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ACFCS December Regulatory Report: Banking, Securities Penalties Aplenty, Fatf Grades U.K., and More

Gavel on top of book

Welcome to a Monthly Feature From ACFCS To Help You Keep Up to Date on The Latest Guidance and Enforcement Trends: The Regulatory Report!

In this feature, ACFCS highlight’s key current, upcoming or potential changes in the global financial crime landscape, so compliance professionals, investigators and regulators can better keep abreast of pressing vulnerabilities, issues and legislative fixes. Enjoy!

In this month’s ACFCS Regulatory Report, DOJ, FBI tackle money mules with enforcement, awareness campaign, top U.S. banking and securities regulators tag team to fine on financial crime compliance failures, an anti-money laundering officer is accused of embezzling nearly half a million dollars, FATF grades U.K., Israel, Canada bolsters beneficial ownership, and more.



DOJ, FBI Money Mule Awareness Booklet

Federal investigators reveal the profile of money mules to better help compliance professionals and frontline staff, including parsing out those acting in unwitting, witting and complicit capacities.

Red flags include opening multiple accounts in their own names, likely warned previously about being part of fraudulent activity and may receive funds from unknown or third-party entities. To read the full report, click here.

Individual liability

Prosecutors eye former Deutsche Bank AML official for potential failures to file reports of suspicious fincrime activity – report

Frankfurt prosecutors have launched a probe against a former anti-money laundering official of Deutsche Bank on suspicion of money laundering, German public broadcaster Hessischer Rundfunk reported last month. The public prosecutor is accusing the former official of failing to report suspicious transactions, despite sufficient indications of money laundering, Hessischer Rundfunk reported, without citing sources.

In recent months, Police raided six Deutsche Bank premises in and around Frankfurt over money laundering allegations linked to the Panama Papers. The two-day search included all the offices of Deutsche Bank’s management board. Investigators are looking into the activities of two unnamed Deutsche Bank employees alleged to have helped clients set up offshore firms to launder money, the prosecutor’s office has said. The inquiries focus on events from 2013 to this year. To read more analysis, click here.

Enforcement snapshot: An embezzling BSA officer, DOJ’s first-ever criminal AML charge against securities broker

As well, federal authorities last month sanctioned a financial crime compliance officer who wore too many hats for stealing nearly $500,000 over several years and handed down a first ever criminal anti-money large charge against a broker dealer for failing to file a suspicious activity report on individual later found to be part of a multi-billion payday loan scam.

In December, the Federal Reserve issued a prohibition order against Diane Ludwig, the Bank Secrecy Act (BSA)/anti-money laundering (AML) officer for the First Community Bank of Beemer, Nebraska, for embezzling $491,000 from the bank’s general ledger. Ludwig was also the bank’s cashier, IT Officer, and Lending Compliance Officer.

On the same day, DOJ handed down its first-ever criminal BSA charge against Central States Capital Markets, LLC (CSCM), for failing to file a SAR regarding the illicit actions of customer Scott Tucker, who a jury later found guilty of fraud, money laundering and other charges for his role in a $2 billion payday loan scheme.

CSCM will also pay $400,000 as part of a two-year deferred prosecution agreement, part of which includes engaging in extensive improvements of the operation’s AML program. To read ACFCS coverage of the actions, click here.


Standard Chartered: A look at the importance of data quality in fighting financial crime

British Bank Standard Chartered, which is attempting to turn the corner on prior financial crime and sanctions penalties, takes a look at the importance of a “clean” data lake when attempting to strengthen counter-financial crime controls. The bank looks at more than a billion transactions annually, a font of financial tributaries including funds and securities, wires, cash deposits and more.

In order to have a stout AML program, one top data scientist says, the data feeding these systems must be accurate, a vital foundation for compliance controls that are built are calculating and anticipating customer risk, cross-referencing those assessments with classic and emerging red flags and making the proper decisions when these thresholds reach the level of suspicious and must be reported to authorities – and given further link analysis internally. To read more, click here.


