In this week’s Financial Crime Wave, judgment time comes for former insurance executive in China accused of orchestrating mammoth $10 billion fraud and embezzlement scheme, Latvian banks struggling on anti-money laundering compliance in wake of U.S. designation, U.S. lawmakers look to curb IRS powers tied to civil asset forfeitures, and more.


Former insurance executive goes on trial in Shanghai related to $10 billion fraud

A Chinese court accused the former head of troubled Anbang Insurance Group of embezzling more than $10 billion as it opened his high-profile fraud trial one month after authorities seized control of the big-spending conglomerate. Wu Xiaohui contested all charges against him in a trial that began in Shanghai on Wednesday, adding he was unaware whether his activities had violated the law, according to Reuters.

China’s insurance regulator announced an unprecedented takeover of Anbang in February, saying fallen chairman Wu would be prosecuted for financial crimes as the government moves to prevent heavily-indebted large private companies from collapsing and triggering a financial crisis. Prosecutors accused him of defrauding Anbang of 65.25bn yuan, AP reported. The funds were transferred to companies he personally controlled for investment overseas, to pay down debts, or “personally squandered,” the court said on an official social-media account, (via The National).


Ex-NATO Chief looking to create global task force to cleanse Latvian banking system, bolster AML compliance defenses

The former head of NATO has asked the prime minister of Latvia to create an international task force to guide the country in cleaning up its banking sector, which has been rocked by accusations of money laundering and bribery. Anders Fogh Rasmussen, who has also been prime minister of Denmark and is currently deputy chairman of Latvian bank Norvik, wrote a letter calling for the creation of a group of experts from major Western institutions like the European Central Bank and U.S. Treasury. Latvia’s central bank chief is being investigated amid allegations of bribery and money laundering. And one of Latvia’s biggest banks collapsed last month after the U.S. said it “institutionalized money laundering” and proposed cutting it off from the U.S. financial sector.

Latvia, which is a member of the European Union and NATO, has been the center of banking scandals for years as it became a hub for international banking, mainly from neighboring Russia and east European states like Ukraine. While offshore accounts are not necessarily illegal, much of that money has been proven to be laundered or obtained illegally. The U.S. Treasury said in February that one Latvian bank, ABLV, processed payments that broke U.S. sanctions on North Korea, among other things. Concerns about the bank caused a run, leading to its collapse. Latvian officials have described ABLV as a “non-resident” bank that was acting as a hub for deposits and payments to foreign clients mostly from the former Soviet republics, including nations like Azerbaijan, Kazakhstan, Russia and Ukraine, (via U.S. News).


OECD dings Swiss in anti-graft efforts, particularly in import/export areas, but notes improvements

Tax transparency watchdog OECD chastises Swiss efforts fight against “foreign bribery,” still “acute risks” of corruption related to key import/export sectors, including financial transactions, pharmaceutical products, and dealings in raw materials and metals.

The latest country report by the OECD’s Working Group on Bribery has found that Switzerland, while making progress, still has more to do in protecting whistle-blowers and prosecuting foreign bribery. The report, published on Tuesday by the Paris-based Organisation for Cooperation and Development (OECD), takes stock of Switzerland’s record on tackling the issue of bribery in cross-border business transactions.

Following the previous update by the working group in 2011, this instalment hones in on the issues of “enforcement, detection and corporate liability.” But while prosecutions are up, they are still overall, strikingly low – in almost a decade, six natural persons and five legal persons were convicted in five corruption cases – especially given that, as the OECD outlines, Switzerland is particularly prone to foreign corruption for various reasons. The first is the export-driven nature of the economy. Not only is a hefty 62.9 percent of Swiss gross national income generated by outflows, but the nature of these exports also raises “acute risks of foreign bribery”: financial transactions, pharmaceutical products, and dealings in raw materials and metals, (via Swiss Info).

Extend more AML, corruption risk-ranking to third parties

Global, regional financial crime compliance, anti-corruption regulations are key drivers of better monitoring, risk ranking of third parties: survey, (via Reuters).


Fincrime compliance summit taps CFCS-designated ranks

Mena summit adds Certified CFCS member Rizwan Khan as key speaker, (via BFSI).

Money laundering

Peps, associates looking at penalties tied to massive fraud, laundering suit with U.S., Trump nexus

A former mayor of Kazakhstan’s largest city and his son may be on the hook for more than $280,000 for violating a confidentiality order in a multibillion-dollar lawsuit over embezzlement and money laundering that also allegedly involved purchases of condominiums at the luxury Trump Soho tower, (via Bloomberg).


How Russia became a gangster paradise

An insightful look, and great analysis, of how Russia became a paradise for gangsters, a regime fueled by corruption, cronyism and illicit capital, (via The Guardian).

Tips and tactics on how the U.S. goes after the big fish in organized crime

A look at trends and changes in how U.S. law enforcement officers target cartel regimes and larger, international organized criminal networks, (via Gibson Dunn).

