News & Press: Financial Crime Wave

Financial Crime Wave – US hunts kleptocrat assets, EU finalizes cybersecurity plan and more

Wednesday, July 20, 2016  
Posted by: Brian Monroe
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In this week’s Financial Crime Wave, the US Department of Justice targets $1 billion in the largest asset seizure in the country’s history,  the EU finalizes a new cybersecurity plan, putting more pressure on banks to identify, respond and report breaches, de-risking rankles the Venezuelan government and more.

Asset forfeiture

US federal prosecutors launched one of the largest asset seizures in U.S. history as they step up their investigation into billions of dollars siphoned away from a Malaysian government investment fund. Authorities filed civil lawsuits on Wednesday morning seeking to seize more than $1 billion worth of assets, including properties and other assets purchased with money allegedly misappropriated from the Malaysian fund. The Wall Street Journal has reported that people linked to the fund have invested millions of dollars in real estate and businesses in the U.S. Agents from the Federal Bureau of Investigation’s international corruption unit have also been conducting a wide-ranging criminal investigation into people and institutions connected with 1Malaysia Development Bhd., known as 1MDB, a sovereign-wealth fund set up by Prime Minister Najib Razak in 2009 to drive the country’s economy. The asset seizures would be the U.S. government’s first action tied to the 1MDB investigation.

The action surpasses civil suits filed in 2015 seeking to seize $850 million in assets involving three telecom companies in an unrelated case. The move by U.S. authorities to seize assets tied to an investment fund run by a foreign government is a major escalation in Washington’s global efforts to fight corruption and block allegedly illegally obtained funds from moving through the world’s financial system. The money trail has also led to Riza Aziz, a producer and financier at Red Granite Pictures, whose stepfather is the Prime Minister of Malaysia. Red Granite was behind the movie, “The Wolf of Wall Street,” which starred Leonardo DiCaprio, (via the Wall Street Journal).

‘Lifestyle’ audits

 An investigation by Canada Revenue Agency into Metro Vancouver’s soaring real estate market is expected to bring under scrutiny people whose lavish lifestyles and expensive homes don’t appear to be in line with their incomes. The CRA’s plan, described in a briefing document leaked to The Globe and Mail, indicates that one key area of investigation will be “lifestyle audits.” Christine Duhaime, a Vancouver lawyer who specializes in financial crime and anti-money laundering law, said that means the CRA is going to take a close look at individuals who seem to be living far beyond their means. “So it’s how come you are rich and famous in Vancouver – but you have no job? How is that possible? So that’s what money-laundering people look for – this out-of-whack spending pattern,” she said in an interview on Friday.

Ms. Duhaime said money launderers often follow similar patterns when it comes to spending big: They all want the same excessive symbols of wealth. “They all follow what we call the same typology. … They all want an expensive Lamborghini or a Ferrari, they want a really expensive house, they send their kids to the most expensive private schools they can get in Vancouver,” she said. “So when you try to find money launderers, that’s what you look for. Who went to the Ferrari shop? And that’s what they mean by the ‘lifestyle audit.’” The CRA plan, disclosed by The Globe on Thursday, includes a reference to collaboration with FinTRAC, the Financial Transactions and Reports Analysis Centre of Canada, an independent federal agency that monitors money laundering and people who finance terrorist groups, (via The Globe and Mail).


The accounts of a Brazilian-owned offshore bank in Antigua have been frozen, after a Brazilian court found a case of money laundering by nationals of the South American country. Several online publications report that the bank in question, Meinl Bank Antigua Limited, was complicit in the biggest corruption scandal ever uncovered in Brazil. That scandal included the alleged involvement of Luis Inácio Lula da Silva, the nation’s president from 2003 through 2010, and saw president Dilma Rousseff suspended from office. The bank was said to have been acquired by Brazilian construction giant, Odebrecht, to launder, distribute and conceal billions of dollars in bribes. The activities at the Antigua bank were reportedly carried out between 2010 and 2014, before legislative action by the government to close loopholes in anti-money laundering legislation and in the administration of international offshore banks. Vinicius Veiga Borin, a whistleblower from Odebrecht, said he and other Odebrecht executives collaborated to take control of Meinl Bank Antigua in late 2010, (via Caribbean 360).


