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Daily Briefing: Billionaire Epstein indicted on sex charges, UK fines Bank of Scotland, and more

Tuesday, July 9, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
July 9, 2019

Quote of the Day: “Action is greater than writing. A good man is a nobler object of contemplation than a great author. There are but two things worth living for: to do what is worthy of being written; and to write what is worthy of being read.” – Ross Perot

In today’s ACFCS Fincrime Briefing, a politically well-connected billionaire gets indicted, house raided, in sex scandal, UK regulator fines Bank of Scotland for tarrying on fraud, 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!

Human trafficking

Federal authorities indict billionaire financier Jeffrey Epstein on sex charges as discovery of nude photos disclosed

A trove of lewd photographs of girls, discovered in a safe inside the financier Jeffrey Epstein’s Manhattan mansion the same day he was arrested, is deepening questions about why federal prosecutors in Miami had cut a deal that shielded him from federal prosecution in 2008.

Federal prosecutors in Manhattan charged Mr. Epstein on Monday with sex trafficking, dealing an implicit rebuke to that plea agreement, which was overseen by Alexander Acosta, then the United States attorney in Miami and now President Trump’s labor secretary.

The indictment in Manhattan could prompt a moment of reckoning for the Justice Department, which for years has wrestled with accusations that it mishandled the earlier case and has faced a barrage of litigation from Mr. Epstein’s accusers. In February, the Justice Department opened its own internal review into the matter.

Attorney General William P. Barr said on Monday during a trip to South Carolina that he had recused himself from the case because Mr. Barr’s former law firm, Kirkland & Ellis, had represented Mr. Epstein.

Late on Tuesday morning, Mr. Acosta, writing on Twitter, defended his actions a decade ago. With the evidence available at the time, he said, his prosecutors had insisted Mr. Epstein go to jail and register as a sex offender. He called the financier’s crimes “horrific.”

“Now that new evidence and additional testimony is available, the N.Y. prosecution offers an important opportunity to more fully bring him to justice,” he wrote.

Accusations of sexual predation have dogged Mr. Epstein for decades. Until his arrest on Saturday, his case had been held up as a prime example of how insulated, powerful men can escape accountability.

Mr. Epstein, a hedge fund manager, avoided the possibility of a lengthy prison sentence, largely because of a secret agreement his lawyers struck with federal prosecutors in 2008. His social circle is filled with the rich and famous, including former President Bill Clinton and Prince Andrew of Britain.

The indictment said that Mr. Epstein and his employees engaged in a sex-trafficking scheme, bringing dozens of vulnerable girls, some as young as 14, to his Upper East Side mansion and to his palatial compound in Palm Beach, Fla., between 2002 and 2005.

Mr. Epstein, 66, then engaged in sex acts with the young women during naked massage sessions, paying them hundreds of dollars in cash, prosecutors said. He also asked some of the girls to recruit other girls, many of whom prosecutors say were underage, and paid them for bringing in new victims, the indictment said, (via the New York Times).

Monroe’s Musings:

This case is making national headlines, chiefly because of the rich celebrity indicted, and his ties top political big wigs. So it’s good that he isn’t able to evade justice – twice, particularly for crimes that are so heinous and vile.

But the crime of human trafficking and sex trafficking, especially in the case of vulnerable, young girls, is a massive problem in the U.S., and globally. This case should serve as a wake-up call that it’s not just opportunistic, dirty, criminal lowlifes engaging in these crimes – it can also be the privileged and elite engaging in illicit acts because they think they are above the law.


Latvian prosecutor hands central bank chief graft case to court

A corruption case against Latvian central bank governor Ilmars Rimsevics has been handed to a court for consideration, the Latvian Prosecution Office said on Tuesday, more than a year after he was first detained by anti-corruption agents.

Rimsevics, a top policy-maker at the European Central Bank, was detained by the Latvian anti-corruption agents in mid-February last year and was later charged with accepting bribes – a pleasure trip and 250,000 euros from a Latvian bank - and money laundering. The court now must consider whether it will accept the case.

Rimsevics, who has denied all wrongdoing, will see his term at the Latvian central bank end later this year. He has been barred from office in Latvia but was allowed to resume his duties at the ECB earlier this year.

Latvia is scrambling to clean up its financial sector as the Baltic country is yet to undergo a review by Moneyval, the money laundering and terrorism financing monitoring body of the Council of Europe, the continent’s main human rights watchdog, early next year.

Latvia’s central bank chief’s corruption case and the U.S. decision to accuse the country’s third largest bank ABLV of money laundering and U.S. sanction breaches in 2018 set off the country’s worst financial crisis in a decade, (via Reuters).

Monroe’s Musings:

The Rimsevics debacle has been an embarrassment for Latvia, which is desperate to retool its sullied image on fighting financial crime, and for Europe, which allowed him to basically return to work.

Overall, multiple EU banking authorities are attempting to create a pan-bloc regulatory body to increase oversight on regulators and, consequently, on banks. But the intense focus on AML and money laundering by the EU must also extend to counter financial crime in all its forms – including corruption.