Private security

Unruly, unregulated private sector groups in Mexico exacerbating powder keg environment

A private security boom in Mexico is adding to the country’s already endemic problem of corruption and resulting in more violence, in some cases against the innocent: study, (via Reuters).


Hope on the horizon for beleaguered MSB sector as state reg relief, harmonization in sight

Could regulatory relief, and AML harmony, come to money services businesses in harmonized state exams? Some say yes, (via the National Law Review).


CRS tackles state of U.S. government cybersecurity, noting more must be done to protect public, private data

Congressional researchers have noted that more criminal groups and hackers are getting more creative in attacking and breaching U.S. operations, both on the government and private sector side. As a result, that means government groups, particularly those with sensitive technologies must make cybersecurity a greater priority with stronger defensive measures, systems to back up corrupted or lost data and more training for individuals at all ranks to prevent opening the door to hackers through the No. 1 avenue: human error. Congress passed five laws related to cybersecurity during the 113th Congress and an additional law during the 114th Congress. Congress also held 119 hearings on cybersecurity-related issues during the 114th Congress.

The White House issued presidential actions on cybersecurity related to critical infrastructure cybersecurity, information sharing, and sanctions in retaliation for malicious cyber activities. Cybersecurity policy has continued to hold congressional interest during the 115th Congress. Recent congressional hearings have examined several cybersecurity issues, including data breaches, critical infrastructure protection, education and training, and the security of federal information technology. Other issues discussed during the 114th Congress continue to hold stakeholder interest, including debates concerning government access to encrypted data, (via CRS).

Bank boards should be more well-versed in cyber

Should boards be more aware of, weighing in on banking, corporate cybersecurity policies? Some say yes, (via Mondaq).

Hackers getting more creative, disruptive in New Zealand, but country is fighting back with better defenses, training

In New Zealand, cybercrime is on the rise, but financial losses per attack have fallen as firms are more aggressively strengthening cyber defenses, back ups and improving human training, (via BtoB).

Iran garners massive data haul in U.S. after successful cyber incursions victimize hundreds of firms both public and private

A massive cyberhack by Iran has allegedly pilfered research from more than 300 U.S. universities, governments, and companies, (via Science Mag).

Firms must do more to guard against cyberattacks: Finma

Cyber-attacks pose the biggest threat to the Swiss financial system with risks from hacking incursions on the rise, watchdog Finma warned this week, calling on Switzerland to step up its national defenses against the menace, (via U.S. News).

Authorities in Spain arrest suspect in billion dollar cyber fraud that targeted banks with phishing attacks

Law enforcement authorities have arrested a cyber-crime mastermind suspected of stealing about £870m (€1bn) has been arrested in Spain. The individual is alleged to be the head of the organized crime gang that ran the Carbanak and Cobalt malware campaigns that targeted banks. Europol said the group had been active since 2013 and infiltrated more than 100 banks in that time. Cash was siphoned off via bank transfers or dispensed automatically through cash machines.

The cyber-thieves got their malware on to bank networks by sending key staff booby-trapped phishing emails, said Europol. The gang used three separate generations of malware, each one more sophisticated than the last, to penetrate and then lurk on financial networks. Once the machines of key staff were compromised, the gang used their remote access to banking networks to steal money in several different ways, including:

  • cash machines were ordered to remotely dispense money at specific times – letting mules and other gang members scoop up the notes
  • inter-bank money transfer systems were instructed to move cash into criminal accounts
  • databases were altered to increase account balances. Mules then removed the money via cash machines

Money was laundered via crypto-currencies and payment cards, which were used to buy luxury goods including cars and houses, (via the BBC).


Swords clash as companies try to raise cross-border compliance programs to better parry criticisms from multiple cooperating governments

A look at the clash of legal cultures in the Brave New World of international law enforcement, where companies have to craft global, ironclad and enterprise-wide compliance programs to ward off examiners and investigators more actively cooperating across borders to look for fincrime vulnerabilities, (via NYU Law).


Latvia, under fire from U.S., global regulators, tries to tighten AML controls through fines

Latvia’s financial regulator, the Financial and Capital Market Commission has issued a fine to a money transfer company and issued a warning about the prevention of money laundering and terrorist financing, (via LSM).

On the lighter side

How not to make mistakes and kill the passion, energy of your compliance teams

Want to check your emotional intelligence gauge and up passion and performance? Then check out this post on what NOT to do titled “Six things that kill morale,” (via Dr. Travis Bradberry).

Virtual Currencies

Cryptos, tokens and ICOs, oh my!

A helpful guide when venturing into the world of tokenized assets, or blockchain-based crypto currencies, (via Medium).

