UK issues ‘Alert’ on illicit flows of money from South Sudan

(Thessherald)–The United Kingdom’s National Crime Agency (NCA) on behalf of the National Economic Crime Centre (NECC) and the Foreign and Commonwealth Office (FCO) has issued Amber Alert, warning of serious and organised economic crime, including corruption and related money laundering, amongst others, being committed in South Sudan.

“The purpose of the alert is to raise awareness and promote preventative action,” the statement said.

“We recommend you use this Alert to complement existing knowledge and support ongoing improvements to your business processes and procedures.”

Mr. Christopher Trott, Her Majesty’s Ambassador to South Sudan said that:
“The civil war in South Sudan has claimed the lives of over 380,000 since 2013. It has been characterised by terrible human rights abuses, including deliberate targeting of civilians, the use of rape as a weapon of war, and forced recruitment of child soldiers. Over 4 million people, a third of the population, have been displaced.

The UK government blames corruption and mismanagement of public resources on political and military leaders who continue to plunder illicit wealth while the population suffers.

“The conflict has been fuelled by corruption. Many political and military elites have used their positions to loot the country’s natural resources, including revenues from oil and gas, to enrich themselves and fund continued fighting; in some instances this has funded militias and arms purchases, despite the 2018 UN arms embargo. Corruption has not only prolonged the conflict but held back development. Over half the population require emergency food assistance and violence and humanitarian access restrictions mean that there is a risk of famine in some areas, a crisis exacerbated by recent, extraordinary flooding.”

“A revitalised peace agreement was signed in September 2018, which has reduced violence and offers a chance for peace. But the agreement is fragile. There are few incentives for the elites and Politically Exposed Persons (PEPs) to change their behaviour and commit to long-term peace.”

The statement called on financial institutions to exercise caution when dealing with South Sudan’s political and military leaders to ensure that public resources are nit turned into individuals’ personal gain.

“We need the private sector to take a balanced approach of enhanced due diligence whilst ensuring a continued flow of licit funds and investment into South Sudan. This is particularly important not only for international organisations on whom the country and its economy depend, but also the families whose livelihoods depend on remittances and legitimate business.”

“Unless we as the public and private sector work together on such an approach, South Sudan will be trapped in a never-ending cycle of impunity, with its people being the ones that pay the price.”

Overview


The NCA is issuing this alert to companies based in the United Kingdom (UK) about the possibility that some South Sudanese senior foreign public officials (“Politically Exposed Persons” or “PEPs”) who may be engaged in corruption and human rights abuses in South Sudan, and those who enable such activities, may use the UK financial system to move or hide proceeds of corruption or purchase real estate and other assets in the UK. This is also to allow for the flow of licit funds linked to South Sudan through the UK financial system.”

Bribery and corruption undermine fair competition, public trust and are barriers to economic growth, especially in the developing world. Bribery and corruption foster a climate where illicit financial flows and other forms of lawlessness can thrive. Tackling international illicit financial flows is a top priority for the UK . Addressing these illicit financial flows is critical to protecting and promoting the UK’s role as a financial centre, and reducing the destabilising impact of illicit finance on the wider world, particularly developing countries while allowing for legitimate finance to be processed.

This report focuses on corrupt South Sudanese senior foreign political figures or PEPs who engage in human rights abuses or violations, and their financial enablers and considers the following:

Why is South Sudanese political corruption important to the UK?

Illicit finance flows and the UK’s reputation o What is the situation in South Sudan? o South Sudanese political corruption
How corrupt foreign PEPs and their enablers access the UK • Red Flags Related to Corrupt Foreign PEPs and their Enablers
Who can assist us?

What we would like you to do

The information is being shared by the NCA to help develop understanding of the threat posed by certain South Sudanese senior foreign public officials or PEPs, and their enablers who use the UK financial system to move or hide proceeds of corruption. The NCA would like UK companies, particularly financial institutions, real estate agencies, accountants, lawyers, notaries, and company and trust formation agents, boarding schools, and those involved in the sale of luxury goods to consider the information provided in this alert when undertaking their business activities in order to identify suspicious activity but also allow for legitimate transactions to take place.

The National Crime Agency (NCA) is a national law enforcement agency which leads the UK’s fight to cut serious and organised crime. The NCA Alerts process is the way in which we provide information to non-law enforcement bodies including the private sector to combat and disrupt serious crime.

Information Report / Illicit finance flows and the UK’s reputation.

The UK is one of the world’s leading international centres with a strong and open economy. The UK’s standing as a global financial centre, the ease of doing business, its openness to overseas investment, status as a major overseas investor and exporter all make it attractive for corrupt senior public officials (referred to as Politically Exposed Persons or “PEPs” ), and associated persons to transfer illicit finance and assets into and through the UK. The UK is committed to cracking down on the corrupt political elites who seek to hide the proceeds of corruption in the UK, and stemming the flow of illicit finance through the UK.

What is the situation in South Sudan?

The UK’s Department for International Development has highlighted that South Sudan is one of the world’s most fragile countries and has been beset by conflict since it was created in 2011.3 It is facing a severe and protracted humanitarian crisis, exacerbated by economic collapse. Weak government capacity exacerbated by a lack of commitment by the elite to their country’s development means that financial discipline is poor, with public spending rarely in line with the approved Budget4. The country’s main asset – oil –benefits few South Sudanese. Over half of the population requires emergency food assistance. Around a third of the population are displaced, including over 2 million refugees who have fled to neighbouring countries.5

South Sudanese Political Corruption.

