Fear of failure can be a powerful motivator.
Ahead of a global evaluation that ended in March, Monaco, which covers less than 1 square mile but counts thousands of millionaires and billionaires as residents, reformed its anti-money laundering framework, published a new AML strategy and formally advised institutions on the threat of illicit finance that sports agents and real estate sometimes present.
Monaco also took the innovative step of instructing firms and professionals how to guard themselves against the flow of illicit funds through the principality’s multibillion-euro luxury yacht sector, an industry now firmly in the public eye amid Russia’s invasion of Ukraine and the massive bevy of sanctions and seizures western nations have pursued in response.
“This is a real revolution for the sector because although the financial stakes are often considerable, due diligence is very low, particularly with KYC [know your customer] and identifying funds’ origin,” Anna Curau, a consultant with GCG Monaco, told ACAMS moneylaundering.com.
Superyachts, luxury ships that exceed 40 meters in length and cost tens—if not hundreds—of millions of dollars to build and maintain, frequently pop up in financial crime cases across the globe, starting with the Equanimity, a 90 meter boat that Jho Low, the now-infamous Malaysian fugitive financier, acquired in 2014 with $250 million stolen from 1MDB.
The U.S government’s case against Low is hardly an isolated event.
In 2018, Malta seized Indian businessman Vijay Mallya’s 95 meter superyacht, the Indian Empress, after the U.K. accused him of engaging in fraud and laundering money. Last year, in response to a U.S. request, Interpol seized Turkish entrepreneur and suspected fraudster and money launderer Sezgin Baran Korkmaz’s $17 million boat, the Queen Ann, in Beirut.
Apart from those and other high-profile examples, the builders, brokerages and other companies that comprise the industry have almost entirely avoided regulatory and legal scrutiny, Yehuda Shaffer, former director of Israel’s financial intelligence unit, or FIU, said.
“Despite some high-profile examples, yachts have mostly been neglected so far,” Shaffer said. “We tend to focus on bank accounts and property but yachts are often worth much more … but are more complicated to trace because, unlike real estate, they can be owned in one jurisdiction, registered in another one and stored elsewhere,” he said.
Two years ago, Yachtzoo, a brokerage that set up shop in Monaco in 2007, appeared in a U.S. forfeiture complaint after allegedly accepting $2.7 million from Jho Low.
The Organized Crime and Corruption Reporting Project revealed that, from 2006 to 2008, Nakhimov Yachts, a local shipbuilder, furnished Celestial Hope, a 47 meter superyacht belonging to Russian entrepreneur Valentin Zavadnikov, for almost €3 million.
A former senator turned business magnate, Zavadnikov allegedly helped organize the multibillion money-laundering scheme now called the Troika Laundromat.
Monaco hosts no fewer than 252 companies and 1,500 employees involved in the financing, sale, construction, upkeep and crewing of superyachts, but a national risk assessment, or NRA, published five years ago does not include a single passing reference to the industry.
Times have changed.
An updated NRA in November ranked the yachting industry as the principality’s top financial-crime vulnerability because of its allegedly insufficient grasp of customer risk, “significant” exposure to money laundering and terrorist financing, and overall lukewarm commitment to guarding itself against those activities.
In February, Monaco explicitly placed those involved in “the sale or rental of pleasure boats” under AML program requirements.
“At the time of the first NRA, this sector was much less developed,” an official with SICCFIN, Monaco’s FIU, told moneylaundering.com in an email. “Yachting is now the fourth most important sector of the economy, the number of players has multiplied significantly [and] it was impossible to neglect this activity.”
More and more cases linked to yacht sales and charters are appearing in suspicious transaction reports and financial institutions have shown a new reluctance to open and maintain accounts for the industry, wrote the official, who described the development as “an expression of the banking sector’s vigilance.”
Responding to a threat that the government now believes exceeds that of real estate or private banking, SICCFIN published a 35-page advisory on the links between illicit finance and yachting.
Legal structures domiciled in jurisdictions with lax AML controls constitute a significant proportion of the industry’s clientele, according to the guidance. The beneficial owners of superyachts regularly funnel their payments through those structures and other intermediaries to avoid notice.
“An analysis of customers in this sector shows that one in eight is a politically exposed person,” officials warned in an NRA ahead of the guidance. “This already high proportion could rise when professionals are truly able to identify their customers accurately, which is not currently the case for most of them.”
To illustrate the lack of due diligence, Monaco cited a case in Germany in which a yacht builder agreed to build a $380 million ship for an individual with an official monthly income of $6,800. Those details point to Teodorin Obiang, whose father has ruled Equatorial Guinea since 1979.
Another typology emphasizes the use of intermediaries and legal persons registered in a multitude of jurisdictions to obfuscate the money trail, describing—albeit indirectly— Nigerian businessman Kolawole Aluko’s acquisition of the Dutch-built Galactica Star for $82 million of bribes received for oil contracts.
In this case, the yacht broker who directly purchased the vessel had no prior commercial history and served only one client, a customer who operated in the high-risk oil extraction sector and maintained close ties with a Nigerian official already under intense media scrutiny.
“This document is a promising first step, but there is still no supervision or training in this area, so public authorities will have to dedicate resources to train, supervise and sanction if necessary,” said Shaffer, the former Israeli FIU director.
Reforms adopted in January and February allow more seizures of illicit assets, authorize penalties against banks for due diligence-related failures, and expand AML rules to “pleasure boat” and aircraft sales and rentals; sales and trades of jewelry, precious metals and antiquities; but may have arrived too late to affect the outcome of Monaco’s evaluation by Monevyal, the regional affiliate of the Financial Action Task Force.
“It might have been more appropriate to adopt such reforms and to publish all this documentation earlier so that the private sector can acclimate, and especially so that Moneyval can observe their effectiveness,” Curau said.
Contact Gabriel Vedrenne at firstname.lastname@example.org
|Topics :||Anti-money laundering , Counterterrorist Financing|
|Document Date:||April 1, 2022|