Finance Compliance

In this week’s Financial Crime Wave, a prosecutor drops a dime in sprawling Danske Bank money laundering probe, Chinese hackers release sensitive EU diplomatic cables, Standard Chartered talks efforts, importance of financial crime compliance data quality, and more.


‘Thousands’ of EU Diplomatic Cables Hacked: Report

Hackers apparently connected to China accessed thousands of sensitive EU diplomatic cables, the New York Times reported Wednesday, in the latest embarrassing data breach to hit a major international organization. The cables from the EU’s diplomatic missions around the world reveal anxiety about how to handle US President Donald Trump as well as concerns about China, Russia and Iran. The leak, discovered by cybersecurity firm Area 1, recalls the publication by Wikileaks of a vast haul of US State Department cables in 2010, though in the EU case the trove is much smaller and consists of less secret communications, the NYT reported. In one cable, the EU’s diplomatic mission in Moscow describes the controversial summit in Helsinki in July between Trump and Russian President Vladimir Putin as “successful (at least for Putin)”.

There are extensive reports on the situation in Ukraine, where a conflict rumbles on between government forces and pro-Russian separatists, including a warning dating from February that Moscow may already have deployed nuclear warheads in Crimea, which it annexed in 2014. The NYT said that according to Area 1, the techniques used by the hackers over the course of three years were similar to those used by an elite Chinese military unit. The hackers apparently gained access to the diplomatic communications network after a simple “phishing” campaign targeting EU officials in Cyprus. Many of the cables are run-of-the-mill weekly reports from missions around the world, detailing conversations with leaders and officials, the NYT said. More sensitive, classified communications are handled on a different, more secure system, (via Security Week).

Danske Bank

Prosecutor publishes names of suspects in Danske money laundering case

The Office of the Prosecutor General published the names of 10 former employees of Danske Bank’s Estonian branch on Wednesday, among them the bank’s former head of private banking as well as several former managers. All of them are suspects in the billion-euro money laundering case still under investigation. Some of the suspects arrested this week have recently worked as consultants. Of the suspects named on Wednesday, the formerly highest-ranking is Juri Kidjajev. Mr Kidjajev was in charge of the private and international banking business of Danske’s Estonian branch before moving on to Latvian banking group Citadele.

Other former employees suspected in the case include Jevgeni Agnevstsikov, Mihhail Murnikov and Marko Teder, who work together at NRD, a consulting firm. Another suspect known for his appearances in the media is former communications manager at Danske and businessman Erik Lidmets. Others also include Anatoli Ivanov, Anna Kurilenko, Natalja Komarov, Olga Tšetverikova and Oksana Lindmets. All were featured on a list of 26 people submitted by British financier Bill Browder of 26 people who Mr Browder says may have been involved in the money laundering scheme at Danske’s Estonian branch, (via ERR News).

Data quality

Standard Chartered Monthly Missive: A look at the importance of data quality in fighting financial crime

British Bank Standard Chartered, which is attempting to turn the corner on prior financial crime and sanctions penalties, takes a look at the importance of a “clean” data lake when attempting to strengthen counter-financial crime controls. The bank looks at more than a billion transactions annually, a font of financial tributaries including funds and securities, wires, cash deposits and more.

In order to have s out AML program, one top data scientist says, the data feeding these systems must be accurate, a vital foundation for compliance controls that are built are calculating and anticipating customer risk, cross-referencing those assessments with classic and emerging red flags and making the proper decisions when these thresholds reach the level of suspicious and must be reported to authorities – and given further link analysis internally, (via Standard Chartered).


Top 7 Trends in AML Compliance for 2019

Two issues shaped AML news in 2018 – huge money laundering scandals in Europe and the implementation of the first wave of cryptocurrency regulations. As the year draws to a close what can we expect to fill the headlines in 2019? Below we list seven trends that we predict will shape AML compliance in 2019. To prepare you for the year ahead we speak to industry experts to find out what impact they will have and why they matter. A snippet:

1. Information sharing prepares to move beyond big banks

One of the most promising AML compliance trends for 2019, is the prospect of increased information sharing between financial institutions. Considered a cornerstone of an effective AML/CFT framework, information sharing is a key component of the recommendations set out by the Financial Action Task Force (FATF). Early initiatives bringing together the public and private sectors such as the FinCEN Exchange in the US and the Joint Money Laundering Intelligence Taskforce in the UK have all shown that bridging the gap between different players makes a big difference.

