Human Trafficking

In this week’s Financial Crime Wave, globe-spanning Interpol operation saves nearly 350 across Americas and Caribbean, a look at how swimming AML KYC duties and social media can satisfy beneficial ownership duties, the United Kingdom sees overall financial crime penalty figures rise as the number of penalties fall, and more.

Human trafficking

Hundreds of human trafficking victims freed in Caribbean, Latin America after coordinated Interpol operation, nearly two dozen arrested in ‘Operation Libertad’

Nearly 350 victims of modern day slavery across the Americas and the Caribbean have been freed after an operation by Interpol to spot human trafficking, a major focal point of U.S. and international authorities and bank compliance teams. In a statement Monday, Interpol said more than 500 police officers in 13 countries — Antigua and Barbuda, Aruba, Barbados, Belize, Brazil, Curacao, Guyana, Jamaica, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, Turks and Caicos Islands and Venezuela — worked to arrest 22 people during Operation Libertad.

Operation Libertad, which was funded by Canada, was planned for more than two-and-a-half years and carried out by Interpol’s Global Task Force on Human Trafficking. The victims, which included men, women and children, were found working in night clubs, farms, mines, factories and open-air markets, according to the release. Many of those who have been identified as victims are believed to have been migrants seeking work. The traffickers controlled them by taking their documents, isolating them and in some cases withholding food and water, (via NBC).

Corporate transparency

How to use social media to improve AML KYC procedures and satisfy new beneficial ownership obligations

While it may be difficult to find a correlation between social media and AML at first glance, social media activity is beginning to play an increased role in customer due diligence (CDD) practices at banks. While still relatively untapped, suspicious activity can be spotlighted through social media activity, an individual’s posts, and even the basic information being added to their respective profiles. In locating each of these accounts, an institution can essentially create a web of personal information on an individual that can be checked against the information they have provided to a financial institution.

Take for example an individual attempting to open an account for his business in New York City, yet both his Facebook and LinkedIn profiles show that he works out of San Francisco for an established multinational corporation. This should raise a red flag during the account opening process, and this person should be subjected to a fair amount scrutiny, (via Global Radar).


How does the UK FinTech sector perceive the risks associated with cryptocurrencies, and how are they managing the challenges related to this new disruptive technology?

Research from a white paper suggests that while some UK FinTechs have considered engaging more with cryptocurrencies, perceived financial crime concerns, the need for meaningful AML/CTF controls and the lack of regulatory clarity have fostered an attitude of caution. The report found that perceptions of financial crime risk associated with cryptocurrencies differed from actual experiences of FFE members. These perceptions had a disproportionate impact on how Fintechs chose to engage with cryptocurrencies, limiting their appetite for extending their exposure, and for some, that of their banking partners.

The paper is recommending that FinTechs not be deterred by the challenges associated with cryptocurrencies, as financial crime concerns can be managed through tailored, risk-based anti-financial crime tools, and a solid understanding of any areas of concern through a detailed risk assessment process. Regulators as well as law enforcement actors should collaborate more with FinTechs in order to improve the broader understanding around cryptocurrencies, financial crime and new regulatory developments, (via FinTrail).

Virtual currencies

Crypto coin framework taking shape

Regulating virtual currencies and ICOs: Framework stating to take shape to tackle fraud, laundering risks of roiling, rollicking sector, (via the Economist).


U.K. sees overall AML penalties rise and the number of penalties drops

U.K. financial services regulator issues report on financial crime fighting efforts between 2015 and 2017, notes improvements in AML registration, case management systems, rising registrations for subject entities and higher penalties from a smaller number of reviews, from total penalty amounts of nearly 560,000 pounds in 2015-2016 to 1.2 million pounds a year later, (via the U.K.).

Risk assessments

In national risk assessment, Hong Kong sees more creativity, aggressiveness in cyber attacks

Under pressure from global watchdog groups and following U.S., and other country initiatives, Hong Kong publishes National Risk Assessment, noting increasing creativity and sophistication of criminal, terror and cyber hacking groups, more quickly moving between fincrime gaps in the real world to gaping vulnerabilities in virtual worlds. The country, going forward, is working to strengthen AML supervision and penalties, more aggressively freeze and seize assets and work more closely with international authorities to take down larger, global criminal syndicates, (via H.K.).


A look at how AML and blockchain can boost each other’s strengths

Shyft has announced it has published a whitepaper detailing how a blockchain-based KYC/AML network for the global economy could work to significantly bolster AML effectiveness, decrease attestation costs and protect an individual’s personal identity, (via Shyft).


