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Financial Crime Wave – Compliance penalties soar to $400 billion, SEC creates cyber unit, and more

Thursday, September 28, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
September 28, 2017

In this week’s Financial Crime Wave, a new report projects U.S. and European Union banking penalties for compliance failures, including anti-money laundering (AML) will top $400 billion in the next three years, the U.S. Securities Exchange Commission (SEC), on the heels of getting hacked itself, creates a new cyber unit to prevent illicit groups from puncturing firms to steal non-public data, corruption in college basketball, and more.


Compliance fines against banks in the U.S., EU for AML, other failures to top $400 billion by 2020: report

Regulators in the United States and Europe have imposed $342 billion of fines on banks since 2009 for misconduct, including violation of anti-money laundering rules, and that is likely to top $400 billion by 2020, a research report said on Wednesday. Pending cases involving missteps in the US mortgage market in the run-up to the 2008 financial crisis and a fresh penalty on mostly regional banks for anti-money laundering breaches would result in a surge in fines over the next few years, Quinlan and Associates said.

The Hong Kong-based financial services consultancy estimated bad behavior had erased $850 billion in profits for the top 50 global banks since the 2008 financial crisis in the form of write-downs, trading losses, fines and higher compliance costs. The bulk of the new regulatory fines would be against regional banks, including some Chinese banks, that have lagged their global peers in bolstering investments on compliance to combat money laundering, its CEO Benjamin Quinlan said, (via Reuters).


SEC creates new unit to better tackle cyber-based threats, including hacks to obtain nonpublic details, sham ICOs

The U.S. Securities Exchange Commission (SEC) has created a cyber unit to better help companies shields themselves from attacks, uncover and investigate hacks stealing non-public information and determine if companies engaged in initial coin offerings (ICOs) are real or a sham. The chief regulator of the country’s securities sector has also created a Retail Strategy Task Force to bring cases targeting retail investors and taking advantage of them, including penny stock scams and pump-and-dump schemes. Ironically, the SEC has had to defend itself before congress on the cybersecurity front after recently revealing it was hacked.

The Cyber Unit will focus the Enforcement Division’s substantial cyber-related expertise on targeting cyber-related misconduct, such as:

  • Market manipulation schemes involving false information spread through electronic and social media
  • Hacking to obtain material nonpublic information
  • Violations involving distributed ledger technology and initial coin offerings
  • Misconduct perpetrated using the dark web
  • Intrusions into retail brokerage accounts
  • Cyber-related threats to trading platforms and other critical market infrastructure

The unit, which has been in the planning stages for months, complements other SEC initiatives to implement an internal cybersecurity risk profile and create a cybersecurity working group to coordinate information sharing, risk monitoring, and incident response efforts throughout the agency, (via the SEC).

Deloitte doing some internal forensics on how it got victimized by hackers

Deloitte, one of the world’s “big four” accounting firms, has acknowledged a breach of its internal email systems, British news outlet The Guardian revealed today. Deloitte has sought to downplay the incident, saying it impacted “very few” clients. But according to a source close to the investigation, the breach dates back to at least the fall of 2016, and involves the compromise of all administrator accounts at the company as well as Deloitte’s entire internal email system, (via Krebs on Security).

CFPB expected to chastise, even penalize Equifax in wake of massive data breach

Add the Consumer Financial Protection Bureau to the list of federal agencies expected to punish Equifax for the massive security breach that exposed the personal data of around 143 million Americans. According to a Reuters news report, the consumer finance watchdog, created after the 2008 financial crisis, will utilize the wide-ranging powers it has used with Wall Street to come down on Equifax.

The Federal Trade Commission and the Department of Justice are already investigating the cyberattack. In addition, Equifax is being sued by the state of Massachusetts, and is also facing a class-action lawsuit filed on behalf of 28 million small businesses impacted by the breach and another suit just filed by Summit Credit Union. Because Equifax is not strictly a financial company, there was uncertainty over whether the CFPB has the power to penalize the firm for the breach. But legal experts said it is likely to weigh in using powers it wields under the 2010 Dodd-Frank Act, (via Pymnts).

