Connected to fraud?
Firm bought by Cambodian tycoon moved investment scam funds
By Jack Adamović Davies
December 13, 2021Millions of dollars in criminal funds allegedly passed through the bank accounts of Connectum Limited, a London-based payments facilitator purchased one year ago by Cambodian tycoon Heng Sokha, according to a police report obtained by RFA.
Sokha also chairs a conglomerate of more than 50 Cambodian companies, known collectively as the AZ Group. She took over the group’s management from her husband Ing Bun Hoaw in 2008 when he was appointed Transport Ministry secretary of state after five years representing the ruling Cambodian People’s Party in the National Assembly.
RFA reported earlier this year on controversies and legal troubles surrounding Connectum’s past management and clients, which money laundering and anti-corruption experts described as serious red flags.
Now, fresh evidence suggests a significant portion of Connectum’s multimillion dollar turnover prior to Sokha’s takeover of the company was the product of illegal activity.
Banking data contained within an Austrian police report seen by RFA shows more than 7 million euros ($8 million) in proceeds from a multinational “boiler room” fraud moved through Connectum’s accounts between 2017 and 2019. A Vienna court sentenced the fraud’s mastermind, Gal Barak, to four years in jail in September 2020, less than two months prior to Sokha taking the helm at Connectum.
While the transactions in the police report predate Sokha’s acquisition of Connectum, they once again raise questions over what kind of due diligence the tycoon did before taking the company on, and what interest Sokha could have had in purchasing a business so seemingly mired in scandal.
Multinational fraud
For half a decade, Barak had overseen a network of call centers spread across eastern Europe, peddling fraudulent investment opportunities to mostly elderly victims around the world.
The call center agents would encourage their targets to invest money in so-called “binary options.” These allow investors to bet on whether an asset or currency will increase in value. If it does, they make a return; if it doesn’t, they lose their whole investment.
Binary options have been outlawed as investment products across most of Europe since 2019 as they are more akin to gambling than investment opportunities. However, Barak’s offerings had an added sting for his customers. According to police and prosecutors, all the bets placed were fictitious and the client money was immediately siphoned off into separate offshore accounts.
“Despite the enormous profits and returns that were promised to thousands of potential customers, not a single customer has so far been identified who generated an actual profit and received it,” according to the police report obtained by RFA.
Authorities estimate that by the time he was arrested on Jan. 29, 2019, Barak’s companies had conned their marks out of some 200 million euros ($239 million).
The Connectum Connection
The Austrian police report, dated March 2020, tracked payments moving through the bank accounts of shell companies that acted as fronts to Barak’s frauds between October 2017 and April 2019. Three of those accounts were held in the name of companies registered in the Marshall Islands – a Pacific archipelago home to some 58,000 people that until 2018 did not require companies to disclose the identities of their owners.
Those three companies, Bright Ideas Ltd, Dynamic Solutions Ltd, and Rockarage Ltd, were receiving client funds for scam websites run by Barak, namely XtraderFX, Optionstars, and Safemarkets. Over the summer of 2018, Connectum’s British regulator, the Financial Conduct Authority, issued warnings to consumers not to invest money with any of the three websites, noting that none of them were authorized to do business in the U.K.
An analysis by RFA of the money flows detailed in the police report revealed that 7 million euros ($8 million) passed through accounts controlled or supervised by Connectum. Two accounts were directly held in Connectum’s name with banks in Germany and Latvia, while a third was held in the name of Binex Group LP, a British limited partnership.
The true owners of the now-dissolved Binex Group were obscured behind shell companies registered in the offshore secrecy jurisdictions of Belize and the Seychelles. However, the police report’s author linked the company to two of Barak’s alleged co-conspirators.
Binex’s account number as listed in the police report contains the letters “CNNN,” which is the code assigned to Connectum as a financial institution, suggesting that Binex was doing business through an account provided by Connectum.
Such large amounts of money flowing to companies in a notorious financial secrecy jurisdiction like the Marshall Islands should have piqued the suspicions of compliance officials at Connectum, according to Ben Cowdock, lead investigator at the independent anti-corruption group, Transparency UK.
“They would have been required to do due diligence on them under the U.K.’s money laundering rules,” Cowdock said. “Connectum have been regulated since 2014 by the FCA and [the U.K. tax authorities]. They would have been well aware of their obligations.”
“A Marshall Islands company is in itself a red flag because it’s such a secretive jurisdiction,” he added. “So, it does raise questions about what they’re up to – or not up to, as the case may be.”
