fraud and corruption on the loose agenda fcpa, aml, organized crime, terrorism – fraud is a common...
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Fraud and Corruption on the Loose
Agenda• FCPA, AML, Organized Crime, Terrorism – Fraud is a
Common Thread:: Impacting Compliance• Introductions• Terrorist and Criminal Groups• Fraud and Money Laundering• Securities Fraud• Ponzi Schemes• FCPA• Conclusions
21st Annual ECI Conference
Fraud and Corruption on the Loose
• Martin Biegelman– Director, Financial Integrity Unit, Microsoft– Former Inspector in Charge, US Postal
Inspectors
• Dennis Lormel– President & CEO, Lormel Associates– Former Chief Financial Crimes Section – FBI
• Dan Wachtler– President & CEO IPSA International, Inc.
21st Annual ECI Conference
Terrorist and Criminal Groups
• Must Have Continuous Stream Of Funds Available
– Must Have Capacity to Raise Funds
• Fraud and Money Laundering Often Key
– Nexus Between Fraud and Money Laundering
• Drug Trafficking the Most Lucrative Criminal Activity
• Must Have Immediate Access to Funds
• Pose Threat to National Security and Economy
– Importance of Disruptive And Preventive Measures
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Exploitation of Systemic Vulnerabilities
• Terrorist and Criminal Organizations Constantly Exploit Systemic Vulnerabilities
• Vulnerabilities or High Risk Areas in the Financial Services Sector
October 3, 2001*
▫ Wire Transfer
▫ Correspondent banking
▫ Fraud
▫ MSBs
* Lormel Testimony Before House Committee on Financial Services
October 19, 2010
▫ Fraud
▫ Money Laundering Wire Transfer
Correspondent Banking
Illegal Money Remitters/Hawalas
Shell Companies
Electronic Payments
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OC - Terrorism Nexus
• Organized Crime Groups are Incorporating Characteristics And Methods of Operations from Terrorist Groups
• Terrorist Groups are Adopting Strategies Learned from Organized Crime
• This Evolution Makes Both Groups Stronger and More Flexible
• Tri-border Region Example
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Fraud and Money Laundering
Fraud and Money Laundering are
Interconnected
• The Proceeds of Fraud and Other Criminal Activities
Need to be Laundered
• Gives Appearance of Legitimacy
• Groups Must Have Sources (Fraud) and Availability
(Laundering) of Funds to Succeed
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Fraud and Money Laundering
Who are We Dealing With?
• Individuals or Groups Engaged in Fraud
• Gangs
• Drug Dealers, Organizations or Cartels
• Ethnic Organized Crime Groups
• Terrorists or Terrorist Groups
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Laundering through Securities…
…Fact or Fiction?
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Testimony in the Stratton Oakmont case supports the premise that sophisticated criminals have used the financial markets to launder funds.
FACT
The crumbled yellow legal paper is included as evidence in the case file.
An FBI agent taping informants as part of the case witnessed an accountant
explaining how funds would be laundered through a series of trades which increased
the price of the security and transferred the funds between parties.
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A convicted Indo-Canadian gangster with links to the Air India bombing case has been a shareholder in three U.S. shell companies whose founding director remains under police investigation, The Vancouver Sun has learned. Jethinder Singh (Roman) Narwal is listed in corporate annual reports as owning a million shares in each of Super Ventures, Multimod Investments Ltd. and Easy Com Inc., registered in Nevada as shell companies to be used for Internet gambling opportunities. Both Karin Sidhu and Jaswinder Parmar were in B.C. Supreme Court March 9 to support Roman Narwal as Justice Sunni Stromberg-Stein found him guilty on 13 of 15 counts in three brutal drug-related kidnappings and extortions. The three 2005 abductions were in retaliation for ripoffs of marijuana stockpiles worth more than $1 million during the first four months of last year, according to testimony at Roman Narwal's criminal trial. (EXCERPT, Vancouver Sun, Kim Bolan, 3/27/2006)
On an anecdotal basis, arms dealers, drug traffickers and
parties alleged to be associated with organized crime continue to
show up in association with securities trading on the less
regulated securities exchanges.
