5 Predictions for Financial Crime Compliance – Infographic

Financial crime is a global problem that may be affecting you and, the environment around you, without you even knowing it. The value of illegal wildlife trade has an estimation of between $5 billion and $20 billion per year… 

Click on the infographic to read our full article on financial crime compliance what we, and industry specialists, predict for 2020.


Financial Crime Compliance

Infographic By Jack Evangelides, Marketing Executive

5 Ways that Financial Crime Compliance will Change in 2020

Financial Crime Compliance

Financial crime is a global problem that may be affecting you and, the environment around you, without you even knowing it. The value of illegal wildlife trade has an estimation of between $5 billion and $20 billion per year, one of the most lucrative illegal businesses, following narcotics, human trafficking and weapons trade. As technology becomes more advanced, financial criminals are becoming more sophisticated and adaptable in their illicit methodologies; therefore, it is important for legislation to stay updated and mirror the flexibility of their illicit counterparts in order to effectively combat financial crime. Anti-Money Laundering (AML) was a strong focal point for 2019, with new directives and legislation becoming adopted by jurisdictions to combat this global rise in financial crime. 2020 is set to follow-on, improve upon and adapt to foundations that financial crime compliance laid in 2019. This article will draw upon 5 key predictions for 2020 in regards to financial crime compliance. We must address the main issues faced today and how companies and countries can overcome them to stamp out or minimise financial crimes.

Financial Crimes & Hefty Fines

The financial system has heavily evolved in the last decade, rapid payments, instant payments, PSD2 and other advancements have acted as vehicles for financial misuse, resulting in money laundering and harmful effects on economies, society and the environment. Since 2015 there has been a steady rise in money laundering fines issued, notably, 2019 saw almost double the amount of fines issued than 2018. In 2019, global money laundering fines exceeded $8 billion, whereas in 2018 the figures were around $4 billion. France, alone, issued fines of over $5 billion and the global average penalty for money laundering was around $145 million.

Money Laundering
Source: https://www.encompasscorporation.com/blog/why-are-aml-fines-increasing-deep-dive-into-encompass-analysis/

 

The above chart symbolises a need for change in regards to fighting financial crime. Governments, regulators and agencies are scrambling to find optimal solutions to reduce this illicit activity and effectively monitor illegal financing. Below is a variety of key areas that 2020 may unveil in an attempt to reduce financial crime and ensure compliance.

  1. Private-to-Private Information Sharing:

    Currently there is a major lack of information sharing across private companies at a global level. Financial crime is a global issue, yet institutions are combatting them at a microscale. 2020 should see an increase in information sharing at a macro-level. Information sharing is currently difficult due to legislative barriers and due to a lack of digitalisation. Only 54% of data and legal documentation, that is needed to carry out effective due diligence, is digitalised. Therefore, before private information can be successfully shared, it must be digitalised for institutions to utilise effectively. However, with an increasing rise in data privacy and security, it is difficult to share data without breaching data protection legislation. Institutions will opt for information digitisation and information and data sharing solutions for the private sector.

  2. Contextualised Financial Crime:

    2020 should see a focus on redefining the context of financial crime. By this, we mean, currently transactions monitored are based upon a fixed set of rules and thresholds. This approach can allow anomalous behaviour that escapes the standard of protection and monitoring, allowing illicit activity to go unnoticed. Monitoring needs to be contextualised and not generalised in order for future success in preventing financial crime. In order to contextualise monitoring, there needs to be more agile and optimised systems in place that can account for anomalous behaviour, systems that can learn, adapt and predict. In order to make more informed decisions you need relevant content that you can analyse. A prediction for the near future of AML is to integrate multiple sources of data into a centralised system; this can ensure a wider scope of information, account for numerous circumstances and allow for an increased contextual monitoring approach. Additionally, enhancing data analysis can aid this approach, by better understanding the context of transactions you can increase your understanding of consumer activity. Taking informed data-driven approaches based off a centralised data system can provide necessary contextualised financial crime compliance.

  3. Real-Time AML Monitoring:

    This approach is perhaps in its early stages, but 2020 will see a trend in focussing on real-time AML monitoring to allow for quicker decision making than the current batch file process. With the increased usage of artificial intelligence (AI), financial institutions are encouraged to take innovative approaches to work in coexistence with current risk-based approaches. This hybrid of AI and current practice can allow for a prioritisation of scenario-based alerts and quickly and automatically adapting to new money laundering schemes. Additionally, 2020 predicts the convergence of AML transaction monitoring and inbound fraud payment monitoring for operation efficient purposes. This implementation may also aid in preventing financial crime by providing more data to be analysed and contextualised to support the above two factors.

  4. Quality over Quantity:

    To only implement technical compliance is not enough, it is important to also provide higher quality of information. 2020 will place a great emphasis on the quality of information provided to the necessary authorities. Quality of information concerning financial crime will also parallel an awareness movement, to make people, companies and institutions aware of the dangers involved with financial crime, the possibilities and the realism of the threat. Illicit wildlife trading, human trafficking, terrorist financing, arms dealing, drug smuggling and more are all activities that bear implications in the reality of financial crime. These very serious social, economic and environmental issues need to be addressed and managed. Therefore, through spreading relevant and informative information and, moreover, being able to provide the quality information to authorities, we can collectively help reduce financial crimes.

Companies have already begun to adopt campaigns to spread financial crime awareness. For example, Barclays campaigned to fight against human trafficking.

