Corporate transparency

As countries transpose EU AML, beneficial ownership requirements, differing interpretations, implementation could mute transparency reforms

Austria’s implementation of the EU’s most recent anti-money laundering directive includes loopholes that let firms circumvent new transparency mechanisms, while neighbor Germany still allows banned bearer shares, analysts say. In fact, this difference in implementation between member nations—and the European Union’s failure to iron them out—means changes under the EU’s pending Fifth Anti-Money Laundering Directive will likely have little effect in curtailing manipulative business practices, Andreas Frank, an independent anti-money laundering consultant, told Bloomberg Tax.

Both Germany’s and Austria’s implementations of the EU directive, however, still currently allow for the use of unregistered bearer shares, a practice by which beneficial ownership can change hands without being tracked, simply by way of handing over a physical stock certificate to a new person, one expert said. This practice is outlawed in the Fourth Anti-Money Laundering Directive, and a disclosure of bearer shares is required in both countries’ implementations of the directive. But Germany hasn’t specified a final deadline for when this must happen, and Austria hasn’t set a deadline for when firms must be penalized for not adhering to the new rules, (via Bloomberg BNA).

Nigeria to capture, publish names of beneficial owners, following similar efforts in U.K., EU

The federal government has vowed to publicize the names of beneficial owners of companies as part of its efforts to fight corruption; saying secret ownership of companies in the country would soon be history. This development comes following a previous report by that President Muhammadu Buhari insisted that the fight against corruption had come to stay in Nigeria. He reiterated the commitment of Nigeria to the continuous fight against corruption and advocated for strong institutions as necessary condition for winning the fight against corruption, (via NAIJ).


While Australia is feeling domestic and global heat of a major bank compliance failure, institutions around the world are behaving badly

The current Royal Commission into Australian finance is uncovering headline-grabbing malpractices which have scandalized the community, chiefly related to Commonwealth Bank and its lax AML programs. These deficiencies will prove costly to the sector’s wealth and reputation. Because Australian finance largely avoided the dramas and tribulations experienced in America and Europe during the 2008 crisis, these weaknesses may come as a surprise. But they shouldn’t. Over the past decade, the financial sector overseas has accumulated somewhere between US$240 billion and $320 billion in fines for regulatory breaches. This huge sum is not retribution for causing the 2007–08 financial crisis: these are penalties for rigging markets, breaking sanctions, money laundering, mis-selling financial products, misreporting, misleading investors, trading scandals, and similar operational misconduct.

Bank of America heads the line-up, with $76 billion (representing more than half of its market capitalization), followed by JPMorgan Chase with $44 billion (including fines originating in Bear Stearns, which JPMorgan took over during the crisis at the urging of the Federal Reserve). These penalties are not confined to US banks: Deutsche Bank paid $14 billion; Royal Bank of Scotland and Lloyds each paid around $25 billion; while Paribas and Credit Swiss each paid approximately $10 billion. But solutions are not easily found to create simple rules that allow banks to operate freely, but without crushing regulations stifling innovation, (via Lowy).

Latvian bank taking European regulator to court for implosion of institution following U.S. sanctions designation

Latvian bank ABLV stated this week it is taking the European Central Bank (ECB) to court for triggering its demise after it faced allegations of money laundering, a major blow to a country already struggling with its perception as a haven and destination for corrupt and illicit Russian wealth. The development is also the latest challenge to the European banking supervisor over its handling of the affair, over which it has been widely criticized. Earlier this year the United States accused Latvia’s third biggest bank, ABLV, of money laundering and breaking sanctions on North Korea, prompting its closure and triggering the Baltic state’s worst financial crisis in a decade.

The scandal placed the country of two million people in the middle of a power struggle between Russia and the United States, and fueled a debate over European money-laundering controls. It also caught the ECB, the euro zone’s top supervisor of banks, by surprise, and led to criticism by European lawmakers for what they see as its failure to monitor the bank. The ECB’s move to stop payments at the bank and subsequent declaration that it was failing sealed ABLV’s fate. Okko Hendrik Behrends, the Latvian bank’s lawyer, said the ECB should not have triggered ABLV’s closure because it was financially healthy and could have survived, (via Reuters).


Cryptojacking malware was secretly mining Monero on many government and university websites: report

A new report published by security researched Troy Mursch details how the cryptocurrency mining code known as Coinhive is creeping onto unsuspecting sites around the web and stealing resources to mine crypto coins. Mursch recently detected the Coinhive code running on nearly 400 websites, including ones belonging to the San Diego Zoo, Lenovo and another for the National Labor Relations Board. The full list is available here.

