In today’s ACFCS Fincrime Daily Briefing a look at the more than $1 billion StanChart penalty, a rare globally coordinated sanctions settlement, updates, subtractions to latest U.S. INCSR, and more.

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U.S., U.K. fine StanChart more than $1 billion for Iran, Syria transactions – in third sanctions penalty

Federal and state authorities in the United States and United Kingdom Tuesday levied a penalty of more than $1.1 billion against one of London’s largest banks for engaging in thousands of illicit transactions worth hundreds of millions of dollars involving blacklisted countries including Iran, Sudan and Syria – a rare global settlement for financial crime compliance failures.  

The U.S. Department of Justice (DOJ), the U.S. Treasury’s Office of Foreign Assets Control (OFAC), New York State Department of Financial Services (NYDFS), the United Kingdom’s (U.K.) Financial Conduct Authority (FCA) along with other federal investigative and regulatory agencies issued the penalty against Standard Chartered Bank (StanChart) for years of violating U.S. sanctions policies and essentially breaching a prior deferred prosecution agreement (DPA).

“Global financial institutions serve as the first line of defense against money laundering and the financing of terrorist activities and those that fail to foster a strong compliance culture will be held accountable,” said Acting NYDFS Superintendent Linda Lacewell, in a statement.  

“While Standard Chartered has taken significant remedial measures since 2014 to develop a more robust program to prevent these egregious activities, the time has come for the bank to finish the job,” she said. “DFS will take whatever measures necessary to ensure that the bank lives up to its word and maintains effective safeguards against sanctions violations and money laundering.

The NYDFS penalized StanChart $340 million in August 2012 for AML, sanctions and books and records violations, at one point threatening to pull its banking license. The decision front-ran a concurrent federal investigation, leading to criticism of then head Benjamin Lawsky.

Just a few months later, in December 2012, the bank paid $327 million to U.S. regulators and prosecutors for sanctions breaches related to Iran and broader AML compliance failings.

In total, the NYDFS has penalized StanChart more than $1.1 billion alone in four separate actions for AML, sanctions and other financial crime failures.

Investigative, regulatory pile-on: Dollop of documents detail StanChart failings

To read the full OFAC action, click here.

DOJ To read the full DOJ action, click here.

To read the full Federal Reserve action, click here.

To read the full NYDFS action, click here.

To read the full Manhattan DA’s Office action, click here.

To read the full FCA action, click here.

The bank breached nearly a half-dozen U.S sanctions programs, including those relating to Burma, Cuba, Iran, Sudan, and Syria. OFAC stated it is also settling a separate case involving apparent violations by SCB of sanctions related to Zimbabwe.

As part of this latest agreement, the bank will have its DPA extended another two years.

At the heart of the penalties are a lack of oversight of foreign branches, a familiar refrain rife with risk and a major focal point of state and federal regulators and investigators.

In recent years many large U.S. and foreign banks have been chastised and penalized for weak oversight of foreign branches, affiliates and correspondent portals – an at-times complex and opaque vehicle that can allow murky customers and corporates and hidden nested entities access to the global financial system.

Between June 2009 and May 2014, the bank processed more than 9,300 transactions totaling just under $440 million that touched the United States and involved blacklisted individuals or countries – chiefly orchestrated by branches in the Middle East.  

The majority of the conduct concerns Iran-related accounts maintained by SCB’s Dubai, UAE branches, including accounts at SCB Dubai,” held for a number of general trading companies and a petrochemical company,” according to penalty documents.

SCB Dubai processed U.S. dollar transactions to or through SCB’s branch office in New York or other U.S. financial institutions on behalf of customers that sent payment instructions to SCB Dubai while physically located or ordinarily resident in Iran.

SCB also processed online banking instructions for residents of comprehensively sanctioned countries.

StanChart has been a frequent target for U.S. authorities

StanChart is also getting more attention because of the increased focus by global regulatory and investigative agencies on how and where criminals, the corrupt and terror groups are gaining entry into the international financial system.

Not surprisingly, U.S. and U.K. authorities are cognizant of the bank’s global footprint and where most of their revenues come from, roughly 90 percent from Africa, Asia and the Middle East, putting the institution under an even more powerful microscope to uncover any missed instances of suspicious activity and intersections with rogue and recalcitrant regimes.

Moreover, any gaps could more quickly come to light as StanChart has been under constant enhanced monitoring from full-time monitors installed to give updates directly to regulators and be an on-the-ground, real-time remediator of past, present and future AML gaps, a still-wriggling stipulation from the 2012 DPA, (via DOJ).

The penalty is among the largest ever levied for sanctions violations, charges that have hit many of the world’s largest foreign banks over the past decade, including HSBC at $1.9 billion, Commerzbank at $1.5 billion and Credit Agricole and Deutsche bank at a combined $1.1 billion.

BNP Paribas currently has highest ever sanctions penalty at $8.9 billion, also dealing with Iran and Sudan.