“We need to prevent it entering the supply chain, we need to educate other companies, and we need to raise awareness beyond our consumer base.” – Paul Horlick, Director – Head of Barclays’ Financial Intelligence Unit

Barclays, as a bank, understands the importance of preventing money laundering and is part of the process in redefining how big businesses view, and combat, financial crime. The emphasis on a higher quality of information will bring an increase in thorough investigations that can aid relevant authorities in their mission to end illicit financial activities.

5. Conformity – Alignment of Standards:

As previously stated, financial crime has implications at a global level, money laundering doesn’t stop at the border and criminals will take any means and jump through any loophole in the law that presents itself. 2020 calls for an alignment in regulations and standards to combat financial crime, compliance at this level should hold an international standard that companies can abide by. This factor will also aid to the centralisation of information discussed in the first prediction. Importantly, jurisdictions must first issue a consistency of standards for crimes, punishments and all that falls under the umbrella of financial crime compliance. The EU has taken great leaps in bringing about consistency through their 5th AML directive. The EU are working on implementing a 6th AML directive that will include tougher sentencing and additional offences of criminal liability in the form of aiding and abetting. The EU has acknowledged the necessity for an alignment of standards and has worked tirelessly to compile a respectful standard for companies to follow. Yet, what must follow is a global standard for financial crime punishment and regulations that will, hopefully, reduce financial crime and stop individuals from successfully manoeuvring across jurisdictions.

Bright Days Ahead

Financial crime compliance has undergone transformation and 2020 does not see it slowing down. Newer legislation, technology and methodologies will consistently be tested until financial crime is reduced and, hopefully, eradicated. The above predictions each come with their own hurdles and tests, yet they each propose a slightly better future for financial compliance. We shall see across the next decade if the industry takes the necessary routes to successfully combat illegal financial activities.

MENA’s Finest AML

Cedar Rose has understood the issue of financial crime and has embedded, in their culture, a desire to tackle money laundering from the hardest of regions. We have over 23 years’ experience in the Middle East and North Africa, where we have been combatting money laundering through enhanced due diligence investigations using a collection of resources, local networks and expertise to help companies put an end to financial crime. Tackling financial crime throughout the MENA region is especially difficult due to the scarce digitalisation of data, secrecy of free-zone jurisdictions and its particularly volatile political climate. However, our team of expert researchers can help you with your due diligence needs, we have the experience, the resources and the knowledge to help with your AML requirements. It is our duty to help spread the awareness of financial crime and to help companies avoid it at all costs. This is a global problem, which requires a global solution and Cedar Rose are proud to be part of the solution.

Check out our recent article on The China-Pakistan Economic Corridor

Written By Jack Evangelides, Marketing Executive

How will CPEC affect trade relations between China and the Middle East?

CPEC Trade

China-Pakistan Economic Corridor (CPEC), established in 2013, but officially launched in 2015 with an overriding goal to improve China’s infrastructure, potential bilateral investment, trade and logistics with Pakistan, the Middle East and North Africa (MENA) and beyond. The CPEC initiative is a huge component of China’s Belt and Road Initiative (BRI) – a global development strategy to enhance infrastructure developments and global investment. We can clearly examine China’s strategy as a desire to expand and increase trade potentials at a global level, but with a specific focus in neighbouring regions such as MENA. This long-term initiative is set to revitalise and revive infrastructure, telecommunications, transport and more, and is set to extend up until 2030, with numerous development phases staggered along the way. Through CPEC’s projects, we can understand and assess potential implications on trade relations between China and the Middle East.

What is the significance of CPEC?

CPEC is composed of three fundamental components that highlight and outline its significance.

  1. To facilitate industrial and infrastructural development in Pakistan,
  2. To develop modern transportation and a robust telecommunications network that ensures connectivity between western China and coastal Pakistan, specifically the seaports,
  3. To allow China to develop a deep-water port and, moreover, a special economic zone in the region of Gwadar.

These tri-factors all contribute to greater implications for trade relations between China and the Middle East and each factor has its own significance in accomplishing China’s overriding goals. CPEC is a multi-phase initiative that takes the required steps and process that will enable China’s economic interests in the Middle East and North Africa to grow. Primarily, CPEC aims to establish strong routes, connectivity and connections to a seaport in Gwadar. The significance of CPEC will not only transform China’s influence in MENA but also aid the Middle East in their distribution of oil to China. Currently, the Middle East region is the largest supplier of crude oil and natural gas to China, however, it transports these via sea routes to Eastern China, where the bulk of China’s industrial activities are located. CPEC will establish routes that can deliver commodities to less accessible Western China. This will increase industrial activity within China, using new pipelines and railways to deliver through a more economical route, utilising the Gwadar port.

CPEC – Phase 1

The first phase of the China-Pakistan Economic Corridor initiative set to lay foundations for enhanced trading routes, establishing key areas of influence and finding optimal means to accessibility. The Karakoram Highway Renovation project was a key initiative to set out foundations for increased accessibility to Pakistan, and, consequently, to Gwadar. The highway spans a length of 1,300km, connecting Pakistan’s provinces of Punjab, Gilgit-Baltistan and Khyber Pakhtunkhwa to China’s western region of Xinjiang Uyghur. The highway originally opened in 1979, however, is known as a dangerous route, due to it being at an elevation of over 4,700 metres, passing through the Karakoram mountain range and subject to landslides, earthquakes and floods. China’s renovation project aimed to make the route a safe and secure area for transportation. The renovation took place in 2015 and completed in 2016. This Karakoram highway renovation has provided a method of transportation of goods via trucks in its first phase. The project is set to continue into additional developments up until 2030.

