Focus on overseas fugitives bears fruit

We noted in our last update (which can be found here) that, as part of its "Sky Net" operations to bring home overseas fugitives suspected of corruption and economic crimes, China's Central Anti-Corruption Coordination Group had released information on 50 fugitives suspected of duty-related or economic crimes. The focus on overseas fugitives has continued over the summer, with "Sky Net" delivering a number of repatriations.

In early July, the Central Commission for Discipline Inspection ("CCDI"), announced that Xu Chaofan had been repatriated by US authorities. Xu, a former president of a sub-branch of the Bank of China, embezzled US$485 million from his employer in the biggest bank corruption case in China's history, before fleeing to the United States in 2001. He was captured in 2003 as a result of a joint operation between the two countries' law enforcement officials, and had been serving his 25-year prison term in the United States before accepting repatriation.

In late July, the anti-corruption authority also announced that Zhang Yongguang, one of China's most wanted graft fugitives, had returned to China, surrendering to the police and returning bribes he had taken. Zhang was among 100 fugitives in China listed on an Interpol Red Notice as far back as 2013. International regulatory co-operation in fighting corruption is a central element of the National Supervision Commission's remit under the Supervision Law. Repatriation is a key aspect of this and we should expect more repatriations in the future.

Regulators turn attention to corruption in the movie business

Over the summer, the popular TV host Cui Yongyuan blew the whistle on a prevalent tax evasion practice in China's film industry: dual contracts known as "yin-yang contracts" that consist of a public contract giving an "official" salary, and a private one stating the actual, much higher, pay. This has prompted a co-ordinated crackdown by Chinese authorities including the tax bureau, the foreign exchange watchdog, financial crime investigators and regulators of the publishing, broadcasting and sports bureaus. A task force headed by a vice-ministerial level police official and an expert in investigation of commercial crimes and money laundering is also reported to have been assembled.

China says graft suspects detained under Supervision Law must be well treated

As noted in our March update (which can be found here), China's super graft agency, the national Supervision Commission has wide-ranging powers to interrogate, detain, freeze assets and search premises. Human rights activists had raised concerns about the "liuzhi" detention process which allowed the detention of suspects for six months without charge. On 26 July, the CCDI announced that suspects held under this new measure must be well treated, acknowledging public concern and outlining new rules it said made clear that the new method was not to be abused.

In a statement on its website, the CCDI said: "'liuzhi'" is an important investigation method granted by law to the supervision organs, and is a focus of high attention from various sectors of society. On this, the rules are clear, that the 'liuzhi' method should be cautiously used under legal stipulations and the process strictly grasped. There must also be no covert use of 'liuzhi'. People who are investigated using this method must have their access to food and drink, rest and medical treatment guaranteed."

The new rules also covered questioning witnesses, including stipulating that they must be shown a document highlighting their rights and obligations when being questioned. Witnesses' confidentiality must also be assured, and protection provided where there is any risk of "revenge attacks".


Cryptocurrencies key priority for Korean regulators

Recent updates have noted the ongoing conversation in Korea as to how to address a number of topical concerns surrounding cryptocurrencies (see hereherehere and here). Regulators have recently started putting into place various regimes to tackle these issues.

In June, Korea's Financial Services Commission ("FSC") announced that it would step up the monitoring of money transfers between local and foreign cryptocurrency exchanges. The new guidelines came into force on 10 July and were intended to combat money laundering, which can take place where local cryptocurrency exchanges buy virtual coins on foreign exchanges.

On 20 July, the FSC announced that it was forming a department dedicated to cryptocurrencies and blockchain. The new division, known as the Financial Innovation Bureau, will exist for two years, during which time it will focus on developing policy-making initiatives for the domestic blockchain and fintech industries. The agency's efforts are believed to align with the Financial Stability Board's ("FSB") recent report that claimed crypto assets "do not pose material risk to global financial stability."

Hong Seong-ki, head of the virtual currency response team at the FSC said in an interview in late July that trading platforms were not well-enough prepared in terms of security, and urged lawmakers to pass the country's first cryptocurrency bill quickly, covering the "most important things" first, including money-laundering and investor protection. If passed in its current form, the bill will put crypto exchanges under the FSC’s direct supervision. Hong said he hopes the National Assembly will act by year-end, adding that the timing is hard to predict. He went on to stress that FSC oversight wouldn’t imply an official endorsement of crypto trading, noting that if the bill is passed, the regulator will focus on policing the exchanges rather than promoting their growth.