Notably, the list names a number of official government and education websites, including the Office of the Inspector General Equal Employment Opportunity Commission (EEOC) and sites for the University of Aleppo and the UCLA Atmospheric and Oceanic Sciences program. Most of the affected sites are hosted by Amazon and are located in the United States and Mursch believes that they were compromised through an outdated version of Drupal, (via Tech Crunch).

The crypto crime wave is here

From stickups and drug deals to white-collar scams, cryptocurrency-related crime is soaring – and law enforcement is scrambling to keep up, (via the WSJ).

Hackers facing U.S. justice after nearly $20 million phishing haul

Two Romanian hackers have been extradited to the United States to face 31 criminal charges including computer fraud and abuse, wire fraud conspiracy, wire fraud, and aggravated identity theft. Described as “international computer hackers” by the United States Department of Justice, Teodor Laurentiu Costea, 41, and Robert Codrut Dumitrescu, 40, allegedly rob Americans of more than $18 million in an elaborate phishing scheme, (via the Hacker News).

Equifax confirms data breach included driver’s licenses, passports, tax docs: financial statement to SEC

Beleaguered credit reporting bureau Equifax has submitted a statement to the SEC explaining how much data was compromised across numerous categories, including hundreds of millions of pieces of data, including sensitive government ID documents.  The most common data taken involved names, dates of birth and social security numbers — each between 145.5 million and 146.6 million. Other giant losses included home addresses (99 million), genders (27.3 million) and driver’s license numbers (17.6 million). However, it’s the smaller numbers that may matter the most.

The SEC filing confirmed that the intruders compromised key government IDs held at its online dispute portal, including full driver’s license info (38,000 people), social security and taxpayer ID cards (12,000) and even passports (3,200). More limited data was also stolen in the main set, including payment card numbers (209,000), tax IDs (97,500) and a driver’s license state (27,000). Equifax provided the statement in response to multiple congressional committees investigating the breach, which mostly affected the US. Provided this represents the final tally, it’ll help officials understand the scale of what happened and shape their response, (via Engadget).


President Trump withdraws from Iranian nuclear deal in divisive move decried by many current, former political leaders

President Donald Trump announced he will reinstate “the highest level of economic sanctions” that were waived as part of the Iran nuclear deal in 2015, fulfilling one of his major campaign pledges and undoing a signature foreign policy achievement of the Obama Administration. “The Iran deal is defective at its core,” Trump said Tuesday afternoon in an 11-minute long address from the White House Diplomatic Room. “If we do nothing, we know exactly what will happen. In just a short period of time the world’s leading state sponsor of terror will be on the cusp of acquiring the world’s most dangerous weapon.” In place of the Iran nuclear deal, Trump said he wants a “real comprehensive and lasting solution,” which would involve eliminating Iran’s ballistic missile program, and stopping its terrorist activities worldwide and “menacing activity” across the Middle East.

Trump has long signaled he would back away from the 2015 agreement that froze Iran’s nuclear program, known formally as the Joint Comprehensive Plan of Action. He has called it “the worst deal ever,” particularly because it isn’t permanent and would allow Iran to resume enriching some uranium after a decade and lift other restrictions after that. Leaders from around the world quickly condemned Trump’s decision to pull the U.S. out of the Iran nuclear deal. In a joint statement, Macron, British Prime Minister Theresa May and German Chancellor Angela Merkel of asked Iran to “show restraint” and “continue to meet its own obligations under the deal.” On Twitter, Macron said they “regret” Trump’s decision, (via Time). To read U.S. Treasury Office of Foreign Assets Control (OFAC) FAQs on the sanctions aftershocks, click here. To see a quick run down to what happened and what is coming next, click here.


Is Bitcoin the greatest scam in history, basically a crypto pump-and-dump scheme on a global scale?

The questions are always the same: What is Bitcoin? Virtual money? A digital store of value? A fluctuating asset? Monopoly money? One analyst’s no bones conclusion: Bitcoin is a scam. In his opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen. In a pump-and-dump game, promoters “pump” up the price of a security creating a speculative frenzy, then “dump” some of their holdings at artificially high prices. And some cryptocurrencies are pure frauds. Ernst & Young estimates that 10 percent of the money raised for initial coin offerings has been stolen. The losers are ill-informed buyers caught up in the spiral of greed. The result is a massive transfer of wealth from ordinary families to internet promoters. And “massive” is a massive understatement — 1,500 different cryptocurrencies now register over $300 billion of “value.”

