“..Among the findings in the new report, which features a number of high-impact maps and charts that illustrate illicit flows and their markets are: Europe is the highest-value regional heroin market (US$ 20 billion), while the Russian Federation is now the single largest national heroin consumer in the world (70 tons). Countries that grow most of the world’s illicit drugs, like Afghanistan (opium) and Colombia (coca), receive the most attention and criticism. Yet, most drug-related profits are made in the destination (rich) countries. For example, out of a global market of perhaps US$ 55 billion for Afghan heroin, only about 5 per cent (US$ 2.3 billion) goes to Afghan farmers, traders and insurgents. The report shows that the North American cocaine market is shrinking because of lower demand and greater law enforcement, which in turn has generated a turf war among trafficking gangs, particularly in Mexico, and new drug routes..”.

UNODC states that crime has internationalized faster than law enforcement and governance. That is obviously not a new finding, as is this one: “Criminals are motivated by profit: so let us go after their money,” said Mr. Costa (UNODC chief), adding that “We must increase the risks and lower the incentives that enable the bloody hand of organized crime to manipulate the invisible hand of competition”. He called for more robust implementation of the United Nations Convention against Corruption, more effective anti-money-laundering measures, and a crackdown on bank secrecy:

“..That means strengthening integrity by implementing the United Nations Convention against Corruption. It also means stopping informal money transfers (hawala), offshore banking and the recycling through real estates that make it possible to launder money. In particular, governments and financial institutions should implement Article 52 of the anti-corruption Convention that requires Parties to know their customers, determine the beneficial owners of funds and prevent banking secrecy from protecting proceeds from crime..”.

The emphasis on financial investigation and asset forfeiture has increased world wide, as has the bank secrecy crackdown. But financial investigations are labor intensive, complex from an international law point of view and dependent on a commitment to dedicate resources that could also target other types of crime that allow a more direct ‘result on investigation’.

The difficulty to actual reduce (organized) crime is well described by this view on organized crime:

“..Today, organized crime seems to be less a matter of a group of individuals who are involved in a range
of illicit activities, and more a matter of a group of illicit activities in which some individuals and groups are presently involved. If these individuals are arrested and incarcerated, the activities continue, because the illicit market, and the incentives it generates, remain. Strategies aimed at the groups will not stop the illicit activities if the dynamics of the market remain unaddressed..”

The UNODC report has chapters dedicated to different types of crime. Financial crime, fraud and money laundering are not amongst them. UNODC understands that money is key to all types of organized crime so the financial aspect is touched upon in these chapters. Fraud is not a separate chapter; fraud is probably one of the types of crime that generates billions yearly. But while cocaine is cocaine all over the globe, the variance in fraud is significant. This makes fraud more difficult to measure. Let’s see if fraud makes a grand appearance in organized crime statistics someday.

The UNODC report, as always, is a great source of statistics. It describes recent developments in the major crime areas such as drugs, human trafficking and firearms. Just under 300 pages, give it a go on a rainy Sunday morning..

http://tinyurl.com/368dchp

The crash site was secured by the Russian army. A short time after the crash a creditcard belonging to one of the victims jumped back to life again. It should not surprise anyone that this got detected.

“The criminal case has been started against four conscript soldiers on charges of theft by an organized group. The four were in the cordon at the scene of the crash,” the Investigation Committee of the Russian Prosecutor’s Office said.

The soldiers took several cards but only used one of them to withdraw cash, stealing about 60,345 rubles (about $1,900) in several transactions, the committee said. The committee said the suspects were identified by the command of the military base that services the military airport near Smolensk, Russia, where the plane crashed April 10….All four soldiers have confessed and are actively cooperating with the investigation, the committee said.”

According to a CNN report, Russian State TV reported the soldiers admitted they spent the money at a local cafe. Three of the four suspects had a criminal record before they were conscripted into the army, the committee said. They are now being held at their military base “under the observation of their command.”

Although we are not sure what “observation of their command” would entail, we are probably better of guessing what it is rather than experiencing it.

http://edition.cnn.com/2010/CRIME/06/08/russia.poland.crash.theft/index.html?hpt=T1

http://en.wikipedia.org/wiki/2010_Polish_Air_Force_Tu-154_crash

The cash is brought into Mexico both in amounts small enough for an individual to carry and in amounts large enough to fill shipping containers. Revenue from local dealing operations across the U.S. is first consolidated in cities that serve as “collection points,” including Los Angeles, then moved to the border and broken up again for the cross-border leg of the transport.

In Mexico, where 75% of the formal and informal economy works through cash transactions, cartel bosses can launder their profits with all-cash purchases of large tracts of land, luxury hotels, cars, car dealerships and an endless array of high-end items.

The fight between the Mexican administration and the cartels claimed around 27,000 lives. As we speak the Mexicans are still not able to stop the violence, the inflow of money and related corruption.

http://articles.latimes.com/2010/jun/03/world/la-fg-mexico-cash-20100603

http://financialcrimeonline.com/archives/886

http://financialcrimeonline.com/archives/609

http://financialcrimeonline.com/archives/848

Mayor Sanchez is suspected of tipping off and protecting the Beltran Leyva and Zetas drug cartels – gangs known for brutal tactics including beheading rivals. He had taken a leave of absence as Cancun mayor to run for governor of Quintana Roo state, known for turquoise Caribbean waters and white-sand beaches marketed as the Mayan Riviera.

