Month: January 2020

On January 29, Gulf News reported that on January 28 a special court in Kuwait charged with handling cases against government ministers imposed prison sentences on four individuals on corruption charges.  A former health minister, Ali Al Obeidi, was sentenced to seven years in prison, and a former undersecretary at the Kuwaiti Ministry of Health, an incumbent senior official, and an agent of a U.S. firm received similar sentences.

The court also ordered the four defendants to repay a total of $243 million “in connection with squandering and seizing public money,” and to pay KD10,000 ($32,830) each to remain on release until a higher court reviews the sentences.

These sentences reportedly are the first such sentences in Kuwait.  One member of the Kuwaiti Parliament hailed the ruling, saying that it “can herald a new phase in prosecuting ministers and senior officials for wrongdoing.”

Note: These sentences set an important precedent for the Kuwaiti government, particularly at a time when a spate of recent reports has raised questions about its failure to pursue corruption more aggressively.  In November, large anti-corruption demonstrations were held outside the Parliament and the Prime Minister and his cabinet stepped down amidst political turmoil that included alleged misuse of military funds.  In addition, Kuwait has fared poorly in recent corruption surveys. The 2019 Corruption Perceptions Index (CPI) rated Kuwait only 85^th (a decrease of seven places) among 180 countries, and the 2019 TRACE Bribery Rik Matrix rated Kuwait still lower, only 121st of 200 countries.

Kuwait’s Public Anti-Corruption Authority (Nazaha), according to the Kuwait Times, said that one of the main reasons for the decline of Kuwait’s CPI ranking was delay in issuing legislation that could have improved Kuwait’s CPI ranking, most notably a law on conflict of interests, a law regarding the right to know, regulation of information gathering, legislation for regulating appointment of leaders, and legislation on organizing electoral campaigns.  Nazaha also called for swift enactment of legislation that included revising the penal code to render bribing civil servants a penal crime, “criminalizing bribes in the private sector, expanding scope of responsibility to cover independent entities (persons and institutions) in tandem with international treaties and accords on revamping precautions against corruption.”

All of these actions would undoubtedly strengthen Kuwait’s hand in combating corruption.  But the government must also demonstrate that it will continue to investigate corruption aggressively, if it is to confirm the Kuwaiti Emir’s promise “that no-one, no matter his position, will evade punishment if convicted in public funds crimes.”

On January 28, aerospace company Airbus issued a statement in which it confirmed it “has reached agreement in principle with the French Parquet National Financier, the U.K. Serious Fraud Office and the U.S. authorities,” with regard to investigations into allegations of bribery and corruption and compliance with the U.S. International Traffic in Arms Regulations (“ITAR”).  These agreements “remain subject to approval by French and U.K. courts and [a] U.S. court and regulator[s].”

Bloomberg reported that “according to people familiar with the matter,” a final settlement with the three jurisdictions could be announced as early as this week.  Although the United Kingdom Serious Fraud Office (SFO), the U.S. Department of Justice, and the French Parquet National Financier (PNF) declined to comment, the expected charges, which involve the use of intermediaries in securing jet orders, could result in total penalties of approximately $3 billion.

Investigations of foreign-bribery allegations involving Airbus began in 2016, reportedly after Airbus’s then-Chief Executive Officer Tom Enders ordered an internal investigation and Airbus self-reported to authorities.  The SFO initiated its investigation in July 2016, followed by the PNF in 2017 and the Justice Department in 2018.

Note: If these reports are confirmed in the near future, depending on the total amount of the penalties imposed it would represent one of the largest multinational foreign-bribery resolutions involving the United States and other countries, and for the United Kingdom the largest share of any such resolution.  That latter aspect of the resolution also would provide a modest but much-needed boost in credibility for the SFO.  Since 2017, its successes in concluding Deferred Prosecution Agreements with companies in bribery and fraud investigations, such as Tesco, Sarclad, and Güralp Systems, have far exceeded its successes when prosecuting individuals associated with those companies.

On January 23, Bleeping Computer reported that cyber-attackers using the Sodinokibi ransomware have threatened to release data that they say were stolen from German automotive supplier Gedia Automotive Group.  According to Bleeping Computer, the attackers made the threat after Gedia allegedly failed to contact the attackers and pay a ransom to release encrypted company data.

The attackers used Russian hacker and malware forum NoAvatar to post the following message regarding Gedia:

They didn’t get in touch. All computers on the network are encrypted.  More than 50 GB of data was stolen, including drawings, data of employees and customers.  All this is carefully prepared for implementation on the stock exchange of information. What they don’t buy, we’ll post it for free. 7 days before publication.

