DOJ ANNOUNCES "SIGNIFICANT KLEPTOCRACY ENFORCEMENT ACTION TO RECOVER MORE THAN $1 BILLION"

FROM:  U.S. JUSTICE DEPARTMENT  

Assistant Attorney General Leslie R. Caldwell Delivers Remarks at Press Conference Announcing Significant Kleptocracy Enforcement Action to Recover More Than $1 Billion Obtained from Corruption Involving Malaysian Sovereign Wealth Fund

Washington, DC United States ~ Wednesday, July 20, 2016

Remarks as prepared for delivery

Thank you, Attorney General [Loretta E.] Lynch.

This is the largest single action ever brought by the Kleptocracy Initiative, and a significant milestone in the department’s ongoing fight against global corruption.  The complaint filed today in federal court details the complex web of transactions these co-conspirators used to launder billions of dollars that they stole from the people of Malaysia.  We have several speakers today who will describe various aspects of this matter.

My remarks will focus on the allegations in the complaint involving two bond offerings in 2012 through which 1MDB (1Malaysia Development Berhad) raised money that was siphoned off by the corrupt officials and their associates.  The stated purpose of the 2012 bond offerings was to allow 1MDB to invest, for the benefit of the Malaysian government, in certain energy assets.  But almost immediately after receiving the proceeds of these two bond issues, roughly 40 percent of the funds raised—approximately $1.37 billion—was transferred out of 1MDB’s accounts.  The money went into the Swiss bank account of a shell company incorporated in the British Virgin Islands.  The complaint alleges that the name of this shell company was intended to suggest an affiliation with a legitimate company involved in the bond offering but, in fact, the Swiss bank account was controlled by corrupt officials.

From Switzerland, the corrupt officials and their associates transferred money using a complex series of transactions that involved still more shell companies and bank accounts across the globe.  Eventually, more than $230 million found its way into accounts controlled by shell companies whose beneficial owner was a close relative of a senior 1MDB official.  That individual used the stolen funds to buy luxury real estate in the United States and other assets, including funding a California-based motion picture company, Red Granite Pictures.

Red Granite Pictures, in turn, used more than $100 million involved in the theft from 1MDB to finance the award-winning 2013 film The Wolf of Wall Street.  Of course, neither 1MDB nor the people of Malaysia ever saw a penny of profit from the film, or from any other investments made with money diverted from 1MDB.  Instead, that money went to a relative and associates of the corrupt officials.  Because the assets used to finance the film were, as alleged, laundered money, future rights to that film are subject to the forfeiture complaint filed today.  According to the allegations in the complaint, this is a case where life imitated art.  The associates of these corrupt 1MDB officials are alleged to have used illicit proceeds of their fraud scheme to fund the production of The Wolf of Wall Street, a movie about a corrupt stockbroker who tried to hide his own illicit profits in a perceived foreign safe haven.  But whether corrupt officials try to hide stolen assets across international borders—or behind the silver screen—the Department of Justice is committed to ensuring that there is no safe haven.

This case is yet another example of what happens when individuals and criminal organizations are able to use shell companies to move, and ultimately conceal, the proceeds of crime and kleptocracy.  Gaps in the legal regimes across the globe—including in the United States—allowed these criminals to avoid disclosing the ultimate beneficial owners of the accounts to which 1MDB funds were diverted.  Stronger laws and more effective frameworks for international cooperation are needed to close these gaps and overcome the challenges faced by law enforcement when we investigate international corruption, money laundering and other cross-border crimes.

In this case, the significant assistance we received from our international partners was critical in identifying and restraining assets.  That cooperation and the action we are taking today should send a message to kleptocrats and other criminals that the United States is not a safe haven for their stolen money, and that they cannot evade law enforcement authorities simply by laundering money through multiple jurisdictions and through a web of nominees, shell corporations and other legal structures designed to frustrate justice.  The department will continue to work to track and seize U.S. and other assets of these corruption schemes wherever they arise, no matter how secretive, no matter how sophisticated and no matter how sprawling.