What is the Significance of the Gwadar Seaport?

China sets out to establish a major influence in the seaport of Gwadar for numerous reasons. Due to its geolocation, it will become a key factor in bilateral trade between China and the MENA region, creating a major trade hub. The port will establish four focal contributions for China-Middle East economic relations.

  1. It will act as a major transit and transhipment port of trade with the MENA region, a cost effective solution in comparison to current trade that currently directs to Eastern China. Additionally, the Gwadar port will retain products that are currently delivered to the Dubai port, therefore, instead of deliveries from China to the port of Dubai, Gwadar could become the hub for delivery across the MENA region.

  2. Secondly, the port will become a special economic zone. Re-export zones, currently under development, will attract major foreign direct investment (FDI), especially from the Arab countries. As CPEC progresses, there has already been interest in the Gwadar port from many Middle Eastern countries. For example, Qatar, currently under an economic blockade by the UAE, losing access to Dubai’s port, has expressed interest in the Gwadar seaport, with interests in developing food storage facilities. Additionally, the UAE has expressed direct interests in the port, advertising investment opportunities, especially for the second and third phases of CPEC. “UAE and China have common interests,” – Abdul Aziz Al Neyadi, Deputy Head of Mission at the UAE Embassy, Islamabad.

  3. Gwadar will develop major facilities to aid and encourage FDIs, especially from the Middle East. China and Pakistan will facilitate the construction of a major oil and petrochemical investment zone in Gwadar. Some facilities that the Gwadar Oil Terminal City will include are large terminal and storage facilities for crude oil and associated petrochemical industries and produce-refined oil products.

    Middle Eastern investments in the seaport have already begun with Saudi Arabia reportedly contributing $10 billion investment in petrochemical facilities, the UAE finalising on a $5 billion joint venture agreement with Pakistan and many more investments expected to follow.

  4. The strategic location of Gwadar can aid Iran’s economic relations with the Eurasian region. Due to current economic sanctions imposed against Iran, the country is finding difficulties with exporting oil to India, Afghanistan and central Asia. However, the Gwadar seaport has opened up discussions to link Iran’s Chabahar port to Gwadar by highway and natural gas pipeline. Iran’s Foreign Minister, Mohammed Javad Zarif expressed, “We believe that Chabahar — one of Iran’s developing seaports on the Oman Sea — and Gwadar — a port city on the south-western coast of Baluchistan, Pakistan, also on the Oman sea — can complement each other.”

    This development can aid Iran in exporting natural gas to Pakistan and China, while cementing trilateral trade relations. Iran will seek aid from CPEC to help them complete their natural gas pipeline to the Pakistan border.

Financial Significance

CPEC has implemented a long-haul strategy, up until 2030, and ongoing from 2013, which included the involvement of many governing bodies, from Pakistan to the UAE, Saudi Arabia, Iran and more. The sheer financial significance and investments of CPEC indicates that China is not solely relying on China-Pakistan bilateral trade, but much deeper and enhanced trade relations with China and the whole Middle East and North Africa region. The capabilities of CPEC will undoubtedly revitalise trade relations, enhancing their strategic relationship with energy-rich Middle Eastern countries. Considering CPEC is a branch off China’s BRI (Belt and Road Initiative), it will allow Arab countries to benefit from and connect with the Belt and Road network in Central Asia & Eurasia. CPEC is transitioning into its second stage, from 2020-2025 and in hope of the entire operation to finalise by 2030.  

Investment Opportunities and Mitigating Risks

With CPEC set to transform economic trade relationships between them and the whole MENA region and beyond, it is important to take data-driven approaches to best benefit from investments. With a business credit report, or, for a more enhanced investigation, a due diligence report you can assess the risk of your investment and make sure you avoid any unwarranted risks. With all investments comes risk, however, at Cedar Rose, we have a vast network of experts in the MENA region that can aid in your risk management process. We can help keep the transition of investments secure by providing helpful insights into companies, directors and shareholders. With over 23 years’ experience in the MENA region, we are trusted globally for quality and reliable business intelligence.

Written by Jack Evangelides, Marketing Executive

 

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

5th Anti-Money Laundering Directive – Highlights

Anti Money Laundering

On 10th January 2020, EU Member states will have to implement new AML rules into their national legislation. The European Commission presented its proposal for a 5th Anti-Money Laundering Directive on 5 July 2016 which aims at ensuring a significant tightening of the European regulations for the prevention of money laundering and terrorism financing. The 5th Anti-Money laundering directive has been adopted and entered into force on 9 July 2018.

As per the European Commission’s fact sheet on the 5th Anti-Money Laundering Directive, this directive aims at:

  • Setting up centralised bank account registers or retrieval systems
  • Enhancing the powers of EU Financial Intelligence Units and facilitating their cooperation
  • Enhancing cooperation between financial supervisory authorities
  • Lifting the anonymity on electronic money products (prepaid cards) in particular when used online
  • Extending Anti-Money Laundering and Counter Terrorism financing rules to virtual currencies, tax related services, and traders in works of art.
  • Improving transparency on the real owners of companies
  • Improving transparency on the real owners of trusts
  • Interconnection of the beneficial ownership registers at EU level
  • Broadening the criteria for assessing high-risk third countries and improving checks on transactions involving such countries

It is worth highlighting that accessing data related to beneficial owners of trusts is not accessible to the public. This access is understood to be restricted to competent authorities including Financial Intelligence Units, the professional sectors subject to Anti-Money laundering rules (such as banks, lawyers) as well as other persons who can demonstrate a legitimate interest. Additionally, it is important to mention that the national registers on beneficial ownership information will be directly interconnected to facilitate cooperation and exchange of information between Member States.

