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Daily Briefing – Bank manager sentenced for laundering, regtech innovation, OFAC liability, and more

Tuesday, February 12, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org

February 11, 2019

In today’s Fincrime Briefing, a bank manager who taught compliance is sentenced for evading controls and laundering funds, a look at the importance of implementation in AML innovation, U.S. blacklists Turkish businessman for Iran dealings, and more.


Money laundering

Bank manager gets prison for money laundering scheme  

The manager of a Southern California bank branch has been sentenced to two years in federal prison for conspiring to launder more than $25,000 in cash by converting it into cashier’s checks in an insider scheme designed out outwit and outmaneuver anti-money laundering (AML) compliance controls – by someone who taught others in the bank about them.

The Los Angeles U.S. Attorney’s Office says 54-year-old Vivian Tat of Hacienda Heights was also sentenced Monday to pay a $2,000 fine. Tat and a co-defendant were found guilty in September of conspiring to commit money laundering and Tat also was convicted of two counts of causing a false statement in a bank record.

The sentencing was a result of a scheme in which Tat, Ruimin Zhao and Zhao’s husband – Raymond Tan, 62, of Temple City – laundered cash through East West Bank’s San Gabriel branch.

Prosecutors argued in court papers that Tat was responsible for providing the location of the closed-door transaction, the account holder, the checks used to facilitate the money laundering and the unwitting tellers who issued the cashier’s checks.

Tat “also provided the knowledge necessary to ensure that this transaction would occur undetected by regulators or law enforcement,” prosecutors wrote in a sentencing memorandum that noted Tat trained other East West Bank employees on the Bank Secrecy Act and anti-money laundering rules.

According to court documents and the evidence presented at trial, Tat, Zhao and Tan led an informant into the bank’s conference room, where the informant provided $25,500 in cash that was then laundered into three “clean” cashier’s checks issued through the account of a bank client.

The informant was wearing a secret recording device and throughout the transaction, the conspirators made statements demonstrating that they knew money laundering was illegal. To cover their tracks, Tat facilitated false entries to be made in East West Bank’s records, which made it appear that this transaction was legitimate.

The case is part of an operation called “Phantom Bank,” which resulted in indictments of 25 defendants. Nine have been convicted. Sixteen await trial, (via the Anti-Corruption Digest). To read the DOJ release, please click here.

Monroe’s Musings:

When looking at just the pure numbers, this might not seem an earth-shattering piece of news. But when peeling back the layers, the case shines a bright light on what is truly an unassailable Achilles heel of even the stoutest AML program: insidious insiders.

What makes this investigation even more disconcerting: The convicted bank manager, at one point, even taught AML compliance to others at the bank. So she ended up, apparently, setting out to gain an intimate knowledge of financial crime compliance procedures only to evade them for her own personal and financial gain.

And if it wasn’t for the government having its own insider to out another insider, she may have gotten away with it, too. But this begs a deeper question banks of all sizes have to wrestle with in the wake of the case: what controls are in place to have oversight of a compliance officer who chooses not to comply – and in fact, uses that knowledge to engage in the very financial crimes they are supposed to detect and prevent?


Compliance

Tech alone is not enough to fight financial crime. Here's why. A look at the importance of implementation, resources and regulator buy-in – and a plan b.

Financial crimes, and the people who commit them, continue to evolve with the digital age. Traditional methods for combatting these crimes can no longer be expected to work. Innovative, technology-based solutions to fight financial crime are now almost just “table stakes.”

As with most tech innovation, implementation is the key. And when it comes to tech solutions that combat financial crime, and therefore doing what’s necessary to become compliant, implementation isn’t easy to achieve.

It requires a high level of collaboration within an organization, and must also be driven by a process that can be validated by regulators and consistent with a company’s legal requirements.

There’s a lot more to achieving compliance than simply understanding the respective government entity requirements and expectations. When considering financial crime technology solutions, an important starting point is ensuring that the organization has a top-down, affirmative commitment to a culture of compliance.

This commitment involves management focus and budget discipline around compliance efforts. Without this commitment, the task of adapting to new technology is likely to fail. 

