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Daily Briefing: Central banks targeted for laundering, sanctions, FATF mission update, and more

Tuesday, April 23, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
April 24, 2019

Quote of the Day: “To raise new questions, new possibilities, to regard old problems from a new angle, requires creative imagination and marks real advance in science.” – Albert Einstein

In today’s ACFCS Fincrime Daily Briefing, the U.S., watchdogs, target central banks in Cyprus, Venezuela, FATF updates mission to focus on non-member compliance, crypto crime, 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!


Oligarch owners weaponized Cyprus branch of Ukraine’s largest bank to move $5.5 billion abroad in one of world’s ‘biggest financial scandals’

The former chairwoman of Ukraine’s central bank dubbed it one of the biggest financial scandals of the 21st century – owners of a financial institution that allegedly used it like their own personal piggy bank in a scheme to shuttle and give the sheen of legitimacy to billions of dollars.

Valeria Hontareva was describing the alleged theft of US$5.5 billion from PrivatBank, once the country’s largest commercial lender.

The suspected masterminds are the bank’s two oligarch owners: Ihor Kolomoisky and Hennadiy Boholiubov, who stand accused of absconding with an amount roughly equal to five percent of the country’s gross domestic product.

According to court records, both men are said to have recently been living in Switzerland, though Kolomoisky appears to be spending time in Israel. Reporters also uncovered numerous previously unknown Swiss and French assets controlled by Kolomoisky’s sister.

“Large-scale coordinated fraudulent actions of the bank shareholders and management caused a loss to the state of at least $5.5 billion,” Hontareva said in March 2018. “This is 33 percent of the population’s deposits … [and] 40 percent of our country’s monetary base.”

Now, for the first time, OCCRP has traced the mechanism that appears to have allowed Kolomoisky and Boholiubov to funnel such vast wealth out of Ukraine: The money was moved through a PrivatBank subsidiary in Cyprus.

The arrangement helped hide the fact that cash was disappearing because the National Bank of Ukraine treated the Cyprus branch of PrivatBank the same as it would domestic branches. This designation meant officials never detected that cash transferred to Cyprus was leaving Ukraine.

Meanwhile, Cypriot regulators either failed to detect that the various bank transfers totaling $5.5 billion were backed by bogus contracts, or didn’t take the necessary action to stop them.

The system allowed billions of dollars to be pumped through the PrivatBank accounts, which were held in Cyprus by offshore companies. The revelation is just the latest by the OCCRP, which has uncovered massive, complex and coordinated money laundering laundromats that pilfered billions of dollars, much of it for the benefit of Russian political powerbrokers and Putin cronies, (via the OCCRP).

Monroe’s Musings:

The OCCRP has been ushering what many in financial crime and compliance circles are calling the “age of transparency,” by finding and illuminating the mega laundering hubs and the armies of gatekeepers, attorneys, professional services firms and company formation agents making it happen.

The investigative journalists have used leaks, breaches and international teamwork to crack open formerly anonymous and impenetrable ownership structures revealing suspicious and potentially criminal links.

Even so, it’s vital that large global banks, wherever they are based, understand how criminals, terror groups and the corrupt get their illicit gains into the international financial system so they can better identify these leaky portals, identify the institutions involved and report their activities to law enforcement.

Money laundering

Counter-corruption campaigner Browder files money laundering action against Swedbank Latvia

Bill Browder, an investor who campaigns to expose corruption, has upped the pressure on a beleaguered Swedish institution, formally taking a criminal complaint against Swedbank to Latvian authorities, alleging it was involved in a massive Russian money laundering scandal that has led to the ouster of the bank’s top leaders.

Swedish broadcaster SVT reported in March that Swedbank processed gross transactions worth up to 20 billion euros a year from high-risk, non-resident clients, mostly Russians, that passed through its Estonian branch between 2010 and 2016.

Swedbank is already being investigated by Swedish and Baltic authorities over possible links to a money laundering scandal centered around 230 billion euros ($260 billion) in suspicious payments that moved through Danske Bank’s Estonian branch from 2007 to 2015.

Browder, once the biggest foreign money manager in Russia, had previously taken the complaint against Swedbank to Swedish and Estonian authorities, alleging that the Swedish bank’s accounts were used to launder $176 million from 2006 to 2012.

The bulk of this, $117 million, went through Swedbank’s Estonian branch and Browder’s complaint lodged with Latvian authorities, dated April 5 and seen by Reuters on Wednesday, showed some $41 million had passed through Latvia.

Browder has pushed for banks to be held accountable over links to a money laundering and tax fraud exposed by his former lawyer Sergei Magnitsky, who died in a Russian jail in 2009.

He had previously brought cases against Swedbank’s rivals Nordea and Danske Bank, which is now the subject of investigations in the United States, France, Denmark, Estonia and Britain.

Estonia is including Browder’s Swedbank complaint in its Danske Bank inquiry, but Sweden dropped its investigation saying there were limited transfers involving Swedish accounts and that the statute of limitations had expired, (via Reuters).

Monroe’s Musings:

Moves like the one Browder has taken are adding public pressure to what are typically very private law enforcement investigations. That is a good thing.

It ensures that countries that aren’t used to engaging in such inquiries, or don’t have an appetite for one for fear of embarrassing the country, are forced to bring the true crimes to light.

The allegations in Browder’s documents, and their depth and detail, can also help AML compliance professionals recolor and retexture the risks of regions and institutions – even if the underlying crimes are never proven.

That’s because just as interesting to AML analysts and top officers is the compliance controls, or lack of them, that allowed millions or billions of dollars in questionable funds to flow freely, critical insight that can reveal a bank does not have a commitment to a “culture of compliance,” a hot button regulatory and investigative focal point in recent months.


