In this week’s Financial Crime Wave, the U.S. Treasury’s Office of Inspector General notes quality control issues around the Financial Crimes Enforcement Network’s regulatory helpline, authorities find $50 million cocaine haul at a Russian embassy in Argentina, some United Kingdom money services businesses flouting anti-money laundering rules, and more.


Panama still struggling to properly investigate complex money laundering cases, enforce AML laws: FATF

The Paris-based Financial Action Task Force (FATF) concluded that Panama, while improving overall, is still challenged to tackle larger, more complex financial crime investigations and make AML rules be implemented more effectively. Evaluators also found that drug trafficking, contraband and other illicit activities related to organized crime provide key sources of illicit revenue entering the country’s financial system, even more so than domestic illicit revenue. The biggest challenge that authorities face is that tax crimes are not classified as predicate offenses for money laundering.

This, in turn, affects the prevention and investigation of the crime because it inhibits the authorities’ ability to track and seize illicit revenue. The evaluation stressed that the most vulnerable sectors to money laundering are free trade zones, real estate and banking and corporate services. Although Panama has taken steps to create transparency laws, evidence of their effectiveness remains scarce, (via Insight Crime).


Treasury OIG: FinCEN’s regulatory helpline aids in deciphering, doling out guidance, but lacks controls to back up roughly 90 percent caller understanding rating

The U.S. Treasury’s Office of Inspector General OIG), in an audit of the Financial Crimes Enforcement Network’s (FinCEN) regulatory helpline, stated that the call-in service helps a reported nigh 90 percent of inquiries, but nearly every way to back up those rosy figures were deleted, not documented or lacked proof of quality control reviews. Reviewers noted that between 2012 and 2016, the “percentage of Helpline customers understanding guidance ranged from 89 to 92 percent.” But the internal controls could only be verified by helpline staff due to limitations of the call center application used to enter, store and track inquiries received by the helpline.

The auditors recommended that FinCEN:

  • Retain all request ID numbers created in order to provide an accounting of all actions taken in the system used to record Helpline inquiries
  • Implement processes to ensure that every inquiry received is appropriately documented to determine the timeliness of the response
  • Document the methodology and results of quality control reviews and retain complete and accurate records of these reviews.

In a written response, FinCEN stated it will enact the recommendations and has formalized a process to document the results of Helpline quality control reviews, (via the U.S. Treasury OIG).


A look at how PNB became a victim in India’s largest loan fraud, with lessons to prevent repeat mistakes

India’s Punjab National Bank, the second-biggest state-run lender, stunned the country’s financial sector this month when it announced it had discovered an alleged fraud worth $1.8 billion (£1.28 billion) at a single branch in Mumbai. On Jan. 29, PNB filed a criminal complaint with India’s federal investigative agency against three companies and four people, including billionaire jeweler Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, saying they had defrauded PNB and caused a loss of 2.8 billion rupees ($43 million). In a regulatory filing on Feb. 14, the bank updated the sum involved in the fraud to 113.94 billion rupees ($1.77 billion / £1.25 billion).

The bank alleges that two junior employees at its Brady House branch in Mumbai colluded with companies belonging to Modi and Choksi, and issued fraudulent “letters of undertaking,” or LoUs, without asking for any margin money as security, even though the firms did not have any pre-approved credit limit. The firms, PNB says, raised short-term credit from overseas branches of other Indian banks based on these LoUs, and in some instances fraudulent foreign letters of credit (FLCs) in favor of foreign suppliers. Critical to the scheme was a disconnect between transactions sent through SWIFT and the bank’s core banking system, (via Reuters).


DOJ creates new task force to punish pill pushers

U.S. Justice Department creates new task force to battle opioid epidemic, targeting all areas of prescription pill creation, scrips and distribution, (via DOJ).


A new round in the AI vs. AML debate: rules-based or AI oblivion?

In the debate of new versus old tech, do banks still with rules-based AML systems, with their known flaws, or a take a chance on artificial intelligence, and a leap into the unknown, with the possible benefits of better alerts, reports, and fewer staff? One expert says take the jump and fix the plane while it’s in the air, (via Oracle).


