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Daily Briefing: EU triples tax haven blacklist, citing UAE, Congress tackles crypto, crime, and more

Wednesday, March 13, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
March 12, 2019

Quote of the Day: “Suspicion always haunts the guilty mind.” – William Shakespeare

In today’s ACFCS Fincrime Daily Briefing, the European Union triples a tax haven blacklist, citing U.A.E, Oman, Bermuda, and others, Congress analyzes crypto, blockchain pros, cons, oversight, new data breach report, 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!


Corporate transparency 

EU adds Bermuda, U.A.E, Oman, seven other jurisdictions to tax haven blacklist, tripling overall recalcitrant occupants

The European Union Tuesday added 10 new countries to a controversial list alleging the regions are tax havens, this time around adding powerful countries in the Middle East and some historic jurisdictions long associated with using secrecy as a selling point, including the United Arab Emirates, Oman, Bermuda and others.

In addition to the five jurisdictions that were already on the original list released in December 2017 – American Samoa, Guam, Samoa, Trinidad and Tobago and US Virgin Islands, the revised EU list now also includes the following 10 jurisdictions: Aruba, Barbados, Belize, Bermuda, Dominica, Fiji, Marshall Islands, Oman, United Arabic Emirates, Vanuatu.

Those jurisdictions did not implement the commitments they had made to the EU by the agreed deadline, according to the EU, including making enough progress in areas such as not signing enough information sharing agreements, allowing shell companies with opaque ownership structures, not capturing and publishing beneficial owners and the like.

As well, the list could swell even more as ministers granted extensions to 11 other countries.

While still only a relatively small number of countries have been named and shamed, EU officials believe the mere threat of a list for tarrying on tackling perceived tax-related failures has coaxed dozens of regions into compliance.  

“Since it was first adopted in late 2017, the list has proven its worth in promoting forward in a cooperative manner the EU's agenda of improving global tax practices, fighting tax avoidance and improving good governance and transparency: more than 30 jurisdictions have already delivered on their commitment to pass tax reforms,” said Eugen Teodorovici, minister for finance of Romania.

Behind the scenes, some countries, including Estonia, Italy and Romania pushing to get some countries off the list, particularly the U.A.E, according to published reports.

The EU’s internal strife to concur on a common list of alleged tax scofflaws came roughly a week after the bloc’s members published, and then rejected, another blacklist on potential money-laundering hubs.

The money laundering list was also not warmly received outside the bloc either, with the U.S. Treasury in a rare public censure against a longtime ally in the fight against financial crime stating it took issue with the creation of the list and the countries populating it – blatantly stating the agency didn’t expect U.S. banks to comply with it.

That international anti-money laundering row and quarreling and saber rattling by countries in and out of the EU shone a harsh spotlight on how the desire for smooth trade and continued economic expansion can overshadow and even block bloc actions to counter chastising countries engaging in potentially illicit financial foibles.  

So what got these countries on the list in the first place? Here’s a sampling:

Aruba: Has not yet amended or abolished one harmful preferential tax regime.

Barbados: Has replaced a harmful preferential tax regime by a measure of similar effect and did not commit to amend or abolish it by the end of 2019.

United Arab Emirates: Facilitates offshore structures and arrangements aimed at attracting profits without real economic substance and has not yet resolved this issue.

US Virgin Islands: Does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, has harmful preferential tax regimes, did not commit to apply the BEPS minimum standards related to countering tax base erosion and profit shifting, or BEPs, and did not commit to addressing these issues.


In a text of the council’s conclusions, ministers noted with “concern” that some jurisdictions are engaging in a bit of window dressing, creating new laws – that do the same harmful things as the old laws, something the EU stated it won’t stand for as this year wanes.