On May 13, gunmen killed a mayoral candidate in a town near the border with Texas after he ignored warnings to quit the race. Several other candidates have received threats, and in some towns near the U.S. border, some parties couldn’t find anyone to run for mayor.

High-level corruption remains one of the biggest impediments in the fight against drug trafficking in Western Hemisphere countries that have become key smuggling corridors. In Jamaica, security forces are fighting supporters of a major drug trafficking suspect who has ties to the ruling party and is resisting extradition to the U.S. In Guatemala, the national anti-drug czar and police chief are under arrest in a case involving cocaine and slain police.

The Sanchez case will be another tough test for Mexico’s judicial system and its ability to successfully prosecute high-profile drug and corruption cases.

http://www.reuters.com/article/idUSTRE64P5ST20100526

http://www.huffingtonpost.com/2010/05/26/cancun-mayor-arrested-for_n_590013.html

http://www.latimes.com/news/nationworld/world/la-fg-mexico-cancun-20100527,0,1967342.story

Sources claim the the investigation started when a drug trafficker informed the police about the banker’s role in a money laundering scheme. Based on the suspicions, investigators infiltrated a drug network and sought help from the banker to launder money that the police spy pretended came from trafficking, the government office said in a statement. The banker took the bait. Based on the suspicions, investigators infiltrated a drug network and sought help from the banker to launder money that the police spy pretended came from trafficking, the government office said in a statement. The Swiss government alleges that Holenweger made false representations to banks in the process, while the money from the offshore accounts was used by industrial giant Alstom to bribe officials to win projects and increase market share in foreign countries.

In March 2003 the UK Serious Fraud Office (SFO) arrested three Alstom executives in a corruption probe. UK sources claim that Alstom used money on an offshore account to bribe officials abroad for approx $65 million to secure contracts. According to Swisster, bribes – commonly labeled as “commissions” – were long seen as a way for European businesses to secure business in overseas markets but France outlawed such practices in 2000 after the OECD called for states to stop approving them. Alstom updated its code of ethics this year and maintains it now has “rules and control procedures at the best international standards”.

Banker’s taking customer service to the next (illegal) level; a blast from the past or still common practice? Some things really change.

http://www.swisster.ch/news/business/zurich-banker-charged-alstom-fraud-case.htm

http://www.businessweek.com/ap/financialnews/D9FHECQ80.htm

The New York investigation has prompted several other states to examine how their pension funds solicit investments, and firms including the Carlyle Group have settled related cases.

“This case has started a national investigation of public pension funds all across the nation,” attorney general Mr. Cuomo said in a conference call with reporters on Thursday. “A significant amount of this country’s wealth is in these public pension funds and I fear — seeing what we’ve seen in New York — that it’s going to be a serious problem for the nation.”

http://www.nytimes.com/2010/04/16/business/16pension.html?src=me&ref=business

http://www.businessweek.com/news/2010-04-15/quadrangle-settles-with-cuomo-in-state-pension-probe-update1-.html

The justice department produced evidence that Daimler companies paid bribed in 22 countries, including China, Russia and Iraq. The total amount of bribes paid by Daimler (or should we say: received by as corrupt officials globally) is said to be in the tens of millions.

As a part of its deferred prosecution agreement, Daimler agreed to retain an independent compliance monitor for three years to oversee its implementation of an effective compliance program. The monitor is former FBI Director Louis Freeh, who was brought in two years ago to help Daimler with its compliance program after it began talks with the Justice Department.

http://www.mainjustice.com/2010/04/01/daimler-settles-fcpa-charges/

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/01/AR2010040103680.html

The store’s opening has reportedly been delayed on eight separate occasions, with local officials refusing each time to supply the necessary documents. The latest objection, according to Ikea, is that the store is insufficiently resistant to hurricanes. That’s a highly unusual requirement, in a region not previously noted for its high-power winds.

Ikea does not give in to corruption and builds a public case against Russian practices. It has plenty of experience to counter Russian pressure.

Weeks before the opening of its flagship store outside Moscow in 2000, Ikea was approached by employees of a local utility company. If the Swedish retailer wanted to have electricity for its grand opening, it had to pay a bribe. Instead, Ikea rented diesel generators large enough to power a shopping mall. The generators roared to life in a loud rebuke to the corrupt executives who thought they had the retailer cornered, and soon the utility turned on the power.

Some Ikea stores apparently still run on generators.

But Russian graft may have proved more stubborn than Ikea. The board of Ikea’s operating company, which is based in the Netherlands, has concluded that the Russian executive hired to manage the generators was taking kickbacks from the rental company to substantially inflate the price of the service. Ikea said that such a fraud could cost it about $196 million over two years. Ikea canceled the contract and sought redress in Russian civil court. But in rulings over the last two weeks, Ikea has lost another 5 million euros in damages that the judges awarded the generator rental company for breach of contract.