FACT
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Challenges
• Lack of Transparency and/or accessibility of information related to Pink Sheet Only and Grey Market securities
• Lack of filings or ability to validate # of investors and/or total shares outstanding
• No Common “Penny Stock Bad Guys” list - penny stock , officer & director bars
• Transaction monitoring rules in many systems may not be sophisticated enough to build scenarios of concern
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Dilemmas
• Appropriate Control Points
• Bad Idea vs. Fraudulent Intent
• Determining Association vs. Participation
• Victim vs. Participant
• Practical & Reasonable Surveillance & Controls
• Surveillance vs. Investigation
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FATF Global ML/TF Threat Assessment
• Released July 2010• Based on Typologies and Threat Assessment
– Strategic Surveillance Initiative• Detailed Questionnaire Responded to By FATF Members
• 2009 Strategic Surveillance Survey– Main Source tor Money Laundering
• White Collar Crimes
• Drug Related Crimes
– Main Source of Terrorist Financing• Financial Crimes (Particularly Fraud)
• Trafficking in Narcotics, Cigarettes, Weapons, Human Beings or Diamonds
• Petty Crimes
– Identifiable Global Trends• A Noteworthy Proportion of ML/TF Activity Involves Cash
• Increased Use of Internet and New Payment Mechanisms21st Annual ECI Conference
Emergence of Ponzi Schemes
• Bernard Madoff– $65 Billion Fraud
• The Mini-madoffs– Proliferation of Large Multi-million Dollar Fraud
Schemes Emerging Since January 2009• Arthur Nadel • Darren Palmer
• Nicholas Cosmos • Marcus Schrenker
• Joseph Forte • George Theodule
• Paul Greenwood • Stephen Walsh
• James Nicholson • Mark Bloom
• Stanford Financial Group– $8 Billion Investment Scam
• R. Allen Stanford
• James M. Davis
• Laura Pendergest-holt
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Investment Fraud Detection
• The Economic Boom Made Investors Susceptible to Investment Fraud Schemes
– Promise/Lure of High Returns
• Schemes Were Exposed in Part Because of Economic Downturn
– More People Attempted to Cash in Their Investments
– Lack of New Investors to Cover / Perpetuate the Frauds
• Media Coverage of High Profile Fraud Cases
– Fostered Sense of Awareness / Concern
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– Opportunity – Incentive /Pressure– Rationalization/Attitude
Investment Fraud Indicators
• If it Seems Too Good to Be True, IT USUALLY IS– Unusually High Investment Returns
– Consistently High Investment Returns
• Lack of Transparency– Madoff
– Stanford
• Lack of Oversight– Circumvention of Controls
• Select Individuals With Unfettered Access to Funds
• Fraud Triangle
Lack Of ControlsLifestyleGreed/Entitlement
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ACFE’s 2010 Global Fraud Study
• Most schemes are detected by tips
• Employees are most common source of tips
• Existence of hotlines increase number of tips
• Corruption schemes were most commonly reported in mining, oil and gas, and construction industries
www.acfe.com
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Corruption Perceptions Index 2009
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Impact of the FCPA
• For the first time in the history of the world, a measure for bribery was introduced into law that was universal as far as those subjected to the law were concerned. For the first time, a country made it criminal to corrupt the officials of another country. America’s ambassadors—that is, its businessmen—were to show American purity throughout the globe.
- John T. Noonan, Bribes, 1987
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Top Ten FCPA Settlements
1. Siemens - $800 million (2008)2. KBR/Halliburton - $579 million (2009)3. BAE - $400 million (2010)4. Snamprogetti Netherlands P.V./ENI S.p.A. - $365 million
(2010)5. Technip S.A. - $338 million (2010)6. Daimler AG - $185 million (2010)7. Baker Hughes - $44.1 million (2007)8. Willbros - $32.3 million (2008)9. Chevron - $30 million (2007)10. Titan Corporation $28.5 million (2005)
Source: FCPA Blog
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Wall Street Reform and the FCPA
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Dodd-Frank Wall Street Reform & Consumer Protection Act
• Section 922 = Bounty Hunting• Incentivizes Corporate Whistleblowers to Report
Securities Violations Including FCPA• Authorizes SEC to Pay Between 10 - 30% of Money
Collected Exceeding $1 Million• Voluntary Disclosure of Original Information
Leading to Successful Enforcement Action• Contains Anti-retaliation Measures Including
Private Cause of Action for Retaliation
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UK Bribery Act 2010
• Passed by Parliament April ‘10, Eff. April ‘11• Two New Bribery Offenses
– Bribery of Foreign Public Official– Corporate Offense of Failure of Commercial Organization
to Prevent Bribery
• Criminalizes Both Public and Private Bribery• Liability for Criminal Conduct of an “Associated
Person” • Defense to Liability if “Adequate Procedures” to
Detect and Deter Corruption are in Place
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The Tip of the IcebergConclusion::
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Fraud and Corruption on the Loose
• Regulatory Mandates are Increasing and Many Have a Nexus to Fraud.
• Despite Best Efforts, Fraud And Corruption are Here to Stay – Our Best Hope is Awareness, Prevention Programs and Thorough Response.
• Public Sector Does Not and Will Not Have The Resources To Solve an Unsolvable Problem – Private Sector Must Participate.
• Job Security…
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Conclusion::
Fraud and Corruption on the Loose
• Martin Biegelman– [email protected]
• Dennis Lormel– [email protected]
• Dan Wachtler– [email protected]
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Fraud and Corruption on the Loose
Questions