Criminal Division
Speaker:
Meet The AAG
Updated July 20, 2016

FORMER HSBC EXECUTIVE ARRESTED FOR ROLE IN "FRONT RUNNING SCHEME"

FROM:  U.S. JUSTICE DEPARTMENT

Wednesday, July 20, 2016

Global Head of HSBC’s Foreign Exchange Cash-Trading Desks Arrested for Orchestrating Multi-million-Dollar Front Running Scheme

Charges Also Unsealed Against Former Head of Foreign Exchange Cash-Trading Desk

for Europe, Middle East and Africa

The head of global foreign exchange cash trading at HSBC Bank plc, a subsidiary of HSBC Holdings plc (collectively HSBC), and HSBC’s former head of foreign exchange cash trading for Europe, the Middle East and Africa were charged with conspiring to defraud a client of HSBC through a scheme commonly referred to as “front running.”

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Robert L. Capers of the Eastern District of New York, Acting Inspector General Frederick W. Gibson of the Federal Deposit Insurance Corporation (FDIC) and Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office made the announcement.        

Mark Johnson, 50, a U.K. citizen and U.K. and U.S. resident, and Stuart Scott, 43, a U.K. citizen and resident, were charged by complaint with conspiracy to commit wire fraud.  Johnson was arrested last night at JFK International Airport in Queens, New York, and will be arraigned later today before U.S. Magistrate Judge Lois Bloom of the Eastern District of New York.

“The defendants allegedly betrayed their client’s confidence, and corruptly manipulated the foreign exchange market to benefit themselves and their bank,” said Assistant Attorney General Caldwell.  “This case demonstrates the Criminal Division’s commitment to hold corporate executives, including at the world’s largest and most sophisticated institutions, responsible for their crimes.”

“As alleged, the defendants placed personal and company profits ahead of their duties of trust and confidentiality owed to their client, and in doing so, defrauded their client of millions of dollars,” said U.S. Attorney Capers.  “When questioned by their client about the higher price paid for their significant transaction, the defendants wove a web of lies designed to conceal the truth and divert attention away from their fraudulent trades.  The charges and arrest announced today reflect our steadfast commitment to hold accountable corporate executives and licensed professionals who use their positions to fraudulently enrich themselves.”

“The Federal Deposit Insurance Corporation Office of Inspector General is pleased to join the Department of Justice and our law enforcement colleagues in announcing this arrest,” said Acting Inspector General Gibson.  “Our collective efforts help ensure public confidence in the financial markets.  It is critically important to hold individuals accountable for their actions, particularly those who abuse their positions of public trust.  We will continue to pursue justice for those involved as this case moves forward.

“These individuals are accused of defrauding clients by misusing confidential information to manipulate currency prices for the benefit of the bank and themselves,” said Assistant Director in Charge Abbate.  “The FBI will continue to work aggressively with our partners to prevent, investigate and prosecute criminal fraud in the financial markets.”

According to the complaint, in November and December 2011, Johnson and Scott misused information provided to them by a client that hired HSBC to execute a foreign exchange transaction related to a planned sale of one of the client’s foreign subsidiaries.  HSBC was selected to execute the foreign exchange transaction – which was going to require converting approximately $3.5 billion in sales proceeds into British Pound Sterling – in October 2011.  HSBC’s agreement with the client required the bank to keep the details of the client’s planned transaction confidential.  Instead, Johnson and Scott allegedly misused confidential information they received about the client’s transaction.  On multiple occasions, Johnson and Scott allegedly purchased Pound Sterling for HSBC’s “proprietary” accounts, which they held until the client’s planned transaction was executed.  The complaint alleges that, as part of the scheme, both Johnson and Scott made misrepresentations to the client about the planned foreign exchange transaction that concealed the self-serving nature of their actions.  Specifically, the complaint alleges that Johnson and Scott caused the $3.5 billion foreign exchange transaction to be executed in a manner that was designed to spike the price of the Pound Sterling, to the benefit of HSBC and at the expense of their client.  In total, HSBC allegedly generated profits of roughly $8 million from its execution of the FX Transaction for the Victim Company, including profits generated from the front running conduct by Johnson, Scott, and other traders whom they directed.

The investigation is being conducted by the FDIC’s Office of Inspector General and the FBI’s Washington Field Office.  Trial Attorney Melissa Aoyagi and Senior Litigation Counsel Carol Sipperly of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Jacquelyn Kasulis of the Eastern District of New York’s Business and Securities Fraud Section are prosecuting the case.

The charges in the complaint are merely allegations, and the defendants are presumed innocent unless and until proven guilty.

The charges in this case were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.