In this week’s Financial Crime Wave, the just-released U.S. International Narcotics Strategy Report ruffles feathers for named and shamed countries, just as it also engages in some self-flagellation, Australia’s chief regulator issues new regulations to strengthen anti-money laundering controls for virtual currencies, exchanges, FDIC spars with PwC in pricey lawsuit, and more.


From Afghanistan to Kyrgyz Republic, Suriname to Switzerland, U.S. names more than 50 “major “laundering regions in latest INCSR report

No corner of the world is safe from the wrath of the U.S. State Department in its just-released 2018 International Narcotics Control Strategy Report (INCSR), an annual mammoth tome covering more than 500 pages grading country-wide counter-financial crime efforts and tracking where drugs are produced, sold and where illicit financial flows are running. Historically, and there is no difference this time around, the most controversial part of the report, and required reading for global financial institutions, is the yearly naming and shaming of countries on the “major money laundering jurisdictions” list, this time around covering more than 50 countries.

The list is a hotly-debated, nigh rancorous ranking in financial crime circles as it paints with a very broad brush, mentioning Afghanistan and Iran in the same breath as the United States and United Kingdom – one group considered perennial fincrime pariahs and another global AML leaders. The report is broken down into two parts, one focusing on money laundering, and the other, narcotics. Both highlight the increasing diversity of criminals more aggressively using virtual worlds to sell drugs and move funds and the persisting global refuge, and investigative stumbling block, of illicit actors hiding behind anonymous ownership structures in opacity-opposed offshore secrecy havens, (via the U.S. State Department).

UK regulator to increase pressure, scrutiny of AML legal, accountancy programs, strengthen oversight of virtual currency compliance: Business plan

The United Kingdom’s (UK) chief financial sector regulator, the Financial Conduct Authority (FCA), will be more aggressively reviewing the anti-money laundering (AML) programs of the solicitor and accounting sectors, breaking in a new oversight body, while at the same time cracking down on fraudsters and criminals using virtual currencies to safeguard and move illicit assets. Those are just some of the areas the UK FCA stated it will make operational priorities in the 2018/19 timeframe in its just-released business plan.

Building on momentum from its regulatory sister bodies on the other side of the pond, the FCA will also be analyzing how fraudsters, scammers and organized criminal groups game the capital markets arena, particularly when the virtual currency and securities’ worlds combine in the form of individuals touting initial coin offerings that are nothing more than glorified, crypto Ponzi schemes. The FCA is also retooling systems to be able to make its analyses of financial crime, and related compliance exams, more efficient and effective, in some cases using artificial intelligence. The regulator is also pledging to more fully swim this more tuned and timely data pool with information from domestic and international partners, (via the UK FCA).


New Zealand regulator set to level nearly $3 million AML penalty on currency exchanger for failing to properly scrutinize millions of dollars, lax risk ranking

More than $100 million in transactions may have not been properly checked under money-laundering laws by Qian DuoDuo Limited (QDD), which now faces a multi-million dollar government fine. The Department of Internal Affairs (DIA) was seeking a fine of about $2.6 million, with Justice Grant Powell commenting that it was “truly extraordinary” that up to $7 million was at stake.

The department has accused QDD of failing to meet Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT) requirements for customer due diligence, account monitoring, record keeping and risk assessment. QDD, which was trading under Lidong Foreign Exchange, has not been accused of money laundering or funding terrorism, but being accused of failing to adequately scrutinize some $100 million in transactions, including weak transaction monitoring, initial customer due diligence and related risk ranking and properly reporting on potential suspicious activity. Part of the issue is that the operation had sparse, improperly trained staff and a threadbare audit function, the critical backstop of the AML program function, (via the New Zealand Herald).

FDIC clashes swords with PwC over liability, responsibility tied to failed bank, with hundreds of millions of dollars at stake in penalty possibilities

The Federal Deposit Insurance Corp. could collect the largest damage award ever against a global public accounting firm when a federal judge decides what to award the agency after a verdict against PricewaterhouseCoopers.

The FDIC, acting as receiver for the failed Colonial Bank that collapsed in 2009, has asked Judge Barbara Rothstein to award it $625 million in compensation for the bank’s alleged net losses from a fraud with mortgage originator Taylor Bean and Whitaker, which also failed in 2009, even as the bank seeks to settle for less than half that, still a record figure, (via Marketwatch).

