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Daily Briefing: Norway FSA fines Santander on AML, BVI beneficial ownership battles, and more

Wednesday, July 3, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
July 3, 2019

Quote of the Day: “I hated every minute of training, but I said, ‘Don't quit. Suffer now and live the rest of your life as a champion.’” – Muhammad Ali

In today’s ACFCS Fincrime Briefing, Norway continues tough AML approach with $1 million fine against Santander, winds of transparency blow into BVI, it shudders, 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!


Norway FSA fines Santander bank $1 million for anti-money laundering breach

Norway’s Financial Supervisory Authority has ordered Spanish bank Santander to pay a fine of nine million crowns ($1 million) for violations of the country’s anti-money laundering laws, it said on Tuesday, continuing an increased focus on compliance in the region in the wake of still-roiling financial crime scandals.

The fine was imposed in relation to violations found at Santander Consumer Bank in Norway, the regulator said in a letter dated June 28 and published on its website on Tuesday.

A failure in the bank’s electronic monitoring system stemming from merging legacy and new systems meant that some 1.6 million transactions, affecting around 300,000 customers, were not controlled for money laundering between Oct. 30, 2014 and Dec. 6, 2018, the letter said.

After the problem was solved, it added, Santander backchecked all the transactions that had not been checked in the period and found no violation worth reporting to police, (via Reuters). To read the full letter, (not in English), click here.

The move comes as the FSA increases its focus on AML issues, fining a subsidiary of Norwegian bank DNB for failing to comply with anti-money laundering regulations.

Last week, the regulator gave DNB Naeringsmegling, a real estate brokerage for commercial property, a so-called non-compliance fee of 30,000 Norwegian crowns ($3,532) for failing to properly impose control routines and adequately train employees.

Six other real estate brokers were also fined on Tuesday following inspections which took place in late 2018, the FSA said, (via Reuters).

Monroe’s Musings:

Last month, the FSA created a special unit to investigate bank AML compliance more aggressively, with the regulator more willing to levy more and larger fines.

Norway has mostly been spared the money laundering scandals rocking the Nordic and Baltic regions with Danske Bank and Swedbank linked to hundreds of billions of suspect funds.

But it’s clear it doesn’t want to get dragged into the regional mess, with regulators in recent months clanging the gong on compliance – and now releasing a plethora of penalties.


Under new Chinese presidency, FATF to focus on terror finance, beneficial ownership, ‘consider’ wildlife trafficking

After closing its high-profile U.S. Presidency releasing influential and heavily-scrutinized virtual currency counter-crime compliance guidance, incoming FATF President, China, stated the global standard-setting body will continue to focus on the core mission of countering terror and unwrapping beneficial ownership bastions – with potential work to come on the wildly profitable wildlife trafficking.

In 2019-20 FATF’s priorities will “include closely monitoring and reporting on the financing of ISIL, AQ and Affiliates; work on confiscation and asset recovery; best practices to improve the transparency of beneficial ownership; the mutual evaluations of Russia, Turkey, United Arab Emirates, Korea, Japan and South Africa; and the first 5th year follow-up assessments of effectiveness for Norway, Spain, Australia, Belgium and Malaysia.”

FATF also touched on, without directly addressing, the massive money laundering scandals hitting the Nordic and Baltic regions, noting that the group will look internally and externally to improve the effectiveness of its own exams to better uncover such failures, along with cooperating to create online training available to countries to better build capacity.

“Given the increasing scale and impact of money laundering and the high profile and persistent failures of financial institutions to implement effective controls, the FATF will bring together supervisors from across the FATF Global Network to share challenges and best practices,” according to the group.

This move would reinforce the expectations of supervisors, “promoting a more effective risk-based approach to supervision and support for innovation,” according to the incoming President. “The challenge many countries face today is not the absence of comprehensive global standards. It is the effective implementation of those standards.”

FATF to better help countries understand international vulnerabilities and buttress regional operations will develop an e-learning package to be available to all countries.

In addition, the Presidency will be promoting the development and coordination of high-quality training on the FATF Standards throughout the 205 jurisdictions that have committed to implement and be assessed against them.

Finally, the FATF “may consider the opportunity for work on money laundering from illegal wildlife trafficking,” the group noted.

The crime is estimated to be the fourth most profitable criminal trafficking enterprise, generating revenues of between $7 billion and $23 billion a year, with links to modern slavery, narcotics and the arms trade, according to FATF, (via FATF).

Updated guidance for gatekeepers: the legal profession, accountants, trust and company service providers

FATF also issued three new pieces of guidance on gatekeepers that are international focal points for both complex financial crime investigations and capturing bodies with anti-money laundering requirements.

Through nearly 300 pages of text, FATF called on these bodies to more aggressively police themselves, rigorously review customers by capturing, and keeping up to date, beneficial ownership information, and exhorted regulators – particularly self-regulatory bodies – to not shirk their duties to instill a culture of compliance and penalize entities flouting the rules.

Here are some snapshots:

·       The Guidance highlights that it is the responsibility of the senior management of legal professionals to foster and promote a culture of compliance. They should ensure that legal professionals are committed to manage ML/TF risks when establishing or maintaining relationships.

·       The Guidance highlights that legal professionals should design their policies and procedures so that the level of initial and ongoing CDD measures addresses the ML/TF risks to which they are exposed.

·       The Guidance thus explains the obligations for legal professionals regarding identification and verification of beneficial ownership information and provides examples of standard, simplified and enhanced CDD measures based on ML/TF risk.

