FINANCIAL CRIME WAVE – U.K. BANKS AND DATA SHARING, IRS ‘JOHN DOE’ SUMMONS ON BITCOIN FIRM, AND MORE

n this week’s Financial Crime Wave, banks in the United Kingdom lobby for broader sharing powers tied to criminals and terrorists, so information can be shared with other banks during the investigation stage and not just when the reporting threshold is reached, the IRS issues a “John Doe” summons to a virtual currency firm on tax evasion fears, EU police sting nabs money mules, and more.Information sharingU.K. banking chiefs are pushing for more powers to share information on criminal, terror groupsBanking chiefs are calling for new legal powers to help them stop terrorists and other criminals from channeling funds through the City — after revealing that as much as 50 million pounds is already “frozen” in accounts as suspected proceeds of crime. In evidence to Parliament, the British Bankers’ Association says its members have a “strong interest” in helping the authorities investigate criminal financing and regard the problem as a “very important” issue. But it warns existing legislation makes it too difficult for banks to share information about their customers’ accounts with each other. It says this is hindering efforts to identify illegal activity by making it harder to put together “jigsaw” pieces that would identify money launderers, fraudsters and terrorists. The BBA, which represents 200 banks managing £7 trillion in UK assets, wants MPs to “lower the threshold” for intelligence-sharing and make it easier for institutions to help each other spot criminal transactions. At the moment banks are only able to divulge information about a customer’s transactions if concerns are sufficient to trigger a “suspicious activity report” to law enforcers. The BBA says this threshold is too high. Anthony Browne, chief executive of the BBA, told MPs: “If there was activity just below the formal level of suspicion, if [banks] could at that stage share intelligence like two pieces of a jigsaw, they could find out that something happening in bank A is also happening in bank B. That could … enhance intelligence-sharing,” (via the Evening Standard).FintechBanks and fintech firms should collaborate, but AML risks must be monitored, mitigatedIn the face of new financial, consumer and technology choices and advancements, banks and fintech companies are starting to collaborate, but that collaboration often fails to effectively address fundamental risks associated with money laundering and other financial crimes. When a bank partners with a startup firm, the risks related to anti-money-laundering compliance have particularly attracted the attention of global financial services regulators. And all too often, bank leaders are nervous about pursuing a relationship or new account with a fintech company because of the AML and regulatory concerns. Monitoring a fintech partner over time can also amplify overhead spending. For example, internal AML systems often need to be adjusted to account for fintech data and relevant risks, and expanded resources may be needed to effectively perform and document ongoing due diligence of the fintech providers’ adherence to AML roles and responsibilities. Each of a bank’s accounts, partnerships and other relationships with fintech companies is unique, and each requires thorough vetting and due diligence before the bank determines whether a fintech company fits into its culture, risk boundaries and strategy, (via American Banker).Tax/virtual currencyCourt authorizes ‘John Doe’ summons against virtual currency firm CoinbaseA federal court in the Northern District of California entered an order today authorizing the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015.  The IRS is seeking the records of Americans who engaged in business with or through Coinbase, a virtual currency exchanger headquartered in San Francisco, California. Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency.  There are nearly a thousand virtual currencies, but the most widely known and largest is bitcoin.  Because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS.  In the court’s order, U.S. Magistrate Judge Jacqueline Scott Corley found that there is a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws, (via the Justice Department).RegulationsEU Parliament banks council for tax authorities to share AML dataIn the wake of several tax evasion scandals, including the “Panama Papers” revelations, Parliament has backed Council’s position, and given the go ahead, by 590 votes to 32, with 64 abstentions, for tax authorities across Europe to automatically share information about bank account holders. The new rules will enable and oblige tax authorities with anti-money laundering responsibilities in any EU country to automatically share information such as bank account balances, interest income and dividends, with their counterparts in other member states. In its resolution, Parliament says that links between money laundering, the funding of terrorism, organised crime and tax evasion, highlight the need for close cooperation and coordination among EU countries. The update of Directive 2011/16/EU was tabled by the Commission in July 2016 and was endorsed by member states in September. Parliament’s vote now allows it to enter into force immediately and member states must implement it before the end of 2017, (via New Europe).Money mulesPolice sting across Europe nabs hundreds of money mules, millions of dollars in stolen fundsPolice forces across Europe and the United States arrested 178 people as part of a crackdown on money laundering last week and identified