Hong Kong regulator makes AML, fraud top focal points in 2018

The Hong Kong Securities and Futures Commission (SFC) has made fighting against corporate fraud and anti-money laundering failures among its 2018 top enforcement priorities, the Hong Kong regulator said on Monday, (via the South China Morning Post).


U better watch out for uTorrent flaw

Top of Form

Security researchers urging users of popular uTorrent software to patch immediately as newly discovered flaw could allow hackers to control a person’s computer remotely, (via the Hacker News).

Mobile phones still major vulnerability due to stealthy background apps

Will new Android operating system, codenamed “P,” be able to block apps on your phone from spying on you, recording conversations, banking details? Some say yes, (via the Hacker News).

Don’t let your company get hit with a material cyber incident, and then trade stock: SEC

U.S. Securities Exchange Commission (SEC) updates public company cyber incident disclosures, with a critical update to 2011 guidance in the form of making it clearer that company executives are forbidden from trading stocks while in the possession of evidence of a potentially material cyberattack, a nod to issues in recent years where companies holding on to information of a major hack allowed top officials to trade before announcing the breach to the public, (via the SEC).

SEC wades into cyber fray with guidance, though companies could face revisions

Companies chafing against U.S. Securities Exchange Commission (SEC) cyber guidance to update reports of cyber incursions if they are later found to be inaccurate, (via the National Law Review).


In latest global corruption index, U.S., U.K. inch higher, New Zealand tops, Syria, Somalia, bottom

In the latest 2017 edition of Transparency International’s Corruption Perceptions Index, the global anti-graft watchdog has crowned New Zealand and Denmark the cleanest countries in the world, with scores of 89 and 88 respectively, when it comes to illicit influence peddling, while, not surprisingly, perennial bottom dwellers Somalia, South Sudan and Syria were judged to have the least perceived rule of law, with scores all below 15, when it comes to bribery as a service. The group ranks countries on a scale from zero to 100, with zero highly corrupt and 100 highly clean. The group also ranks 180 countries against each other.

The United States inched up one point to 75 in the current ranking, while the United Kingdom also moved up a point to 82. Compared with other countries, that landed the U.S. at 16, and the U.K. at No. 8, with both among the top 20 cleanest countries in the world overall. The best performing region is Western Europe with an average score of 66. The worst performing regions are Sub-Saharan Africa, an average score of 32, and Eastern Europe and Central Asia, an average score of 34. The latest index also highlighted the importance, and risks, of journalists as agents of change in highly corrupt countries, noting that in such regions, a newsperson is killed each week in their search for truth, (via TI).

German company setting aside nearly $250 million for corruption settlement

Fresenius Medical Care AG, a dialysis provider based in Homburg, Germany, said in a securities filing Tuesday that it has set aside €200 million ($245 million) for a potential FCPA resolution with the DOJ and SEC, (via the FCPA Blog).

FCPA issues to watch out for in 2018

A look at key FCPA takeaways from 2017 and a look ahead to what this year may hold, including more international cooperation in cases, a focus on the strength of compliance programs and the actions of foreign intermediaries, (via NYU).

Virtual currency

FATF more aggressively tackling intersection of crypto currencies, criminal groups

The Paris-based Financial Action Task Force (FATF) has said it will step up its efforts in monitoring the use of cryptocurrencies in money laundering, a nod to the growing fears of regulators, investigators, countries and watchdog groups to better understand how criminals use the nascent sector to further illicit schemes. According to a memo published last Friday of its latest meeting, the task force said it has taken on board the findings of a recent report regarding the risks of cryptocurrency money laundering and the regulatory measures being adopted in different countries.

As a result, the FAFT has decided to implement additional initiatives to address the risks of cryptocurrency in money laundering. Although the agency has yet to put out a concrete policy for implementation, the meeting nonetheless signals growing attention from worldwide regulators over illicit uses of cryptocurrency that could undermine the global financial system, (via CoinDesk).