Global Witness Investigation: Senior executives at top world oil companies implicated in Brazilian bribery scandal

Giant commodity traders Trafigura and Vitol find themselves deeply embroiled in Brazil’s sprawling Car Wash scandal. High-ranking executives in two of the world’s largest companies were complicit in vast bribery schemes to secure sweetheart oil deals in Brazil, prosecutors have said in court documents reviewed by Global Witness.

Trafigura and Vitol, the commodity trading goliaths, have found themselves embroiled in Brazil’s Car Wash scandal, one of the biggest corruption cases of all time. Brazilian authorities are investigating them and rival Glencore for allegedly paying bribes totaling $15.3 million to officials at the Brazilian state oil company Petrobras, in return for oil deals at preferential rates. To read more, click here.


Wells Fargo to pay nearly $600 million to resolve state investigations into unauthorized accounts scandal, sales practices

Wells Fargo last month stated it would pay $575 million to settle a probe by all 50 states and Washington, D.C., into a plethora illegal and unethical practices, including opening accounts without customers, knowledge or permission.

The deal will settle investigations begun after federal regulators revealed in September 2016 that Wells Fargo employees had for several years improperly opened millions of unauthorized bank accounts in customers’ names – without their prior consent in a bid to make profit quotas.

The employees, when later interviewed by authorities, stated they had engaged in the practices because they were concerned about losing their jobs if they could not meet Wells Fargo’s aggressive sales goals, adding that they did so with the blessing of sales managers and higher executives.

State investigators listed the actions that led to the penalty, as the bank:

  • opened millions of unauthorized accounts and enrolled customers into online banking services without their knowledge or consent;
  • improperly referred customers for enrollment in third-party renters and life insurance policies;
  • improperly charged auto loan customers for force-placed and unnecessary collateral protection insurance;
  • failed to ensure that customers received refunds of unearned premiums on certain optional auto finance products;
  • incorrectly charged customers for mortgage rate lock extension fees.

To read more, click here. To read ACFCS coverage of the scandal, and a look at possible solutions from an AML perspective, click here.

FinCEN, Finra, SEC levy more than $14 million penalty against securities arm of UBS for AML failings

The Financial Crimes Enforcement Network (FinCEN) in an assessment last month penalized the securities arm of UBS, UBS Financial Services, Inc. (UBSFS), nearly $15 million for “willful violations” of anti-money laundering (AML) rules. FinCEN levied a $14.5 million civil money penalty, of which $5 million will be paid to the U.S. Department of the Treasury and the remainder will be concurrent with penalties for similar or related conduct imposed by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (Finra). The penalty is a rare instance of FinCEN tag-teaming with securities regulators on an AML action.

UBSFS “failed to develop and implement an appropriate, risk-based” AML program that “adequately addressed the risks associated with accounts that included both traditional brokerage and banking-like services.”

As well, UBSFS “failed to implement appropriate policies and procedures to ensure the detection and reporting of suspicious activity through all accounts—particularly for those accounts that exhibited little to no securities trading. The firm did not adequately structure its AML program to address the use of securities accounts for the purpose of moving funds rather than trading securities.” To read more, click here.

Tax evasion

IRS turning to social media to bolster cases

The Internal Revenue Service (IRS) is looking to get its hands on a product that will help its agents investigate tax dodgers who’ve set up shop on social media, according to a request posted to the federal government’s procurement website, FedBizOpps. The post indicates that the IRS, whose under-equipped enforcement agents ferret out financial crime related to the tax system, is looking for a new way to investigate potential tax cheats based on their social media usage, citing as one example the ubiquity of online stores.

The IRS currently has no “formal tool,” it says, to comb through social media feeds. It also says that its agents are currently largely prohibited from viewing or accessing “publicly available information on social media sites.” To read more analysis, click here.


