In this week’s Financial Crime Wave, the U.S. Congress tackles the growing connection between virtual currencies and terror finance, particularly with coins offering anonymity, federal investigators take down domestic dark net site by acting as money launderer, compliance officers go from geek to chic, and more.


U.S. Congress tackles intersection of virtual currencies and money laundering, honing in on risks of anonymous privacy coins

The U.S. Congress this week tackled the vexing issue of how virtual currencies, including centralized, de-centralized and peer-to-peer enabled, could be used for a wide selection of financial crimes, including laundering funds stolen from cyber frauds, hacks and other crimes, but also could be a funnel to illicitly influence geopolitical outcomes – particularly if those funds can’t be linked back to anonymous donors. The US Subcommittee on Crime and Terrorism held a congressional hearing entitled, “Protecting Our Elections: Examining Shell Companies and Virtual Currencies as Avenues for Foreign Interference,” led by Senator Lindsey Graham. Scott Dueweke of DarkTower, Sheila Krumholz of the Center for Responsive Politics and David Murray of the Financial Integrity Network attended as witnesses.

Senator Sheldon Whitehouse, who introduced the Shell Company Abuse Act to protect US elections from foreign corporations and foreign nationals that are trying to influence US elections, referred to future attempts by political meddlers as a “clearly predicted threat” and honed in on the risks created by privacy coins in particular. Because some cryptocurrencies have anonymous features, they’re regarded as being particularly attractive to anyone trying to circumvent campaign finance laws. They can also facilitate peer-to-peer transactions, eliminating banks, and allowing a foreign adversary to conceal its location outside the US – issues also brought before lawmakers by U.S. investigative agencies that too often are getting stymied when fiat money trails jump into the virtual world, (via the Daily Hodl).

Dark net

In first broad U.S. undercover darknet sting, authorities snare illicit drugs, weapons worth nearly $24 million, arrest dozens

In coordinated actions over the past month, multiple federal investigative agencies closed the net related to a year-long undercover sting targeting domestic darknet sites and vendors of a broad array of illicit goods, eventually arresting nearly three dozen individuals and capturing drugs, money and virtual currencies worth tens of millions of dollars. Undercover agents with the U.S. Department of Justice, Postal Service and other agencies posed as black market money launderers in a sting targeted some 65 entities. The extensive operation, which culminated in four weeks of more than 100 enforcement actions around the country, resulted in:

  • Federal arrests of more than 35 Darknet vendors who engaged in tens of thousands of sales of illicit goods;
  • Execution of 70 search warrants, resulting in the seizure of massive amounts of illegal narcotics, including 333 bottles of liquid synthetic opioids, over 100,000 tramadol pills, 100 grams of fentanyl, more than 24 kilograms of Xanax, and additional seizures of Oxycodone, MDMA, cocaine, LSD, marijuana, and a psychedelic mushroom grow found in a residence;
  • Seizure of more than 100 firearms, including handguns, assault rifles, and a grenade launcher;
  • Seizure of nearly 2,000 Bitcoins and other cryptocurrencies, with an approximate value of more than $20 million, (via DOJ).


Watchdog accuses ABN Amro of ignoring signals of money laundering, including individuals accused of financial crimes, corruption

The Belgian branch of ABN Amro ignored signals that controversial clients may be involved in money laundering and did not do any extra research into these clients because of such signals, Trouw reported on Wednesday based on internal ABN Amro emails the newspaper has in its possession. According to the newspaper, this involves clients that even Mossack Fonseca – the company that forms the heart of the tax haven scandal in the Panama Papers – stopped doing business with. Mossack Fonseca reported suspicions of money laundering against at least one of them.

Israeli billionaire Daniel Steinmetz is one of the controversial clients of the Belgian branch of ABN Amro. He has been associated with money laundering for years due to his business partners and his brother, who was involved in a bribery and corruption scandal in Guinea. Another client is Portuguese Helder Bataglia dos Santos, according to Trouw. He was charged with money laundering and forgery last year in a corruption scandal around the former Portuguese prime minister Jose Socrates, (via NL Times).


