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Financial Crime Wave – Some spooky tales of fincrime, Pentagon FCU AML gaps, and more

Thursday, November 1, 2018   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe

October 31, 2018

In this week’s Financial Crime Wave, some spooky crimes and scary figures about financial crime for Halloween, a dog in a money laundering costume, concerns about Pentagon Federal Credit Union AML program, United Kingdom fines rise, and more.

Halloween hijinks

A few Halloween-themed stories for financial crime professionals. ACFCS wishes the community a Spooktacular day!

Combining our favorite things: Animals, Halloween and financial crime. How? Dog in a money laundering costume

Yes, you read that right. Ah, the glorious creativity of the Internet. Checking this out won’t help you fight financial crime – that is unless you are having a stressful day and need a laugh. But please enjoy an adorable pooch hilariously rocking out in a money laundering costume, (via Costume Works).

A look at the grim facts behind financial crime’s $1.5 trillion global illicit funds toll

A trip through the tunnel of darkness. Consider the $1.45 trillion of losses that accrue to businesses, and the fact that 47 percent of firms were victims of financial crime last year. Cybercrime and financial crimes were the most common offenses – all of that with the creepy realization that nearly half of crimes go unreported, (via Pymnts).

Halloween is top day for free candy — and property crime, as masked zombies and ghouls try to pilfer, pillage undetected

Make-believe monsters, witches and goblins vie for our attention each Halloween, but Fright Night is also the ideal time for real wrongdoers to wreak havoc undetected. On average, crime-related insurance claims spike by 24 percent on Halloween, more than on any other day of the year, according to 2016 data from Travelers Insurance. This includes particularly sharp increases in theft, both inside and outside the home, and vandalism, (via Nerd Wallet).


Pentagon Federal Credit Union staffers raised concerns about its reporting of suspicious activity, documents show; PenFed called the allegations false

Employees at one of the largest and fastest-growing credit unions in the U.S. told executives and regulators that it had a flawed program to prevent money laundering, according to people familiar with the matter and internal credit-union documents. The concerns raised about Pentagon Federal Credit Union in 2016 and 2017 included understaffing, gaps in reporting of potentially suspicious transactions to the government, insufficient monitoring of wire transfers, a lack of anti-money-laundering training for senior leaders and inadequate scrutiny of potentially high-risk customers, according to internal PenFed emails and reports.

The documents, which haven’t previously been reported, don’t contain evidence of alleged money laundering by PenFed customers. They include emails and reports created by PenFed staffers who analyzed the adequacy of its anti-money-laundering operation and were arguing for a higher budget, given the credit union’s rapid growth. The bank denied any AML issues. In the time since its employees raised concerns, PenFed has made changes to the program, according to Mr. Lind and other documents reviewed by the Journal. These changes include reorganizing management, hiring more staff, adopting new policies and investing in suspicious-activity detection technology, (via the WSJ).


Yahoo agrees to pay $50 million to data breach victims numbering in the billions whose accounts were compromised in 2013 and 2014.

Yahoo will have to cough up $50 million in damages as part of a settlement following massive data breaches that took place in 2013 and 2014. The first breach affected three billion accounts, while the second affected 500 million accounts -- neither were disclosed until 2016. Hacked information included passwords that were encrypted but could be cracked. The $50 million fund will compensate affected account holders $25 for every hour spent dealing with the fallout from the breach. Those with documented losses can claim up to $375, while those without records of their losses can ask for up to $125. Account holders that paid for a premium email account will also be eligible for a 25 percent refund. The company will also have to pay for at least two years of credit monitoring services for some 200 million users who had personal information stolen.

