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Fincrime Briefing: In historic vote, House passes bill to counter shells, bolster AML, Finra fines BNP $15 million on AML, penny stocks, and more

The skinny:

In today’s ACFCS Fincrime Briefing, the House in a historic vote moves forward bill targeting anonymous shell firms, strengthening AML defenses, Finra fines BNP Paribas $15 million on compliance, penny stock failings, embattled Swedbank confirms U.S., EU laundering probes, and more.

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Want to talk about industry trends, story ideas or get published? Feel free to reach out to ACFCS Vice President of Content Brian Monroe at the email address above. Now, on to more sweet sweet content!

United States Congress Building


In historic move, House passes bill to counter criminals working through opaque, anonymous shell companies, update, modernize U.S. AML regime

In a historic vote this week, the U.S. House passed legislation that holds the potential to strengthen the country’s defenses against illicit entities working through anonymous shell companies and bolster anti-money laundering rules that have remained roughly stagnant for decades.

The House Tuesday voted 249-173 to pass the American Bankers Association-backed Corporate Transparency Act (H.R. 2513), a piece of legislation recently amended to bolster the country’s counter financial crime compliance defenses, encourage bank innovation and alleviate certain burdens on smaller institutions.

The move is a powerful one on many fronts for updating the country’s chief laws to stop illicit funds from moving through the United States and makes history as many similar pieces of legislation – even those in recent years with powerful bi-partisan political, public and private support – have died in committee.

The legislation, sponsored by Rep. Carolyn Maloney (D-N.Y.), would direct the Financial Crimes Enforcement Network (FinCEN), the country’s financial intelligence unit and administrator of AML rules, to create a national database that banks could use to verify a business’s beneficial ownership information.

The bill was amended before passage to include legislation championed by Rep. Emanuel Cleaver (D-Mo.), called the COUNTER Act, that would modernize the existing anti-money laundering/Bank Secrecy Act framework.

The legislation, if passed, would do so by, among other things, enhancing bank-law enforcement communications along with fostering a new federal regulatory-ushered era of innovation by nudging examiners to create “innovation labs” with the banks under their charge, (via the U.S. House Committee on Financial Services).

To read more about the bill’s passing by Congressman Cleaver, one of it’s key architect’s click here.

To read more analysis and listen to a podcast on the bill by the American Bankers Association, which supported the updates to AML rules, click here.

Monroe’s Musings: These moves have been a long time coming and hold the potential to make it harder for money launderers, corrupt oligarchs and terrorists to game the system in the U.S. by working through anonymous shell companies.

The U.S. has lagged far behind countries and regions like the European Union, United Kingdom and other jurisdictions in this area.

These areas have made commitments to eliminate the ability for attorneys, company service providers and other gatekeepers to create anonymous shell firms.

Moreover, these countries have gone further to be in line with international best practices by including requirements for these company creation operations to capture beneficial ownership details and send them to the government to be published in a central registry – one that in some cases will be made public and available to public and private watchdog groups.

So while it’s clear the U.S. has a long way to go, these legislative moves are a powerful step.


Finra penalizes securities arm of BNP Paribas $15 Million for AML failings, oversight of tens of thousands of risky penny stock trades worth hundreds of billions of dollars  

The chief self-regulatory body of the U.S. securities sector this week penalized the securities arm of one of Europe’s largest banks for broad failings in its financial crime compliance practices, particularly in an area well known for soaring fraud and money laundering risks: volatile and much-vilified penny stocks.

The Financial Industry Regulatory Authority (Finra) hit BNP Paribas Securities Corp. and BNP Paribas Prime Brokerage, Inc. $15 million for anti-money laundering (AML) program and supervisory failures involving penny stock deposits and resales, and wire transfers, that spanned four years.

In its latest clash with U.S. regulators, Finra uncovered that from February 2013 to March 2017, despite its penny stock activity, BNP did not develop and implement a written AML program that “could reasonably be expected to detect and cause the reporting of potentially suspicious transactions.”

