during the vote.

Russia/CIS

Russia: US charges Russian intelligence officers over involvement in major cyber-attacks

In late October, the US Department of Justice unsealed criminal charges filed against six Russian military intelligence officers for executing a series of destructive cyberattacks worldwide. According to US prosecutors, the suspects worked for a specialised hacking unit of the Main Directorate, commonly referred to as the GRU, and were responsible for seven major incidents. These included attempts to disrupt global events, such as the French presidential election in 2017 and the 2018 Winter Olympics in South Korea, and carrying out the high-profile ‘NotPetya’ ransomware attack, which has been described as the most devastating cyberattack in history, causing an estimated USD 10 billion in damage. Although cyber security experts have accused the GRU of involvement in these attacks for years, the charges mark the first time that a major law enforcement agency has made the allegation publicly. The Russian Embassy in Washington DC denied the allegations.

Kyrgyzstan: Notorious former customs official arrested following change in government

On 20 October, Kyrgyz security services arrested Raiymbek Matraimov, the former deputy chairman of the country's customs service, on suspicion of embezzling millions of dollars from the Kyrgyz state since 2016. He has since been transferred from police custody to house arrest while the criminal investigation continues. Matraimov gained notoriety internationally in November 2019 after featuring prominently in a high-profile investigation by the OCCRP, an anti-corruption NGO, which focused on corruption and money laundering in Kyrgyzstan. According to the investigation, Matraimov allegedly provided protection to a money laundering network built on cross-border smuggling operations. Matraimov's arrest follows the deposition of former president Sooronbay Jeenbekov, who resigned following protests precipitated by disputed parliamentary elections on 4 October. Sadyr Japarov, the new acting president and prime minister, announced an 'economic amnesty' for former state officials willing to return stolen funds to the Kyrgyz state. Critics have warned that such moves may not signal a genuine appetite for anti-corruption reform and may instead be a means for Japarov to grow his support base and consolidate political power.

S-RM is a global risk consultancy providing intelligence, resilience and response solutions to clients worldwide. 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

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