A virtual tour of crypto regulations around the world and a look where things are going

Digital value? Commodity? Monopoly money? As demand for cryptocurrency grows, global regulators are divided on how to keep up, with some countries trying to regulate, while others try to outright ban transactions in the virtual value arena. Most digital currencies are not backed by any central government, meaning each country has different standards, and some top banking experts calling it a pyramid scheme that could drop to zero almost instantaneously at any moment.

Every seemingly small regulation announcement has driven the price of bitcoin and other cryptocurrencies in 2018, either up or down, with wild swings last year pushing the most widely-watched virtual currency, Bitcoin, to nearly $20,000, and more recently, down to less than half that. Here are some snippets from a global guide to where digital currencies stand with governments and regulators around the globe:

·         Japan: Sees Bitcoin as legal tender, and is cracking down on virtual currency exchangers operating without a license or strong AML controls.

·         United States: Regulators have issued conflicting statements, with one stating virtual currencies are not legal tender, and others stating it is a commodity, like a stock or security.

·         EU: Legal to exchange crypto coins through a licensed exchange and exchanges must have AML controls, (via CNBC).

Big tech firms putting kibosh on crypto ads in bid to thwart ICO fraudsters

Twitter banning most virtual currency ads, in latest move following Facebook and Google, will ban most cryptocurrency ads in bid to thwart fraudsters hawking fake or overhyped initial coin offerings and token sales, (via Engadget).

Asset forfeiture

Lawmakers introduce bill to curb IRS civil asset forfeiture powers, would weaken CTR structuring-related seizures

The Republican and Democratic leaders of a congressional subcommittee overseeing the Internal Revenue Service released draft legislation Monday to overhaul the IRS for the first time since 1998. House Ways and Means Oversight Subcommittee Chairman Lynn Jenkins, R-Kan., and ranking member John Lewis, D-Ga., released a discussion draft of a bipartisan bill they called the Taxpayer First Act. One provision would give taxpayers greater access to “the case against them.” Under current law, taxpayers only have access to their case file if they make a request under the Freedom of Information Act. The bill would require the IRS to provide the taxpayer with their case file before the start of any dispute resolution process.

Other provisions would curb the IRS’s ability to seize funds from taxpayers suspected of structuring transactions to avoid Bank Secrecy Act reporting requirements. The IRS would need to show probable cause that funds believed to have been structured to avoid BSA reporting requirements come from an illegal source or are connected to other criminal activity. Another provision would clarify the IRS’s authority to issue John Doe summonses by emphasizing the IRS would need to narrowly tailor a summons to seek only information that pertains to the failure (or potential failure) of the person or group of persons to comply with federal tax law. That way, a John Doe summons couldn’t be used for a “fishing expedition,” (via Accounting Today).


OFAC could add crypto addresses to sanctions lists, complicating compliance, screening for “tainted” coins, guilt by association

With just one paragraph, an agency of the U.S. government may have just radically altered the dynamics of the cryptocurrency ecosystem in a piece of quasi guidance from the country’s chief sanctions arm. The Office of Foreign Asset Control (OFAC) announced on March 19 that it was considering including digital currency addresses associated with its list of persons and entities with whom U.S. persons and businesses are forbidden to transact business. In a new section of its website, labeled “Questions about Virtual Currency,” OFAC noted that it “may add digital currency addresses to the SDN List to alert the public of specific digital currency identifiers associated with a blocked person.”

The list of Specially Designated Nationals (SDNs) includes individuals and entities associated with sanctioned governments, terrorism, trafficking in weapons of mass destruction, and illegal drug trafficking. This list includes varying types of records, including in some cases only names, but in other cases names, addresses, aliases, etc. Financial institutions would be required to screen any virtual currency address provided for a transaction against a list to be provided by OFAC, and to either report, deny service to, or block transactions involving any listed addresses. The agency’s FAQ also encourages reporting of addresses associated with listed individuals, which suggests that they intend to supplement the SDN list on an ongoing basis. This brings up innumerable questions, including the future of coins “tainted” by an illicit association, and more, (via CoinDesk).

Regtech, fintech

Blockchain to ‘radically’ transform anti-fraud, anti-money-laundering efforts

Blockchain could be the answer to increasingly tough anti-money laundering (AML) statutes and enterprise fraud management (EFM) requirements looming for the financial services industry – along with lowering costs, making staff more efficient and stopping more illicit funds. In a report released this week by Forrester Research, blockchain’s distributed ledger technology – because it is both secure and immutable – is ideal for meeting new government requirements and serving as a trusted repository for identification purposes.

“This makes it a trusted repository for providing device ID, known fraudster, transaction and other blacklists used in AML and EFM,” Forrester said in the report, noting that the technology could also be used to bolster cybersecurity and data privacy. “Updating these repositories will no longer be the privilege of AML and EFM vendors only. In addition to these existing vendors, new identity coin and social identity verification vendors and [financial institutions] themselves will be able to update crucial blacklists,” (via Security Asia).