In many of cases, banks had institutionalized evading compliance teams and sanctions screening systems by systematically “stripping” any references to Iran and other countries out of wire information, allowing them to enter the U.S. and dupe many domestic and foreign institutions in financial hubs like New York.

The StanChart penalty was not a total surprise as the bank had telegraphed the incoming fine in several quarterly and annual reports, stating in recent months it had set aside some $900 million for sanctions and other compliance settlements.

Part of the reason the penalties were so high in this latest penalty is that the infractions occurred even after the 2012 DPA – a settlement that had to be pushed four times because StanChart felt it was unable to the meet the deadline, the latest extension occurring just 10 days ago.

This latest massive sanctions fine puts even more pressure on banks to improve insight into and oversight of their foreign branches, affiliates and correspondent banking relationships.

As well, look for the fear of failure in this area to lead to a new wave of re-risking or de-risking out correspondent relationships with certain banks or even potentially whole countries – particularly in the MENA region.

From Azerbaijan to Canada, Pakistan to Panama, U.S. names more than 80 ‘major laundering’ regions in latest INCSR report

Few corners of the real, virtual and criminal worlds are safe from the withering gaze of the U.S. State Department in its just-released 2019 International Narcotics Control Strategy Report (INCSR), an annual mammoth tome covering more than 500 pages grading country-wide counter-financial crime efforts and tracking where drugs are produced, sold and where illicit financial flows are gushing.

The report is broken down into two parts, one focusing on money laundering and AML compliance and the other, narcotics production, trafficking and related financial networks.

Both highlight the increasing diversity of criminals more aggressively using virtual worlds to sell drugs and move funds and the stubborn global bastion, and investigative stumbling block, of a broad range of illicit actors hiding behind anonymous ownership structures in opacity-opposed offshore secrecy havens.

Historically, however, the most controversial part of the report, and required reading for global financial institutions, is the yearly naming and shaming of countries on the “major money laundering jurisdictions” list, this time around covering some 80 countries.

While that seems a weighty and extensive list – and indeed it is – a major departure this year is that rather than new names getting added to the ranking, replete with the attendant vitriol, blustering and sputtering of said regions, the State Department actually dropped nearly a dozen jurisdictions in the latest go around.

In the 2019 list, the U.S. dropped Egypt, Cambodia, Guinea Bissau, the Kyrgyz Republic, Lebanon, Portugal, South Africa, Switzerland, Turkmenistan and Uruguay – a detail that should be woven in and weighed by compliance professionals in their regional fincrime and compliance capacity risk rankings.

But, not surprisingly, many large and powerful countries have remained on the list, much to their chagrin.

As such, the list is a hotly-debated, nigh rancorous ranking in financial crime circles as it paints with a very broad brush, mentioning Afghanistan and Iran in the same breath as Canada, the Netherlands, the United States and United Kingdom – one group considered roiling and rogue regimes and another often touted as global AML leaders.

In the latest INCSR, the status of financial crime compliance programs around the world continue to take up quite a bit of ink.

The terms “anti-money laundering,” “AML” and “compliance” appear nearly 800 times, a slight drop from 2018, where these terms appeared more than 840 times.

In tandem, and similar to the Paris-based Financial Action Task Force (FATF), which sets global AML standards, the latest INCSR gave more attention to the effectiveness of country financial crime investigations and AML laws, including detailing if the country crushed any large, complex international cases or levied any significant, dissuasive fines for FI compliance failures, (via the U.S. State Department).

Another interesting dimension, and ignoble irony, is that many of the Nordic and Baltic regions embroiled in a mushrooming money laundering scandal are not even on the 2019 major money laundering countries list, including Estonia, Sweden and Denmark.

The Estonian branch of Danske Bank is accused of laundering some $230 billion for questionable and illicit Russian entities and oligarchs, with Swedbank reportedly moving some $10 billion of that figure. As a result, Estonia kicked Danske out of the country and in recent weeks Swedbank ousted its CEO and saw its long-running chairman resign.

The INCSR did, however, name the Netherlands, stating that it had strong laws, technical compliance and information sharing, but that the “magnitude of money laundering…remains a concern,” with government estimates stating $18.2 billion is laundered annually in the Netherlands, with $10.4 billion coming from abroad.

The INCSR did note, though, that Dutch enforcement surged last year to record levels.

In September, the Dutch Prosecutor’s Office (OM) announced it had reached a settlement with Netherlands-based ING Bank for $888 million (€775 million).

The OM “accused ING of failing to prevent hundreds of millions of dollars of money laundering and violating the Dutch AML/CFT Act,” according to the INCSR. “The penalty is the largest AML enforcement action to date by authorities in Europe.”

