Global review and update

Fraud moves like waves globally — disrespecting borders and nationalities.  However, regions often have common crimes and recurring problems. Here’s a review of some of what we’ve covered since the column’s inception in 2018 plus recent developments.

For the last 2019 issue of Fraud Magazine, let’s take a look at the developments — or lack thereof — of the Nordic countries’ anti-corruption efforts, the South Asian SWIFT scandals, U.K. Unexplained Wealth Orders, Canadian casino money laundering and more.

Nordic countries’ anti-corruption efforts

In my first column, in the September/October 2018 issue, I highlighted the strong rankings of the Nordic countries (Finland, Iceland, Norway, Sweden and Denmark) in anti-corruption surveys despite a series of scandals across the region suggesting that corruption has been worsening.

The worst of these scandals resulted in three Icelandic prime ministers resigning their posts because of undisclosed conflicts of interest and offshore financial dealings inspiring large-scale protests. (See the column.)

The fraud risks associated with international financial transactions — specifically the laundering of proceeds of corruption — became a big story in the Nordic region in late 2018 and 2019, with Denmark’s Danske Bank, Finland-based Nordea Bank and Sweden’s Swedbank at the center of massive money-laundering probes because of their handling of hundreds of billions of dollars in suspicious transactions.

Although all the Nordic countries remained within the top 15 of Transparency International’s Corruption Perceptions Index 2018, which focuses more on corrupt acts of government officials, a report from the European Commission indicated that the scandal-plagued Nordic banks ignored anti-money laundering requirements and supervisors didn’t address issues quickly enough. (See Corruption Perceptions Index 2018, Transparency International, and EU Banks May Face Tighter Laundering Rules After Scathing Report, by Alexander Weber, Bloomberg, July 24.)

Whether reforms result in enhanced anti-money laundering regulations that affect the Nordic banks — Nordea Bank, Swedbank and Danske Bank — the banks announced a new, joint know-your-customer (KYC) program in cooperation with three other regional banks to address the issues at the heart of the scandals. The initiative, which pools the KYC checks to bolster their effectiveness and share costs, should go into effect in 2020. (See Nordic banks join forces to combat money laundering, by Esha Vaish, Reuters, July 5.)

South Asian SWIFT scandals

Several high-profile fraud cases that exploited the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network — including the Punjab National Bank (PNB), which issued fraudulent guarantees for more than $2 billion in loans in 2018 and the Bangladeshi central bank heist in 2016 — painted a portrait of ambitious growth of South Asian economies and their fraud vulnerabilities in my November/December 2018 column.

The fallout from the PNB fraud lasted well into this year. PNB fired two senior executives and fined 19 lenders for non-compliance with SWIFT guidelines. U.K. police in London arrested Nirav Modi, a billionaire diamond dealer at the heart of the fraud. (See India sacks PNB execs for lapses in $2 billion fraud in first firings: sources, by Neha Dasgupta and Krishna N. Das, Reuters, Jan. 20; India’s banks may still be unprepared for another PNB-like mega scam, by Nupur Anand, Quartz India; and Indian billionaire arrested in London over alleged $2B fraud, by Swati Gupta, CNN, March 21.)

However, the lessons from the $2 billion fraud were apparently not sufficient enough to prevent Bhushan Power & Steel, a struggling borrower, from defrauding PNB again for more than $550 million. The company allegedly misappropriated the funds it obtained from PNB with manipulated financial statements. (See Indian Bank Defrauded by Another Borrower, by Krishna Pokharel, The Wall Street Journal, July 7.)

Canadian casino money laundering

A fraud scheme involving transnational organized crime groups laundering money through a casino in British Columbia had potential impacts on drug abuse and housing affordability while exposing fraud vulnerabilities in Canada (January/February).

Concerns surrounding vulnerabilities exposed by the “Vancouver model,” a money-laundering scheme, ultimately led to three more inquiries and reports, including another by one of my sources for the column, Peter German, QC.

His second report examined money laundering through British Columbia real estate, horse racing and luxury vehicle sectors. The four reports generated 122 recommendations to address the issues — with 59 for the British Columbian government, 49 for the federal government and the remainder addressed to several private and public entities. As of June, only 19 of the recommendations had been implemented. (See More than 120 recommendations delivered to tackle money laundering in B.C., Canada, by Gordon Hoekstra, Vancouver Sun, June 3.)

U.K. ‘Unexplained Wealth Orders’

In the March/April column, I covered a major development in anti-money laundering controls, Unexplained Wealth Orders (UWOs), related to the U.K. real estate market, which is essentially a “crisis capital” asset class for global kleptocrats.