Two Ikea execs were fired because of the kickback charges. Ikea expressed disappointment over the issue. So the Russian corruption tentacles finally found its way into Ikea. With these tentacles now cut off, let’s wait and see what the  next attempt to struggle Ikea will be. If you can’t beat them, join them… or keep fighting all the way.

http://www.nytimes.com/2010/02/16/business/global/16ikea.html

http://www.nytimes.com/2009/09/12/business/global/12ikea.html

http://www.spiegel.de/international/business/0,1518,632507,00.html

“This ongoing investigation is the first large-scale use of undercover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the Justice Department against individuals for FCPA violations,” said Assistant Attorney General Lanny A. Breuer. “The fight to erase foreign bribery from the corporate playbook will not be won overnight, but these actions are a turning point. From now on, would-be FCPA violators should stop andponder whether the person they are trying to bribe might really be a federal agent.”

“Corrupt payments to foreign officials to obtain or retain business erode public confidence in our free market system and threaten to undermine foreign governments,” said U.S. Attorney Channing Phillips. “These indictments set forth serious allegations and reflect the Department’s commitment to aggressively investigate and prosecute those who try to advance their businesses through foreign bribery.”

What happened? Allegedly  the suspects engaged in a scheme to bribe a minister of defense of an African country. At least: they thought they would be bribing the minister. They ended up dealing with a lot of undercover agents. The suspects are all related to the US defense industry and tried to ‘market’ body armor, small arms, armored vehicles etc.

As part of the undercover operation, the defendants allegedly agreed to pay a 20 percent “commission” to a sales agent who the defendants believed represented the minister of defense for a country in Africa in order to win a portion of a $15 million deal to outfit the country’s presidential guard. In reality, the “sales agent” was an undercover FBI agent. The defendants were told that half of that “commission” would be paid directly to the minister of defense. The defendants allegedly agreed to create two price quotations in connection with the deals, with one quote representing the true cost of the goods and the second quote representing the true cost, plus the 20 percent “commission.” The defendants also allegedly agreed to engage in a small “test” deal to show the minister of defense that he would personally receive the 10 percent bribe.

Though all suspects had the intent to bribe officials to secure contracts, no corruption actually took place since the only officials involved were undercover FBI agents. There has been some debate as to why the FBI allocates that much of their resources to create a case from scratch… Not enough ‘real life’ cases to investigate? Obviously we don’t know all ins and outs of this investigation to comment. But this case highlights the commitment of the US to halt corruption. A lot of businessmen will think twice now before setting up such a scheme; a good result in itself. But will the ones that have already been engaged in corruption successfully stop before actually getting caught?

http://washingtondc.fbi.gov/dojpressrel/pressrel10/wfo011910.htm

Corruption is a big issue in Haiti. In 2006 it was rated as the most corrupt country in the world. In the 2009 Transparancy International ‘Corruption Perception Index’ Haiti ranked 168 on the list of 180 countries tested for corruption. It at least got out of the top 10 of most corrupt countries.

In the money laundering community there have been lots of warnings about the risk of fraud and money laundering during the scramble to assist Haiti. By the way: Haiti has been a major drug transit country for a while (any relation to the corruption?).

“..these tragedies can also be a boon to laundrymen. As massive sums of legitimate funds pour into Haiti to help earthquake victims, laundrymen armed with shell company “charities” will no doubt use the disaster to disguise the source of dirty funds generated elsewhere. Anti-money laundering personnel would therefore be well advised to apply their own “critical eye” when reviewing alerts related to funds transfers bound for Haiti.”

‘Past tragedies and natural disasters have prompted individuals with criminal intent to solicit contributions purportedly for a charitable organization and/or a good cause’

We get the fraud piece; why not go around gathering funds for a socalled ‘relief fund’ and enjoy the proceeds yourself? That will be a recurring theme in fraud investigations to come. But large scale money laundering by either sending large sums to Haiti or using shell companies to wire funds across the globe for socalled relief efforts?

How about getting to the main financial crime risk; corruption. What happens with all the millions that we have raised for Haiti? Anyone making sure the money is actually used to aid people that need it most? An interesting study by the West Virginia University led to the conclusion that for each $100 of FEMA provided disaster relief, the average state’s corruption increased by nearly 102 percent. The UN has experience in balancing corruption and financial aid to developing countries and is fully aware of the corruption angle when allocating funds. Guess what will happen in Haiti with all these millions waiting to be allocated. A difficult task; we need to act quick and get the funds/goods quickly to the ones that are in need. That is probably more important now than worrying about the related corruption in the short run. But it will surely have its impact. Anyone really knows what happens with the dollar you gave to Haiti relief funds?

http://www.state.gov/p/inl/rls/nrcrpt/2009/vol2/116554.htm

http://www.fbi.gov/cyberinvest/escams.htm

http://www.complinet.com/global/news/news/article.html?ref=128171

http://www.fcpablog.com/blog/2009/12/8/five-indicted-for-haiti-telco-bribes.html

http://news.bbc.co.uk/2/hi/business/6120522.stm

http://www.thaindian.com/newsportal/world-news/disaster-relief-funds-open-floodgates-of-corruption-in-us_100130153.html