CASES FORWARDED WITH REGARD TO CORRUPTION

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1 BELGIAN FINANCIAL INTELLIGENCE PROCESSING UNIT CTIF-CFI Avenue de la Toison d Or - Gulden Vlieslaan 55/ Brussels - BELGIUM Tel.: + 32 (0) Fax: + 32 (0) info@ctif-cfi.be NlcorruptionEN-version3 10/05/2007 CASES FORWARDED WITH REGARD TO CORRUPTION TYPOLOGICAL ASPECTS INTRODUCTION On an international level the battle against terrorism has been followed ever more closely in recent years. As for Belgium, the evaluation report by GRECO of the Council of Europe states that the Belgian legal system is well equipped to deal with the detection, seizure and confiscation of the proceeds of corruption 1. In 2005, Belgium came in 20th place in a total of 163 in the corruption perceptions index by Transparency International. The Unit forwarded 48 files linked to corruption to the judicial authorities from 1 December 1993 until 1 May Another 15 files that were forwarded with regard to other predicate offences 2 in which links to corruption were also identified can be added this number. The analysis of these files has enabled us to draw conclusions regarding the typological characteristics of these files. For the sake of clarity, this analysis distinguishes between typologies relating to the individuals involved, the predicate offences, followed by the money laundering operations and the money laundering techniques. TYPOLOGIES 1. Individuals involved The report by the OECD on the application of the Convention on combating bribery of foreign public officials in international business transactions (hereinafter called the OECD Report) emphasizes the priority that needs to be given to the bribery of both domestic and foreign public officials 3. The report states that the lead examiners appreciate the important role that the financial information processing unit plays in bringing to light cases of laundering, including those relating to the corruption of foreign public officials Evaluation report on Belgium, Second Evaluation Round, GRECO, Council of Europe2004, p. 23. Being organised crime, fraud, misappropriation, and human trafficking and arms traffic. OECD, Report on Phase 2 on the application of the convention on combating bribery of foreign officials in international business transactions and the 1997 recommendation on combating bribery in international business transactions, 21 July 2005, p. 9. OECD Report, op. cit., p. 46. The reports mentions It became clear during the on-site visit that none of the mechanisms in place was really designed to target acts of corruption of foreign public officials. The diligence with which the CTIF deals with all the money laundering cases notified to it, covering the whole range of transactions, including money laundering operations that might involve bribery of foreign public decision makers, stands out as the exception, p. 20.

2 Politically exposed persons (PEPs) Almost half of the analysed files (22 out of 48 files) regard money laundering operations involving politically exposed persons 5. With the exception of a file regarding a Belgian PEP, the other 15 files involved foreign PEPs, carrying out or having carried out a public office in their country of origin. They do not reside in Belgium and do not have any link to this country apart from the fact that they perform the transactions here. Furthermore, there is often a problem of corruption in their country of origin, mainly African countries and countries in Central and Eastern Europe. The majority of the PEPs carry out or have carried out offices in the field of politics. These offices are heads of state or the government, senior politicians or senior civil servants. Apart from the field of politics, other areas are also involved, yet to a lesser extent. One example was a PEP managing a state enterprise. An African minister opened an account in his name in Belgium merely in order to receive a substantial transfer from a foreign company. There was no explanation provided to justify this transfer. The individual requested to transfer the funds to another company abroad. There was no clear economic justification for performing these operations through Belgium. The use of a personal account for receiving funds from a company and transferring them to another company is also suspicious. The operations could be linked to bribery of a public official. Civil servants 16 files regarded lower-grade civil servants, mainly of Belgian nationality, who carry out or have carried out their office in Belgium. A Belgian national had transferred funds and securities to privately managed account with a bank in a tax haven. Police sources revealed that this individual, a tax inspector, was the subject of an investigation regarding corruption. He was suspected of having received bribes in return for tax cuts. A police inspector had requested to transfer a very substantial amount from a bank in a tax haven to Belgium. These funds, which were disproportionate to the official revenue of the individual, could have originated from corruption and exploitation of prostitution, for which he was already known to the police. Other individuals involved 10 files that were forwarded by the Unit regard individuals holding a position in the private sector. The individuals are mainly Belgian nationals and/or reside in Belgium. Within a few months, a Belgian national had credited his current account with several cash deposits. The funds were subsequently used for performing stock exchange transactions. Police sources revealed that the individual involved, who 5 According to FATF s recommendation 6, politically exposed persons (PEPs) are individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories. The interpretative note of Recommendation 6 stipulates that countries are encouraged to extend Recommendation 6 to individuals who hold prominent public functions in their own country.