Senators Warren, Van Hollen call on Senate Banking Committee to investigate Deutsche Bank’s AML controls in wake of raid, laundering probe

United States Senators Elizabeth Warren (D-Mass.) and Chris Van Hollen (D-Md.), both members of the Senate Banking Committee, wrote to Chairman Crapo asking the Banking Committee to launch a detailed, bipartisan investigation into Deutsche Bank. “Over the past several years, Deutsche Bank has been the subject of numerous enforcement actions in the in the United States and abroad, and just weeks ago the bank’s head office and other locations in Frankfurt were raided by 170 police officers and tax investigators as part of a money laundering probe,” the senators wrote.

“Given the Committee’s jurisdiction over banking regulatory enforcement, Deutsche Bank’s history of regulatory problems, and the recent allegations of money laundering that resulted in the recent raid conducted by German law enforcement, we request that the Banking Committee undertake an investigation into Deutsche Bank and its compliance with the Bank Secrecy Act (BSA) and Anti Money Laundering (AML) regulations.” To read more, click here.


U.S. Indicts Two Chinese Hackers tied Government for Global Campaigns to Steal Intellectual Property, Confidential Business Information. Deputy Attorney General Rod J. Rosenstein and other high-level U.S. officials announced the unsealing of an indictment charging Zhu Hua (朱华), aka Afwar, aka CVNX, aka Alayos, aka Godkiller; and Zhang Shilong (张士), aka Baobeilong, aka Zhang Jianguo, aka Atreexp, both nationals of the People’s Republic of China (China), with conspiracy to commit computer intrusions, conspiracy to commit wire fraud, and aggravated identity theft.

Zhu and Zhang allegedly belong to a hacking group operating in China known within the cyber security community as Advanced Persistent Threat 10 (the APT10 Group). The defendants worked for a company in China called Huaying Haitai Science and Technology Development Company (Huaying Haitai) and acted in association with the Chinese Ministry of State Security’s Tianjin State Security Bureau. To read more analysis, click here.


Finra fines Morgan Stanley $10 million for AML program failures, lax monitoring system, oversight of penny stock trades

The Financial Industry Regulatory Authority (Finra), the chief self-regulatory sentinel of the nation’s security sector, last month penalized Morgan Stanley Smith Barney $10 million for a host of financial crime compliance and supervisory failures, from customer vetting and monitoring to missing and reviewing alerts on aberrant transactional activity.

The action stated the firm, among other issues, failed to properly vet customer deposits and sales of penny stocks, wrestled with a weak transaction monitoring system that didn’t adequately scrutinize tens of billions of dollars of wire and foreign currency transfers, including transfers to and from countries known for having high money-laundering risk, and allowed tens of billions of shares of penny stock to move freely – a current Finra focal point. The issues included:

Failing to devote sufficient resources to review alerts generated by its automated AML surveillance system, and analysts often closing alerts without sufficiently conducting and/or documenting their investigations of potentially suspicious wire transfers.
The AML Department did not reasonably monitor customers’ deposits and trades in penny stocks for potentially suspicious activity, despite the fact that its customers deposited approximately 2.7 billion shares of penny stock, which resulted in subsequent sales totaling approximately $164 million during that time period.
To read more, click here.

Finra, the U.S. securities sector’s chief self-regulatory body, released its annual report of exam findings, including touching on challenges firms faced in the AML arena, including:

  • Questionable Ownership Status of Foreign Legal Entity Accounts – Finra has observed increased trading by foreign legal entity accounts in similar low-float and low-priced securities. In some instances, firms considered these accounts unrelated, but uncovered shared commonalities, which raised concerns about potential ownership or control by similar beneficial owners. Examples of these commonalities included trading directed from the same Internet Protocol locations, account funds sent from the same branches of a specific bank, accounts with the same authorized traders, and accounts established with the same mailing address.
  • No Documentation of Investigations of Potentially Suspicious Activity – Some firms that use exception reports did not document initial reviews and investigations into potentially suspicious activity identified by the reports. This was particularly troubling where those firms failed to establish and implement a formal investigation management process or document how they decided whether to file or not file Suspicious Activity Reports (SARs).
  • Irregular and Undocumented 314(a) Searches – FINRA has found that some firms failed to comply with Section 314(a) of the USA PATRIOT Act, and did not conduct reviews of FinCEN’s Secure Information Sharing System (SISS) on a bi-weekly basis or did not document their reviews after the searches were complete. To read more, click here.


