The latest news from our regional desks about financial crime, corruption, sanctions, and integrity issues worldwide.
This month’s special edition of the Red Flag Bulletin includes S-RM’s key takeaways from the Pandora Papers, and the following stories:
- New US and Qatari sanctions against individuals linked to Hezbollah;
- German ministries raided during probe into the country’s anti-money laundering agency; and
- Dubai announces new institution for dispute resolution.
The Pandora Papers: What the leaks mean for financial services firms
On 3 October, the International Consortium of Investigative Journalists (ICIJ) and 150 media partners began publishing findings from the Pandora Papers, the latest in a series of ICIJ-led investigations based on leaked records from offshore jurisdictions. The dataset is individually larger in size than similar leaks, namely the Panama Papers of 2016 and Paradise Papers of 2017. It also appears to be wider in scope. Whereas those leaks were based mainly on documents from single law firms, this leak covers documents from 14 offshore service providers, dubbed “secrecy brokers” by the ICIJ. Six of these providers’ primary jurisdiction of operation is the British Virgin Islands, a key focus of previous leaks that looks set to feature heavily again. However, the Pandora Papers also covers providers with bases in Switzerland, Hong Kong, Belize, Dubai, the Seychelles, and Cyprus. ICIJ director Gerard Ryle has described it as “the Panama Papers on steroids”.
The initial focus of media coverage has been on sitting or former heads of state, or senior elected officials who are named in the leaked files. Data showing the offshore connections of 57 so-called “power players” are already searchable in the now-familiar format of the ICIJ Offshore Leaks Database. Subjects include King Abdullah II of Jordan, Azerbaijani president Ilham Aliyev, Czech prime minister Andrej Babiš, Ukrainian president Volodymyr Zelensky, Kenyan president Uhurru Kenyatta, and various associates of Vladimir Putin, all of whom are said to have held significant wealth through offshore vehicles, either directly or through relatives or associates.
It is too early to say what the consequences will be for the politicians named in the Pandora Papers, many of whom have publicly denied wrongdoing. While the Panama and Paradise Papers hardened public opinion against tax avoidance, and were reputationally damaging for some of those named, they did little to increase transparency or to end tax avoidance. This leak may lead to limited change in a few areas. First, the Pandora Papers shed light on the financial secrecy afforded by US states such as South Dakota. President Biden has been a vocal advocate for cracking down on global tax havens, and may be pressured into taking domestic action. Second, questions are being asked about the accountability and obligations of Swiss fiduciaries. The Pandora Papers have revealed them to play a key role in providing secrecy to high net-worth individuals, but they do not face the same due diligence and reporting requirements that banks do. Finally, it is likely to bolster calls for a register of beneficial ownership for offshore companies owning UK property.
Banks and other financial services firms are keen to understand who has been implicated. Individuals from Russia and Latin America reportedly make up a large proportion of the 29,000 ultimate beneficial owners (UBOs) of offshore companies named in the Pandora Papers, but most of their names will not become public until the ICIJ puts them into its searchable database. It has not set a timetable for this. Releases from the Paradise Papers were staggered over four months, with the first large addition coming two weeks after the first stories broke. The Pandora Papers cover twice the number of UBOs as the Paradise Papers, so the process may take longer.
As findings from the Pandora Papers are released over the coming weeks and months, financial services firms can take action by screening the dataset for the names of higher risk clients, to determine whether the leak reveals any new beneficial interests or possible political connections which merit deeper research. A good place to start might be clients who are tax resident in countries with capital controls like India, or where money laundering and other financial crimes are common.
Germany: Finance and justice ministries raided during investigation into the country’s anti-money laundering agency
On 9 September, the German ministries of finance and justice were raided as part of an investigation by the public prosecutor into the possible obstruction of justice by the Financial Intelligence Unit des Zolls (FIU), Germany’s anti-money laundering agency. Both the FIU and BaFin, Germany’s financial regulator, are under investigation for failing to look into suspicious transactions and money flows. In particular, they have been criticised for their failure to detect and act in a fraud scandal centred on Wirecard, the collapsed payments processing company. Olaf Scholz, the minister of finance and leader of the German Social Democratic Party (SPD), questioned the timing of the raids, which he claimed were politically motivated and intended to discredit him in the run-up to Germany’s federal election on 26 September. The SDP emerged from the election with the largest percentage of votes.
Malta: Former EU Commissioner for health faces bribery-related charges
On 17 September, John Dalli, former EU Commissioner for Health and Consumer Policy, was due to be arraigned before a Maltese court on criminal charges relating to a EUR 60 million bribery scandal which forced his resignation as EU Commissioner in 2012. One of Dalli’s aides at the time, Silvio Zammit, allegedly attempted to solicit a bribe of EUR 60 million from a Swedish tobacco company for Dalli’s support in overturning an EU ban on snus, a traditional Scandinavian smokeless tobacco product. The company refused to pay the bribe and reported the incident to the European Anti-Fraud Office, which opened an investigation. While Dalli has not faced any charges until now, Zammit was charged with trading in influence and complicity in bribery in December 2012; the case is ongoing.
Russia / CIS
Russia: Pressure against Google and Apple intensifies
On 17 September, two US-based Internet giants, Google and Apple, removed an election-guide app created by the Russian opposition leader, Alexey Navalny from their online stores. Since most genuine Russian opposition candidates were barred from the elections, Navalny’s app aimed to at least decrease the dominance of the incumbent United Russia party by rallying his supporters behind any mainstream opposition candidate with the highest chance of beating it. According to US media, Google and Apple decided to comply with the Russian state’s pressure following threats of “serious criminal prosecution” of their Russia-based employees. The pressure to remove the election-guide app was followed by threats to block YouTube by Russian authorities on 29 September. This was in retaliation for the video platform’s deletion of German-language channels of the Russian state-controlled television network, RT, due to the channels’ publication of “misinformation” about COVID-19 and vaccines.
