A police unit in a Central European country was investigating an individual called Kenneth who was known to have a history of financial fraud.

The investigating unit forwarded intelligence on the target to their national FIU for further analysis. The national FIU directed the intelligence via Egmont to an FIU in an Eastern European country, due to intelligence links suggesting that Kenneth had contacts in that jurisdiction. With the help of a friend named Roy, Kenneth established a company named Financial Services Inc in the Eastern European country. Roy asked the regulatory authority in the country for a licence to undertake financial activity. The supervising authority granted Roy’s request for a licence, although this did not give permission for the company to provide full banking services to customers.

Kenneth chose his victims from different countries in Europe. When he translated the text of his permit into English, he purposely translated it in such a way that the customers were led to believe that his company could also act as a licensed banking institution. The literature also indicated that investments in Financial Services Inc. were guaranteed to generate annual returns of between 100 - 200 percent. The internationally based clients were not familiar with the regulations in the Eastern European country, although they had been lead to believe by the literature that the company was properly regulated. Numerous clients invested a total amount of almost USD3,000,000 into the company.

As with most investment schemes which ‘guarantee’ substantial returns, the underlying aim of the company was to conceal the true movement of the money from both investors and regulators and allow Roy to disappear with the funds when he wanted. In order to conceal the funds, Roy moved the moneys into a ‘capital reserve’ within the company.

Under local law, capital reserve was not taxable income, although by transferring moneys within the company accounts in this way, a number of accountancy regulations had been broken. To further confuse the money trail, Roy then transferred the money to a range of personal and company accounts at other financial institutions, as well as investing part of the money in stocks, and exchanging further amounts into other currencies.

The passing of intelligence via Egmont to the FIU in the Eastern European jurisdiction and confirmation of some of the suspicious activity resulted in law enforcement interest in Financial Services Inc in a number of countries. By wire tapping Kenneth’s telephone, the police of the Central European country learned how Kenneth was transferring his victims’ money through a range of financial instruments. This information was used by the FIU to initiate an investigation in the Eastern European country, with the result that a significant proportion of the money derived from the fraud was seized and the main protagonists arrested.

FIU action:
Identifying re-emergence of known financial criminal in financial services sector
Identifying likely jurisdiction to be used for fund destination
Liaising with foreign FIU to recover citizens' funds