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Financial Crime Wave – Laundering in the Netherlands, analysis of FATF AML rankings, and more

Saturday, November 10, 2018   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org

November 9, 2018

In this week’s Financial Crime Wave, laundering in the Netherlands tabulated at 16 billion euros, an analysis of a global watchdog’s rankings for effectiveness in fighting financial crime, an update on the aftershocks of last years “Paradise Papers” leak, and more.

Money laundering

€16 billion laundered in the Netherlands each year as financial scandals bring unwanted national, international scrutiny: report

Every year around 16 billion euros is laundered in the Netherlands, 90 percent of which come from drug trafficking and fraud, researchers at Utrecht University found in a study commissioned by the scientific research and documentation center WODC. Fraud is increasing and the under- and upper world are becoming increasingly intertwined, the researchers warned in Trouw. The researchers came to the figure of 16 billion euros laundered by combining figures on the scale of crime and money laundering flows between countries with other data. These figures are from 2014, because that is the latest figures that are known, but the researchers believe that little has changed in the years since. 

The last time an assessment of money laundering was made was in 2004. Then researchers estimated that 18.5 billion euros was laundered in the Netherlands that year. But as more figures are now known, the estimate for 2014 was lowered to 13 billion euros. The researchers emphasize that both 2004 and 2014's figures are estimates with a margin of error. It is therefore not exactly clear whether money laundering is increasing or decreasing. “The scale remained relatively unchanged over the past 10 years, roughly 2.5 percent of the gross domestic product,” according to one of the researchers involved. This study will be used as a starting point for improving the Netherlands' anti-money laundering policy, (via NL Times).

FATF

Laundry-wash: FATF ratings clean the toughest stains and a look at the apparent dichotomy between ‘theoretical standards and observable activity’

As a powerful watchdog body evaluates both the technical compliance and effectiveness of financial crime countermeasures, some analysts wonder why certain regimes can be linked to massive frauds and money laundering scandals, yet be judged highly “clean” when it comes to being considered inline with global standards. For instance, in a recent leaked report from the Paris-based Financial Action Task Force (FATF), the United Kingdom’s (UK) reported scores ranked its anti-money laundering (AML) regime ahead of the United States, yet both countries feature prominently in nearly every major money laundering investigation.

With hundreds of known cases with staggering sums involved, both countries are widely regarded major centers for illicit funds, both from domestic profit-motivated crime and as attractive destinations for the profits from drugs-, arms- and human-trafficking, sex- and labor-exploitation, corruption, illicit gem- and wildlife-smuggling, tax evasion and more. The apparent dichotomy between theoretical standards and observable activity is, however, unlikely to surprise those operating in the gritty reality of serious profit-motivated crime and its requisite laundering. In the case of Avalon, sources confirmed that the UK’s scores for “Immediate Outcomes” 10 and 11, rated ‘Substantial' previously on the leaked report by independent assessors were upgraded to 'High' in response to lobbying by English officials during October’s plenary. This would place the UK first amongst 60 nations, now just above the United States, from just below, (via Ron Pol).

Corporate transparency

Tax Wars, Follow-Up Investigations and Who Was Actually in the Paradise Papers?

A look at what happened after the Paradise Papers were released in a massive leak last year giving insight into the ways the top one percent evade taxes and illicit groups move and secret funds internationally. What is happening in my country? How can I get more information about the Paradise Papers? These are some of the questions the International Consortium of Investigative Journalists (ICIJ) want to know more about. Everyday, people are questioning, reading and — sometimes — discovering our investigations for the first time. So, to mark the anniversary of ICIJ’s 2017 Paradise Papers investigation, we decided to answer some of your burning questions.

One question: What has been the real impact of the Paradise Papers on the economy? Have the findings brought new ways of doing business? How is the financial industry adapting to the work of whistleblowers? In some cases, like Lithuania, the Paradise Papers led to the recovery of unpaid taxes and penalties, increasing government revenue. And, if the Panama Papers are any guide (more than $700 million recouped globally, a figure that continues to grow), it’s probably safe to expect more reports of countries recovering lost revenue, (via ICIJ).

Corruption

China anti-graft watchdog to instal resident examiners in large firms to counter corruption, financial crime

China's disciplinary authorities are allocating supervision teams to large financial enterprises as part of the country's intensified efforts to fight corruption in the financial sector. The inspections were a response to incidents of misconduct in banks and securities regulators such as intentionally overselling stocks and faking official seals to illegally approve insider dealing, Chinese analysts said. Zhao Leji, Secretary of the Communist Party of China (CPC) Central Commission for Discipline Inspection, said on Friday that the teams will be dispatched to form a discipline inspection and supervision system, Beijing Youth Daily reported on its WeChat account on Saturday.