Hong Seong-ki, head of the virtual currency response team at the FSC said in an interview in late July that trading platforms were not well-enough prepared in terms of security, and urged lawmakers to pass the country's first cryptocurrency bill quickly, covering the "most important things" first, including money-laundering and investor protection. If passed in its current form, the bill will put crypto exchanges under the FSC’s direct supervision. Hong said he hopes the National Assembly will act by year-end, adding that the timing is hard to predict. He went on to stress that FSC oversight wouldn’t imply an official endorsement of crypto trading, noting that if the bill is passed, the regulator will focus on policing the exchanges rather than promoting their growth.

South Korean court sentences Park to another eight years in jail

The corruption scandal covered in our recent updates (see hereherehere and here)  has continued, as disgraced ex-president Park Geun-Hye was sentenced to a further eight years' imprisonment and a fine of 33 billion won in connection with causing loss of government funds and interfering in a 2016 parliamentary election. The District Court ruled that Park had colluded with her former aides to cause the loss of government funds worth about 30 billion won (US$26.5 million) from the National Intelligence Service ("NIS"). Park had already been sentenced to 24 years in prison after being found guilty of separate charges, including bribery, abuse of power and coercion, in April of this year. The sentences will be served consecutively

Park's former Finance Minister, Choi Kyung-hwan, was also sentenced to five years' imprisonment in connection with the same matter, after a court found that he had accepted 100 million won in bribes from the NIS in October 2014. The bribes were alleged to have been paid in exchange for Choi using his influence to prevent the off-book NIS funds from being cut when then liberal opposition parties sought to reduce the amount on grounds that the use of such funds could not be traced. Choi denied accepting the money, but the court dismissed this, finding the testimonies of former NIS chiefs, who say they gave the money to Choi, convincing. However, the court found little evidence that Choi exerted inappropriate influence regarding the NIS funds. Choi was deputy prime minister for economic affairs and finance minister at the time.


India's new anti-corruption law targets bribe-givers and establishes corporate liability offence modelled on the UK Bribery Act

India's long-awaited Amended Prevention of Corruption Act 2018 came into force on 26 July. Originally proposed in 2013, the amendments include the introduction of a new offence of offering bribes (previously covered only by prosecuting for the abetment of the principal, receiving offence), and a new corporate liability regime inspired by the UK Bribery Act.

Notably, the changes do not introduce prohibitions against private-sector bribery and the regime continues to apply only to the bribery of public servants. However, the definition of public official under Indian law is broad, and the Supreme Court has ruled that it goes so far as to include executives of private banks.

It remains to be seen how these provisions are deployed, in particular whether we see India's law enforcement authorities shifting their focus quickly to supply side bribery and the conduct of corporates. In recent years, Thailand, Indonesia and Malaysia have all enacted legislation to help their domestic authorities prosecute companies for bribery. However, we are yet to see prosecutions of companies under these provisions.

For more information see our bulletin here.


Enforcement activity by the NACC

The National Anti-Corruption Commission ("NACC") is preparing to file charges against several Thai officials who demanded 20 million baht (US$602,000) from a Japanese conglomerate. Prosecutors in Japan were reported to have reached a plea deal with the Japanese company accused of bribing officials in Thailand, which led to the Japanese authorities to ask the NACC to investigate. Separately, the NACC has come under attack for its progress on probes into deputy prime minister Prawit Wongsuwon and the money-laundering allegations against a former national police chief. The Anti-Corruption Organisation of Thailand has repeatedly criticised the NACC for foot dragging in these investigations.

Thailand introduces new anti-corruption law

The Act Supplementing the Constitution Relating to the Prevention and Suppression of Corruption B.E. 2561 (2018) is the new anti-corruption law in Thailand that officially repeals and replaces the 1999 Organic Act on Counter Corruption ("OACC"). The new Act resembles the OACC in terms of retaining key provisions such as legal entities being criminally liable for bribe-giving, allowing legal entities to reduce their liability if they implement proper internal controls (by reference to the NACC's 2017 guidelines) and the level of punishment for corporations if they engage in bribery.