Will more payment processors shy away from virtual exchanges tied to risky transactions?

BitPay payment processor begins crackdown on potentially illicit, higher risk activities related to drugs, payments, virtual value exchanges, (via Coin Telegraph).

U.K. to review AML crypto vulnerabilities

The U.K. is launching a country-level review of the opportunities, oversight and controls around crypto currencies, including AML risks and regulations, (via ETH).

After rules change, Japanese virtual exchanges see suspicious reporting surge

In less than a year after updated AML rules change, virtual currency exchanges in Japan report nearly 700 cases of suspected money laundering, (via Cryptovest).

Human trafficking

Red flags tied to human trafficking, from the Canadian perspective

A primer on human trafficking, how best to uncover, counter the rising scourge, with a focus on Canada, (via Grant Thornton).


Wolfsberg adds clarity, definitions related to correspondent banking

Key guidance on correspondent banking from Wolfsberg, adding refreshing clarity to an area that has been a major focus of U.S. federal regulators and investigators, leading to hefty AML penalties against domestic and foreign banks, (via Wolfsberg).


Insight into North Korea’s virtual value charades and chicanery

A look at how North Korea uses Bitcoin to evade sanctions and move hundreds of millions of dollars annually, (via Vox).

Narco trafficking

Law enforcement seizes 12 suitcases of ‘maximum purity’ cocaine worth more than $50 million at Russian embassy in Argentina

Police in Argentina have foiled a plot to smuggle cocaine to Europe through the Russian embassy’s diplomatic courier service, following an elaborate sting operation involving a shadowy Moscow intelligence chief, eventually capturing a haul worth tens of millions of dollars on the open market. Five suspected members of the drug gang, including a former accountant at the embassy and a Buenos Aires police officer, have been arrested in Argentina and Russia. But the alleged head of the network, a mysterious Russian businessman known only as “Señor K”, remains at large.

The plot was discovered by the Russian ambassador in December 2016 when he came across nearly 400kg of the drug inside 12 suitcases in a storage facility belonging to the diplomatic mission.  The ambassador, Viktor Koronelli, immediately informed the Argentine authorities, who seized the cocaine. The haul was of “maximum purity” and worth €50 million on the Russian market, Patricia Bullrich, the Argentine security minister, said as she revealed the operation on Thursday. The discovery of the drugs was kept secret while Russian and Argentine security services collaborated on the year-long sting, (via the Telegraph).

Money laundering

Russian millions laundered via opaque UK firms through Denmark’s biggest bank, leaked report says

A Danish bank accused of money laundering shut down Russian accounts after concluding that they were being used to funnel cash through British companies by members of Vladimir Putin’s family and the FSB spy agency, according to leaked reports. Danske, Denmark’s biggest bank, closed 20 Russian customer accounts in 2013 following a whistleblower report alleging that its Estonian branch was involved in suspicious and possibly illegal activity. Last September it emerged that the same branch was at the center of a secret lobbying operation in which some $2.9 billion of mostly Azerbaijani money was channeled through opaque British companies.

The latest revelations concern a different group of firms, most registered in London. In summer 2013 Danske bank employees discovered that one of these UK entities, Lantana Trade LLP, had filed “false accounts” to Companies House. According to the whistleblower report, Lantana told Companies House that it was “dormant”, with only a very limited financial turnover. In fact, Lantana held large deposits and made daily transactions of millions of euros. Lantana’s Danske account – opened in late 2012 – functioned for 11 months. The ultimate owners of Lantana, and related limited partnerships, were Russians. But their identities were hidden behind a series of offshore management firms based in the Marshall Islands and the Seychelles, (via the Guardian).

Africa still losing tens of billions a year due to corruption, illicit groups

Illicit financial flows cost Africa some $50 billion a year, (via Euractiv).

Terror financing

FATF to punish Pakistan at U.S. behest tied to global terror fight

Global money-laundering watchdog, FATF, has decided to place Pakistan back on its terrorist financing watchlist, a government official and a diplomat said, in a likely blow to Pakistan’s economy and its strained relations with the United States, (via Reuters).