Virtual currencies

Australia strengthens laws around crypto currency space, calls for AML program, registration with Fintrac

Australia’s chief regulator and financial intelligence unit has issued rules requiring all crypto service providers in the country to register with AUSTRAC and bring their business in compliance with government’s anti-money laundering (AML) rules. The requirements take effect immediately, though the companies will have time to register until the middle of next month and implement related fincrime compliance rules.

“AUSTRAC now has increased opportunities to facilitate the sharing of financial intelligence and information relating to the use of digital currencies, such as bitcoin and other cryptocurrencies, with its industry and government partners,” Austrac CEO Nicole Rose said. The new rules are part of broader reforms aimed at strengthening the AML standards, following criticism by global watchdog FATF. South Korea is also implementing strict AML rules towards cryptocurrency providers. The Financial Services Commission (FSC) initiated inspection of three banks to make sure that they comply with new rules for cryptocurrency exchange accounts, (via Fx Street).

One of the stans taking a stand against crypto-fueled money laundering

Kazakhstan, fearing who easily criminals could use the medium to laundering money, is considering a hard ban on crypto currencies, mining facilities and related exchanges, a harsh move few countries have taken, (via CCN).


Europol arrests 20 hackers in phishing, money laundering scheme that duped nearly 150 banks to steal more than $1 million

 A two-year long cybercrime investigation between the Romanian National Police and the Italian National Police, with the support of Europol, its Joint Cybercrime Action Taskforce (J-CAT) and Eurojust, has led to the arrest of 20 suspects in a series of coordinated raids last month, leading to the arrest of individuals in Romania and 11 in Italy remain in custody over a banking fraud that netted 1 million euros from hundreds of customers of two major banking institutions. The organized crime group (OCG), comprised essentially of Italian nationals, used spear phishing emails impersonating tax authorities to harvest the online banking credentials of their victims.

The investigation which was initiated in 2016 uncovered how the criminals used the stolen online banking credentials to surreptitiously transfer money from the victims’ accounts into accounts under their control, and from there withdrew the money from ATMs in Romania with credit/debit cards linked to the criminal accounts. The highly organized OCG pursued its criminal activity using encrypted chat applications. It established its power by applying intimidating and punitive methods towards affiliates and competitors. The OCG is also suspected of money laundering, drug and human trafficking, prostitution and participation in a criminal organization, (via Europol).

Panera Bread crusty, salty after finding out lax privacy practices have opened the door to hackers

Along with banks and retailers, restaurants are also choice data hubs and targets for criminals, so it’s a major concern that Panera Bread left millions of customer records exposed on the web, even though, currently, there is no evidence of a wide-scale intrusion and related data breach, (via Engadget).

Iran can’t run from global cyber attack where hacking group warned not to interfere with U.S. elections

Iran’s Communication and Information Technology Ministry has reported that it was a victim in a global cyberattack that compromised about 200,000 Cisco switches that hadn’t yet received patches for exploits in the company’s legacy Smart Install protocol. The attackers displayed a US flag on at least some screens, complete with a “don’t mess with our elections” warning, (via Engadget).

Credit unions get schooled on cyber defenses, broached on breeches

The U.S. Department of the Treasury’s Office of Critical Infrastructure Protection and Compliance Policy extends an invite to credit unions to join a discussion on the information risks posed to small financial institutions. Hosted on May 7, 2018, the roundtable will explore the operational and cybersecurity risks of in-house and outsourced technology platforms.

Key areas of discussion will include:

  • Cyber risks, threats and vulnerabilities;
  • Information security governance;
  • Data loss mitigation; and
  • Response and recovery planning, (via CU Insight).

Can fintech, regtech, regular banking sector unite to save the world against cyber assassins?

Cybersecurity is biggest barrier to fintech and banking sector partnerships in the Asia Pacific region: Fortinet, (via Tech Observer).

Corporate transparency

Latvian government moving to ban financial institutions dealing with shell companies

The Cabinet of Ministers upheld the draft amendments to the Law on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) aimed at strengthening the Latvian finance system by reducing the number of risky transactions with high-risk customers that meet the definition of a shell company. The bill is also intended to increase the exchange of information between the financial institutions and the law enforcement agencies.

