In this week’s Financial Crime Wave, Germany overhauls its overwhelmed anti-money laundering financial intelligence unit with more staff, new powers, Singapore updates counter-crime compliance laws to capture more sectors, U.S. Congress tackles virtual value, and more.


Germany overhauls chaotic national AML unit to tackle financial crime, terror alert backlog, with more powers, staff, leader

Germany’s new anti-money-laundering (AML) agency is being revamped just a year after its launch, after under-staffing and poor equipment led to a massive backlog of un-tackled cases, leading some to call the situation a national security nightmare and cause of global shame. Not surprisingly, Europe’s top economy is doubling down by nearly tripling staff, adding more powers to access and share important data and new authority to stop suspect transactions directly. Finance Minister Olaf Scholz has promised a “fresh start in the fight against money laundering and terrorism finance” at the so-far ineffective Financial Intelligence Unit (FIU), government sources said.

To combat the problem, the FIU, which was set up in 2017 by Scholz’s predecessor Wolfgang Schäuble, is getting a new boss. Christof Schulte, a lawyer who previously worked for the Central Customs Authority and the Finance Ministry, will replace Andreas Bardong. More importantly, the FIU’s staff will be almost trebled to 475 from 165. It’s also being furnished with more powers, meaning that in the future it will get access to all the data it needs from law enforcement, financial and administrative authorities. It will also have the right to immediately stop all suspicious transactions, (via Handelsblatt).


New twist in sprawling, global 1MDB scandal: possible money laundering by Chinese companies related to potentially fictitious energy pipeline

A senior Ministry of Finance (MoF) official has claimed that there are elements of money laundering involved in the previous government’s contracts paid to China firms for work yet to be completed and in 1Malaysia Development Berhad (1MDB). Tony Pua, who is special officer to the finance minister, told the BBC in an interview that there were “clear elements of money laundering taking place,” in reference to the Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP). Putrajaya has said it is investigating whether part of a loan from a Chinese state-owned bank for projects worth US$2.3 billion (RM9.3 billion) was used to help repay dues of scandal-ridden state fund 1MDB.

The projects to build two pipelines were signed in 2016 by the administration of former prime minister Datuk Seri Najib Razak, who courted Chinese investment but was ousted in an election in May amid allegations of corruption at 1MDB. Najib has denied any wrongdoing and has defended his RM9.4 billion Multi-Product Pipeline (MPP) and the Trans-Sabah Gas Pipeline (TSGP) projects, despite only 13 per cent of work being completed for both projects, (via Malay Mail).


Singapore’s precious stones and metals industry to face tighter scrutiny on financial crime risks as new regulations subject sector to full spate of AML rules

Dealers of precious stones and metals could soon have to register with the authorities, under a regulatory regime proposed by the Ministry of Law on Tuesday, following the United Kingdom, Europe, Canada, and other major countries in subjecting more risky sectors to formal anti-money laundering obligations. New rules, designed to manage money laundering and terrorism financing risks in the industry, would also require dealers to have measures in place to mitigate any such risks posed by customers and transactions.

Dealers already have to abide by a cash transaction reporting regime that mandates customer due diligence for cash deals of S$20,000 or more, under existing rules to crack down on corruption, drug trafficking and other serious crimes. But the Law Ministry noted in a statement that the precious stones and metals dealership industry is not governed now by the same range of anti-money laundering and countering the financing of terrorism obligations as the financial sector or designated non-financial sectors such as pawnbroking. The new regulatory regime “will close this gap”, it added, (via the Straits Times).


U.S. lawmakers tried to make sense of virtual currencies, debating whether they are future of funds or Monopoly money

U.S. Congress Wednesday tackles vexing question of virtual value in hearing, highlighting fincrime gaps, need for regulatory, AML oversight, even though there is no “unified approach to regulation” when it comes to crypto-currencies at the national or international levels, (via the U.S. Congress). To view a short wrap up of the hearing, click here.