Yahoo revealed the data breaches in 2016, after it had already negotiated a $4.83 billion deal to sell its digital services to Verizon Communications (which it later reduced by $350 million as a result of reputation damage resulting from the breach). Verizon will now be responsible for half of the settlement cost, with the other half paid by Altaba Inc, the company set up to hold Yahoo's investments in Asian companies after the sale. Altaba already paid a $35 million fine imposed by the Securities and Exchange Commission for Yahoo's delay in disclosing the breach to investors, so this settlement -- due to be ruled by a judge on November 29 -- is quickly proving one of the biggest, and costliest, consumer data breaches in history, (via Engadget).


Britain’s Information Commissioner’s Office has increased the total value of fines in the past year, which was marked by a number of penalties being issued to high profile firms


The average value of its fines doubled to reach £146,000 and the total value of the fines rose to just below £5 million, or a 24% rise, according to data by London-based law firm RPC, (via KYC 360).


Finra fines LPL $2.75 million for AML program failures spanning three years, multiple exam cycles, complaint reporting

Finra examiners found that, due to an unreasonably designed AML program, LPL failed to investigate numerous attempts to gain unauthorized access to electronic systems that should have resulted in the filing of Suspicious Activity Reports (SARs).

This failure stemmed primarily from the firm’s use of a “fraud case chart” that provided inaccurate guidance to its AML employees concerning investigation and reporting requirements when third parties used electronic means to attempt to compromise a customer’s email or brokerage account. As a result, LPL failed to file more than 400 SARs, (via Finra).


Australia: Decades of negligence, corruption and conflict of interest within Australia’s financial markets, say investigative journalists

The Commonwealth Bank scandal is evidence of widespread and systematic failure by Government to ensure financial market integrity, transparency and accountability and by all accounts is just the tip of the fraud iceberg, with anti-money laundering compliance among the broad control failures. 

The seriousness of the allegations is confirmation of governments’ ongoing unwillingness to tackle decades of endemic fraudulent practices within the Australian financial markets which has acted to further erode and undermined public confidence, (via


Danske Bank clears whistleblower to speak freely in European Parliament

A whistleblower who helped to reveal a major money laundering scandal at Danske Bank has been freed of confidentiality obligations to the company ahead of his testimony in the European Parliament next month.

The scandal involves 200 billion euros ($230 billion) in payments through Danske's Estonian branch between 2007 and 2015, many of which Denmark's largest bank said in a report last month it regards as suspicious. Howard Wilkinson, a British trader in Danske Bank's Estonia branch until 2014, is scheduled to testify at public hearings in Copenhagen on Nov. 19, and in Brussels on Nov. 21, (via Reuters).

Virtual currencies

U.K. FCA Cryptoasset Taskforce publishes report on country approach to cryptoasset oversight, AML regulations

Whilst the Taskforce appreciates that cryptoassets have the potential to bring benefits to markets, firms and consumers, there remains considerable risks that Her Majesty’s Treasury (HMT), the Bank of England and the FCA will take action to mitigate. Key risks include: harm to consumers and market integrity, the use of cryptoassets for illicit activities and potential future threats to financial stability. In order to mitigate these risks, the Taskforce has committed to a number of actions, including consulting on:

  • Perimeter guidance by the end of 2018 to clarify which cryptoassets fall within the existing regulatory perimeter, and those cryptoassets that may fall outside;
  • Whether the regulatory perimeter requires extension to capture cryptoassets that have comparable features to specified investments, but currently fall outside the perimeter;
  • A separate consultation by Q1 2019 on a potential prohibition of the sale to retail consumers of derivatives (including contracts for differences, options, and futures) referencing certain types of cryptoassets;
  • Given the complexity and new challenges presented to traditional forms of financial regulation, more time is needed to consider how regulation can meaningfully address the risks posed by exchange tokens, such as Bitcoin. The government will issue a consultation in early 2019 to further explore whether and how exchange tokens, and related firms such as exchanges and wallet providers, could be regulated effectively; and
  • Implementing one of the most comprehensive responses globally to the use of cryptoassets for illicit activities by applying and going further than the fifth EU Anti-Money Laundering Directive, (via the FCA).


