FATF to release crypto guidance

In this week’s Financial Crime Wave, a global financial crime watchdog body sets a June deadline to release anti-money laundering guidelines for the rollicking crypto sector, a new report looks at how a caliphate-less ISIS will attempt to sow mayhem while laundering an estimated $400 million, the European Union adopts the Sixth AML Directive, and more.


Global AML watchdog to release crypto regulations by next June as industry looks for guidance, legitimacy

A global money-laundering watchdog has said it will begin publishing rules for international cryptocurrency regulation by next summer. According to a Reuters report Friday, the Financial Action Task Force (FATF) – the France-based intergovernmental body founded in 1989 to develop policies for tackling money laundering – said that global jurisdictions will have to bring into force licensing schemes or regulations for crypto exchanges and possibly digital wallet providers under the new rules. Companies offering financial services for initial coin offerings will also be included, the report states. The news comes after the FATF plenary meeting this week with officials from 204 global jurisdictions to discuss crypto regulations and other matters.

Reuters also reports that FATF’s president, Marshall Billingslea, designated June as the month in which the group will begin publishing its guidelines and enforcement expectations. As reported in July, the G20 member countries had been eyeing at an October 2018 deadline for movement on a global anti-money laundering (AML) standard around cryptocurrency. With the G20 seeking “vigilant” monitoring of cryptocurrencies, FATF was called on to clarify how its existing AML standards could be applied to cryptocurrency. In a statement released on Friday, the group said that “there is an urgent need for all countries to take coordinated action to prevent the use of virtual assets for crime and terrorism,” (via Coin Desk).

Terror finance

ISIS’s new plans to get rich and wreak havoc: Getting creative to launder $400 million through front companies, Turkish financial firms, gold

Although the Islamic State has lost nearly 98 percent of the territory it once controlled, the group is ripe for a comeback in Sunni-majority areas of Iraq and Syria. The main reason is its existing war chest, coupled with its skill at developing new streams of revenue. The Islamic State used to mostly rely on the territory it controlled, including cities and urban strongholds, to amass billions of dollars through extortion, taxation, robbery, and the sale of pilfered oil. But the group has proven that it is capable of making money even without controlling large population centers.

During the apogee of its territorial control in 2015, the Islamic State accrued nearly $6 billion, making it by far the wealthiest terrorist group in history. The group, however, no longer relies on territory for its economic survival. In part, that’s because its surviving leadership may have smuggled as much as $400 million out of Iraq and Syria. The group’s extended network will seek to launder this money through front companies in the region, especially in Turkey. Some cash could be converted to gold and stockpiled for sale in the future, (via Foreign Policy).


EU adopts Sixth AML Directive, deadline set, with countries needing to improve compliance programs, regulators strengthen enforcement, and more

Countries across the European Union will have two years to implement a new system of jail sentences and sanctions for money launderers following the formal adoption of the EU’s latest anti-money laundering directive, dubbed 6AMLD (Sixth Anti-Money Laundering Directive) on 11 October 2018. Once the directive is published in the EU official journal, member states have up to 24 months to transpose it into national law.

The new directive complements the criminal law aspects of the EU Fifth Anti-Money Laundering Directive (5AMLD), which was formally adopted in May 2018. Under the new rules, money laundering activities will be punishable by a maximum term of imprisonment of 4 years, and judges may impose additional sanctions and measures, such as temporary or permanent exclusion from access to public funding, as well as fines. The measures also cover the possibility of holding legal entities liable for certain money laundering activities which can face a range of sanctions, such as exclusion from public aid and placement under judicial supervision, (via KYC 360).


FinCEN decries Iran’s ‘malign’ use of virtual currencies, exchanges to evade economic sanctions

A U.S. agency responsible for crafting the country’s anti-money laundering (AML) rules is urging domestic exchanges to help prevent the Iranian regime from using cryptocurrency to bypass economic sanctions. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) published an advisory Friday, stating that Iran’s “illicit and malign” use of cryptocurrency to “exploit” the financial system includes at least $3.8 million-worth of bitcoin-denominated transactions every year. “While the use of virtual currency in Iran is comparatively small, virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions,” the advisory said. As such, the regulator urges that “institutions should consider reviewing blockchain ledgers for activity that may originate or terminate in Iran.” These activities, it added, have been highly dynamic and could thrive in Iran with “little notice or footprint.”

The Trump administration announced in May this year it would withdraw from a 2015 nuclear agreement with Iran alongside the reimposing of economic sanctions that restrict Iran’s access to U.S. dollars. The executive order went into effect on Aug. 6. FinCEN continued that despite recent reports that the Central Bank of Iran is seeking to ban domestic banks from supporting crypto trading, it found that individuals and businesses in Iran could still access trading platforms either in Iran or the U.S., as well as via peer-to-peer exchanges. The agency reminded domestic crypto exchanges of their regulatory obligations as registered financial institutions under the Bank Secrecy Act, which requires them to deploy “appropriate systems to comply with all relevant sanctions requirements,” (via Coin Desk).


