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Daily Briefing: OCCRP reveals massive Russian laundering leak, Swedbank scandal grows, and more

Tuesday, March 5, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
March 5, 2019

Quote of the Day: “To the mind that is still, the whole universe surrenders.” – Lao Tzu

In today’s ACFCS Fincrime Daily Briefing, a consortium of investigative journalists details a massive Russian money laundering scandal that duped U.S. and European banks to benefit Putin’s cronies, more fincrime failings at Swedbank, with ties to former Ukraine strongman, FinCEN gets some legislative support to tackle domestic terror, and more.

Please enjoy this unlocked story, part of the many benefits of being an ACFCS member.

Want to talk about industry trends, story ideas or get published? Feel free to reach out to ACFCS Vice President of Content Brian Monroe at the email address above. Now, on to more sweet sweet content!


OCCRP details nearly $9 billion Russian money laundering scheme allegedly involving U.S., EU banks

A consortium of investigative journalists have uncovered what they are calling the “Troika Laundromat,” a massive $9 billion money-laundering operation with links to powerful politicians and oligarchs and fueled by Russia's largest private investment bank, along with some of the largest U.S. and European Union financial institutions.

The Organized Crime and Corruption Reporting Project – the group behind the historic “Panama Papers” and “Paradise Papers” leaks – detailed the findings of the latest analysis Monday of how the secretive, elite and corrupt attempt to cleanse illicit gains, an effort that included partnering with the Lithuanian news site and The Guardian.

The Laundromat gave free reign to a cabal of “Russian oligarchs and politicians to secretly acquire shares in state-owned companies, to buy real estate both in Russia and abroad, to purchase luxury yachts, to hire music superstars for private parties, to pay medical bills, and much more,” the consortium stated on its website.

“To protect themselves, the wealthy people behind this system used the identities of poor people as unwitting signatories in the secretive offshore companies that ran the system,” according to the group, noting that the system had tendrils snaking to the upper echelons of Russian government, including President Vladimir Putin’s close friends and business associates.

The scheme was discovered in a “large set of banking transactions and other documents obtained by OCCRP and the Lithuanian news site,” according to the group. “The data, which was compiled from multiple sources, represents one of the largest releases of banking information ever, involving more than $470 billion sent in 1.3 million leaked transactions from 233,000 companies.”

The project also comes with anti-money laundering (AML) tethers as it also snares and squarely puts some of the blame on several Western household name banks, including Austria-based Raiffeisen, Germany-based Deutsche Bank and U.S.-based Citigroup – operations that have previously been hit by U.S. and home country regulators for compliance and sanctions failings.  

The OCCRP has previously exposed three such schemes: The Proxy Platform, the Russian Laundromat, and the Azerbaijani Laundromat.

This time, however, the group reveals a “unique new Laundromat, created by a prestigious financial institution,” according to the OCCRP. “This time, the work shows not only its beneficiaries but also exposes its mastermind and operator — Troika Dialog, once Russia’s largest private investment bank.”

The laundromat “shuffled billions of dollars through offshore companies on behalf of the bank’s clients, many of whom were members of Russia’s elite,” according to the group, adding that the system “enabled people to channel money out of Russia, sidestep restrictions in place at the time, hide their assets abroad, and launder money.”

The details of the scheme also have direct import to bank AML teams and global investigative agencies.

“It also supplied cash to Russian President Vladimir Putin’s friends and powerful oligarchs, and enabled criminals to mask the illicit origins of their cash,” through classic tactics, such as anonymous shell companies and working through foreign correspondents and nested accounts that effectively hid the details of the underlying risky entities.

For example, in the global interconnected world of international finance, a U.S. bank, for instance, with a correspondent relationship with a foreign bank wouldn’t necessarily be able to view the foreign bank’s customers, but would be responsible for at least understanding the operations AML controls, where it operates and overall risks and controls around customers.