It helps to understand that a bitcoin has no value at all. Promoters claim cryptocurrency is valuable as (1) a means of payment, (2) a store of value and/or (3) a thing in itself. None of these claims are true,

  1. Means of Payment. Bitcoins are accepted almost nowhere, and some cryptocurrencies nowhere at all. Even where accepted, a currency whose value can swing 10 percent or more in a single day is useless as a means of payment.
  2. Store of Value. Extreme price volatility also makes bitcoin undesirable as a store of value. And the storehouses — the cryptocurrency trading exchanges — are far less reliable and trustworthy than ordinary banks and brokers.
  3. Thing in Itself. A bitcoin has no intrinsic value. It only has value if people think other people will buy it for a higher price — the Greater Fool theory.

Cryptocurrency is best-suited for one use: Criminal activity. Because transactions can be anonymous — law enforcement cannot easily trace who buys and sells — its use is dominated by illegal endeavors, (via Recode).


Hong Kong group aims to curb money laundering around Asia by linking countries, regulators, fintech, regtech sectors

A Hong Kong-based non-governmental organization (NGO) backed by regulators, former central bankers and government officials on Wednesday announced an alliance to fight money laundering and regulate the fast growing financial technology space across Asia. The heavyweight meeting, which had government representatives from countries including China, the Philippines, Thailand and Cambodia, aimed to provide an information exchange platform as rapidly evolving technology makes it harder to regulate illicit money flows. China has battled to curb capital outflows for years. The country’s special administrative regions of Hong Kong and Macau have been key places where capital has seeped out from. The gambling hub of Macau last year introduced facial recognition technology at ATMs to target the illicit outflows from mainland China.

Anselmo Teng, former head of the Macau Monetary Authority and co-chair of the Alliance for Financial Stability with Information Technology, told Reuters stated Wednesday that “ATM cash withdrawals has dropped as a result of the KYC measures because it has effectively stopped this cross border illegal cash withdrawal activity.” Teng, who retired from the Monetary Authority in August last year, added that the measures had been so effective that withdrawals had dropped to more than half of what they were previously. Industry estimates had put the monthly withdrawal volume at HK$10 billion ($1.27 billion) from ATMs in the former Portuguese colony prior to the introduction of the facial recognition technology, (via Reuters).

Tax evasion

South Korean prosecutors raid LG’s head office in tax probe, latest in string of incursions focusing on wealthy, elite families

South Korean prosecutors have raided LG Group’s head office as part of a probe into alleged tax evasion by family members controlling the conglomerate, the prosecutors’ office said on Wednesday. Prosecutors are looking into possible evasion of capital gains tax worth about 10 billion won ($9.25 million) in relation to the transfer of shares of an LG affiliate, the Seoul Central District Prosecutors’ Office said in a text message to reporters. The probe appeared to have been caused by differing views on the amount of tax payable after some shareholders sold shares in the market and paid the corresponding taxes.

The probe into the country’s fourth-biggest conglomerate by assets would be the latest of a string of troubles faced by families controlling the country’s conglomerates, known as chaebols. A tantrum by the heiress of Korean Air Lines Co Ltd earlier this year reignited public anger at the behavior of the rich and powerful, and sparked investigations into her family and its businesses. The liberal government of Moon Jae-in has pledged to pursue chaebol reform, urging them to improve governance structures to improve transparency and fair competition, (via Reuters).


Top applicant to become Latvia’s AML chief balks, asking for more time to decide on post

Although the Latvian government has apparently selected the most suitable candidate from a long list of applicants to head Latvia’s dedicated state anti-money laundering department (Control Service), the successful applicant has asked for more time to decide if he or she actually wants the job, Prosecutor General Eriks Kalnmeiers told reporters this week.  Kalnmeiers did not disclose the name of the selected candidate, but acknowledged that the person was not from the Control Service, which would rule out the incumbent, Viesturs Burkans. After initially agreeing to make a joint statement and introduce the winner to the public today, the potential new anti-money laundering official then requested a bit more time to think things over, Kalnmeiers told reporters, adding that he hoped to call another press conference in perhaps two weeks to make a fresh announcement.

In the event that the selected job applicant refuses the offer, the job will not automatically go to the second-placed candidate – believed to be Burkans, according to LTV sources – but the whole process of application will have to be started afresh. If that does prove to be the case, it will be a cause for concern for officials as Latvia is racing to display its commitment to countering money-laundering ahead of the compilation of a crucial Moneyval report in July. The first application process lasted from early March until today, and another two-month process would risk hitting the Moneyval deadline without having an anti-money laundering chief in place, (via LSM).

