Fincrime Briefing: U.S. sanctions Iran’s central bank, Dutch banks team up on money laundering, TRACCC tackles TBML, and more

By Brian Monroe
bmonroe@acfcs.org
September 23, 2019

 

Quote of the Day: “When you show deep empathy toward others, their defensive energy goes down, and positive energy replaces it. That’s when you can get more creative in solving problems.” – Stephen Covey, author of “The 7 Habits of Highly Effective People”  

In today’s ACFCS Fincrime Briefing, the U.S. tightens screw on Iran in largely symbolic move to sanction central bank, Dutch banks react to EU money laundering scandal by banding together on AML, TRACCC team takes run at countering multi-trillion dollar challenge of TBML, and more. 

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Sanctions
U.S. sanctions Iran’s central bank, fund after Saudi oil attack
 
The United States on Friday imposed another round of sanctions on Tehran, including on Iran’s central bank and a development fund, following last week’s attacks on oil facilities in Saudi Arabia that Riyadh and U.S. officials have blamed on Iran – largely symbolic moves that nonetheless loudly remind banks of their duties to screen for blacklisted entities.
 
Iran denies involvement in the attacks, which initially halved oil output from Saudi Arabia, the world’s largest petroleum exporter. Responsibility was claimed by Yemen’s Houthi movement, an Iran-aligned group fighting a Saudi-led alliance in Yemen’s civil war.
 
Analysts cast doubt on how hard the new measures would hit Tehran given that earlier sanctions have already dried up Iranian oil revenues and cut Iranian banks’ ties to the financial world, with some saying the move was “cosmetic.”
 
“Iran’s oil export proceeds are usually deposited in Central Bank accounts around the world, therefore the bank has central importance,” Amir Paivar, a London-based market analyst said.
 
And Republican Senator Lindsey Graham called on the Pentagon to present Trump with a wide range of options that would punish Iran and warned that the United States has “lost deterrence” with Tehran.
 
The fresh sanctions target the Central Bank of Iran, the National Development Fund of Iran and Etemad Tejarate Pars Co, an Iranian company that U.S. officials said is used to conceal financial transfers for Iranian military purchases, the U.S. Treasury Department said in a statement.
 
Previous U.S. sanctions have also targeted Iran’s foreign minister, its Islamic Revolutionary Guards Corps, space agencies, and various networks Washington has said helped boost Iran’s nuclear program, among others, (via Reuters). To read the full release, U.S. Treasury release click here
 
Monroe’s Musings: While some analysts might say this latest round of Iran sanctions is symbolic and window dressing and talk of military intervention is simply more saber rattling, there is a nuance that should not be lost when it comes to the compliance operations at large international banks.
 
As pressure ticks ever higher on Iran, that means OFAC, investigators and regulators will be scrutinizing more aggressively the transaction monitoring systems, sanctions screening systems and suspicious activity, blocked and rejected reports these initiatives produce – and drill down all the more on the human decision-making involved. 
 
Banks that have sanctions filtering systems that passed muster with examiners last year may find more questions about if and when the institution could be tinkering with innovation to improve screening efficiency and effectiveness, informed by the interagency exhortation to AML innovation late last year.  
 
In that same vein, particularly for larger international banks with expansive correspondent networks, have these operations queried their correspondents anew – particularly if they are linked or may have nested links to banks with a propinquity to Iran or Turkey? 
 
In short, when it comes to OFAC compliance and Iran, what was good enough last year may not be good enough now.
Compliance

After series of EU scandals, Dutch banks team up to share data, algorithms to strengthen AML compliance, fight money laundering 

Several of the largest Dutch banking groups are choosing not to go Dutch when fighting financial crime on the heels of massive European money laundering scandals that have snaked suspicion and scrutiny to regions like Amsterdam and the Netherlands. 

Financial services giants including ING Groep NV, Rabobank and ABN Amro Bank NV are working toward a joint venture to share information about transactions occurring across multiple banks and jurisdictions in a bid to better identify the telltale signs of illicit activity and broader ties to larger interconnected organized criminal groups. 

The name of the facility will be Transaction Monitoring Netherlands (TMNL), with overarching stewardship coming from the Dutch Banking Association (NVB). 

“In the next six months the banks will study whether this is feasible given the technical and legal challenges involved,” NVB said in a statement, adding that other banks could join this initiative at a later stage.

