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Daily Briefing: World Day Against Trafficking in Persons resources, U.K. crypto guidance, and more

Thursday, August 1, 2019   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
July 31, 2019

Quote of the Day: “Imagination is not only the uniquely human capacity to envision that which is not, and therefore the fount of all invention and innovation. In its arguably most transformative and revelatory capacity, it is the power to that enables us to empathize with humans whose experiences we have never shared.” – J. K. Rowling

In today’s ACFCS Fincrime Briefing, on the United Nations’ World Day Against Trafficking in Persons, ACFCS offers resources, scholarships to counter terrible crime, U.K. crypto coin guidance, DOJ crypto crime fusillade, 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

World Day Against Trafficking in Persons: ACFCS offers key resources, scholarships to counter heinous crime

Despite increasing focus, resources and sharing on financial red flags from both the public and private sectors, the trafficking of persons – for illicit aims including sex trafficking, forced labor and more – remains a multi-billion dollar criminal enterprise affecting tens of millions of victims and continues to challenge financial institutions in the areas of detection and prevention.

That is why it is more important than ever today, the United Nations World Day Against Trafficking in Persons, to review what global investigative, financial institution and watchdog groups have done in terms of progress, assess what more needs to be done and renew and embolden efforts on all sides to save victims, identify and jail the traffickers and follow and cripple the financial networks underpinning a crime that can destroy lives, families and futures.

With more organized criminal groups attempting to take advantage of migrant crises in Europe, the Americas and other regions, these trends have only served to heighten the prevalence of human trafficking in many regions, and likewise increase the awareness and scrutiny required of financial institutions to ferret out the diffused financials ties to larger trafficking networks.

To read more, click here.

Monroe’s Musings:

New tactics to counter human trafficking is also a core issue and coverage area for ACFCS, with human trafficking the association’s “Quarterly Focus” for the second quarter, including content, webinars and a resource page and offering the financial crime compliance and investigative communities new avenues to get involved and offer solutions from their own unique perspective.

In addition to open source resources, ACFCS also offered for the first time full scholarships for professionals in this space – including compliance officers, investigators, regulators and other professionals. 

Overall, more than 130 professionals vied for the chance to become full ACFCS Members and achieve the title of Certified Financial Crime Specialist, a move that would enhance their overall understanding of financial crime and boost their careers.

ACFCS chose 15 scholarship recipients, a diverse mix of professions, industries and geographic areas, including seasoned compliance professionals in African nations, anti-money laundering (AML) specialists and cyber investigators in the US, law enforcement agents in Canada, and regulators in the Caribbean region.

These individuals are also sharing some of their insight, knowledge and thought leadership in Scholarship Spotlights.

The first piece published highlights the passion and tenacity of Joann Alicea, a senior compliance officer at JPMorgan Chase, who fought for seven years to add a checkbox for human trafficking to the AML suspicious activity report (SAR) filing, the central document used by compliance officers to report potential financial crimes.


DOJ files $100 million lawsuit against BTC-e, and purported Russian operator suspected of laundering billions

Federal prosecutors have filed a civil complaint in federal court against digital currency exchange BTC-e, also known as Canton Business Corporation, and one of its chief owners and operators Alexander Vinnik, in a bid to enforce a prior penalty for financial crime compliance violations.

BTC-e is a digital currency exchange organized as a corporation under the laws of Cyprus and/or the Seychelles Islands. It operated in Bulgaria, the Seychelles Islands, and other jurisdictions, including the Northern District of California, and allowed its users to buy and sell bitcoin and other digital currencies anonymously through its web domain,  

Vinnik, a Russian national, occupied a senior leadership position within BTC-e, controlled multiple BTC-e administrative accounts used to process BTC-e’s transactions, and participated in the direction and supervision of BTC-e’s operations and finances.  

The civil complaint published Friday alleges that Vinnik operated several BTC-e accounts, including some tied to thefts from other virtual currency exchanges such as Mt. Gox. Vinnik is currently incarcerated in Greece and is the subject of an extradition request to the Northern District of California in connection with criminal charges filed in this district.

On July 26, 2017, FinCEN assessed monetary penalties against BTC-e and Vinnik for violations of the BSA.  FinCEN assessed $12 million in penalties against Vinnick and $88,596,314 in penalties against BTC-e for BTC-e’s alleged willful violations of the BSA.  The civil complaint seeks to enforce the monetary penalties issued by FinCEN.  

In July 2017, the U.S. Treasury has fined one of the world’s largest virtual currency exchanges $110 million for supporting illicit dark market sites, coaching criminals on how to access and launder money from ransomware fusillades, and shirking its financial crime compliance duties.

The Financial Crimes Enforcement Network (FinCEN) penalized BTC-e, known as Canton Business Corporation, for a host of actions, including being the platform of choice for dark net sites selling drugs and other illicit services, facilitating payments for ransomware attacks and transferring funds stolen from other virtual currency exchanges, (via DOJ). To read ACFCS coverage of the 2017 FinCEN penalty, click here.

Monroe’s Musings:

The action at the time was the first FinCEN had taken against a foreign cryptocurrency exchange and the second against a domestic exchange of virtual currency. 

In all, it had become a hub for the worst of the worst in internet thievery – from narco traffickers to identify thieves, corrupt political powerbrokers to hackers. As investigators saw the common thread in various criminal schemes, all roads led to BTC-e.