More MSBs and smaller banks should inculcate the red flags of human trafficking in risk assessments and transaction monitoring

Aside from the specific AML regulations, federal law creates corporate liability for financial institutions that, even unknowingly, benefit from human trafficking if they “should have known” about the exploitation, a subjective threshold that can be challenged by regulators and investigators. Some believe the only viable solution is expanding AML compliance to be focused on identifying human trafficking red flags, a strategy instrumental to mitigate potential corporate liability based on an institution’s failure to recognize financial transactions related to human trafficking.

MSBs and smaller banks should consider incorporating anti-human trafficking policies and procedures within their existing AML compliance programs, something larger and medium-sized banks have already done, along with other crimes, including corruption, (via Pillsbury).


Australian regulators taking stronger stance against fraudsters plying false crypto coin offerings

Australian securities regulator taking a harder line in fraudulent crypto initial coin offerings (ICOs). The Australian Securities and Investments Commission (ASIC) received delegated powers from the Australian Competition and Consumer Commission (ACCC) to take action under the Australian Consumer Law relating to crypto-assets. The delegation from the ACCC enables ASIC to take action against misleading or deceptive conduct in marketing or selling of ICOs, even if the ICO does not involve a financial product, (via ASIC).

Terror finance

Kidnappings, ransoms related to Qataris have resulted in massive support for militant faction

Qatari hostage payments funded Al Qaeda group now Syria’s most powerful militant faction, with analysts concluding Hayat Tahrir Al Sham has become stronger from lucrative cash flows and breathing space in the region as the U.S. and other countries focus shifted to ISIS, (via the National).

Artsy fartsy

Could U.S. art dealers be subject to AML rules?

U.S. art dealers may seem be added to a list of sectors considered “financial institutions” and be subject to federal AML rules, including screening customers, transactions, source of funds and potentially beneficial owners, (via Art Net).


Five ways international organized criminals groups are copping crypto coins to support illicit networks

A look at five ways criminals are trying to cash in crypto coins Before speculation led to the skyrocketing market capitalizations of crypto-currencies over the past year, online crime was a significant driver of the commercial value of Bitcoin, Ethereum and other digital currencies. Dark Web transactions for drugs, payoffs for ransomware attacks and money laundering for a variety of criminal enterprises drove much of the initial value increases of the currencies.

Yet, criminals have increasingly targeted the burgeoning ecosystem for virtual currencies, looking to illicitly generate currency through mining, by stealing currency from exchanges and wallets, and by finding new ways to deny service for extortion and revenge. The five are:

  • Breaching the lax cybersecurity of crypto exchanges.
  • Enslaving devices to secretly mine crypto currency, without the device owner’s permission.
  • Doing some virtual pickpocketing of leaky online wallets.
  • Using anonymous crypto coins to move money, evade taxes, pay for drugs.
  • Taking advantage of certain blockchain structures to drain funds, (via Eweek).

Corporate transparency

U.K. votes to crack open territories, crown dependencies to bring secretive companies to light

In what is expected to be a major clash of cultures and longstanding business practices, Britain agreed on Tuesday to order its overseas territories such as the Cayman Islands and the British Virgin Islands to make secretive company ownership information public by the end of 2020 to try to tackle corruption and tax avoidance. The move was hailed as a major victory by campaigners in the fight against tax avoidance and money laundering. Overseas territories and crown dependencies have come under increasing pressure to reveal who is behind anonymously owned companies, with campaign groups saying such secrecy aids money laundering, tax evasion and corrupt diversion of public funds from developing economies.

But Orlando Smith, premier of the British Virgin Islands, said he was “deeply disturbed” by developments in London, calling the new transparency policy “deeply flawed.” Several politicians in Britain’s ruling Conservative party teamed up with opposition Labour lawmakers to back the changes, which were first pushed by former Prime Minister David Cameron, but resisted by the overseas territories, (via Reuters).

U.K. to close more than 100-year-old loophole of “Scottish Limited Partnerships” that has laundered tens of billions of dollars

The United Kingdom has announced it plans to close a 100-year-old loophole to stop the flow of dirty money through the country, a further tightening of anti-money laundering (AML) defenses that have recently cracked open the beneficial ownership details of opaque corporates and potentially put them before the public. Introduced in 1907 to assist Scottish farmers, the Scottish Limited Partnerships (SLPs) are now an alleged tool for money laundering by foreign investors. Those opening SLPs will have to prove a connection to the UK and run a business in Scotland. Right now, anyone can register an SLP, according to the Independent. The Herald began investigating SLPs in 2016 and found that they serve as “a financial bridge” often times for so-called investors in the former Soviet Union and tax havens.

Investors can then open bank accounts across the European Union. SLPs can hold assets, borrow money from banks, and enter contracts while not having to disclose their owners’ identities, allegedly making them ideal for organized crime groups. Investigative reporting by OCCRP found that 113 SLPs played critical roles in the massive Russian Laundromat money laundering scheme that moved US$20.8 billion out of Russian banks between January 2011 and October 2014. In 2017, some 17,000 SLPs had been registered among only 10 addresses, (via the OCCRP).

Lack of guidance, areas of uncertainty could cause credit unions to fall out of compliance with FinCEN’s beneficial ownership rule coming online next month: NAFCU

National Association of Federally-Insured Credit Unions (NAFCU) Vice President Brad Thaler today sent a letter to the House Financial Services Committee, Subcommittee on Financial Institutions and Consumer Credit Chairman Blaine Luetkemeyer, R-Mo., and Ranking Member Lacy Clay, D-Mo., highlighting areas of uncertainty within the Financial Crimes Enforcement Network’s (FinCEN) customer due diligence (CDD) rule. NAFCU highlighted how the rule – with a mandatory compliance date of May 11 – is impacting the credit union industry.

In the letter, Thaler explained that, even though FinCEN has provided guidance documents, more guidance is needed from FinCEN on this rule and how certain areas within the rule could bring a “lack of uniformity” in how regulators evaluate compliance. The final CDD rule requires credit unions and other covered institutions to identify the beneficial owners (25 percent or higher ownership) who control legal entities who open accounts. The rule also amends the anti-money laundering program requirements to include risk-based procedures to conduct ongoing member due diligence, (via CU Insight).

International cooperation

French President Macron lobbies countries to better coordinate in fight against global terror groups, financiers

French President Emmanuel Macron called for closer coordination and transparency in fighting terrorist financing Thursday as he closed a two-day international conference in Paris that focused on two of the biggest threats — al-Qaida and Islamic State. Officials from more than 70 nations and hundreds of experts heard Macron outline several areas the international community should tackle to help close the financial spigot flowing to terrorist groups. He called for better control of anonymous financing, bogus charities and crowd funding; supporting vulnerable states; and freezing assets of individuals implicated in terrorist financing.

Macron said the terrorist threat would not go away soon. Al-Qaida and Islamic State will continue to attack and destabilize countries and kill innocent people, he said, adding that the global community’s determination to respond must be absolute. The French leader — speaking hours after returning from talks with U.S. President Donald Trump in Washington, in which fighting terrorism ranked among the top subjects — also called for greater international support for the Financial Action Task Force, an international body fighting money laundering and terrorism, (via VOA).

Artificial intelligence

Is the Terminator a terrorist?

A potential scary look ahead at the future of financial crime: Terror groups weaponizing AI to carry out more deadly attacks. Think Skynet, but aimed by ISIS, (via In Military).


Social security dirty dealings in Honduras

Federal prosecutors have arrested a Honduran man for conspiring to launder more than $1 million in bribes and funds misappropriated from the Honduran Social Security Agency(via DOJ).


More companies need stronger compliance functions, officers, beyond banks: survey

A look at Ernst & Young’s 2018 Fraud survey, which again reveals the challenges of companies attempting to expand internationally, set lofty, possibly overly ambitious sales goals, and strengthen anti-fraud and anti-corruption programs in an era of historic fine flurries, (via EY).


AI set to boost cybersecurity defenses, but machine learning still needs human tuning, training testing

The prevailing promise of the intersection of artificial intelligence and cybersecurity is that it will, sometime soon, be able to scan instantly, spot any malware on a network, guide incident response, and detect intrusions before they start. And while experts agree AI will help better respond to cyberattacks, the truth is a little more muted about what can and will happen – and there will still be a need for human intervention when training machine learning-enabled systems.  The machine learning algorithms security companies deploy generally train on large data sets to “learn” what to watch out for on networks and how to react to different situations. Unlike an artificially intelligent system, most of the security applications out there can’t extrapolate new conclusions without new training data.

