British Columbia starts hearings related to money laundering, Ex-DEA Agent is charged in money laundering scheme and FATF blacklists Iran, again.

We share our financial regulatory highlights from the week of 24 February 2020.

Inquiry into Money Laundering Begins in BC

In recent years, British Columbia has developed the rather unfortunate distinction of being a hotspot for criminal activity and money laundering. A public hearing that promises to explore the scale, impact and root causes of this issue began this week with opening statements. Several parties, including Canada’s federal government, the BC Lottery Corp and the BC Real Estate Association, spoke at the hearings and set the stage for the second and third series of hearings, which will take place later this year.

The inquiry, called for by Premier John Horgan and led by Commissioner Austin Cullen, is meant to be a first step towards identifying and holding those who have allowed the criminal element in BC to flourish accountable. The formal investigation follows the release in 2018 and 2019 of reports commissioned by the BC government that detail the ways in which casinos, horse racing, the real estate market and the luxury car market have been extensively exploited by criminals looking to mask the source of their funds.

The real estate market, in particular, has come under increased scrutiny. While it’s difficult to accurately assess how much money is truly being laundered through one avenue or another, one of the commissioned studies puts the number at around C$5.3 billion for the province’s real estate sector. This influx of money has consequently caused an increase in both housing prices and the overall cost of living, especially in and around BC’s capital, Vancouver, leading many to dub the phenomenon the “Vancouver model.”

Canada as a whole is known for having weak AML/CFT controls — a reputation the federal government hopes to change with amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and the legislation’s corresponding regulations, which were finalized last year and which we’ll explore in more detail next week. Most of the amendments, however, have yet to take effect, so it’s too early to say what impact they or the inquiry will have. Nevertheless, both are steps in the right direction and signal that Canada is getting serious about tackling this issue.

Model Ex-DEA Agent Charged in Money Laundering Scheme

A former agent at the US Drug Enforcement Administration (DEA) was arrested on February 21 for allegedly laundering drug proceeds from DEA investigations for his own gain. Jose Irizarry faces charges of money laundering, honest services wire fraud, bank fraud and identity theft, among others. His wife, Nathalia Gomez-Irizarry, was also charged.

Irizarry, who worked for the DEA from 2009 to 2018, quickly made a name for himself at the DEA and was considered by many to be a model agent. Assigned to the Miami Field Division and then later transferred to Cartagena, Colombia, he worked on numerous undercover investigations and was entrusted with handling multi-million-dollar transactions for the agency in order to track the drug cartels’ money laundering activities.

In the 35-page indictment, federal prosecutors detail how he allegedly exploited “his position and his special access to information” and filed false reports to siphon off over $7 million into accounts that he and his co-conspirators controlled. One account was traced back to a shell company Irizarry’s wife had established, and others are allegedly connected to the same people Irizarry was ordered to investigate — specifically, a leader of a Colombian-based drug cartel and the eventual godfather to Irizarry’s children. An unnamed Colombian public official was also implicated.

Suspicion within the agency mounted when Irizarry, who had declared bankruptcy in late-2010, started making extravagant purchases, which included luxury cars, a $30,000 diamond ring from Tiffany’s and homes in Cartagena, Puerto Rico and Florida. He was reassigned to Washington, DC, in late 2017. Then in January 2018, he resigned.

Following their arrest in Puerto Rico, Irizarry and his wife were released after both posted bail. They will face trial in Florida next month.

FATF Blacklists Iran (Again)

Following on our discussion about the Financial Action Task Force (FATF) last week, the intergovernmental organization concluded its first plenary session of 2020 in Paris on Friday. During the week-long session, representatives from member states as well as from the FATF-style regional bodies and other international organizations discussed issues such as virtual assets, digital identities and the illegal wildlife trade, and evaluated both Iran and Pakistan on the progress they’ve made to implement FATF guidance. Neither country made monumental strides forward, it seems, as both remain where they were prior to the evaluations: Pakistan will stay on the organization’s grey list, while Iran will stay on its blacklist.

Nevertheless, FATF noted that Pakistan made some progress and recognized its overall commitment to working with both FATF and the Asia-Pacific Group on Money Laundering (APG) to implement the action plan FATF created and close gaps in its AML/CFT regime. This progress wasn’t enough to warrant a removal from the grey list, but it’s clear FATF believes the country has made steps in the right direction.

Iran, on the other hand, has not made material progress on its action plan, which was agreed to in 2016 and which expired in 2018. While the country has been on FATF’s blacklist since 2008, it experienced a reprieve via the suspension of countermeasures against the country shortly after the action plan was created. The decision this week reimposes those countermeasures, signaling that the country has run out of chances. FATF has urged its members to take measures against Iran in accordance with the organization’s Recommendation 19, which includes applying enhanced due diligence checks and limiting business relationships and financial transactions with Iran and its citizens. 

The Iranian government criticized the move, saying it’s politically motivated, but also implied that the impact to its economy will be limited. Indeed, this may be true. Existing sanctions on Iran, imposed by the US, and Iran’s placement on the blacklist over a decade ago has likely already discouraged many from doing business with the country. Still, FATF’s decision this month likely means further erosion of the relationship between Iran and other nations on the world stage.

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