That can lead to situations where the U.S. bank unwittingly moves funds tied to questionable and even illicit entities because it doesn’t have a clear, direct view down to the foreign bank’s customers – just details on batched transactions from the foreign bank.

Not surprisingly, U.S. federal and state regulators in recent exam cycles have made how domestic and foreign banks oversee their correspondent networks a top priority, with many enforcement actions and penalties citing failures in this hot button AML compliance area.

In the case of the Troika Laundromat, the OCCRP stated that there were at least 75 shell companies and related financial institutions, forming a complex financial web, which functioned from 2006 to early 2013.

Over that period, Troika “enabled the flow of $4.6 billion into the system and directed the flow of $4.8 billion out,” according to the report, according that one of the shell companies involved even sent funds earmarked as charitable contributions for a fundraising vehicle tied to Prince Charles.

“Among the counterparties on these transactions were major Western banks such as Citigroup Inc., Raiffeisen, and Deutsche Bank,” according to the group. “The dozens of companies in the system also generated $8.8 billion of internal transactions to obscure the origin of the cash.”

Monroe’s Musings:

This is another blockbuster story by the OCCRP, which has been using leaks, breaches, partnerships, creativity, curiosity, and good old-fashioned elbow grease to crack open many of the world’s largest financial shells – and link back to the secretive and shadowy worlds of law firms, company formation agencies, professional services firms and now banks making it all happen.

Not surprisingly, media reports have noted that some of the stocks of the banks involved have fallen in the wake of the report, in one case as much as 14 percent. That will no doubt be just the tip of the iceberg in terms of compliance and remediation costs the institutions involved will pay to shore up controls and buoy investor confidence.

As I mentioned in the piece, all of the banks involved have been formally chastised or penalized by U.S. or home country regulators for AML program deficiencies. In the case of Deutsche Bank, it paid U.S. and U.K. regulators more than $630 million related to the $10 billion Russian mirror trades scandal.

So expect more pressure on these institutions to detail any control failings tied to allegations and issues uncovered by the OCCRP and, if any issues are found, expect these institutions to have enhanced regulatory oversight until examiners feel these institutions won’t be again named and shamed for being linked to a massive multi-billion dollar money laundering network.

Money laundering

Swedbank scandal deepens as laundering linked to Yanukovych

Allegations of money laundering against Sweden’s oldest bank has grown in recent weeks to draw in some of the former Soviet Union’s most notorious individuals, more bad news in the Baltics already rocked by a mushrooming financial crime and corruption scandal that has besmirched the region's previously relatively polished position in world finance. 

Viktor Yanukovych, the president of Ukraine until 2014, used an account at the Baltic unit of Swedbank AB to transfer money out of the country, Sweden’s main broadcaster, SVT, reported on Wednesday.

Pressure on Swedbank is growing as Sweden’s state prosecutor said recently it will investigate insider information allegations against the bank, after it reportedly told its 15 biggest shareholders that SVT was planning a broadcast two days before it was aired. Swedbank has denied wrongdoing.

The most recent report by SVT, which the broadcaster says is based on thousands of pages of documents that link Swedbank to the $230 billion dirty money scandal engulfing Danske Bank A/S, appears to contradict previous statements by the Swedish lender.

But the allegations point to a broader network of banks that were allegedly used by criminals in the former Soviet Union to funnel vast sums of money into the West until as recently as 2015.

Bill Browder, who has brought a criminal complaint against Danske and says he’s planning to do the same with Swedbank, says he has evidence pointing to banks in the Nordic and Baltic regions as a hub in Europe for money launderers.

Since allegations of handling suspicious transactions were leveled against the bank last week, its share price has slumped more than 20 percent, wiping almost $6 billion off its market value, (via Bloomberg).

Monroe’s Musings:

The Danske Bank scandal has not only tarnished the reputation of Estonia, it has now spread to other banks with Baltic and Nordic connections and with tethers to Danske itself. But as so often happens in the case of compliance and control failings at an institution in one area, when you look deeper, you find more problems.

