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Insight News

July 13, 2018

Are multinationals supporting terrorist financing?

French firm Lafarge, a major producer of cement, construction aggregates and concrete, is the subject of a formal investigation by French authorities over allegations of terrorist financing, violating international sanctions and committing crimes against humanity.   The charges  relate to alleged payments of nearly €13 million made by the Syrian subsidiary of Lafarge, to the Islamic State (IS) and other terrorist groups operating in Syria. The payments were made to ensure their Jalabiya plant was kept open and operational after other French companies had pulled out of the country because of the civil war that began in 2011.     The payments are alleged to have taken place between 2011 and 2014, before their merger with Swiss firm Holcim in 2015, becoming LafargeHolcim, made them the world’s largest cement maker.   The allegations surfaced in 2016 after a group of Syrians who worked at the plant complained on social media about how they had to fend for themselves when IS broke the arrangements that were in place and attacked the plant in September 2014.   Part of the arrangement between Lafarge and IS involved the terrorist group issuing travel permits to Lafarge workers and the company paying a 10% ‘tax’ to the terrorists . These ‘permits’ allowed the company’s staff to move freely inside what was, to all intents and purposes, a war zone. Documents filed in court allege that Lafarge executives often disguised their payments as ‘donations’ and relied on a pair of intermediaries, including a Syrian-Canadian consultant, to make the payments on their behalf.   The legal director at the European Center for Constitutional and Human Rights (ECCHR), stated that ‘the activities of Lafarge in Syria, in a context where extremely violent crimes have been committed – even right outside the factory – are a perfect illustration of how multinationals can feed conflicts.’   Naturally, Lafarge has attempted to distance themselves from the allegations declaring they ‘deeply regret what happened in our Syrian subsidiary and as soon as we were informed, we immediately took firm measures.’ They also confirmed that the people charged in relation to these offences are no longer with the company.   Eight former Lafarge executives, including erstwhile CEO Bruno Lafont, have been charged with financing a terrorist group and/or endangering the lives of others. Canadian billionaire Paul Desmarais Jr., a long-time Lafarge director, has also been questioned by police and reports in France indicate that the FBI has also launched an investigation.   The family of Mr Desmarais controls Montreal-based Power Corp., which, through a Belgian firm called Groupe Bruxelles Lambert (GBL), co-owned by the Desmarais family, is also a major Lafarge shareholder. Mr Desmarais and three other GBL executives have been questioned by police in relation to the case.   The Financial Action Task Force (FATF) set international standards for the effective implementation of measures to combat money laundering and terrorist financing. This is done through a series of recommendations from 2012 (since updated in February 2018 ). Their Recommendation 5 covers the terrorist financing offence and states that:   Countries should criminalise terrorist financing on the basis of the Terrorist Financing Convention and should criminalise not only the financing of terrorist acts but also the financing of terrorist organisations and individual terrorists even in the absence of a link to a specific terrorist act or acts. Countries should ensure that such offences are designated as money laundering predicate offences.   Many countries adopt the FATF recommendations when developing relevant laws and regulations, and France is no exception. The Fédération Bancaire Française confirmed their full commitment to combating the financing of terrorism , in line with the EU money laundering directives, so relevant checks will help to mitigate the possibility of these alleged offences happening again.   The question of how the alleged offences were originally allowed to take place remains though and suggests that the checks and controls administered for this organisation by its bank were simply not robust enough.   Despite the fact that LafargeHolcim has refuted the allegations, a French court will now have to determine whether the company’s actions violated international sanctions and financed terrorism. A conviction could mean up to 10 years in prison for individuals and a fine for the company. LafargeHolcim will also suffer some serious reputational damage as a result of this case, which will undoubtedly have a financial impact.   LafargeHolcim has been ordered to post a €30-million bond while the case proceeds, reflecting the serious nature of the charges, and, hopefully, letting other organisations operating in similarly hostile environments know that this type of cynical behaviour will not be tolerated by the authorities.   It will be interesting to see how this case develops in the coming months.   Further reading Terrorist financing, Singapore crime figures and cultural change afoot Sick, twist or fold? How best to manage emerging trends and best practice in money laundering and terrorist financing - This article forms part of the  #BigCompConvo  -  Join us as we explore and debate the latest challenges and issues facing you and regulatory and financial crime compliance professionals all over the world. If you’d like to contribute an article as part of the   Big Compliance Conversation  get in touch with us at Why not study for the ICA Specialist Certificate in Combating the Financing of Terrorism? This course provides a foundation knowledge of the meaning of terrorist financing and proliferation, an introduction to the legal frameworks associated with global counter-terrorist financing strategy and an overview of the key terrorist financing threats and risks. You will learn about the nature of and motivation behind terrorism; ways in which funds for terrorist organisations are gathered and processed; the risks organisations face in relation to the financing of terrorism; how organisations can identify terrorist financing risks; the relationship between money laundering and terrorist financing; and how a risk-based approach can be used to manage terrorist financing risks.
July 10, 2018