The team will enter enterprises administered by the State-owned Assets Supervision and Administration Commission (SASAC), major State-owned banks such as the Industrial and Commercial Bank of China and the Bank of China, Chinese insurance giants like People's Insurance Company (Group) of China (PICC) and policy banks such as the China Development Bank (CDB) and the Export-Import Bank of China. The Export-Import Bank of China was inspected by the CPC Central Commission for Discipline Inspection in 2013, while another 14 SASAC-administered companies received inspections for the first time in 2015, the China News Service reported. It is not reported how long the teams will be in place. No other details have been released, (via the Global Times).

Compliance

Hong Kong securities regulator looking to improve ease, response times for filing AML STRs

In order to enhance the capacity in suspicious transaction report (STR) processing and shorten the time required for STR reporting entities to receive feedback from the country’s Joint Financial Intelligence Unit (JFIU) after submitting an STR, the JFIU has recently developed a new solution, e-STR Submission (e-STR) which will soon replace the existing STR submission channel, S-box, tentatively in the 1st quarter of 2019, with testing already underway since August, according to the Hong Kong Securities and Futures Commission (SFC).  

The e-STR unlike the existing S-box, does not require any installation and/or subsequent maintenance of software but it requires users to have the followings in place when they decided to use the e-STR channel for STR submission: web browser (Chrome and Firefox are recommended), latest version of Adobe Acrobat Reader and e-certificate from Hong Kong Post. The JFIU’s purpose of rolling out e-STR is to allow users to make disclosure via an electronic means in a faster and more secure manner. The e-STR also provides additional supporting functions such as retrieval of previous STRs as well as a real-time check of the feedback given by the JFIU, ( via the SFC).

Drug trafficking

DEA releases 2018 National Drug Threat Assessment, noting risks of Mexican, Asian organized criminal groups, laundering tactics

The U.S. Drug Enforcement Agency (DEA), has released its 2018 assessment reviewing the top drug and organized crime risks to the U.S., noting that as national and international laws related to marijuana fluctuate – going to illegal to legal for medicinal or personal uses – it could further open the door for small and larger illicit networks to move product and launder money.

The report also highlighted a chilling trend: Illicit drugs, as well as the transnational and domestic criminal organizations that traffic them, continue to represent significant threats to public health, law enforcement, and national security in the United States. In 2016, approximately 174 people died every day from drug poisoning, outnumbering deaths by firearms, motor vehicle crashes, suicide and homicide. Some other takeaways include:

·         TCOs’ primary methods for laundering illicit proceeds have largely remained the same over the past several years. However, the amount of bulk cash seized has been steadily decreasing. This is a possible indication of TCOs’ increasing reliance on innovative money laundering methods. Virtual currencies, such as Bitcoin, are becoming increasingly mainstream and offer traffickers a relatively secure method for moving illicit proceeds around the world with much less risk compared to traditional methods.

·         Controlled prescription drugs remain responsible for the largest number of overdose deaths of any illicit drug class since 2001. These drugs are the second most commonly abused substance. Traffickers are now disguising other opioids as controlled prescription drugs to gain access to this market.

·         Mexican transnational criminal organizations, including the Sinaloa Cartel and Jalisco New Generation Cartel, remain the greatest criminal drug threat in the United States. The cartels are the principal wholesale drug sources for domestic gangs responsible for street-level distribution. 

·         National and neighborhood-based street gangs and prison gangs continue to dominate the market for the street sales and distribution of illicit drugs in their respective territories throughout the country. Drug trafficking remains the major income source for gangs. (

·         Asian TCOs: Asian TCOs specialize in international money laundering by transferring funds to and from China and Hong Kong through the use of front companies and other money laundering methods, (via the DEA).

Corporate espionage

DOJ charges Chinese state-owned, Taiwanese companies, and three others, with economic espionage in new initiative to target foreign nation-state incursions

The U.S. Department of Justice (DOJ) has charged a Chinese state-owned entity, a Taiwan company, and three individuals, with economic espionage, stating they tried to steal trade secrets and technology from a U.S. semiconductor firm for the benefit of China. The documents target United Microelectronics Corporation (UMC), a Taiwan semiconductor foundry; Fujian Jinhua Integrated Circuit, Co., Ltd. (Jinhua), a state-owned enterprise of the People’s Republic of China (PRC); and three Taiwan nationals, with federal prosecutors stating this action is part of a broader initiative to target Chinese-based economic espionage to both counter the less of intellectual property and other government secrets and more harshly penalize offenders.