some 23 million euros ($24.46 million) in stolen funds, the European Union judicial agency Eurojust said. The arrests were the result of an operation targeting the practice of money muling, where illicit funds are disguised by wiring them through the accounts of intermediaries, or mules, who are paid with a cut of the proceeds. Some 580 money mules were identified and police interviewed 380 suspects during the operation, which was intended to tackle the growing volume of online payment and card fraud across the continent. The growing scale of card fraud was highlighted at the weekend, when cyber security analysts said criminals had used malicious software to “jackpot” cash machines in more than a dozen European countries – rigging them so they spit out cash. Money mules are essential to the money laundering strategies of many criminal networks. Since the practice is often disguised as legitimate employment, many are unaware they are involved in a scam for which they can end up facing criminal charges, (via Reuters).DPAsIn the U.K., hurdles remain in broad adoption of DPA settlementsOne year after the U.K.’s Serious Fraud Office entered into its first deferred prosecution agreement, lawyers involved in corporate crime investigations remain mostly lukewarm about the potential advantages that such resolutions offer to a corruption or bribery case. “The DPAs are a useful tool for resolution of the right investigation in the appropriate circumstances, but there are still some issues that limit their appeal,” said Sion Richards, a partner at Jones Day who advised Standard Bank, now ICBC Standard Bank PLC, last November in what was the first ever DPA offered by the SFO. “For instance, the guidance only allows for a 30% reduction in the financial penalty, which is basically the same discount as a guilty plea,” he said. The SFO has sealed two DPAs so far, and in both cases it brought charges for companies’ failure to prevent bribery. After determining the penalty, Standard Bank got a one-third discount for its cooperation during the investigation. In the other case, known as XYZ because the investigation is ongoing, the judge increased the discount to 50%, saying it wasn’t in the interests of justice to bankrupt the business. DPAs have become more oft-used in the United States, though they typically come with steep monetary penalties and in rare cases, a guilty plea, (via the Wall Street Journal).Virtual currencyShadowy new law enforcement player emerges in Silk Road caseFor two and a half years, the black market bazaar known as the Silk Road tempted thousands of drug dealers and customers with promises of anonymous commerce—as well as at least two corrupt law enforcement agents who tried to profit from the dark-web-based business they were meant to be investigating. Now the defense team of the site’s creator says it’s found signs of a third rogue cop tied to the Silk Road’s drug money. And this one, they say, remains at large. In a press conference today, lawyers representing Silk Road’s convicted founder, Ross Ulbricht, announced that they’ve dug up private chat logs from the site’s user forum that shed light on a mysterious figure known only as “alpacino.” In chats with the Dread Pirate Roberts, the pseudonym Ulbricht used on the site, alpacino offered information about the law enforcement investigation into Silk Road in exchange for weekly payments. According to the defense team, those chats didn’t appear in earlier versions of the forum logs shared by the prosecution and defense, suggesting that someone in law enforcement tampered with evidence to cover up those conversations. The defense team discovered the chats in a newly unearthed copy of the user forums backed up to an obscure subdirectory on the site’s server, (via Wired).Terror financeIn bank challenges to finding foreign fighter funding, open source channels can helpIt has recently been reported that a leaked draft document from HSBC’s monitor identified 13 British customers linked to Islamic terrorist groups in Syria.  While it is impossible to make any determination on HSBC’s AML policy without the full details of the report, this leak highlights a challenging topic for all banks. There is no official number, but according to British authorities, approximately 850 people from the UK have traveled to support or fight for jihadist organizations in Syria and Iraq.  In many cases, those who have gone to Syria or Iraq have done so in clusters from the same regions or in a close time frame.  The UK is not alone, according to the EU’s Commissioner for Justice, Vera Jourova, about 6,000 Europeans have joined jihadi groups.  The US has also had hundreds of Americans travel to Syria And Iraq to fight. Specifically related to the topic of ISIS links in the UK, the BBC has complied an excellent public data set of Britons who have died, been convicted of offenses relating to the conflict, or are still in the region.  