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KI News Highlights (August 22-28)

Kleptocracy Initiative

August 28, 2015
White House Should Threaten Great Firewall to Curb Chinese Cyber Attacks, Experts Say as Obama-Xi Summit Nears
South China Morning Post
As such hacks become more audacious the US needs the cyber equivalent of a nuclear deterrent, added Poindexter, a former faculty member at the Defence Security Institute under the US department of defence. He pointed to this year’s OPM hack as an example of Chinese hackers inadvertently crossing the line of “acceptable” state espionage. “Probably the best thing we could do to offer some degree of deterrence is give [Chinese internet users] a way around the firewall,” said Poindexter. According to The New York Times, multiple officials within US intelligence agencies are advocating attacks on the Great Firewall. This is “to demonstrate to the Chinese leadership that the one thing they value most — keeping absolute control over the country’s political dialogue — could be at risk if they do not moderate attacks on the United States”, it reported.

China Investigates Executives at Party Newspaper’s Website
Reuters
Liao Hong, chairman of People.cn Co Ltd., the online platform of the People’s Daily, has been placed under “compulsory measures”, a term that typically denotes detention, for suspected crimes relating to bribery, the top prosecutor said. The company’s vice chairman, Chen Zhixia, was also being investigated, the Supreme People’s Procuratorate said in a statement on its website. Critics have long pointed to corruption within the ranks at state media, arguing blackmail is widespread and journalists are susceptible to bribery. That has led to periodic crackdowns on domestic media, including sacking of staff deemed to have stepped out of line or who were seen as questioning the Communist Party’s wide-ranging controls and censorship.

Who Are the Russian Generals That Ukraine Says Are Fighting in The Donbas?
RFE/RL
Oleksandr Turchynov, head of Ukraine’s National Security and Defense Council, has issued a statement outlining the structure of the military forces of the Russia-backed separatists fighting in eastern Ukraine. “Russia has completed the creation of a powerful ground formation, based on two army corps, ready to conduct active offensive operations,” the statement released on August 27 reads. “Key command and staff positions in these army corps are occupied by Russian staff officers.” RFE/RL takes a closer look at the officers who have been implicated.

August 27, 2015
The UK Appoints New Anti-Corruption Unit: A Look at the Global Ramifications
JD Supra
Given London’s role in international business and finance, the UK Bribery Act 2010 promised to form a potential strong counterpart to the U.S. Foreign Corrupt Practices Act (FCPA). The International Corruption Unit (“ICU”) is being established under the umbrella of the UK National Crime Agency, and it is being tasked to investigate the bribery of foreign officials and money laundering by corrupt foreign officials and their associates. This latest development follows the trend of new anti-corruption initiatives and enforcement efforts in multiple jurisdictions around the world, and may help enhance that trend, considering how foreign investigations often coordinate with and piggyback on UK and U.S. efforts.

Kremlin Pivot to China Slowed as Projects Delayed
Reuters
A growing economic crisis in Russia and a growth slowdown in China that has rattled world markets mean about $113 billion worth of joint projects ranging from gas pipelines to power grids have been stalled or delayed. With a major crackdown on corruption also in progress in China, and Russia hit by sanctions, falling oil prices and a collapsing currency, some joint Russian-Chinese projects may be delayed indefinitely, industry sources and analysts say. The developments represent a major challenge to President Vladimir Putin’s strategy of a pivot to Asia, spurred last year by the imposition of Western sanctions on Moscow for its role in the Ukraine crisis.

Ukraine Wins Debt Relief as Russia Refuses to Join Agreement
Bloomberg
Ukraine agreed to a restructuring deal with creditors after five months of talks, the Finance Ministry said, giving President Petro Poroshenko some breathing room as he seeks to avert default and revive an economy decimated by a war with separatists backed by Russia. Ukraine said it is offering the same terms to Russia, which holds a $3 billion bond due in December. Finance Minister Anton Siluanov reiterated that Russia won’t participate in the restructuring.