The revitalised peace agreement (R-ARCSS) signed in September 2018 has reduced levels of armed conflict and associated human rights violations/abuses. But where fighting has continued, all parties to conflict have continued to deliberately target and kill civilians, commit sexual violence, recruit children and forcibly displace communities with impunity. Certain South Sudanese PEPs, representing both the government and the opposition, are reported to have engaged in and profited from corrupt practices. The use of enablers is one way that corrupt PEPs access the UK and international financial system to move or hide illicit proceeds, evade financial

How Corrupt Foreign PEPs and their enablers access the UK.

To assist UK companies to insulate themselves from corruption and protect the UK from the illicit use by corrupt foreign PEPs, family members, associates and their enablers, this alert highlights a number of typologies used to access the UK to obscure and launder the illicit proceeds of high-level political corruption. For example, the typologies used by enablers of corrupt foreign PEPs may include abuse of regional banking facilities, the misappropriation of state assets, the exploitation of the real estate sector, or any combination of these typologies.
Abuse of regional banking facilities
The funds accumulated through the proceeds of South Sudanese corruption are moved to accounts outside of South Sudan, including through Kenya and Uganda, into the UK.

Misappropriation of State Assets and subsequent laundering

Foreign corrupt senior public officials, through their facilitators and enablers, may amass fortunes through the misappropriation of state assets and often exploit their own official positions to engage in money laundering, embezzlement of state funds, and other corrupt activities. Such senior foreign PEPs may exploit corporations, including financial institutions that wish to do business with the government, to redirect government resources for their own profit. For example, some senior public officials have used offshore leasing companies to sell a commodity such as oil, and have done so in a way that benefits them (e.g., through the use of shell companies misleadingly named to give the appearance of being related to the government) instead of the government as a whole. Grossly over-priced public procurement contracts (e.g. for food for the army and Government vehicles) have also been used to transfer funds out of the country . The funds may go through international channels to reach a bank account outside of South Sudan.

Corruption in the Real Estate Sector
The funds accumulated through the proceeds of South Sudanese corruption are moved to accounts outside of South Sudan. Once the funds are held in accounts in other countries, they are used to purchase real estate (among other things) in third countries.

Real estate transactions and the real estate market have certain characteristics that make them vulnerable to abuse by illicit actors, including corrupt senior public foreign officials or their facilitators and/or enablers. For example, many real estate transactions involve high-value assets, opaque entities, and processes that can limit transparency because of their complexity and diversity. In addition, the real estate market can be an attractive vehicle for laundering illicit gains because of the manner in which real estate appreciates in value, “cleans” large sums of money in a single transaction and shields illicit proceeds from market instability and exchange-rate fluctuations.

Red Flags Related to Corrupt Foreign PEPs and their Enablers .

The red flags, featuring in FATF guidance, noted below may help financial institutions and other firms identify suspected schemes that corrupt foreign PEPs and their enablers may use. In applying the red flags below, financial institutions are advised that no single transactional red flag necessarily indicates suspicious activity.

The use of third parties when it is not normal business practice. Use of third parties when it appears to shield the identity of a public official or corrupt foreign PEPs.

Use of family members, including young children, or close associates as legal owners or controllers.


Use of corporate vehicles (legal entities and legal arrangements) to obscure (i) ownership, (ii) involved industries, or (iii) countries.
Use of companies that have joint South Sudanese beneficial ownership and foreign beneficial ownership with interests in multiple government-controlled industries, including mining, oil, public sector procurements, and construction.

South Sudanese companies with business partners in overseas jurisdictions.

Development of joint ventures, including Special Purpose Vehicles (SPVs), with foreign companies.
Declarations of information from foreign PEPs that are inconsistent with other available information, such as publicly available asset declarations and published official salaries.

The PEP, family member, associate or enabler seeks to make use of a service that would not normally be targeted at foreign, high-value clients.

The PEP, family member, associate or enabler moves funds to and from countries that individual does not appear to be affiliated with.
The PEP, family member, associate or enabler has substantial authority over or access to state funds and assets, operations, and policies.
The PEP, family member, associate or enabler has ownership interest in or otherwise controls a foreign financial institution or corporation that is a counterparty or correspondent in a transaction, including outsourcing arrangements.

Transactions involving government contracts are directed to companies that operate in an unrelated line of business (e.g. payment for food import contract directed to textiles company).

Transactions involving government contracts that originate with, or are directed to, entities that are shell corporations, general “trading companies,” or companies that appear to lack a general business purpose.

Transactions involve overpayment for invoiced goods or where the goods themselves are clearly grossly over-priced.
Documents corroborating transactions involving government contracts (e.g.
invoices) that include charges that are significantly higher prices than market rates or that include overly simple documentation or lack traditional details (e.g. valuation for goods and services).

Payments involving government contracts that originate from third parties that are not official government entities (e.g. shell companies).
Transactions involving entities or assets expropriated or taken over by corrupt regimes, including individual senior foreign officials or their associates.

Transactions involve transfers of funds or assets between companies with same ultimate beneficial owners or controllers (related-party transaction).

Transactions involve movement of funds between accounts without apparent business rationale.

Evidence of multiple companies operating out of the same address.

Transactions involving public contracts that have been awarded to companies ultimately owned or controlled by individuals responsible for awarding contracts.

PEPs, influential public officials and military officers holding multiple private interests in addition to their public function.

Who can assist us?

The following companies can assist us in our work:
Financial institutions, including those that provide correspondent banking facilities
Real estate agencies and companies operating in the sale/purchase of real estate
Accountants, lawyers, notaries and company and trust formation agents Private schools Providers of luxury goods.

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