FINANCIAL CRIME WAVE – PWC MUST PAY FDIC $625 MILLION IN BANK COLLAPSE, FRENCH TERROR CASE, AND MORE

In this week’s Financial Crime Wave, a judge hands down a potential record judgement requiring audit firm PricewaterhouseCoopers to pay the Federal Deposit Insurance Corp. more than $625 million related to a bank’s collapse, French authorities probe a cement firm for ties to ISIS, five countries, including U.S. and U.K. form a global alliance to fight financial crime, and more.

Enforcement

In potential record ruling, U.S. judge says PwC must pay FDIC $625.3 million over bank’s collapse

A federal judge on Monday said PricewaterhouseCoopers (PwC) LLP must pay $625.3 million in damages to the Federal Deposit Insurance Corp (FDIC) for failing to uncover a fraud that led to one of the largest bank failures of the global financial crisis. U.S. District Judge Barbara Rothstein found it more likely than not that PwC’s negligence was the proximate cause of FDIC damages from the August 2009 demise of Montgomery, Alabama’s Colonial BancGroup Inc, once among the 25 largest U.S. banks. Rothstein said PwC failed to uncover a multi-year fraud between Colonial, its former client, and Ocala, Florida-based Taylor, Bean & Whitaker, once the nation’s 12th largest mortgage lender and a major Colonial customer.

The FDIC sued in its role as receiver for Colonial Bank, which once had more than $25 billion of assets and 340 branches. Taylor Bean also failed in August 2009. Its former chairman, Lee Farkas, is serving a 30-year prison term for his 2011 conviction on fraud and conspiracy charges. Rothstein had found PwC liable for negligence in December, after a non-jury trial, and tried the damages issue in March, also without a jury. PwC had argued that the FDIC could recover $306.7 million at most, and that no damages were justified because numerous Colonial employees had interfered with its audits, (via Reuters).

Terror finance

French cement firm probed for funding jihadists in Syria for profit, allegedly paying ISIS to keep plant open after competing firms left

French cement giant Lafarge was charged Thursday with complicity in crimes against humanity and financing a terrorist organization for paying millions to jihadist groups, including the Islamic State, to keep a factory in Syria open during the war. French rights group Sherpa, one of the plaintiffs in the case, said it was the first time that a company anywhere in the world had been charged with complicity in crimes against humanity. A legal source said the company, which paid the armed groups through middlemen, has also been charged with endangering the lives of former employees at the cement plant in Jalabiya, northern Syria.

The allegations against Lafarge, which merged with Swiss firm Holcim in 2015, are the most serious against a French company in years. Lafarge was ordered to hand over $35 million to authorities as a security deposit ahead of the trial. Eight Lafarge executives, including former CEO Bruno Laffont, have already been charged with financing a terrorist group and/or endangering the lives of others over Lafarge’s activities in Syria between 2011 and 2015. Lafarge is suspected of paying nearly $16 million to the IS group and other militant groups to keep the Jalabiya plant running long after other French companies had pulled out of Syria, (via Telesur).

Investigations

Five countries form a new Joint Chiefs of Global Tax Enforcement (J5) Alliance to better counter cyber criminals, professional financial crime enablers

Her Majesty’s Revenue and Customs announced an alliance on tax enforcement between the United Kingdom, Canada, the Netherlands, the United States and Australia this week with the goal to better combat international tax crimes and money laundering. Members include the heads of tax crime and senior officials from the Australian Criminal Intelligence Commission (ACAC) and the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Dutch Fiscal Information and Investigation Service (FIOD), Her Majesty’s Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI). The group will build on existing international cooperation by sharing intelligence and expertise, and will cooperate on joint operations to investigate persons who are enablers of tax crime.

At their first meeting, the J5 brought leading experts in tax and other financial crimes from each of the five member countries to develop tactical plans and identify opportunities to pursue cyber criminals and enablers of international tax crime. According to HMRC, the new alliance will help to build on work that has obtained more than £ 2.8 billion from offshore tax evaders since 2010. The J5 was formed in response to a call to action from the OECD for countries to do more to tackle the enablers of tax crime.  All five countries have similar threats:  organized crime groups and wealthy offshore tax evaders who are well resourced and have access to professional enablers to hide income and assets using the global financial system, (via the IELR Blog).

Sanctions

An Iranian diplomat, along with five others, have been arrested over a plot to blow up an event of an exiled Iranian opposition group. The event for the National Resistance Council of Iran (NRCI), an Iranian opposition organization based in Paris, also featured President Donald Trump’s lawyer Rudy Giuliani on Saturday, (via Business Insider).