Vitaliy Kasko: Ukraine Will Recover More Stolen Assets
Kyiv Post
Since Ukrainian President Viktor Yanukovych fled 18 months ago, the international community has provided Ukraine with extraordinary assistance and support towards the recovery of stolen assets. The European Union, Switzerland, Liechtenstein and the United States imposed personal sanctions on Yanukovych and his associates, which allowed their assets abroad to be frozen. However, the government shouldn’t expect to recover even a penny of stolen assets from abroad if Ukraine doesn’t properly do its homework: effectively investigate the origin of illicit funds, prosecute financial crimes and obtain confiscation orders in courts.

August 26, 2015
Corruption Currents: Canada Probes Money Laundering in Vancouver Real Estate
Wall Street Journal
Vancouver’s booming real-estate industry is being targeted in a federal money-laundering audit that could potentially lead to massive fines and jail time for real-estate agents. The sector is a “significant risk” for money laundering. Experts say there is no way for Canadians to know how much real-estate linked dirty money is being laundered through Canadian lawyers.

Heard of China’s Fake Rolexes? Now There’s a Fake Goldman Sachs
Bloomberg Business
Goldman Sachs (Shenzhen) Financial Leasing Co. has been operating in the city just across the border from Hong Kong using a nearly identical English and Chinese name as the New York-based financial institution, Goldman Sachs Group Inc. It claims on its website to be one of the city’s largest financial leasing firms. A receptionist answering the phone at the Shenzhen company who declined to give her name said it’s not affiliated with the U.S. bank and wouldn’t offer how it got its name, emphasizing it includes Shenzhen. Shenzhen’s Goldman Sachs came to light through a letter sent by a U.S. casino workers union to Chinese officials. The International Union of Operating Engineers said it sent a letter to Wang Qishan, head of the Chinese Communist Party’s Central Commission for Discipline Inspection, which is spearheading the biggest anti-corruption crackdown in decades.

U.S. Plans More Asia-Pacific Drills to Counter China Reclamation
Reuters
Admiral Harry Harris, commander of the U.S. Pacific Command, highlighted key aspects of the Pentagon’s freshly drafted Asia Pacific Maritime Security Strategy during talks with his Filipino counterpart, General Hernando Iriberri, during a visit to Manila. Colonel Restituto Padilla, a military spokesman, told journalists that the report outlined Washington’s set of actions in the disputed South China Sea and East China Sea, focusing on the protection of “freedom of seas”, deterring conflict and coercion, and promoting adherence to international law.

The Stock Market’s Collapse Kicks up Political Fallout for Xi Jinping
Economist
The broadside against Mr Jiang and the investigation of Zhou Benshun suggest the president’s anti-corruption campaign is still fully under way. Indeed they put a sharp point on the fact that the campaign has been much more extensive than most people had expected—just as the economic slowdown has been fiercer than most economists had forecast. Mr Xi has staked his prestige on his economic competence and his willingness to clean the stables. Both tasks are getting harder.

China Sacks Work Safety Chief After Tianjin Blasts
Reuters
China has sacked the head of its work safety regulator for suspected corruption, state news agency Xinhua said on Wednesday, following blasts that killed more than 100 people in the port city of Tianjin this month. Xinhua said that 11 of the 12 apartment blocks worst affected by the explosions had been officially classified as structurally safe. On Tuesday, Xinhua said that five Chinese state-owned property developers will buy apartments hit by blasts.

August 25, 2015
Money Still Rules Ukraine
Foreign Policy
The central problem is the president’s failure to follow through on his promises to combat the pervasive influence of the oligarchs — politically well-connected business tycoons whose domination of key sectors of the economy is amplified by their ownership of influential media assets. Discontent with the oligarchs was one of the drivers of the Euromaidan movement that swept away former President Viktor Yanukovych, who was regarded as the epitome of the oligarchic system. Ironically, though, the elections that followed his overthrow brought to power none other than the billionaire-cum-politician Poroshenko (who once held a senior government position under Yanukovych). In his new book, Ukraine: What Went Wrong and How to Fix It, Anders Aslund writes that “big businessmen have captured the state in Ukraine, more than any other post-communist country,” and warns that “the power of the oligarchs has to be broken” if reforms are to be successful.