3 was the supplies buyer for a pharmaceutical company, was suspected of having bought supplies below market price in exchange for bribes. 2. Predicate offences Corruption of civil servants and private corruption Out of the 48 files forwarded with regard to corruption (separately or linked to other predicate offences), 37 files are related to corruption of civil servants and 11 files are related to private corruption. Sensitive sectors Corruption often involves the development, the allocation and execution of public contracts, granting and using public subsidies, and granting of authorizations, permits, allowances and recognitions 6. Certain sectors are more susceptible to corruption than others, such as the construction industry and international trade. A European national had opened an account in Belgium that was credited by substantial international transfers and the principal was unknown. The funds had systematically been withdrawn in cash by the branch manager. Police sources revealed that the individual was in charge of the public works policy in his city. He was suspected of having received commissions for assigning public contracts. These commissions were later laundered in Belgium with the branch manager as an accomplice. A European national had opened an account in Belgium on which he had transferred a substantial amount and placed securities from an account he held in his country of origin. The individual was the object of an investigation in his country with regard to a member of the European Parliament. Within this investigation the individual was suspected of have received an important commission for having asked the MP to resolve administrative problems regarding a sales agreement for ordnance. The vulnerability of the international trade with regard to corruption was also emphasized in the OECD Report. According to the report, there is a risks of bribery, or of the export contract covered by the guarantee given the absence of measures of control, coupled with the fact that both these bodies allow commissions in the 5% range to be paid to intermediaries. 7. The report states that one of the main problems is that Belgian law allows under certain conditions the tax deductibility of undue advantages given to public officials 8. Links with other predicate offences As mentioned before, the Unit forwarded 15 files with regard to corruption and/or one or more predicate offences, such as fraud and/or arms traffic and/or misappropriation. Links to organised crime were also identified in several files, especially linked to Central and Eastern Ministry of Justice, Rapport sur le crime organisé en Belgique en 1998 [Report on organised crime in Belgium in 1998], 1999, p. 51. OECD Report, op. cit., p. 10 and p. 19. OECD Report, op. cit., p.4.

4 Europe. The report on organised crime in Belgium emphasizes that the example of the Eastern European countries reveal that corruption is often present in organised crime 9. Several nationals from the Middle East and the diamond companies that they represent, established in offshore centres, held accounts in Belgium. These accounts were credited and debited by international transfers, especially from offshore centres. Police sources revealed that these individuals were known abroad for arms traffic with an African country, corruption and organised crime linked to Eastern Europe. In addition, there were links between corruption and human trafficking in a file linked to the trafficking of football players. The world of sports, and football in particular, are often touched by a downward spiral when using commissions. Large sums are involved, paid either by a third party, the club or the player. They are collected by an intermediary who claims to be someone else. Furthermore, the scope of the affair is often blurry and has an international dimension 10. An African national, residing in his country of origin, had opened a current account and a savings account with a bank in Belgium. The current account was credited by an international transfer. The funds had first been transferred to the account of a Belgian national, a police officer. The latter had then immediately transferred two thirds of the amount on the savings account of the African national. Cash deposits were also performed on the individual s account. The Unit learnt that the African national was an intermediary for international transfers of football players. One of the proxy holders of the account was a former Belgian football trainer. Yet the African individual was not mentioned on any official list as registered manager. He was possibly involved in illicit trafficking of football players, particularly with the police officer as an accomplice. The performed operations could have been related to commissions received for this traffic. 3. Money laundering operations Performing banking transactions Money launderers laundering money originating from corruption prefer to use the banking system to perform their operations. They often use bank accounts with the sole aim of performing money laundering operations. A senior official of the central bank of an African country had gone to the bank to open an account in his name in Belgium. This account, which had remained dormant in the beginning, suddenly received an international transfer from a company active in banknote printing and the manufacturing of credit cards. The funds were immediately withdrawn in cash. There was no economic justification for an individual who was not linked to Belgium to perform this operation in this country. In this case the company probably transferred the money to the individual to obtain a contract with the central bank of which he was a senior official. The personal account in Belgium was opened to perform the money laundering operation. Performing cash transactions and international transfers 9 10 Ministry of Justice, Rapport sur le crime organisé en Belgique en 1998 [Report on organised crime in Belgium in 1998], 1999, p. 51. Rapport annuel 1999 du Service central de la prévention de la corruption, [1999 Annual Report of the Central Service for the prevention of corruption] Paris.