Federal agents surprised an HSBC executive as he prepared to fly out of New York’s Kennedy airport late Tuesday, arresting him for an alleged front-running scheme involving a $3.5 billion currency transaction, according to three people familiar with the matter. Mark Johnson, HSBC’s global head of foreign exchange cash trading in London, was held in a Brooklyn jail overnight and will appear in court Wednesday, one of the people said, asking not to be identified because the details of his arrest aren’t public. The U.S. unsealed charges against him and Stuart Scott, the bank’s former head of currency trading in Europe, making them the first individuals to be charged in the long-running probe. The arrest and charges are a coup for the Justice Department, which has struggled to build cases against individuals in its investigation into foreign-exchange trading at global banks. U.S. prosecutors once had so much confidence in the quality of evidence they were gathering thanks to undercover cooperators that in September 2014, then-Attorney General Eric Holder said he expected charges against individuals within months. The U.K. Financial Conduct Authority also found it difficult to make cases against currency traders and announced in March that it was dropping its efforts, (via Bloomberg).


In a global landscape fraught with financial crime and well-funded terrorist operations, combating money laundering has rightly become a priority for the banking community. Tightening regulatory requirements have made nine- and 10-figure penalties familiar occurrences. Global banks everywhere are being put on notice: stamp out money laundering or face the consequences. But as regulators have pursued stricter enforcement, banks have struggled to comply with the mounting regulatory burden. An international bank may have to navigate many moving goalposts and overlapping rules, doubly so if it works in markets where multiple jurisdictions apply. The more correspondent relationships a bank has, the more complex the regulatory oversight becomes and the harder it is to ensure effective and rigid internal controls. Moreover, maintaining thousands of correspondent banking relationships around the world comes at a high price, whether or not these entities pose significant risks. In such an environment, banks that maintain correspondent relationships in higher-risk environments find themselves caught between the rock of exorbitant penalties and the hard place of escalating compliance costs. De-risking, as this process is known, has disproportionately affected small countries with developing financial regulatory environments, especially in Africa, Latin America and the Caribbean. The unfortunate irony of de-risking is that it hurts the banks and countries that most depend on access to the international banking system. When small regional banks lose their correspondent relationships, they lose access to foreign currency, a vital resource for customers operating in a global economy, (via American Banker).

Citibank will close the accounts of the Venezuelan Central Bank and the Bank of Venezuela, a move President Nicolas Maduro called a “financial blockade.” On Tuesday, Maduro said his government received notification from Citibank that the Venezuelan government accounts will be closed in 30 days. The Venezuelan government relies on Citibank to conduct foreign currency transactions due to strict currency controls first imposed under President Hugo Chávez. “Today, we received Citibank communication … that although we made payments 48 hours ago that in 30 days they will close the Central Bank of Venezuela account,” Maduro said during a televised conference. “Do you think they will stop us with a financial blockade? With or without Citibank, we will move forward.” Citibank on Tuesday released a statement in which it said it was closing the accounts after conducting a “periodic risk management review.” The bank also said services will be suspended for the accounts of some Venezuelans living in the United States. Citibank said it was not diminishing its commitment to Venezuela, where it has provided financial services for nearly 100 years, adding that it values dialogue with the Venezuelan government. Maduro said his government was given 24 hours to settle all the international accounts Venezuela needs to pay, (via UPI).


The European Parliament and Council of the European Union Tuesday published the final Security of Network and Information Systems (NIS) Directive, the EU’s first major attempt to craft anti-hacker rulesthat would require countries in Europe to implement a national strategy to safeguard information networks in a bid to ward off cybersecurity threats. The new directive gives firms and the government greater sharing powers to identify cyber attack patterns, puts new requirements on companies to report breaches and creates cyber security incident response teams to more swiftly and effectively respond to attacks in multiple member states. The directive has several major objectives: Improved cybersecurity capabilities at national levelIncreased EU-level cooperation and Risk management and incident reporting obligations for operators of essential services and digital service providers. Member states must transpose the directive into national law by May 2018. In short, the directive:

(a) lays down obligations for all MemberStates to adopt a national strategy on the security of network and information systems;
(b) creates a Cooperation Group in order to support and facilitate strategic cooperation and the exchange of information among MemberStates and to develop trust and confidence amongst them;
(c) creates a computer security incident response teams network (‘CSIRTs network’) in order to contribute to the development of trust and confidence between MemberStates and to promote swift and effective operational cooperation;
(d) establishes security and notification requirements for operators of essential services and for digital service providers;
(e) lays down obligations for MemberStates to designate national competent authorities, single points of contact and CSIRTs with tasks related to the security of network and information systems, (viaNew Europe). To read the final directive in the Official Journal of the European Union and see a timetable for implementation, please clickhere.

