News & Press: Financial Crime Wave

Financial Crime Wave – Singapore hits banks in 1MBD scandal, US Senate mulls AML laws, and more

Friday, June 2, 2017   (0 Comments)
Posted by: Brian Kindle
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By Brian Monroe
June 2nd, 2017

In this week’s Financial Crime Wave, Singapore’s Central Bank closed out an extensive investigation of its financial sector’s involvement in the 1MDB corruption scandal with penalties against two banks, two US Senators have introduced new legislation that would expand AML regulations, banks face rising account takeover fraud risk, and more.


Singapore wraps up 1MDB scandal review with two AML penalties for more than $1 million

Singapore’s Central Bank Tuesday penalized two large foreign banks more than $1 million for financial crime compliance failures tied to transactions connected to the Malaysian 1MDB state fund scandal, in addition to sanctioning three individuals and issuing a notice of intent to go after three others.  In the two actions, the Monetary Authority of Singapore (MAS) fined Credit Suisse and United Overseas Bank a total of $1.2 million, just the latest fines against operations involved in the scandal uncovered after a two-year regulatory review of transactions and institutions.

In addition to the penalties, MAS shuttered the local branches of BSI Bank and Falcon Bank for anti-money laundering (AML) weaknesses and improper conduct by senior managers, initiating freeze orders against related bank accounts and charges against certain private bankers.

Overall during the “extensive review,” the most rigorous financial crime and compliance-related review MAS has ever undertaken, the regulator has issued monetary penalties of more than $21 million against eight banks, including many of the largest in Europe and the United Kingdom – UBS AG, Standard Chartered and Coutts among them. MAS has also issued banking bans, referred to as prohibition orders, against four people, ranging from 10 years to a lifetime.

The review uncovered “a complex web of transactions involving numerous shell companies and individuals operating in multiple jurisdictions, including the United States, Switzerland, Hong Kong, Luxembourg and Malaysia.” In the latest actions, MAS highlighted AML gaps in “conducting due diligence on customers and inadequate scrutiny of customers’ transactions and activities,” but didn’t detect “pervasive control weaknesses within these banks.” In tandem, the regulator has directed the banks “to appoint independent parties to assess and confirm to MAS that rectification measures have been effectively implemented” and potentially discipline any “errant staff,” (via MAS).

Federal Reserve hits Deutsche Bank trust arm with $41 million AML penalty on weak monitoring, staff expertise

The U.S. regulator with chief oversight of foreign banks operating in the United States penalized Germany’s largest bank $41 million for financial crime compliance failings tied to the oversight of the bank’s domestic trust operations, chiefly around a weak transaction monitoring system that allowing billions of dollars in suspicious transactions to flow through the operation over a four-year period. The penalty, while not as high as other anti-money laundering (AML) and sanctions related fines hitting into the billion dollar ranges, is another costly reminder of the importance of creating strong controls across country borders and business lines, whether the unit is engaged in securities trading, wires, correspondent banking or other areas.

The Fed action also mirrors many of the issues in other penalties against foreign and domestic banks, putting a harsh light on AML programs that, as in the case of Deutsche Bank, lack qualified compliance officers with the requisite expertise to create world class compliance programs, lack a quality and quantity of staff, and have subpar transaction monitoring systems that are unable to spotlight and tabulate when red flag transactions are flowing through the bank.

The latest action follows regulators in New York and the United Kingdom in February issuing a landmark penalty totaling more than $600 million against Deutsche Bank, with some at the time saying it was a glimpse into the future of regulatory oversight where international cooperation extends to egregious financial crime compliance failings. In the action, the New York Department of Financial Services (NYDFS) and the U.K.’s Financial Conduct Authority (FCA) issued penalties of $425 million and $204 million respectively for widespread and longstanding anti-money laundering (AML) failings at Deutsche Bank, chiefly tied to the laundering of some $10 billion out of Russia through a simple yet brutally effective securities scheme called “mirror trades” between 2011 and 2015.

The mirror trades typically involved a three-part system. In the first step, a trader in Russia put in a trade through Deutsche Bank’s Russian branch to buy Russian Blue Chip stocks. At roughly the same time, the same person or a co-conspirator used another company secretly owned by the group to place an order to sell the same amount of Russian stock through London, (via The Federal Reserve).