In addition to embedding compliance within a company’s culture, compliance with these laws and regulatory requirements starts with building risk-focused, compliant and commercially intelligent anti-financial crime frameworks.

There must be a clear understanding of any existing weaknesses or gaps in the framework supporting a company’s compliance program. Gaps may include deficiencies in a company’s monitoring, control systems and training. Those gaps are ideal places to deploy new technology or solutions. 

While no single solution fits all financial crimes, there are specific overarching considerations for companies looking to implement financial crime technology to protect themselves and by extension their customers/clients and business partners.

 First, make sure that tools the company is considering have a proven testing ground. Are any of the company’s peers using these tools?

Second, if a company wants to utilize a technology enhancement that is disruptive or attacks the financial crime problem differently than some historical approaches, the company should consider meeting with its regulators and informing them about their approach and the benefit of the new tool. 

Third, companies should always carefully detail in their contractual agreements what will happen if it decides to stop using a specific technology solution, (via Forbes).

Monroe’s Musings:

I really enjoyed this opinion piece and wholeheartedly agreed with premise and conclusions. I would even focus a bit more on the importance of broad and deep financial crime training – and not just for those in dedicated financial crime compliance teams.

Such a strategy could prevent some criminal risks from even getting in the door, leaving more time to do proactive investigations of data to divine trends to help law enforcement, rather than strictly forensic exercises to craft suspicious activity reports.

By pairing new technology, innovation, implementation and regulatory and senior management support with rich, relevant and expansive financial crime compliance training – and as I said, pushing this wider view of fincrime training to frontline staff, branch managers and business line managers – the bank improves the data coming into the institution and turns what have been classic foils for compliance into strengths. If this all comes together, a brave new world indeed.


Sanctions

In unprecedented move, OFAC brings hammer against Turkish businessman for ‘repeated violations’ of Iran sanctions rules while settling related breach case with U.S. company

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) took unprecedented action recently to concurrently designate a foreign sanctions evader and announce a directly related settlement with a U.S. company. 

OFAC sanctioned a Turkey-based individual, Evren Kayakiran, who directed a foreign subsidiary of a U.S. company to violate U.S. sanctions against Iran and then attempted to conceal those violations. The action marks first time OFAC has named an individual a Foreign Sanctions Evader in relation to a civil enforcement action

“Treasury is sanctioning Kayakiran not just for his willful violation of U.S. sanctions on Iran, but also for directing staff to commit and cover up these illegal acts,” said Sigal Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence. “This action is a clear warning that anyone in supervisory or managerial positions who directs staff to provide services, falsify records, commit fraud, or obstruct an investigation into sanctions violations exposes themselves to serious personal risk.”  

Kayakiran is being sanctioned as a foreign sanctions evader pursuant to Executive Order 13608, which targets efforts by foreign persons to engage in activities intended to evade U.S. economic and financial sanctions with respect to Iran and Syria. He did business with Iran, but told officials the employees involved with just vacationing in Iran.  U.S. financial institutions must reject payments involving Kayakiran.

OFAC sanctioned Kayakiran, a Turkish national, for causing six violations of U.S. sanctions against Iran.  Between July 2013 and July 2015, Kayakiran was the managing director of a Turkish company that imports, distributes, and installs motion control products (the “Turkish Company”).  In March 2013, a U.S. company (the “U.S. Company”) acquired the Turkish Company, thereby making the latter subject to the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR), (via OFAC). To read more, click here.

Monroe’s Musings:

This action is likely to have serious waves in both corporate and compliance circles. Why? Although this action doesn’t have an eye-popping financial figure attached – banks with sanctions violations have paid as high as $9 billion – it does evince something a trend that would cause sanctions officers to tremble: the rising specter of individual liability.

As a point of context, over the past decade, there have been more than a dozen high-profile bank AML and OFAC penalties that have surged into the billions of dollars. Ironically enough, however, really none of those came with a compliance officer, sanctions investigator, business line manager or top executive getting named, shame or designated by OFAC.

