Month: August 2019

On August 14, the United Kingdom National Crime Agency (NCA) announced that it had obtained Account Freezing Orders (AFOs) on eight bank accounts containing a total of more than £100 million, which the NCA said “is suspected to have derived from bribery and corruption in an overseas nation.”

The NCA stated that the AFOs, which it obtained on August 12, “represent the largest amount of money frozen using AFOs since they were introduced under the Criminal Finances Act 2017.”   It also noted, without further explanation, that “[a]pproximately £20m held by a linked individual was frozen following a hearing in December 2018.”

Note: Under section 362J of the Proceeds of Crime Act 2002 (as amended by the Criminal Finances Act 2017), when the High Court makes an unexplained wealth order (UWO) with respect to any property, on application of the enforcement authority that applied for the UWO, the court may make an interim freezing order.  That order “prohibits the respondent to the unexplained wealth order, and any other person with an interest in the property, from in any way dealing with the property.”  The court may issue the order “if the court considers it necessary to do so for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated.”

While the NCA release indicates that these AFOs represent the largest amount of money frozen via the AFO process, they are evidently not the first AFOs that the NCA has obtained.  The NCA briefly mentioned that previously in 2019,

in unrelated cases, the NCA secured an account forfeiture order against more than £400,000 held in frozen bank accounts belonging to a Moldovan national. Another forfeiture order was granted on money held in an account belonging to the niece of Syrian ruler, Bashar al-Assad.

The latter reference is to a forfeiture order that the NCA announced in May 2019, pertaining to 22-year-old Aniseh Chawkat.  During 2017 and 2018, while Chawkat was studying in London, the NCA stated that 56 six cash deposits totaling more than £150,000 were paid into Chawkat’s account at Barclays branches across England, even though Chawkat reportedly had no identifiable source of income.  In addition, the NCA found that Chawkat had rented a London flat for more than £60,000 per year.

As her uncle and both of her parents were subjects of international sanctions, the NCA obtained an AFO on her account in November 2018, and the forfeiture order in May 2019.  With regard to the forfeiture order, the NCA asserted that the financial activity connected to Chawkat “is consistent with the use of an informal value transfer system which may result in the laundering of criminal cash and, in this particular case, had the effect of circumventing EU financial sanctions designed to restrict the use and availability of Syrian regime funds.”

On August 14, in Glencore International AG v. Commissioner of Taxation, the Australian High Court unanimously dismissed a civil action by companies within the multinational commodities trading and mining firm Glencore, which had sought to enjoin the Australian Tax Office (ATO) from making any use of certain Glencore-related documents that were among the so-called “Paradise Papers” (“Glencore documents”) and to compel the ATO to deliver up the Glencore documents.

Glencore had alleged that the Glencore documents were documents stolen from the Bermuda law firm Appleby, which Appleby had created for the purpose of providing Glencore with legal advice.  Accordingly, Glencore “asserted that the Glencore documents are subject to legal professional privilege and have asked the defendants to return them and to provide an undertaking that they will not be referred to or relied upon.”

The High Court first declared that “[t]here is no issue about the Glencore documents being the subject of legal professional privilege.”  Since the ATO obtained the Glencore documents as a result of the Paradise Papers’ public disclosure, the Court stated that those documents “are in the possession of the defendants and may be used in connection with the exercise of their statutory powers unless the plaintiffs are able to identify a juridical basis on which the Court can restrain that use.”

The High Court, however, made clear that under Australian law, documents which are subject to legal professional privilege are exempt from production only if they are sought “by court process or statutory compulsion.”  Although Glencore argued that the legal professional privilege was “a fundamental common law right” for which it could sue the ATO, the Court held that it was not a legal right which is capable of being enforced, but “only an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications.”  In its view, Glencore’s argument “seeks to transform the nature of the privilege from an immunity into an ill-defined cause of action which may be brought against anyone with respect to documents which may be in the public domain.”

The High Court further stated that actions for the recovery of privileged material were confined to situations where there may be a breach of confidence, and “the basis for an injunction is the need to protect the confidentiality of the privileged document.”  As the ATO had not sought to breach attorney-client confidentiality, the court dismissed Glencore’s argument for further expanding the scope of the privilege, holding that “[p]olicy considerations cannot justify an abrupt change which abrogates principle in favour of a result seen to be desirable in a particular case.”

Note:  This decision establishes an important precedent in Australian law.  It also could prove to be influential with courts in other common-law countries, as they address whether law enforcement agencies in those countries may use “Panama Papers” or “Paradise Papers”-type leaked documents to prosecute cases against individuals or companies.  But because the details of attorney-client privilege law can vary substantially from country to country, it is far from certain that Glencore will be the final word on the subject.

On August 13, Reuters reported that a senior official of the Monetary Authority of Singapore (MAS) stated that the MAS “is raising its guard against money launderers increasingly using onshore shell companies to mask their transactions.”

In an interview with Reuters, Valerie Tay, head of the MAS’s anti-money laundering (AML) unit, said that over the past year, banks in Singapore had closed accounts of several onshore shell companies they detected unlawful transactions.  However, when the MAS looked more deeply into the risks, Tay noted,

we realised that while criminals may still be using offshore companies, actually they have shifted to using onshore companies to evade detection. . . . And that’s when we started to be concerned. Because when the modus operandi of criminals shifts to evade detection and the industry isn’t vigilant enough, the criminals can get their way.

