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:
- Bain & Company banned from participating in South African government contracts until September 2032 due to earlier corruption allegations;
- Russian Central Bank considers launching fund to compensate Russian investors with frozen assets abroad, to be funded with income from foreign-owned assets frozen in Russia; and
- Brazilian airline Gol Linhas Aéreas Inteligentes SA reaches USD 41.5 million agreement with Brazilian and US authorities to close bribery investigations.
China: Former justice minister sentenced to life in prison for corruption charges
On 22 September, China's former justice minister Fu Zhenghua received a suspended death sentence for taking bribes and "bending the law". He faces life in prison. Fu had led several high-profile investigations into corrupt politicians during his tenure as justice minister, including a probe which brought down Zhou Yongkang, one of the most powerful officials in recent years to be convicted of bribery. However, between 2005 and 2021, Fu had allegedly accepted bribes worth more than CNY 117 million (USD 16.3 million). In addition, when Fu was head of the Beijing Public Security Bureau between 2014 and 2015, the court said he hid evidence of suspected crimes committed by his brother, Fu Weihua, and failed to handle the case in accordance with the law.
Malaysia: Former deputy prime minister acquitted of bribery charges, still faces other corruption charges
On 23 September, Malaysia’s former deputy prime minister Ahmad Zahid Hamidi was cleared of 40 bribery charges after the High Court ruled that prosecutors failed to provide enough evidence, with vital witnesses deemed unreliable. Between 2014 to 2018, Zahid allegedly accepted MYR 50.5 million (USD 11 million) as an inducement to extend Ultra Kirana Sdn Bhd’s contract as operator of a foreign visa system for the Ministry of Home Affairs, and c. USD 1.5 million in cash from the same company whilst in his capacity as the then-minister of home affairs. Despite this ruling, Zahid is still facing 47 other charges for breach of trust, corruption, and money laundering. He previously served as deputy prime minister within Najib Razak’s government, who recently received a 12-year prison sentence for corruption charges linked to the 1MDB scandal.
Bolivia: Corruption investigation launched into state-owned infrastructure company accused of accepting bribes from Chinese company
On 9 September, the Bolivian Public Prosecutor’s Office and the Ministry of Justice opened an investigation into Administradora Boliviana de Carreteras (ABC), a Bolivian state-owned infrastructure company, and Asociación Accidental China Harbour (AACH), a Chinese infrastructure consortium. The Chinese consortium is suspected of having paid bribes totalling BOB 18 million (USD 2.5 million) to the infrastructure company. The bribes were reportedly paid to secure a BOB 456 million (USD 64.7 million) contract for a road construction project, which was awarded to the Chinese consortium in February 2022. On 9 September, the AACH issued a press release stating it was committed to cooperating in the investigation with the Bolivian authorities.
Brazil: Brazilian airline reaches USD 41.5 million agreement with Brazilian and US authorities to close bribery investigations
On 15 September, Gol Linhas Aéreas Inteligentes SA, Brazil’s second largest domestic airline, agreed to pay over USD 41.5 million to settle parallel bribery investigations being conducted by criminal and civil authorities in Brazil and the US. The company admitted to paying USD 3.8 million in bribes to Brazilian officials between 2012 and 2013 in exchange for favourable tax legislation to be passed, and later illegally concealed these transfers in Gol’s internal accounts. Gol also entered into a deferred prosecution agreement with the US Department of Justice relating to a criminal investigation for violating the Foreign Corrupt Practices Act. The airline further agreed to pay USD 3.4 million to Brazil’s Attorney General’s Office and the Federal Accounting Court to settle related proceedings. Additionally, Gol will pay approximately USD 24.5 million over two years to the US Securities and Exchange Commission to resolve parallel investigations. The SEC has acknowledged Gol’s cooperation during these investigations, and stated that the company has taken measures to remediate the effects of its violations.
US: White House paves way for digital assets regulation
On 16 September, the executive office of US President Joe Biden released a comprehensive framework for the responsible development of digital assets. The first of its kind, the framework paves the way for future regulation of crypto markets in the US. It focuses on various aspects of crypto finance – including consumer protection and countering illicit finance – as well as US leadership in the global financial system and responsible innovation. It calls on US regulators, including the Securities and Exchange Commission, and the Commodities Futures Trading Commission, to “aggressively pursue investigations and enforcement in the digital assets space,” and encourages US enforcement agencies to collaborate internationally. The US Treasury is expected to complete two illicit finance risk assessments on decentralised finance and non-fungible tokens by mid-2023. In addition, the framework discusses the potential benefits of a US Central Bank Digital Currency, a digital form of the US dollar, and recommends that the Federal Reserve continue its research into this.
