Report roundup: U.S. INCSR highlights, Congress takes on AML, APAC corruption conundrum, and more

ACFCS man presses compliance icon

By Brian Monroe
bmonroe@acfcs.org
March 9, 2017

As financial crime professionals, we at ACFCS know you are busy. Sometimes too busy to read those important, detailed reports that come out periodically, or perhaps too busy to even notice they were released.

So that’s why, from time to time, we will grab a gaggle of them and pull out key points so you can see what you missed and quickly skim, scan and plan. In this go-around, the U.S. grades the world on anti-money laundering (AML) and counter-narcotics efforts, U.S. legislators look to wrestle with regulations and de-risking, an analysis examines corruption in Asia and bribery enforcement globally, and more.

U.S. International Narcotics Control Strategy Report scrutinizes AML frameworks and risks worldwide

To start the Round Up, we have one of the seminal documents related to financial crime produced by the United States, the International Narcotics Control Strategy Report (INCSR). The report is an annual global snapshot of how countries are doing in their fight against illicit drugs and money laundering, and a general grading of their anti-money laundering (AML) capacity, gaps, successes and international partnerships.

The hefty tome weighs in at more than 500 pages and is packed to bursting with detailed information on everything from (as the title indicates) illicit drug production, routes, laundering methods and counter-drug efforts, to the persisting and emerging threats and vulnerabilities that allow organized criminal groups, corrupt politicians and terrorists to capture and clean dirty money.

Key changes in the latest report include a stronger focus on flourishing drug production in Latin America, where more countries now are considered a “primary money laundering concern” due to the flow of illicit funds through their jurisdictions. More broadly, the report focuses additional analysis on the critical link between a country’s AML laws and their ability to uncover suspicious patterns tied to narcotics sales and get that intelligence to law enforcement, closing the investigative loop.

A major focal point in the latest INCSR is “perhaps the worst drug crisis that we have seen in the United States of America since the 1980s, and the worst heroin and opioids crisis that we have seen in the United States in more than 60 years,” said William Brownfield, Assistant Secretary for Bureau of International Narcotics and Law Enforcement Affairs, in a conference call.

Ironically, however, he stated that the origin country was, ostensibly, a close ally, estimating “that between 90 and 94 percent of all heroin consumed in the United States comes from Mexico” and even though 80 percent of the world’s heroin is produced in Afghanistan, only about two to four percent gets to the United States.

Jumping over to volume II, the financial crime front, the latest INCSR report notes a stronger push by U.S. authorities and regulators, like the U.S Treasury’s Office of the Comptroller of the Currency (OCC), to reach out and teach in the countries and regions struggling the most uncovering and forfeiting sullied assets, cracking more complex cases and stopping terror attacks.

As in past years, “money laundering continues to be a serious global threat,” according to the report.

“As transnational criminal organizations, terrorist groups, and other bad actors increasingly draw upon new technologies and criminal techniques to fund their illegal activities and generate and launder their considerable proceeds, the challenges faced by the financial, law enforcement, supervisory, legal, and intelligence communities are exacerbated,” the report stated.

Moreover, the INCSR concluded that a country becoming a conduit for dirty money does more than just help that particular criminal organization.

“Jurisdictions flooded with illicit funds remain vulnerable to the breakdown of the rule of law, the corruption of public officials, and destabilization of their economies,” the report stated.

But to counter that, the latest INCSR details a range of teaching, training and capacity building initiatives, including an annual “AML/CFT School,” run by the OCC, which is “designed specifically for foreign banking supervisors to increase their knowledge of money laundering and terrorism financing typologies and improve their ability to examine and enforce compliance with national laws.”

The 2016 AML/CFT School was attended by foreign supervisors from Canada, China, Dubai, Hong Kong, India, Jordan, Latvia, Malawi, Netherlands, Pakistan, Philippines, South Africa, South Korea, and Turkey.

In addition, in November 2016, the OCC taught the AML/CFT school for the Association of Supervisors of Banks of the Americas in Panama City, Panama. The AML School in Panama was attended by foreign supervisors from El Salvador, Haiti, Honduras, Nicaragua, Panama, Paraguay, and Uruguay.

Beyond those regions, the OCC participated in a “significant number of international working groups/public-private dialogues in 2016 with participants from Central America, the Caribbean, Mexico, China, the UK, and the Persian Gulf region.”

Congressional Research Service AML Overview for Congress: A weighty primer on U.S. AML laws and a hint of where Congress could go in the near future

This is a must read for anyone in the financial crime compliance communities as it details many of the tensions at play in AML bank and regulatory circles. The just-released Congressional Research Service (CRS) report on AML laws in the country, previewing the policy outlook for the 115th Congress.

It notes the rising tensions between banks feeling more intense pressure from regulators while balancing rising compliance costs, and the position of law enforcement, which is pushing for more leeway for banks to create richer pieces of intelligence on potential suspicious activities.