The above objectives are meant to increase public scrutiny and will contribute to preventing the misuse of legal entities for money laundering and terrorist financing purposes.

Worth noting also that new criteria have been added to assess high-risk third countries, including transparency of beneficial ownership. Member States will have to ensure that the sectors dealing with countries presenting strategic deficiencies in their Anti-Money Laundering and Counter Terrorism financing regimes listed by the European Commission apply systematic enhanced controls on the financial transactions from and to these countries. The list of checks is now harmonised to ensure there are no loopholes in the EU. In addition, the listing of the Commission will include third-countries with low transparency on beneficial ownership information, no appropriate and dissuasive sanctions or which do not cooperate nor exchange information.

Cedar Rose’s investigative due diligence reports, including tracing the source of wealth of persons residing in high risk third countries as well as the UBOs of companies registered in these same countries, tends to directly serve these objectives. Our database, which includes more than 24 million persons’ data and over twelve million companies, provides a solid foundation for tracing UBO’s and for performing link analysis. Fresh investigations to trace the source of wealth of a person through a local reputational report or via understanding his directorship and shareholding structure is also available to facilitate your investigations.

Written By Wassim Antar, Senior Due Diligence Analyst

See our Due Diligence Case Study here.

References

https://ec.europa.eu/info/policies/justice-and-fundamental-rights/criminal-justice/anti-money-laundering-and-counter-terrorist-financing_en

https://paytechlaw.com/en/5-anti-money-laundering-directive-summary/

Pre-employment Screening at Cedar Rose

pre-employment

When a business experiences strong growth and expansion the next rational move for companies is to grow its workforce. While this offers plenty of new and exciting opportunities there are a number of challenges this presents.  With an increased number of an international workforce, running comprehensive global background checks, such as a pre-employment screening, is now more significant than ever.

For many years now, employers have been conducting pre-employment screenings of all job applicants and have been outsourcing all or part of these evaluations to private third-party organisations such as Cedar Rose who for a number of years has been specialising in pre-employment background screening. Cedar Rose helps your organisation keep pace with the ever changing nature of global background checks saving you time and affording you peace of mind.

Pre-employment screening at Cedar Rose refers to the process of investigating and researching the backgrounds of potential employees and is designed to verify information supplied by candidates on their CV and applications. This will often include checks on each of the jobs listed on the applicants CV to make sure the job title, dates of employment, and many other details are accurate such as verification of degrees, prior to finalizing a hire, especially for entry-level jobs

What Cedar Rose Offers:

  • Verification of Identification Information (including National Identity Number, Civil Register Number, Social Security Number, Residence or Passport Number where available).
  • Verification of the applicant’s highest educational claim.
  • Review and Verification of previous five year’s employment history and dates with former employer(s).
  • Criminal History Check, including any on-going court case where publicly available
  • Court Records check where publicly available
  • Adverse Electronic Search, which includes searching the subject’s name against internet portals, search engines and newspapers/periodicals archives to reveal red flag issues and adverse information.

We at Cedar Rose are here to listen and to assist with your requirements.

Please contact Business Development Manager, Helen Lambrou at helen.lambrou@cedar-rose.com for information or simply call on +357 25 346630

See more articles on investigative due diligence here.

Written by Helen Lambrou, Business Development Manager

 

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

Investigative Due Diligence: Challenges and Solutions

Investigative Due Diligence

Cedar Rose has been leading the way with Middle East, focused Investigative Due Diligence Investigations since 1997. International companies doing or aiming at doing business with companies or persons in the MENA region tend to face many challenges, the main one being corruption, therefore, enhancing the need for investigative due diligence to be undertaken.

This is defined as the misuse of public power by politicians or appointed civil servants for private gains. Corruption at Government level tarnishes the perception of the country’s stability and quality of investment potential thus hindering foreign direct investments. The entire population can be affected as a result of inefficient allocation of resources. It might manifest itself as a simple payment request by a low level governmental employee, commonly referred to as petty corruption. Large scale corruption schemes where decision makers are implicated at the very highest political, executive, judicial or legislative levels is commonly known as the ‘Bystander’ effect.

The Bystander effect – is a social psychological phenomenon in which individuals are less likely to offer help to a victim when other people are present. The greater the number of bystanders, the less likely it is that one of them will help.

Corruption at corporate level may manifest itself in many ways but it always leads to the same results: Bad reputation and a loss of market share. Bad reputation and negative commercial standing mean less business due to the lack of trust.

In general – Corruption schemes mainly include:

  • Bribery schemes – the offering, giving, receiving, or soliciting of a thing of value to influence a business decision.
  • Kickback schemes – vendors make undisclosed payments to employees of purchasing companies in order to enlist the employees in overbilling schemes
  • Bid-rigging schemes – an employee fraudulently assists a vendor in winning a contract through the competitive bidding process
  • Economic extortion schemes – employee demands payment from a vendor for decisions made in the vendor’s favor. Refusal to pay the extorter results in harm to the vendor
  • Illegal gratuities schemes – giving or receiving something of value to reward a business decision

These schemes can be committed by the public sector and by private companies, equally. Their existence in both private and public sectors has devastating results.