Gedia reportedly picked up indications of the initial attack quickly, but found it necessary to shut down its headquarters’ IT systems “to prevent the complete failure of Gedia’s IT infrastructure.”  It acknowledged that the shutdown ”is likely to have far-reaching consequences” for all of the Gedia group of companies because all of its locations in eight countries, including the United States, are connected to the group’s central IT infrastructure and depend on it.

The Sodinokibi atttackers’ post about Gedia also included a brief message regarding U.S. information-technology staffing company Artech Information System: “we begin to sell data on exchanges.”  That message, which referred to data exchange platforms that cybercriminals favor, stemmed from Sodinokibi attackers’ recently posting “download links to 337 MB worth of files supposedly stolen from Artech.”

Note:  Information-security and financial crimes teams in companies and government agencies should take note of these two Sodinokibi incidents in planning defenses for and responses to ransomware attacks.  Sodinokibi, a highly evasive form of ransomware that takes multiple measures to prevent its detection, has been called “the Crown Prince of Ransomware.”

Although evasive ransomware is not new, Bleeping Computer reported that ransomware attackers have only recently adopted the new tactic of “[e]xfiltrating data before encrypting ransomware victims’ systems and leaking the stolen data.”  Because some ransomware victims refuse to pay the ransom, this new tactic is evidently designed to create additional incentive for the victims to comply with the ransom demand promptly.

On January 20, the Russian news service Interfax reported that Russian President Vladimir Putin proposed that the Russian Federation Council —  the upper chamber of the Russian Parliament — dismiss Yuri Chaika as Prosecutor General of the Russian Federation, in connection with Chaika’s transfer to another unspecified post.  Interfax also stated that according to the Kremlin’s press service, President Putin proposed Igor Krasnov, Deputy Chairman of the Russian Federation’s Investigative Committee, to succeed Chaika, and submitted Krasnov’s name to the Federation Council.

Chaika, who served as Prosecutor for nearly 14 years, was considered “one of the most powerful law enforcement figures in the country.”  Among other cases that he supervised, Chaika oversaw the posthumous tax-evasion prosecution of Russian lawyer Sergei Magnitsky, which died in 2009 after 11 months in Russian custody after he reported fraud by Russian officials.

A prosecutor since 1997, Krasnov reportedly served from 2006 to 2007 as investigator in the Prosecutor General’s central office, then moved in 2007 to the Investigative Committee as a senior investigator for particularly important cases under the Chairman of the Investigative Committee.  He is credited with investigating a number of high-profile criminal cases, including the attempted assassination of Russian politician Anatoly Chubais and the assassination of Russian physicist and Putin opponent Boris Nemtsov.  In 2016, Krasnov became Deputy Chairman of the Investigative Committee, and in 2017 was given the rank of lieutenant general of justice.

According to Interfax, Vladimir Poletaev, First Deputy Head of the Federation Council Committee on Constitutional Legislation, predicted quick action by the Parliament on Krasnov’s nomination.  As predicted, the lower house approved Krasnov on January 21, and the upper house on January 22.

Note:  The firing marks the second time in recent days that the President of a major nation with widely reported corruption problems has taken action against senior prosecutors.  South Korean President Moon’s actions, however, are evidently directed at reining in the power of prosecutors and police to investigate corruption effectively.  President Putin’s actions, by contrast, appear to be part of a series of political moves – including his submission of a package of constitutional amendments to the Parliament – that are calculated to enable him to retain power even after his fourth term as president ends in 2024.

These latest moves do not necessarily signal a trend toward greater high-level corruption in the Russian government.  Even so, risk and compliance teams for entities doing business in Russia should closely follow the progress of Putin’s constitutional amendments, and watch for future actions by Krasnov that could assist Putin in his quest for future power or in quelling further internal opposition to that quest.

