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

Now Germany takes it a step further; the German Ministry of Finance allegedly considers to buy the same ’stolen’ ‘HSBC files’ on Swiss bank accounts held by German citizens. German media reported over the weekend that an informant had offered data of up to 1,500 possible tax evaders with accounts in Switzerland which could lead to 100 million euros for state coffers…. for the reasonable price of 2.5 million euros….

The incident follows a similar case two years ago, when German authorities opened a tax-evasion probe aimed at hundreds of investors in Liechtenstein, using data purchased from a former employee of LGT Group. Crown Prince Alois, who rules Liechtenstein, called the probe an “attack” on his country.

Now The Netherlands’ tax authorities intend to use international tax treaties to get the file for free from the Germans. If the files hold data that is relevant for The Netherlands’ revenue service, there is a fair chance the data will be shared with them.. And so the stolen data spreads across Europe.

So while governments make a economic and ethical decision to pay for stolen data, banks are left with a challenge. What if word got out (yes it just did) that foreign governments are willing to pay millions of dollars for client files related to their (wealthy) citizens? Better get your bank’s security right.

http://www.businessweek.com/news/2010-02-01/germany-says-stolen-tax-data-won-t-harm-stable-swiss-ties.html

http://www.dw-world.de/dw/article/0,,5196492,00.html

http://financialcrimeonline.com/archives/773

“We need to redouble our efforts to combat the financial support networks of al Qaeda and the Taliban,” David Cohen, assistant secretary for terrorist financing, said in prepared remarks to the Council on Foreign Relations in Washington.

Al Qaeda and the Taliban adapt to our counter strategies quite quickly. Using hawala networks has been an alternative choice for moving terrorist funds around the world. Licensing hawala outlets is a way to control these networks; audit the legit ones and increase intelligence and investigations efforts on the ones that decide to stay underground. The Gulf region, Pakistan and Afghanistan will be the main areas that will see increased enforcement efforts.

“We may not be able to bankrupt al Qaeda, the Taliban or some of the lesser known groups operating in the border region between Afghanistan and Pakistan,” he said. “But through the coordinated, creative and relentless effort to attack their financial networks, we appreciably enhance our national security.”

The US Treasury already has attache offices in Kabul and Islamabad, and a resident advisor at the Afghan Central Bank’s FIU (financial intelligence unit). Another advisor will arrive shortly to assist in improving financial oversight, and there are plans to send advisors to Pakistan to help build the intelligence capabilities at the State Bank of Pakistan and improve law enforcement’s financial investigations.

http://www.cnbc.com/id/35123440

http://www.justice.gov/dea/pubs/states/newsrel/boston070208.html

http://www.poten.com/NewsDetails.aspx?id=10317976

“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

Remember the security questions/answeres you probably entered multiple times when registering online for email accounts or services? Same thing… how difficult is it for criminals browsing LinkedIn, Facebook, Myspace and offline publicly available sources to get enough personal information to access your accounts using the ‘forget password’ procedure ? Apparently it is not difficult; just as easy as accessing your bank account.

 http://redtape.msnbc.com/2008/08/almost-everyone.html

http://news.bbc.co.uk/2/hi/uk_news/scotland/8441859.stm

This week WSJ and FOX reported that Citibank is allegedly a victim of a Russian hackers ring.

The Federal Bureau of Investigation is probing a computer-security breach targeting Citigroup Inc. that resulted in a theft of tens of millions of dollars by computer hackers who appear linked to a Russian cyber gang, according to government officials….The threat was initially detected by U.S. investigators who saw suspicious traffic coming from Internet addresses that had been used by the Russian Business Network, a Russian gang that has sold hacking tools and software for accessing U.S. government systems. The group went silent two years ago, but security experts say its alumni have re-emerged in smaller attack groups.

U.S. banks have generally been loath to disclose computer attacks for fear of scaring off customers. In part this is an outgrowth of an experience Citibank had in 1994, when it revealed that a Russian hacker had stolen more than $10 million from customer accounts. Competitors swooped in to try to steal the bank’s largest depositors. Citibank said at the time that it was able to recover most of the money and that the attack didn’t put customer funds at risk.

The new attack targeting Citibank highlights the growing sophistication and threat posed by overseas criminal networks. “There were a couple of days of struggling,” said one person familiar with the attack. “There were some sophisticated elements that made it hard to block.”