UK FCA fines Bank of Scotland nearly $57 million for failing to report a potential fraud in commercial lending at Halifax branch

A United Kingdom regulator has issued a 45.5 million pound penalty, or $56.7 million, against one of the world’s oldest banks, established in the 17th century, for failing to report a fraud tied to commercial lending led by a bank insider – a situation that could have resulted in substantial losses to the bank.

The U.K. Financial Conduct Authority (FCA) late last month levied the hefty penalty against Halifax Bank of Scotland (BOS) for its oversight, investigation and general lax reaction to potentially fraudulent activity at its Reading branch.

The regulator leveled much of its fury around the actions of Lynden Scourfield, director of the Impaired Assets Team (IAR), who had been “sanctioning limits and additional lending facilities beyond the scope of his authority undetected for at least three years.”

At issue: BOS knew in May 2007 that the impact of these breaches “would result in substantial losses to BOS,” but didn’t make a full disclosure for another two years.

During that time periods, on “numerous occasions, Bank of Scotland failed properly to understand and appreciate the significance of the information that it had identified despite clear warning signs that fraud might have occurred,” according to the penalty action.

There was “insufficient challenge, scrutiny or inquiry across the organisation and from top to bottom,” according to the regulator.

“At no stage was all the information that had been identified properly considered,” the FCA said. “There is also no evidence anyone realized, or even thought about, the consequences of not informing the authorities, including how that might delay proper scrutiny of the misconduct and prejudice the interests of justice.”

It was not until July 2009 that BOS provided the Financial Services Authority (FSA) with full disclosure in relation to its suspicions, including the report of the investigation it had conducted in 2007.

The case was complicated by the fact that Commercial lending was and still is largely unregulated in the UK, meaning that the activities of IAR were not subject to specific rules imposed by the FSA.

For example, conduct of business rules and complaints handling rules did not apply, according to the FCA.

However, BOS was “required to be open and cooperative with the FSA, and the FSA would reasonably have expected to have been notified of BOS’s suspicions that a fraud may have been committed in May 2007.”

BOS also did not report its suspicions to any other law enforcement agency. The FSA finally reported the matter to the National Crime Agency in June 2009.

In 2017, following an investigation by Thames Valley Police, six individuals including Lynden Scourfield and another BOS employee, Mark Dobson, were sentenced for their part in the fraud committed through the IAR.

The penalty for the bank, though large by FCA standards, could have been significantly higher.

BOS agreed to resolve the matter and qualified for a 30 percent discount, originally facing a penalty of £65 million.

The FCA also banned four individuals from working in financial services due to their role in the fraud at HBOS Reading: Lynden Scourfield, Mark Dobson, Alison Mills and David Mills, (via the U.K. FCA).

Monroe’s Musings:

The U.K. FCA has been steadily increasing its willingness to investigate and penalize broad financial crime compliance failings, and this shows that failings in fraud can equate to a failed overall counter-financial crime compliance program.

The case also reveals an interesting twist in the arsenal of regulators: even though there were not explicit requirements for compliance around certain commercial loan irregularities, aberrant behavior should have been reported. The takeaway: fraud is fraud, even when the regulator can’t nail you for have a compliance program prerequisite – to counter fraud.


Maltese regulators fine Satabank a record €3 million over money laundering breaches in secretive order not listed on any sites

Maltese authorities have slapped Satabank with a record €3 million fine for widespread breaches of money laundering laws – though the hefty penalty is not mentioned on any government websites by the regulators involved.

The bank has been on regulators’ radar ever since a joint inspection by the Malta Financial Services Authority and FIAU last year found extremely weak structures in place to prevent its clients from using it to launder potential proceeds of criminal activity.

This led regulators to come down hard on the bank, freezing all its funds and appointing behemoth audit firm Ernst & Young to administer its assets. Police and financial regulators have since been combing through suspicious transactions with potential links to fuel smuggling, drug trafficking and trade with sanctioned countries.

One source familiar with Satabank’s operations said the bank felt it was unfairly penalized by the multi-million euro fine, particularly given the way shunned Pilatus Bank had escaped any sanction by the FIAU.

Satabank’s poor risk management structures had already attracted a €60,500 fine from the MFSA in July 2018.

Fines levied on banks and other entities regulated by the FIAU usually show up on the unit’s website, yet in this case, the record fine imposed on Satabank is nowhere to been seen.

“Naming and shaming” on the FIAU’s website is often seen within the financial industry as being an even bigger penalty than the actual fine, as it could have a knock-on effect on the fined entities’ business operations.

Asked why recent FIAU fines are not showing up on online, a spokesman for the unit said changes to the law in December 2017 opened up the option of appealing fines in court, (via the Times of Malta).

Monroe’s Musings:

This case has worrying signs that even though Malta is attempting to, like many Nordic and Baltic regions, improve its image in fighting financial crime, it is still willing to cave in naming and shaming entities it has found to have lax AML compliance programs.

The group has levied fines against several banks in the region – and in this case a reported record – but is unwilling to list them on any government or regulatory website.

This is a far cry from what is done in, say, the United States, where federal and state regulators will name a bank and issue a detailed public report for AML failings, even when no fine is in play.

If Malta wants to truly improve its image in the eyes of the world, it will have to be more aggressive in investigating banks suspected of broad AML failings, name and display all failures and worry about how the courts will decide about their decisions later. 

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