Arms trafficking

How to launder illegal arms deals: Ukraine network moves blocked EU arms to Africa and Middle East

In 2015 and 2016, Ukrinmash, a Ukrainian state arms exporter, signed deals with customers in Uganda and Burundi to sell 59 amphibious armored patrol vehicles. On the surface, the deals are typical of Ukraine’s arms trade with Africa, where instability and fears that weapons may migrate into conflict zones mean many countries have trouble buying from Western manufacturers. But this time, there was a hitch: The vehicles were not really Ukrainian.

Rather, a tranche of leaked documents shows something more startling. The vehicles, worth at least US$ 4.1 million, were bought in Poland, an EU member state governed by strict arms export rules. They were sent to Ukraine in parts, and then 45 of them were exported to East Africa via the United Arab Emirates (UAE). In other words – much like dirty money passing through a series of accounts – the vehicles were laundered to obscure their origin, route, and destination, (via the OCCRP).

Virtual currencies

Government-backed crypto-funds?

A look at why governments are testing their own crypto currencies, and see how cash may not be king any more, (via the MIT Technology Review).

Japan, on heels of China banning Bitcoin exchanges, will increase scrutiny on sector to look for frauds, laundering

Japan's financial watchdog will soon pay very close attention to the internal systems of exchanges for virtual currencies such as bitcoin. The country's Financial Services Agency (FSA) said Sunday that it would be putting exchanges under what The Japan Times called "full surveillance" from next month.

That means monitoring internal systems, such as those used for protecting customers' assets, and possibly on-site inspections. The scrutiny is a big deal because—thanks to the Chinese authorities cracking down on bitcoin trading in that country—Japan has recently become the largest bitcoin exchange market in the world, (via Fortune).


Trump administration issues more secondary sanctions against North Korea

On September 20, 2017, President Trump signed Executive Order 13810, “Imposing Additional Sanctions with Respect to North Korea,” which broadly authorizes the Department of the Treasury to impose sanctions against individuals and entities, including non-U.S. financial institutions, for conducting or facilitating trade with North Korea. The EO marks the Trump Administration’s decision to employ a strategy of threatening secondary sanctions—sanctions that target conduct with no nexus to the United States—to pressure companies around the world to sever business involving North Korea, (via Paul Weiss).

Sanctions screening stumbles? Check this out

Check out the four major roadblocks to real-time sanctions screening, and some tactics to overcome these hurdles, (via CSI Web).

U.S. Treasury not thinking diamonds are too precious right now

OFAC penalizes luxury jewelry-maker for shipment to blacklisted entity in Hong Kong, (via the FCPA Blog).


August very august for graft enforcement

Check out the top 10 anti-corruption developments for August, including events in the United States, United Kingdom, Brazil and more, (via Morrison Foerster).

U.S., Netherlands levy nearly $1 billion FCPA penalty against Swedish telecommunications company

U.S. and Dutch authorities have levied $965 million in penalties against a Swedish telecommunications company in a global settlement for paying hundreds of millions of dollars in bribes to secure lucrative government contracts in Uzbekistan. The U.S. Department of Justice, Securities Exchange Commission and Public Prosecution Service of the Netherlands have negotiated the deferred prosecution agreement with Telia Company AB, and its Uzbek subsidiary Coscom LLC, for paying more than $331 million in bribes to a government official in Uzbekistan in violation of the U.S. Foreign Corrupt Practices Act (FCPA). In the agreement, Telia will pay nearly $275 million to the DOJ, nearly $460 million to the SEC and $274 million to Dutch authorities.

The bribes were paid to an Uzbek government official who was a close relative of a high-ranking government official and who exercised influence over Uzbek telecommunications industry regulators. Telia and Coscom structured and concealed the bribes through various payments to a shell company that certain Telia and Coscom management executives knew was beneficially owned by the foreign official. The bribes were paid on multiple occasions over a period of approximately five years so that Telia could enter the Uzbek market and Coscom could gain valuable telecom assets and continue operating in Uzbekistan, (via DOJ).

