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:
- French cement manufacturer Lafarge pleads guilty to making payments to ISIS and Al-Nusra Front and agrees to pay USD 778 million in fines and forfeiture;
- Democratic Republic of the Congo, Mozambique, and Tanzania added to Financial Action Task Force’s list of jurisdictions subject to increased financial monitoring; and
- OFAC sanctions Mexican drug transportation network connected to Sinaloa drug cartel.
AUSTRALIA: OPERATOR OF STAR CASINO FINED USD 62 MILLION AND HAS LICENCE SUSPENDED
On 17 October, the New South Wales Independent Casino Commission (NICC), an Australian state casino regulator, fined Star Entertainment Group – which operates casinos in New South Wales and Queensland – USD 62 million for failing to prevent money laundering and criminal activity. The NICC also temporarily suspended the licence for Star Entertainment Group’s Sydney casino and appointed a new manager to run the branch. The NICC additionally found that Star Entertainment Group had, on occasion, deliberately attempted to hide its misconduct. In parallel, on 6 October, the Attorney-General for Queensland announced that Star Entertainment Group had been found “unsuitable” to hold a casino licence in the state.
PHILIPPINES: CUSTOMS AGENCY SEIZES USD 3.9 MILLION WORTH OF ALLEGEDLY SMUGGLED SUGAR
On 17 October, the Philippines’ Bureau of Customs (BOC) seized 76 containers of sugar that had allegedly been smuggled from Thailand. According to BOC officials, the unnamed consignee failed to secure import clearance from the country’s Sugar Regulatory Administration and misdeclared the shipment’s contents. BOC intelligence officers also reported that the consignee attempted to change its name when the investigation was already underway. No arrests have been made.
RUSSIA AND CIS
CENTRAL ASIA: BANKS STOP ACCEPTING RUSSIA’S MIR PAYMENT SYSTEM AFTER US WARNS TURKISH COMPANIES AGAINST WORKING WITH SANCTIONED RUSSIAN PERSONS
In October, Kyrgyz banks – Kompanion Bank, Bakai Bank, and Dos-Kredobank – announced they would stop processing payments made through the Mir payment system, a Russian alternative to the SWIFT network developed following the imposition of sanctions on Russia in 2014. This follows the suspension of Mir payment cards in September 2022 by Dushanbe City Bank, one of Tajikistan’s biggest banks; Kazakhstan’s largest bank Halyk Bank; and UZCARD, an Uzbek payments processing centre. While the Central Asian banks variously provided no explanation for the suspensions or cited technical issues, Central Asia commentators have opined that the suspensions may be a response to OFAC sanctioning the head of AO NSPK, the central bank subsidiary that operates the Mir payment system, on 15 September. The Deputy Secretary of the US Treasury had also warned Turkish companies against doing business with sanctioned Russian persons as this could result in the imposition of secondary sanctions.
BRAZIL: REGIONAL GOVERNOR SUSPENDED THEN REINSTATED FOLLOWING ALLEGATIONS OF CORRUPTION
On 11 October, Paulo Dantas, the governor of the state of Alagoas in northeast Brazil, was removed from office by the Supremo Tribunal de Justiça, Brazil’s second highest court, following allegations of corruption. The order removed Dantas from office until 31 December, which would have been his last day in office if he were not re-elected on 30 October. The Public Prosecutor’s Office had opened an investigation into Dantas for reportedly orchestrating a state-wide corruption scheme that embezzled approximately BRL 54 million (USD 10 million) in public funds when he was a member of the state assembly (2019-2022). On 24 October, Dantas was reinstated by the Supremo Tribunal Federal, Brazil’s highest court, on the grounds that preventative measures cannot be taken against gubernatorial candidates up to 15 days before the first round. Dantas denied any wrongdoing and was re-elected governor of Alagoas on 30 October.
US: DIGITAL ASSET EXCHANGE INVESTIGATED IN TEXAS FOR SECURITIES VIOLATIONS
In a court filing dated 14 October, the director of enforcement of the Texas State Securities Board declared that the body was investigating FTX.US, a US-based cryptocurrency exchange founded in 2019 by international exchange FTX, on suspicion of offering unregistered securities to Texas residents. The state regulator is investigating whether yield-bearing cryptocurrency accounts are available to Texas-based investors despite FTX.US lacking the registration to sell securities in the state. Sam Bankman-Fried, FTX’s founder and CEO, is also involved in the investigation. The Texas State Securities Board recommended that pending the investigation, FTX.US should be prevented from completing its proposed USD 1.4 billion acquisition of Voyager Digital Holdings, Inc., a Canadian cryptocurrency lender which filed for bankruptcy protections in July 2022 amidst scrutiny of its business practices. A spokesperson for FTX.US told Bloomberg that the company has applied for a licence to operate in Texas.