In total, since 2011, BTC-e has served approximately 700,000 customers worldwide and is associated with Bitcoin wallet addresses that have received over 9.4 million bitcoins, representing, at the virtual currency’s current price of more than $2,700, a quarter of a trillion dollars.

With such a high-profile action, it’s not surprise FinCEN is aggressively partnering with DOJ and using both federal and civil powers to enforce the fines and show that the U.S. will not allow laundering and flouting of AML rules to go unpunished in the real and virtual worlds.

Tax evasion

IRS to virtual currency owners: We are coming for you for back taxes, get ready or pay the price

The Internal Revenue Service has begun sending letters to taxpayers with virtual currency transactions that potentially may have failed to report income and pay taxes tied to virtual currency transactions, part of a broader industry effort to tackle all areas of financial crime tied to crypto coins.

The IRS in recent weeks has started sending the educational letters to taxpayers, uncovered by related IRS “ongoing compliance efforts,” with the plan to send more than 10,000 letters to taxpayers by the end of August.

Last year the IRS announced a Virtual Currency Compliance campaign to address tax noncompliance related to the use of virtual currency through outreach and examinations of taxpayers.

The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations.

Virtual currency is an ongoing focus area for IRS Criminal Investigation.

IRS Notice 2014-21 (PDF) states that virtual currency is property for federal tax purposes and provides guidance on how general federal tax principles apply to virtual currency transactions.

The IRS anticipates issuing additional legal guidance in this area in the near future, agency officials said.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are, when appropriate, liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution, (via the IRS).

Monroe’s Musings:

This move has been brewing for a while. But what is still unclear is how the IRS has found the individuals it is sending letters.

Most likely, the IRS is working closely with IRS-CI, FinCEN and other agencies to triangulate who are the individuals, businesses and even investment firms making major moves in the crypto and fiat banking worlds, and then cross-referencing what these groups have reported in terms of gains.

With IRS taking a stand that virtual value rising is similar to when a piece of property appreciates, they will be looking to follow the money to determine who may have purposely evaded taxes and, just as important, did any gatekeepers, exchanges or dark market tumblers act as enablers to help them.


UK FCA issues guidance on rules, regulations on Bitcoin, crypto assets, including AML compliance

The U.K. Financial Conduct Authority (FCA) has finalized its guidance on crypto assets, clarifying which tokens fall under its jurisdiction and noting the country is planning to go beyond just-released global compliance recommendations in a bid to counter financial crime.

Most of the rules issued Wednesday were proposed in consultation paper CP19, which was released for public comment in January. As widely expected, the final guidance does not drastically alter the regulatory landscape, instead specifying when certain types of crypto assets fall under existing categories.

True cryptocurrencies like bitcoin and ether, which the FCA classes “exchange tokens,” are not regulated, though anti-money-laundering rules apply.

The FCA said some 92 responses to the consultation paper were received from an assortment of firms, including banks, trade associations and crypto exchanges. Most respondents supported the proposals, said the FCA

Importantly, the guidance provides a definition of security tokens.

When issued, these assets behave like shares or debt instruments, including ownership rights, thus falling under the category of a “specified investment” and, in turn, the FCA’s remit. 

Utility tokens, by contrast, do not grant the same sorts of rights as regulated financial instruments and will generally fall outside the FCA’s remit, except in circumstances when they meet the definition of electronic money and fall within a new category of e-money tokens.

Almost all respondents who answered the question agreed with the regulator’s assessment of security tokens in relation to the regulatory perimeter, (via Coin Desk). To read the full FCA Policy statement, click here. To read the full January consultation paper, click here.

Monroe’s Musings:

Guidance on how crypto firms, and which firms, should craft AML programs is piling up, after a dearth of such knowledge in recent years.

The U.S. offered concrete guidance from its financial intelligence unit in the past year, and then, just a few months ago, global AML watchdog FATF finally released its long-awaited crypto AML compliance guidance.

The U.K. notes FATF’s recommendations, but states – as is the U.K. way – to “gold-plate” the incoming standards by raising overall compliance expectations under the country’s Fifth AML Directive.

The policy statement is quick to point out that, “firms should note that 5AMLD will be transposed into UK law by 10 January 2020 to introduce AML requirements to certain cryptoasset activities.”

The Government has announced that in the UK they will “go beyond the scope of 5AMLD which proposes to extend AML/CTF regulation to entities carrying out the following activities,” such as:

·       exchange services between one cryptoasset and another, or services allowing value transactions within one cryptoasset exchange or peer-to-peer exchange service provider

·       cryptoasset Automated Teller Machines

·       transfer of cryptoassets (In this context of cryptoassets, transfer means to conduct a transaction on behalf of another natural or legal person that moves a cryptoasset from one cryptoasset address or account to another)

·       issuance of new cryptoassets, for example through ICOs

·       the publication of open-source software (which includes, but is not limited to, noncustodian wallet software and other types of cryptoasset related software)

Not surprisingly, the challenges for large crypto exchanges will come when the AML rules expand and constrict in some jurisdictions, or clash, such as if a privacy law conflicts with the need to capture and send customer risk assessment details to corresponding crypto exchanges or brick-and-mortar banks and money services businesses. 

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