In tandem, authorities filed a civil lawsuit seeking to enjoin the further transfer of the stolen trade secrets and to enjoin certain defendants from exporting to the United States any products manufactured by UMC or Jinhua that were created using the trade secrets at issue. The charges stem from the fact that three individuals who worked for the U.S. firm later left to the Chinese and Taiwanese firms, but conspired to steal hundreds of pages of documents related to proprietary technologies tied to dynamic random access memory (DRAM) chips, (via DOJ).

Maersk family ousts Danske Bank chairman after scandal

Danske Bank’s largest shareholder, the Maersk family, has ousted the lender’s chairman after a money laundering scandal that has also forced out its chief executive. A.P. Moller Holding, which controls about 21 percent of the share capital in the bank, has nominated Karsten Dybvad, who currently heads the Confederation of Danish Industry, to replace Ole Andersen as chairman of Denmark’s largest bank. The move is a rare example of Denmark’s Maersk family, which controls shipping giant A.P. Moller-Maersk through A.P. Moller Holding, openly flexing its muscles to seek change at one of its investments. 

Andersen, who was appointed chairman seven years ago, has agreed to step down from the board at an extraordinary general meeting to be held within two weeks. The change follows a scandal that involved 200 billion euros (174.36 billion pounds) in payments through Danske’s Estonian branch between 2007 and 2015, many of which the bank has said it thinks are suspicious. Danske is the subject of criminal investigations in Denmark, Estonia and the United States and could face sizeable fines, (via Reuters).

Efficiency

Is ‘unitasking’ the key to success at work? This mindfulness expert says yes. Mindfulness Expert Dana Zelicha from the Organizational Well Being Agency says multitasking is a work fail waiting to happen. Instead, she says smart, successful women are embracing unitasking Multitasking is a common practice with the many distractions people face throughout the day. The belief that multitasking helps us accomplish everything we have to get done, however, is a myth.

Research has shown that multitasking negatively affects performance and decreases productivity by up to 40 percent. Therefore, while many people think that doing many things at once is efficient, it is actually counterproductive because the tasks are usually performed with less attention and lower quality, (via Healthista).

Data security

HSBC bank confirms US data breach

HSBC has said some of its US customers' bank accounts were hacked in October. The lender said that the perpetrators may have accessed information including account numbers and balances, statement and transaction histories and payee details, as well as users' names, addresses and dates of birth.

The BBC understands the firm believes that fewer than one percent of its American clients were affected. It said it had already contacted those thought to have been exposed. The bank said the online accounts were breached between 4 and 14 October, (via the BBC).

Enforcement

Estonian financial watchdog proposes money laundering prevention measures

Estonia is the first country in the euro area where a bank has been stripped of its activity license at the request of a financial supervision authority for breaking anti-money laundering rules, Chairman of the Board of the Financial Supervision Authority (FSA) Kilvar Kessler said at a debate in the Riigikogu about the prevention of money laundering on Tuesday. According to the head of the FSA, there are four levels in Estonia that are involved in the risks and prevention of money laundering — first the financial intermediaries themselves, then the Financial Intelligence Unit, then investigative bodies, and finally the FSA. The FSA's task in preventing money laundering is to analyze whether banks' risk reviews are in accordance with a particular bank's business strategy. At the end of his presentation, the head of the FSA introduced three proposals for further increasing the effectiveness of money laundering prevention.

According to Kessler, the section of Estonian penal law on misdemeanors and misdemeanor procedures needs to be revamped, as in its current state, with its short limitation periods, complicated procedures and small terms of punishment, it is unsuitable for the finance sector. He also highlighted the need to establish a central national analysis center that would handle risk analysis for money laundering, the financing of terrorism and the violation of financial sanctions in Estonia, calling anti-money laundering compliance parlance as a financial intelligence unit. The FSA chief also found that the EU needs a central institution tasked with the prevention of money laundering which would coordinate the work of member states' corresponding authorities, (via ERR).