HSBC AML compliance remediation monitor flagged payments linking Huawei with Iran

A monitor assigned to HSBC Holdings Plc told federal prosecutors about suspicious transactions linking Huawei Technologies Co. with Iran, adding evidence to a U.S. investigation that led to the arrest of the Chinese company’s finance chief, according to a person familiar with the matter. The monitor, Exiger, was enlisted by the Justice Department to oversee HSBC’s compliance efforts in 2013 following a $1.9 billion deferred-prosecution agreement with the bank that exposed a range of weaknesses in its internal controls. The London-based lender isn’t under investigation in this matter, another person said.

It’s unclear when Exiger flagged the Huawei transactions. The Justice Department’s deferred-prosecution deal was dismissed in December 2017, and Exiger’s five-year appointment expired a half-year later. But the U.K.’s Financial Conduct Authority and the Federal Reserve each kept the New York-based advisory firm in place. Huawei Chief Financial Officer Wanzhou Meng, the daughter of the company’s founder, was arrested in Vancouver on Saturday pursuant to an extradition request by the Justice Department. To read more analysis, click here.


New York regulator fines Barclays Bank, local branch $15 million for CEO attempting to ferret out whistleblower, clashing with compliance

The New York State Department of Financial Services (NYDFS) has fined Barclays Bank PLC and its New York branch $15 million for violations of New York Banking Law stemming from a DFS investigation into attempts by the bank’s CEO to identify the author, or authors, of two whistleblowing letters in contravention of Barclays’ established whistleblowing policies and procedures. The DFS investigation found that shortcomings in governance, controls and corporate culture relating to Barclays’ whistleblowing function permitted a sequence of events that potentially could have had a detrimental impact on the efficacy of Barclays’ whistleblowing program.

Several members of senior management failed to follow or apply whistleblowing policies and procedures in a manner that protected the CEO and the bank itself. Limited gaps in the bank’s whistleblowing policies and procedures became apparent during the investigation, and it appears that the cultural transformation that Barclay’s Group Compliance had been working hard to instill in the more than one hundred thousand Barclays employees worldwide, was not nearly complete. To read the full report, click here.

U.K., Israel given high overall marks in fighting fincrime as Israel becomes full member, but countries must strengthen supervision, intelligence resources

The Paris-based Financial Action Task Force, which sets global anti-money laundering (AML) standards, has given rare high marks to the United Kingdom for its fight against financial crime, using words like “robust” regulations and enforcement, that the country is a “leader” in this arena that “proactively” and “aggressively” tackles complex cases and works well with international partners. Still, the country must bolster its oversight and enforcement methods to better uncover entities with lax compliance programs and hand down statement-making penalties.

Israel, just as it reaches full member status, is achieving good results in identifying and responding to its money-laundering and terrorist financing risks, but needs more focus on supervision and preventive measures, according to FATF, in detailing a critical U.S. ally in propinquity to many of the world’s most dangerous terror and national security threats. To read more, click here.


Canada poised to require companies to track beneficial ownership details

• December – Canadian legislation known as Bill C-86 would impose new requirements on non-public companies to log and track beneficial owners

• Companies formed under CBCA would have to collect, maintain info on “individual of significant control,” i.e. 25% ownership stake:

– Name, date of birth and latest known address

– Jurisdiction for tax purposes

– The day on which s/he acquired or ceased to have significant control

– A description of how control is maintained

– A description of steps taken to update the record

• Companies required to take “reasonable steps” at least annually to ensure registry is current

• Shareholders must reply “accurately and completely as soon as feasible” to requests by company

• Penalties for non-compliance

• Additional federal measure would make ISC info available to law enforcement

• Provincial and territorial finance ministers have committed to beneficial owner registries, but no clear timeline. To read more, click here.