Iran sanctions risks rising as nuclear joint deal relief implodes

The Trump administration is moving to dismantle the sanctions relief that was granted to Iran under the 2015 nuclear dealfrom which President Donald Trump has withdrawn. The Treasury Department recently revoked licenses that allowed U.S.-controlled foreign firms to export commercial aircraft parts to Iran as well as permit Americans to trade in Iranian carpets, pistachios and caviar. It said businesses engaged in any such transactions have to wind down those operations by August 6 or face penalties under U.S. sanctions, (via AP).


Jury convicts billion-dollar securities scammer

A federal jury in Boston this week has convicted a former executive vice president of State Street Bank & Trust related to a scheme to defraud at least six of the bank’s clients through secret commissions applied to billions of dollars of securities trades, (via DOJ).


U.S. butting heads with Turkey on Russian arms

The U.S. will take the unprecedented step of imposing sanctions on a NATO ally when Turkey receives a Russian missile defense system, according to a State Department official testifying before Congress. The delivery of the S-400s will impair military cooperation between the U.S. and Turkey and will damage relations between the countries more generally, Wess Mitchell, U.S. Assistant Secretary of State for European and Eurasian Affairs, said this week, (via SFGate).


Compliance pros are now rock stars, going from fincrime nerds to in-demand to close enforcement deals

Only yesterday it seemed compliance officers were pimply nerds* focusing on the arcane details of FCPA and AML laws. But a strange thing happened. They morphed into the cool kids. Today’s compliance officers are famous and wanted. What more evidence? The White House commuted ZTE’s corporate death sentence by arranging to embed hand-picked compliance officers in the outlaw Chinese company. Earlier this month, Siemens named a CCO, Sylvie Kandé de Beaupuy of Airbus, to its board of directors. Imagine that — a  role at the highest level of one of Europe’s biggest companies.

Nations are enshrining the compliance function in their legal regimes. Brazil, Argentina, and Mexico now require some government contractors to prove they have effective compliance programs. How do you do that except with compliance officers? Even Russia is moving closer to mandatory compliance programs, hence mandatory compliance officers. What did FIFA do to get back in the game after U.S. prosecutors exposed its global graft? It hired an American compliance officer. The new director of the UK Serious Fraud Office is a compliance pro. Lisa Osofsky worked at the FBI as deputy GC and ethics officer. She was the AML officer at Goldman Sachs in London. She spent time at Control Risks and Exiger, (via the FCPA Blog). *This statement does not apply to Barry Koch, who has always been a compliance rock star.


U.K. SFO prosecuting Monaco-based Unaoil on corruption charges related to payments to secure Iraq-based contracts for firms

The United Kingdom’s Serious Fraud Office is to prosecute an oil company following a two-year criminal investigation into alleged bribery in the energy industry. On Tuesday, the SFO announced that it was bringing four charges of corruption against Unaoil, a Monaco-based oil consultancy. The company is accused of conspiring to making corrupt payments to secure Iraqi construction contracts for two multinationals.

The charges against the company follow the SFO’s previous decision to prosecute four executives with conspiring to make corrupt payments to secure Iraqi contracts. The SFO initiated its investigation into Unaoil in March 2016. According to the SFO’s announcement, the first pair of charges relate to alleged corrupt payments to secure the award of a $733m (£555m) contract to build two oil pipelines in southern Iraq for Leighton, an Australian construction firm. The second pair of charges relate to alleged corrupt payments to secure the award of contracts in Iraq to SBM Offshore, a Dutch firm that manufactures oil platforms, (via The Guardian).


Big four audit firm chastises Swiss banks for failures in fighting financial crime: report

Swiss financial institutions and public authorities must do more to prevent organized crime and money laundering within the financial system, a study by the consulting firm KPMG published on Tuesday has found. The authors of the study called “Clarity on Crime in Financial Services” highlighted several challenges and problems which must be addressed if banks want to successfully prevent and identify criminal financial activities in future. New technologies and digital currencies had made it increasingly difficult to track cross-border cashflows, the study found. But current financial regulations are not keeping up with the speed of recent technological development.