A look ahead in the future of fighting financial crime, including stronger country enforcement, counter terror, proliferation efforts: FATF president

The Paris-based Financial Action Task Force (FATF) has adapted to a wide range of new financial crime threats over the decades, a key reason why the United Nations and other top bodies, like the G20, is so supportive when tasked to update and expand the global watchdog’s mandate and mission.

But the challenges our nations face continue to evolve, however, according to remarks by FATF President Marshall Billingslea, noting that FATF, which sets global anti-money laundering (AML) standards.

He stated in comments that FATF is slated to more aggressively go after lax implementation of international standards and best practices at the country level – particularly for non-member regimes currently reviewed by sister groups like the IMF and Moneyval.

Overall, FATF under the current U.S. Presidency is engaging in a broad update of priorities and strategy, with current priorities hammered out last in 2012. “It is long overdue that we review and renew them,” Billingslea said.  

Now in its 30th year, the FATF under the U.S. Presidency is:

·       Taking concrete steps to address the illicit financing risks associated with virtual currencies and related assets.

·       Taking further action to strengthen international efforts to combat the financing of terrorism through implementation of the standards, risk understanding and interagency coordination.

·       Enhancing its efforts to counter the financing of the proliferation of weapons of mass destruction.

Looking forward, FATF has identified several critical challenges to tackle, including:

·       The evaluation process is not yet complete for all jurisdictions; however, we can already see that weaknesses in effective implementation of the FATF Standards are more pronounced in the non-FATF jurisdictions of the Global Network. This relates particularly to high-risk areas. 

·       The FATF will also continue to respond to new and emerging threats. Financial innovations such as digital ID or virtual assets require the FATF to monitor risks and opportunities in this area. 

Billingslea believes its vital that FATF have an open-ended mission to set out, and advance and achieve, longer term strategic priorities.

“The Ministerial Declaration proposed for adoption today, along with the revised Mandate, sets out priorities for the FATF to address these challenges by strengthening its internal governance and ultimately its capacity to respond to the threats all countries face,” he wrote, adding that such ministerial meetings should take place more often, at least every four years so that priorities remain current, relevant and in line with criminal tactics and historic vulnerabilities.   

Finally, “we need to encourage a sustainable and long-term commitment to the FATF,” Billingslea wrote. “For this, the FATF needs the necessary resources and support to effectively fulfill its mandate." 

In addition, authorities should widely recognize that the FATF has “evolved from a temporary forum to a continuing public and political commitment,” he said. “Therefore, it makes sense for the FATF Mandate to become open-ended rather than for a fixed term, (via FATF).

Monroe’s Musings:

FATF has been seeking more legitimacy for its herculean efforts in attempting to craft both broad ideals for legislation and implementation to countering money launderers, corrupt oligarchs, weapons proliferators and terror groups – realizing that without more support, resources and enforcement, the group can’t complete its lofty objectives.

But there is still a running debate about how effective is FATF, which now grades countries on effectiveness, not just technical compliance. Some have started that the jurisdictions where all the world’s money is laundered – the United States, United Kingdom, Europe, Canada and such – typically get very high marks for the efforts and cleanliness of banking sectors.

Leading some to say FATF is just more U.S. mission creep. Others have countered that, no, the only way the fincrime compliance sector has been able to move forward as an industry is by FATF laying out foundational principles and best practices, then red flags and now detailing how illicit groups are moving through and monetizing crypto currencies.


US imposes new sanctions on Venezuela, key allies, targeting banks to block plundering of corruption-captured assets

Washington added more sanctions last week on Venezuela and two of its key allies, Nicaragua and Cuba, as the Trump administration ramps up its efforts to push Venezuela’s leader Nicolas Maduro out of office, in this latest round focusing on likely culpable financial institutions that could move funds plundered from a corrupt regime.

The Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned the Banco Central de Venezuela, or the Central Bank of Venezuela, and its director, as well as the son of Nicaraguan President Daniel Ortega and the Nicaraguan bank Banco Corporativo SA (BanCorp).

“Treasury is designating the Central Bank of Venezuela to prevent it from being used as a tool of the illegitimate Maduro regime, which continues to plunder Venezuelan assets and exploit government institutions to enrich corrupt insiders,” said Treasury Secretary Steven Mnuchin, according to a Treasury Department press release, adding that the US is “committed to helping the Venezuelan people.” 

The move “illustrates the Trump Administration’s resolve to prevent the Maduro regime from gaining access to the U.S. financial system,” the press release continued. All Central Bank assets in the United States are now frozen, and US residents and citizens are prohibited from doing business with the bank or its director, Iliana Josefa Ruzza Teran, (via the OCCRP).

To see the full OFAC action against Venezuela’s central bank, click here. To see the full OFAC action against the Nicaraguan bank, click here.

Monroe’s Musings:

Whether Maduro survives and stays in power is unknown. But what U.S. authorities and other international watchdog groups have said is occurring is corruption on a massive scale with the resource-rich country.

Not surprisingly when Maduro and his cohorts need to move the money they have stolen or gotten through bribery and other illicit activities, they typically need a financial institution. In a further ignoble irony, in many countries the central bank is considered the cleanest institution – with some regions having the operation double as a financial regulator.

In the case of Venezuela, that is clearly not what is happening. Rather, the U.S. is fearing that if Maduro falls, he could attempt stealing funds from the country on a massive scale, with easy access to billions and billions of dollars.

But now, banks that would have simply worried about AML risks related to Venezuela’s central bank will put uncovering ties to the institution a much higher priority with the OFAC designation.

That means that any failure means certain penalty exposure under the agency’s strict liability policy.

The challenge for large international financial institutions now jumps from direct connections to the central bank to what foreign correspondents are still engaging the institution – bringing to light murky, hidden, nested entities – or are at least engaging in OFAC screening of their own. 

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