EU agrees on directive for combating cryptocurrency and credit card fraud

European Parliament and EU Council last month reached an agreement on new measures designed to bolster the fight against fraud involving non-cash means of payment, including credit cards, online shopping and virtual currencies, such as Bitcoin. The agreed text of the directive on combating fraud and counterfeiting of non-cash payment, which upgrades existing EU rules, expands the scope of offences to include transactions through virtual currencies and minimum penalties for natural persons ranging from one to five years. Other measures include:

  • Harmonizing the definitions of some online crime offences, such as hacking a victim’s computer or phishing;
  • Assistance and support to ensure victims are sufficiently informed of their rights and citizens are advised on how to protect themselves from such frauds;
  • Clarification of the scope of jurisdiction to ensure cross border frauds is tackled more effectively;
  • Collection of statistics on, as a minimum, the number of offences and the number of persons prosecuted and convicted

The next step is for Council and Parliament to confirm the agreement reached, after which it will be reviewed by lawyer linguists. Thereafter it will be formally adopted by Council and Parliament before the end of the parliamentary term. To read more analysis, click here. To read the full text, click here.

EU Council agrees to strengthen AML supervision, monitoring for banks, reinforce role of EBA as pan-bloc super regulator

The European Union (EU) is stepping up the fight against illegal cash by enhancing monitoring of money laundering and terrorist financing threats across the bloc, by boosting the oversight powers of the European Banking Authority (EBA). EU ambassadors today agreed the EU Council’s negotiating position on a proposal reinforcing the role of the EBA regarding risks posed to the financial sector by money laundering activities. Recent cases involving money laundering in some EU banks have raised concerns that anti money laundering (AML) rules are not always supervised and enforced effectively across the EU, creating risks for the integrity and reputation of the European financial sector, as well as for the financial stability of those banks.

This year, the EU has been plagued by a bevy of high-profile financial crime scandals, including multi-country investigations into nearly $230 billion of payments made through Danske Bank’s Estonian branch, the implosion of Latvia’s ABLV Bank and the shuttering of Malta’s Pilatus Bank. Strengthening the role and powers of the EBA over AML supervision would ensure related rules are effectively applied in all member states and all authorities involved, in particular prudential and AML supervisors, cooperate closely with each other. According to the agreed text, the EBA would be given, in particular, the following tasks:

collecting information from national competent authorities relating to weaknesses identified in the context of their action to prevent or fight money laundering and terrorist financing;
enhancing the quality of supervision through the development of common standards and coordination among national supervisory authorities.
performing risk assessments on competent authorities to evaluate their strategies and resources to address the most important emerging AML risks at EU level.
facilitating cooperation with non-EU countries on cross-border case.
as a last resort if national authorities do not act, the EBA would be able to address decisions directly to individual banks. To read the full report, click here.

As ex-Danske bankers detained, Denmark calls for harshest punishments, no breaks

As the first bankers in Europe’s biggest money laundering scandal get detained by police, the political demand is for a tough response targeting the perpetrators, .

A total of 10 former employees of Danske Bank A/S in Estonia were apprehended over the course of Tuesday and Wednesday. Estonian prosecutors suspect they deliberately helped criminals from the former Soviet Union launder money, for personal gain. In Denmark, where Danske is the biggest bank, the government made clear it’s not in favor of clemency.

To read more analysis, click here.


Tax treaties create $4.2 trillion cash flow through Netherlands, more than five times the economy, to a maze of corporate shells

A network of favorable tax treaties and an industry devoted to minimizing tax bills has made the Netherlands the conduit for an annual flow of capital five times the size of its own economy, new research revealed. Statistics Netherlands published the data for the first time — based in part on information from the Dutch central bank — showing that the country had received 4.6 trillion euros ($5.2 trillion) in “foreign direct investment” in 2017. But only a fifth of that money actually stayed in the $836 billion Dutch economy, as the equivalent of $4.2 trillion was channeled away immediately through mailbox companies, corporate shell companies known as special purpose vehicles.

