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EU Calls for Stricter Border Inspections in Gibraltar to Reduce Organised Crime

money launderingInspectors from the EU have have asked Spanish and UK authorities to impose stricter rules to protect from tobacco smuggling, money laundering and organised crime over the Gibraltar border. The inspectors cited strong evidence that illegal activity including serious organised crime is increasing.

The European Anti-Fraud Office (OLAF), carried out the investigation and concluded that “judicial proceedings” should be launched on both sides of the border in an attempt to tackle the increase in crime. A spokesman from OLAF said:

“The investigation has raised a number of concerns regarding the link between a significant increase in the size of the Gibraltar market for cigarettes over the past four years and the subsequent increase of cigarette smuggling across the frontier and corresponding increase in size of the illicit market in southern Spain. The concerns include indications of the involvement of organised crime.”

The office made the recommendations after visits by EU inspectors to the Gibraltar border following complaints that border checks by Spanish authorities caused queues of up to eight hours, for those wishing to cross.

The Spanish authorities claim that the border checks were necessary to control tobacco smuggling into Spain, but Britain and Gibraltar complained that they were “politically motivated and disproportionate” and came in retaliation for Gibraltar sinking an artificial reef in its territorial waters disputed by Spain.

In fact, the OLAF report makes recommendations applicable to authorities on both sides of the border. The OLAF spokesman said:

“The OLAF final case report and recommendations to initiate judicial proceedings related to the findings of the report have been sent to the Spanish General State Prosecutor and to the Gibraltar Attorney General via the UK Permanent Representation in Brussels. As OLAF can carry out only administrative investigations, it is for those authorities to decide what further actions may be necessary.”

Last week in a separate report, the EU Commission stated that the checks carried out by Spain at the border were “disproportionate”.

Contact Lewis Nedas Specialist Solicitors

If you are affected by an investigation of money laundering, organised crime, or any other issues highlighted by this article, please contact our experienced solicitors by calling 020 3432 6608 or completing our online enquiry form.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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New Instructions for LNL Lawyers

handshakeJeffrey Lewis is instructed by a well-known and highly respected entrepreneur to oversee due diligence inquiries (including AML and UKBA compliance) regarding proposed asset acquisitions.

Sean Reilly is instructed in a City of London complex fraud matter.

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Increase in Money Laundering Cases

Cases of money laundering hit the headlines regularly. This week the spotlight fell on the Vatican, with the BBC reporting that a former Vatican accountant is one of three people charged with laundering money through the Vatican Bank.

Less reported, but just as interesting, is new research from BDO LLP, the accountancy and business advisory firm, revealing a sharp rise in both the total value and number of reported cases of money laundering in the UK.

Rise in Money Laundering

BDO’s FraudTrack report, which looks at all reported fraud cases over £50,000 in the UK, has revealed that there were 39 reported money laundering cases in 2013 - up from 33 in 2012. This increase is dwarfed by the rise in the total value of reported money laundering fraud offences, which rose by 309% in 2013 - up from £70 million in 2012 to £288 million last year.

Some of these reported cases involved huge sums of money. For example, £170 million was laundered through a bureau de change in Notting Hill, and in another case, £52 million was laundered by a courier in the East Midlands.

Why the Increase?

The report's author, Kaley Crossthwaite, Head of Fraud at BDO LLP, suggests that the rise may be partly down to an increase in organised crime activity, but that the demand for transparency in the financial services sector is also surely playing a part.

“The laundering of ill-gotten gains is largely carried out through the financial services sector and the increased legislation and compliance imposed on largely unsuspecting businesses operating in this sector seem to be uncovering increasing numbers of illegal transactions that may have historically been swept under the carpet,” she warned.

This scrutiny is likely to continue, and indeed become more focused, given that the EU is focusing on completion of the Fourth EU Money Laundering Directive, while the Financial Conduct Authority and the Serious Fraud Office have given clear signals that money laundering is in their sights (see our earlier blog for more details).

Increase in Financial Services Fraud

Increased regulation and transparency within the financial sector is also likely to be behind the FraudTrack report’s finding that while the total amount of fraud fell from £1.37 billion in 2012 to £1.05 billion in 2013, the total value of financial services fraud rose from £473 million in 2012 to £532 million in 2013.

"We firmly believe that the ever increasing regulatory and compliance burden imposed on Financial Services firms by the FCA and PRA [Prudential Regulation Authority] means that fraud which historically may not have been reported, but rather dealt with privately in-house, is now coming out driven by a growing demand for transparency," said Kaley Crossthwaite.

Other Types of Fraud

Although money laundering is the most prevalent form of fraudulent activity identified in the FraudTrack report, accounting for £288 million (27.4% of all activity), it is not the only type of fraud highlighted. After money laundering, the most common types of fraudulent activity identified by BDO were:

  • Third party fraud - £209 million (20.0% of all activity)
  • Unauthorised use/ misuse of assets - £76.6 million (14.1% of all activity)
  • Tax fraud - £142 million (13.5% of all activity)
  • Employee fraud - £77.8 million (7.4% of all activity)
  • Corruption - £75.8 million (7.2% of all activity)
  • Mortgage fraud - £75.6 million (7.2% of all activity)

Contact Lewis Nedas’ Criminal Lawyers in London

For specialist legal advice on fraud charges, including money laundering, please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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More Business Crime Regulation on the Way - by Siobhain Egan

The European Parliament has approved proposals put by the Special Committee on Organised Crime, Corruption & Money Laundering (CRIM) as part of the Fourth Anti-Money Laundering Directive.