Panama: Two former presidents charged over corruption scandal
On 17 September, Panama’s public prosecutor’s office charged former presidents Ricardo Martinelli (2009-2014) and Juan Carlos Varela (2014-2019) with money laundering in connection with the international corruption scandal surrounding Odebrecht SA, a Brazil-headquartered global construction conglomerate. The indictment alleges the former presidents received funds from the company between 2008 and 2014 through front companies and foreign bank accounts. The charges against Martinelli and Varela are part of a larger Odebrecht trial in Panama, where Odebrecht paid approximately USD 55 million in bribes, that involves 83 defendants. In May this year, Martinelli’s sons were sentenced to three years in prison in the US for international bribery and money laundering in relation to the Odebrecht scandal. Varela and Martinelli have both denied the accusations against them, with Martinelli additionally claiming immunity as a member of the Central American Parliament.
UK: Economic Crime and Corporate Transparency Bill passes first reading in parliament
On 22 September, the UK government’s Economic Crime and Corporate Transparency Bill passed its first reading in the House of Commons. The bill is intended to build on the Economic Crime (Transparency and Enforcement) Act 2022, which was introduced in February this year in response to the Russian invasion of Ukraine and includes measures to strengthen UK sanctions legislation. The new bill features wide-ranging reforms to Companies House, the UK corporate registry, requiring it to verify the identities of those registering a company, and providing it with greater investigatory and enforcement powers. It also tightens registration and transparency requirements for limited partnerships. Additionally, the bill modernises current anti-money laundering legislation by granting enforcement agencies greater powers to seize and recover digital assets such as cryptocurrencies. The second reading of the bill is due to take place on 13 October, when its content will be debated by MPs.
RUSSIA AND CIS
RUSSIA: CENTRAL BANK CONSIDERS FUND TO COMPENSATE RUSSIAN INVESTORS WITH FROZEN ASSETS ABROAD
On 8 September, the Russian Central Bank announced it was considering establishing a fund to compensate Russian retail investors whose foreign assets have been frozen following the imposition of international sanctions against Russia. In order to reimburse as much of the RUB 6 trillion (GBP 92 billion) in frozen funds as possible, the Central Bank intends to use income from Russia-based assets belonging to foreigners that Russia froze in response to western sanctions. The idea of the compensation fund was introduced after the Central Bank announced on 6 September that, under certain circumstances, it will prevent Russian investors from buying securities issued in “unfriendly countries” – including Ukraine, the EU, and the US – from 1 October onwards. By 2023, Russian investors’ portfolios will not be allowed to include any securities issued in such countries. Elvira Nabiullina, the head of the Russian Central Bank, was sanctioned by the UK and US on 30 September.
Kyrgyzstan: Second and third serving ministers face criminal action since June 2022
Since 13 September, the Kyrgyz authorities have launched investigations and detained two serving government ministers. On 13 September, Kyrgyzstani prosecutors launched two investigations against Doskul Bekmurzayev, the acting head of the Energy Ministry, on suspicion of fraudulent misuse of state funds. On 28 September 2022, they announced the detention of Almazbek Beishenaliev, the Minister of Education, on bribery charges. Bekmurzayev and Beishenaliev – who have both denied the accusations against them – are the second and third serving Kyrgyz ministers to have been investigated or arrested on corruption or abuse of office charges. On 2 June, Minister of Health Alymkadyr Beishenaliyev, a reported loyal political confidant of president Sadyr Japarov, was detained on seven criminal charges, including corruption, bribe-taking and abuse of office. He has described the charges as an act of revenge by former Kyrgyzstan’s former prosecutor general.
DRC: Presidential adviser resigns amid corruption allegations
On 16 September, Vidiye Tshimanga, a Congolese strategic adviser to the DRC’s president Felix Tshisekedi, resigned after leaked video footage implicated him in negotiating a corrupt mining deal. The footage showed Tshimanga meeting with purported potential investors, promising them assistance in winning mining licences in return for a stake in the deal, and describing how he could hide his share through opaque corporate structures. Tschimanga has denied wrongdoing, stating that his remarks were taken out of context or misunderstood because of his poor command of English. In his resignation letter, he explained that he resigned out of “ethical obligation”. On 21 September, following his resignation, the DRC’s general prosecutors’ office, placed Tshimanga under a provisional arrest warrant in relation to the matter, although he was released within six days. The investigation into Tshimanga is ongoing.
South Africa: International consultancy banned from state contracts over alleged misconduct
On 29 September, the South African National Treasury announced that it had banned US-headquartered global consultancy firm Bain & Company from participating in public sector contracts from 5 September 2022 until 4 September 2032. Bain has been implicated in allegations of corruption and misconduct relating to its contract with the South African Revenue Service (SARS), which were detailed as part of the Zondo Commission, a judicial commission of inquiry into allegations of state capture under the administration of former South African president Jacob Zuma. The South African treasury’s ban follows a three-year government contract ban imposed on the firm by the UK government in August 2022, due to the allegations regarding Bain’s conduct in South Africa. Bain has stated that it disagrees with the bans and, while acknowledging “serious mistakes” in its work for SARs, the firm has denied that it engaged in corrupt or fraudulent practices.