MEXICO: OFAC SANCTIONS ALLIES OF THE SINALOA DRUG CARTEL
On 19 October, OFAC sanctioned Juan Francisco Valenzuela and the Valenzuela Drug Trafficking Organization, a family-run drug transportation network, for their involvement in the global illicit drug trade. According to the US authorities, the Valenzuela DTO operates under the Sinaloa drug cartel – run by drug lord Joaquin ‘El Chapo’ Guzman – for whom it has operated as a transportation cell. The Valenzuela DTO is accused of smuggling tonnes of illicit drugs, including methamphetamine and heroin, from Mexico into the US. After his two sibling were arrested by the US in 2020 and 2021, Juan Francisco is the last remaining family member at the head of the Valenzuela DTO.
FRANCE: CEMENT MANUFACTURER LAFARGE PLEADS GUILTY TO MAKING PAYMENTS TO ISIS AND AL-NUSRA FRONT
On 18 October, Lafarge S.A, the French cement manufacturer, pleaded guilty in a US federal court to making payments to two terrorist groups in Syria to ensure the continued operation of a cement plant in 2013 and 2014. Lafarge and its Syrian subsidiary, Lafarge Cement Syria (LCS), admitted to one count of conspiring to provide material support to the Islamic State of Iraq and al-Sham (ISIS) and the Al-Nusra Front, the groups in control of Jalabiyeh, where the cement plant was located. According to court documents, Lafarge and LCS paid the terrorist organisations approximately USD 6 million, which included payments to protect staff, purchase raw materials from ISIS-controlled suppliers, and ensure the companies’ economic advantage in the Syrian cement market. Some payments were reportedly disguised as monthly donations, and the companies’ executives allegedly requested that the name Lafarge not appear on invoices. LCS generated approximately USD 70.3 million in revenue from the cement plant thanks to its agreements with ISIS and the Al-Nusra Front. Lafarge and LCS have agreed to pay USD 778 million in fines and forfeiture.
SUB-SAHARAN AFRICA: THREE JURISDICTIONS ADDED TO THE FINANCIAL ACTION TASK FORCE GREY LIST
On 21 October, the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, added the Democratic Republic of the Congo, Mozambique, and Tanzania to its list of jurisdictions subject to increased financial monitoring, popularly known as “the grey list”. The countries were added to the grey list following a review of their respective anti-money laundering (AML) and counter-terrorist financing (CTF) regimes, which found strategic deficiencies in their AML and CTF protocols. The following countries remain on the grey list following the FATF’s October review: Burkina Faso, Mali, Senegal, South Sudan, Uganda, Jordan, Morocco, Syria, Turkey, the United Arab Emirates, Yemen, Albania, Gibraltar, Barbados, the Cayman Islands, Haiti, Jamaica, Panama, Cambodia, and Philippines. Pakistan and Nicaragua were removed from the grey list as a result of improvements to their AML and CTF regimes.
SOUTH AFRICA: FORMER ACTING CEO OF STATE POWER UTILITY ARRESTED ON GRAFT CHARGES
On 27 October, South Africa’s National Prosecuting Authority (NPA) and police arrested Matshela Moses Koko, the former acting CEO (2016-2017) of Eskom – South Africa’s national power utility – on charges of corruption, fraud, and money laundering. The charges relate to over ZAR 2 billion (GBP 96 million) in allegedly irregular contracts awarded by Eskom between 2009 and 2017 to build the Kusile power station. Specifically, Koko is alleged to have benefitted from a 2015 contract awarded to Swiss engineering company Asea Brown Boveri (ABB), which subcontracted its Eskom contract to a South African company tied to Koko’s family. Koko was released on ZAR 300,000 (GBP 14,500) bail, and the trial is set to commence in March 2023. Koko’s arrest follows the release of the Zondo Commission’s report into state capture which named him as an integral part of the capture of Eskom.
MIDDLE EAST AND NORTH AFRICA
IRAQ: USD 2.5 MILLION EMBEZZLED FROM TAX COMMISSION THROUGH CORRUPTION SCANDAL
On October 16, the Iraqi Ministry of Finance announced that USD 2.5 million had been embezzled from the country’s tax commission between September 2021 and August 2022 as a result of corruption. The corruption scheme reportedly involved the issuance of checks by the tax commission to five unnamed companies and resulted in the withdrawal of state funds from an account held by the tax commission at Rafidain Bank. The Finance Ministry launched an investigation into the embezzlement and corruption scandal – which is being described by local media sources as the largest embezzlement scandal in Iraq’s history – which has seen Acting Finance Minister Ihsan Abdul Jabbar resign as a result.