Financial Crime wave – Historic U.S. sanctions penalty against telecom, Congress on AML, and more

In this week’s Financial Crime Wave, U.S. Department of Justice, Commerce and Treasury hand down penalty that, pending court approval, could breach $1 billion against a Chinese telecommunications firm for dealing with blacklisted regimes and trying to cover it up; new report gives glimpse of how U.S. Congress will analyze, prioritize anti-money laundering (AML) compliance, Japanese banks banking on blockchain, and more.


China telecom company pays historic nearly $900 million sanctions penalty for dealing with blacklisted groups, institutional evasion

China’s ZTE Corporation agreed Tuesday with the U.S. Department of Justice (DOJ) and two other agencies to pay $892 million for knowingly shipping dual-use telecoms equipment to Iran for six years and lying to cover up the trade offenses. ZTE will plead guilty and pay the DOJ $430 million, with a fine of $287 million and a criminal forfeiture of $143.5 million.  ZTE — China’s second-biggest maker of telecom equipment — is also known as Zhongxing Telecommunications Equipment Corporation.

The company also reached settlements Tuesday with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The Commerce Department imposed a total penalty on ZTE of $661 million for Iran and North Korea sanctions violations. It’s the biggest civil penalty ever imposed by the Commerce Department and the biggest overall fine and forfeiture ever levied by the U.S. government in an export control case. ZTE is required to retain a compliance monitor for three years, (via the FCPA Blog).

U.S. Justice Department investigating Wells Fargo tied to foreign bank transactions involving blacklisted regions, groups, more bogus accounts

Wells Fargo disclosed it is cooperating with a Department of Justice investigation into transactions by foreign banks with countries and entities that are on a restricted list, and it warned in a filing Wednesday that its scandal linked to bogus bank accounts could involve more customers than first thought. The revelations sketch out the latest difficulties facing Wells Fargo, which has landed in hot water with customers, regulators, investigators and politicians for a scandal linked to Wells employees opening up to 2 million bogus checking or credit accounts without the permission of its patrons.

That debacle came to light on Sept. 8. Separately, Wells disclosed in its annual 10-K report filed on Wednesday with the Securities and Exchange Commission that the bank account scandal may have engulfed more customers than initially estimated. The bank reached this conclusion based on an internal probe. Wells Fargo’s most recent estimate of its potential legal losses are approximately $100 million more than the estimate of $1.7 billion at the end of September 2016, which it had revealed in a quarterly filing with the SEC. And they are well above the $1.3 billion estimate at the end of 2015, (via the Associated Press).

The world’s biggest Banks have been fined $321 billion since the financial crisis and that figure could be floor, not ceiling

Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, according to data from Boston Consulting Group. That tally is set to increase in the coming years as European and Asian regulators catch up with their more aggressive U.S. peers, who have levied the majority of charges to date, BCG said in its seventh annual study of the industry published Thursday. Banks paid $42 billion in fines in 2016 alone, a 68 percent rise on the previous year, the data showed. The era of ever-increasing regulatory requirements is here to stay, BCG said, despite President Donald Trump’s pledge to roll back the 2010 Dodd-Frank Act that reshaped U.S. banking in the aftermath of the collapse of Lehman Brothers Holdings Inc. The number of rule changes that banks must track on a daily basis has tripled since 2011, to an average of 200 revisions a day, according to the report, (via Bloomberg).


A look at the CIA “Vault 7” Wikileaks files, including allegedly targeting your phones and even smart TVs

Wikileaks says the 8,761 documents are the first part of its Vault 7 release of documents from the CIA. Julian Assange and his team have published 8,761 documents that are claimed to be from the US Central Intelligence Agency (CIA). The trove of documents, dubbed Vault 7, is said to be the first of a number of disclosures that reveal the CIA’s hacking abilities. The collection, according to Wikileaks, “gives its possessor the entire hacking capacity of the CIA.”  It is said to include details of the CIA’s global hacking program, its malware, and zero-day exploits for a number of devices.

Wikileaks says the CIA’s Engineering Development Group (EDG) overseesing “development, testing and operational support of all backdoors, exploits, malicious payloads, trojans, viruses and any other kind of malware used by the CIA in its covert operations worldwide.” Two of the most significant documents show the CIA’s iOS and Android exploits. However, it isn’t just mobile phones that are covered in the documents, web browsers such as Chrome, and even smart TVs have previously undisclosed security vulnerabilities discussed. One such exploit was called “Weeping Angel,” (via Wired).

After massive hacks, black market data finds its way to the dark web

Blue light special on the cyber black market aisle as more than one million decrypted Gmail and Yahoo accounts are allegedly up for sale on the Dark Web, (via the International Business Times).

Money laundering

New U.S. INCSR report reveals Colombia cocaine boom aftershocks in LatAM, U.S.

An annual US report on drug trafficking worldwide illustrates drastically increased cocaine availability in the United States and a shift in global trafficking trends, which correspond to a possibly record-breaking peak in coca production in Colombia. The US State Department on March 1 presented Congress with its yearly breakdown of drug trafficking trends, the International Narcotics Control Strategy Report (INCSR). The 2017 report strengthens indications that the amount of cocaine flowing globally has increased dramatically, based on recent US government coca cultivation estimates. But the INCSR also suggests that real levels of cocaine heading out of the Andean region are far higher than has been suggested, (via InsightCrime).

U.S. State Dept. thinks Africa’s leading mobile money platform is vulnerable to money laundering, a localized look from the INCSR, (via Quartz).Bottom of Form

More regional revelations from the INCSR, as piece highlights that Pakistan loses $10 billion a year to money laundering, (via Dawn).

In INCSR, U.S. casts doubt on Nigeria’s ability to investigate financial crime, calls the region a “house of fraud,” (via the Nigerian Bulletin).


