Compliance code cracker: "Funnel", "buffer" accounts and the "Knights of Malta" — one modern money launderer's toolkit
The documents relate to U.S. enforcement cases connected to the indictment and conviction of investment adviser Richard Faithfull by the UK Financial Conduct Authority (FCA), and have revealed the modi operandi of a network of money launderers. The cases are: USA v Douglas Edwin Casimiri, Mary Kathryn Marr and Michel Marc Chateau; USA v Rose Marie Casimiri and Albert Michael Rivere; USA v Brooks Thomas Nesbitt; USA v Massimiliano Turi, Alexander Landa and Layne Gerstel; USA v Winslow; and USA v Jedlicki. Asset forfeiture actions related to the network indicate that major banks, including Bank of America, JPMorgan Chase Bank and Citibank, have been used by the launderers.
The FCA charged Faithfull with money laundering, contrary to Section 327 of the Proceeds of Crime Act 2002. The offence related to activity between June 1, 2017 and August 1, 2018. Following a guilty plea, Faithfull has now been sentenced to five years and 10 months' imprisonment and has been disqualified from being a company director for 10 years. Faithfull laundered £2.5 million as part of a trans-national organised crime group which engaged in boiler-room fraud, for which he handled the proceeds of seven or more professionally-run overseas investment frauds.
The laundering operation had involved the use of multiple accounts and front companies in numerous jurisdictions. Faithfull had been able to use knowledge gained when he had worked in the regulated sector as an investment adviser to help the fraudsters continue to defraud victims by paying fictional "dividends" from bank accounts controlled by him, to make it look as though the underlying investments were generating returns. Faithfull operated out of Ukraine and the regulator is now pursuing confiscation proceedings against him to try to seize his illegal gains.
Faithfull, Massimiliano Turi and Catalyst CM Ltd
Further insight into Faithfull's activities appears in, inter alia, U.S. indictments against Massimiliano Turi (Turi) and others, and Kathryn Mary Marr (Marr) and others. One of Turi's shell companies referred to in the Turi indictment is Catalyst CM Ltd (Catalyst), of which "Co-conspirator #1" is described as being a "fellow director" with Turi. Companies House refers to two other directors — Faithfull and Andrea Affinito. Faithfull and Turi are, however, also listed as being the persons with significant control (PSCs) of Catalyst.
Faithfull is also named in Companies House as a fellow director of other Turi shell companies referred to in the Turi indictment, including Intercapital Holding Ltd, Golden Sky Inc, Intercapital Management Ltd (all the same company with changed names) and Intercapital Solutions Ltd. According to the Turi indictment, Turi and others opened bank accounts in the names of those shell companies and sometimes in the names of entities associated with those companies under "doing business as" or "fictitious name" registrations.
The Turi indictment also alleges that Co-conspirator#1 recruited a co-defendant, Alexander Landa, and others to open accounts at financial institutions in the United States, and that another co-defendant, Layne Gerstel, worked with Co-conspirator#1 and others to open accounts at financial institutions in Georgia and elsewhere.
The indictment alleges that the accounts were opened exclusively for the purpose of receiving, transmitting or otherwise obtaining the proceeds of unlawful activity. It alleges further that the conspirators used interstate and foreign wire communications to defraud individuals throughout the world and obtain funds from them by means of materially false and fraudulent pretences and representations. It also alleged that, when opening bank accounts, the conspirators made materially false and fraudulent misrepresentations to the banks regarding the nature of the businesses in which the shell companies were engaged.
Catalyst has also featured in an enforcement case brought by the Financial and Consumer Affairs Authority of Saskatchewan, which found that Catalyst CM Ltd, Aidan Trading and Peter Jensen had contravened s 27(2) of the Securities Act of Saskatchewan, 1988, which prohibits dealing in securities without being registered. Aidan Trading — described as being also known as "Faithfull Investments" — featured in a warning published by the Australian Securities and Investments Commission (ASIC), to the effect that the company could be involved in a scam.
The warning also said the company had made unsolicited calls or sent emails about investing, financial advice, credit or loans, and did not hold a current Australian financial services (AFS) licence or an Australian credit licence from ASIC. Documents in Companies House indicate that Faithfull is the sole director and PSC of a company called Faithfull Investments Ltd.
Turi sentencing memorandum
The U.S. government's sentencing memorandum concerning Turi stated that the "umbrella investigation" started in 2011 into the "Mary Katherine Marr (Marr) Organization" and her group of criminal boiler rooms and money laundering associates. It said that the Secret Service in Tampa received a tip regarding several interrelated bank account holders in Florida with unusual account activity that was indicative of an investment fraud or boiler room scheme. It said the account holders operated as agents of straw companies incorporated in Florida, which had received numerous incoming wire transfers from persons in the UK and elsewhere in Europe.
Once these funds accumulated, it said, they sent large sums via wire transfer to various foreign accounts. It also said that, in response to that tip, Homeland Security Investigations (HSI) had begun its money laundering investigation, which the Internal Revenue Service Criminal Investigation (IRS CI) later joined, and that foreign authorities in the UK, Ireland, Germany and Australia had also provided evidence and information for the investigation.