Lack of transparency in the MENA region, has its direct effect on understanding the reputation of a subject individual or a subject company. How do you know for instance that you are dealing with a company of good reputation and commercial standing? Open source searches and media scan may facilitate understanding the reputation of a company or a person. Yet, is it enough? Can you take these open sources as trusted sources? The answer is: Definitely not. With today’s access to social media and internet sources anyone and any company can create the profile that suits them more but this would not necessarily be the profile reflecting the reality. They use media and social media platforms to make you believe what they want you to believe. To these companies or persons, Perception is Reality.

It is worth noting companies operating in the MENA region are not obliged by law to publish their corporate and financial information. Some companies do not even care to have a detailed website or any social media presence describing their activities and line of business.

Many Politicians are businessmen and many businessmen are politicians. This may lead to nepotism, favoritism, and leveraging of the existing political system to obtain personal benefits.  The association of a politician with a company may sometimes be visible but this may not be the case most of the times. This is mainly because their exposure will trigger questions regarding any possible conflict of interest, and the misuse of power among many other questions.

Understanding the business network (such as Ultimate Beneficial Owners – UBO Affiliates and business involvements is paramount. Access to corporate information in MENA jurisdictions does not necessarily mean direct access to the shareholders of the company, to its UBOs or even to its affiliates. Access to this information may require exhaustive investigative approaches to various types of sources and commercial authorities. In some jurisdiction, the corporate information is only available in the Arabic language which even adds to the complexity of the whole process especially for International companies willing to do business in the MENA region and which do not have dedicated and specialized Arabic speaking analysts and researchers to overlook the whole KYC process.

Corporate information is not essentially found in one place. This information may be rather decentralized and scattered across different departments of a commercial authority. The concept of one stop shop is a foreign one to many jurisdictions. This of course only adds to the complexity of obtaining credible corporate information. While some jurisdictions have transformed into e-governments thus facilitating access to corporate information, others are rather complex ones. The investigative process of obtaining corporate information is a manual and complex one which takes days if not weeks.

We at Cedar Rose are here to listen and to assist with your requirements.

Please contact Business Development Manager, Helen Lambrou at helen.lambrou@cedar-rose.com for information or simply call on +357 25 346630.

See more articles on investigative due diligence here.

Authors:

Lamia Massaad, Head of Research & Analysis

Wassim Antar, Senior Due Diligence Analyst

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

Citizenship via Investment Schemes: Risks & Solutions

Citizenship

Facts:
A most recent European Commission report to the European parliament, the Council, the European economic and social committee and the committee of the regions tackled the topic of “Investor Citizenship and Residence Schemes in the European Union”. As per the report, recent years have seen a growing trend in investor citizenship (golden passport) and investor residence (“golden visa”) schemes, which aim to attract investment by granting investors citizenship or residence rights of the country concerned. Such schemes have raised concerns about certain risks related to security, money laundering, tax evasion and corruption.  While some investor residence schemes were initiated in the early 2000s, the financial crisis starting in 2007 led more EU Member States to adopt these schemes, or revive previous ones. This trend has continued over the past 10 years and these schemes exist to date in 20 Member States.  For instance, Bulgaria, Cyprus and Malta introduced in 2005, 2007 and 2013 respectively broader schemes aimed at attracting investment from third-country nationals by facilitating access to their citizenship. These schemes are a new form of naturalisation as they systematically grant citizenship of the Member State concerned, provided the required investment is made and certain criteria fulfilled. The report added that investor citizenship schemes aim to attract investment by offering citizenship in return for a defined amount of money. In Bulgaria, an overall investment of EUR 1 million is requested under its fast-track investor citizenship scheme. In Cyprus, a minimum investment of EUR 2 million is necessary, together with ownership of property in Cyprus. In Malta, a contribution of EUR 650,000 must be paid into a national investment fund, together with an investment of EUR 150,000 and a requirement to own or rent property in Malta. In Cyprus and Malta, additional investments for family members are required. Various investment options can be observed among the three Member States operating investor citizenship schemes: capital investment; investment in immovable property; investment in government bonds; and one-off contributions to the State budget. In addition to the investment requirement, applicants must also pay non-refundable administrative fees as part of the application process. Cyprus and Malta have significantly higher fees than Bulgaria.

Areas of Concern and Risks:

Third-country nationals may invest in an EU Member State for legitimate reasons, but may also be pursuing illegitimate ends, such as:

  1. Evading law enforcement investigation and prosecution in their home country;
  2. Protecting their assets from the related freezing and confiscation measures.
  3. Utilizing illicit funds to obtain a passport.