The information was compiled from open sources and BBC research. The Counter Extremism Project (CEP) also maintains a listing of foreign fighters as part of their Global Extremist Registry, (via TransparINT).FATFVanuatu faces sanctions for not improving AML gaps as some correspondents retreatVanuatu, a South Pacific nation accused of inaction over money laundering, is facing international sanctions as its politicians debate whether to spend government funds to fix the country’s financial services or to deal with disaster reconstruction. Vanuatu, home to 270,000 people, has a 25-year-old offshore financial center offering banking and company-creation services that provide well-paid employment in its capital, Port Vila. In September the Financial Action Task Force, an inter-governmental group that combats money laundering and terrorist financing, warned of “strategic deficiencies in Vanuatu’s anti-money laundering and combating the financing of terrorism system.” The group called for an action plan including criminalizing money laundering and terrorist financing, along with other measures such as the confiscation of assets and supervisory and oversight programs. However, Vanuatu has shown few signs of full compliance, and now faces “further action and scrutiny.” Sanctions in the region typically involve isolating a country’s banking system by disallowing the use of credit cards and stopping financial transfers. For example, Germany’s Commerzbank cancelled the National Bank of Vanuatu’s correspondent bank account in March, (via the Nikkei Asian Review).Bulk CashIndian citizens gets creative to launder ‘black money’ as high-value notes become worthlessIndia’s monetary system was thrown into a crisis Nov. 8 when the government unexpectedly scrapped its high-value rupee notes for new bills as a way to target millions of tax evaders and their presumed stashes of “black money,” which is income not reported to the government. About a quarter of India’s gross domestic product comes from this shadow economy, according to the Finance Ministry, and few Indians pay income taxes. Many ordinary citizens praised the move initially. But the long lines at banks and ATMs continue, salaries have been delayed and patience is wearing thin. Meanwhile, those in India for whom dealing in undeclared cash is a way of life are coming up with creative ways to dispose of their now-useless wads of money: 1. Gold smuggling –  Normally, gold is smuggled into India, the world’s second-largest consumer of the precious metal, viewed by many of the Hindu faith as sacred. Yet one man was recently arrested at the airport in Mumbai trying to smuggle gold out of the country, the Hindustan Times reported, (via the Washington Post).EnforcementSpanish bank penalized for AML failings, audit gaps tied to property groupSpain’s Santander has been fined 1 million euros ($1.1 million) for its “serious failure” to prevent money laundering through an account held by the property group Rumasa between 2007 and 2011, the Spanish Supreme Court said on Monday. Santander was fined for failing to audit 602 operations with a total value of more than 50 million euros ($52.84 million), the court said. The Rumasa account was with Spanish bank Banesto, which Santander ran before merging it into its main structure in 2013. A spokeswoman for Santander declined to comment. “If we consider the absolute figures, the fine of 1 million euros cannot be considered disproportionate,” the court said in a statement, (via Reuters).Latvian branch of Swedbank pays AML penalty as country tries to improve reputationThe Latvian branch of the Swedish banking group Swedbank said on November 23 it will implement measures to curb money laundering. The pledge follows an audit and a fine of 1.36 million euros from the country’s Financial and Capital Markets Commission (FKTK). The fine against the Swedish group comes as Latvia seeks to clamp down on a banking sector that carries a poor reputation. The country’s boutique banks have often been found to facilitate illegal money flows, largely from Russia and other CIS countries. However, the Scandinavian banks that dominate in the Baltic region have faced little criticism until now. The FKTK audit found deficiencies in Swedbank’s internal control systems, processes and documentation. The watchdog slapped a fine of €1.36mn on the bank before agreeing on a correction program. Latvia has long been under suspicion from the EU, the US, as well as international organizations such as the OECD for being too liberal on money of unclear origin. About half of all money held in Latvian banks are non-resident deposits, often coming from Russia and other countries of the former Soviet Union. The country’s lenders have been implicated in moving money connected to several major corruption cases in recent years. Latvia has stepped efforts of late to tackle the problem. A number of banks were fined or otherwise punished, most recently the Estonian lender Versobank, (via IntelliNews).CybersecurityHackers hit San Francisco travel network in ransomware attack, demand $70,000San Francisco’s transport agency has been hit by a hack attack that led to customers being able to travel for nothing. The hackers have made a ransom demand of 100 Bitcoin, which amounts to about $70,000 (£56,000 ; €66,000). As a precaution, staff shut off all ticketing machines on the network. Computers across the city’s transport network, including at stations, were disabled with screens displaying a message from the attackers. The message read: “You Hacked, ALL Data Encrypted. Contact For Key(cryptom27@yandex.com)ID:681 ,Enter.” Yandex is a Russian internet company that, among other things, provides email and social networking tools. The trains themselves were not affected – and city officials said a full investigation was underway. On Sunday, ticketing machines were back up – but it was not clear if the hack had been contained.  San Francisco news site Hoodline told the BBC the hacker had provided a list of machines he or she claimed to have infected in Muni’s network – more than 2,000 in total. It appeared to include many employee terminals as well as machines that may be used to look after payroll and employees’ personal information. The hacker told Hoodline on Sunday that Muni had “one more day” to make a deal, (via the BBC).