Financial Crime Wave – London ‘Money laundering capital’ of the world, hack hits U.K. bank, and more

In this week’s Financial Crime Wave, London gets dubbed the ‘money laundering capital of the world,’ in tandem with being a choice destination for Russian powerbrokers to store assets, a United Kingdom bank halts online transactions due to hack attack, the United States further isolates North Korea, and more.

Money laundering

London is ‘money laundering capital of the world,’ choice destination for dirty Russian money: campaigner

London is the money laundering capital of the world, a high-profile campaigner against corruption in Russia has warned MPs. Bill Browder told the Commons Foreign Affairs Committee that Russian President Vladimir Putin’s “bad guys” enjoyed coming to London with their “dirty money.” The head of Hermitage Capital Management said the UK has robust legislation against money laundering, but law enforcement agencies are reluctant to go after complex cross border cases and suspects if they aren’t sure they can win due to cost fears. “The rules in the UK, in terms of money laundering, are quite robust, the enforcement of those rules are exceptionally weak.” Browder, a former investor in Russia, branded president Putin a “Mafia boss” who has amassed a personal fortune of $200 billion from corruption and embezzlement. He said Britain was uniquely placed to have an impact on the Kremlin elite because London was a favored destination for them and their families. “All the bad guys in the Putin regime like to come to London, they like to send their kids to school in London, they like to keep their dirty money in London. This gives us huge leverage.”


EU granting tax authorities access to corporate ownership data gathered for AML purposes

The European Union Council this week agreed on a proposal granting access for tax authorities to information held by authorities responsible for the prevention of money laundering, a powerful move that removes a key stumbling block to domestic and international investigations and information sharing. The directive will require member states to enable access to information on the beneficial ownership of companies. It will apply starting in January 2018. The proposal is one of a number of measures set out by the Commission in July 2016, in the wake of the April 2016 Panama Papers revelations, which revealed how the broad use of shell companies, anonymous corporate ownership structures and nominee law firm owners can help criminals, terrorists and the corrupt. In particular, tax authorities need greater access to information on the beneficial ownership of intermediary entities and other relevant customer due diligence information. The directive will enable them to access that information in monitoring the proper application of rules on the automatic exchange of tax information, (via the EU Council).


Weak controls, toothless audits hurting Bangladesh banks’ ability to fight financial crime

Almost two-thirds of commercial banks in the country faced some forms of financial crimes over the last two years, a research study has revealed. Among these crimes, check-related frauds are most common, said the study conducted by Bangladesh Institute of Bank Management (BIBM).
The findings were revealed during a research workshop on ‘Addressing Financial Crime in the Banking Sector of Bangladesh’ in the capital on Thursday. “About 65 per cent of the banks sampled in our study said they faced deposit account-related financial crime incidents in their banks during the period from 2014 to 2016,” said Dr. Shah Md. Ahsan Habib, Professor and Director of BIBM. Weak internal control system and non-independent internal audit were identified as the main causes of financial crimes in the banking sector with 70 per cent of the survey respondents identifying them as the main reasons behind proliferation of such financial frauds. “There should be training [programs] for bank officials at every stage of their career starting from foundation training for the desk officers to advanced training for the senior management”, said Khondker Ibrahim Khaled, former eminent banker and Dr. Muzaffer Ahmad Chair Professor of BIBM, (via the Financial Express).


UK Gambling Commission tells sector to up its game when it comes to AML

The UK Gambling Commission has warned gambling operators that they’ll face stiffer financial penalties and possible license revocation if they don’t step up their game, particularly in the area of financial crime compliance. On Tuesday, UKGC CEO Sarah Harrison gave a speech at the regulator’s first Raising Standards Conference in Birmingham, in which she urged commercial gambling operators to accelerate policies that make consumers the focus of future business decisions. Harrison also warned operators to “raise your game” in terms of anti-money laundering compliance, given that recent caseworks showed “a lack of curiosity, and at worst, a leadership culture which puts commercial gain over compliance.” Harrison said a ‘wait and see’ approach that requires a source of funds to be proven to be illegal before operators act is “far from a risk-based strategy, nor is it credible.” Operators will also face higher financial penalties, “in particular where we see systemic and repeated failings,” (via Calvin Ayre).


In enforcement actions, bank executives escape prosecution due to political contributions, say whistleblowers

In the last decade, many large domestic and foreign banks have engaged in shameful and illicit behavior that included tipping the economy into a recession, manipulating international interest rates, and laundering hundreds of millions of dollars for drug cartels while helping rogue nation states evade sanctions, though not one top executive has gone to prison. Some former compliance officers and whistleblowers who worked at these banks say it’s because these massive institutions have used their influence and wealth to steer presidential elections and congressional appointments to individuals who would give them the white-glove treatment if their improper activities ever came to light. A campaign contribution tracking site backed those assertions, stating that the financial industry contributed more than $912 million to candidates in the last five years, making it the top contributor to political campaigns in the United States, (via the Toronto Star).


In face of requests for more trading information, firms wonder can government protect data?