Within the last two weeks, a series of high-level developments in South Korea have provided disquieting indications that the administration of South Korean President Moon Jae-in is intent on punishing Prosecutor General Yoon Seok-youl and other prosecutors who have taken on corruption investigations of South Korean officials, and on carrying out a program of reducing the powers of police and prosecutors to investigate corruption:

• January 1:
  • In a New Year’s message, President Moon declared that “no institutional authority exists above the people,” stating that he would “not stop pursuing legal and institutional reforms until institutions of authority are trusted by the people.” He also stated that he “hope[s] that institutions of authority will lead the way in reforming themselves,” and that he “will also do everything in [his] power according to the Constitution as a President elected by the people.”
  • Subsequently, an unnamed senior official in the “Blue House” (the executive office of the President) explained that President Moon is “saying that he will be exercising presidential authority, including appointment powers, in the event that prosecutors fail to reform themselves and obstruct the senior official investigation agency [that the South Korean National Assembly recently approved] or the changes to the prosecutors’ and police’s investigation powers.” Another official, when asked whether President Moon’s statement about “doing everything in his power according to the Constitution” meant that the President would be exercising appointment authority, replied, “He’s not limiting it [to that].”
  • President Moon also approved the appointment of Choo Mi-ae as Minister of Justice. In a subsequent conversation, President Moon reportedly told Minister Choo, “With the legal regulations stipulating that the Minister of Justice is the final oversight authority for prosecutorial duties, I hope that you will be appropriately directing prosecutorial reform efforts in the spirit of those regulations.”  Minister Choo herself stated that “[p]rosecutors hold authority for investigations and indictments, and they do not win trust when they just poke away to get the result they want while ignoring human rights. The role of the prosecutors’ is to accurately assess the crime and punish it duly while respecting human rights.”  Her remarks reportedly referred to alleged “dirt-digging” tactics that the Seoul Central District Prosecutors’ Office in its investigation of former Minister of Justice Cho Kuk, formerly a close aide to President Moon, and his family and acquaintances in 2019.
• January 8:
  • The South Korean Ministry of Justice announced the appointments of 32 officials, including the reassignment of three prosecutors who had been investigating scandals involving President Moon’s aides. Two of those aides, according to The Economist, were assigned to locations that are “traditional place[s] of banishment.”
• January 9:
  • The office of South Korean Prime Minister Lee Nak-yon issued a statement indicating that it had told Minister Choo “that it was ‘regrettable Yoon declined the justice minister’s request to propose opinions’ for the appointments,” and that Minister Choo should “make a right judgment call and come up with a needed step.”
  • At a parliamentary session, Minister Choo reportedly blamed Prosecutor General Yoon “for forcing her hand by not submitting a reorganization plan for his department that she said she requested,” adding that he “disobeyed my order to make reassignment proposals.”
  • Bloomberg also reported that a press camera captured an image of Minister Choo’s text messages, showing “that she was asking her ministry to look up punishment law clauses because she wants to exercise her authority as the supervisor. She didn’t identify who she wants to punish.”
  • The Prosecutor General’s office reportedly “sent prosecutors to a presidential committee overseeing national development . . . to search for evidence relating to alleged election interference.”
• January 10:
  • A Presidential spokeswoman said that Prosecutor General Yoon had sent investigators to the President’s office to request “crime-relevant materials,” but that the Blue House “rejected the request.”
• January 12:
  • South Korean television channel Channel A reported that an unidentified government official stated that President Moon “wants to punish” the Prosecutor General “for disobedience.” The official also said that Prosecutor General Yoon “should be held ‘accountable for his wrongdoing’,” and that “We’re currently reviewing which law clauses can be applied to his case.”
• January 14:
  • At his New Year’s press conference, according to Bloomberg, President Moon “faced a barrage of questions about purges of prosecutors.” He defended the decision to reassign the three prosecutors, and “deflected questions” about whether Prosecutor General Yoon still had his confidence.  He also asserted that “[t]he people are demanding reform in the prosecution because they feel it is acting on authority that exceeds the law . . . . The people applaud the prosecutors’ investigation, but in the process they see cases of uncontrolled investigative rights or publicizing the facts of suspected crimes that lead to media manipulation.”  According to the Yonhap News Agency, President Moon also “stressed that his administration’s prosecution reform drive is not related to ongoing investigations into high-profile scandals” involving current and former officials in his administration,  or to the reassignment of the prosecutors.

Note: While President Moon has characterized his administration’s recent actions as part of his “legal and institutional reforms,” they can also be viewed as a systematic effort to weaken the independence and authority of prosecutors whose corruption prosecutions have embarrassed the South Korean government.  These developments also come at a critical time for President Moon’s ruling party, the Democratic Party, which will be facing parliamentary elections in April 2020.  Any electoral setback, as Bloomberg reported, would weaken President Moon’s hand.

For these reasons, risk and compliance teams in companies doing business in South Korea should closely monitor developments with the Prosecutor General and the “reform” legislation for which President Moon has been pressing.