NVB estimated that 16 billion euros in funds tainted by criminals is circulating in the Netherlands, most of which is connected to the illicit drugs trade, a “serious social problem.”  

“The banks see it as an important public duty to help solve this problem,” NVB Chair Chris Buijink said in a statement. “They want to rid their systems of criminality and are investing heavily in” in compliance, technology and monitoring systems to that end. 

In the new transaction monitoring facility plans, banks would be more aggressively cooperating with the Financial Intelligence Unit (FIU), the Public Prosecution Service, FIOD and for example ministries. 

Last year, under AML obligations, the banks reported 68,000 unusual transactions to the FIU, with an estimated 15,000 of these transactions described by the FIU analysts as suspicious. The five banks involved handle 9.8 billion payment transactions every year, amounting to 27 million transactions every day.

The fight against money laundering and the financing of terrorism is a major priority for the banks. 

An estimated 5,500 to 6,000 bank employees in the Netherlands are currently working directly and full-time on this problem. In fact, this is an item of attention for every bank employee and the issue is also actively being addressed by banks at international level.

Apart from the banks taking responsibility themselves, effectively dealing with money laundering requires a national (chain) approach. 

The banks’ initiative directly follows the Money Laundering Action Plan presented by Ministers Hoekstra (Finance) and Grapperhaus (Justice and Security) in July. The banks are actively supporting this plan. This initiative is an important next step in joining together to combat serious financial criminality, (via the Dutch banking association NVB).

Monroe’s Musings: The move is clearly a response to the ever-widening and still-rumbling Danske Bank scandal, which saw Denmark’s largest lender facing a plethora of probes, investigations, accusations and recriminations in several countries for its monitoring, reporting and handling of some 200 billion euros, or more than $224 billion, in potentially suspicious transactions tied to Russia between 2007 and 2015.

The scandal has sacked some top leaders at banks in Denmark and Sweden and even cast regulators in the regions in harsh lights. 

Not surprisingly, the EU Commission and Parliament have voiced concerns and put forth formal measures to create a pan-bloc anti-money laundering (AML) enforcement body that would put member state regulators, not just banks, in the hot seat for compliance failures. 

While there will no doubt be technical, legal and privacy challenges aplenty in this Dutch endeavor, it holds great potential to improve the efficiency and effectiveness of financial crime compliance and investigations in the regions involved. 

Many large U.S. and international banks are already engaging in similar efforts, over the past decade swimming the data on customers and transactions together with indicia of fraud, money laundering and other financial crimes as an “association of banks” under the broad safe harbor of Patriot Act Section 314(b). 

The efforts have made it more difficult for a criminal engaging in illicit activity at one bank to simply walk across the street to another institution and start doing the same things there. Dutch banks have a tough road ahead to mirror similar improvements, but the transaction monitoring sharing facility could be a powerful first start.

Enforcement

Lebanese Central Bank, board liquidate Jammal Trust Bank following U.S. sanctions designation as ‘bank of choice’ for Hizballah 

Jammal Trust Bank SAL in a just-announced move detailed the board’s decision to liquidate the bank, weeks after the U.S. sanctioned the Lebanese lender for its facilitation of Hizballah.

The bank was deemed by U.S. officials as the “bank of choice” for Hizballah when the U.S. Treasury Department sanctioned it in late August. Hizballah has used accounts at Jammal Trust to pay its operatives and their families, the Treasury said at the time. 

Amin Sherri, a U.S.-sanctioned Hizballah member of the Lebanese parliament, coordinated Hizballah’s financial activities there along with the bank’s management, according to the Treasury. Hizballah was listed by the U.S. in 1995 and has been designated several times.

Jammal Trust, which had denied the U.S. allegations, announced the liquidation in a statement posted to social media, saying it was made in coordination with the Central Bank of Lebanon. The statement did not mention the three sanctioned Jammal Trust subsidiaries. 

Lebanese Central Bank Governor Riad Salame, approved the bank’s self-liquidation request saying “the full deposit and obligations of Jammal Trust Bank” would be paid. Salame also confirmed that depositors’ funds would be secured.

Treasury Assistant Secretary Marshall Billingslea said in a speech last week that the U.S. had expected Lebanese authorities to ensure there were consequences for the bank’s activity on behalf of Hizballah, “starting with liquidation of the bank and ending with a full range of civil and criminal consequences.”