Hence, investor citizenship and residence schemes create a range of risks for Member States and for the Union as a whole in particular:

  1. Risks to security, including the possibility of infiltration of non-EU organised crime groups.
  2. Risks of money laundering and tax evasion.
  3. Risks related to terrorist financing.
  4. Risks related to corruption including previous involvement in fraudulent practices.
  5. Risks of being directly or indirectly politically exposed.
  6. Risks related to lack of Transparency and proper governance:

Controversial case:

A controversial investment for citizenship scheme was reported in Cyprus on October 17 2019 in relation to the acquisition of Cambodia’s long-time prime minister. Investigations revealed that the once prime minister used his wealth to buy foreign citizenship. It was reported that eight family members or allies including the country’s police chief who has been instrumental in clamping down on dissent in Cambodia, and its finance minister, sought and received Cypriot citizenship in 2016 and 2017. The European Commission warned in a January 2019 report that what it called “golden passports” could help organised crime groups infiltrate Europe and raised the risk of money laundering, corruption and tax evasion. While Cyprus authorities say their processes are transparent, and data laws protect he who gets citizenship, it was understood that the Cypriot government did not respond to questions on the Cambodians before publication of the report. After publication, a government spokesman was reported to say that the citizenship program was absolutely credible and transparent while declining to discuss individual cases and that the information on the Cambodians “will be taken into serious consideration”. Further investigations traced that the prime minister was in power for 30 years and has overseen the murder, torture and jailing of his critics. His family members hold key posts in politics, the military, police, media, and charities, and his eldest son is being groomed to succeed him. His family wield significant control across most of Cambodia’s lucrative industries, with links to major global brands. Some of the domestic companies they are affiliated to have been accused of a litany of abuses, including land grabbing, and violence and intimidation against local populations. His daughter was reported to have the largest number of business holdings of any member of the family, with links to or interests in 22 companies, which have registered share capital of more than USD 66 million, according to filings in Cambodia.

The questions remain on how diligent were the authorities or the obliged entities in examining the applications of the Cambodians? Where there any Enhanced due diligence process conducted to trace any red flags issues associated with these applicants? If yes, were these findings factored in when assessing their case? The above case lies at the heart of the need of enhanced due diligence to be put in place. Mitigating risks and adopting risk based approaches throughout the process of the Citizenship via investment schemes is becoming a necessity rather than just an option.

Solutions

Therefore, Cedar Rose has engineered a bouquet of integrity and investigative due diligence products, which aim at:

  1. Identifying, the source of income / wealth as well as any illicit practices associated with the subject under investigation (Fraud, Bribery, Corruption, etc). This type of investigation helps in understanding the reputation of the subject and in establishing a profile, which would trace any possible reasons for this person to transfer funds or benefit from investor citizenship schemes.

  2. Tracing Ultimate Beneficial Owners (UBO’s) as well as the business and political network of an applicant. This type of investigation will help in tracing and identifying possible concealment of the origins of proceeds, which could be, linked to the layering stage a potential Money laundering scheme.

  3. Identifying the directorship and shareholding of the applicant. This type of investigation will also aim to trace possible concealment of the origins of proceeds (Layering stage) as well to identify possible ownership of these shareholders and directors which would possibly be a result of the reintroduction of laundered funds into the system (Integration stage) via the ownership of assets in the country where they applied for the investor citizenship scheme.

  4. Tracing the business relationships and any possible political exposure for the applicant.
  5. Initiating litigation and criminal checks to understand any possible previous illegal practices.

References:

https://www.globalwitness.org/it/blog/we-dont-care-we-are-still-power/

https://ec.europa.eu/info/sites/info/files/com_2019_12_final_report.pdf

https://cyprus-mail.com/2019/10/17/mp-charalambidou-demands-answers-for-passports-to-cambodian-elite/

** Check out our newsroom for more business intelligence insights

Written by Wassim Antar, Senior Due Diligence Analyst

Ethiopia – A Foreign Direct Investment Breeding Ground

Ethiopia Investments

A vast majority of the African continent has been under direct scrutiny from foreign investors, the fertile lands, immense landscapes and extensive natural resources make this continent a prime location for Foreign Direct Investment (FDI). Amongst the countries of the African continent, Ethiopia stands tall above the crowd; it has attracted investments from across the globe over the last decade, topping the charts of FDI. Prime Minister Abiy Ahmed has successfully navigated his country in the right direction to create a realm of mass FDI, strategic investments into specific sectors that Mr. Abiy sees fit. Ethiopia and much of Eastern Africa has been experiencing extensive transformations and economic diversification over the last decade.

Ethiopia – An Investment Goldmine

One of the fastest growing countries in the world, averaging a significant 10% GDP increase over the last decade, holding the second largest labour force in the continent and the second largest market in all of Africa – these are a few significant facts about Ethiopia, a goldmine for foreign direct investment. According to the World Bank database, since 2010, where Ethiopia’s FDI stood at an estimate of 288 million, the country has seen an incredible rise, reaching an apex of $4 billion USD in 2017 and now it stands at $3.3 billion USD FDI in 2018.

Ethiopia’s Successful Foreign Investment Strategy

When a country experiences a rapid rise and economic growth it is necessary to question the how’s and what’s? How did Ethiopia manage to top the FDI charts? What strategies and polices were implemented to create such an effect?  In order to fully comprehend Ethiopia’s success and acknowledge their future vision for FDI we can analyse their initial plans and hypothesis that led them to enhancing and creating a realm for positive foreign direct investment. We can inductively assume that Ethiopia’s desire for FDI lies on the fact that they have seen positive outcomes from it, in terms of economic growth, and believe the future of wealth and prosperity resides in creating a robust foundation for foreign investments. The logic simply follows: countries experience economic growth with increased FDI, Ethiopia is a country, and therefore, Ethiopia will experience economic growth. This is already supported by their recent growth and predictions that the IMF set of 7.4% increase from 2017-2020 and, moreover, Ethiopia has set a new policy for 2025, setting a target for 11% growth in their Growth and Transformation plans II (GTP II). The country’s focus is simple and concentrates in:

  • Transport Infrastructure,
  • Agriculture, Electricity,
  • Renewable Energy.