Hong Kong

To better battle fincrime, bolster compliance, Hong Kong must pay a pretty penny

With a global AML watchdog group bearing down and a risk assessment laying the country’s fincrime vulnerabilities bare, will Hong Kong pony up to pay experts to retool defenses, train up compliance officers, investigators to match wits with criminals? Some say that has to happen, (via the SCMP).


Irish eyes aren’t smiling when they have to pay unexpected taxes

Can someone “inherit” a U.S. citizenship and then get snared by unexpected taxes? If you are Irish, the answer is yes, (via Irish Central).


Danish regulators scrutinizing banks with potential ties to Russian money laundering, criticizes Danske Bank AML program

Danish regulators last week chastised the financial crime compliance processes of Danske Bank, stating there were “serious shortcomings” in the anti-money laundering (AML) operations activities tied to Estonia, chiefly around reports of suspicious funds coming from relatives and associates of Russian President Vladimir Putin. The authority’s head, Jesper Berg, says Danske Bank “responded too late to information” about the strength, or lack thereof, of counter-financial crime measures, and also tarried in filing required suspicious transaction reports (STRs). These pronouncements echo regulatory focal points borne out in formal actions in recent years in the United States, United Kingdom, Canada and other forward-thinking jurisdictions. The regulator is requesting the bank add nearly $1 billion to boost overall solvency, including in the area of compliance.

The assessment by the regulator gave rise to “eight orders and eight reprimands. Danske Bank has taken note of the orders and reprimands. In addition to the initiatives already taken in recent years, Danske Bank will now launch further measures to ensure that it complies with all orders,” according to a statement by the bank. Danske Bank earlier concluded that, in the period from 2007 to 2015, it was not sufficiently effective in preventing the branch in Estonia from potentially being used for money laundering and that this was due to critical deficiencies in governance and controls, (via Danske Bank).


Even as countries like the United Kingdom and more broadly, Europe, move to push for stronger beneficial ownership standards, Canada lags behind

In a shot against corporate opacity heard round the world, Bermuda, the Cayman Islands and the British Virgin Islands — notorious offshore tax havens where shell companies shield billions of dollars in illicit money — will soon have more open corporate records than Canada. In a stunning move last week, Britain’s House of Commons passed legislation that will lift generations of corporate secrecy in its offshore territories by compelling company owners registered on the islands to reveal themselves in public databases.

That kind of transparency is only an idea in Canada, where corporate owners can mask their identity behind lawyers and “figurehead” directors. There is no requirement for real company owners — or “beneficial” owners — to list their names in provincial or federal registries. Despite a recent commitment from the provinces to start collecting beneficial ownership data (without making it public), it is still possible in Canada today to register a corporation, open a bank account and send and receive money overseas all without disclosing your name, (via the Star).

Marijuana banking

Banking and marijuana battles: With few banks, credit unions taking the leap, budding ATM business, chronic crypto coins, and more

Although the legal marijuana industry in the United States has seen wild success since the legalization of recreational marijuana in Colorado, it still faces one major hurdle: finance. With no access to the banking system, the marijuana industry operates on a cash-only basis. Two of the presenters at the 2018 Crypto Cannabis Conference in Denver — Mark Goldfogel from the Fourth Corner Credit Union and PureVision Tech founder Carl Lehrburger —  highlighted one of the biggest issues facing the legal marijuana industry in the United States: banking. Since cannabis remains illegal at the federal level, banks will not work with businesses in the cannabis industry, such as dispensaries and grow operations. Currently, most dispensaries use onsite ATMs.

Carl Lehrburger’s PureVision Tech and PureVision Botanicals, for example, has launched an exploration into the possibility of holding an ICO in response to being cut off from mainstream financial services. Furthermore, Goldfogel mentioned a program starting up in California designed to help cannabis businesses in the state bypass banking restrictions all together. Issuing a state-sponsored, blockchain-based token, Caliornia businesses can conduct digital transactions and keep financial records without a need for banking services at all, (via Bitsonline).

United Kingdom

U.K. looking to wield powerful new tool in fighting financial crime

Could the new power of the “unexplained wealth order” in the United Kingdom, along with moves to strengthen corporate transparency through capturing and publicizing beneficial ownership information, help the country shed its reputation as a secrecy haven, (via FT).

Individual liability

Nigeria following U.S., U.K., in levying AML penalties against individuals, executives

Will stronger AML penalties, and a focus fines against individuals, compliance officers and executives, give the public more confidence in the Nigerian banking sector, including micro-finance operations? Some say the answer is yes, (via the Vanguard).