Some 50 banks surveyed had deficits in their risk approaches and their IT infrastructures, the researchers found. What is needed is a sound internal framework which counters the risk of financial crime. Banks must foster a strong compliance culture. The onus is on management to set “an appropriate tone”, which includes enforcing penalties for employees who violate guidelines, wrote the researchers. There is also a need for action when it comes to reporting financial crimes, since it was up to the banks to file high-quality reports to the Swiss Money Laundering Reporting Office Switzerland, (via Swiss Info).

Online gaming

Fraudsters are capitalizing on the popularity of shooter game, Fortnite, to scam individuals out of real, virtual cash

An anti-fraud group is warning parents and online gamers about the risk of fraudsters preying on people who play Fortnite, chiefly through scammers posting bogus links online to supposed in-game currency – but that end up with funds being stolen instead.

Action Fraud said between April 1 2017 and March 31 2018, it received 35 reports of fraud relating to Fortnite, with a total loss off £5,119 – an average of £146 per victim, or more than $150 per victim, (via ITV).


Hackers using malicious browser extensions to steal your resources, mine for crypto coins

Security researchers have been warning of a few newly detected variants of python-based adware that are being distributed in the wild not only to inject ads but also found installing malicious browser extensions and hidden cryptocurrency miner into victims’ computers.

Dubbed PBot, or PythonBot, the adware was first uncovered more than a year ago, but since then the malware has evolved, as its authors have been trying different money-making schemes to profit themselves, according to researchers at Kaspersky Labs, (via the Hacker News).


U.S. Treasury gives glimpse of future fintech regulatory approach, with recommendations for innovation at state, federal levels

A long-awaited report from the U.S. Treasury Department on financial technology will make wide-ranging recommendations about how to modernize regulation at the federal and state levels to promote innovation in financial services, a senior U.S. official said on Thursday. The report, which is expected to be released in the coming weeks, will be the fourth and final in a series the Treasury was tasked with completing as part of an executive order from President Donald Trump on recommendations for regulatory reform. “One of the challenges will be to navigate a regulatory system that was designed in and for a different era,” Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, said at a conference held by the Securities Industry and Financial Markets Association in New York.

Since the financial crisis, more than 3,300 new fintech companies have launched, 40 percent of which are focused on banking and capital markets, Phillips said. Fintech financing has increased 13-fold since 2010, reaching $22 billion globally, with marketplace lending now making up 24 percent, or $18 billion, of all personal loans, he added. The report will recommend changes to statutes and regulations, and in some cases give guidance on rulemaking, Phillips said. It will examine themes such as how regulators can accelerate innovation, reduce regulatory overlap, and tailor rules based on the size and complexity of various business models, including startups and established financial services institutions, he added. It’s unclear how bankers and fintech firms will accept formal regulatory overtures for the nascent sector as a prior strategy for a federal fintech charter was decried by many groups, (via Reuters).

Terror finance

Will FATF put Pakistan on the dreaded gray list, putting even more pressure on the country to bolster AML, counter-terror laws, results

Official proceedings to grey-list Pakistan by the Financial Action Task Force (FATF) are expected to begin in Paris on Monday during the plenary meeting of the global money-laundering watchdog. Caretaker Finance Minister Dr Shamshad Akhtar is leading the Pakistani delegation in the crucial six-day meeting in the French capital. Finance Ministry of Pakistan’s press statement said, “Finance Minister, in her opening remarks, had expressed Pakistan’s strong resolve to keep up efforts on the counter financing of terrorism. She said that the Finance Ministry has improved institutional mechanisms for handling AML/CFT issues.”

