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Compliance Roundup: U.S. viewed as more corrupt, HSBC clears DPA, UK creates new fincrime unit

Wednesday, December 13, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
December 13, 2017

In this week’s Compliance Roundup, a new survey uncovers that nearly half of Americans believe the country is more corrupt under the new administration, formerly embattled HSBC clears its historic deferred prosecution agreement, and the United Kingdom creates a specialized unit to fight money laundering and unveils a new strategy to counter graft.

Taken together, these actions and revelations give new insight into the ebb and flow of financial crime compliance vulnerabilities. They also demonstrate that a change in the tone at the top – from a country or even just one large company – can have wide-ranging implications in the fight against corrupt political powerbrokers, organized criminal groups and terror cells.

Corruption in the U.S.: The perception among the populace is things are worse under Trump

Roughly a week after the United Nation’s Anti-Corruption Day, counter-graft watchdog group Transparency International released a new survey this Tuesday focusing on the perception of U.S. corruption over the past year.

Sadly, the general consensus is that political influence-peddling has worsened under the Trump Administration – and in fact the Office of the President is actually seen as the most corrupt. To read the full survey, please click here.

The findings reflect the fears of some financial crime experts and analysts in the US and abroad, who worried that under a pro-business, anti-regulation presidency the United States would take a real or perceived hit as a leader in strengthening global standards against anti-money laundering (AML) and other financial crimes.

The perception of heightened domestic graft comes against a backdrop of a record year for US anti-corruption enforcement internationally. The US Justice Department and Securities and Exchange Commission captured record penalties under the U.S. Foreign Corrupt Practices Act (FCPA) in 2016, hitting $2.5 billion in cases propelled by more international cooperation with countries including Brazil, Russia, China, Switzerland, and others.

To read ACFCS coverage of FCPA enforcement in 2016, please click here.

“Yet, rather than feeling better about progress in the fight against corruption over the past year, a clear majority of people in America now say that things have become worse,” according to Transparency International. “Nearly six in ten people now say that the level of corruption has risen in the past twelve months, up from around a third who said the same in January 2016.”

The survey, called the US Corruption Barometer 2017, was carried out in October and November 2017. The results show: 

  • 44 percent of Americans believe that corruption is pervasive in the White House, up from 36 per cent in 2016.
  • Almost 7 out of 10 people believe the government is failing to fight corruption, up from half in 2016. 
  • Close to a third of African-Americans surveyed see the police as highly corrupt, compared to a fifth across the survey overall.
  • 55 per cent gave fear of retaliation as the main reason not to report corruption, up from 31 per cent in 2016. 
  • 74 per cent said ordinary people can make a difference in the fight against corruption.

To change the course of this widening perception, the United States will have to take a bevy of steps, according to TI. 

Recommended measures include increasing transparency in political spending, unlocking and publishing beneficial ownership information now hidden behind opaque corporate structures, reinforcing the oversight of the government’s ethics agency, better protecting whistleblowers and making more data on elected officials available to all – the public, press and investigators.

It’s not surprising TI is focusing on domestic corruption in the U.S. The move takes cues from fellow financial crime watchdog body, the Paris-based Financial Action Task Force, which in mid-2013 urged companies to not just focus on foreign politically-exposed persons (PEPs), but to consider the risks of PEPs at all levels, along with their friends and close associates.

To better understand the context of how damaging corruption can be – or even the perception of it – consider the scale of graft globally.

Unscrupulous corporations and third-party lackeys paid an estimated $1 trillion around the world annually, with corrupt PEPs plundering another $2.6 trillion worldwide every year, most often from jurisdictions struggling with poverty and lawlessness, according to the United Nations.

“These incredible sums make up five percent of the world’s economy,” the Organized Crime and Reporting Project stated this week in a report looking at the victims of corruption.

“And they mostly come out of the pockets of the poorest of the more than seven billion inhabitants of our planet,” according to the group, noting that “Corruption is not just about money. It’s the root cause of mass migration, human rights abuse, poverty, and death.”

As for the U.S.-based TI survey, the group queried respondents on the degree of corruption in nine influential groups:

  • The national government: The president’s office, members of congress and government officials.
  • Public officials, service level: tax officials, the police, judges and local officials.
  • Non-governmental entities: These would include private sector groups that still wield strong influence, including business executives and religious leaders.

Perhaps not surprisingly, government institutions and officials in Washington “are perceived to be the most corrupt in the country. The results show that 44 per cent of Americans now say that most or all of those in the Office of the President are corrupt, up from 36 per cent who said the same last year.”

On the private sector side, nearly a third of people in the United States “think that most or all business executives are corrupt,” according to the TI survey.

The survey results point a broader sobering reality: Even rich, industrialized countries are struggling to staunch the global flow of illicit funds, estimated to be in the trillions of dollars annually.