Although the alleged Citibank attack was reported this summer, the actual hack could have taken place as early as in 2008. Any relation to the larger data breaches in Worldpay and Heartland (see earlier posts)? A Citibank spokesman denied that there was a breach of system or any fraud losses and that the FBI was not investigating a multi million dollar cyberfraud related to Citibank.

The Italian police finally caught up with one of Italy’s most wanted hackers. The suspect, Iannelli, allegedly collaborated with Camorra (Naples Mafia) organizations to hack into (“secure”) websites of online businesses. He then exploited the details of credit cards used to pay for purchases to make purchases himself or to switch funds onto payment cards that were then used to withdraw money from bank ATMs. Ianelli was arrested after Italian police pinpointed him in Thailand and Thai authorities kicked him out of the country back to Italy where police was waiting for him.

Will (y)our information be safe in 2010?

http://tinyurl.com/y87hb7n

http://www.foxnews.com/politics/2009/12/22/fbi-probes-hacks-citibank-govt-agency/

http://www.youtube.com/watch?v=gzMS-O7Gl48

This week the feds took down a ring of Medicare fraudsters in Florida. A physician and 29 nurses and health care operators got busted. The doctor is accused of accepting bribes to write prescriptions for about 1,300 homebound patients at Courtesy and other local clinics. But the patients didn’t need the prescribed diabetic, physical therapy and other costly services billed to Medicare, according to a federal indictment.

The arrests underscored the federal push to stamp out the latest fraud scheme in South Florida: billing Medicare for phony home healthcare claims such as treating diabetics who don’t have the disease. Previous schemes in the region, dubbed the nation’s Medicare fraud capital, were dominated by false claims for medical equipment and HIV infusion services.

Some patients were also implicated; they allegedly accepted kickbacks to use their medical files and medicare number for the false claims. Authorities said a patient was paid $100 for each prescription and referral to a home-care agency, and patients were given between $700 and $1,500 in monthly kickbacks for their Medicare numbers. Home-care operators also bribed patients with groceries, housekeeping, even flat-screen TVs, authorities said.

CBS news ‘60 minutes’ ran a good story on Medicare fraud a good month ago. It documented non existing medical offices with registered addresses in shopping malls and strips full of pharmacies with hardly any patients visiting them. But the steady stream of invoices originating from these ‘fake’ offices are very real. And they get reimbursed by Medicare. CBS reported that according to the FBI, all you have to do to get into this business is rent a cheap storefront office, find or create a front man to get an occupational license, bribe a doctor or forge a prescription pad, and obtain the names and ID numbers of legitimate Medicare patients you can bill the phony charges to. “There’s a whole industry of people out there that do nothing but provide lists of patients, people’s names, Social Security numbers, addresses, and date of birth. With those four things, you can bill for a patient”. Medicare is obliged to pay the invoices within a month. It doesn’t have the resources to perform effective (fraud) controls on the waterfall of invoices. Medicare has just three field inspectors in all of South Florida to check up on thousands of questionable medical equipment companies.

Fraud is sometimes caught by patients earlier than Medicare. When patients review their Medicare statements and see all sorts of medicine and medical procedures they have absolutely no knowledge of, they ring the fraud bell. The FBI calls it “pay and chase”. First Medicare pays, then they chase. But the phony offices move every two months or so, just to be sure they won’t get caught. What an industry….. Guess what we would choose if we had to pick a criminal career; drugs or Medicare fraud?

http://www.miamiherald.com/news/southflorida/story/1383909.html

http://www.cbsnews.com/stories/2009/10/23/60minutes/main5414390.shtml

http://financialcrimeonline.com/archives/649

http://www.npr.org/templates/story/story.php?storyId=15178883

http://www.stopmedicarefraud.gov/

The head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organized crime were “the only liquid investment capital” available to some banks in extreme financial trouble last year. A majority of the $352bn of drugs profits was absorbed into the economic system as a result.

The first indications that dirty money was finding its way were received some year and a half ago by several intelligence and law enforcement agencies according to UNODC. Some of the evidence put before UNODC indicated that gang money was used to save some banks from collapse when lending seized up, Mr Costa said.

“Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.” Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

Who is curious about the underlying evidence? Just some intel reports? Or actual proof of dirty billions that were used to get the economy going again? The underlying suggestion may be that banks, being close to the edge of collapse, were actually lowering the bar for new clients and/or new capital. No more questions being asked about where the millions came from because we ‘really need it’? And no one will care later because we were on a mission to save the world? That is a bit tough to swallow. Let’s wait for the actual information behind this interesting quote.

http://www.guardian.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims