In this week’s Financial Crime Wave, the New York State Department of Financial Services (NYDFS) has issued new guidance for the crypto space, reminding virtual currency exchangers they must also fight fraudsters and market manipulators, surveys real companies are still struggling to bolster cyber defenses while professionals in the space are expected to command higher salaries, Dubai money exchange tied to billion-dollar money laundering scheme, and more.


NYDFS issues stern guidance to crypto space, states firms must look for fraud, not just AML, and market manipulation

The New York State Department of Financial Services (NYDFS) Wednesday issued new guidance reminding all licensed virtual currency exchanges in New York State, including those registered as a money transmitter, that they are required to not just create anti-money laundering (AML) programs to uncover suspicious activity, but also have a duty and must have processes to detect, prevent, and respond to fraud, attempted fraud, and similar illicit activities.

In the guidance issued today, DFS directed virtual currency entities to adopt measures that include, at a minimum, effective implementation of a written policy that:

  • Identifies and assesses the full range of fraud-related and similar risk areas, including, as applicable, market manipulation;
  • Provides effective procedures and controls to protect against identified risks;
  • Allocates responsibility for monitoring risks; and
  • As part of its procedures and controls to protect against identified risks, virtual currency entities must provide for the effective investigation of fraud and other wrongdoing, whether suspected or actual, including, as applicable, market manipulation, (via the NYDFS).

Terror finance

Is Islamic State turning to online casinos to fund is global jihad?

The revenues of the Islamic State terrorist group from the sales of crude oil have shrunk to $2 million a month and the group is currently looking for new sources of finance, Vassily Nebenzya, the Russian Ambassador to the United Nations, said on Thursday at a meeting of the UN Security Council.

In some cases, the group’s earnings are intersecting the accounts of seemingly respectable financial institutions in the Persian Gulf, Europe, the Middle East, and Central Asia, Nebenzya said, due to the funds moving through hawala systems that touch banks without institutions knowing the identities of the hawaladar’s underlying customers, (via Tass).


U.S. takes down international cyber gang, arrests dozens in historic crackdown

Federal prosecutors have charged three dozen for alleged roles in an international cyber hacking group that stole more than $530 million in an investigation spanning six countries, including the United States, Australia and Eastern Europe, in what officials are calling one of the largest cyberfraud cases ever prosecuted, (via DOJ).

In face of rising cyberattacks, demand for professionals to soar, with salaries expected to rise as much as seven percent: survey

After another record-setting year for cybercrime, security professionals are in line for a well-deserved raise, according to recent research, noting that while salaries overall may rise a tepid two percent, salaries for cyber professionals could be triple that, as high as seven percent. The “Robert Walters Salary Survey 2018” predicted that salaries for cybersecurity jobs around the world will rise by 7 percent in 2018, but some regions might be that figure go higher or lower.

The expected compensation varies by geographic location. For example, the survey showed that salaries for technology professionals in China could rise by 12 to 18 percent. Meanwhile, compensation is expected to increase marginally in New Zealand and stay the same in Australia, (via Security Intelligence).

Most firms not cyber secure

Most companies are still failing cyber readiness, resilience tests, even as hacker attacks hit record levels in 2017, (via IT Pro).

Gremlin in Grammarly extensions

Researchers have discovered a critical flaw in the Chrome and Firefox browser extension of popular spell checker, Grammarly, which inadvertently left all 22 million users’ accounts, including their personal documents and records, vulnerable to remote hackers, (via the Hacker News).

How rogue nation states use ‘independent’ hackers to do their bidding

Will “hackers of fortune” replace “soldiers of fortune” as rogue nation states employ more cyber mercenaries to do their bidding while attempting to give the appearance of no formal connections, with a special thanks to Mike Harbert at APU, (via In Homeland Security).


A look at navigating sanctions risks for banks in trade finance

In navigating the turbulent waters of trade finance, how should banks monitor suspicious shipping activity? Here’s a hint, propinquity to sanctioned regimes is a problem, (via TXF News).

Money laundering

Money exchange with links to Dubai Government identified as hub for billion-dollar laundering empire

A multinational currency exchange bankrolled by the United Arab Emirates has emerged as a key conduit for a global money laundering operation which has siphoned hundreds of millions of dollars out of Australia. The money laundering operation was run by Altaf Khanani, who used a strategy of international transfers through multiple currency exchanges. A large volume of money was run through the UAE Government-owned Wall Street Exchange. Interestingly, Wall Street Exchange was exposed during congressional investigations into the September 2001 attacks. Wall Street Exchange, one of the largest money remitters in the Middle East and which has its main office in Dubai, has been identified by the Australian Federal Police as a major hub for the movement of drug profits and terrorism finance.

AFP Assistant Commissioner David Stewart told reporters that Wall Street Exchange knew it was evading AML rules and supporting illicit groups, adding that the Khanani network was laundering between $14 billion and $16 billion a year for organized crime syndicates across the world. In Australia, Khanani was laundering drug money for the Lone Wolves and Comanchero biker gangs, as well as Lebanese mafia figures living in western Sydney. He was also moving money on behalf of Mexican cocaine cartels and terrorism groups including Al Qaeda and D-Company. D-Company is a criminal terrorist organization run by Dawood Ibrahim and based in India, (via ABC).


After contentious sessions, close votes, EU Parliament expands AML blacklist, adds three new jurisdictions

European Union lawmakers on Wednesday voted in favor of including Tunisia onto the bloc’s list of third countries considered at high risk of money laundering and terrorism financing. Sri Lanka and Trinidad and Tobago were also added to the blacklist. After Wednesday’s decision, Parliament may meet to discuss the EU money laundering blacklist again when the Financial Action Task Force (FATF) next updates its own money laundering/terrorism financing blacklist. Parliament will continue using the FATF list methodology to decide which countries should be discussed for blacklisting until later this year, when it will start using its new methodology agreed with the European Commission (EC).

The results showed 357 voted in support of the motion, to 283 votes against, and 26 abstentions, reflecting the split in Parliament over the issue. Overall, those voting for, failed to achieve the 376-vote absolute majority needed to reject the inclusion. As part of the EU’s Anti-Money Laundering Directive, the EC drafts a list of “high-risk third countries,” but Parliament has veto power over the list, (via KYC 360).

More U.S. AML actions coming with monetary penalty component: CRS

New Congressional Research Project report on U.S. AML enforcement trends, noting that in recent years more actions have morphed into monetary penalties, (via CRS).

CDD, EDD, KYC will look very different in the near future

A look at the future of AML due diligence, from Keith Furst, (via Data Derivatives).

Future of EU AML Directive

A good analysis of what the EU Sixth AML Directive could bring, (via KYC 360).


Dutch banking giant Rabobank hit with massive penalty for lying to regulator

Netherlands-based Rabobank must forfeit nearly $370 million, plead guilty to felony obstruction charges tied to hiding AML failures in settlement, acknowledges it allowed hundreds of millions of dollars in untraceable cash to be deposited from high-risk regions, including Mexico, (via DOJ).

In wake of Panama Papers, Swiss regulator Finma sanctions Russia’s Gazprombank, bans new private clients

Switzerland’s financial regulator, the Swiss Financial Market Supervisory Authority, (Finma), has identified what it has termed “serious shortcomings” in the anti-money laundering (AML) programs related to private clients at Gazprombank (Switzerland) Ltd. The Russia-based state-owned bank, the third largest in the country, failed to carry out “adequate economic background clarifications into business relationships and transactions with increased money laundering risks.” As a result, Finma has banned Gazprombank from accepting new private clients until further notice.

Finma started looking at the bank’s AML programs in 2016, based on information from the Panama Papers, as part of a broader investigation of more than 30 Swiss banks. Gazprombank Switzerland focuses primarily on corporate clients and, in particular, on trade finance and commercial lending. In its enforcement action, Finma highlighted weaknesses related to  customer due diligence requirements for a number of business relationships involving private clients and politically exposed persons using offshore companies, (via Finma).

Drug trafficking

Fintrac releases red flags tied to fentanyl trafficking, money laundering, precursors linked to China

Canada’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre (Fintrac), has issued a list of financial indicators that could point to a transaction being tied to buying or selling fentanyl and laundering the proceeds generated from illicit sales. The move comes as the United States and other countries attempt to cope with an opioid epidemic that is enriching criminal groups while indiscriminately killing tens of thousands of people globally each year, more than 100 in the United States each day alone. The prescription opioid fentanyl is used to treat severe pain caused by cancer and invasive surgeries. Carfentanil is a synthetic analogue of this drug, created for veterinary purposes to be more potent and cheaper.

Financial intelligence suggests that traffickers procure fentanyl, and its analogues and precursors, from overseas sources, mainly in China. Traffickers most often pay for these materials with wire transfers and money orders processed by money services businesses, but use virtual currency in some instances. Fentanyl and its analogues are typically smuggled into Canada through the postal system, prior to being distributed through networks in a small area surrounding the arrival point. The laundering of the proceeds of fentanyl trafficking in Canada generally takes place through Canadian banks, caisses populaires and credit unions. It largely resembles the financial transactions associated with low-level drug trafficking but has some unique characteristics, including structured transactions to China, India and Ukraine and using post office boxes for addresses, (via Fintrac).


As FATF visit looms, Hong Kong regulators pressing banks to bolster AML programs

With the Paris-based Financial Action Task Force (FATF), which sets global anti-money laundering (AML) standards, coming to visit Hong Kong towards the end of 2018 as part of its almost year-long look at the city’s counter-financial crime efforts, regulators are strengthening oversight of the financial sector in hopes of getting a high grade. Money laundering has long been a problem for Hong Kong, in part due to its role as a major global financial center. In 2017, financial institutions in the city reported 92,115 suspect transactions to the Joint Financial Intelligence Unit – a body run by the city’s police and customs, up from 76,590 cases in 2016, and 42,555 in 2015.

In January 2017, the investigative journalism platform, the Organized Crime and Corruption Reporting Project (OCCRP), alleged that sums linked to Russian criminals passed through some Hong Kong banks. In April last year, the HKMA fined private bank Coutts HK$7 million for breaching anti-money-laundering rules, and in August, the Australian financial watchdog Austrac noted a Hong Kong angle when claiming breaches of anti-money-laundering rules at Commonwealth Bank of Australia, (via the SCMP).

Virtual currencies

Congress on opportunities, obstacles in virtual value sector

U.S. Congress debates risks, merits, regulation of virtual currencies, ponders that more regulation could be coming, even as some speakers call the sector a giant “bubble” and “Ponzi scheme” heading for an expensive collapse, (via Congress).


In industry first, new Finra rules come online to better protect seniors from fraudsters, scammers

The Financial Industry Regulatory Authority (Finra), the nation’s chief self-regulatory body overseeing the securities sector, has warned companies and criminals alike that as of this month, there are two new rules approved that have become effective to better protect seniors and other vulnerable investor populations from falling prey to ever more creative and unscrupulous scammers looking to liquidate assets and steal funds. The two new rules, approved a year ago, put in place the first uniform, national standards to protect senior investors, according to Finra. Firms are now required to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account when there is a reasonable belief of financial exploitation.

The rule also permits Finra member firms to place a temporary hold on a disbursement of funds or securities when there is a reasonable belief of financial exploitation, and to notify the trusted contact of the temporary hold. Firms can also reach out to law enforcement and adult protect services. It is a critical measure because of the difficulty investors face in trying to recover funds that they have inadvertently sent to fraudsters and scam artists, (via Finra). Finra also recently highlighted it is going after rogue and recidivist brokers who have been sanctioned and penalized in the past by the agency, but worked their way back in to steal and plunder. To view the 2018 priorities letter, click here.

SEC highlights AML, cyber as 2018 exam priorities

U.S. Securities Exchange Commission (SEC) releases 2018 examination priorities letter, cites renewed, heightened focus on AML, cyber risks, fraudulent crypto ICOs, (via the SEC).


For U.K., new tool in AML arsenal: the unexplained wealth order

The new United Kingdom unexplained wealth order (UWO) regime came into force on 31 January 2018, and on 1 February 2018, the government published Circular 003/2018 to, “raise awareness and a basic understanding of the unexplained wealth order,” which some are saying could be a powerful tool against criminals.

There has since been much publicity about the UWO with Ben Wallace, the Minister for Economic Crime, saying that wealthy foreign criminals would feel the “full force of government” in an attempt to tackle the £90 billion of illegal funds that are thought to be laundered through the UK each year, (via Osbourne Clarke).

Credit cards

Visa, MasterCard making it more difficult, costly to purchase crypto currencies as banking groups pull away

The two biggest credit card companies in the world have reclassified transactions tied to virtual currencies, treating them as “cash advances” rather than standard transactions, resulting in significantly higher fees and potentially halting how plastic cash intersects with virtual value. The move comes as major banks in the United States and United Kingdom have stated they significantly or completely halting transactions tied to virtual exchanges.

Sometime in the last week Bitcoin investors started noticing additional fees – five percent on top of the standard four percent – on their bank statements from VISA and Mastercard, including daily accrued interest and rates as high as nearly 26 percent. For example, a $5,000 instant bitcoin purchase made on Coinbase using a VISA or Mastercard credit card will now result in roughly $500 in fees and interest too. For most people, losing 10 percent of your investment in fees means that the practice of using a credit card to buy cryptocurrency is effectively over, (via TechCrunch).


In FCPA enforcement, cooperation can be key to reducing, declining, even eliminating monetary penalties

Under the U.S. Foreign Corrupt Practices Act (FCPA) Corporate Enforcement Policy, there will be a presumption of declination if a company self-discloses misconduct, fully cooperates and remediates, absent aggravating circumstances. If the actions do rise to a criminal resolution, there will be some reduction of the fine. Even in situations where there has been no self-disclosure, the company may still have a reduction of the fine, as long as it fully cooperates and timely and appropriately remediates. The importance of cooperation as a mitigating factor is thus very clear.

The US Attorneys’ Manual explains that: “With cooperation by the corporation, the government may be able to reduce tangible losses, limit damage to reputation, and preserve assets for restitution.” But critical to garnering those deep discounts is full transparency for any individuals or systems that failed. USAM Title 9-28.700 also states that for a company to receive any consideration for cooperation, it “must identify all individuals involved in or responsible for the misconduct at issue, regardless of their position, status or seniority, and provide to the Department all facts relating to that misconduct,” (via Global Compliance News).

Ponzi schemes

Schemers still a-schemin’ so watch out!

Check out this roundup of Ponzi schemes from January 2018, courtesy of Kathy Bazoian Phelps, (via the Ponzi Scheme Blog).

Corporate transparency

Beneficial ownership battles continuing in Congress

New senate hearing on beneficial ownership, legislative initiatives, as support grows for U.S. to collect information at the company formation agent stages and have it available to law enforcement, banks and potentially even the public, (via Congress).