5 The classic scheme of operations generally consists of either cash deposits followed by transfers abroad or of transfers abroad followed by cash withdrawals. The aim of performing cash deposits and withdrawals is to conceal the origin and the destination of the funds. The use of international transfers enables them to add an international dimension to the operations with the aim of covering up their tracks. It is well known that money launderers like to place a border between the predicate criminality and their money laundering operations. Several PEPs, of Eastern European origin had opened bank accounts in Belgium. These accounts had been credited with transfers of several million EUR from companies abroad. These funds had been withdrawn in cash in the country of origin of the individuals involved. Police sources revealed that they were suspected of having abused their position to obtain financial advantages. The transactions carried out by these persons and, especially the cash withdrawals in their country of origin, entailed particularly high costs, for which there was no economic justification. This showed that the accounts that these officials opened in Belgium were used in order to conceal the anti-money laundering measures in force in this country. 4. Money laundering techniques Use of third parties / non-financial professions Even though corrupt individuals perform the money laundering operations in the majority of the files, several files regard money laundering operations that are performed by third parties, such as family members or people that are closely related to them, especially when these files involve PEPs. An African national, X, opened an account in Belgium. This account was credited by a considerable transfer from Y. The funds were withdrawn in cash. X was not officially registered in Belgium and did not have any professional activity that would provide an economic justification for the transactions on his account. Y was the former president of an African country and X used to be the presidential adviser. The individuals involved were the subjects of an investigation regarding arms traffic. In this case X s account was probably used to transfer money from Y. Several cash deposits took place on the account of X, residing in Belgium. The funds were immediately transferred abroad to Y, her husband. Police sources revealed that Y had been convicted by the criminal court for fraud to the detriment of the financial interests of the European Union. This fraud was committed while she was in office. The cash deposits and the transfers abroad coincided with the period in which the fraud was committed. In this case the funds deposited on X s account could have originated from the fraud for which Y, her husband, had been convicted. One file illustrates the use of a non financial profession. A former African minister was the main economic beneficiary of companies and trusts established abroad. The accounts of these companies and trusts were credited by substantial transfers from an African government. The individual was introduced to the financial institution by an attorney and was the subject of an investigation into corruption.

6 Both the GRECO report and the OECD report emphasize the importance of the detection and prosecution of bookkeeping offences allowing to conceal the bribes for a public official 11. The role of the non financial profession is very important in this context, especially bookkeepers and accountants. Private banking Private banking services have been used for money laundering operations linked to corruption. The files concerned show the use of these banking services abroad. X and Y held an account with the same bank. The accounts of X and Y were regularly credited by substantial cash deposits. The funds were subsequently used to perform various transfers, cash withdrawals and international transfers. The analysis of the accounts revealed that the cash deposits stopped on X s account when they started on Y s account. The deposits on X s account and on Y s account, corresponded to the period in which they were the managers of company A. Police sources revealed that X and Y were known for corruption. They would have received a gratification in cash within the framework of their profession. Further information showed that Y had also invested part of the funds in securities. Finally, it also became clear that X and Y, as well as members of their family held several accounts with a private bank in a tax haven. All of the elements indicate the funds deposited in cash on the accounts of X and Y as well as part or all of the funds held in a tax haven could have originated from illicit activities by X and Y linked to their professional activities. A police investigation is underway. Use of transit accounts, smokescreen companies and offshore companies Several files indicate the use of complex money laundering techniques to make it more difficult to detect the operations. To this end the individuals open accounts abroad, especially in the name of smokescreen companies, which they use as transfer accounts to transfer funds from and/or to foreign countries, especially offshore centres. Two foreign nationals had opened accounts in Belgium. These accounts were credited by several international transfers from the offshore centre X. Part of the funds was withdrawn in cash, another part was transferred abroad. There was no economic justification for opening the accounts of A and B in Belgium and for performing transactions on these accounts, which indicates that the accounts were used as transit accounts. The aim was probably to hamper any investigation into the origin or the destination of the funds. The Unit learnt from the financial intelligence unit in the individuals country of residence that they were the subjects of a money laundering investigation and that they were linked to the former president of an African country. The latter had embezzled substantial amounts of money to the detriment of his country when he held a high position in this country. A large part of the public funds was placed on accounts in offshore centre X. In addition, the international transfers that credited the accounts also originated from the offshore centre X. Because of these elements, the financial transactions performed in Belgium, or at least part of them, appeared to be related to the illegal activities by the former African president. 11 GRECO Report, op. cit., p. 25., Rapport OCDE, op. cit., p. 50.