Organised crime is of particular concern to the European Parliament; they believe that there are at least 3,600 gangs working within the single market. It is estimated that corruption costs €120 billion i.e. 1.1% of EU GDP.

Organised crime in Europe includes people trafficking (there are approximately 800,000 forced labourers in the EU, of which 270,000 are victims of sexual exploitation); online gambling has an increasing role in money laundering and underlines the issue of organised crime in gambling, sports match fixing and illegal sports. These are all current criminal issues for the EU.

So the EU Parliament has approved the following approach which is likely to be ratified in spring 2014 and implemented by member states between 2015 and 2016.

In short, there will be European harmonisation of criminal law on money laundering: more anti-money laundering checks will be applied to all forms of gambling; companies should have in place adequate measures and procedures in order to obtain full accurate information regarding beneficial ownership; the abolition of tax secrecy (although the US have achieved much in this area already through FATCA); and the elimination of EU tax havens, amongst other issues.

The Fourth AML Directive will have enormous repercussions if fully ratified (which is very likely). It will affect Extradition/Euro warrants, civil recovery of assets in European jurisdictions, business regulatory compliance, and European business transactions. The list is seemingly endless.

We will be publishing a series of blogs on each of these issues over the next few months as the Fourth AML Directive moves towards ratification and adoption by each of the EU member states.

If we can help you with any of the issues raised in this blog please contact us by either telephoning us on 0207 387 2032 or by completing our online enquiry form here.

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Money Laundering and the Art World – by Siobhain Egan

There has been a recent spate of high profile money laundering investigations and prosecutions by the US authorities involving the art world one way or another, for example: the seizure of the painting ‘Hannibal’ by Jean-Michel Basquiat by the US as part of the Brazilian banker Edeman Cid Ferreira fraud/tax evasion prosecution; the arrest and pending prosecution of international art dealer Helly Namad concerning allegations of money laundering for the Russian mafia; the return of $33 million worth of art to a victim hedge fund in the prosecution of former lawyer Mark Dreier by US Marshals; and the case against Glafira Rosales concerning an allegedly fraudulent $30 million scheme involving fraudulent art sales.

British art exports have reached record levels this year, certainly since pre-financial crash levels, and foreign art enthusiasts have spent over £2 billion acquiring British art and antiques, with most of the purchases going to super-rich Russians, Chinese and Gulf nationals and residents.

It is difficult to understand why the British art scene has not, apparently, been subject to similar scrutiny by the UK authorities.

The art market is dominated by its trademark secrecy and a complete lack of transparency. Transactions can be difficult to trace with private collectors buying and selling, often through complex multi-faceted offshore structures or intermediaries and brokers.

Many of these transactions are settled in cash; monetary values are dependent upon the individual assessments of experts (not necessarily reflecting true market value) and what price the purchaser is prepared to pay.

Art is portable and relatively easy to move around. The seizure of ‘Hannibal’, as previously mentioned, is an excellent example of this. Edeman Cid Ferreira was sentenced in Brazil to 21 years imprisonment for fraud, tax evasion and money laundering. Prior to conviction he smuggled $30 million worth of art out of Brazil. The painting ‘Hannibal’ was purchased by a Panamanian company for $1million in 2004; that company tried to sell it in 2007 for $5 million and had it shipped to New York. It was dealt with by four individual shipping agents and two countries, including the UK, before it arrived in New York, without being labelled with a customs declaration as being of monetary value in the sum of $100! In the US any item sent to that country valued at less than $200 does not need a customs declaration label.

The gist of an interesting article in Der Spiegel (24 July 2013), highlights the issue of art and possible tax evasion / money laundering. It asserts that the über rich are moving their money out of the banks, purchasing art and storing them in art warehouses. This against the current international backlash against off shore accounts, as well as the US pursuit of US tax evaded monies using FATCA, various international tax agreements (and the reciprocal provision of tax and financial information), and multi-jurisdictional money laundering investigations.

Swiss governments have repeatedly delayed the application of money laundering regulations to the business of art, which is huge business for the Swiss. There are a number of large scale art warehouses in Geneva; two major European banks are also acquiring art warehouses for their customers. Luxembourg and Singapore are following Switzerland and are also building vast art warehouses with state of the art security, advertising these warehouses as ‘tax free emporiums’ and, in Singapore's case, promising discretion and tax exemption.

It cannot be a coincidence that Switzerland, Luxembourg and Singapore have long been established offshore tax havens.

There are of course money laundering regulations in the UK, Europe and the US which apply to the art business and without a doubt the larger, more established dealers and auction houses will have anti-money laundering compliance AND KYC systems in place. However, even the most cautious and professional art dealers can find themselves facing a charge under various sections of the Proceeds of Crime Act 2002 simply by acquiring or selling an item that could represent the proceeds of crime or tax evaded monies. They are very often dealing with new emerging markets and a fast changing client base.

In the UK, most art dealers will be subject to HMRC’s money laundering regulations, in place since 2004, which govern high value dealers, involving SARs and other stringent reporting conditions.

If you require any advice and assistance in relation to any of the various issues mentioned in this blog please contact us by completing our online enquiry form or call us on 0207 387 2032.

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