Compliance

European Union banks face an anti-money laundering crackdown before the end of the year following allegations of wrongdoing at two Latvian and Maltese lenders, top officials say (Reuters).

Casinos

U.K. gambling regulator penalizes gaming company $2.6 million for AML missteps, failing to report on whale customer

The United Kingdom’s chief gaming regulator, the Gambling Commission, has handed down a penalty of two million pounds, or $2.6 million, against an online gambling company based in Gibraltar, a British overseas territory, for giving special treatment to a “whale” customer, rather than following proper anti-money laundering (AML) program rules. At issue is that 32red allowed a single customer to deposit hundreds of thousands of pounds with doing a review to determine if the funds were legitimate, if the customer was high-risk and if the firm needed to file a suspicious transaction report (STR) with authorities.

In penalty documents, the Gambling Commission stated that 32Red should have double-checked the customer’s account for source of wealth and other checks in 2016, but “because of the existing relationship the customer was deemed low risk and de-prioritized.” The issues continued from 2014 t o2017, when the customer’s deposits had ballooned from 235,000 pounds, to 500,000 pounds and finally to nearly 768,000 pounds – and even after the customer stated he had a gambling problem. But instead of pulling back on the relationship with the customer, 32Red extending the person more bonuses to keep him gambling. The regulator noted the online gambling firm could have deduced the individual did not have the wealth he was gambling with by requesting income statements and even doing a Google Earth search of the person’s home address, which would have noted an average income, (via the Gambling Commission).

Human trafficking

Watchdog group calls for U.S. to repeal sex trafficking law as law could hurt those trying to decriminalize prostitution, protect sex workers

Digital rights campaigners are starting a legal challenge to a U.S. law that seeks to fight online sex trafficking, as it could hurt countries and groups trying to legalize prostitution – a move that could bring more protections to sex workers and legitimize their income, easing the burden on bank compliance departments. The Electronic Frontier Foundation (EFF) says the “poorly written” law can hinder attempts to help victims and prosecute traffickers. The Fight Online Sex Trafficking Act (Fosta) also trespasses on free speech laws, claims the lawsuit. The EFF wants the law declared unconstitutional to stop it being enforced. In blog announcing its legal action, the EFF said the law needed to be halted because, in its current form, it was harming many people working on behalf of sex workers and victims.

In particular, said the EFF, the vague language in Fosta puts those who call for decriminalization of sex work, or who try to establish greater recognition for prostitutes and others in the trade, at the risk of prosecution. In addition, it said, the law undermines established protections enjoyed by websites that host content posted by their users. Already net firms including Craigslist, Reddit and others have shut down forums and chat rooms dedicated to the buying and selling of sex for fear of prosecution. The law has also limited the work of organizations trying to help people who offer sexual services, said the EFF. One such was VerifyHim, which logged descriptions of abusive clients to help workers avoid them, (via the BBC).

De-risking

In continued de-risking debacle, access to international financial certain for certain countries, sectors, is shrinking: GAO report

The Government Accountability Office (GAO) is urging regulations to look inward and engage in a thorough, honest assessment to see how federal regulatory agencies are exacerbating a trend of banks dropping connections to certain countries or customers due to actual or perceived anti-money laundering risk. At issue in the global debate about de-risking is that while banks claim regulators are forcing them to drop accounts, threatening penalties or more draconian exams, examiners publicly have said very little about what they truly feel banks should do when juggle risk. In that same vein, law enforcement groups have called for regulators to pull back and let banks bank as many entities as possible as they can yield vital intelligence to make or break international investigations.

In its recent studies on this issue, the latest published just days ago, GAO made five recommendations: to Treasury and the federal banking regulators to conduct a retrospective review of BSA/AML regulations and their implementation, and to Treasury to assess shifts in remittance flows to nonbanking channels. Banking regulators agreed with the recommendations. GAO requested comments from Treasury, but none were provided. Ultimately, what is clear from the Derisking Statement is that the spectrum of financial services available to certain markets is shrinking due to concerns over AML/BSA enforcement, which the U.S. government somewhat suggests are overblown. What is not clear from the statement is whether U.S. regulators will tackle this issue, or how they should tackle this issue, (via the National Law Review). To read the full report, click here.

Iran

Iran Taliban connection

Iran is training hundreds of Taliban fighters in special forces military academies, (via The Times).

Regulations

U.K. sanctions and AML update

A look at the Sanctions and Anti-Money Laundering Act 2018: The UK Sanctions and AML regimes after Brexit, (via Allen & Overy).