Earlier in February, FATF had decided to place Pakistan back on its terrorist financing watchlist in a move that was initiated by the United States of America and backed by UK, Germany, and France. Pakistan is under tremendous pressure to prove its compliance but given that the country goes to polls on July 25 this year, and a caretaker government is representing Pakistan in Paris; it is highly likely that Pakistan will seek more time from the international watchdog. At stake is Pakistan’s reputation as either a country improving its fight against terror groups and corruption, or it will garner the perception that its laws are weakening, hurting overall business stability, (via India Today).

North Korea

Even with thaw in relations between U.S., North Korea, Hong Kong getting tougher, sanctions troubles still ahead

U.S. banks and corporates can’t pull back on their anti-money laundering sanctions filters just yet, at least related to North Korea – despite apparent ovations or the recalcitrant regime to de-nuclearize. Last week, the Hong Kong government released a long-awaited amendment to the United Nations Sanctions (Democratic People’s Republic of Korea) Regulation. The amendment is meant to plug a tanker-sized gap in Hong Kong’s sanctions laws by giving effect to five Security Council resolutions adopted since March 2016. It comes six months after the issuance of UN Security Council Resolution 2397, on 22 December 2017, and about three-and-a-half years since the regulation’s last update, in December 2014.

Meanwhile, on the same day in the US, Donald Trump signed a presidential notice extending the national emergency declared under Executive Order 13466 , in 2008, and subsequent executive orders, with respect to North Korea. The notice means that US sanctions against North Korea will continue for at least one more year, unless terminated by the president. According to the notice: “The existence and risk of proliferation of weapons-usable fissile material on the Korean Peninsula and the actions and policies of the Government of North Korea continue to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.” What does this mean for banks, corporates and firms involved in international trade and shipping? Be more vigilant than ever against North Korean entities hiding behind shell firms with a propinquity to the region and be sure your sanctions filter routines are up to date, (via Regulation Asia).

Virtual currencies

Malta becoming hub for crypto exchanges due to friendly regulations, weak AML enforcement

Why is Malta becoming a hub for many of the world’s crypto currency exchanges? Very smart regulators and regulations. The bills give Malta Financial Services Authority the regulatory power to publish, and even monitor, while enforcing rules on digital currencies. The authority’s tasks include certifying blockchain platforms while ensuring the credibility and provision of legal assurances when it comes to digital currencies. The bills also provide a framework to ensure that registration of technology service providers while clarifying technological arrangements and conducting audits on various platforms, (via Crypto Block).

Irish banks not smiling when it comes to any ties to crypto sector

Trepidatious related to even the legal crypto currency sector, Irish banks are pulling away due to a blanket policy change to drop any firms doing virtual currency exchanges, (via Inside Bitcoin).

Japan strengthening oversight of virtual currency exchanges

The Japanese Financial Services Agency (FSA), the team behind the new exchange regulation movement, are allegedly imposing further restrictions on a number of exchanges within Japan, who are failing to meet up with their new, strict regulations, raiding at least a half dozen and question a broad array of controls, including financial crime counters, (via Crypto Daily).

Audit firms

Independent Review? Auditor of Citi, Credit Suisse and Deutsche Bank tipped off before regulatory inspections: report

The auditor of some of the world’s largest banks including Citigroup, Credit Suisse and Deutsche Bank was tipped off before a regulator inspected them, according to court documents and reports, adding that, in some cases, employees would receive bonuses if their engagements received no comments from inspectors. It’s been previously reported thaKPMG executives were able to extract from the regulator, the Public Company Accounting Oversight Board, confidential information ahead of inspections, and use that information to correct their work and at least in one instance, withdrawn an opinion. But MarketWatch now has court documents that, for the first time, names the audit clients caught up in the scandal.

The Justice Department in January brought criminal charges against five former KPMG executives and one former regulator for allegedly taking advantage of advance notice of regulator inspections. Court filings made June 8 by lawyers for two of the KPMG partner defendants spells out the audit clients caught up in the scandal. They’re mostly financial companies: Citigroup, Credit Suisse, Deutsche Bank, Banc of California, BBVA, Chemical Financial Corp., Ambac, Phoenix Life, and NewStar Financial as well as C&J Energy Services, (via MarketWatch).