The first UWO revealed the identity of Zamira Hajiyeva as owner of two luxury properties and forced her to disclose the source of the funds with which she purchased them. Hajiyeva is the wife of the International Bank of Azerbaijan’s former chairman who’s serving a 15-year sentence for embezzling more than $125 million from the bank.

As of August 2019, the U.K. National Crime agency has applied four UWOs in the country: the Hajiyeva UWO, another one in May regarding three residential properties linked to an as-yet-unnamed “politically exposed person” worth almost $100 million, a third in July targeting a businessman suspected of being involved in organized crime and a fourth in July targeting a woman in Northern Ireland believed to be linked to paramilitary groups involved in organized crime such as cigarette smuggling. (See NCA secures Unexplained Wealth Orders for prime London property worth tens of millions, National Crime Agency, May 29; Real Estate Businessman Ordered To Explain How He Built A $12 Million Portfolio, by Ollie Williams, Forbes, July 18; and ‘McMafia’ law used on Northern Irish woman linked to paramilitaries, by Rupert Neate, The Guardian, July 31.)

The quickening pace of the UWOs and the expansion of targets from politically exposed persons to organized crime suspects suggests that UWOs will become more regular, which will boost the U.K.’s efforts against the laundering of crisis capital.

Middle Eastern corruption and money laundering

In the May/June column, which focused on the Middle East, I tried to convey the disparity between oil-rich nations in the region like the United Arab Emirates or Saudi Arabia and conflict-affected countries such as Syria and Yemen.

International investment in the former types of countries has been accompanied by third-party fraud risks and tax avoidance or money laundering schemes, but fraud awareness and anti-fraud efforts are increasing in the countries with the financial wherewithal and institutional stability to enforce reforms.

In particular, Saudi Arabia’s anti-corruption purge saw more than $100 billion recovered from princes, ministers and businessmen who were arrested and charged with crimes related to fraud and corruption.

Saudi Arabia has continued its push against fraud and corruption in 2019 with a new anti-bribery and competition law. The anti-bribery reform extends criminalization of bribery to the private sector and expands the scope of public sector bribery regulation. The competition law criminalizes bid-rigging and other anti-competitive practices related to government contracts. (See Saudi Arabia expands anti-bribery legislation to the private sector, by Adam Vause, Amer Abdulaziz Al-Amr and Zara Merali, DLA Piper publications, May 16.)

Meanwhile, conflicts in Syria and Yemen continue to drag on with no realistic end in sight, which is preventing authorities in those countries from devoting resources to fighting fraud and creating exploitation opportunities for fraudsters.

For example, a recent Associated Press investigation alleges that U.N. aid workers, in collaboration with Houthi rebels or local officials, have misappropriated donated funds, awarded suspicious contracts and diverted donated medical supplies. (See AP: UN workers accused of fraud, theft in handling Yemen aid, by Maggie Michael, Egypt Independent, Aug. 5.)

Asia-Pacific cybercrime

I covered increasing cybercrime in the Asia-Pacific region in the July/August column — romance fraud schemes, cryptocurrencies, North Korean state-sponsored hacking for profit and the laundering of those funds through the region’s international financial centers such as Hong Kong and Singapore.

Despite recent political unrest, cybercrime and online fraud schemes remain a major focus for Hong Kong authorities. An August report from Hong Kong officials indicated that the special administrative region’s Anti-Deception Coordination Centre managed to intercept half of the more than $330 million generated from internet and phone scams that was transferred in and out of Hong Kong bank accounts over the first six months of this year. Also, for the first time ever, the Anti-Deception Coordination Centre froze overseas funds that were the proceeds of fraud. (See Hong Kong anti-fraud squad intercepts nearly HK$1.3 billion from online and phone scams – half the swindled cash that has moved through the city in 2019, by Clifford Lo, South China Morning Post, Aug. 6.)

The North Korean cybercrime threat, and the associated laundering of the generated proceeds, seems likely to persist or increase in the region, especially in light of a report to the U.N. Security Council’s committee on North Korea sanctions, which estimated that state-sponsored cyberattacks have generated $2 billion in funding for weapons of mass destruction programs. (See North Korea took $2 billion in cyberattacks to fund weapons program: U.N. report, by Michelle Nichols, Reuters, Aug. 5.)

Emboldened by anti-fraud efforts

In this column, I’ve covered fraud schemes ranging from corruption to financial institution fraud and cybercrime worldwide. As we revisit these crimes, we’re reminded of perpetrators’ persistence to defraud billions of unsuspecting citizens around the globe.

I hope that fraud examiners will benefit from knowing about these regional risks and are emboldened by fellow practitioners’ efforts to expose and combat fraud across every continent and territory.

Mason Wilder, CFE, is a research specialist with the ACFE. Contact him at mwilder@ACFE.com.