Until 2016, BNP’s AML program failed to have “any surveillance targeting potential suspicious transactions involving penny stocks, even though BNP accepted the deposit of nearly 31 billion shares of penny stocks, worth hundreds of millions of dollars,” from its clients, including from so-called “toxic debt financiers.”

Part of the lack of monitoring and risk-assessing of the entities involved in the trading was even determining if they were properly registered, which would have helped determine if the firms were involved in potentially illicit trading activity.

As a result, BNP engaged in tens of thousands of wire transfers for risky penny stock operations worth hundreds of billions of dollars – in some cases involving foreign currencies, a key red flag for fraud and money laundering.

During the four-year period in quesiton, BNP processed more than 70,000 wire transfers worth more than $230 billion, including more than $2.5 billion sent in foreign currencies.

BNP freely moved such funds because the AML program “did not include any review of wire transfers conducted in foreign currencies, and did not review wires conducted in U.S. dollars to determine whether they involved high-risk entities or jurisdictions,” according to Finra.

Compounding the problem further was that the AML program was severely understaffed.

For example, although BNP effected tens of thousands of wire transfers during a two-year period, with a total value of $233 billion, during a majority of that period, only “one investigator was tasked with reviewing alerts relating to wires originating from BNP’s brokerage accounts.”

Further, BNP was aware of the gap between human capital and analytical capabilities, but it did little to rectify the gulf.

Although the French banking behemoth, with more than $2 trillion in assets, identified many of these deficiencies as early as January 2014, BNP did not fully revise its AML program until March 2017.

As a result, BNP did not identify many of the classic “red flags” indicative of—or review—potentially suspicious activity involving the deposit and sales of penny stocks or foreign wire transfers that may have required the filing of a suspicious activity report.

As part of the settlement, Finra is requiring BNP to make changes and improvements quickly, including that the banking group must certify within 90 days that its AML procedures are reasonably designed to achieve compliance in the areas of securities and, in particular, more risky penny stock trading, (via Finra).

Monroe’s Musings: The $15 million penalty for Finra is among its larger fines against firms for AML failures, particularly around issues tied to penny stocks – though both areas have in recent years been marked as top priorities for examiners.

BNP has also been a prior target of U.S. regulatory and investigative agencies on a variety of fronts.

The most high-profile of these failures occurred in 2015 when BNP Paribas the bank, not the securities arm, paid a record $9 billion for extensive AML and sanctions failings in dealing with blacklisted regimes like Iran.

In recent years, BNP has also paid U.S. authorities hundreds of millions of dollars for manipulating foreign exchange rates.

While the bank has made great strides in strengthening compliance overall by hiring an array of top talent and installing a powerful and passionate chief compliance officer who routinely and concrete demonstrates a “culture of compliance,” large banks will still find pockets of non-compliance they have to root out on their way to have a holistic, paradigm-breaking program.


Embattled Swedbank, reeling from continued connections to Danske Bank laundering scandal, confirms its being investigated by U.S., EU authorities: quarterly report

The issue of financial crime compliance for Nordic and Baltic banking giant Swedbank has jumped from a typically less public unit, that would be a line or a footnote in a quarterly or annual financial report, to a top chief executive and board responsibility – one that received serious ink in the company’s latest quarterly filing.

The state of anti-money laundering (AML) compliance at Swedbank was the top of three priorities spelled out by freshly-minted bank President and Chief Executive Jens Henriksson in the latest quarterly report, which noted that compliance remediation spending on consultants to solve the bank’s AML challenges has swelled to 133 million Swedish Krona, or nearly $14 million.

“I have now been CEO for a little over three weeks and can say that…we have to get to the bottom of the money laundering accusations against our bank and address the shortcomings in our AML work,” he wrote in a message to shareholders.  

The move is “not only because of the ongoing investigations, but because it’s the right thing to do,” he said.

“In concrete terms, it means I will be spending much of my time making sure that the internal investigation is completed promptly and that the authorities have access to all the information they need to complete their investigations,” he stated. “It also means strengthening the bank’s work to fight financial crime by allocating more resources and improving our processes.”

