Najib Razak faces the music, Garmin manages to regain access to its files and Bafin is determined to prevent another Wirecard scandal.

We share our financial regulatory highlights from the week of 27 July 2020.

1MDB Scandal Sentences Najib Razak

The 1MDB scandal has seen the conviction of former Prime Minister of Malaysia and head of the UMNO Party, Najib Razak. In a judgement handed down by the court, Razak was found guilty of seven counts of corruption and sentenced to 12 years in prison alongside a near $50 million fine.

The judgement has been hotly anticipated given the high profile nature of the scandal and the defendant. Plus recent events had placed a question mark over whether or not Najib would be found guilty.

Charges related to the 1MDB scandal have been contentious of late, they were dropped against an ally of Najib’s, Musa Aman and a settlement was agreed with Najib’s stepson, Riza Aziz. The new government also reached a deal with Goldman Sachs, which was linked to the 1MDB fund and had agreed to repay $2.5 billion. That was less than Malaysia had originally demanded but the repayment was agreed in exchange for criminal charges being dropped against the bank.

These events led many to believe that Najib would have his charges dropped or settled.

However, it appears that Najib’s case, as Prime Minister during the embezzlement, and as a polarizing figure throughout the nation and the world, was too big to be dismissed in such a fashion.

Najib has not yet had to report for imprisonment, he remains on bail and is still awaiting judgement on several other crimes which could see him face a lengthier prison sentence.

However, the former Prime Minister’s fate is not sealed. The King of Malaysia has the power to pardon him if he so chooses and it’s unclear whether or not that will happen. Even if it were not to occur, if Najib’s allies retain their thin majority in parliament he may also avoid facing prison time. James Chin, a leading Malaysia expert, told the New York Times that he expected Najib’s case would be overturned on appeal, as long as UNMO was in government.

Garmin Decrypts Ransomware

After a fraught six days, Garmin has finally been able to decrypt its files which were held hostage during a ransomware attack launched on 23 July 2020 which saw the company suspend several services

Garmin confirmed the cyber attack using malware known for highly-targeted attacks, WastedLocker, for the first time on 28 July 2020, commenting: “Affected systems are being restored and we expect to return to normal operation over the next few days.”

WastedLocker is thought to have been developed by a Russian hacking group known as Evil Corp. The group was sanctioned by the US Treasury in December 2019 and has previously been linked to other ransomware software such as Dridex and Bitpaymer.

Ransomware attacks have seen an increase in frequency during the pandemic. And the Office of Foreign Assets Control (OFAC) at Treasury has proven inflexible in the past. When a similar situation occurred with sanctioned entities from Iran demanding payment in digital currency OFAC commented: “Regardless of whether a transaction is denominated in a digital currency or traditional fiat currency, OFAC compliance obligations are the same.”

Sources speaking to Sky News anonymously have suggested that a payment was made via a third party, something that would still expose Garmin to censure under secondary sanctions.

Whether or not Garmin has made the payment is unlikely to be disclosed by the company officially. However, if a payment has been made through a third party all of those involved in the transaction may be at risk of running afoul of OFAC.

Germany Responds to Wirecard Scandal

Following on from the Wirecard scandal that saw the insolvency of a leading fintech and a $2 billion hole in the company accounts, Germany has reacted with an action plan to prevent such a situation from happening again.
Federal Finance Minister Olaf Scholz wants to reform regulations quickly due to the suspected balance sheet fraud at the payment service provider Wirecard. His plan, comprising a total of 16 measures is expected to be passed into law by spring 2021.

The plan will allow Germany’s financial regulator, Bafin, to intervene quicker by removing the two-tier system of balance sheet control which requires an auditor to bring wrongdoing to the attention of the regulator. Special investigators will be appointed to financial institutions (FIs) in cases of suspected wrongdoing or irregularities to look into the situation directly rather than relying on reports from auditors or the FIs themselves.

Bafin will also be reorganized with a view to investigating how whistleblower information can be used more effectively and to increase incentives for whistleblowers.

Misconduct will also be punished more quickly and more severely. Scholz wants to examine “the civil liability” of auditors and “make the necessary adjustments to the law on accounting offenses and accounting regulations”.

It’s a strong move in response to a scandal that has hurt thousands of investors and shaken faith in Bafin. These measures are significant and show that the German regulator is determined to learn from the situation and ensure that investors can safely invest in the German market going forward.

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