U.S. securities chief chastises companies for lax cyber practices in BEC attacks

The Securities Exchange Commission (SEC) tackled the soaring issue of business email compromise (BEC) attacks, analyzing whether companies involved in these crimes – which spoof email addresses and completely evade cybersecurity protocols by taking advantage of the human element – are victims of criminal schemes, or if they themselves should be punished for not having the proper cyber defenses of training in place.

In this case, the SEC sent a message that firms should ensure that broad financial crime training, including proper cyber hygiene, went down to the individuals involved with transactions, wires and updating vendor details, (via the SEC).

Virtual currencies

Cryptocurrency Exchanges Lost $882 Million to Hackers, as cyber assassins turn to virtual value as a more tempting target: report

An analysis of attacks against cryptocurrency exchanges over nearly two years shows hackers have inflicted $882 million in damages, according to Moscow-based cybersecurity firm Group-IB. The tally is likely to grow next year, it says, as seasoned hacking groups such as Cobalt, Silence and MoneyTaker, which appear to be operating from Russia, as well as North Korea’s Lazarus group, direct more attention to exchanges as well as initial coin offerings (see Cobalt Cybercrime Gang Reboots After Alleged Leader’s Bust). “In 2019, cryptocurrency exchanges will be a new target for the most aggressive hacker groups usually attacking banks,” Group-IB writes. “The number of targeted attacks on crypto exchanges will rise.”

In many ways, the attacks against virtual currency exchanges mirror the pedestrian – but effective – hacks that continue to compromise so many enterprises. Namely, attackers’ phishing emails continue to dupe victims into divulging credentials or installing malware, Group-IB says. The targets not only include exchanges, but also cryptocurrency companies launching ICOs, which are fundraising exercises that involve the sale of tokens to private investors. Group-IB says it found that more than 10 percent of the funds raised during ICOs were stolen – at least during the period it studied, which ran from 2017 through the end of September 2018, (via Bank Info Security).

Human trafficking

Data project involving tech, banking giants, EU law enforcement aims to stop human trafficking before it occurs: report

Computer giant IBM Corp, financial services company Western Union Co and European police launched a project Thursday to share financial data which they said may, in future, be able to predict human trafficking before it occurs. The shared data hub will collect information on money moving around the world and compare it to known ways that traffickers move their illicit gains, highlighting red flags signaling potential trafficking, organizers said. “We will build and aggregate that material, using IBM tools, into an understanding of hot spots and routes and trends,” said Neil Giles, a director at global anti-slavery group Stop the Traffik that is participating in the project.

Data collection, digital tools and modern technology are the latest weapons in the fight against human trafficking, estimated to be a $150 billion-a-year global business, according to the International Labour Organization (ILO). The U.N. has set a goal of 2030 for ending forced labor and modern slavery worldwide, with more than 40 million people estimated to be enslaved around the world. Certain patterns and suspicious activity might trigger a block of a transaction or an investigation into possible forced labor or sex slavery, organizers said. The project will utilize IBM’s Internet cloud services as well as artificial intelligence and machine learning to compare data and to spot specific trafficking terms, said Sophia Tu, director of IBM Corporate Citizenship, (via Reuters).

Government leaks

U.S. charges Treasury FIU adviser with leaking AML filings data to reporter related to Manafort, Russia, Prevezon  

A senior adviser at the U.S. Treasury Department repeatedly disclosed to a reporter information in reports filed by banks about potentially suspicious activity, federal prosecutors said. Natalie Mayflower Sours Edwards, a senior employee at the Treasury’s Financial Crimes Enforcement Network, or FinCEN, was arrested Tuesday. She was charged with unauthorized disclosure of suspicious activity reports (SARs) and one conspiracy count. The arrest is a rare one for an employee of FinCEN, which takes data security very seriously, chiefly because the bureau is the country’s financial intelligence unit (FIU), which houses millions of reports banks filing annually related to potential financial crimes and transactions above a $10,000 threshold.

Theoretically, a FinCEN analysts would have easy access to the database, which would hold details on if any bank in the country saw something aberrant in a person’s account, typically involving a value of more than $5,000. In arrest documents, Edwards disclosed numerous SARs to a reporter, the substance of which were published over the course of about 12 articles by a news organization, prosecutors said. The reports pertained to, among other things, Paul Manafort, Richard Gates, the Russian Embassy, Maria Butina and a unit of Prevezon Holdings, a Russian company. Neither the reporter nor the organization are named in the federal complaint, but the articles referred to in the document are from BuzzFeed and all were written or co-written by investigative reporter Jason Leopold, (via the WSJ).