Account takeover, fake applications are rising fraud concerns for US financial institutions, study finds

A recently-released survey by the Aite Group found that fraudulent applications and account takeovers were two of the most serious, and growing, fraud risks facing US financial institutions of all sizes. The report found that institutions reporting both types of fraud increased substantially in the past 12 months.

The report also noted that fraudsters appeared to be improving their tactics by “aging” synthetic identities to make them more difficult to detect, creating a new headache for fraud compliance staff, (via ATM Marketplace)


US Senators introduce bill to toughen AML laws, expand coverage of digital currencies

US Senators Diane Feinstein and Chuck Grassley introduced a bill last week that would adjust and expand the country’s AML laws in a variety of ways, including heightened oversight of the growing digital currency ecosystem.

Titled the Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017, the bill increases penalties and sentences for certain money laundering violations, and aims to crack down on money movement across the border by directing the Department of Homeland Security to develop “a strategy to detect prepaid access devices and digital currency at border crossings and ports of entry."

The bill would also expand the definition of “financial institution” to include “any digital currency exchanger or tumbler,” as well as any “issuer, redeemer or cashier” of digital currencies, (via Coinbase)

Philippines enacts new laws to tighten transaction reporting at casinos

Legislators in the Philippines approved amendments to AML laws to require the nation’s booming gaming industry to report transactions above $100,500 to regulators. The law will cover physical, internet and ship-based casinos operating within the Philippines.

The gaming sector in the Philippines came under scrutiny last year, after $81 million stolen from the central bank of Bangladesh was laundered through Filipino casinos. At the time, casinos were excluded from the country’s AML regime, allowing most of the looted funds to effectively disappear, (via Reuters).


FATF focusing on how fintech, regtech sectors can better identify, fight financial crime, terror financiers

The watchdog body setting international financial crime standards is tackling critical issues tied to where the real and virtual financial worlds connect, particularly how new technologies to move money and analyze transactions can open the payments sector to new players, foster innovation and better identify illicit transactions and the criminal networks behind them. The Paris-based Financial Action Task Force (FATF) forum discussed the significant trends and developments of FinTech and RegTech, and how the financial services landscape could look like in the near future, including peer-to-peer transfers, crowdfunding, distributed ledger-technology or blockchain-based services, analytical tools, KYC utilities, and digital identity.

Several examples were shared on how countries have approached the regulation of FinTech institutions and activities, for instance through clarifying, modifying, or expanding existing regulatory regimes or by establishing new licensing frameworks, particularly how to ensure entities monitor risks in the financial system and to investigate money laundering (ML) and terrorist financing (TF).

Participants explored how technology-based innovations have the potential to be utilized to better fight ML and TF. For example, big data, artificial intelligence, and machine learning could improve the detection of suspicious activities, potential illegal activity and criminal networks. The key focal points of the meeting included:

1.      Fight terrorism financing and money laundering as a common goal. Combatting ML deals a significant blow to the many profit-driven criminal activities, while countering terrorism financing limits the capabilities of terrorist groups to prepare or carry out attacks.

2.      Encourage public and private sector engagement. Close engagement between governments, the private sector and academia on financial innovations helps to foster a shared understanding of these developments, identify pertinent issues, and facilitates collaboration to address any concerns as they arise.

3.      Pursue positive and responsible innovation. Be on the lookout for innovations that present opportunities to mitigate risks, increase the effectiveness AML/CFT measures, and benefit society in general.

4.      Set clear regulatory expectations which address risks and innovation. Better understanding of how existing AML/CFT obligations apply to new technologies, products, services, and new paradigms is best achieved by governments and the private sector working together.

5.      Fair and consistent regulation. Aim for a regulatory environment that is commercially neutral, respects the level playing-field and minimizes regulatory inconsistency, (via FATF).

In other news:

Afghanistan's central bank bans 80 money transfer operators tied to fears of being tied to illicit funds, (via 1TV News).

Vermont’s new money transmitter law will include virtual currencies, (via FT Reporter).

FinCEN updates to electronic CTR form starting in August, so get ready, (via the CUNA).



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