The EU “NOTES WITH CONCERN the replacement of harmful preferential tax regimes by measures of similar effect in certain jurisdictions, REGRETS that one of these jurisdiction has not taken a sufficient commitment to amend or abolish these measures by the end of 2019 and STRESSES that no further replacement with measures of similar effect or delays will be accepted when assessing at the beginning of 2020 whether the requested commitments will have been implemented,” they wrote.

The council is not calling on member states to ban all dealings with these countries, but is urging them to take the revised list “into account in foreign policy, economic relations and development cooperation with the relevant third countries, to strive for a comprehensive approach as regards to the issue of compliance” with EU tax requirements.

The tax haven list has not just nudged countries into compliance, but positioned the EU as a world leader in spearheading tax transparency, said EU Economic and Monetary Affairs Commissioner Pierre Moscovici, in a statement.  

The list “has had a resounding effect on tax transparency and fairness worldwide,” he said. “We are raising the bar of tax good governance globally and cutting out the opportunities for tax abuse,” (via the EU Council).

Monroe’s Musings:

Even while there is always going to be horse trading behind the scenes, it’s vital a region as powerful and influential as the European Union create a list of countries outside the bloc that it considers a tax haven – or at the very least engaging in harmful tax practices and taking their sweet time to fix identified deficiencies, or do really nothing at all.

This latest list is another important document for banks to weave into their country risk rankings, along with similar evaluations and grading of jurisdictions writ large for practices with tethers to financial crime and compliance, including tax transparency, corruption, money laundering and similar aims by groups like FATF, OCCRP, Transparency International and others.

Taken together, this EU tax blacklist may be the final straw that moves the risk needle for a given jurisdiction to high-risk, requiring the bank to engage in enhanced due diligence and retune the transaction monitoring system to give more scrutiny to banks, corporates and individuals to better ensure they are not attempting to move illicit proceeds.


Congress considering bevy of new legislation to tackle crypto, blockchain, fintech, how to keep customers safe, the U.S. competitive and counter criminals and terrorists

Cognizant of the growing fields of fintech, crypto and blockchain, both the positive opportunities presented to investors, inventors and consumers and the negative infiltration by the criminal element, the U.S. Congress is set to consider several bills — each with bipartisan sponsorship — targeting these areas to bolster overall oversight for good or ill.

This spurt of legislative activity indicates an increased awareness by lawmakers of both the opportunities for innovation in these fields and the potential pitfalls and risks for illicit use posed by these new technologies.

The following are several of the bills that have been introduced this term to date which aim to promote blockchain and cryptocurrency:

Bills aimed at curbing the illicit uses of blockchain and fintech include: 

The Financial Technology Protection Act (H.R. 56): Seeks to create an Independent Financial Technology Task Force to conduct research on terrorist and other illicit uses of new financial technologies and digital currencies and develop legislative and regulatory proposals to thwart these uses. Among other things, the Act proposes payment of a reward of up to $450,000 to any person who provides information leading to the conviction of an individual involved with the terrorist use of digital currencies. This bill has already passed the House and has been referred in the Senate.

The Homeland Security Assessment of Terrorists’ Use of Virtual Currencies Act (H.R. 428): Would require the Department of Homeland Security, within 120 days of the bill’s enactment, to develop an assessment of threats posed by individuals using virtual currency to carry out activities in furtherance of acts of terrorism. This bill has already passed the House and has been referred in the Senate.

The Fight Illicit Networks and Detect Trafficking Act (“FIND Trafficking Act”): Would require the Comptroller General to conduct a study and report to Congress on how virtual currencies and online marketplaces are used to facilitate sex and drug trafficking. This legislation has companion bills in both the House (H.R. 502) and Senate (S. 410). The House bill has passed the House.

Given that each of these bills was introduced in a prior congressional session but were not passed by both houses, it will be interesting to see how many, if any of them, are actually enacted this session, (via Burr Forman).

Monroe’s Musings:

The more Congress can understand these new technologies, the better they can understand how criminals can use them in a variety of financial crimes, including fraud, money laundering, cyber hacking schemes and human trafficking just to name a few.