Transport

Ethiopia’s focus on transport is an attempt to aid the transportation of goods across the country. However, in addition to road transport infrastructure, there has been an enhanced focus on the railway network. The goal was to achieve an electrified railway, connecting Addis Ababa to Djibouti, a total of 2395km network to bolster import-export trade. The completion of transport infrastructure presents Ethiopia with ease of accessibility for foreign investors.

Agriculture

Ethiopia’s natural resources have long been sought after by countries across the world, with main investors such as Saudi Arabia, China, United States, India and Turkey. Agriculture, or more specifically horticulture, has attracted the most FDI, which involves the renting of agricultural land and leather goods. The arable land, farming and livestock attract major foreign investment, especially due to the magnitude of rich agricultural opportunities Ethiopia has to offer.

Electricity and Renewable Energy

Ethiopia’s Green Legacy Initiative has helped the country implement advanced and sustainable infrastructure across the country. It is important to look after the land considering the attraction from foreign investment; this is further supported by the recent events that led Ethiopia to a world record of planting trees in one day. The country magnificently planted 350 million trees in the space of 12 hours, with Prime Minister Abiy Ahmed, again, at the forefront of their sustainable policies. Other initiatives such as the electrified railway network above and the Grand Ethiopian Renaissance Dam, which aims to enhance hydro-electric capacity to 37,000 MW by 2037, have helped the country soar through renewable methods.

Ethiopia has undergone and is still undergoing mass transformations, internally, to attract FDI and enhance the country on multiple levels. The country implements a series of policies that directly affect foreign investment and conveys the country as a prime location to invest in.

Incentives for Investment

The Ethiopian government relies heavily on FDI to meet the 2025 GTP II plan and has thus created a set of policies (over 30 bilateral investment promotion and protection agreements signed) that directly benefit external investors for example:

  • Repatriation of investment and profit in convertible foreign currency. Many countries attempt to attract foreign investment, yet, have strict policies when foreign companies attempt to extract the wealth and convert it back to their country of origin. However, Ethiopia has taken an alternative stance that has proved to be popular with foreign investors.
  • Well established labour law allowing investors to hire expatriate staff and personnel with ease. Many companies will want to support their investments using their own staff and/or staff from other countries, Ethiopia provides HR and labour policies that can accommodate this.
  • Income tax exemptions. Ethiopia has carefully and strategically selected sectors in which they desire the most foreign investment and offer exemptions to paying income tax. This would prove to be desirable for many investors.
  • The country also allows for duty free imports of capital goods, this can help the transition of foreign investors and provide an ease of transference.

The aforementioned incentives, in addition to internal policies, have created a country in which foreign investment is very attractive. Ethiopia’s economy has organically soared and for good reason, the strategic implementation to gain foreign investment support has seen the country rise through the rankings. Ethiopia is serious about meeting 2025 targets and continues to create the perfect breeding ground for investors.

Knowledgeable Investing and Mitigating Risks

Every investment and potential business opportunity comes with a certain level of risk. As a business intelligence company that specialises in the Middle East and Africa, Cedar Rose aims to help companies mitigate those risks. Leaping into unknown territory can bring unwarranted surprises, with cultural, language and business differences you may not be aware of. Cedar Rose has been compiling data on companies, directors and shareholders across the globe for over 20 years, data which can help you minimise risk. We have an experienced team of in-house researchers and analysts whose expertise extends throughout Africa, the Middle East and beyond. If  you’re considering investing in or expanding into Ethiopia  with a due diligence investigation from Cedar Rose, you can find out all of the relevant information you need to make an informed business decision.

Visit www.cedar-rose.com for more information on our business intelligence services and don’t forget to check out more of our latest articles here.

Written By Jack Evangelides, Marketing Assistant

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

Hub for Foreign Investment – Moroccan Business Opportunities

Hub - Morocco

The Middle East and North Africa have seen their fair share of economic and political instability, from the Arab Uprisings of 2011 to the commodities crash and oil price dive in 2015. Therefore, attracting foreign investment has always been a difficult task, but not an impossible one. Morocco has been in the spotlight as a hub for foreign investment, the country has experienced a major growth in recent years, through strategic innovations, robust infrastructure and diversifying their economy. Instability and risk are arguably the biggest blockades that foreign investors face when seeking external business opportunities. Morocco has been steered into safer grounds and is now experiencing positive growth.

Watch Us Rise
Becoming a hub for foreign investment throughout the continent of Africa is no easy task. But recent events have shown Morocco to become a regional manufacturing and export base for international companies, with over $4.2 billion investment from France, UK, Spain and South Korea in 2018. The country has aimed to boost employment, attract further foreign investments and raise output performance in sectors that generate the most revenue, such as the Automotive and Aerospace industries. The Aeronautic sector is especially prominent and active with over 140 enterprises, delivering in excess of $1.7 billion revenue in 2019, equivalent to 17 billion Dirhams. To put this into perspective, Morocco was only active with 3 enterprises 20 years ago. Morocco’s commitment to the Aeronautical sector is increasing, with plans to add 10 enterprises per year and an overriding goal to attract over 120 industry related enterprises by 2020, translating to a surplus of 8,700 jobs and a $1 billion revenue increase in exports. Morocco has justly become a robust hub for foreign investment and should be the ones to watch over the next 5 years.