In recent months, three top executives at the Estonian branch of Swedbank AB, including a one-time candidate for central bank governor, have been jettisoned amid an ongoing investigation into a vast money-laundering scandal involving hundreds of billions of dollars from Russia and other risky regions.

These funds came to Swedbank after moving through the Estonian branch of Danske Bank – revelations that have sparked accusations, recriminations and remediations at a bevy of EU banking groups and member state regulatory bodies.  

As a result, Swedbank confirmed in its third quarter filing that it is being investigated for its possible involvement in the Danske saga with formal probes by supervisory authorities in Sweden and Estonia, the Latvian police department for combating economic crime (LECED) and the European Central Bank (ECB).

As well, the Swedish Economic Crime Authority is investigating whether employees of the bank “violated communication laws related to money laundering.” In tandem, a “number of US authorities are also currently investigating Swedbank. These investigations may take years to conclude,” (via Swedbank).

Monroe’s Musings: The Swedbank quarterly report, along with everything that happened at the institution in the wake of the Danske scandal, including the latest revelations of EU and U.S. investigations, should be required reading for financial crime compliance officers at large international banking groups.

Money laundering

Dutch-Bosnian Cartel laundered drug money through ING, ABN Amro: report

The police suspect a Dutch-Bosnian drug cartel of large-scale money laundering, part of which happened through ING and ABN Amro bank accounts, newspaper AD reports based on police documents in its possession – two institutions that have already been linked to vast money laundering scandals or major fincrime compliance failings.

According to the newspaper, Suspects Mirza G. and his wife Rosita van den D. bought nearly 2.5 million euros in real estate in Breda over the past years, with money they ‘borrowed’ from abroad. At least a few hundred thousand euros were transferred through Dutch bank accounts.

According to the police file, G. used so-called loan-back arrangements – the suspect borrowed his own drug money. Several of the real estate purchases went through Linders, a civil-law notary in Breda.

Two money laundering experts told AD that they are baffled that the banks and notary office didn’t immediately become suspicious. “I actually think: how is it possible that this passed?” former financial investigator Jan van Koningsveld of the Offshore Knowledge Center said to the newspaper. “Because this type of construction is easy to recognize.”

Money laundering expert Cees Schaap called loan-back arrangements “simple money laundering constructions.”

Linders, ING, and ABN Amro all told the newspaper that they cannot say whether they reported these suspicious transactions due to their professional confidentiality.

Mirza G.’s lawyer told AD that his properties were purchased legally. “He is cooperating with the investigation and hopes that everything will be sorted out as quickly as possible, so that he can prove his innocence”, lawyer Haroon Raza said.

Mirza G. is the cousin of Edin G., who the police believe forms part of a major drug cartel also including Ridouan Taghi. The authorities believe that this cartel is responsible for a large chunk of the cocaine trafficking in Europe, (via the NL Times).

Monroe’s Musings: It’s interesting to see stories that are very blatantly stating a given cartel has laundered money through two banks already tied to either alleged high-profile money laundering investigations or public anti-money laundering failures.

Since 2004, ABN Amro has paid nearly $600 million in penalties for a host of sanctions and other compliance failings, the largest of which coming in 2010 when the bank paid $500 million to U.S. authorities for dealing with blacklisted regimes.

Several media reports on ABN Amro in recent months have also tied the institution to new probes for alleged laundering and compliance failings.

ING also paid a similar hefty fine in 2012, $619 million to U.S. authorities for sanctions failings.

But the compliance issues have persisted, even in the bank’s home country.  

In September 2018, the Netherland’s largest financial institution, ING Groep, paid Dutch authorities 775 million euros, or $900 million, in a historic settlement for extensive failures in its financial crime compliance controls that left itself vulnerable for illicit groups to launder a significant amount of money – hundreds of millions of dollars, and do so for years, according to investigators.

It appears that these institutions are becoming more of a target for news operations and watchdog groups, something that could make changing their image as they improve their financial crime compliance operations more difficult.

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