In blow to watchdogs coming forward to report uncover potentially illicit activity, FBME sues own AML investigators, expert witnesses for whistle-blowing in Cyprus

Two British private investigators are being sued by the owners of FBME Bank for breaking confidentiality after it hired them to help fight money-laundering accusations but instead they blew the whistle to US and Cypriot authorities on alleged criminal activity within the bank, The Times reported on Monday.

According to the report, the two former British police officers were hired by the Lebanese owners of Tanzanian-registered FBME Bank, which was operating in Cyprus, and which had its license revoked by the island’s central bank in December 2015 after US authority FinCen described the lender as a financial institution of primary money laundering concern in July 2014.

The Bank of Tanzania revoked FBME’s license on May 5, 2017 and decided to liquidate the lender.

Ayoub-Farid Michel Saab and Fadi Michel Saab, the brothers who owned FBME, hired Nigel Brown and Alec Leighton, both former British police officers, to help the bank fight money-laundering allegations, The Times said.

The paper said that the High Court heard the two detectives discovered evidence suggesting serious criminal activity during their internal investigation. They made the allegations, and reported them to authorities in both countries after the bank had failed to pay them £200,000 in outstanding fees.

According to The Times, the Saab brother “vehemently deny” all allegations of criminality, the court heard.

Ayoub-Farid Michel Saab told the court that his business was a “family bank” which did “not attract criminals and crooks”, and that they had processes to deter money laundering.

David Allen, QC, representing the Saabs, told the court that the two British detectives were let go because the bank was concerned about the “lack of work” they were producing, and that is why their outstanding fee was not paid.

“As soon as that became clear to the defendants, they started disclosing confidential information to various entities including FinCEN and several Cypriot authorities,” he said.

“Neither FBME nor the claimants have been charged with any criminal activity or behavior anywhere in the world, and no law enforcement agencies have ever felt the need to levy any criminal charges against the claimants,” Citing The Times, (via the Cyprus Mail).

This case really caught my attention as there seems to be a global assault against whistleblowers and seekers of truth, whether they be an employee of a bank or corporate, a journalist or, in the case, an entity with law enforcement expertise acting in an independent review, or sometimes called, independent audit capacity.

Now, regardless of the motives, these individuals may have still come forward if they had gotten paid, but that opens up its own can of worms. What prevents someone in an AML compliance review or remediation capacity from double dipping?

What laws, restrictions or even privacy or data protection rules are in place to prevent a detective, consultant, expert witness or entity working in a similar capacity from enlisting to help a troubled bank accused of money laundering to improve their AML program or speak on behalf of the defense, get paid for that, and then take the juiciest details from the review and give them to local regulators, investigators and prosecutors – hoping to get a percentage of a settlement?

This scenario as well would likely be very different if it was an attorney engaging in the FBME review because disclosing those details to U.K. and foreign authorities could have then been viewed as a violation of the sacrosanct attorney-client privilege.

It will be interesting to see how this case plays to see if the whistleblowers get protected – and paid – or if the court rules against them, sending a potentially chilling message to individuals working in similar capacities.

Pressure yields clarity – 2019 Compliance Risk Study reveals AML responsibility shifting to front-line staff, shrinking budgets call for creativity, innovation to keep pace with changing regulations

Accenture’s 2019 Global Compliance Risk Study finds financial crime compliance and other function leaders tasked with cutting costs but keeping pace with rapid change.

In response, compliance leaders can’t be complacent, but must engage in several steps to help them build Compliance 2.0, including adopting new technology, such as AI, automation and machine learning, create new roles to boost efficiency and a create a truly next-gen compliance officer who can better wield data to counter criminals and impress regulators in the information age.

Some revelatory highlights include:

· 84 percent: Most 2019 Compliance Risk Study respondents say they have a technology compliance officer within their compliance function.

· 72 percent: Nearly 3 in 4 respondents with quantitative cost reduction goals are targeting reductions of more than 10% over three years.

· 50 percent: Half of respondents say they face a level of unmanaged employee attrition that is above expectation.

· 60 percent: Well over half of respondents agree that responsibilities previously performed by compliance in the second line of defense are now shifting to the first line, (via Accenture).

These findings track in a nearly identical fashion to what we are hearing from ACFCS members, particularly the “re-distribution of risk” from AML compliance departments to frontline staff, business line managers and the full gamut of customer-facing roles.

The reason? By empowering and aggressively training the teams outside of compliance – the historical foils of AML compliance officers – they arm these groups to better understanding financial crime risk to either capture more detailed and nuanced information to gauge customer risks or even, in an ideal world, prevent the opening of an account for a potential criminal.

Such a strategy can prevent some fraudsters, money launderers and corrupt fat cats from even getting in the door in the first place.

This tactic, as the survey points out, also reduces the transactional monitoring throughput to allow AML teams to more quickly clear the daily alert grind and have time and resources to spare to engage in proactive, innovate and data-driven dives into broader and deeper customer trends and cross-cutting financial crime red flags, such as human trafficking or elder abuse.