Education Impacts
Earning the title of Africa’s hub for foreign investment doesn’t come easily, the government has had to make smart decisions, wise investments and provide a healthy foundation to attract others. Importantly, Morocco has aligned a focus on the internal education of its citizens, in attempt to organically grow the country from within. Education is of utmost importance for a booming country, to keep delivering prosperity and achieve targets set for 2020. Therefore, when the Chartered Institute for Securities and Investments (CISI) partnered with the Casablanca Stock Exchange (CSE) to provide global qualifications across universities in Morocco, the potential for growth was becoming more likely.

“We wish through these new certifications, to develop the knowledge and the technicality of the financial center of Casablanca. We are happy to partner with a recognized international organization, CISI, which will enable us to offer a service that best meets this objective. We are also pleased that higher education institutions continue to trust us by supporting this initiative.” – Karim Hajji, General Manager of the Casablanca Stock Exchange

Morocco is experiencing success on many levels and the Global Financial Centres Index (GFCI) supports this. Casablanca ranks the highest of all African countries and stands tall at 22nd on a global scale. So why is Morocco steaming ahead of its neighbouring countries?

The Art of Giving Back
The vast landscape of the African continent presents countless possibilities to secure trade and to diversify economies, yet it takes the recognition of the potential to utilise what Africa has to offer. One of the main reasons for Morocco’s success is this recognition. Moroccans have been particular interested in Ethiopia, Ivory Coast and Africa as a whole for investment opportunities. From chemicals to real estate and renewable energies, Morocco is deploying capital to neighbouring and local countries throughout the African continent. Essentially, Africa is seen as the future engine for growth for the global economy.

“Moroccan policy translates into Moroccan investment into Africa,” – Ibrahimi, chief executive of Casablanca Finance City (CFC)

A World of Coverage
Cedar Rose has been at the forefront of business intelligence for many years, with the heart of the business residing in the Middle East and North Africa. A country doesn’t become a foreign investment hub without dedicated research and assurance that potential risks are relieved. We offer data that can mitigate those risks for you. Whether you need company credit reports or a more detailed due diligence investigation on companies or individuals, Cedar Rose has acquired the largest database in the MENA region, invests in local expertise in the hardest of regions and provides high quality data to help others seek secure opportunities. Currently our database contains over 1,600,000 records on companies in Morocco, this continually growing number can provide sufficient data to help corporations know their customers to the fullest extent, or even more so, with a due diligence investigation.

Have you read our article on compliance

Written By Jack Evangelides, Marketing Assistant

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***

Cleaning Dirty Data Daily – The Importance of Data Cleaning

Data Cleaning

Operating since 1997, Cedar Rose is known to have the largest single cleaned database of analytically linked companies’, shareholders’ and directors’ information across the Middle East, Africa and Asia, available to our thousands of clients around the world. Data cleaning has always and will always be a priority to us.

No matter how data is gathered and collected, there will always be some level of error. Data in the real world, certainly in the regions we gather it from is mainly dirty: incomplete, disorganized, unstructured and inconsistent. Incomplete data stems from non-available data values when collected and different criteria between the time collected and the time analyzed. Examples of a lack of attribute values could be an incomplete address or incomplete translated company name. Original data contains errors such as typing, spelling, word transposition (e.g. number of premises or number of employees equal to -3, or even a Shareholder/ Manager who is 230 years old).

Data can also be inconsistent and duplicated; containing incompatibility in codes or names (e.g. Company Name: “XXX Company LTD” or “XXX Company Limited” could be considered one registered entity although in the latter case the legal form is Joint Stock Company which is not reflected correctly in the name). The lack of compatibility is mainly between the different data fields. Inconsistent and duplicate data, as in the example above, comes from different data sources merged together or non-uniform naming conventions.

These types of mistakes can result from human error, poor recording software, or incomplete control over the type of data imported. Before processing the data for analysis or use, error-prevention strategies should be implemented to reduce common errors as much as possible, and to ensure that data is accurate, valid and consistent.

Maintaining an excellent quality database is essential for our company to ensure accuracy in our credit and due diligence reports. In our data warehouse, currently containing more than 12 million companies and more than 23 million individuals, data cleaning is a major part of the extract, transform and load (ETL) process. Data cleansing (also known as data cleaning or scrubbing) is the process of spotting and rectifying inaccurate or corrupt data.  Incomplete, inaccurate or irrelevant data is identified and then either replaced, modified or deleted.

Also worth noting that all our data is date stamped and graded. Our clients can now check the date of each data field in addition to its source grading. In recent years, Cedar Rose has implemented a system for the grading and evaluation of the source reliability, as well as of the information and intelligence credibility of the majority of our data. This grading is invaluable to our subscribers and due diligence clients who can then calculate which data they can rely on 100% and which has less reliability (eg; data from third parties, assumed to be correct but not verified).

No matter what sector you are working in, from public health to extractive industries to education, you can have access to our cleaned and linked database of companies, directors and shareholders via our website at www.cedar-rose.com, via API or by a CRiS subscription.

For further information, please contact Hannah King or Nicole Konstantinou to arrange a demonstration of CRiS, or go to our website to search and download or order a fresh investigation on your client today.

Visit our newsroom for more relevant news!

Written By Elissa Ghosn, Data Analyst

 

*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***