If various allegations, reports and investigations turn out to be true, expect more regulatory and investigative agencies to review ties and transactions in the Nordic and Baltic regions as they could have quietly been major hubs of illicit finance serving the elite, corrupt and criminal.


Lawmakers introduce bipartisan ‘FinCEN Improvement Act’ to bolster powers, focus priorities on domestic terrorism, working with tribal law enforcement agencies

Two freshman lawmakers, Congresswoman Jennifer Wexton (D-VA) and Congressman Denver Riggleman (R-VA), recently introduced the bipartisan FinCEN Improvement Act of 2019 in a bid to strengthen how the country’s financial intelligence unit prioritizes foreign and domestic terror threats and remove current intelligence sharing blind spots, such as working with investigative agencies at the tribal level, among several key changes.

The legislation would amend the duties of the Financial Crimes Enforcement Network (FinCEN) to ensure FinCEN works with tribal law enforcement agencies, protects against all forms of terrorism, and increases its focus and attention on the current and potential criminal use of virtual currencies.

“I’m proud to introduce the bipartisan FinCEN Improvement Act of 2019,” Wexton said,  “This legislation will update the existing law to empower the Financial Crimes Enforcement Network to better execute its mission to safeguard our financial system from the the abuses of financial crime, particularly terrorist financing and money laundering,” (via Congress).

Monroe’s Musings:

Any attempt to strengthen FinCEN’s powers is a good thing for the financial crime investigative and compliance communities. As with any FIU, the more data available means more connections to active cases or reach the thresholds to create new ones.

Also, FinCEN is already a partner to various federal agencies and joint task forces that investigate foreign and domestic terror cases, so it will be interesting to see how this piece of legislation would improve that.

The bureau has also been instrumental in getting AML rules bolted on to virtual currencies and also helps out in investigating cases with a virtual value, or crypto component. This legislation, at only four pages, seems to be more tidying up and clarifying FinCEN’s current powers, but will likely be broadly welcomed nonetheless.

Crypto currency

Mystery as nearly $140 million Quadriga crypto-cash goes missing – coaxing auditors to consider fraud

Efforts to recover millions in crypto-cash from the digital wallets of a man who died without revealing passwords to access them have hit a snag – and have opened the door to a potential fraud.

Why? The sought after and seemingly inaccessible wallets have been found to be empty.

Audit Firm Ernst & Young made the discovery as it was winding up QuadrigaCX after the death of founder Gerald Cotten.

It expected to find the wallets full of C$180m ($137m; £105m) in crypto-cash deposited by the coin exchange's customers.

The problem was that Cotten, who died in India in December, had sole responsibility for handling the funds and coins passing through the site.

The master key to unlock the wallets was held on Cotten's laptop but he died without letting anyone else know the passphrase to unlock the device. Most of the digital cash that customers deposited with the exchange was supposed to be kept in "cold storage" to prevent it being hacked or stolen.

That is typically a term meant to show that the keys are kept in a relative physical form away from the Internet. That can even be as simple as a piece of paper. Other ways can be storing it on a computer or hard drive that is not connected to the Internet, has no wi-fi or is even air-gapped to make it unhackable.  

The cash represented the virtual currency holdings of 115,000 QuadrigaCX customers.

Cotten's death forced the closure of QuadrigaCX and auditor Ernst & Young was appointed to wind it up.

Its investigation has secured access to Cotten's laptop but also revealed that the digital wallets had been cleaned out months before he died, (via the BBC).

Monroe’s Musings:

As part of an individual’s, or bank’s, due diligence, it is vital to understand the controls of a crypto currency exchange – and not just compliance. For anyone working with the firm, having only one person responsible for all of the keys, and funds, is a recipe for inviting fraud.

Now, while the audit is still ongoing, just think of human nature. Many people don’t do bad because someone is looking over their shoulder, or they at least think there is. If you are autonomous and have access to, oh, say $150 million, without anyone knowing what you are doing with the money and if you even had drained the accounts, there might be a tiny smidgeon of temptation.


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