Part and parcel of this is Congress going the next step and better arming federal law enforcement agencies with technology, resources and expertise to identify and cripple these illicit money laundering, fraud and cyber attack hubs.

Why? Because tracking down, investigating and prosecuting crooks operating in both the real and virtual worlds can be a tall order as these criminal groups attempt to work from foreign countries using spoofed IP addresses, hidden behind shell companies in known secrecy havens and engaging in transactions with seemingly anonymous crypto currencies.


DOJ budget looks to boost funding in tackling opioid epidemic, immigration challenges, cybersecurity vulnerabilities

The U.S. Justice Department would suffer a small decrease in spending under the Trump administration’s budget plan for the year starting October 1.DOJ fares much better than many other federal agencies, which would lose more than 10 percent of their funds if the president had his way.

That is not likely to happen. Especially with Democrats now controlling the House, the final result from Congress later this year will not resemble what the White House sent to Capitol Hill on Monday. Still, the budget document sets out the Trump priorities in the criminal justice arena.

The leading changes sought by the administration would include:

  • Nearly $141 million more for increased cybersecurity and other national security programs.
  • An additional $72.1 million for immigration enforcement and border security. Among other things DOJ wants to “improve our ability to conduct immigration hearings expeditiously and efficiently to help combat illegal immigration.”
  • A nearly $300 million increase to “fight the opioid crisis and support law enforcement safety.”
  • About $133 million more “to strengthen federal law enforcement’s ability to reduce violent crime,” (via the Crime Report).


Hackers hit the world with nearly 12,500 data breaches in 2018, a more than 400 percent increase over 2017: report

The number of confirmed data breaches during 2018 reached 12,449, a 424 percent increase when compared with 2017, with nearly half, 47 percent of all compromised identity records, having been exposed in breaches experienced by organizations from the United States and China, according to a new report.

4IQ, the identity intelligence company which published the report, also discovered that, while the number of breaches saw a substantial boost last year, the average size of the breach decreased to 216,884 records, a value 4.7 times smaller than the year before.

The report also unearths the fact that crooks also switched their attention from harder to infiltrate large organizations and corporations to the less protected small businesses, a trend which also contributed to the massive four times increase in the number of breaches detected during 2018.

While on the whole, United Stated data breaches haven't been as numerous as the ones from other countries, the size of the breaches contributed heavily to the large number of identity records being exposed throughout the year as part of US incidents, roughly 32 percent of the total number of curated records detected in such incidents around the world.

2018 also saw an important 71 percent jump in underground activity, with 14.9 billion raw identity stolen records being circulated and exchanging hands, although only 3.6 billion of them were new and authentic, according to the report. 

In addition, "Government was the largest growing exposed sector in 2018, increasing over 291 percent from 2018," said 4iQ co-founder and CTO Julio Casal. "This may be the result of mid-term elections and increasing geopolitical tensions. For the first time, we saw underground brokers actively including citizen data, such as voter databases, as part of their data portfolio."

2018 was also the year of Internet-connected data storage devices left exposed for everyone to access, which could translate into a more careful approach during 2019, with companies and organizations being more careful when securing their databases, (via Bleeping Computer). To read the full 4IQ report, click here.

Monroe’s Musings:

This report further confirms many anecdotal reports by pundits, prognosticators and soothsayers that, overall, cyber hackers are unleashing more attacks on more companies of all sizes all around the world.

The data should spur firms to strengthen cyber hygiene, defense, response and resilience plans, including multi-factor authentication, offline, air-gapped backups, partitioning systems and restricting access based on IT functions and seniority and such.

The line that jumped out to me was that hackers are now more aggressively targeting smaller and midsized banks and corporates, hoping these operations don’t have the expertise, resources or wherewithal to identify these attacks before it’s too late. That is critical intelligence that should spur these operations to action – or suffer consequences they may not be able to recover from. 

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