We share our financial crime highlights from the week of 22nd July, 2019.

Realpolitiks in the Strait of Hormuz

Iran’s Revolutionary Guard still has the UK flagged Stena Impero oil tanker. Earlier in July Iran’s Grace I tanker was detained by British Royal Marines off Gibraltar as the ship was suspected of being used to breach sanctions.

Iran threatened retaliation and shortly after the British navy Frigate had to intervene between three Iranian ships threatening a British tanker in the Strait of Hormuz. Iran denies the incident happened. Finally, on the 19th July, the IRG captured the Stena Impero alleging the boat broke international maritime rules, colliding with a fishing boat and ignoring calls. Audio between the ship and the Iranians at the time of capture has been released to news outlets.

The obvious wider context here is Iran’s relationship with US and European powers following the US’ exit from the nuclear agreement last year. Britain, Germany and France have been trying to salvage the deal, and thus far said they would agree with Trump’s policy of ‘maximum pressure’.

On Monday the then Foreign Secretary Jeremy Hunt said he stood by that but was seeking a European led mission to allow safe passage in the Gulf. On Thursday it was confirmed the Royal Navy will escort British-flagged ships in the Strait, through which a fifth of the world’s oil travels. This will need to be coordinated with similar US efforts.

Hunt has been accused of being used as a pawn in US policy. Both the Foreign Office and the Gibraltar authorities deny acting at Washington’s request when they detained Grace I. However, there are reports that a tip-off came from the US. Interestingly Gibraltar changed its sanctions enforcement regulations 36 hours before Royal Marines acted, implying that the operation was planned and that they felt the need for a clear legal basis.

It feels like the UK will struggle to continue along any conciliatory lines if there is not fast action regarding the Stena Impero and further vessels are impeded in any way. Especially with a new Prime Minister in Boris Johnson and Brexit looming, further action by Iran could push Britain towards the US at a time where the country will be trying to forge a new path in foreign policy.

As this is happening, Trump is discussing sanctions on Turkey for buying a Russian missile defense system. The US has concerns Russia’s S-400 software compromises the F-35 Stealth Fighter Program. The F-35 jets are only used by NATO and other partner countries. Turkey has been part of the manufacturing supply chain, producing around 900 parts. Turkish defense companies could lose work worth billions as the US announced it has begun the process of removing Turkey from the program. That gap could be plugged by manufacturing elements of the S-400, as authorities there suggested that Turkey could start producing for the Russians instead.

In other, non-sanctions news…

Balancing Libra with Regtech

David Marcus, Head of Facebook’s Calibra, gave testimony at a US Senate banking committee meeting over concerns regarding Facebook’s cryptocurrency. He assured the committee that Libra will not be offered until all regulatory concerns have been addressed. Forbes pointed to the firms already building products designed specifically for the Facebook product, particularly in Compliance, referencing Coinfirm which is apparently building the first Libra tool designed for AML.

So far almost a million transactions have taken place on the Libra testnet. The transactions could, according to the article at least, be the starting point for testing algorithms designed to detect suspicious activity.

I’m not entirely sure how, given that these test transactions achieve very little and we cannot know at this point how the process will work and therefore how people might abuse it, but it’s interesting to think about. One thing that will be different from the blockchain type payments schemes we are more ‘used to’ is that rather than settling in ‘batches’ it will be closer to real-time. Regtech has a whole new arena to play in.

Money Laundering and the Golden Visa

The Sunday Times and Channel 4’s Dispatches program have revealed the results of an undercover investigation showing the ‘immigration middlemen’ who help wealthy foreigners through the Golden Visa process.

These ‘facilitators’ said they could assist with issues such as opening UK bank accounts, finding ‘alternative’ sources of wealth and masking connections where the applicant may have been close to political regimes such as the Kremlin.

The ‘Golden Visa’ program requires applicants to demonstrate they are worth at least £2 million and pledge to invest that sum in British companies. In addition to facilitating the process, these middlemen said not only would the Home Office not conduct a full audit but that they wouldn’t know how even if they wanted to.

Not great timing for a government keen to commit loudly to clamping down on money laundering and the infiltration of illicit funds from abroad.

Better timing, however, for the European Commission. In a report issued this week, the commission added football, free ports and the aforementioned Golden visas (in addition to four others) to a list of supranational risk areas for money laundering and terrorist financing in the latest report on AML in Europe.

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