Given ample opportunities, Canara’s inadequate action led to FCA fine

Canara was warned its money laundering controls were inadequate and so its failure to remediate them properly is at the more serious end of the range of sanctions. Mark Steward, FCA Executive Director of Enforcement and Market Oversight   The £896,100 fine recently imposed on Canara Bank by the FCA is a useful example of the thinking behind penalties issued by the UK regulator.  Canara, owned by the Indian government, was found to have ‘failed to maintain adequate systems and controls to manage the risk of money laundering’ , the FCA said, and further, that measures taken to rectify these deficiencies were inadequate. Some of the deficiencies identified by the FCA as long ago as 2012 at Canara were still not addressed by 2015. One of the most eye-opening aspects of the story is that staff from Canara’s head office in Bangalore seconded to the bank’s London office did not possess a sufficient understanding of the statutory and regulatory AML measures required in the United Kingdom.   Canara was fined as they exacerbated their initial wrongdoing by failing to rectify problems aired by the FCA. Concerns were first raised in 2012 on a Trade Finance Thematic Project FCA visit, where the regulator identified ‘serious weaknesses’ in Canara’s AML systems and controls.   These concerns were again flagged in 2013. A final visit two years later in which the FCA declared changes related to the highlighting of their concerns to be insufficient moved them to take action: the PRA appointed a Skilled Person in September 2015 to carry out an assessment of Canara’s AML controls. The Skilled Person’s report underlined a number of alarming deficiencies, including an ineffective and poorly designed corporate governance structure, inappropriately designed AML systems and controls, a risk management and governance framework ‘not fit for purpose’ and a lack of understanding of the bank’s AML risk profile. Such were the findings that moved the FCA to impose a fine. Why did the FCA opt to issue a penalty quite so high on Canara Bank? The answer to that lies in the fact that Canara did not take adequate action following the FCA’s initial warnings, something which would have seen them avoid a financial penalty. The fine they did receive, however, was reduced by 30% on the basis that the bank agreed to settle early on in the investigation. The FCA’s Final Notice report also acknowledged that Canara had subsequently put resources into its AML controls, ‘including appointing a new MLRO who has previous AML experience’. Nevertheless, they will not be able to accept new deposits for 147 days (5 months). The FCA applied this sanction on top of the financial penalty as it felt that curbing activity, in conjunction with a fine, is a more effective deterrent to other banks than a financial penalty alone. The most striking aspect of this case is that Canara was given plenty of opportunities to avoid such an outcome which were not seized with a sufficiency that satisfied the FCA. The regulator in its announcement of the fine imposed on Canara did acknowledge that the issues highlighted had now been addressed by the bank. What can be taken away from this case? Surely the most pressing (and perhaps most obvious) point is that staff seconded into a new jurisdiction should be aware of the region’s laws and regulations regarding money laundering and financial crime. Second, that FCA penalties will not necessarily be merely financial. Third, that a reasonable response to identified shortcomings will mean a financial fine will be avoided  all facts that Canara Bank are now no doubt acutely aware.
July 6, 2018

International news and developments – June 2018

UK Region Canara Bank fined £896k by the FCA for AML failures NCA confiscate £300k from Chinese money launderer FCA publishes update on its review of retail banking business models FCA investigates allegations of insider trading at Carillion Standard Chartered compliance boss leaves after allegations of inappropriate behaviour 32Red to pay £2m penalty from the Gambling Commission for failing to protect a customer   EMEA Region EU banks face money laundering action after the Malta and Latvia cases Bank of Latvia president charged with taking a bribe SFO to prosecute Monaco-based Unaoil on corruption charges ‘Dubai leak’ exposes $110m dirty money trail Regulatory review beckons for Gibraltar IFA and ex-rugby star sentenced in £2.4m film tax scam Deutsche Bank fails the Federal Reserve stress test Iran given until October to address money laundering EU starts formal probe of Malta anti-money laundering agency over Pilatus bank €7 billion laundered through Danske Bank in Estonia, media reports   APAC Region Australia grapples with its big banks and the inherent risks of being too big to fail ANZ, Deutsche Bank and Citigroup face ‘criminal cartel’ charges Commonwealth Bank agrees to pay $700m to settle money laundering lawsuit Former Malaysian PM Najib Razak pleads not guilty to corruption in 1MDB trial   North America Region Société Générale agrees to pay $860m in criminal penalties for bribing officials FINRA fines online investment platform, Betterment, with $400k fine for violating customer protection rules Bank of America sued for allowing $102m Ponzi scheme Glencore hit with US subpoena over alleged money laundering   LATAM Region Two sentenced in $100m Venezuela money laundering scheme Authorities in Argentina step up money laundering case against Pablo Escobar’s son New Mexican president vows to fight the ‘evil’ of corruption General Electric’s chief in Latin America arrested over connections to cartel Brazilian businessmen guilty of bribery sentenced to 30 years in prison   Misc In Wake Of Data Breaches, Blockchain Technology Can Minimize Financial Fraud

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