College basketball coaches, Adidas executive facing corruption charges for bribing athletes to go to certain schools, endorse products after turning pro

Ten people involved at the highest levels of college basketball, including four assistant coaches and a senior executive at Adidas, are facing federal bribery, fraud and other corruption charges, prosecutors in Manhattan announced on Tuesday. The United States attorney for the Southern District of New York said in a statement that since 2015 the F.B.I. and federal prosecutors have been investigating “the criminal influence of money on coaches and student-athletes who participate in intercollegiate basketball governed by the N.C.A.A.”

The investigation has revealed “numerous instances” of bribes paid by athlete advisers, and others, to assistant coaches and sometimes directly to student-athletes at N.C.A.A. Division I universities, the complaint said. The bribes were designed to get commitments from college stars to work with specific agents and companies after they turned professional, or to convince coveted high schoolers to attend specific universities, (via the New York Times).

China hits reset button on corruption watchdog due to international pressure

China scrapping current anti-corruption watchdog, aiming to create new body to garner better international recognition, cooperation to counter grand graft, (via the Brisbane Times).


Why bury a report on poor casino compliance in Canada?

Is money laundering a problem for casinos in British Columbia? One buried, and now unearthed report, seems to imply the answer is yes, (via

Terror finance

Pittenger pushing for more powers for banks, investigators to fight terror financiers

U.S. Rep. Robert Pittenger, whose district stretches from Charlotte to Fayetteville, wants Congress and others in the government to do more to hamper how terror groups garner support and funding, and those helping them, he told local reporters. He said he is advocating for changes to financial systems to give banks and the government a wider berth in tracking and stopping transactions connected to terror groups.

In recent months, Pittenger has introduced or co-sponsored legislation that enhances the role of the Treasury Department on the National Security Council, improves and increases the capabilities of anti-money laundering attaches within American embassies and allows the government to punish companies that support or are complicit in cyberattacks against the United States and U.S. businesses, (via the Fayetteville Observer).

Money laundering

Drugs, money laundering in horse racing

The true-life tale of the Zetas’ foray into quarter horses is masterfully recounted by the journalist Joe Tone in his debut book, “Bones.” He shines a light on an often overlooked corner of the blood bath ravaging Mexico: how cartel money is laundered in the United States, (via The New York Times).


European regulators issue guidance on money laundering, terrorist financing in electronic funds transfers

European regulators have issued new guidance to prevent organized criminal syndicates and terror groups from moving funds electronically, exhorting the broad universe of payment service providers to better uncover who are the parties – the payer and payee – involved.  At issue is that there is a disconnect in some parts of the European Union (EU) with regard to what payment service providers should be doing and how competent authorities, such as regulatory bodies, should be grading their financial crime compliance programs.

As in the United States, the electronic payment landscape has many players – including banks, money services businesses, small and large retailers, third-party payment processors and others – so it can be challenging in determining who should be doing what duties to prevent criminal abuse of the international payment space without creating undue customer friction and slowing global commerce. The guidance details what payment services providers should be doing to better uncover missing information and how to handle repeatedly recalcitrant providers that routinely fail to put in adequate details on the entities involved in the transaction, (via the European Banking Authority).


Is AML adoption, enforcement hurting Texas tourism?

Are stronger AML rules in the United States, and more momentum for banks to de-risk foreigners from high-risk countries, hurting the tourism industry, with fewer Mexicans wanting to visit cities in Texas? One business executive believes the answer is yes, (via the Rio Grande Guardian).

Individual liability

Aussie regulator looking to levy more penalties against individuals, top executives

Australia’s chief financial regulator set to get new powers to levy individual penalties against top bank executives for extensive compliance failures, including in the areas of anti-money laundering and fraud. The move is in response to high-profile AML failures at Commonwealth Bank of Australia, which has tarnished the reputation to the banking sector more broadly, (via Reuters).

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