Sweden finds flaws in Nordea's AML defenses, calls for action plan as regulator broadens compliance queries

In a continuing crackdown in Europe and Scandinavia, Sweden’s financial watchdog has identified weaknesses and deficiencies in Nordea Bank Abp’s work to counter money laundering. The findings were made in a review this year of how Nordea follows rules in areas such as risk assessment and client knowledge and included in a letter sent by the Swedish Financial Supervisory Authority to Nordea’s management and board.

The heavily redacted letter, dated Sept. 28 and obtained by Bloomberg, doesn’t provide any further details on the shortcomings but states that the regulator has given Nordea a set of recommendations to address the issues.

The FSA took no further action and has now closed the review into Nordea, while a separate review into Svenska Handelsbanken AB’s procedures is still ongoing.

The review follows the warnings and fines Nordea and Handelsbanken got from the FSA in 2015 after deficiencies were found in their work to prevent money laundering. Nordea has since invested heavily in measures to fight such financial crime, and has also exited risky portfolios and beefed up its compliance department, (via Bloomberg).


Denmark to revamp financial watchdog in wake of Danske Bank scandal: minister

Denmark plans to strengthen its financial regulator to make it better able to fight money laundering, its business minister said on Thursday, as the country’s largest bank, Danske Bank is embroiled in a major scandal. The scandal involves 200 billion euros ($230 billion) in payments through Danske’s Estonian branch between 2007 and 2015, many of which the bank said in a report last month it thinks are suspicious. The scandal has led the bank’s former chief executive Thomas Borgen to resign and almost halved Danske Bank share price since February.

“Obviously, supervision must be strengthened and conducted in a different way than it has been done in the period 2007-2015 when we can see that Europe’s largest money laundering case was not detected,” conservative minister Rasmus Jarlov said on Facebook early on Thursday.

He said that a profound evaluation of the Financial Supervisory Authority (FSA) had begun and that it would include inputs from the FSA itself as well as from other stakeholders.

The FSA’s handling of the Danske Bank case has been widely criticized, and the European Union’s banking supervisor has begun an inquiry into it. Jarlov said it was crucial that the FSA be given tools to scrutinize the information it gets from banks more thoroughly, (via Reuters).


EU should set up anti-money laundering body, publish fines: experts

The European Union should set up a new agency to counter money laundering after a series of high-profile cases at banks bared weaknesses in the system, an influential think-tank said in a report, urging full disclosure of fines imposed on wrongdoers. Over the last months, lenders in Denmark, Estonia, Latvia, Luxembourg, Malta, Spain, the Netherlands, Britain and Cyprus have been embroiled in money laundering scandals, with criminal schemes often executed through foreign branches within the EU.

Increased media attention to recent cases has pushed EU regulators to discuss limited changes to the bloc’s legal framework, but proposals to slightly increase the monitoring powers of the European Banking Authority (EBA) face opposition in some member states.

However, the reform should go much further than what is currently discussed, experts at the Brussels-based think-tank Bruegel said in a report on Thursday. “It is evident that recent anti-money laundering supervision in the EU has been embarrassingly ineffective, and that deep reform thus needs to be considered,” Joshua Kirschenbaum and Nicolas Veron wrote in the Bruegel paper titled: “A better European Union architecture to fight money laundering,” (via Reuters).


For payments fraud professionals, fighting fraud can seem like a marathon with a finish line that keeps moving further and further away

Traditional methods of fraud—like phishing, business email compromise, wire scams and check fraud—are still in play and growing more targeted and sophisticated. But technology is also giving rise to all-new types of fraud the industry hasn’t seen before, (via the ABA).

Money laundering

Billion-dollar Ponzi scheme banker sentenced to prison in wealthy Venezuelan scheme

An international banker who catered to mega-rich Venezuelans was sentenced to 10 years in prison by a Miami federal judge Monday for his supporting role in a massive $1.2 billion money-laundering scheme involving stolen funds from Venezuela’s government, (via the Miami Herald).

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