A new article would be added to the AML/CFT Law, banning the financial institutions from cooperation with the entities that show the signs of being a shell company. Under the draft law, the shell company is defined as an entity that fits one or several of the following three criteria. Firstly, there is no actual economic activity and no documentary proof to the contrary. Secondly, the entity is registered in a jurisdiction where companies are not required to submit to the authorities their financial statements. Thirdly, the entity has no place of business in its country of domicile, (via LSM.LV).


Expanded U.S. sanctions targeting Russia’s wealthy elite, oily oligarchs have caused richest to lose $12 billion in one day

U.S. sanctions have already cost some of Russia’s dollar billionaires dearly only three days after they were introduced, according to various analysts and outlets, marking a further uptick in tension between the two countries in addition to continuing acrimony over alleged election meddling and Syrian saber rattling. Investors spent Monday selling off Russian assets, with Forbes reporting that the richest businessmen from the country lost over $12 billion in a day. Hardest hit was Oleg Deripaska, head of aluminum giant Rusal, whose shares on Hong Kong’s market where his company is listed collapsed by 50 percent, wiping some $4.3 billion off its value. Meanwhile, Viktor Vekselberg, who with Sual Partners owns a 26.5 percent stake in Rusal, lost around one billion dollars. The company which supplies seven percent of the world’s aluminum supply, is now at risk of defaulting on part of its debt, the AFP reported.

The sanctions also hit Norilsk Nickel, whose shares were down 16 percent. This reportedly cost its largest shareholder Vladimir Potanin around $1.3 billion, even though he was not among the 26 people and 15 companies blacklisted on April 6 by the U.S. authorities in response to the diplomatic fallout of the Sergei Skripal poisoning. Suleiman Kerimov, Leonid Mikhelson, Gennady Timchenko, Vladimir Lisin, Roman Abramovich, Vagit Alekperov and Alexei Mordashov also suffered major financial losses due to the market collapse which affected BTB Bank and mining and metals giant Mechel. The sanctions also increase compliance sanctions screening pressures as many holdings related to these individuals and businesses are hidden by shell companies and obscure ownership structures, (via Newsweek).


HSBC, after major AML fines, investigations in multiple jurisdictions, testing waters of AI to better fight financial crime

Having racked up billions of dollars in fines for money laundering and sanctions busting, HSBC is cleaning up its act with the global roll out of an AI tool capable of analyzing data logs and tracking transactions within a customer’s wider network. The deployment of the technology from big data startup Quantexa follows a pilot of the software with HSBC in 2017 which helped the bank to spot potential money laundering activity.

HSBC had to pay a $1.9 billion fine in 2012 for helping drug cartels launder money in Mexico and for contravening sanctions to do business with Iran. Alongside the payout, HSBC agreed a five-year deferred prosecution agreement (DPA) with the US Department of Justice (DoJ) under which it promised to take action to correct compliance failings. As part of its overall AML compliance tech and expertise tune up, the bank has also snapped up some of the biggest names in federal investigations, government and the compliance space, including current and former leaders at the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the country’s financial intelligence unit. The bank also passed a major milestone to be in compliance to shed the DPA, just months after internal fears it would not make the deadline. Overall, the global lender has since spent more than $1 billion tightening up its compliance procedures, (via FinExtra).

Opioid epidemic

DEA Surge, investigation into illicit opioid over-prescribers Leads to dozens of arrests nearly 150 registration revocations

In February and March, the U.S. Drug Enforcement Administration (DEA) surged its enforcement resources to identify and investigate prescribers and pharmacies dispensing disproportionately high numbers of certain drugs, particularly those in the opioid category in a bid to rein in a domestic and international healthcare crisis. During that period, the DEA took a page out of the bank AML analysts playbook analyzing 80 million transaction reports from DEA-registered manufacturers and distributors, as well as reports submitted on suspicious orders and drug thefts and information shared by federal partners. This resulted in the development of 366 leads to DEA field offices, 188 of which resulted in active investigations.

“In the midst of the deadliest drug epidemic in American history, we need all hands on deck,” said Attorney General Jeff Sessions, adding that the operations also removed drug dispensing authority from 147 medical professionals. The investigations resulted in 28 arrests, 54 other enforcement actions and 283 administrative actions. These additional actions included scheduled inspections, letters of admonition, memoranda of agreement/understanding, surrenders for cause of DEA registrations, orders to show cause, and immediate revocation of registrations, (via DOJ).


