Sanctions Violations, Sweetheart Deals and Regulatory Failure

May 22, 2020 3 minute read

More than half the EU fails to implement 5AMLD, 1MDB has a sweetheart deal, and an Iranian payments company deceives US businesses.

We share our financial regulatory highlights from the week of 18 May 2020.

17 Countries Fail 5AMLD

Enforcement action has begun against 17 Member States of the EU by the European Commission for failure to properly adhere to and implement 5AMLD.

More than half of the EU’s Member states have missed the deadline, nine of which received formal notice from the EC that they had only partially transposed the directive. The UK, Austria, Poland, Estonia, Czech Republic, Greece, Ireland, Luxembourg, and Belgium all failed to meet the deadline.

Admittedly the UK is no longer a Member State as such, but the nation is still beholden to EU laws until it officially leaves the supranational body.

Eight more Member States received formal notice letters from the EC following a total failure to transpose any portion of the directive. Hungary, the Netherlands, Cyprus, Portugal, Slovakia, Slovenia, Spain and Romania have all received the reprimand.

All the states have a period of four months to respond to the notices and show that they have complied before facing the next stage of enforcement, ‘reasoned opinions’.

These opinions are a formal request to comply with EU law. It explains why the Commission considers that the country is breaching EU law and grants a further two month period to comply.

After that the issue goes to the Court of Justice and can result in steep penalties. Most issues are resolved before this stage of the process.

Sweetheart Deal for 1MDB Conspirator

Prosecutors dropped money laundering charges against Wolf of Wall Street producer Riza Aziz for his alleged role in siphoning money from Malaysia’s 1MDB fund.

Riza was discharged without acquittal so charges could be brought against him again. He will, however, face an unspecified fine and officials have said that the government will recover $107 million of assets from the case; 43% of the funds that Riza was alleged to have stolen.

US investigators allege a minimum of $4.5 billion was stolen from the fund and laundered by Riza Aziz’s step-father, and former Malaysian Prime Minister, Najib Razak, and his associates.

Riza was the third person in his family to be charged over the 1MDB corruption scandal that saw Najib’s government lose power in May 2018.

Former Prime Minister Mahathir Mohamad expressed concern for how future corruption cases will be handled in Malaysia, commenting: “thieves will be let off if they return the stolen money”.

Dr Mahathir recently lost power following political manoeuvers that saw a majority government formed with Najib Razak’s party as part of a coalition.

Iranian Company Violates Sanctions

An Iranian financial services company, Payment24, and two of its top-level executives have been accused of evading US sanctions against Iran, the US Department of Justice confirmed Monday, May 18.

Prosecutors say Payment24 primarily served to facilitate financial transactions between Iranians and US businesses for a total of nearly 10 years, from sometime in 2009 to November 2018.

According to the Department of Justice, Iranians could purchase a package deal from the company, through which they would receive “a PayPal account, a fake ‘ID card and address receipt,’ a remote IP address from the United Arab Emirates, and a Visa gift card.”

Customers would also receive tips for creating fake foreign accounts and getting around restrictions when making their purchases. Purchases included things like computer software, software licenses and servers.

The founder and CEO of Payment 24, Seyed Sajjad Shahidian, and its COO, Vahid Vali, are each facing six counts of conspiracy charges, wire fraud, money laundering and identity theft. They have been accused of deceiving the US businesses involved and hiding the fact that the goods would go to Iranian businesses, as well as using fake ID and residency documents to obtain payment processing accounts from US companies.

Shahidian was arrested in the UK in late 2018 and extradited to the US. He was arraigned Monday in US District Court in Minneapolis, Minnesota, where he entered a plea of “not guilty.” However, the company’s COO, Vali, is still at large.