Florida most fraudulent in country ranking

Want to know the most fraudulent states in the country? Well here’s a hint, the top ten are bookended by regions know for sun, sand and sin. Pretty gnarly dude, (via GizModo).

DOJ retools fraud section website

Did you notice that the U.S. Department of Justice’s Fraud Section revamped and retooled its website to offer more resources for visitors? Well, thankfully, some fine folks at Radical Compliance and the FCPA Blog did. Enjoy, (via the FCPA Blog).

Virtual currencies

Nearly 50 Japanese banks finish pilot money transfer project using blockchain, cutting remittance costs in half

Blockchain is moving into production after a consortium of 47 Japanese banks completed a pilot implementation using technology from Ripple, a real-time gross settlement system (RTGS), currency exchange and remittance network. SBI Ripple Asia, a jointly-owned company between fintech firm Ripple and Japanese financial services company SBI Holdings, recently touted that the successful pilot used a Ripple-powered cloud payments platform RC Cloud, to enable real-time domestic and international money transfers.

The pilot project scrutinized the blockchain-based RC cloud infrastructure during implementation, evaluating regulatory adherence, operational risks, standardization among banks and the interfaces used to connect to banks’ accounting systems. SBI will see a 60% cost reduction with international remittance utilizing Ripple’s token XRP. Using Ripple’s blockchain and token, remittance will cost 8.3 bps (base points) compared to the 20.9 bps against the settlement amount via the current wire system. Remittance cost for fiat currency using Ripple’s blockchain will be reduced by a third, compared to conventional costs, (via Crypto Coins News).

One writer ponders if the world is ready for a blockchain-based national digital currency, looking at how some countries, companies and banks are experimenting with Bitcoins and the technology underpinning many virtual currencies, the immutable blockchain, (via WIO News).


Australia spearheads global partnerships, cooperation between banks and law enforcement to tackle financial crime

Australia’s financial intelligence unit Austrac is leading a formidable global charge against organized crime, terrorism, money laundering and tax evasion through the newly created Fintel Alliance. The alliance is a collaboration of 19 major financial and government bodies, including Australia’s four big banks, Paypal, Western Union and various law enforcement agencies, including the NSW Police Force and the Australian Criminal Intelligence Commission. The priorities for the new alliance include:

1. Hunting the money mules
Disrupt criminal networks by identifying their money mules (often recruited through job websites) whose bank accounts are used to forward proceeds to third parties. Block funds before they are sent offshore. 

2. Panama Papers 
Continue a Serious Financial Crime Task Force investigation into tax fraud, money laundering and other criminal enterprises revealed by the Mossack Fonseca data leak known as the Panama Papers. Understand methodologies used by criminal entities. 

3. Private sector assistance 
Help private sector partners to more easily identify and report suspicious transactions.

4. Law enforcement efficiencies 
Help law enforcement agencies to arrest and prosecute criminals more quickly, and also work with law enforcement to better understand financial networks of organized crime syndicates.

5. Build knowledge and insights
Hand in hand with the academic world, to create an innovation hub and various courses, particularly the Financial Intelligence Analyst Course, to build knowledge and skills to prevent, detect, understand and disrupt financial crime, (via In the Black).


Global crackdown on graft spearheaded by US, but more countries catching on, says report

A new report by TRACE International finds that enforcement actions against bribing government officials are rising globally. In its 2016 Global Enforcement Report, the anti-bribery organization observes a doubling in US enforcements last year and non-US actions doubled since 2015. “2016 was a record year for global anti-bribery enforcement,” said Alexandra Wrage, president of TRACE International. “The United States has been concluding enforcement actions at an unprecedented rate, other jurisdictions have been stepping up their prosecution rates as well, and new anti-corruption laws continue to be passed worldwide.”

The US has been the historic standard-bearer for anti-corruption actions. American prosecutors have been penalizing companies for bribery offences for 30 years. It appears from this report that they are not slowing down. US enforcement actions doubled in 2016. Since the FCPA’s passing in 1977, TRACE calculates that 70% of all enforcements were made in the USA. Of these, 46% concerned bribes paid to Asian officials and a quarter to civil servants in the Americas. Another stand-out statistic reveals the rising number of prosecutions within China. As demonstrated by TRACE’s heat map, bribes to Chinese public officials were the most likely penalized. Although this is partly a consequence of economic scale – the world’s most populous state attracts significant corporate investment – but also the finding demonstrates the payoff from its recent anti-corruption efforts, (via Forbes). To view the TRACE report, please click here.


Want a weighty primer on U.S. AML laws and a hint of where Congress could go in the near future? CRS to the rescue

Here is a snippet from the just-released Congressional Research Service (CRS) report on AML laws in the country, previewing the policy outlook for the 115th Congress. Although CFT will likely remain a pressing national security concern for policymakers and Congress, some see the beginning of the 115th Congress as an opportunity to revisit the existing AML policy framework, assess its effectiveness, and propose regulatory and statutory changes.

Such efforts could further address issues raised in hearings and proposed legislation during the 114th Congress, including beneficial ownership, the application of targeted financial sanctions, and barriers to international AML information sharing. Drawing from past legislative activity, the 115th Congress may also revisit proposals to require the Executive Branch to develop a roadmap for identifying key AML policy challenges and balancing AML priorities in a national strategy.

Some observers have gone further to propose broader changes to the BSA/AML regime. The 115th Congress may also seek to address tensions that remain in balancing the policy objectives of improving financial services access and inclusion while also accounting for money laundering risks and vulnerabilities that may result in the exclusion (or “de-risking”) of others from the international financial system, (via the Congressional Research Service).

A look ahead on AML

Five steps for AML compliance in 2017, (via International Banker).