Yes, there were some firings, rearranging of the deck chairs and hiring of top former government officials, but very few, if any, instances of a compliance officer paying a penalty or being designated. Does this action mean that could be changing? Only time will tell. But if OFAC starts blacklisting business line managers, top officials or (gasp!) compliance and sanctions professionals, look for either an exodus of top talent – or a surge in salaries to make them stay.


 

EU

As Czech Republic works to strengthen AML laws, implementation, effectiveness, watchdog says progress is being made, but regions must bolster investigations, prosecutions

In a report published today, the Council of Europe’s anti-money laundering (AML) body MONEYVAL finds that, despite progress in the Czech Republic to combat financial crime, the authorities should take a more proactive approach with regard to initiating more complex and international money laundering (ML) investigations.

For many countries in Europe, when comparing their actions against standards set out by the Paris-based Financial Action Task Force (FATF), they scored well on technical compliance – laws on the books – but struggled in terms of effectiveness, such as money laundering investigations, convictions, asset forfeitures and the like.

ML in the Czech Republic occurs mostly due to tax crimes, fraud, corruption, phishing and subvention frauds. Whilst the financing of terrorism (FT) was also under scrutiny due to its seriousness, the probability of its occurrence remains low.

The banks have an appropriate understanding of the ML/FT risks whilst awareness is lower with other financial institutions. Designated non-financial businesses and professions (DNFBPs) appeared less clear about the risks.

The Financial Analytical Unit and the National Bank are the two main regulators that simultaneously oversee the biggest part of Czech financial sector. This notwithstanding, the report casts doubt on the efficiency of the existing supervisory model due to a dearth of resources, expertise and accumulated acumen.

Legislative reforms and increased efforts in pursuing ML investigations represent a commendable progress achieved since the last evaluation. Although MONEYVAL recognizes that convictions were obtained in some large scale ML cases, it concludes that more investigative opportunities should be pursued with regard to serious third party and stand-alone ML.

The prevalent practice within the Czech justice system of sanctioning multiple offences simultaneously makes it difficult to measure the precise impact of the sentence solely related to ML.

The report underlines the improvements in the legislative and institutional framework on seizure and confiscation. Law enforcement regularly carries out financial investigations in relation to proceeds-generating offences, which resulted in significant amounts being seized and confiscated.

On the issue of corporate transparency and access to beneficial ownership data, the Commercial Register in the Czech Republic can be accessed directly and free of charge whilst the quality and accuracy of information held therein vary.

The report makes note of the recently established Trust and Beneficial Ownership Registers but also acknowledges that these registers are yet to be fully populated with data.

Finally, the report praises the Czech authorities for being active in cooperation with their foreign counterparts. This has further been substantiated with the fact that, in addition to mutual legal assistance, other forms of international cooperation are routinely used both spontaneously and upon request, (via Moneyval, COE).

Monroe’s Musings:

With its propinquity to Germany, the engine of the bloc's economy, and choice locale in central Europe, the Czech Republic is a prime target for those looking to cleanse their illicit gains – so its vital the improvements noted by Moneyval continue gaining momentum – particularly related to professional money launderers and other “gatekeepers,” such as attorneys, accountants and professional services firms.

The U.S. Department of State currently describes the country as a region of Primary Concern for money laundering. To wit: “Domestic and foreign organized criminal groups target Czech financial institutions for laundering activity, most commonly by means of financial transfers. Illicit proceeds from narcotics, trafficking in persons, or smuggling counterfeit goods are often associated with foreign groups, particularly from the former Soviet republics, the Balkans region, and Asia. “

Moreover, “Proceeds from fraud and tax evasion are typically laundered by specialized groups from various EU states and the Middle East, using the services of local lawyers and tax advisors who specialize in trading with shell companies and creating offshore structures, allowing for fund transfers under the umbrella of tax optimization.”

As well, according to the Czech police, “development and investment companies, real estate agencies, currency exchange offices, casinos, and other gaming establishments have all been used to launder criminal proceeds.” These key details are critical context for foreign banks operating in the Czech Republic or with correspondent connections to the region – or with accounts touching the country. 


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