It said the investigation revealed Marr oversaw international money laundering networks that facilitated the transfer of funds from boiler rooms and related fraud schemes across the world and that, since at least 2009, she had operated these complex networks, which included funnel accounts and shell companies, to launder the proceeds of fraud. To carry out the conspiracies, it said, she had recruited several individuals in the United States and elsewhere to open funnel accounts and shell companies, including Turi.
It stated further that Turi was an Italian citizen who had met Marr in 2016 and had formed a working relationship with her in which he opened bank accounts using shell companies and moved money at her direction, as she had the contacts with the boiler rooms. It said that Marr and Turi then split the proceeds and that Turi was responsible for calculating "payroll" and sending wires to conspirators as directed by Marr.
Marr also created fake invoices to provide to Turi, to give him documents supporting the payments he was making. Turi was named as an officer on several UK companies that were known boiler rooms and had been instrumental in assisting Marr to relocate to Serbia when she was an international fugitive, the memorandum said.
The memorandum also noted that Turi had used his membership of the "Knights of Malta International Relief Organization (KOM)" to obtain "diplomatic immunity" for Marr by obtaining a diplomatic passport for her issued by KOM, which she had used to travel when she was a fugitive. Furthermore, it said he had used his international "contacts" to monitor the status of the U.S. investigation into her co-defendants and to help her evade apprehension.
In an "i nvestiture" announcement at the 29th Ceremony of Investiture of the Knights of Malta (KMFAP) on February 11, 2017 in Florida, Turi was dubbed "Sir Massimiliano Turi – Knight Commander of Cyprus", and Marr was dubbed a dame — "Lady Mary-Kathryn Marr (Canada)". In another KMFAP announcement concerned with the "Establishment of Diplomatic and Consular Relations between the Knights of Malta (KMFAP) and Antigua and Barbuda" Turi was described as "Sir Massimiliano Turi — Ambassador-at-Large".
Marr also appeared in the complaint against Brooks Thomas Nesbitt. The U.S. Department of Justice (DOJ) said Nesbitt was a member of a large international fraud and money-laundering ring led by Marr. The DOJ said that, between at least 2014 and 2019, Nesbitt had operated boiler rooms located outside of the United States and had contracted with Marr so that, for a set percentage, she and her network could launder the fraud proceeds his boiler rooms had obtained from victims.
"Funnel" and "Buffer" accounts
The DOJ said Marr and Chateau operated a network of "funnel" bank accounts in the United States in the names of shell companies, into which the boiler room agents instructed victims to send their money. The victims' funds had then been laundered through more bank accounts and then sent overseas, with the launderers receiving a percentage of the funds. Marr and Chateau recruited various individuals to open and operate funnel bank accounts in Florida and other states, it said.
In the Turi indictment, the term "buffer" is used to refer to a secondary bank account in the United States that was used to transfer and conceal foreign victims' money so banks could not easily detect that the victims' incoming wire transfers were quickly rewired out to accounts overseas. Instead the transfers to the secondary "buffer" accounts would merely appear to be ordinary transfers between domestic accounts and would be less suspicious to the banks.
In an affidavit in support of the criminal complaint against Nesbitt, Justin Deutsch, special agent with U.S. Immigration and Customs and Enforcement (ICE), explained further about the use of "funnel" accounts. Boiler rooms often directed victims to wire the money for their supposed investments to bank accounts in developed countries and that the term "funnel account" referred to bank accounts into which boiler room sales agents told victims to wire their funds, he said.
Contract money launderers would then operate the accounts to launder the proceeds. Launderers would rapidly move the victims' funds from the initial receiver bank account into a network of secondary bank "buffer" accounts, or directly overseas to the boiler room operators. Through that process, he said, the launderers could conceal the source of the funds before the victims or banks discovered the fraud and tried to recover the money which had been sent abroad.
The boiler rooms and launderers usually required a large network of such bank accounts, he said, as banks would eventually discover what was occurring and close the accounts. The funnel accounts would be opened in the name of the shell companies but the account holders would misrepresent the purpose of the account to bank employees by claiming that the company did real work in fields that involve many wire transfers, such as debt collection, factoring, payroll processing, consulting and real estate.
Marr and the Winslow indictment
Marr was also described in a further U.S. case as having worked with defendant Rachael Maia Winslow, who was accused of opening accounts in Florida financial institutions as part of a conspiracy to commit money laundering. Both the Winslow and Turi cases are cited in the Attorney General's Annual Report to Congress on Department of Justice Activities to Combat Elder Fraud and Abuse of October 18, 2020.
This report indicates that — from at least as early as March 2009 through to in or about December 2013 — defendants in the Winslow and Turi cases operated an international fraud and money laundering ring as part of an investment fraud scheme that obtained money from foreign victims, many of whom were elder, primarily by selling worthless stock.
Defendants established shell entities, made use of pre-existing entities, and/or opened bank accounts, received victim-investors' funds, and wired the fraud proceeds to other accounts, it said. Marr entered a plea of guilty of one count of money laundering and a plea agreement in which she agreed to cooperate fully with the United States in the investigation and prosecution of other persons. She also agreed to make a full and complete disclosure of all relevant information.
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