Many banks and large trading firms are fretting about how U.S. government regulators can protect sensitive customer, trading and even source code data in the face of new information and transparency demands ostensibly done to protect consumers from manipulative practices and counter criminals and fraudsters. The firms say that the vast amount of information being requested by authorities could be a magnet for hackers, noting that while the Securities Exchange Commission has remained relatively free of external or insider hack attacks, other U.S. regulators and government agencies have been breached. Firms are asking that this information not be allowed to be given over carte blanche to regulatory requesters, but that it must go through the subpoena process, giving operations at least the chance to challenge the requests in court, (via the Wall Street Journal).

In response to historic cyber breach involving 20,000 accounts, U.K. bank halts all online transactions

Tesco Bank, owned by Britain’s biggest retailer Tesco, halted online transactions from all current accounts on Monday after money was stolen from 20,000 of them in the country’s first such cyber heist. The bank, which manages 136,000 current accounts, said it would repay people who had lost money in the attack, which targeted 40,000 accounts in all and fueled fears about the British financial sector’s vulnerability. Tesco Bank’s Chief Executive Benny Higgins told the BBC he thought “relatively small amounts” had been stolen, but the bank declined to give details of how much money in total had been taken or if it knew how the thefts had transpired. Other British banks have been targeted by hackers in recent years, but the Financial Conduct Authority (FCA) regulator said it was not aware of any previous incident in which customers had had money stolen. Reported attacks on financial institutions in Britain have risen from just five in 2014 to more than 75 so far this year, according to FCA data, but bank executives and providers of security systems say many attacks go unreported. Outside Britain, Bangladesh Bank lost $81 million in February after yet-to-be-identified cyber criminals took money out of its account at the Federal Reserve Bank of New York using fraudulent SWIFT wire transfers, (via Reuters).


To evade restriction on Venezuelan bonds, Morgan Stanley traders used nominees, says Finra

A broker who allegedly earned $4.6 million in 14 months as one of Morgan Stanley’s top New York City producers was charged last week with evading the firm’s restrictions on trading Venezuelan bonds by creating client accounts using fictitious names at outside banks. The Financial Industry Regulatory Authority on September 1 filed an enforcement complaint charging John Batista Bocchino and his top sales assistant, Rafael Barela Jacinto, with trading $190 million worth of Venezuelan bonds for customers by opening nominee accounts for them in the names of five “well-known financial institutions” so the clients and brokers could avoid scrutiny from Morgan Stanley’s anti-money laundering and compliance departments. The complaint alleges that the brokers suffered a “sharp decline in revenue” after Morgan Stanley in April 2011 tightened its AML policies by requiring brokers to provide buy-side confirmations on Venezuelan bond trades at the time of a sale to show that bonds were bought in U.S. dollars. In January 2012, the policy was further tightened by prohibiting Venezuelan securities transactions with any financial institution, with few exceptions, (via Advisor Hub).


U.S. finalizes measure to further shut North Korea out of financial system

The U.S. on Friday finalized a proposal from June to further isolate North Korea from the banking system. The U.S. Treasury Department said it issued a final rule that prohibits U.S. financial institutions from opening or maintaining correspondent accounts for North Korean banks, and it tells them to apply additional due diligence measures to prevent North Korean money from gaining improper access to the U.S. financial system. Although North Korean financial institutions don’t maintain correspondent accounts with U.S. banks, the Pyongyang government uses state-controlled banks and front companies to surreptitiously conduct illicit international financial transactions, Treasury alleged, (via the Wall Street Journal).

Pocket of EU banks looking to engage Iran

With major U.K. and U.S. banks still struggling to find reassurances from regulators to resume business with Iran nearly 10 months since “implementation day,” a handful of European banks are forging ahead and sealing transactions with the oil-rich nation. Even after a significant batch of global economic sanctions against the country were lifted in January, many primary and secondary sanctions related to nuclear proliferation, human rights and terrorism financing remain in place, which has meant major global banks have mostly steered clear of facilitating deals with Iran. In one case, a bank attempting to explore how it could work with Iran concluded it had to untangle and change more than 100 policies, practices and procedures, (via the Wall Street Journal).


More public companies exploring potential ties to legal cannabis sector

Public companies with no direct ties to the burgeoning cannabis sector are increasingly addressing legalization in SEC disclosures, moves that financial institutions should be aware of as, federally, any funds tied to the banned systems are still considered illicit. As companies like Scotts Miracle-Gro and Microsoft dabble in the legal cannabis industry, financial analysts said it was only a matter of time for other traditional businesses to join the fray. Any given number of market research or economic impact studies have alluded to the potential of marijuana becoming a big business. Investment banker Cowen and Company’s multi-sector look into the industry was none different: Marijuana could be a $50 billion market by 2026, if weed were to become legal on the federal level, according to the report, (via the Cannabist).

Campaign finance

Judge hands down massive penalty against grocery association

A judge has hit the Washington, D.C.-based Grocery Manufacturers Association (GMA) with a $6 million civil penalty, which will be tripled due to its “intentional violations of state law,” for laundering money in a 2013 Washington state initiative campaign. If the $6 million civil penalty, or $18 million in total damages, holds up on appeal, it may be the highest fine for campaign finance violations in the history of the United States. The case surrounds an alleged plot by the GMA to defeat a measure requiring more transparent food labeling tied to genetically modified ingredients, (via Seattle PI).