U.S. Congress to hold hearing Wednesday on digital currencies, analyze future of money, plus complimentary ACFCS on trade-based financial crime

Lawmakers in the United States will gather this Wednesday to discuss cryptocurrencies in a hearing titled: “Digital Currency: The Future of Money,” as politicos and experts weigh where digital coinage falls in the spectrum of value. The truth is that virtual currencies have been expanding all over the world and have been viewed differently by different regulatory bodies in various jurisdictions – with some stating they equate to fiat funds, others calling them a security, and yet others stating they are Monopoly money. What Congress says and what legislation lawmakers plan for the sector have direct risk and financial crime implications for bank compliance teams.

Reports, hearings, discussions and events were very important this year, and regulatory agencies are not excluded from the discussions. U.S. Lawmakers will be discussing on Wednesday the extent to which the US government should consider cryptocurrencies as money. The hearing will “examine the extent to which the United States government should consider cryptocurrencies as money and the potential domestic and global uses for cryptocurrencies. The Subcommittee will evaluate the merits of any uses by central banks of cryptocurrencies, and discuss the future of both cryptocurrencies and physical cash,” (via UsetheBitcoin).


Hope on the horizon for AI and AML

A look at how banks can better trust AI to detect, prevent, report on money laundering, strengthen overall compliance programs, improve data quality, lower human caseloads, and more, (via International Banker).

Antitrust arena

EU gouges Google with record fine for antitrust abuses

Google has been hit by a record-breaking $5 billion antitrust fine by the European Union regulators for abusing the dominance of its Android mobile operating system and thwarting competitors, (via The Hacker News).

Virtual currencies

Peer-to-peer crypto exchanges could be money launderers paradise

Are peer-to-peer crypto exchanges a haven for money laundering? One analyst says the answer is yes, with high-level organized criminal groups and low-level opportunists taking advantage of gaps in the global AML system to trade virtual value for pre-paid cards, gift cards or other privacy-based crypto currencies, (via Cream Crypto News).


FATF needs you! Well, for industry help on AML securities guidance

The Paris-based Financial Action Task Force (FATF) is currently developing guidance to assist countries, competent authorities and the securities sector in the application of a risk-based approach (RBA) to AML/CFT. The guidance is intended to provide support both to the private sector and to supervisors, by focusing on ML/TF risks and associated mitigation measures. FATF is consulting private sector stakeholders before the guidance is finalized, and wishes to receive your views on, and specific proposals to the text of the Draft RBA Guiance Securities Sector .Your comments should reach us at with subject-line “Comments of XX on the draft RBA Guidance for the Securities Sector”, no later than Friday, 17 August 2018. All the comments received will be shared with the FATF delegations. FATF intends to adopt the final Guidance at its October 2018 Plenary meeting, (via FATF).


EU banking watchdog criticizes Malta for AML shortcomings, chastising FIU for lax exams, enforcement

The European Union’s top banking watchdog has found “general and systematic shortcomings” in Malta’s application of EU anti-money-laundering (AML) rules, it said on Wednesday, chiefly with the bank regulators are examining for financial crime compliance, and levying penalties for broad missteps, and ensuring both examining agencies and financial institutions have enough resources and expertise.  The European Banking Authority’s (EBA) criticism came as it concluded an enquiry into the way Malta’s AML watchdog, the Maltese Financial Intelligence Analysis Unit (FIAU), investigated alleged wrongdoings at Pilatus Bank, a lender on the island.

In particular, the EBA asked the FIAU to “take actions to systematically assess the ML/TF risk associated with the Maltese financial sector; to supervise the effectiveness of the AML/CFT policies and procedures put in place by the obliged entities; to ensure enough resources are available and robust procedures are in place to supervise its obliged entities.” Pilatus Bank’s assets are currently frozen and the Maltese Financial Supervisory Authority last month recommended to the European Central Bank to withdraw its banking license, (via Reuters). To read the official release and more detailed report, click here.