“Although [counter-financing of terrorism (CFT)] will likely remain a pressing national security concern for policymakers and Congress, some see the beginning of the 115th Congress as an opportunity to revisit the existing AML policy framework, assess its effectiveness, and propose regulatory and statutory changes,” according to the report.

Such efforts could further address issues raised in hearings and proposed legislation during the 114th Congress, including “beneficial ownership, the application of targeted financial sanctions, and barriers to international AML information sharing,” according to the report.

The current Congress “may also revisit proposals to require the Executive Branch to develop a roadmap for identifying key AML policy challenges and balancing AML priorities in a national strategy.”

At the same time, Congress now may also seek to better address “tensions that remain in balancing the policy objectives of improving financial services access and inclusion while also accounting for money laundering risks and vulnerabilities that may result in the exclusion (or “de-risking”) of others from the international financial system,” (via the Congressional Research Service).

Global crackdown on graft spearheaded by US, but more countries catching on, says report

A new report by TRACE International finds that enforcement actions against corrupt regimes and their powerbrokers are rising globally, a trend also highlighted recently by ACFCS and the FCPA Blog.

In its 2016 Global Enforcement Report, the group noted a doubling in U.S. enforcement actions last year, while non-US actions followed the same meteoric rise since 2015.

“2016 was a record year for global anti-bribery enforcement,” said Alexandra Wrage, president of TRACE International. “The United States has been concluding enforcement actions at an unprecedented rate, other jurisdictions have been stepping up their prosecution rates as well, and new anti-corruption laws continue to be passed worldwide.”

The US has been the historic standard-bearer for anti-corruption actions. American prosecutors have been penalizing companies for bribery offenses for 30 years. It appears from this report that they are not slowing down.

Since the passed for the U.S. Foreign Corrupt Practices Act (FCPA) in 1977, TRACE calculates that 70% of all enforcement actions were made in the USA. Of these, 46% concerned bribes paid to Asian officials and a quarter to civil servants in the Americas.

Another stand-out statistic reveals the rising number of prosecutions within China. As demonstrated by TRACE’s heat map, bribes to Chinese public officials were the most likely penalized.

Although this is partly a consequence of economic scale – the world’s most populous state attracts significant corporate investment – but also the finding demonstrates the payoff from its recent anti-corruption efforts, (via Forbes). To view the TRACE report, please click here.

Afghanistan’s financial intelligence unit (FIU) makes progress in fight against corruption criminals, terror groups

In a war-torn land still reeling from the withdrawal of most U.S. forces, and a resurgent ISIS sowing chaos in the region, it’s a much-needed bright spot for the Financial Transactions and Reports Analysis Center of Afghanistan (FinTRACA) to show some improvements and momentum in its recently released annual report, covering 2016.

By its own account the FIU made “tremendous progress receiving data, analyzing and disseminating money laundering, terrorist financing cases” law enforcement investigators and prosecutors. It also supported key initiatives to push controls on cash, bearer negotiable instruments and even precious metals and gold at border crossings.

The group also more closely aligned itself with standards set out by global watchdog body, the Pars-based Financial Action Task Force (FATF) regarding “identifying, tracing and freezing of terrorist’s assets,” along with developing standardized policies and procedures tied to enhancing the AML/CFT compliance regime and boosted coordination between local and international agencies.

Some of the examples of the FIU’s accomplishments include:

·         Issued 7 Circulars to improve the overall financial crime compliance regime.

·         Issued 60 Warning Letters to Reporting Entities.

·         Revoked the licenses of 80 MSBs across the country.

·         Enforced penalties of AFN 4.3 million on reporting entities.

·         Banned the utilization of individual bank accounts for Money Service purposes.

·         Close and froze more than 40 bank accounts worth hundreds of thousands of dollars.

In APAC, more than a quarter had to pay bribes for basic services, with the poorest individuals the most take advantage of, according to Transparency International

After speaking with nearly 22,000 people in the Asia Pacific region, Transparency International found that more than a quarter of people surveyed had paid a bribe to access public services, according to a just-released report.

Based on the bribery rates for each country/territory and its adult population size, this is equivalent to over 900 million people across the 16 places surveyed.

According to the survey, police topped the list of public services most often demanding a bribe. Just under a third of people who had come into contact with a police officer in the last 12 months said they paid a bribe.

Overall, 38 percent of the poorest people surveyed said they paid a bribe, which is the highest proportion of any income group.

AML compliance assessments from Australia’s FIU reveal entities that review and rank risk can better tailor programs to current vulnerabilities  

Reporting entities “with appropriate ML/TF risk assessments explored the extent of how their products, services or delivery channels could be misused by criminals to launder money or fund terrorism,” according to Austrac, which shared the insights from compliance assessments report to help the broad array of entities subject to AML rules.

“This approach allowed them to tailor their compliance systems and processes, instead of simply using ‘off-the-shelf’ risk assessment documentation that was designed to apply equally to any business.”

“Reporting entities are at the front line of Australia’s AML/CTF regime and that’s why our agency is committed to working with them to help them understand and mitigate the risk of their business being exploited by criminals.”