Money laundering

Nordea drawn into alleged money laundering scandals on heels of major Nordic actions, penalties

On the heels of massive penalties and investigations into banks in Denmark and the Netherlands, Nordea became the latest large Nordic bank to be drawn into alleged money laundering scandals after a prominent Kremlin critic filed criminal complaints with Swedish and Norwegian authorities. Bill Browder, chief executive of Hermitage Capital Management whose accountant Sergei Magnitsky was beaten to death in jail after uncovering an alleged $230 million Russian fraud, claimed in his 29-page complaint that sums of money worth millions of dollars from that fraud had flowed through 365 accounts at Nordea, the Nordic region’s biggest lender.

Browder’s action against Nordea comes after he filed similar complaints against Danske Bank, which led to authorities in Denmark and Estonia opening criminal probes of the lender. Danske is under intense pressure over a €200 billion money laundering scandal that has led to its chief executive’s resignation and an investigation by the US Department of Justice. Nordea was heavily criticized by Sweden’s financial regulator in 2015 and subjected to the maximum fine for lax controls, with the watchdog saying there was a high probability that “if people have tried to launder money or finance terrorism, they could have done so without Nordea having been able to detect this,”  (via FT).

Wildlife trafficking

A Missing Page: Strengthening the financial sector response to the illegal wildlife trade to better tackle a growing transnational crime

The continued failure to target the proceeds of the illegal wildlife trade is undermining the response to this transnational crime, according to a new RUSI report. Across the supply chain, for every animal or animal part poached illegally from the wild, money changes hands. Alongside the animals themselves, money moves in markets, on online platforms and between corrupt officials. This illegal trade does not only affect wildlife: it is organized financial crime run on an industrial scale for profit.

Recognition that the illegal wildlife trade is not only a crime against the environment, but also a financial crime conducted for profit is gathering momentum. But recognizing the profit motive behind IWT is just the first step. Taking action to identify the illicit proceeds of IWT and the use of financial investigation, confiscation laws and money-laundering charges to tackle criminals’ ill-gotten gains must be prioritized if the ‘financial’ appeal of IWT is to be addressed. Put simply, the low risk/high reward equation that currently characterizes IWT needs to be reversed, (via RUSI).

Corporate monitors

DOJ toughens stance on choosing monitors in high-profile AML compliance failures, other government settlements

U.S. Department of Justice updates policies on picking corporate monitors for large scale compliance failures, noting officials don’t want them doled out unethically or as political favors, (via DOJ).


Finally, an overhaul for AML legislation: A new AML regime for a new century.

The landscape of AML regulations is scattered, with its primary legislative supports coming from 1970, 1996, and 2001. This article discusses the proposed bill, its bipartisan support as identified by hearings already conducted on the subject, and its implications for financial institutions if enacted, (via CCI).


U.S. Attorney General launches new measures to fight transnational organized crime, with task force designations, updated priorities, dedicated subcommittees

U.S. Attorney General Jeff Sessions has launched a series of measures to strengthen how the country’s law enforcement agencies prioritize, communicate and coordinate on strategies to counter larger international criminal and terror groups. He has appointed Associate Deputy Attorney General Patrick Hovakimian to serve as the Department’s first Director of Counter Transnational Organized Crime. Hovakimian has served in Department leadership since early 2017 and also as an AUSA in the Southern District of California, where he is co-lead counsel in a series of transnational public corruption and fraud cases.

Sessions has appointed Adam Cohen as the new Director of Organized Crime and Drug Enforcement Task Force (OCDETF).  Cohen is currently the Chief of the Criminal Division Special Operations Unit’s Office of Enforcement Operations and has served in the Criminal Division for 10 years. This follows an early 2017 executive order directing the federal government to “ensure that Federal law enforcement agencies give a high priority and devote sufficient resources to efforts to identify, interdict, disrupt, and dismantle transnational criminal organizations[.]” As a result, the FBI, DEA, OCDETF, and the Department’s Criminal Division to identify top transnational criminal groups that threaten the United States and its allies. The top threats, which will also have a dedicated task force subcommittee assigned to them, are designated as:

  • MS-13
  • Cartel de Jalisco Nueva Generacion (CJNG)
  • Sinaloa Cartel
  • Clan del Golfo, and
  • Lebanese Hezbollah.

Sessions has ordered each of these subcommittees to provide specific recommendations within 90 days on how to disrupt and dismantle TOC, whether through prosecution, diplomacy, or other lawful means, (via DOJ).