Regulations

New draft bill requires radical transparency on how corporations share, sell data, creates stronger penalties, jail time for execs

Sen. Ron Wyden, D-Ore., released a discussion draft this month of sweeping new legislation that would empower consumers to control their personal information, create radical transparency into how corporations use and share their data, and impose harsh fines and prison terms for executives at corporations that misuse Americans’ data.

The Consumer Data Protection Act protects Americans’ privacy, allows consumers to control the sale and sharing of their data, gives the FTC the authority to be an effective cop on the beat, and will spur a new market for privacy-protecting services. The bill empowers the FTC to:

·         Establish minimum privacy and cybersecurity standards.

·         Issue steep fines (up to 4% of annual revenue), on the first offense for companies and 10-20 year criminal penalties for senior executives.

·         Create a national do not track system that lets consumers stop third-party companies from tracking them on the web by sharing data, selling data, or targeting advertisements based on their personal information. It permits companies to charge consumers who want to use their products and services, but don’t want their information monetized.

·         Give consumers a way to review what personal information a company has about them, learn with whom it has been shared or sold, and to challenge inaccuracies in it.

·         Hire 175 more staff to police the largely unregulated market for private data.

·         Require companies to assess the algorithms that process consumer data to examine their impact on accuracy, fairness, bias, discrimination, privacy, and security, (via Wyden).

Sanctions

European 'clearing house' to bypass US sanctions against Iran with France or Germany possible hosts for SPV as EU looks to reward Tehran for sticking with joint nuclear deal

A special clearing house designed to allow European companies that trade with Iran to bypass newly reimposed US sanctions will be set up in Europe within months, possibly in France or Germany. The clearing house, known as a special purpose vehicle (SPV), is seen as critical to reassuring Tehran that the EU genuinely wishes to reward Iran for signing the 2015 deal on its nuclear program by expanding business with the country. Under the terms of the deal, Iran agreed to limit its nuclear activities and submit to international inspections in return for the lifting of economic sanctions, Donald Trump pulled the US out of the deal earlier this year, breaking with Europe, and on Monday a full panoply of US sanctions came into force.

The package included the threat to sanction companies or countries that buy Iranian oil, the lifeblood of its economy.  Tehran had been hoping for an announcement at the weekend on the next steps for the SPV, which was announced in principle two months ago. The SPV would serve as a barter exchange neither connected to the US dollar-denominated international financial system nor requiring monetary transfers between EU countries and Iran. An Iranian firm selling into Europe would accumulate credits that could be then used to buy a product from a different European firm, (via the Guardian).

Data leaks

These are four of the worst data leaks so far this year and why you should be worried

Hackers have successfully punctured household name firms including Facebook, British Airways and others, so realize the information on these sites and users could be in the hands of criminals.

Some things to consider: When buying flights, looking for work, using social media platforms or consulting financial information, there's always a risk that you could fall victim to hackers. While hacking and data leaks aren't exactly anything new, the prospect of having your account breached and losing valuable data is worrying, (via Business Insider).

SARs

“Should you file a SAR,” decision-making flowchart from TransparINT

Helpful chart to map out the potential analyses and decisions that should be considered when presented with aberrant alert data from anti-money laundering transaction monitoring systems, including transactions that are out-of-scope with expected business throughput and details that are out-of-line with an account’s stated purpose, (via Chris Focacci, TransparINT, Steele).

United Kingdom

In U.K., money-laundering crackdown coming for public schools, law firms, as authorities trace dirty money trails

Estate agents, high street solicitors and accountants who facilitate about £100 billion of money-laundering in the UK but are failing to report suspicious activity face a crackdown under a government drive against economic crime. Security minister Ben Wallace has warned public schools, football clubs and luxury car garages they must report irregularities, pledging to “go after the status” of the worst culprits by focusing on where they spend their illegal cash. He also set out plans for the new multi-agency national economic crime center launching on Thursday, which will prioritize the most serious offenders, boosted by a £48m cash injection and a more intelligence-led approach.

The government is also expected to toughen up its approach to Scottish limited partnerships, a business loophole that it believes has been used by foreign criminals to launder dirty money in the UK. But the principal focus of the serious and organized crime strategy, published on Thursday, is the crackdown on illicit finance and the professionals who facilitate it. If they fail to report suspicious activity they face sanctions including, ultimately, jail. The moves come as internal and external watchdog groups criticize the country for being a haven for money laundering with weak regulatory exam and penalty regimes, (via the Guardian).