“No direct affiliation”
Reached for comment in July, Connectum’s money-laundering reporting officer Ivan Leonidov said in an email that the company was “unable to respond to requests about specific transactions or accounts.”
“Connectum takes its obligations under the FCA rules and money laundering legislation very seriously,” he wrote. “Connectum has robust systems and controls in place to combat money laundering and criminality and takes appropriate action including notifying relevant authorities where criminal activity is suspected.”
Leonidov was more candid in email correspondence shared with RFA by a victim of Golden Markets, another of Barak’s scams. The victim asked not to be identified publicly, citing reputational concerns. In the emails, the Connectum executive confirmed that $26,000 invested by the victim in the Golden Markets scheme had indeed passed through Connectum’s accounts.
The victim’s bank had identified two “merchants” through which the fraudsters had received the funds. Markets Trading handled two payments totaling $15,000 in March 2018, while in May of the same year a company named Binmarket received four payments worth $11,000 from the victim to the fraudsters. In the case of all six payments, Connectum was the “merchant acquirer,” the intermediary between the merchant and the victim’s credit card company.
An internal investigation by Connectum found that the transactions “were facilitated by one of our partners,” Leonidov wrote to the victim. His email did not name the partner but described it as a “third party processor registered in the United Kingdom, which processed the funds via our accounts.”
“The company had business relationships with Connectum Limited between the end of 2017 and beginning of 2019, but there was no direct affiliation between Connectum and Golden Markets platform, Markets Trading or Binmarket,” he added.
That the payments were being processed by a third party did not absolve Connectum of its obligation to monitor them, according to financial crime expert Graham Barrow.
“They still have a duty under money-laundering regulations to monitor all transactions going through the accounts and identify any suspicious transactions,” Barrow told RFA.
In July 2017, one of the two merchants handling the victim’s payments, Markets Trading, was the subject of a public warning by the FCA, Connectum’s regulator. Published on the FCA’s website, the statement warned that it believed Markets Trading “may be providing financial services or products in the UK without our authorization.”
Providing financial services without a license is a criminal offence in the UK, punishable with up to two years in prison. As such, the FCA’s warning should have triggered a review within Connectum, according to Barrow.
“If you’ve got a client that has been served with notice by the FCA, or [about which] the FCA has provided an unauthorized trading notice on its website, then you absolutely should be reviewing that relationship with a view to exiting it,” Barrow said. “Clearly if you’re processing payments for somebody providing unauthorized services, that puts you as a de-facto accomplice.”
In January 2019, a British judge ordered that Markets Trading be put into involuntary liquidation.
On May 22, 2018, Binmarket processed $11,000 paid by the victim to the scam. Once again, Connectum was the merchant acquirer for the transaction and the money passed through its accounts. Unlike Markets Trading, Binmarket was never the subject of an FCA warning. However, three weeks earlier, it had been the subject of a warning on the website of Finland’s Financial Supervisory Authority.
Schrodinger’s transactions
It is impossible to know whether Sokha was aware of the fraud proceeds passing through Connectum’s accounts prior to her acquisition of the company. Richard Smith, a corruption researcher, said it is entirely plausible they would not have turned up during the due diligence process.
“It’s fairly easy in the short term to defeat due diligence by just lying,” Smith said. “I think [Sokha] wouldn’t necessarily have discovered 7 million euros of Gal Barak money that went through Connectum.”
However, he added that the background of Connectum’s previous owner, Edgars Lasmanis, should have been enough to dissuade her from taking the company on. An RFA investigation earlier this year found that he had been an executive at two Latvian banks during periods in which they were found to have facilitated serious and large-scale money laundering.
“The red flag there is Lasmanis,” Smith said. “No doubt about it.”
Lasmanis did not respond to multiple requests for comment prior to the publication of May’s investigation. However, lawyers acting on his behalf wrote to RFA in July demanding the story be taken down.
Signed by Elena Mazeri of Cypriot law firm Demetriou & Demetriou LLC, the five-page letter, lambasted RFA’s reporting as “unfounded, unsubstantiated and unfairly biased towards our client.”
Mazeri’s letter insisted that Lasmanis could not be held responsible for the money laundering that allegedly took place at the two banks he held senior roles with as both jobs were “positions that could not be held responsible for money laundering issues.”
In further correspondence with RFA, Mazeri claimed that Connectum’s records for 2018 showed no signs that the company processed any transactions or payments for either Golden Markets or Markets Trading, seemingly in contradiction of Leonidov’s admission to the fraud victim that their funds had been processed through Connectum’s accounts.