However, the new regulation also introduces important changes such as the widening of the definition of "legal entities" to cover foreign legal persons. Companies that are operating in Thailand despite being registered abroad will still be considered a legal entity, and be subject to the prohibition on bribery. In light of the high-profile corruption cases in Thailand over the past few years that involved overseas regulatory authorities as well, the new Act seeks to streamline the process which the NACC uses to seek international cooperation. It is hoped that this will facilitate more efficient cross border cooperation to ease the obtaining of evidence and the building of cases. Additionally, a government subsidised fund called the "National Anti-Corruption Fund" will be implemented, with the aims of supporting investigation costs, rewarding informants and educating the Thai public about anti-corruption. 


Vietnam stepping up on graft crackdown against bank executives Former chairman of Vietnam Construction Bank, Pham Cong Danh and the former chief executive, Phan Thanh Mai, were handed prison terms of 20 years and 10 years respectively for violating state regulations on economic management and causing damage of 6.1 trillion dong (US$262 million) to the bank and the banking system. Tram Be, the former deputy chairman of Saigon Thuong Tin Commercial Joint Stock bank, was sentenced to four years in prison on the same charges. The former deputy governor of the central bank was also jailed for three years, making him the most senior banking official that has been prosecuted in the crackdown.

Vietnam is in the midst of a corruption crackdown, in which several senior government officials and executives have been arrested and jailed, such as the jailing of former Politburo member Dinh La Thang for 31 years, following financial irregularities at PetroVietnam. He was the highest-level politician Vietnam has jailed for decades. The authorities have continued to step up their graft crackdown, in response to the mismanagement of Vietnam's banking system in the early 2010s from which the industry is still recovering.

Continuous commitment to fight money laundering

Vietnam's efforts towards fighting money laundering have been increasing, with the amendment of the Penal Code this year,  including revised articles and supplements to address the issue. To further their efforts, a workshop was held in Da Nang, for organisations and experts from Vietnam, Australia and the United Nations Office on Drugs and Crime to provide guidance on applicable regulations so that they can be effectively implemented. 

Jean Cuthill, a member of the anti-money laundering assistance team under the Australian Government Department of Home Affairs recommended that Vietnam demonstrate technical compliance with the Financial Action Task Force ("FATF") standards and assessment of effective anti-money laundering regimes. In 2014, FATF removed Vietnam from the list of countries with weak measures to combat money laundering and terrorist financing. Vietnam last had a FATF mutual evaluation in 2008, with the next evaluation scheduled for 2019.

Authorities investigating tax evasion

Prime Minister Nguyen Xuan Phuc has assigned the Ministry of Finance ("MOF") and the General Department of Taxation ("GDT") to study media reports on transfer pricing of foreign direct investment ("FDI") enterprises and their tax policies. The MOF reported that FDI firms that reported losses had a higher expansion of investment and business as compared to enterprises that reported losses and accumulated losses.

Some media reports have pointed out that a popular transfer pricing strategy involves firms borrowing from their parent companies or affiliates with excessive interest expenses. Other methods involve intercompany transactions or local affiliates paying for advertising, marketing, research etc. instead of the overseas parent firms bearing the costs. All these methods minimise tax payments in Vietnam, It was suggested that the Government should implement more effective mechanisms to address the issue of loss making FDI enterprises continuing to have enlarged investment and production. One of Vietnam's top electronic retailers, the Nguyen Kim Company, was recently asked to pay back VND147 billion (US$6.7 million) worth of back taxes and fines for tax evasion after being investigated by the Ho Chi Minh Tax City Department. The company had accounted for parts of the employee's remuneration and perks as overtime pay, hence avoiding the requirement to pay personal income tax. 

SINGAPORE Singapore launches another best practice paper to combat money laundering and terrorist financing

Following the release of two best practice papers in May 2018, the Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership ("ACIP") has revealed that they are preparing to launch their third best practice paper, focusing on the use of data analytics to counter money laundering and terrorist financing. The paper is expected to be released in September this year.

The proposal follows the Monetary Authority of Singapore ("MAS") highlighting the use of data analytics and information sharing in identifying suspicious fund flow networks and drawing attention to areas of higher risk transactions or accounts. It is hoped that this will increase the effectiveness of inspections and inform the implementation of AML/CFT systems in banks.