OCC levies more than $12 million penalty against Bank of China on AML failures, OFAC foibles

The U.S. Treasury’s Office of the Comptroller of the Currency (OCC) penalized the domestic operations of Bank of China (BOC) for a host of anti-money laundering (AML) deficiencies, including lapses related to correspondent banking, trade finance and missed suspicious activity reports. The lender, one of the world’s largest, is just the latest in a string of foreign banks, particularly from China, that have come under the regulatory compliance microscope. The OCC also noted deficiencies related to the screening of blacklisted entities designated by the U.S. Treasury’s Office of Foreign Assets Control (OFAC).

The action, originally leaked by Bloomberg in January 2016, mirrored deficiencies highlighted by the Federal Reserve in mid 2015 in a separate action against another massive, state-owned Chinese bank, China Construction Bank Corp. The bank has operated in New York since 2009.In the earlier joint action by the Federal Reserve and New York State Banking Department, the regulators cited the Construction Bank of China, the country’s second largest, for deficiencies across the AML program and issues related to correspondent oversight, properly responding to law enforcement and other requests for information, (via OCC).

Data security

Canada’s new cyber strategy identity crisis: on one hand begs for stronger data security standards, then bemoans uncrackable encryption used by hackers, criminals

Canada’s much anticipated cyber security strategy, released Tuesday, has exposed one of the key problems facing the federal government in the digital age: the dilemma of caterwauling about the need for stronger encryption to thwart hackers, but that also inadvertently stymies law enforcement. The strategy warns of the need for better encryption to safeguard data — particularly against the lightning advances of quantum computing.

But it also places an extraordinary emphasis on increased national security and combating an explosion in cyber crime, which often hamstring’s authorities by exploiting some of the best encryption available. So the federal government has to somehow strike a balance between securing data and fighting the encryption used to secure it. The strategy unveiled today suggests that it hasn’t struck that balance yet. At the same time, Canada, like the rest of the world, is facing a massive tech and cyber savvy shortage, estimated to be in the hundreds of thousands of workers, (via the CBC).

Crypto start ups

When all are one, real world, virtual realm value set to collide

Will all global currencies become cryptocurrencies? The CEO of a Goldman-backed start-up says the answer is yes,  (via CNBC).

Financial flows

China leads pack when it comes to illicit financial flows involving the developing world

Crime, corruption and tax evasion have cost the developing world nearly $6 trillion over the past decade, and illicit funds keep growing, led by China, a financial watchdog group said in a new report, (via Reuters).

Rate rigging

German bank settles with New York on forex rate rigging imbroglio

Deutsche Bank AG agreed to pay $205 million to settle a long-running investigation of its foreign exchange trading by New York’s banking superintendent, resolving one of several remaining regulatory issues that have dogged the bank in the U.S., just the latest in a cavalcade of foreign and domestic banks to fall afoul of forex rules, (via Bloomberg).

Reg relief

AML Reg relief incoming: More flexibility to improve efficiency, more guidance from, better intel for law enforcement – OCC head

Federal regulators have sent more than a dozen updates, tweaks and improvements to the country’s financial intelligence unit in a bid to improve the efficiency and intelligence of financial crime compliance programs while at the same time lowering the incredible resource drain on institutions in terms of time, money and elbow grease, according one top official.

Those are some of the key takeaways when it comes to potential incoming changes related to anti-money laundering (AML) regulations, according to Comptroller of the Currency Joseph Otting, who covered an expansive range of topics in a series of Congressional hearings last week. He also touched on how the regulator, under fire for its oversight of bank insider sales abuses, is aware of dozens more banks that took advantage of customers, opening accounts without their consent beyond industry lightning rod, Wells Fargo. Otting detailed several ways, including:

  • Allowing regulators to schedule and scope BSA/AML examinations on a risk-basis and identifying ways to conduct associated examinations in a more efficient manner.
  • Considering changes to the threshold requiring mandatory reporting of Suspicious Activity Reports (SARs) and currency transaction reports and simplifying reporting forms and requirements.
  • Working with law enforcement to provide feedback to banks so that they understand how SARs and other BSA report filings are used and can provide the most useful information.
  • Exploring the use of technologies to reduce reporting burden and provide more effective access and information to law enforcement and national security personnel.