Tax evasion

U.S. tries to even tax dodging playing field

New U.S. legislation introduced Tuesday would equalize the tax rates for domestic businesses and multinational corporations — reducing the tax incentives to shift jobs and profits overseas that were enacted under the recent tax overhaul, according to a corporate transparency watchdog, (via the FACT Coalition).


Australian bank duels with regulator, denies allegations of broad AML failures

The Commonwealth Bank has largely denied 100 extra allegations made against it in an anti-money laundering lawsuit brought by regulator Austrac last year, only agreeing to 11 “in part only,” while the bank battles an alleged nearly 54,000 contraventions of counter-financial crime laws, (via IT News).

Japanese regulator pushing banks to improve AML compliance, step up identifying, reporting on suspicious activity with FATF review looming next year

Japan’s financial regulator, concerned that banks are falling behind in their efforts to block money-laundering and other illicit finance, is urging lenders to do more, two people with direct knowledge of the matter said, including better identification and reporting of potential illicit activity. The Financial Services Agency (FSA) will set up a public-private panel to discuss the issue and push for more rapid changes. Japan faces a peer review in 2019 by the Paris-based Financial Action Task Force (FATF). A critical report by the group could result in sanctions that could include shunning Japanese banks out of the global banking network.

The FSA, which has been urging the industry to step up measures to detect suspicious transactions, is especially concerned about the preparedness of Japan’s smaller banks after conducting a survey last year that showed widespread deficiencies. In one recent incident, a bank processed “unnatural transactions” involving an overseas business entity without proper checks for possible illicit money transfer, an FSA official told a recent meeting with regional bank heads, according to people briefed about the meeting, (via Japan Today).

Marijuana banking

Feds looking to formalize new guidance as Cole memo wilts under Sessions’ gaze

U.S. federal agencies are working on new marijuana-related banking guidance as sector watches fracas between new attorney general and states, (via Civilized).

Russia probe

Is the net closing on Trump?

Trump’s former campaign aide pleads guilty in Russia probe, to cooperate with Mueller, (via the New York Times).


Some U.K. remitters struggling to properly monitor, train agents, eject those who flout AML duties

A United Kingdom regulator has noted that some money services businesses (MSBs) are struggling to monitor their sprawling, international agent networks, leading to instances where some agents have eschewed proper anti-money laundering (AML) compliance duties, either due to being wooed by profits, illicit groups or due to weak training.

The review by Her Majesty’s Revenue and Customs (HMRC) to gauge compliance with the country’s strengthened AML Directive and another regulation related to wire transfers highlighted several areas where MSBs, including money remitters, currency exchangers and similar operations, where failing in their AML duties, including:

  • Lax or no customer due diligence, leading to not knowing the true risk of an individual or entity.
  • Inability to link transactions across related entities, or multiple MSBs using the same agent.
  • Agents not knowing about AML compliance, or how to use transaction monitoring systems and keeping poor records.
  • Agents not knowing how to identify structuring or filing suspicious activity reports.
  • Agents exhibiting  poor IT security, for  example  by  widespread  password sharing, (via HMRC).


Latvian bank designated by U.S. as laundering operation to fold

After U.S. designates Latvian Bank, ABLV, a “primary money laundering concern,” European Central Bank announces institution will be liquidated due to the high likelihood it would fail, (via Baltic Course).

Will Canada finally employ the DPA in major AML cases?

The federal government said Thursday on its Public Services and Procurement Canada website that it will introduce legislation creating “deferred prosecution agreements” (DPA) – settlements that suspend criminal prosecution for companies that submit to special conditions, following the regime used widely in AML cases in the U.S. and U.K., (via the Globe and Mail).


GAO analyzes AML-related de-risking

New U.S. GAO report tackles AML de-risking in the border regions, noting that some banks have dropped ties to customers, products and regions due to perceived financial crime risks, higher compliance costs or actual or perceived regulatory pressure, (via GAO).