Panama Papers

More than two years on after seminal Panama Papers leaks, top EU regulators say, by lack of actions, no banks to blame

With this being the second anniversary of the publication of the Panama Papers (the Papers), now is an appropriate time to consider how three major jurisdictions and the EU reacted to the scandal. Preliminary reportage from the Papers showed that over 500 banks, including their subsidiaries, registered almost 15,600 shell companies with Mossack Fonseca, the Panama-based law firm which was central to the scandal but has now shut down. The latest estimate is that globally tax authorities have received in excess of $500 million due to the publication of the Papers. In a tale of the tape, here are some regulatory responses:

  • United Kingdom: After the U.K. formed a governmentwide Task Force and queried some 60 banks more than two years, there has been few, if any, formal announcements of findings against banks.
  • Switzerland: Following publication, both the Prime Minister of Iceland, Sigmunder Davio Gunnlaugsson and his counterpart in Pakistan, Nawaz Sharif, resigned due to close relatives involvement in some of these offshore companies.
  • Germany:  Europe’s largest economy, the local financial regulator BaFin soon announced an investigation into the eleven German banks named when the Papers were published.
  • EU-wide: While a broad swathe of EU banks were not punished, the Panama Papers were a critical onus for the bloc to tackle a lack of beneficial ownership information, requiring capturing of these details in centralized databases and making that information public, (via KYC 360).
  • Corruption

OECD confirms Germany as one of world’s top counter-corruption enforcers, just below U.S. but above U.K.

A new report by a global watchdog group is counting Germany as one of the most aggressive countries in the world against corruption, with a quickening case of enforcement and closing complex cases. The Organization for Economic Cooperation and Development’s (OECD)  Phase 4 Report on Germany was published in June, and is the latest in a series of “peer reviews” published by the OECD Working Group on Bribery whose task is to monitor and promote the implementation of the 1997 Anti-Bribery Convention.

The Working Group points to both good practice and areas for improvement. Overall, though, it confirms Germany’s status as a leading enforcer. Since the Convention came into force in 1999, there have been a total of 67 cases that have resulted in sanctions against 328 individuals, and 18 cases resulting in legal persons being held liable. These figures place Germany behind the United States but well ahead of the UK and other European states, (via the FCPA Blog).


Russian Red Sparrow in real life

U.S. authorities Monday arrested a 29-year-old gun-rights activist who they say served as a covert Russian agent while living in Washington, gathering intelligence on American officials and political organizations and working to establish back-channel lines of communications for the Kremlin, (via AP).


System “Meltdown” possible if you don’t fear the “Spectre”

Two new Spectre-class CPU flaws discovered – Intel Pays $100,000 bounty, complete with sinister names like “Meltdown,” (via the Hacker News).

Money laundering

Rare time that money laundering case includes tax evasion related to illegal gambling gains

Federal prosecutors say a Bowling Green man who bought ownership stakes in apartment complexes and commercial real estate did so using money acquired through illegal sports gambling, and, in a relatively rare move when it comes to laundering offenses, also charged him with tax evasion, (via the BG Daily News).


House bill moves forward to increase oversight of costs related to new regulations

A bill that would expand the administration’s oversight authority to rules issued by most independent regulatory agencies won House passage July 13 by a 230-168 vote. The Unfunded Mandates Information and Transparency Act (H.R. 50), sponsored by House Education and the Workforce Chairwoman Virginia Foxx (R-N.C.), would require the Congressional Budget Office to assess the costs of agency regulations. Foxx has introduced similar legislation in each of the last four sessions of Congress, but the bill has never advanced in the Senate, (via Bloomberg Government).