While information sharing has seen success among regulators and banks, in 2019 we should start to see it become more prevalent amongst smaller financial institutions. To make sure that this trend is a success, however, a culture of collaboration needs to be cultivated, and supported by timely guidance from regulators. Various obstacles stand in the way of information sharing, not least the inconsistency of territorial regulation and privacy legislation, all of which will need to be resolved for this trend to really get going, (via ComplyAdvantage).


Industrial Bank of Korea New York branch avoids U.S. AML fine penalties

The New York branch of the state lender Industrial Bank of Korea (IBK) has avoided penalties from U.S. authorities after revamping its compliance system in line with local money laundering regulations. The New York State Department of Financial Services (DFS) decided not to impose the fines after conducting a probe into the bank’s anti-money laundering program, according to industry sources on Tuesday.

In 2016, IBK’s New York branch was issued a recommendation from the DFS to improve its internal mechanism for countering money laundering. It has since taken measures to overhaul its compliance system, installing a new overseas compliance team at its Korean headquarters and staffing the New York branch with related experts. Kim Do-jin, IBK’s chief executive, set out Sunday on a four-day tour to the U.S. to meet with officials from the DFS and the Federal Reserve Board. Since his appointment in January 2017, he is said to have visited the New York branch multiple times to directly monitor its progress, (via Business News Korea).


EU Council agrees to strengthen AML supervision, monitoring for banks, reinforce role of EBA as pan-bloc super regulator

The European Union (EU) is stepping up the fight against illegal cash by enhancing monitoring of money laundering and terrorist financing threats across the bloc, by boosting the oversight powers of the European Banking Authority (EBA). EU ambassadors today agreed the EU Council’s negotiating position on a proposal reinforcing the role of the EBA regarding risks posed to the financial sector by money laundering activities. Recent cases involving money laundering in some EU banks have raised concerns that anti money laundering (AML) rules are not always supervised and enforced effectively across the EU, creating risks for the integrity and reputation of the European financial sector, as well as for the financial stability of those banks.

This year, the EU has been plagued by a bevy of high-profile financial crime scandals, including multi-country investigations into nearly $230 billion of payments made through Danske Bank’s Estonian branch, the implosion of Latvia’s ABLV Bank and the shuttering of Malta’s Pilatus Bank. Strengthening the role and powers of the EBA over AML supervision would ensure related rules are effectively applied in all member states and all authorities involved, in particular prudential and AML supervisors, cooperate closely with each other. According to the agreed text, the EBA would be given, in particular, the following tasks:

  • collecting information from national competent authorities relating to weaknesses identified in the context of their action to prevent or fight money laundering and terrorist financing;
  • enhancing the quality of supervision through the development of common standards and coordination among national supervisory authorities.
  • performing risk assessments on competent authorities to evaluate their strategies and resources to address the most important emerging AML risks at EU level.
  • facilitating cooperation with non-EU countries on cross-border case.
  • as a last resort if national authorities do not act, the EBA would be able to address decisions directly to individual banks, (via the EU Council).


FATF puts UK to the test: In reality, an A+ or a big ‘Fat-F?’

Amid overly glowing reviews from the Paris-based Financial Action Task Force (FATF), which sets global financial crime and compliance standards, some believe the United Kingdom is more of a destination for dirty money than these grades suggest – to the tune of an estimated hundreds of billions of dollars annually. Overall, the U.K., and FATF, tout that the country has the strongest AML rules in the world, it has been aggressive in cracking down on anonymous corporate structures by requiring the capturing and publication of beneficial ownership details and has even stated forthrightly in a 2016 counter-crime action plan it wants its jurisdiction to be a “hostile place” for illicit funds.

