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Why Pele’s Son, Sentenced for Money Laundering, is the Tip of the Iceberg for Brazil

Pele's son sentenced to 33 years in jail for money laundering.

Pele’s son, Edinho, has been sentenced to 33 years in jail on money laundering charges.

Edinho, a former professional soccer player, was accused of using his father’s name to run businesses that conducted money laundering. Edinho was linked to drug cartel boss Ronaldo Duarte Barsotti, known as Naldinho, who allegedly controlled a large drug operation in Brazil’s southeast region.

Prosecutors say that Edinho connected the armed and the financial parts of the cartel and operated from the city of Santos, where he worked as a goalkeeping coach. According to a Santos-based newspaper, Naldinho and Edinho were tapped discussing the illicit money transactions by starting a new business.

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New York Regulator on BNP Paribas: Someone Needs to Get Fired

Reuters has the story. Settlement negotiations are under way between New York and Federal law enforcement and BNP Paribas, to resolve allegations into whether or not the bank evaded U.S. sanctions. Reports have been circulating for a few days now that BNP Paribas could see financial penalties of up to $10 billion and may plead guilty to violating U.S. law.

Benjamin Lawsky, the Superintendent of Financial Services for New York State, is negotiating on behalf of New York. Previous money laundering settlements have resulted in much more modest fines, and little change at the senior level of of the bank’s management. Regulators may have expected banks to choose to fire senior management on their own following billion-dollar settlements in previous cases, but that did not materialize. This time, Lawsky does not want to leave it to chance:

“The details of settlement talks show how regulators are now demanding that bank employees be held personally accountable for their activities.

Lawsky, a former federal prosecutor who has extracted large penalties from other banks such as Standard Chartered Plc and Credit Suisse Group AG, has said he is making personal accountability a focus in his probes.

“If a bank commits a criminal act or if a bank commits serious regulatory violations, someone within that bank did it. The corporation is an inanimate thing,” Lawsky said last month.”

We’ll be monitoring this situation, but here’s a thought: will this rationale be extended to criminal prosecutions? Will Lawsky stop at requiring banks to fire individuals who committed crimes, or will they actually be prosecuted?

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Why Indian Prime Minister Narendra Modi’s First Act Was To Go After Illicit Financial Flows

In his official first act after winning the biggest democratic election in world history, Indian Prime Minister Narendra Modi announced the formation of a Special Investigative Team (SIT) to probe illicit financial flows, or ‘black money’ as they are commonly referred to in India.

Illicit financial outflows are a massive problem for India. GFI research finds that India lost $343.9 billion to illicit outflows from 2002-2011:

 

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Chart: Russian Bank Deposits in the U.S. Before and After Sanctions

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According to data provided by the U.S. Treasury, approximately $13.5 billion in bank deposits held by Russians left U.S. banks in March:

What happened between February and March? On February 26th, Russian military forces began to invade Crimea, setting off the international crisis in the region. Within a few weeks, Western nations imposed sanctions on some Russian individuals.

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GFI Engages, First and Second Quarter 2014

A Quarterly Newsletter on the Work of Global Financial Integrity from January through May 2014

Global Financial Integrity is pleased to present GFI Engages, a quarterly newsletter created to highlight events at GFI and in the world of illicit financial flows. We look forward to keeping you updated on our research, advocacy, high level engagement, and media presence.

This year has been busy so far, with GFI staff traveling to six continents within the first three months alone. The following items represent just a fraction of what GFI has been up to, so make sure to check our new website for frequent updates.

Measurable Change in India

In late April, the Indian Directorate of Revenue Intelligence released a summary of its first two years of increased law enforcement activity targeted at cases of commercial fraud, including illicit financial flows through trade misinvoicing. Their early results have been remarkable: between March 2012 and March 2014, they detected $1.3 billion worth of commercial fraud, and collected $396 million in new revenue.

India is just beginning its effort to crack down on trade-related illicit financial flows, and should serve as an example of the potential that curtailing trade misinvoicing has for development. India began working in earnest to reduce illicit financial flows after a report by Global Financial Integrity showed the economy had lost $462 billion since 1948 due to illicit outflows. Following years of intense political debate and public outcry, the Indian Ministry of Finance declared trade misinvoicing its ‘top priority’ and began working with GFI and others to address it.

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Credit Suisse, The US Department Of Justice, And The Rest Of The World

By Koen Roovers

Originally posted on the Financial Transparency Coalition blog

Last week, Credit Suisse, a staple of the Swiss banking industry, pleaded guilty to conspiring to help US citizens “hide their wealth” for decades, in order to avoid taxes. The debate that has emerged in the wake of US Attorney General Eric Holder’s announcement seems to focus on whether or not the fine—roughly US$2.6 billion—is fair. Is it high enough?

It might not be much more than a couple of month’s earnings for this major bank. In the wake of the guilty plea, does this settlement prove the suspicion of many that ‘banks are too big too jail’?

Even so, the punishment might be some conciliation to the US. But is it naïve to think that the bank was only involved in this practice in the US? While the US might have the capacity and power to bring a powerful bank like Credit Suisse “to justice”, other countries might not be in that position.

The official website of Credit Suisse makes mention of 55 other countries of operation, besides the US and Switzerland. Among this list are a number of South American, Asian and African nations. Some of these very countries are at the center of the problem of illicit financial flows – money leaving a country undetected, untaxed, and unaccounted.

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Russian Foreign Direct Investment and Tax Havens

It can be tough to impose economic sanctions against Russian citizens if you can’t find their money. Russia’s very complex relationship with tax havens could make this more difficult.

It is also tough to try to pinpoint exactly how much Russian money is being held in tax havens due to the fact that a lot of it isn’t reported to Russian officials/international organizations like the IMF (that’s the whole point of hiding your money in a tax haven).

The amount that is actually reported is pretty jaw-dropping. Approximately 61% of Russia’s $403 billion in outward Foreign Direct Investment (FDI) is held in tax havens:

Just to be clear, FDI is any amount of investment in a entity which gives the investor some  control over that entity’s operations. So, if a Russian billionaire incorporates an entity in Cyprus (often these entities in tax havens are just bogus “shell” entities), and invests $1,000,000 into the entity, that will show up in the FDI statistics.

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Welcome to the New GFI Website!

Welcome to the new gfintegrity.org! After seven long years, we have finally redesigned our website, with the help of some fantastic web designers and engineers. We are still working out the bugs and generating content, and would appreciate your feedback. To tell us what you think, Tweet us at @GFI_Tweets.

Our goal for gfintegrity.org is to create an engine for education and advocacy on illicit financial flows. Nearly a trillion dollars left developing countries last year illegally, resulting in tremendous amounts of economic and social damage. GFI believes that this represents the most harmful economic condition affecting the world’s poor. We hope this website helps us not only make that point, but help guide people to effective, pragmatic policy solutions to curtail illicit flows.

One way we’re doing that is using new graphs and visual aids from Datawrapper, which you will find throughout the site:

All of these graphs are interactive, and the data used to create them is embedded along with the graphics themselves.

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