Tay also reportedly said that “red flags at shell companies included disproportionately large or high-velocity transactions and unusual patterns in dealings.”  Accordingly, she stated, the MAS has told banks to “actively look for shell companies that can be abused for illicit financing.  So there’s a supervisory expectation for pro-active detection and disruption of illicit finance.”

The origins of the MAS’s heightened attention to money laundering can be traced to 2015, when Singaporean authorities found that certain funds associated with 1MDB had been laundered through Singapore’s banking system.  That, in Tay’s words, “was a wake-up call for everyone,” which led to a spate of MAS enforcement actions.

Note: Until fairly recently, Singapore had been viewed by some as “an increasingly popular haven for money laundering and tax evasion.”  But several developments since 2013 — including a substantial increase in the number of Suspicious Transaction Reports filed and the 1MDB scandal – led to more vigorous governmental responses, such as the MAS’s shuttering and fining of various banks and the enactment of increased criminal penalties for money laundering and terrorist financing.  In addition, since the release of the Panama Papers in 2016, the MAS has taken note of the fact that, as Tay put it, “foreign criminals have turned their attention to using Singapore shell companies for nefarious activities.”  The MAS will need to use all of the tools at its disposal, such as the public-private AML/CFT Industry Partnership and its oversight and enforcement authority, on a sustained basis if it is to have a substantial effect on that problem.

In the latest chapter in the lengthening saga of the collapsed private equity firm Abraaj Group, on August 12 Bloomberg reported that a court in Sharjah, United Arab Emirates (UAE) sentenced Arif Naqvi, Abraaj’s Chief Executive and founder, in absentia to three years’ imprisonment.  The sentencing occurred in a case relating to low-cost air carrier Air Arabia.

In June 2018, after Abraaj had filed for provisional liquidation in the Cayman Islands, Air Arabia disclosed that “it had an exposure of $336 million to Abraaj through funds and short-term loans.”  That exposure – the largest of any publicly-listed UAE companies — reportedly stemmed from Abraaj’s borrowing money from Air Arabia, on whose board Naqvi had sat at the time.  Abraaj, however, then used the funds to cover shortfalls in one of the Abraaj funds and mislead investors, according to federal prosecutors in the United States.  In July 2018, arbitration proceedings concerning Abraaj and Air Arabia took place.

In January 2019, Air Arabia, which had already filed claims in the Abraaj liquidations, filed a misdemeanor case against Naqvi in a Sharjah court, reportedly making Air Arabia the first publicly-traded firm to initiate legal proceedings against Abraaj.  Subsequently, Air Arabia reported a full-year loss of $166 million “after booking impairments to cover its $336 million exposure to Abraaj.”

Note:  UAE authorities are unlikely to obtain custody of Naqvi for the foreseeable future.  Naqvi is currently in the United Kingdom, challenging his extradition to the United States.  If extradited and convicted in the United States, Naqvi could face a sentence of decades of imprisonment, given the massive amount of the alleged fraud, as well as substantial civil penalties and disgorgement of ill-gotten gains in civil litigation that the Securities and Exchange Commission has filed.

On August 12, the Colombian Superintendency of Industry and Commerce announced that it was fining Uber Technologies $629,000 for obstructing a regulatory visit in October 2017.  According to the Superintendency, “Uber urges employees not to give information to regulators and to block access to company computers” and implemented those policies during the visit.

The Superintendency also meted out fines to two Uber legal staff members and one Uber manager, in amounts ranging from $1,469 to $7,344.  It asserted that those three Uber employees “collaborated and executed the obstruction of the mentioned administrative visit and the incompletion of the orders and instructions imparted by the Superintendency.”  It also declared it “proven that these people gave evasive and incomplete declarations about their roles and functions inside the company, and about their knowledge of the corporate structure of Uber Colombia.”

Reuters reported that Colombia “has not specifically regulated transport services like Uber, but has said it will suspend for 25 years the licenses of drivers caught working for the platform.”  It also noted that “Uber has repeatedly drawn the ire of authorities in Colombia, where use of the service is widespread but illegal.”

Last month, the Superintendency announced that Uber would have four months to improve its data security, in the wake of the Uber 2016 data breach that resulted in compromising the data of 57 million Uber users, including approximately 267,000 Colombian residents.  In addition, police authorities in Bogota closed an Uber Driver Care Center because the center did not have a certificate for an automatic door on the premises.  Uber reportedly objected to the closure and stated that it would bring legal action to challenge the closure.

Note:  Because Uber stated that it had not officially been informed of the fine but would examine it once it was informed, at the moment there is no final resolution of the matter.  Even so, regulatory compliance officers should regard this official action as an opportunity to revisit their policies and procedures for how to respond to regulatory interactions and requests for information.

If a company finds itself in a fractious relationship with a primary regulator in some jurisdiction, that company – at least if its products or services are deemed legal in that jurisdiction – needs to do more than simply be appropriately responsive and timely when that regulator seeks information to carry out its mandate.  In parallel with its day-to-day interactions with that regulator, it must also pursue discussions with senior regulators to damp down the fractiousness and to improve mutual understanding.

Senior business leaders, in other words, must make clear to their executives and managers that conflict management, not conflict promotion, is essential to the long-term management of business-regulator relationships.   That point should be reinforced in internal training, and in meetings to prepare for regulatory inspections or examinations.