But for some analysts, there is a lot more to the story – and the picture is not quite as rosy. This is borne out in some of the lower ratings FATF gave the U.K. in terms of its supervision of entities subject to AML compliance rules, and muted propensity for enforcement actions and penalties, its preventative measures to enforce compliance and the functioning of the country’s financial intelligence unit (FIU), considered in many jurisdictions the electronic heart of financial crime investigations, the nexus of where AML filings meet law enforcement analysis and begin or boost on the ground cases, (via Dev O., LinkedIn).

Tax evasion

Tax treaties create $4.2 trillion cash flow through Netherlands, more than five times the economy, to a maze of corporate shells

A network of favorable tax treaties and an industry devoted to minimizing tax bills has made the Netherlands the conduit for an annual flow of capital five times the size of its own economy, new research revealed. Statistics Netherlands published the data for the first time — based in part on information from the Dutch central bank — showing that the country had received 4.6 trillion euros ($5.2 trillion) in “foreign direct investment” in 2017. But only a fifth of that money actually stayed in the $836 billion Dutch economy, as the equivalent of $4.2 trillion was channeled away immediately through mailbox companies, corporate shell companies known as special purpose vehicles.

Thanks to a network of nearly 150 bilateral tax treaties around the globe, the Netherlands has been a key hub for corporate entities shifting profits to lower tax jurisdictions for years. Thursday’s report gave the first comprehensive view of the capital flow this has created. The country houses approximately 14,000 mailbox companies, which shifted more than half of their investments to countries outside the European Union in 2015, the researchers said. Around a third of the money ended up in offshore tax havens, (via Reuters).


Flipping the Three AML Ratios with Machine Learning and Artificial Intelligence (why Bartenders and AML Analysts will survive the AI Apocalypse)

Machine Learning and Artificial Intelligence proponents are convinced – and spend a lot of time trying to convince others – that they will disrupt and revolutionize the current “broken” AML regime. Among other targets within this broken regime is AML alert generation and disposition and reducing the false positive rate (more on false positives in another article!). The result, if we believe the ML/AI community, is a massive reduction in the number of AML analysts that are churning through the hundreds and thousands of alerts, looking for the very few that are “true positives” worthy of being labelled “suspicious” and reported to the government.

But is it that simple? Can the job of AML Analyst be eliminated or dramatically changed – in scope and number of positions – by machine learning and AI? Much has been and continues to be written about the impact of artificial intelligence on jobs.  Those writers have categorized jobs along two axes – a Repetitive-to-Creative axis, and an Asocial-to-Social axis –  resulting in four “buckets” of jobs, with each bucket of jobs being more or less likely to be disrupted or even eliminated, (via Jim Richards, RegTech Consulting).


Senators Warren, Van Hollen call on Senate Banking Committee to investigate Deutsche Bank’s AML controls in wake of raid, laundering probe

United States Senators Elizabeth Warren (D-Mass.) and Chris Van Hollen (D-Md.), both members of the Senate Banking Committee, wrote to Chairman Crapo asking the Banking Committee to launch a detailed, bipartisan investigation into Deutsche Bank. “Over the past several years, Deutsche Bank has been the subject of numerous enforcement actions in the in the United States and abroad, and just weeks ago the bank’s head office and other locations in Frankfurt were raided by 170 police officers and tax investigators as part of a money laundering probe,” the senators wrote.

“Given the Committee’s jurisdiction over banking regulatory enforcement, Deutsche Bank’s history of regulatory problems, and the recent allegations of money laundering that resulted in the recent raid conducted by German law enforcement, we request that the Banking Committee undertake an investigation into Deutsche Bank and its compliance with the Bank Secrecy Act (BSA) and Anti Money Laundering (AML) regulations,” (via Senator Warren).


FinCEN, Finra, SEC levy more than $14 million penalty against securities arm of UBS for AML failings

The Financial Crimes Enforcement Network (FinCEN) in an assessment Monday penalized the securities arm of UBS, UBS Financial Services, Inc. (UBSFS), nearly $15 million for “willful violations” of  anti-money laundering (AML) rules. FinCEN levied a $14.5 million civil money penalty, of which $5 million will be paid to the U.S. Department of the Treasury and the remainder will be concurrent with penalties for similar or related conduct imposed by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (Finra). The penalty is a rare instance of FinCEN tag-teaming with securities regulators on an AML action.