How criminals used Canada’s casinos to launder millions

The impacts of the Vancouver model – as the scheme came to be known – is linked to the opioid crisis and unaffordable real estate market, say officials.  The briefing took place just a few days after David Eby began his new job as British Columbia’s attorney general – and it began a warning. “Get ready,” Eby remembers being told by casino regulators in the western Canadian province. “I think we are going to blow your mind.” What they showed him was footage of individuals wheeling suitcases stuffed with $20 bills into casinos. Others used hockey bags to haul the cash. Surveillance videos then showed the individuals trading in the cash for casino chips. It was Eby’s first glimpse of what some in the global intelligence community had taken to calling the Vancouver model – a scheme in which some of the province’s casinos were unwittingly used to launder more than C$100m during the past decade.

Soon after that first, eye-opening briefing in 2017, Eby’s government introduced measures aimed at curbing the transnational scheme; demanding proof of a legitimate source for casino payments of more than C$10,000and round-the-clock surveillance by regulators at high-risk establishments. These efforts have sent suspicious transactions at casinos plummeting 100-fold since 2015, according to government estimates. Still, the impacts of this cash flow – much of it linked to criminal organizations – are believed to have been felt across the province. “I can tell you it is tied to the opioid crisis that has taken thousands of people from their families,” said Eby. “It’s linked to the real estate market and housing prices that have made life unaffordable for British Columbians,” (via The Guardian).

Threat finance

With boundaries blurring between crime and terror, international cooperation’s vital, UN highlights

The constantly-evolving ‘nexus’ between crime and terrorism, ranging from simple deals to complex symbiotic relationships, demands greater understanding to break the illicit flow of black-market cash across borders, along with greater cooperation and coordination between law enforcement and the financial sector, a United Nations meeting heard recently. Terror groups are getting increasingly-involved in “lucrative” criminal activities such as trading in natural resources and human trafficking, Michèle Coninsx, the Executive Director of the UN Counter-Terrorism Committee Executive Directorate (CTED), told the Security Council briefing on the issue. Similarly, criminal groups join hands with terrorists, and are providing services such as counterfeiting, arms dealing, and helping to smuggle terrorists from one country to another, she said.

“We know that terrorist groups recruit individuals with criminal background or criminal skills, and petty crimes are committed to finance terrorist activities, including travel of foreign terrorist fighters,” explained Ms. Coninsx, noting that conflicts and instability further entrench such deal-making. The head of CTED said her office and other parts of the UN counter-terror effort, such as the UN Office on Drugs and Crime (UNODC) and the UN Interregional Crime and Justice Research Institute (UNICRI), were working together to address the scourge. She also highlighted the Executive Directorate’s work with UN Member States, identifying good practices, including joint investigative units and effective prosecution mechanisms, to handle organized crime and terrorism. Looking ahead, Ms. Coninsx urged the international community to strengthen cooperation in the fight against terrorism and its support structures, especially to identify new terrorist trends, map linkages between terrorists and criminal groups, and share information more effectively, (via the UN).

Washington’s silent war against Hezbollah in Latin America

A look at the potential momentum of the U.S. in nudging one of the riskiest regions in the world, a nexus of narco and terror groups, in a key foreign policy goal of targeting, and finally executing, operations against transnational threats. On July 11, 2018, the government of Argentina took its first action against Hezbollah by freezing the financial assets of 14 individuals belonging to the Barakat clan in South America. Last week, Brazilian Federal Police arrested the leader of this clan, Assad Ahmad Barakat, who was sanctioned by U.S. Treasury’s Office of Foreign Assets Control (OFAC) in 2004 and is considered one of Hezbollah’s most important financiers. These recent actions against Hezbollah in Latin America signal a shift in the priorities of regional governments, with Washington’s help, (via the Hill).

Illicit immigration

EU member states in race to bottom to snare coveted super-rich as citizens with glittering Golden Visas initiative

Replete with anti-money laundering (AML) risks aplenty, the doors of Europe are open to criminals and the corrupt, thanks to lax, opaque, and mismanaged ‘Golden Visa’ schemes, according to a report released today by Transparency International and Global Witness. The two anti-corruption organizations say the financial benefit of citizenship- and residency-by-investment schemes is undercut by risks arising from insufficient due diligence, conflicts of interest, and wide discretionary powers. “If you have a lot of money that you acquired through dubious means, securing a new place to call home far away from the place you stole from isn’t just appealing, it’s sensible. Golden Visa schemes offer a safe haven from authorities who might be looking to seize your stolen assets, and the freedom to travel without raising suspicion,” said Naomi Hirst, a Senior Campaigner at Global Witness.

“Given these inherent risks, these schemes must have the highest standards of due diligence checks, so that countries know who they are welcoming in and where their money came from. Unfortunately, that is not what we are seeing.  This approach exposes countries to corrupt individuals, and risks the corruption of the state itself as profit-hungry governments disregard the dangers and enter into a race to the bottom.” The report comes just weeks after police in Finland raided a real-estate agency at the center of a suspected €10 million money-laundering operation, controlled by a Russian businessperson who reportedly purchased Maltese citizenship, (via TI, Global Witness).