The Chinese government likely hacked computers at the Federal Deposit Insurance Corporation in 2010, 2011 and 2013 and employees at the U.S. banking regulator covered up the intrusions, according to a congressional report on Wednesday. The report cited an internal FDIC investigation as identifying Beijing as the likely perpetrator of the attacks, which the probe said were covered up to protect the job of FDIC Chairman Martin Gruenberg, who was nominated for his post in 2011. “The committee’s interim report sheds light on the FDIC’s lax cyber security efforts,” said Lamar Smith, a Republican representative from Texas who chairs the House of Representatives Committee on Science, Space and Technology. “The FDIC’s intent to evade congressional oversight is a serious offense.” The report was released amid growing concern about the vulnerability of the international banking system to hackers and the latest example of how deeply Washington believes Beijing has penetrated U.S. government computers. The report did not provide specific evidence that China was behind the hack. The FDIC, a major U.S. banking regulator which keeps confidential data on America’s biggest banks, declined to comment. Gruenberg is scheduled to testify on Thursday before the committee on the regulator’s cyber security practices, (via Reuters).

 Casino enforcement

The Financial Crimes Enforcement Network (FinCEN) this week penalized a Hawaiian Gardens, California-based casino nearly $3 million for longstanding and uncorrected anti-money laundering (AML) program violations, including lax monitoring, recordkeeping and staff who actively helped customers avoid reporting requirements. The bureau announced a settlement with and a $2.8 million assessment against Hawaiian Gardens Casino, The Gardens, which is a card club. The operation admitted that it violated the Bank Secrecy Act’s (BSA) program and reporting requirements and has agreed to improve its compliance program, including periodic independent reviews to examine and test its BSA Anti-Money Laundering (AML) program. In 2011 and 2014, IRS examined The Gardens and identified significant BSA violations. Many violations uncovered in 2011 were left unaddressed in 2014, despite the IRS findings in 2011 and despite the fact that the Gardens’ independent consultant identified many of these problems in 2013. From September 1, 2009 through the present, The Gardens failed to implement and maintain an effective AML program, failed to report large cash transactions, failed to file many suspicious activity reports (SARs), and failed to keep certain required records. The casino also failed to use information collected on its player club cards, monitored on an hourly basis, and combine it with other AML monitoring and open source systems to identify broader threats and file related SARs. The operation also had employees who coached patrons to avoid record keeping reports, and kept them on staff even after disciplining them for such actions, (via FinCEN). To read the actual penalty document, please click here.

Terror lawsuits

 U.S. State Department officials told members of Congress on Tuesday that legislation that would allow families of Sept. 11 victims to sue Saudi Arabia is opposed by important U.S. allies and posed a national security risk. But many members of a House of Representatives Judiciary Committee subcommittee expressed strong support at a hearing for the “Justice Against Sponsors of Terrorism Act,” or JASTA, which the Senate passed in May by unanimous voice vote despite President Barack Obama’s veto threat. The Saudis, who deny responsibility for the 2001 attacks, strongly oppose the legislation. Other governments have also raised objections. The Dutch parliament warned that JASTA would represent a breach of Dutch sovereignty. A member of the British parliament wrote a column opposing it. Anne Patterson, the State Department’s assistant secretary for Near Eastern affairs, and Brian Egan, its legal counsel, testified that the measure could lead to lawsuits against the United States and discourage security cooperation such as intelligence sharing between governments. But the bill’s supporters say it would provide justice to those who lost loved ones in the attacks 15 years ago. They argue that if Saudi Arabia was not responsible for the attacks, it would win any lawsuits. If it became law, JASTA would remove sovereign immunity preventing lawsuits against governments for countries found to be involved in terrorist attacks on U.S. soil. It would allow survivors of the attacks, and relatives of those killed in the attacks, to seek damages from other countries, (via Reuters).

Correspondent banking

The head of the International Monetary Fund, Christine Lagarde, warned that island economies and emerging markets are increasingly at risk of financial shocks, because costly regulations and business preferences are causing Western banks to terminate or suspend correspondent banking relationships with smaller foreign jurisdictions. In remarks prepared for a speech at the Federal Reserve Bank of New York on Monday, Ms. Lagarde said large global banks are re-evaluating their correspondent banking models with smaller countries in light of post-financial crisis regulations and anti-money-laundering rules, and some have cut ties with countries that are too risky or unprofitable. Correspondent banking relationships allow money to move domestically or across borders between senders and recipients using different banks, account types, and multiple currencies. By exchanging messages, sometimes between multiple affiliates, instructions can be sent to debit money from the a customer in Nigeria, whose bank account is in New York, to credit a beneficiary in Brazil whose bank account is in São Paulo, for example. Société Générale SA, according to the speech from Ms. Lagarde, manages 1,700 correspondent accounts and processes 3.3 million correspondent transactions daily. But postcrisis, some of these relationships have seen temporary or wholesale disruptions, IMF and World Bank data show. U.S. dollar wire transfer changes have affected small and medium-size exporters in emerging markets. Socio-economic conditions in countries like Somalia, Samoa, Mexico and the Philippines, where many households rely on remittances, also are vulnerable, (via the Wall Street Journal).

