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We’ve talked about the Panama Papers before, but the changes they are bringing to the international political landscape are still taking shape. Last week, the Panama Papers led to the fall of another world leader.

On July 28th, the Prime Minister of Pakistan Nawaz Sharif resigned after the Supreme Court ruled that the corruption allegations stemming from the Panama Papers disqualified him from the position. The information leaked in the Panama Papers led to the accusation that Sharif engaged in money laundering through offshore companies owned by his children in order to purchase high-end properties in London. On July 31st, The National Accountability Bureau in Pakistan announced that Sharif and his three children will face four counts of corruption charges over these revelations.

Money laundering is a serious issue that impacts businesses, large and small, all over the world. Money laundering, simply put, is the act of making illegitimate funds appear to come from legitimate sources. Businesses that deal in high volumes of cash, such as restaurants, are most commonly used to launder money, though any kind of business, including those that deal in electronic payments can be used for money laundering. There is even a recent case of a meatpacking business that allegedly bought and sold cattle to launder drug money. Typically the business doing the laundering will mix legitimate money in with the illegitimate funds, in an attempt to make it more difficult to detect. That can mean trouble for you if you’re working with a business that is also laundering money.

Here at Smith Brandon, we’ve been following the 1MDB scandal with great interest. The sheer scale of funds misappropriated from the beleaguered Malaysian sovereign wealth fund is just staggering; estimates peg it at roughly $4.5 billion. Recently, three new revelations came to light.

On Monday, June 12th, news broke that the US Department of Justice is investigating improprieties in the 2013/2014 sale of the Houston based Coastal Energy Company to Compañía Española de Petróleos, S.A.U. (CEPSA), a subsidiary of the Abu Dhabi sovereign wealth fund International Petroleum Investment Co. The $2.2 billion sale was orchestrated by Jho Low, a Malaysian financier close to the family of Malaysian Prime Minister, Najib Tun Razak. Low reportedly supplied $50 million for the deal (believed to have been misappropriated from 1MDB); one week later CESPA transferred $350 million back to Low’s shell company. Jho Low has been at the center of several lawsuits related to the scandal.

Christopher Wray, the nominee for the Directorship of the FBI has a history of work on white collar crimes including FCPA and trade sanctions violations and money laundering. During his time as United States Assistant Attorney General for the Criminal Division from 2003 to 2005, much of his work focused on white collar crime. After leaving the DOJ he continued to work on white collar crime, government investigations, and regulatory issues at the law firm King & Spalding. A speech he gave in 2005 outlines some of the work he did in various anti-corruption cases, including FCPA violations. In it he focused on how he and the DOJ began focusing on faster enforcement and sometimes on prosecuting cases piecemeal as they found violations they could prosecute rather than trying to build one grand case that encompassed everything.

Corruption and bribery are unfortunately all too common in the business world. But thankfully, enforcement of anti-corruption laws is also on the rise. Recently, the Brazilian construction firm Odebrecht received the largest ever corruption related fines in history.

We’ve been following the results of Brazils “Operation Car Wash” for a while now, which has rooted out corruption in some of Brazi's biggest companies and numerous politicians. So far though, no corruption is on the scale of the construction firm Odebrecht SA.

Bloomerg provides one of the best summaries of the entire saga we’ve seen yet. It details the whole thing from start to finish. How the company set up a secret division just to handle bribes, how it bought a bank to facilitate the bribery division's activities, and how the whole thing came crashing down thanks in part of a rat in a barbecue grill. It’s a great read.

Banking System

On June 5th, 2017, in a case with implications for complex fraud and corruption investigations, the US Supreme Court ruled to limit the Security and Exchange Commission’s power to recover ill-gotten gains. The case (Kokesh v. SEC) hinged on whether SEC disgorgements should be considered a “fine, penalty, or forfeiture,” or whether they are instead a remedial tool. In a unanimous decision, the Justices ruled that SEC disgorgement “bears all the hallmarks of a penalty,” and is therefore subject to a five-year statute of limitations as laid out in 28 USC § 2462. In the short term, the ruling reduces the disgorgement payment for Charles R. Kokesh (an investment advisor who spent more than a decade misappropriating client funds) from $35 million to around $5 million. In the long term, it will likely change the way the SEC structures enforcement actions.

Moscow Business Center

International business environments are always in a state of flux, and it’s not always easy to figure out the implications for your business. Whether it’s a corruption scandal in Brazil, currency changes in India, or renewed sanctions on Russia, local issues can often have an unexpected impact on your international operations. Whether you’re just considering entering a new market, or you’re trying to come to grips with a new political paradigm, Smith Brandon International can help you assess the environment and position your company to succeed. 

Banking System

A year on from the disclosure of the Panama Papers, revelations continue to trickle to the surface. In April the International Consortium of Investigative Journalists added two world leaders to their Power Players list: Australian Prime Minister Malcom Turnbull and former Mongolian Prime Minister Sükhbaataryn Batbold were both revealed to have interests in separate offshore companies connected to mining operations in central Asian.

Meanwhile, a Joint Investigation Team in Pakistan formally began investigations related to the naming of Prime Minister Nawaz Sharif and his sons (Hussain and Hassan Nawaz) in the leaked Panamanian documents.

And in Ukraine, authorities arrested Italian fugitive Giuseppe Donaldo Nicosia. Nicosia stands accused of a $48 million tax fraud. The Panama Papers helped reveal the chain of shell companies he’d used to perpetrate his fraud and hide his money.

Sadly, a lack of transparency in offshore business operations is hardly a surprise. But these recent revelations serve as a reminder that hidden ownerships can have big implications. At Smith Brandon International we have over 20 years of experience conduction international Due Diligence, to help you ensure that your new partners are who they say they are.

DC Capitol

Hello and welcome to the new SBI blog, we hope you enjoy it! We’re going to use it to keep you up to date on the latest news from SBI, highlight some of our services, and provide our thoughts on the news and other topics related to our work. We want the blog to be a good way to stay in touch with you, provide you with useful information, and point out topics and news stories we think are important.

We hope you’ll come back and check the blog regularly. We plan to update frequently and hope you’ll find what we have to say interesting and helpful. 

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