Russia Inadvertently Posts Its Casualties In Ukraine: 2,000 Deaths, 3,200 Disabled
Forbes
Business Life (Delovaya Zhizn) reports on markets, finance, entrepreneurship, finance, and leisure, scarcely an outlet for sensational information. Its innocuously entitled “Increases in Pay for Military in 2015,” however, reveals what appear to be official figures on the number of Russian soldiers killed or made invalids “in eastern Ukraine.” Russian censors quickly removed the offending material but not before it had been webcached by the Ukrainian journal Novy Region (New Region.

Despair to Dark Humor: Investors React to China Stock Market Plunge
CNN
Some of the biggest victims of the crash have been ordinary Chinese people. A large-scale survey of households in China from late last year showed that two thirds of new investors in the Chinese stock market didn’t complete high school. Many others bemoaned the interference from the government that’s keeping the stock market artificially propped up. At the root of the stock market crisis are investors who continue to pour money into Chinese stocks even though real economic growth and company profits are weak, which wouldn’t happen if share prices were able to reflect a company’s true value.

Mystery Company Quickly Wins More Than 120 Tenders
OCCRP
A company that sprang to life three years ago with a capital stake of US$ 15 has since won more than US$ 16 million in contracts from the Azerbaijani government. It is unclear who is behind the company and what exactly it does, although it generally involves construction and roadwork. The single individual who shows up on company paperwork calls it a “gift from God” but seems to know little about it.

August 24, 2015
Swiss Law Aims to Return Foreign Funds Stashed by Erstwhile Leaders
Voice of America
Switzerland expects to adopt a new law by the end of the year that will speed restitution of illicit funds stashed in the Alpine country, where thousands of “politically exposed persons” are believed to hold bank accounts, a top Swiss official said on Monday. Swiss authorities are cooperating with a number of countries — among them Haiti, Egypt, Tunisia and Ukraine — to return stolen assets that have been frozen following changes in power, said Valentin Zellweger, head of the foreign ministry’s federal department of international law.

How to Hire a Princeling: Six Rules Anyone Can Follow
FCPA Blog
Last week BNY Mellon agreed to pay the SEC $14.8 million to settle charges that it violated the Foreign Corrupt Practices Act by awarding student internships to kids of officials connected with a sovereign wealth fund in the Middle East. Hiring a family member or friend of a foreign official isn’t always a violation of the FCPA. But a hiring decision intended to reward or induce an official to award work can be an offense. The SEC said last week that firms need internal controls “tailored to the corruption risks inherent in the hiring of client referrals to adequately and fully effectuate a stated policy against the bribery of foreign officials.” Translation: Apply your compliance program to all hiring decisions, train HR and others how to do that, and keep compliance personnel in the loop.

Foreign Investors Are Scrambling to Buy US Housing
Business Insider
Wealthy, very nervous foreigners yanking their money out of their countries while they still can and pouring it into US residential real estate, paying cash, and driving up home prices – that’s the meme. But it’s more than a meme as political and economic risks in key countries surge. In most states, offshore money accounts for only 3% or less of total homes sales. But in four states it’s significant: Florida (21%), California (16%), Texas (8%), and Arizona (5%). And in some trophy cities in these states, the percentages are huge.

Anti-Corruption Activist Says Putin’s Spokeman Accepted a 426-Thousand-Dollar Bribe to Rent a Yacht
Meduza
Anti-corruption activist Alexey Navalny’s group, FBK, has accused Vladimir Putin’s longtime spokesman, Dmitry Peskov, of accepting a bribe to pay for an expensive yacht, which he allegedly rented recently during his honeymoon in the Mediterranean. FBK has also appealed to police in Rhode Island and the US Justice Department, saying the Maltese Falcon’s holding company is based there, and Magomedov’s alleged role in the scandal could mean that an American company has become entangled in a foreign government’s corruption case.

