Raids, Competition and Defrauding the Elderly

June 19, 2020 5 minute read

Daphne Caruana Galizia’s murder has revealed a tangled web of money laundering, China moves to create a cryptocurrency fit for mainstream international use and EarthWater executives defrauded the elderly.

We share our financial regulatory highlights from the week of 15 June 2020.

Raid Leads to 17 Black

The mysterious company 17 Black has been linked to a Latvian bank, ABLV Bank, recently raided for a money laundering investigation with ties to the murder of journalist Daphne Caruana Galizia.

Daphne Caruana Galizia wrote in her blog about a company in Dubai called 17 Black Limited and alleged it had ties to Maltese politicians but had refrained from providing proof online. Eight months after her blog entry, Daphne Caruana Galizia was killed by a car bomb and there was an international outcry.

Her death was not connected to any of her journalism outright, but it did prompt investigation into a variety of her claims, including 17 Black.

Head of the Economic Police Fighting Economic Crime Board in Latvia, Pēteris Bauska commented: “The raid could be about the laundering of several hundred million euros,” and added that investigations were ongoing.

ABLV was used to transfer €1.1 million to 17 Black in 2015, with Malta’s FIU finding that two payments had come from a company called Mayor Trans based in the Seychelles and owned by a security guard, Rufut Baratzada, who lives in a single-story home.

Azeri national Baratzada is believed to have used ABLV to send payments to Yorgen Fenech’s 17 Black account at Noor Bank in Dubai via a correspondent bank in the USA. Fenech was identified by Reuters as the owner of 17 Black Limited and he is also currently under investigation for having a role in the murder of Daphne Caruana Galizia.

Daphne’s murder led to 45 journalists from 18 news organizations and 15 countries to set up the Daphne Project in her memory and to take on her work. Daphne’s family, the Caruana Galizia’s, recently commented: “We now know, as a result of the Daphne Project’s investigations, that Latvia’s ABLV Bank, like Pilatus Bank in Malta, was a service provider to a money-laundering network implicating Politically Exposed Persons in Malta and in Azerbaijan.”

The investigation into Daphne’s assassination is far from over but what has been uncovered so far offers a glimpse into how complex and labyrinthine the structures are that are used to hide criminal activity through the global financial system.

Crypto Competition

China has created an East Asia cryptocurrency scheme. Following on from Japan’s recent move to regulate cryptocurrency domestically, a Chinese political advisory body, the Chinese People’s Political Consultative Conference (CPPCC), has seen 10 members propose a plan to create a digital currency consisting of the Chinese yuan, Japanese yen, South Korean won and Hong Kong dollar.

The 10 members include a number of influential figures, including Neil Shen, co-founder of leading Chinese travel services provider Ctrip. Shen, is a successful venture capitalist in China and estimated to possess assets worth $1.6 billion.

Another notable member supporting the plan is Henry Tang, a Hong Kong politician and former civil servant who held the special administrative region’s second-highest position of chief secretary.

The proposal builds on the People’s Bank of China’s existing plan to create a digital yuan in Shenzhen and four other locations. But the plan proposed by the 10 members is for the private sector to drive forward the development of the digital currency and is expected to be adopted with governmental approval.

While the planned regional cryptocurrency’s value will be backed by a basket of four currencies, the ratios of endorsement will be determined by the economic scale of the associated economies, according to the proposal. The yuan and yen are calculated to account for more than 60% and 20% of the guarantee, respectively.

The network is seen as an attempt to create a new free trade zone by analysts, something currently being discussed by Japan, China and South Korea. It’s also interesting timing considering that the US is pushing for Japan and South Korea to decouple their interests from China.

The US position on cryptocurrency as a whole remains unclear. While Libra has come under scrutiny it may also be the only cryptocurrency currently in development that could pose a real challenge to the cryptocurrency proposed by the CPPCC when it comes to internationalization.

Defrauding the Elderly

Two former EarthWater executives pleaded guilty to fraud and money laundering charges for their role in a scheme to defraud elderly investors for their own benefit, US officials announced on 11 June 2020.

The Dallas-based health and wellness company had made a name for itself selling bottled water packed with minerals that promised a host of health benefits. The ex-COO, John Price, and ex-CEO Cengiz Comu allegedly convinced individuals to buy EarthWater stock prior to an IPO, acquisition or merger, claiming their investment would significantly and quickly increase in value. Yet prosecutors say the investments those individuals made went directly to Price, Comu and their co-conspirators.

Both Comu and Price admitted that they knowingly lied to investors, telling them the bulk of their money would go toward EarthWater’s product development and operational expenses. Instead, that money was paid to stock promotors and salespersons recruited to sell EarthWater stock in the form of “excessive commissions” and, according to the indictment, the salaries of Comu, Price and Harley Barnes — the then-CFO.

Harley Barnes has also been charged for his role in the scheme, which prosecutors say targeted those over 55 years of age, along with several other individuals — three of which have also pleaded guilty.

Comu is scheduled to be sentenced on July 8, and Price’s sentencing will be later this year, in October. The remaining defendants’ trials are scheduled for later this year and early 2021.