UBSFS “failed to develop and implement an appropriate, risk-based” AML program that “adequately addressed the risks associated with accounts that included both traditional brokerage and banking-like services.” As well, UBSFS “failed to implement appropriate policies and procedures to ensure the detection and reporting of suspicious activity through all accounts—particularly for those accounts that exhibited little to no securities trading.  The firm did not adequately structure its AML program to address the use of securities accounts for the purpose of moving funds rather than trading securities,” (via FinCEN).


Goldman fires back after Malaysia charges bank in 1MDB probe

Malaysia on Monday filed criminal charges against Goldman Sachs Group Inc related to its dealings with the sovereign wealth fund 1MDB, one of the largest corruption and fraud cases of all time, and Goldman Sachs fired back that the previous Malaysian government had lied to the bank. Malaysia authorities charged the bank and two former Goldman employees in connection with an investigation into suspected corruption and money laundering related to the scandal. Attorney General Tommy Thomas said in a statement that it will seek jail terms as well as billions in fines from Goldman Sachs and four other individuals who allegedly diverted about $2.7 billion from 1Malaysia Development Bhd (1MDB).

This is the first time Goldman Sachs, which has consistently denied wrongdoing, has faced criminal charges in the 1MDB scandal.  Goldman Sachs has been under scrutiny for its role in helping raise $6.5 billion through three bond offerings for 1MDB, which is the subject of investigations in at least six countries. Analysts said on Monday that investors had expected Malaysian authorities would file charges against Goldman Sachs and that it would seek fines, including the $600 million in fees Goldman received for the deal and the allegedly misappropriated $2.7 billion bond proceeds, (via Reuters).

Virtual currencies

Beer, lotto, Bitcoin: Virtual currency ATMs may be used to launder money

Even as crypto crashes, these machines are spreading—and they can be perfect vehicles for cleaning dirty cash, according to a Bloomberg report. Bitcoin has crashed since hitting an all-time high last year, but the market for machines that allow people to buy Bitcoins in person hasn’t slowed down at all. BTMs are a legal and fast-­growing part of the crypto world, despite flying under the regulatory radar. They’re fast and require less hassle than online exchanges such as Coinbase. Over the past few years, they’ve been popping up in corner stores, casinos, and smoke shops. There are more than 4,000 of these machines worldwide and 2,389 in the U.S. alone, with new ones installed at a rate of about five a day, according to Coin ATM Radar, a website that tracks the industry.

Obtaining a federal money transmission license requires about 15 minutes on the U.S. Department of the Treasury website, and some states treat the devices as vending machines rather than money-­service businesses. Owners do have to comply with banking regulations that prevent ­money laundering, which requires collecting information about customers. But that practice is very much theoretical, and some machines openly advertise that they flout the law. A company in Los Angeles with 17 machines tells potential customers online that they can buy Bitcoins instantly with no ID, and the transaction is “TOTALLY ANONYMOUS.” But if that’s true, it’s illegal. BTMs are almost by definition perfect vehicles for dirty money. A Bitcoin bought at a machine in Harlem would be instantaneously deposited into a digital wallet, which could be owned by the person standing at the machine, a drug cartel in Colombia, or a ransomware hacker, (via Bloomberg).

Biometric security

3D-printed heads let hackers – and cops – unlock your phone

There’s a lot you can make with a 3D printer: prosthetics, corneas, firearms — even an Olympic-standard luge. You can even 3D-print a life-size replica of a human head — and not just for Hollywood.

Forbes reporter Thomas Brewster commissioned a 3D-printed model of his own head to test the face unlocking systems on a range of phones — four Android models and an iPhone X. Bad news if you’re an Android user: only the iPhone X defended against the attack, (via Tech Crunch).


One of the world’s leading law firms has been forced to address allegations that it advised on a deal for the son of Equatorial Guinea’s dictator to purchase a $38m private jet Clifford Chance said it had not acted for Teodorín Obiang in the deal to acquire the jet in 2006, but that it had advised a third party on the sale.

It also said it advised Obiang personally when US law enforcement accused him of corruption and attempted to seize his assets in 2011. It said it would not accept him as a client today, (via The Guardian).