Education company clangs gong on apparently grievous graft situation in Hong Kong

Is Hong Kong a corruption and money laundering hub, on par with the likes of perennial graft and transparency bottom dwellers, Russia, Africa and China? Well, according to one Florida education training company, the answer could be yes, (via the FCPA Blog).


Commerce, banking groups tag team to tackle rising risk of TBML

The International Chamber of Commerce and Wolfsberg Group have launched a portal and video to help banks and corporates better identify and prevent trade-based money laundering (TMBL), what they are calling the “least understood” of financial crimes facilitating the movement and cleansing of an estimated hundreds of billions of dollars a year, (via ICC).


Former Army sniper has “special set of skills” in preparing to rack up kills as hitman for mob boss

A former U.S. Army sniper and two former American soldiers agreed to become hitmen for a crime boss seeking to settle a score with a real estate agent in the Philippines, prosecutors say, (via Newsweek).

On the lighter side

Nice guys, if they are bosses, don’t always have to finish last!  

Find out how nice bosses can finish first, not last, and create stronger, more dynamic and effective teams with leadership that is not aloof, harsh or unreasonably difficult, (via Dr. Travis Bradberry).

Human trafficking

Federal prosecutors take down, calling it the leading forum for prostitution, human trafficking

The U.S. Department of Justice announced today the seizure of, the Internet’s leading forum for prostitution ads, including ads depicting the prostitution of children, with the resulting page being taken down, which also had a range of other legal classified items. Federal authorities charged seven individuals in a 93-count federal indictment with the crimes of conspiracy to facilitate prostitution using a facility in interstate or foreign commerce, facilitating prostitution using a facility in interstate or foreign commerce, conspiracy to commit money laundering, concealment money laundering, international promotional money laundering, and transactional money laundering. “For far too long, existed as the dominant marketplace for illicit commercial sex, a place where sex traffickers frequently advertised children and adults alike,” said Attorney General Sessions.  “But this illegality stops right now.”

“Backpage has earned hundreds of millions of dollars from facilitating prostitution and sex trafficking, placing profits over the well-being and safety of the many thousands of women and children who were victimized by its practices,” First Assistant U.S. Attorney Elizabeth Strange said. “The events of last Friday and today are a big win, not only for the agents who investigated these crimes, but more importantly for the victims, including children, who were harmed as a consequence of the alleged actions of,” said Chief Postal Inspector Cottrell.  “By laundering the illegal gains of an enterprise, Backpage perpetuated the exploitation of victims and continued to finance their business,” Chief Postal Inspector Guy Cottrell, (via DOJ).


FATF reviews Spain, Iceland, giving overall more positive grades, but chiding both for persisting vulnerabilities

The world’s top financial crime governing body, the Paris-based Financial Action Task Force (FATF), has released two mutual evaluation reports in key jurisdictions, that both must improve outstanding vulnerabilities against broad areas of financial crime. The group released its reports on Iceland, available here, and on  Spain, available here, noting that while both have improved counter-crime defenses overall, but has struggled to rise in terms of effectiveness, such as AML penalties levied, prosecutions of large cases and forfeitures, (via FATF).


EU gearing up for stronger AML regime, capturing more sectors under compliance rules

A look at the currently coagulating Fifth EU Anti Money Laundering Directive, which provides for the first time the inclusion of virtual currency exchange platforms, a key compliance gap and challenge. In addition, new requirements are imposed on the group of obliged entities, including stricter monitoring of transactions in so-called high-risk third countries.

The right to inspect the transparency register introduced by way of the Fourth EU Anti Money Laundering Directive is supposed to be expanded. In addition, a new electronic system is supposed to be established that allows for the identification of persons authorized to dispose of bank accounts and safe deposit boxes. (via CMS Law).

Marijuana banking

States rise up, lay cannabis concerns, state, federal dichotomy, at AG’s doorstep

Legal analysis of the joint letter that the Treasurers of California, Illinois, Oregon, and Pennsylvania sent to Attorney General Sessions requesting a meeting to discuss cannabis and the conflicts between state and federal law, a growing problem for banks that, consciously or not, could be holding funds tied to the sector, opening the door to regulatory and investigative scrutiny, (via PBN Law).