Today’s Top Stories from GFI: An indictment of financial crime enforcement

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An indictment of financial crime enforcement
Trust Law (Op-Ed), January 14, 2014

By Joshua Simmons

Writing in the current New York Review of Books, Jed S. Rakoff castigates the U.S. government for failing to prosecute any executives of financial institutions responsible for the recent, world-shaking financial crisis. As a judge on the U.S. District Court for the Southern District of New York, Rakoff has witnessed firsthand much of the legal denouement of the crisis, and his disappointment with the government’s inadequate response carries a great deal of weight. Rakoff questions the government’s reasoning in generally not even threatening criminal charges for executives, despite overwhelming evidence that knowledge and responsibility for the mortgage-backed asset bubble predicating the financial crisis rose to the highest levels in many banks.

But this hesitancy to prosecute individuals is a much broader phenomenon, afflicting recent government investigations into all types of financial tomfoolery. The American financial system continues to launder criminal and terrorist money from all over the globe on a daily basis, often right under the noses of executives in the banks responsible. Massive breakdowns of the compliance programs legally required under the Bank Secrecy Act (BSA) have led to tens of billions of dollars in fines, but almost no repercussions for the responsible individuals—and none at all for the high-level executives who enabled their behavior.

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Corruption is indeed a hurdle for growth
Financial Chronicle (India), January 14, 2014

By Roopen Roy

Developing countries have been suffering from corruption and draining of financial resources for a very long time. The scale of damage is not very well understood. Illicit capital flows from poor countries is one of the major impediments to reduction of poverty. Research organisation Global Financial Integrity (GFI) estimates that “assets now stashed in tax havens around the globe are estimated at $11.5 trillion and non-bank cash deposits outside the country of origin are rising.” Another striking piece of statistic, illicit capital flows are ten times the amount of foreign aid received by developing nations.

GFI states its mission very simply: “Our mission stems from the estimate that $1 trillion in funds which are illegally earned, transferred or utilised are spirited out of developing countries annually. Of this, $500 billion a year ends up in western accounts. This constitutes the most damaging economic condition hurting the poor.” Authored by Dev Kar and Brian LeBlanc, GFI published a report titled “Illicit Financial Flows from Developing Countries: 2002-2011” in December 2013. According to this report, illicit financial outflows from the developing world aggregated a staggering $946.7 billion in 2011, with cumulative illicit financial outflows over the decade between 2002 and 2011 of $5.9 trillion. Crime, corruption, tax evasion and laundering of money trigger these vast capital outflows.

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Trade Misinvoicing

IMPORT SCAM – Customs Grapples With Undervalued Goods From China And Other Countries
The Gleaner (Jamaica), January 12, 2014

By Corey Robinson

The Jamaica Customs Agency is experiencing great difficulty in correctly valuing products imported from some countries, as unscrupulous importers find new ways to beat the system.

Customs boss, Major Richard Reese, last week identified goods coming from china as among the most problematic for customs officers to value.

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Import of milk preparations for infant: massive underinvoicing unearthed
Business Recorder, January 14, 2014

By Sohail Sarfraz

The Federal Board of Revenue has unearthed underinvoicing on the import of milk preparations for infant from European and Far Eastern countries, causing revenue loss to the exchequer. Sources told Business Recorder here on Monday that the Directorate General of Customs Valuation Karachi has revised customs values on the import of milk preparations for infant under Section 25A of the Customs Act, 1969.

It was brought to the notice of Directorate General of Customs Valuation by field formations that Milk Preparations for Infant Use are being imported at under-invoiced values, causing loss of revenue to Government exchequer. This prompted an exercise to determine the fair Customs values for imported Milk Preparations for Infant Use.

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Automatic Exchange of Tax Information

Switzerland ready to discuss tax information matters with India
PTI, January 14, 2014

Intensifying efforts to address Indian concerns over alleged stashing of illicit funds in Swiss banks, switzerland will send a delegation to india to discuss the “current situation” and define measures for greater cooperation on tax matters.

switzerland has also agreed to an OECD global automatic exchange of tax information framework, which would further enhance its information exchange mechanism with india after becoming operational, a Swiss government official said.

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Illicit Financial Flows

South Sudan has plunge into a resource-curse club
Spy Ghana, January 14, 2014

By Joe Amoako-Tuffour

Natural resource revenues have played a key role in the conflicts that have plagued resource-rich African countries over the past three decades. In Angola, Chad, Democratic Republic of Congo (DRC), Liberia, Mozambique, and Sierra Leone, the story is all too familiar. Discover hidden resource wealth and descend into stellar amounts of robbery from the land and people or into conflict, paradoxically turning resource assets into resource liability.

Nigeria is no exception. In 1995, it hanged one of its own illustrious sons, Ken Saro Wiwa, in his quest for equity in the oil-rich Niger Delta. Increased oil thefts through illegal tapping, internal strife, and extravagant public spending have been the new ways and means to dissipate vast oil revenues. Equatorial Guinea is cited by experts as a textbook case of the resource curse. The luxury acquisitions of property by Equatorial Guinea’s first family and the loot of Gabon’s first family are unrivaled.

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Money Laundering

Anti-money laundering: SBP, FIA to deepen cooperation
The Express-Tribune (Pakistan), January 14, 2014

The State Bank of Pakistan (SBP) and the Federal Investigation Agency (FIA) have signed a memorandum of understanding (MoU) to further formalise coordination between the two institutions.

SBP Governor Yaseen Anwar and FIA Director General Saud Ahmed Mirza signed the document at the SBP Karachi office on Monday.

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Head of Greek bank rescue fund charged with money-laundering
Financial Times, January 10, 2014

By Kerin Hope

The head of the fund set up by Greece’s international creditors to rescue the country’s banking system has been charged with committing fraud and money-laundering in her previous job, a court official said on Friday.

Anastasia Sakellariou, chief executive of the Hellenic Financial Stability Fund, was named as one of 25 former executives and customers of Hellenic Postbank accused of involvement in a loan scam that resulted in €500m of losses for the bank. She could not be reached for comment

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Chase Revamps Cash Deposit Rules to Ease Money-Laundering Risks
Fox Business, January 14, 2014

By Matt Egan

In a bid to close potential money laundering loopholes, JPMorgan Chase (JPM) tells FOX Business it is set to roll out a new policy that requires customers who want to make a cash deposit to show identification and be listed on the actual account.

It is believed that the New York-based financial giant would be the first big bank to enact such a change.

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Tax Evasion and Tax Avoidance

Beanie Babies creator faces sentencing for tax evasion
Reuters, January 14, 2014

By Mary Wisniewski

The billionaire creator of Beanie Babies, Ty Warner, could face up to five years in prison when he is sentenced in Chicago federal court on Tuesday on his guilty plea for tax evasion.

Warner, 69, who in 2013 was ranked as the 209th richest American by Forbes, “went to great lengths” to hide from his accountants and the Internal Revenue Service more than $3.1 million in foreign income generated in a secret Swiss bank account, according to the U.S. Attorney’s office in Chicago.

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