·       The Guidance has a section for supervisors of legal professionals and highlights the role of self-regulatory bodies (SRBs) in supervising and monitoring. It explains the RBA to supervision as well as supervision of the RBA by providing specific guidance on licensing or registration requirements for the profession, mechanisms for on-site and off-site supervision, enforcement, guidance, training and the value of information-exchange between the public and private sector. ·       The Guidance highlights the importance of supervision of beneficial ownership requirements and nominee arrangements. It underscores how supervisory frameworks can help ascertain whether accurate and up-to-date beneficial ownership information on legal persons and legal arrangements is maintained and made available in a timely manner, (via FATF).

Monroe’s Musings: FATF is keenly aware in what ways criminals, corrupt oligarchs, fraudsters and terror groups are laundering their money: and in many ways its through professional gatekeepers, corporate services firms and offshore shell companies – the purview of the company formation agent sector.

But in many instances, lawyers have fought formal AML requirements or have been reticent to adopt them to the degree of banks, with filings by the sector paltry in comparison.

Similarly, in some countries, like the U.S., the powerful company formation lobby has successfully kept the industry free of AML rules and obligations – or even requirements to capture and make public beneficial ownership details, as they have done in Europe and the U.K.

So look for China to hammer these issues and highlight countries failing to tackle areas that have become global focal points for watchdog groups, investigators, regulators and bank compliance professionals on the ground.


AI in AML: The road to implementation, from taming data to teaching models and more

In the world of anti-money laundering compliance, the goals of more accurate suspicious activity reporting and payment screening present computing challenges at every stage of the data journey.

This includes from enrichment through feature creation, for model tuning, to transformation for tractability and, ultimately, in complex decisions on relevance. 

But there is hope to map out the efficient application of artificial intelligence in the context of financial crime compliance, but the enthusiasm of improvement leaps must be tempered with the understanding of what technology can and can’t do and where it can work now and in the near future.

Currently, the speed of change and increased complexity seen in the financial sector has outpaced the development of technology and routine processes to manage anti-money laundering (AML), counter terrorist financing (CTF), and sanctions requirements.

Opaque cryptocurrency payments, alternative payment liberalization, and complex distributed ecommerce platforms pose new and unique challenges to financial institutions in identifying illicit funds.

Simply put, the blunt nature of legacy technology and processes in place to manage financial crime risk are incompatible with the sheer volume, increased complexity, and disaggregation of payments information.

Finding themselves in an entirely transformed operational environment, financial institutions are counting on data analytics, artificial intelligence (AI), machine learning (ML) and robotics to meet these evolving demands and, importantly, to address the spiraling costs and limited benefits they see in the current paradigm.

Most financial institutions have only just begun the transformation from legacy systems to innovation and automation, landing somewhere between the promise of AI and the practical everyday challenges of its adoption and implementation, (via Exiger, and the Money Laundering Bulletin).

Monroe’s Musings:

It’s clear these new technologies, like AI, machine learning and deep learning, can have transformative affects on the AML compliance function, with the possibility to increase efficiency, effectiveness and lower costs and streamline resources.

But this won’t happen overnight. And this won’t immediately be available to all banks. In December, all the federal banking and credit union regulators issued a call to innovation, exhorting institutions to tinker with technology, rather than stay in a defensive filing pattern with transaction monitoring alert ratios soaring past 90 percent.

But this mantra needs to be taken further. Whatever the big vendors, big AI firms and big banks learn in terms of how to weave together AI and AML, they should share those findings and teaching techniques with smaller and medium-sized banks.

This will help the overall banking sector rise in terms of baseline compliance and technology understanding and make it a lot harder for criminal and laundering groups to find the bank that isn’t engaging in AI-infused systems – being the weak link in the chain.

Corporate transparency

Sun, Sand, and the $1.5 Trillion Dark Offshore Economy: How the British Virgin Islands, home to some 400,000 companies, is desperate to fend off the transparency movement

The British Virgin Islands is home to more than 400,000 companies that hold $1.5 trillion in assets. You wouldn’t know it if you walked through Road Town, the capital of this Caribbean archipelago.

Hens and roosters compete brazenly with cars on the single narrow lane of Main Street. Law firms that set up and serve thousands of offshore companies occupy modest buildings next to brightly painted wooden houses that host cheap beauty salons and clothing shops with names like Goodfellas.

Besides a few mangled green street signs on Main Street, few roads are marked. The BVI doesn’t have mail delivery; its businesses and 32,000 residents use post office boxes as their addresses, which is why one P.O. box in Road Town can be the nominal home to thousands of companies from around the world.

Hundreds of lawyers, accountants, and company agents work from buildings dotted around the main island of Tortola. In some tax havens—Luxembourg, Monaco, or even parts of the Cayman Islands—money is dripping off every corner. In the BVI, the wealth passes through almost without a trace, (via Bloomberg).

Monroe’s Musings:

This is a great story showing the clashing of old world thinking and new trends to root out financial crime, opacity versus transparency.

 It has been a persisting ignoble irony that the United Kingdom leads the world in implementing and gold-plating AML laws, but also has some of the biggest offenders of corporate secrecy nestled in its crown dependencies and overseas territories.

The U.K. is forcing transparency legislation on the BVI and other places, and some have agreed to finally do it – sometime in the next few years.

But whether the beneficial ownership data captured in these recalcitrant regions is accurate, updated and reviewed for ongoing accuracy, and entities penalized for getting it wrong or changing it often to beat the system, is unknown.

What is known, however, is whatever regions continue making secrecy a selling point will be a global stumbling block for investigators and a haven for criminals of all stripes. 

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