Russia: Senior Russian gas company executive arrested in US
On 23 September, US authorities arrested Mark Anthony Gyetvay, a deputy chairman of the largest Russian private natural gas producer, Novatek, on charges of tax evasion. According to the authorities, Gyetvay defrauded the US state by concealing his ownership of offshore bank accounts and failing to fulfil his tax obligations on millions of dollars of income. On 24 September, a US court agreed to release Gyetvay on USD 80 million bail. Following his release, Gyetvay announced that he had pleaded not guilty and settled the tax evasion issue with the US authorities. Despite Gyetvay’s claims regarding the alleged settlement, the investigation against him appears to be ongoing. If convicted, he could reportedly face up to 20 years of imprisonment.
Russia: Head of Singapore-headquartered cybersecurity company arrested
On 28 September, Russian authorities arrested Ilya Sachkov, the CEO of Group-IB, a leading Russian cybersecurity provider headquartered in Singapore. Group-IB’s Moscow offices were searched on the same day. Russian authorities reportedly suspect Sachkov of state treason and intend to hold him in custody for at least two months. Sachkov faces up to 20 years in prison. The criminal investigation follows multiple similar arrests of Russian scientists, researchers, and journalists, who have been accused of passing sensitive materials to foreign nationals in recent years. A number of these cases have been widely perceived to be politically motivated as a method to prosecute or blackmail critics of the Russian government.
Middle East and North Africa
UAE: Dubai announces new arbitration centre
On 18 September, the ruler of Dubai announced the creation of the Dubai International Arbitration Centre (DIAC), a new autonomous institution for the resolution of disputes. Mohammed bin Rashid Al Maktoum, the ruler of Dubai and prime minister and vice president of the UAE issued Decree 34, which dissolved the Emirates Maritime Arbitration Centre and the Dubai International Financial Centre Arbitration Institute, folding their operations into the new DIAC. The announcement comes as part of Dubai’s ongoing efforts to become a global hub for arbitration of commercial disputes, and to encourage multinational companies to base themselves in Dubai.
Lebanon, Qatar: US and Qatar sanction Hezbollah-linked individuals
On 29 September, the US Treasury Department, together with the Qatari government, announced the imposition of sanctions on several individuals accused of financing Hezbollah, the Lebanon-based military and social organisation which is designated by the US as a terrorist organisation. The US Treasury Department announced that it was taking action against seven individuals – two Qatari nationals among them – including the freezing of the individuals’ assets, and the criminalisation of US citizens who do business with the sanctioned parties. The cooperation between the US and Qatari authorities signals one of the most significant actions taken jointly between the US and a Gulf Cooperation Council member, and is noteworthy given Qatar’s continued good relations with Iran, Hezbollah’s main backer and ally in the region. Since 2017, the US Treasury has targeted 90 Hezbollah-linked individuals and entities, and earlier this month sanctioned other Hezbollah financiers in Kuwait and Lebanon.
Paraguay: Hezbollah financier arrested and sanctioned
Paraguayan authorities arrested Kassem Mohamad Hijazi, a Brazilian national who allegedly headed a money laundering network based in the Paraguay-Argentina-Brazil Tri-Border area, following an extradition request from the US government. The US Department of Treasury imposed sanctions on Hijazi. A leaked 2005 telegram from the US embassy in Paraguay described Hijazi as a key activist and financier of Hezbollah, and a supporter of the terrorist activities carried out by Hezbollah’s military wing. The Tri-Border area, a major hub for illicit activities including, the transportation of drugs, counterfeit goods, and contraband in the region, has reportedly also served as a financial base for terrorist groups since at least 2005.
India: Whistleblower alleges bribery by lawyers working for Amazon
On 20 September, mainstream Indian newspapers reported that e-commerce giant Amazon had started an internal investigation into allegations that bribes were paid to officials in India through an external lawyer. The accusation is understood to derive from a whistleblower’s complaint. Rahul Sundaram, Amazon’s senior corporate counsel in India, has reportedly been placed on leave, while the external lawyer named in reporting, Vikas Chopra, has denied wrongdoing. Amazon is currently engaged in two high-profile disputes in India. It is contesting Reliance Retail’s proposed acquisition of Future Group’s retail operations and it is separately being probed by the Competition Commission of India over alleged anti-competitive practices. It is not clear if the accusation relates to either matter. Without confirming the specifics of the case, Amazon responded by stating that it has “zero tolerance for corruption”.
Malaysia: Anti-corruption officials accused of theft
On 20 September, local newspapers reported on the arrest of three senior Malaysian Anti-Corruption Commission (MACC) officers suspected of stealing some of the c.USD 12.1 million in cash that had been allegedly misappropriated by Hasanah Abdul Hamid, former director-general of Malaysia’s foreign intelligence agency. The officers were reportedly part of a team investigating Hamid, including looking at whether the cash was linked to the 1MDB fraud. They allegedly sought to conceal the theft by replacing what they took with fake banknotes. The move came despite Hamid herself having been granted a discharge not amounting to an acquittal for the alleged original theft in April 2021. The case has caused a political stir after MPs queried why the MACC was investigating its own officers’ wrongdoing, instead of the police.