To many current and former government analysts, the problem of corruption is just as vexing as fraud, cyber and terror attacks because rampant graft can hamstring the strongest domestic and international efforts to take down large criminal syndicates.

After historic settlement, HSBC fincrime compliance goes from worst to first

HSBC has come a long way in a short time. That progress was borne out this week when HSBC highlighted that its $1.9 billion, December 2012 deferred prosecution agreement (DPA) with the U.S. Department of Justice (DOJ) and other federal regulators had expired.

The penalty related to extensive and longstanding AML failings and sanctions missteps, resulting in the bank being hauled before Congress for laundering billions of dollars for some of the most feared criminal organizations on the planet.

That milestone is even more of a major accomplishment considering that as recently as February, in its annual report, a corporate monitor expressed “significant concerns” over HSBC’s progress in being able to comply with the DPA.

Failure to comply with the terms and timetables of the agreement could have meant the bank would be essentially “convicted” of money laundering, resulting in the bank potentially losing its charter in the United States.

Other lesser, but still very expensive, penalties were also on the table, including extending the length of the agreement and related remediation, bringing new charges against the bank or even handing down additional monetary penalties.  

HSBC has “lived up to all of its commitments,” the bank said in the statement, adding that the next expected step is the DOJ filing a motion with the with the U.S. District Court for the Eastern District of New York seeking the dismissal of the charges laid out in the agreement.

In penalty documents and Congressional proceedings HSBC admitted that over a decade it laundered more than $1.2 billion for illicit drug trafficking groups and rogue regime Iran.

During its long commercial relationship with Mexican drug cartels, HSBC was accused of moving $7 billion in drug cash to the U.S. in 2007 and 2008, chiefly through its Mexican affiliate. No top bank executives were prosecuted or went to jail.

In the last few years, HSBC has gone from compliance pariah to law enforcement partner, snapping up some of the biggest names in the fincrime space and placing them in top program positions.

That storied list includes many former top U.S. Treasury officials, including Robert Werner, Stuart Levey, and, most recently, Jennifer Shasky Calvery, a trail blazer at the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).

Also factoring into the government's analysis of compliance with the DPA was broad improvements in HSBC's systems to analyze for both aberrant behavior and people.

Since 2015, HSBC has “substantially improved” its IT infrastructure to better uncover and analyze financial crime, investing $1 billion in new and upgraded systems, according to its website.

As part of that initiative, the bank built a “single environment that takes all the data from our millions of customers worldwide and brings it together in an integrated way.”

On the whole, HSBC’s compliance team is five times bigger than in 2013, according to its site.

Last year, the bank created a dedicated Financial Crime Risk (FCR) to merge risk management and compliance across the spectrum of financial crime, along with strengthening public-private partnerships to better understand and react to criminal trends directly from law enforcement.

U.K. creates new unit to better cripple financial crime, follow the money

Convergence, improving intergovernmental and international partnerships and attacking financial criminals from all angles was also on the minds of top United Kingdom government officials with the creation this week of a new “National Economic Crime Centre.”

The multi-agency centre will “plan, task and coordinate operational responses across agencies bringing together the UK’s capabilities to tackle economic crime more effectively,” according to the country’s National Crime Agency (NCA). The new centre will be housed within the NCA.

To read the full release, please click here.

The centre will take advantage of “enhanced intelligence and analytical capabilities” and will weave together expertise from across domestic and foreign law enforcement agencies, outside government bodies and be more informed and in sync with the private sector, including financial institutions.

The unit’s marching orders are to better investigate and prosecute organized criminal groups, cyber hackers and human traffickers who are expected to garner more than $120 billion profits in the United Kingdom, and try to launder that sum through the country’s financial system.

The measures “will significantly improve our ability to tackle the most serious cases of economic crime by ensuring our agencies have the tools and investment they need to investigate, prosecute and confiscate criminal assets,” Home Secretary Amber Rudd said in a statement.

The “package of measures” to go along with the creation of the unit will also include new laws against fraud and money laundering, including making it easier for investigators to forfeit the assets of suspected criminal groups, and retooling how banks identify suspicious activity and report it to the government.

The U.K. also acknowledged anti-corruption day this week by publishing its updated anti-corruption strategy, establishing an “ambitious, long-term framework for tackling corruption up to 2022.”

The government’s six priorities under the strategy are:

  • Reducing insider threats in high risk domestic sectors, such as borders and ports
  • Reducing corruption in public procurement and grants
  • Promoting integrity across public and private sectors
  • Strengthening the integrity of the UK as an international financial centre
  • Improving the business environment globally
  • Working with other countries to combat corruption

“Corruption destabilizes governments and economies, taking money away from developing nations to support the luxury lifestyles of ruthless criminals,” said John Penrose MP, the newly minted champion to spearhead the country’s counter-graft initiative after being appointed by the Prime Minister. 


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