To watch the hearing and read witness statements, please click here and here.

Irish enforcement

Irish regulator threatens fine of nearly $1 million for AML, cyber breaches, but firm pays less than half due to bad financials

The Central Bank of Ireland has fined a Dublin-based asset management firm 443,000 euros, or $515,000, for a range of control failures covering nearly every aspect of counter-crime programs, including compliance, fraud and cybersecurity. In a first for the regulator in its action against Appian Asset Management, officials stated they had never before levied a penalty against a firm related to a cyber fraud due chiefly to lax anti-money laundering (AML) compliance programs and cyber defenses. “This is the first time the Central Bank has imposed a sanction on a firm where there has been a loss of client funds from cyberfraud as a direct result of the firm’s significant regulatory breaches and failures,” said Central Bank Enforcement and AML Director, Seana Cunningham.

The Firm’s “historic regulatory failures left it exposed to a cyber-fraud by a third party where, acting on the instructions of a fraudster impersonating a client, it facilitated a series of transactions resulting in the loss of €650,000 of a client’s funds.” The client was fully reimbursed. The scheme is a twist on business email compromise (BEC) attacks typically targeting banks where a fraudster will hack into the email of a top financial officer, or simply spoof their email address, and send emails to lower-ranking bank staffers telling them to change wire instructions – to eventually end up in scammers’ accounts in foreign countries, (via the CBI).

Compliance ethics

Top compliance officials for Standard Chartered investigated, disciplined for harassment, improper conduct

In a look at the inverse of what regulators want to see from banks to display a “culture of compliance,” top executives in charge of policing the behavior of Standard Chartered Plc’s 86,000 employees have themselves been disciplined or investigated for allegations of harassment or inappropriate conduct, according to people with knowledge of the matter. In the past year, the head of anti-bribery and corruption left after the London-based bank probed allegations he had altered the performance review of a subordinate he was having an affair with, the people said. The bank’s global compliance chief stepped down after an investigation concluded that his language and behavior toward colleagues was inappropriate, according to an internal memo late released recently.

Since his appointment in 2015, Chief Executive Officer Bill Winters has struggled to cleanse the culture of a bank under U.S. regulatory oversight for past violations of sanctions against Iran and broader anti-money laundering (AML) failures. He has repeatedly chastised managers for flouting ethics rules and acting as if they were “above the law.” In April, he sent another memo to senior staff calling out rampant misconduct at the emerging-markets lender, with some calling it a toxic, uncomfortable work environment with top officials engaging in harassment or discrimination, (via Bloomberg).

Sanctions busting

A look at how North Korea evades international sanctions

Analysis of U.S. sanctions against North Korea to stop purported nuclear proliferation goals, including by engaging in terrorism; narcotics trafficking; undemocratic governance; and illicit activities in international markets, such as money laundering, counterfeiting of goods and currency, and bulk cash smuggling, from the Congressional Research Service, (via USNI).


AI to the rescue for AML, cyber and more

Can Artificial Intelligence solve all the problems of future? Can AI make it easier to secure and protect sensitive data and classified information? Can AI strengthen cyber security enough not to be breached by hackers and cybercriminals? The answer lies in the exponentially developing technology of machine learning, say some analysts, (via CXO Today).

German enforcement

Fines keep coming for Volkswagen as home regulator levies historic billion-dollar penalty

German authorities fined Volkswagen $1 billion euros ($1.18 billion) over a diesel emissions cheating scandal in what amounts to one of the highest ever fines imposed by the country against a company, public prosecutors said last week, (via Reuters).