7 Investments in the moveable assets, real estate and in the insurance business Investing in movable assets, real estate or in insurance enables large volumes of money of illicit origin to be circulated in the legal economic circuit. These money laundering operations are performed in Belgium or abroad, both by order of Belgian and foreign individuals. Family members of a Belgian politician went to a bank in Belgium with a substantial amount in cash. This money was immediately used to subscribe to saving certificates. The individuals requested that these be delivered in order to cover up their tracks. The politician in question was the subject of an investigation into the corruption of public officials. The explanations given by the individuals for their transactions were not very credible. The transactions could be linked to the politician s corruption charges. The account of a company established in an offshore centre was credited by a substantial international transfer from his account with a bank abroad. Shortly afterwards, a large part of these funds was invested in an immovable property in Belgium. Buying real estate and selling it quickly afterwards could seem suspicious taking into account that purchasing real estate entails various costs. The offshore company had taken part in a humanitarian aid programme in the Middle East in which irregularities were revealed regarding a senior representative of an important international organisation. In this context, the offshore company could have transferred illegal commissions in order to obtain certain contracts for humanitarian aid. Furthermore, it is probable that part of the profit generated by these contracts was invested in real estate in Belgium. The financial intelligence unit of country A had sent a request for information to the Unit regarding a Belgian national. The latter was the economic beneficiary of a holding company, established in an offshore centre, which held accounts with a bank in country A. The Belgian national also held accounts and took out a life insurance policy with institutions in country A. Police sources revealed that the individuals involved was the subject of an investigation into private corruption. The funds held in country A in the name of the holding company and the life insurance taken out in the name of the individual could have been linked to criminal activities of the individual when he held his position. CONCLUSION The analysis of 48 files forwarded with regard to corruption (either solely corruption or linked to other predicate offences) reveal that 37 files are linked to the corruption of public officials and 11 are linked to private corruption. The individuals are mainly either politically exposed persons (PEPs), primarily of foreign nationality and/or residing abroad, or lower or low ranking public officials, or individuals holding positions in the private sector, chiefly of Belgian nationality and/or residing in Belgium. The money laundering operations are mainly performed by using the banking system. Accounts are often opened solely for performing money laundering operations. The classic scheme of operations generally consists of either cash deposits followed by transfers abroad or transfers abroad followed by cash withdrawals.

8 Even though corrupt individuals perform the money laundering operations in the majority of the files, several files regard money laundering operations that are performed by third parties, such as family members or people that are closely related to them, especially when these files involve PEPs. Several examples illustrate the use of complex money laundering techniques, such as private banking abroad, transfer accounts, smokescreen companies and offshore centres. Investments in moveable assets, real estate or insurance also occur, both by order of Belgians and foreign individuals. On an international level Belgium has done well with regard to combating corruption, yet some gaps still remain. The OECD Report on the application by Belgium of the convention on combating bribery of foreign officials in international business transactions emphasizes that one should not underestimate the risks of corruption with regard to international business transactions. It mentions the possibility of setting up a task force to handle bribery, modelled on CTIF-CFI. Such a task force could receive information from government and judicial authorities under cover of professional secrecy, manage bribery cases from the standpoint of prevention, and submit reports to the prosecutors so that criminal proceedings could be instituted 12. Both the OECD report and the GRECO Evaluation report on Belgium recommend to amend the law to exclude the tax deductibility of any kind of advantage given to a foreign public officials, including secret commissions in business transactions. * * * 12 Rapport OCDE, op. cit., p. 21.