New AML/CTF Regulatory Regime for PSMDs

Traditionally, the precious stones and metals industry had to comply with the requirements under the cash transaction regime ("CTR"), but not other anti-money laundering or countering the financing of terrorism ("AML/CTF") obligations such as assessing the risks of money laundering and terrorism financing and implementing internal protocols to address and mitigate these risks. In response to this, a new regulatory regime announced by the Ministry of Law will require Precious Stones and Metals Dealers ("PSMDs") to manage the money laundering and terrorism financing risks posed and register with the Ministry of Law.

These new requirements are in response to the FATF recommendations, which recommend AML/CTF regulation of PSMDs in certain countries. Precious stones and metals are valuable and easily convertible to cash, making it an industry that is percieved to be particularly susceptible to money laundering and terrorism financing activities.

The Ministry of Law, in its capacity as the regulatory agency, will also conduct a public consultation on the proposed regulatory regime. The new regime is seen as a step towards strengthening Singapore's stance in countering money laundering and financial crimes.


Former Malaysia Prime Minister faces new charges Former prime minister Datuk Seri Najib Razak was arrested and charged with three counts of criminal breach of trust and one count of abuse of power in relation to the allegation that there was a transfer of 42 million ringgit (US$10.31 million) into his personal bank account from a former unit of 1MDB. He pleaded not guilty and was released after posting bail. Earlier, in connection to the money laundering probe, police had seized a haul worth well over US$273 million from properties linked to Najib. The items seized included 12,000 pieces of jewellery, 657 handbags, 423 watches and 234 sunglasses, which will be sold. Indonesia also handed over the luxury yacht Equanimity to Malaysia, which was allegedly purchased using funds embezzled from 1MDB. The next day, the Malaysia Anti-Corruption Commission ("MACC") announced that Najib had been charged with three new counts of money laundering. These new charges relate to three electronic transfers worth a total of US$10 million from a onetime unit of the 1MDB fund to Najib's bank accounts. His trial is scheduled for February and March 2019. The 1MDB investigation, launched by current prime minister Tun Dr Mahathir Mohamad, marks the authorities' commitment to stamping out corruption. The prime minister emphasised that the new government would refine its anti-corruption practices to foster a business friendly environment for foreign and domestic investments.

Malaysia's amendment on anti-graft laws in progress Current Malaysian prime minister Tun Dr Mahathir Mohamad has unveiled plans to amend anti-graft laws so that no one is exempt from abiding with anti-corruption laws. The proposed amendments would require all members of parliament and the administration to declare the receipt of any gift worth over RM500 (US$124) to the prime minister, with a copy provided to the MACC. Additionally, members of the administration may potentially be open to charges under anti-graft laws. The purpose behind this is to prevent the occurrence of scenarios such as the previous prime minister Najib being able to strike out a lawsuit. The proposed changes would strengthen the anti-corruption framework in Malaysia, as the country seeks to wipe out corruption and reinforce the rule of law.

Suspected abuse of power and corrupt practices by Sabah Forestry Department 

Chief minister Datuk Seri Mohd Shafie Apdal has ordered a log export ban aimed at breaking up a Sabah timber cartel that had been running for a decade. Graft investigators are in the midst of a probe into Sabah's timber cartels that allegedly involve the big three timber companies and the previous administration. As part of the probe, a special task force raid unearthed 10,000 logs worth millions in taxes relating to illegal felling and unpaid royalties. Raids were also carried out at the Sabah Forestry Department headquarters and three logging companies. In connection with the investigation, the MACC is questioning Datuk Sam Mannan, the outgoing Sabah Conservator of Forests, along with one of his deputy directors and a close aide, in relation to suspected abuse of power and corrupt practices.


Anti-graft body now part of government's effort to crack down on corruption

Following the signing of the 54th Presidential Regulation, the Corruption Eradication Commission ("KPK") is now officially part of a coordinated effort at the national level aimed at eradicating corruption. Previous efforts at anticorruption measures were uncoordinated and disjointed, with individual government institutions working independently of each other. The new Regulation seeks to harmonise all efforts to be in line with the KPK's anti-corruption drive.

Other government bodies involved in the implementation of anti-corruption measures include the Executive Office of the President, Home Ministry, the National Development Planning Agency and the Administrative and Bureaucratic Reform Ministry. Moeldoko, the presidential chief of staff, said the KPK would be instrumental in the coordination and supervision of the government's effort.

South Korea has also renewed its anti-corruption co-operation agreement with Indonesia for the fourth time, which offers Indonesian officials the opportunity to attend training sessions and consultations in South Korea.