Thanks to a network of nearly 150 bilateral tax treaties around the globe, the Netherlands has been a key hub for corporate entities shifting profits to lower tax jurisdictions for years. Thursday’s report gave the first comprehensive view of the capital flow this has created. The country houses approximately 14,000 mailbox companies, which shifted more than half of their investments to countries outside the European Union in 2015, the researchers said. Around a third of the money ended up in offshore tax havens. To read more analysis, click here.


FCMC fines JSC ‘BlueOrange Bank’ 1.2 million euros in AML settlement, oversight of risky foreign accounts

Latvia’s financial regulator, the Financial and Capital Market Commission (FCMC) has penalized JSC “BlueOrange Bank” 1.2 million Euros for anti-money laundering (AML) failures, including monitoring and reporting on risky clients – such as non-resident clients hailing from former Soviet Union regions.

Overall, Latvia has come under intense scrutiny by EU and foreign regulators as being a conduit for illicit Russian funds. The country and its banking sector are trying to change that, chiefly by changing laws and strengthening AML enforcement.

The authority noted that between 2003 and 2014, it handed down 55 penalties worth 1.2 million euros, but in the past four years, levied 22 sanctions worth just less than 16 million euros. To read more, click here.

The penalty follows other Latvian regulatory fines as the country seeks to change its tarnished reputation when it comes to compliance and fighting financial crime.

Domestically, regulators and authorities have in recent months sanctioned several other banks for a range of AML failings while the U.S. named and shamed a Latvian bank, effectively forcing U.S. banks to cut formal ties with the operation – and rethink all operations with the country itself.


HKMA penalizes JPMorgan Chase $1.6 million for AML failings, lax CDD, wire

Hong Kong’s financial regulator Friday penalized a local branch of the largest bank in the United States nearly HK13 million for a host of financial crime compliance failures, including lax customer screening and monitoring and a lack of client details in wire transfers over a roughly two-year period.

The Hong Kong Monetary Authority (HKMA) fined the JPMorgan Chase branch HK$12.5 million, or $1.6 million, for breaches of anti-money laundering (AML) rules, in particular, for the depth and accuracy of customer due diligence and cross-referencing those findings with wire transfers and related entities, particularly to riskier regions and higher risk customers.

The settlement also requires that JPMorgan submit to an outside monitor to ensure the branch effectively remediates past deficiencies and brings the entire problem up to current standards.

The penalty takes into consideration several aggravating and mitigating factors, according to the HKMA:

· “The need to send a clear deterrent message to JPMorgan Hong Kong and the industry about the importance of effective controls and procedures to address money laundering and terrorist financing risks.”

· “JPMorgan Hong Kong had self-identified and reported certain deficiencies, and had taken positive and extensive remediation work in respect of such deficiencies and after it became aware of the contraventions and other deficiencies identified by the HKMA. In particular, it has enhanced its control functions to prevent similar contraventions from recurring.” To read more, click here.


Malaysia files criminal charges against Goldman Sachs related to 1MDB scandal

Malaysia filed criminal charges against Goldman Sachs on Monday, accusing the giant Wall Street bank of making false and misleading statements.

The charges are a rare international rebuke of an institution that has long represented the pinnacle of money and power. The 149-year-old investment bank already faces mounting pressure in the United States, where two former bankers face charges of bribery and money laundering related to its business in Malaysia.

The Malaysian authorities also charged several individuals in connection with the multibillion-dollar international fraud scandal that ensnared Goldman and that led to the ouster of Malaysia’s former prime minister, Najib Razak. The government said it would seek criminal fines in excess of $2.7 billion related to the charges. To read more analysis, click here. To read the full charging document, click here.


India adopts new beneficial ownership rules

  • December – Ministry of Corporate Affairs imposed beneficial owner disclosure requirements on Indian companies
  • “Significant beneficial owners” holding 10% or more stake must provide information to company
  • Passed on to appropriate Registry of Companies
  • Quarterly filing, first due in March 31, 2019

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