U.S. Grand Jury indicts 12 Russian intelligence officers for cybercrime offenses in the 2016 election

Deputy Attorney of the United States announced that a grand jury in the U.S. District Court for the District of Columbia returned an indictment presented by the Special Counsel’s Office, charging a dozen Russian nationals for federal crimes related to meddling in the 2016 presidential election. All of the defendants are members of the Main Intelligence Directorate of the General Staff (GRU), a Russian Federation intelligence agency. In their official capacities, they worked for months started in March 2016 to hack into the computer networks of the Democratic Congressional Campaign Committee (DCCC), the Democratic National Committee (DNC), and the presidential campaign of Hillary Clinton, and released that information on the internet under the names of “DCLeaks” and “Guccifer 2.0” and through another entity.

Starting in March 2016, the Russian intelligence officials started spear-phishing volunteers and employees of the presidential campaign of Hillary Clinton, including the campaign’s chairman. The defendants were able to steal the usernames and passwords for numerous individuals and use the credentials to steal email content and hack into other computers. They also hacked into the computer networks of the DCCC and the DNC. The defendants coordinated with other intelligence officials to release the stolen documents for the purpose of interfering with the 2016 presidential election.  They registered the domain and later staged the release of thousands of stolen emails and documents through that website, (via the IELR Blog).


When it comes to AML, KYC will be a great thing when it works: opinion

KYC started out as one of the least controversial parts of the Patriot Act. Its anti-money laundering (AML) goal is understandable and clearly needed. Its requirements — having banks verify customers are who they say they are, confirm they’re not on any prohibited lists and assessing their risk factors — are remarkably straightforward. Given that, how did it end up so wrong? Primarily because the law didn’t provide a standard for what types of information should be used to verify customers. Regulators seem to be doing this on purpose. The reasoning seems to be that if banks get clear guidelines on what constitutes adequate KYC they will never look any further than the minimum requirements. The result is each financial institution, operating in fear of massive fines, has its own procedures and requirements for conducting due diligence.

Here are four ways this has broken the KYC system:

1. Increased Customer Friction: Surveys reveal KYC has increased customer onboarding time and frustration. Some customers will balk, and walk, even if they have nothing to hide but don’t feel like paying 20 questions.

2. Ever-Increasing Compliance Costs: Some sobering figures on the incredible cost of just the KYC portion of the AML program:

  • Some major financial institutions spend up to $500 million annually on KYC and customer due diligence, according to Thomson Reuters.
  • Roughly 10 percent of the world’s top financial institutions spend at least $100 million annually on it.
  • Average annual spending (including labor and third-party costs) is $48 million.
  • KYC is driving up the costs of customer onboarding. 2017 saw a 19% increase compared to 2016, with a 16% increase expected in 2018.

3. Verification Isn’t Portable: The documents needed for ID verification, like a driver’s license or passport, vary from nation to nation and bank to bank. For example, Treasury Today reports that Cyprus now requires each relationship manager to have a face-to-face meeting with each beneficial owner. That makes KYC burdensome and expensive.

4. Keeping Information Up To Date:

To be effective identity verification data must be up-to-date, reflecting material changes like a change in a key executive role or a merger. This can be so difficult to do that it deters companies from reporting changes to a financial institution, (via Forbes).


Lawmakers urge GAO to tackle TBML

U.S. Senators Bill Cassidy, M.D. (R-LA), and Sheldon Whitehouse (D-RI) are asking the U.S. Government Accountability Office(GAO) to assess the federal government’s efforts to combat trade-based money laundering (TBML) in light of the ongoing opioid epidemic, (via Congress).


Fed dings U.S. operations of Karachi-based bank in familiar refrain targeting foreign banks’ AML programs

The Federal Reserve last week ordered the U.S. operations of Karachi-based United Bank Limited to strengthen its AML policies as the regulator criticized it for not doing enough to track dubious transactions. This marks the second time that the FRBNY has sanctioned UBL in the last few years. Five years ago, Federal Reserve Bank of New York directed United Bank to closely monitor remittances from New York City to Karachi and faulted the bank’s anti-money laundering oversight, (via Pakistan Today).