Machine learning is powerful in its own right, though, and is a natural fit for antivirus defense and malware scanning. Machine learning-based malware scanning works similar to historical anti-virus scanning — the algorithms train on vast catalogues of malicious programs to learn what to look for. But the ML approach has the added benefit of flexibility, because the scanning tool has learned to look for characteristics of malware rather than specific signatures. Where attackers could stymie traditional AV by making just slight alterations to their malicious tools that would throw off the signature, machine learning-based scanners, offered by pretty much all the big names in security at this point, are more versatile. They still need regular updates with new training data, but their more holistic view makes a hacker’s job harder, (via Wired).

Grand graft

IMF bolstering focus on grand graft, makes anti-corruption efforts a “macro-critical” issue

The International Monetary Fund is awakening from what seems a long sleep with regard to combating corruption, making the broader connection that without rule of law fighting graft, both economic and counter-crime and counter-terror efforts falter. If the IMF’s new policy announcements are followed by tough action, then the global fight against corruption could make real headway. The IMF and the world’s leading central banks as well as finance ministries across the globe have been laggards in that fight. They have too often ignored corruption, even when it has been a direct cause of national economic disaster.

For many years, the IMF argued that its charter precludes it from getting involved in politics and that it had to focus exclusively on economics. That was always a lame excuse. Devoted as it officially is to promoting sustainable economic growth, it has come to the realization that massive income inequality is due in large measure to corruption, as well as direct plunder of state coffers by leading public officials and politicians. Letting that practice fester, however, runs directly counter to achieving sustainable economic growth. That is why the IMF’s Board of Directors has now at long last approved an anti-corruption “framework” to guide the work of the Fund’s staff, (via the Globalist).


Even as banks file more STRs, prosecutions, convictions languish

Hong Kong fincrime spotlight: Number of suspicious transaction reports more than quadruple in six years, but convictions still low, (via the SCMP).

Crown dependencies

Beneficial ownership battles ahead, could knock some crown countries down

Will the U.K. crown dependencies subject to the will of the country to collect and publish the beneficial ownership details of corporates? Some say the dependencies have no choice, while others believe they will fight to keep the status quo, (via ManX).


Countries band together to tackle terror finance through stronger laws

More than 70 countries committed has decided to bolster efforts in the fight against terrorism financing associated with the Islamic State group and al-Qaida. In a final declaration at a recent Paris conference, they agreed to “fully criminalize” terror financing through effective and proportionate sanctions “even in the absence of a link to a specific terrorist act,” (via the Mainichi).

Opacity bastions

U.S. doesn’t rank well alongside other countries doing more to capture, publish beneficial ownership details of cagey corporates

The U.S. has only mildly improved its ability to capture and uncover secretive beneficial owners in recent years, while other countries, like France, have made marked strides, along with other countries in Europe and the United Kingdom, to crack down on what many experts consider a magnet for criminals, and stumbling block for international investigators: opaque ownership structures in the global shell game, (via TI).

Tax evasion

Are the velvet gloves of the IRS coming off?

As the IRS prepares to wind down its latest offshore voluntary disclosure program, which has allowed tens of thousands of purposeful or accidental evaders who have squirreled away untold millions, even billions, to come back to the fold, with fewer criminal snags and penalties, does this mean the velvet gloves are coming off and the pugilists’ pounders are coming on? Some say yes, (via Accounting Today).

Nigerian princes

Nigeria’s central bank has issued heftier AML penalties on banks, individuals

The Central Bank of Nigeria (CBN) has issued a new set of penalties for organizations that flout its AML rules. The new penalties stipulate fines on banks, their directors, and other key officials for money laundering infractions.

Highlights of the new regulation

  • According to the CBN, banks and board members or chief compliance officers will all be sanctioned for 31 out of the 48 money laundering infractions listed in the new regime.
  • For each of the 31 infractions, the new regime stipulates minimum fines ranging from ₦500,000 to ₦1.2 million on board members or chief compliance officers or the internal auditor, and fines ranging from ₦1 million to ₦20 million on the offending bank.
  • Failure to approve the AML/CFT policies and procedures by a bank attracts a minimum penalty as follows: N1 million on each member of the board and N20 million on the Deposit Money Banks (DMB).
  • Similarly, ₦5 million fine would be levied on the bank in the first instance and N1 million for each year that the contravention continues; “Failure to communicate the AML/CFT program of the organization to the employees.
  • Failure to review/update the AML/CFT policies and procedures at least every three years would attract a minimum penalty of ₦750,000 on the Executive compliance officer in the first instance and ₦750,000 for each year that the contravention continues and N500,000 on the Chief compliance officer in the first instance and ₦500,000 for each year that the contravention continues, (via NairaMetrics).