No Commutation for Most Corrupt Figures: Proposal
Xinhua
Seriously corrupt figures that have been given two-year suspended death sentences will face life imprisonment after the two years, if China adopts a proposal submitted to its top legislature on Monday. The amendment aims to “safeguard judicial fairness” and prevent “the most corrupt criminals serving shorter jail terms through commutation,” according to a draft amendment to the Criminal Law filed as a six-day bimonthly session of the National People’s Congress (NPC) Standing Committee began.

Jailed Former Russian Defense Official Released On Parole
RFE/RL
A former Russian Defense Ministry official, who was sentenced less than four months ago in a high-profile corruption case, has been granted early parole. The Sudogda District Court in Russia’s western Vladimir region ordered the immediate release of Yevgenia Vasilyeva on August 25. Vasilyeva was found guilty of fraud on May 8 in a complicated scheme involving Defense Ministry subsidiary Oboronservis. She was sentenced to five years in a penal colony.

Uzbekistan: More Karimova Associates Arrested in Corruption Probe
OCCRP
Radio Free Europe/Radio Liberty (RFE/RL) has reported that Uzbek authorities have arrested nine more suspects in their investigation into corruption surrounding Uzbekistan President Islam Karimov’s daughter, Gulnara Karimova. The broadcaster’s Uzbek service said that two senior figures at an Uzbek Coca-Cola bottling plant were among those arrested, and reported that Karimova had once controlled the local Coke bottling business. The radio said Swiss authorities had already investigated two businessmen in the industry on suspicion of money laundering in 2012, although they were later released and allowed to return to Uzbekistan.

August 23, 2015
China’s ‘Little Tigers’ Present Political Challenge
Financial Times
Perceptions of the anti-corruption campaign’s success rest principally on the arrest and conviction of people such as Zhou, who once sat on the ruling Chinese Communist party’s most powerful body, the Politburo Standing Committee. But the thousands of people rendered homeless by last week’s blast — and millions more watching the events unfold across China — may start to see things differently. They might just conclude that unfair advantage and corruption are in fact systemic in a society where officials at every level of government, together with their families and their friends, routinely parlay connections into cash, regardless of the risk to others.

Russia’s Playing a Double Game With Islamic Terror
Daily Beast
It is an article of faith among the many critics of the current Russian government that, however unpleasant Vladimir Putin may be, he is still a necessary partner in one crucial field of U.S. foreign policy: cooperation in the war on Islamic terrorism. Yet a recent investigation conducted by Novaya Gazeta, one of the few independent newspapers left in Russia, complicates this cozy tale of counterterrorist cooperation. Based on extensive fieldwork in one village in the North Caucasus, reporter Elena Milashina has concluded that the “Russian special services have controlled” the flow of jihadists into Syria, where they have lately joined up not only with ISIS but other radical Islamist factions. In other words, Russian officials are added to the ranks of terrorists which the Russian government has deemed a collective threat to the security and longevity of its dictatorial ally on the Mediterranean, Bashar al-Assad.

August 22, 2015
Ukrainian Defense Ministry Approves Anti-Corruption Program for Next Two Years
Interfax
Ukrainian Defense Minister Stepan Poltorak has approved the anti-corruption program of his ministry for 2015-2017, the first such program among the major state ministries. The risk of corruption is extremely high in the defense sector, according to British advisor on military affairs Phil Jones. “It is determined by huge financing and also by confidential information on several procurements. According to the results of the investigation, there was [a huge amount of] corruption in the defense sector of the world in 2010, the total volume of which was valued at $20 billion. Besides, corruption in the military represents a direct threat to life,” Jones said.

Fading Economy and Graft Crackdown Rattle China’s Leaders
New York Times
Even before these episodes, early this year a number of party elders had quietly urged Mr. Xi to focus more on reinvigorating the economy, according to an adviser to senior party and government leaders and an editor at a party media outlet, both of whom requested anonymity to describe internal discussions. The advice was viewed as a sign of their dissatisfaction with Mr. Xi’s management of the economy but also as implicit criticism of his pursuit of high-profile corruption cases that had tarnished their legacies and targeted their protégés, the adviser and the editor said. “Right now, the economic situation is not good, so the core of the party’s work should be shifted more toward the economy,” the adviser said, paraphrasing the message communicated to Mr. Xi.

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