AI

Japan’s first AI-powered ATM to combat money transfer fraud – system can recognize users’ movements and stop telephone scams targeting elderly

A Japanese company has developed an artificial intelligence-powered automated teller machine to prevent fraudulent money transfers, the first of its kind in the country, a move aimed at stopping fraud and abuse against the elderly through fraudulent calls and emails. The system, which can recognize the appearance and movement of ATM users through an embedded camera, aims to help prevent crimes in which scammers guide elderly victims over the phone to transfer money by making them believe they will be refunded a higher amount. Despite repeated warnings by authorities and other entities, financial losses related to so-called refund money wiring fraud remain high in Japan, totaling about 1.07 billion yen (US$9.5 million) in the first half of 2018, according to the National Police Agency.

If the AI recognizes a user talking over the phone during a money transfer, the screen displays a warning to stop the transaction. The ATM will also ask users to take off any masks or sunglasses, and if they do not follow the instructions, the transaction will be cancelled automatically. The AI system was designed to memorize a huge number of images based on the “deep learning” method, and boasts a highly precise detection technique, according to Hitachi-Omron Terminal Solutions Corp., which aims to commercialize the system in the next financial year starting in April.Top of Form, (via the SCMP).

UAE

UAE issues new federal AML laws, to expand coverage of sectors, create FIU, more aggressively share information

The UAE has stepped up the fight against money-laundering and financing terrorism by announcing a new law, the federal government stated on Tuesday. According to the Ministry of Finance, Federal Decree No. (20) of 2018 issued by President His Highness Shaikh Khalifa Bin Zayed Al Nahyan, will make it difficult for illegal transfers of cash or valuables out of the country to hide the source or to back activities by terrorist organizations.

The decree is in line with the requirements and recommendations of the Financial Action Task Force (FATF), an inter-governmental body created to develop international standards to combat money laundering and terrorist financing.

The law is expected to strengthen AML rules and overall financial crime investigations in several areas, including:

·         Requiring cross-border currency declarations at certain thresholds and across a range of items that can hold value, including currency, bearer instruments, precious metals and stones, and more.

·         The rules for money laundering will include those who know they are moving or disguising the ownership of illicit funds.

·         The new law will allow prosecutions for predicate crimes and the laundering of the funds.

·         The new law is recommending the formation of an independent “Financial Information Unit” within the Central Bank to receive and investigate all reports submitted by financial institutions and other corporate establishments regarding suspected illicit financial activity.

·         The finance ministry said the new unit would follow up and gather evidence on the transaction in question, and share this information with the relevant law-enforcement departments domestically and abroad.

·         The unit will also be responsible for establishing a database, or a special record, of the information and protect it by establishing rules governing information security and confidentiality.

·         The law will also subject many non-financial businesses to certain AML rules, including customer due diligence, risk assessments and filing reports on suspicious activity, (via the Gulf News).

Danske Bank

The United States’ Danske Bank investigation – This is something different, with some saying authorities are looking to see if the bank actually moved dirty money, rather than just having a lax AML program

Earlier this month, Danske Bank A/S – Denmark’s largest bank – announced that the United States Department of Justice (DOJ) has initiated a criminal investigation relating to the bank’s Estonian branch.

This follows the announcement of a series of high-profile investigations by European regulators and a September 2018 report commissioned by the bank detailing up to €200 billion in potential suspicious payments conducted through the Estonian branch between 2007 and 2015.

Several media sources detail the DOJ investigation as one focused on the Estonian branch’s anti-money laundering controls, and unsurprisingly liken the DOJ’s investigation to that which led to previous large-dollar AML actions against other big banking institutions. But others believe authorities could be looking to see if the bank actually moved dirty money for criminals, terrorists and corrupt Russian oligarchs, (via KYC360).

North Korea

North Korea’s regime is using cryptocurrency scams and fake digital coin offerings to raise money for the government, new research on North Korea’s internet use reveals

One example is a company called Marine Chain, which launched in 2018 to allegedly offer partial ownership of maritime vessels in exchange for digital tokens. It is unclear exactly how much revenue the company raised, and six months later its website had been taken offline.

But cybersecurity researchers from Recorded Future, who on Thursday released a report title Shifting Patterns in Internet Use Reveal Adaptable and Innovative North Korean Ruling Elite, discovered that the company’s CEO, a man named Captain Jonathan Foong Kah Keon, was a Singaporean national who has allegedly been working to help North Korea evade international sanctions for years, (via Newsweek). 


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