The downfall of Jammal Trust wasn’t brought about by a mere compliance lapse; they knew their customer and it was Hizballah, Billingslea said. “This action sends a signal that providing financial services to Hizballah will put entire businesses at risk,” he said.

Jammal Trust Bank operated largely in Lebanon’s south since its establishment in 1963. It also had representative offices in Nigeria, the Ivory Coast and the U.K., according to its website.

Lebanese businessman Anwar Ali Jammal has served as the chair and chief executive of the bank; he has held a 10 percent direct stake, but also has indirectly owned the largest share of the bank through a series of companies that he owns, including a British Virgin Islands-domiciled entity, Hanover International Holding.  

Anwar Ali Jammal also owns and manages a number of other U.K.-based businesses, including a real estate company and a management consultancy. These firms remain active in the U.K. Companies House corporate registry, (via the Brief).

Monroe’s Musings: This piece is a fascinating counterpoint to the updated designations against Iran and its central bank, which many had called “cosmetic” and not likely to result in major changes for how the international financial system dealt with the Islamic theocracy’s chief banking arm. 

As is clearly shown in this latest OFAC blacklisting of a foreign bank for ties to terror groups, organized criminals, weapons proliferators or being the conduit for a blacklisted regime – like Iran – the financial institution very quickly becomes radioactive to the rest of the financial system. 

So, in short, this designation was not “symbolic” and resulted in Lebanon liquidating the institution, with the U.S. Treasury expecting even more punitive measures against individuals and related entities.

TBML

New weapon coming next year to counter multi-trillion dollar scourge of trade-based money laundering: Anti-Illicit Trade Institute 

George Mason University’s Schar School of Policy and Government and the Terrorism, Transnational Crime, and Corruption Center (TraCCC) has announced the establishment of a new Anti-Illicit Trade Institute (AITI), a critical update to the school’s arsenal of tools to counter a broad array of financial crime threats.  

The Institute, which will be under the auspices of TraCCC, is slated to become a globally-recognized, multidisciplinary, cross-sectoral hub for excellence in education, knowledge, research, innovation, and training on the complex dimensions related to today’s cross-border illicit trade. 

The Institute also will focus on related security threats that harm governments, markets, industries, communities, and citizens. 

At its core, the AITI is designed to bring together international partners across diverse communities to focus on the importance of global stability and sustainability, while raising awareness of the harms and effects of illicit trade on government institutions, economies, markets, industries, and consumers. 

The institute will offer key thought leadership and practical solutions in a bevy of ways, including: 

  • promote high-quality educational programs through substantive and pragmatic instruction and in-depth training for students, government officials, diplomats, business executives, lawyers, finance professionals, and civil society leaders; 
  • engage in cutting-edge research and create an AITI⋮ Knowledge Hub; 
  • foster comprehensive dialogues, exchanges, and understanding on the array of harms caused by illicit trade and accompanying money laundering; 
  • support international conferences and workshops; and 
  • undertake outreach via dynamic public-private partnerships.
  • Today’s global illicit markets generate several trillion dollars every year for transnational criminal organizations, complicit corrupt facilitators, and other threat networks, according to the school.  

The types of criminal activities involved include the trafficking of narcotics, arms, humans, fake medicines and other counterfeit and pirated goods, illegal tobacco and alcohol; illegally-harvested timber, wildlife, and fish; pillaged oil, diamonds, gold, and other natural resources and precious minerals; stolen antiquities; and other contraband or commodities that have value and are sold on our main streets, social media, online marketplaces, and the dark web.

Starting next year, the school will offer advanced courses examining many of the underlying tendrils of laundering through trade, including corruption, counterfeit and mispriced goods along with detailing investigation and prosecution tactics, such as international cooperation and information sharing,  (via David Luna). To read the full release, click here. 

Monroe’s Musings: The issue of TBML is a currently gaping hole in the world’s compliance, investigative and regulatory efforts to detect and prevent financial crime and the precursor activities generating heaps of sullied funds. 

The school’s TRACCC program is a vital effort and resource for the fincrime compliance and investigative communities the world over, so I am eager to see the good that can be done in taking on one of the most challenging and vexing puzzles in the counter-threat finance game today.