Real estate

Where did a mystery man from Argentina get nearly $65 million to spend on ultra-luxury Miami condos, New York apartments and South Florida strip malls? That’s what Argentine prosecutors want to know, especially because Sergio Todisco doesn’t seem to have a fortune of his own — and because he once acted as an offshore corporate front-man for a top aide to former president Néstor Kirchner. The controversy again shows how Miami’s gleaming condos attract secret and potentially illicit money from around the world. Between 2010 and 2015, Florida companies registered in the names of Todisco and his now ex-wife, Elizabeth Ortiz Municoy, a real estate agent in Miami and Buenos Aires, spent about $21 million on luxury condos at some of South Florida’s best-known towers, including Icon Brickell, St. Regis, Turnberry Ocean Colony, Apogee Beach and 900 Biscayne. The crown jewel was a $10.7 million, four-bedroom unit at the Regalia in Sunny Isles Beach. The companies later sold most of the units. Other companies that listed Todisco and Municoy as officers invested $30 million in South Florida bank branches and a pharmacy, as well as a $13 million unit at Manhattan’s stately Plaza Hotel. Only two of the transactions involved mortgages, according to public records, meaning the other deals were likely for cash, (via the Miami Herald).

Government attempts to stop the UK property market being exploited by international money launderers are “totally inadequate” and the country has instead “laid out a welcome mat” to criminals, the House of Commons home affairs committee has said. The influential panel of MPs, chaired by the Labour backbencher Keith Vaz, said it was disgraceful that at least £100bn was being laundered through the UK every year and astonishing that just 335 out of 1.2m property transactions last year were deemed to be suspicious by law enforcement officials. That means only 0.01% of the 2.4 million buyers and sellers in the UK generated suspicious activity reports at the National Crime Agency (NCA), whose system, Vaz said, was not fit for purpose. “The proceeds of crime legislation has failed,” Vaz said. “London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering. Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate.” The NCA’s system gathers suspicious activity reports from lawyers, accountants, bankers and other professionals but is overwhelmed with more than 380,000 reports per year, when it is designed to handle 20,000. Estimates of the annual volume of ill-gotten gains laundered through the UK vary enormously. Vaz took his £100bn figure from the charity Transparency International but the report also cites evidence from Donald Toon, director of the economic crime command at the NCA, that it was likely to be “hundreds of millions of dollars,” (via The Guardian).

Prostitution sting

In the first sting operation of its kind for the Seattle Police Department’s Vice & High Risk Victims Unit, detectives set up shop in a massage parlor they had shut down in the spring. They never expected the volume of business they got from men seeking sex. All told, members of the Seattle Police Department’s Vice & High Risk Victims Unit arrested 204 men during the 10-day operation that began July 5, netting more than $22,000 in cash — money the men handed over expecting to be sexually serviced by a handful of undercover female officers, or UCs. “We never anticipated this volume,” Sgt. Tom Umporowicz said of the brisk business at the police-operated Euro Spa, the first sting operation of its kind in the city. He estimated court fines from the operation — $2,733 for a first-time offender, with repeat offenders paying more — will total at least $550,000. Formerly known as Bamboo Spa, the business was shut down in May by Umporowicz and his squad, along with a second location, Cherry Spa, a few blocks north on Roosevelt. He said the businesses had been the subject of an anonymous vice complaint a couple of months earlier, which prompted an undercover investigation into prostitution at both massage parlors, (via the Seattle Times).

The bigger picture: I normally don’t pick local news pieces for the ACFCS Daily Brief and Crime Wave, because, if I did, I would easily get overwhelmed with all of the small time shenanigans going in in places all over the country. And I didn’t pick this story to be salacious or titillating. There are legitimate compliance aftershocks tied to this sting. If state and federal regulators hear about this case, there are several questions they are going to ask any banks that have even tenuous ties to the now-shuttered massage parlor and now the jaded Johns. For instance, if the massage parlor did have a bank account, examiners will want to know how the institution risk-rated the business, what was the expected business, how the transaction monitoring system was tuned and did the business trip any AML alerts and even related suspicious activity reports. If this business was generating excessive amounts of cash, did significant credit card transactions, particularly if late in the evening, or wired large amounts to foreign countries, beyond their expected weekly or monthly earnings, those are all key red flags. As well, now that these Johns names are out there, banks may want to do a mini-lookback to see if these customers are frequenting other shady establishments or pulling out cash in increments roughly equal the amount paid for sexual services, (via the Seattle Times).


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