US expands sprawling FIFA graft probe, FATF highlights challenges of criminals moving bulk cash

In this week’s Financial Crime Wave, US investigators expand FIFA graft probe, FATF highlights persistent challenges of criminals moving bulk cash, EU parliament and council vote to help Europol on cybercrime and more.

Corruption

Five current and former members of FIFA’s ruling executive committee were among 16 additional men indicted on corruption charges Thursday as part of U.S. prosecutors’ widening investigation into soccer corruption. The indictment takes down an entire generation of soccer leaders in South America, a bedrock of FIFA and World Cup history. Led away by Swiss federal police in a pre-dawn raid at a Zurich hotel were Juan Angel Napout of Paraguay, president of the South American confederation, and Alfredo Hawit of Honduras, head of the North and Central American and Caribbean governing body. The arrests — at the same hotel where the first raids happened in May — took place just before FIFA’s executive committee met to approve reform measures. Ricardo Teixeira, a former Brazilian federation head, also was indicted. He is the former son-in-law of Joao Havelange, who was FIFA’s president from 1974-98. In addition, former CONCACAF President Jeffrey Webb and former executive committee member Luis Bedoya were among those whose guilty pleas were unsealed. In all, eleven current and former members of FIFA’s executive committee have now been charged in the investigation, which alleges hundreds of millions of dollars in bribes and kickbacks. The last three presidents of the regional bodies CONCACAF and CONMEBOL all have been indicted (via the Associated Press).

ICBC Standard Bank has agreed to pay nearly $33 million in penalties and enter into a so-called deferred prosecution agreement related to bribery of officials in Tanzania, British authorities said Monday. The settlement is the first time that the United Kingdom’s (UK) Serious Fraud Office has used a deferred prosecution agreement to conclude an investigation involving a company, a practice employed routinely in the United States, but which has come under fire recently for being seen as too lenient with not enough of a focus on penalizing individuals invovled. The fraud office, which investigates financial crime in Britain, was given the power to use such agreements last year. The Serious Fraud Office accused ICBC Standard Bank of failing to prevent a former sister company from trying to bribe officials in Tanzania from 2012 to 2013.The fraud office said that Stanbic Bank Tanzania made a $6 million payment in March 2013 to a local partner that was intended to induce members of the Tanzanian government to favor Stanbic Tanzania in a $600 million private placement to be carried out on behalf of the government. The placement generated transaction fees of $8.4 million for Stanbic Tanzania and ICBC Standard Bank (via The New York Times).

FATF

A just-released report by international financial crime watchdog group, the Financial Action Task Force (FATF), notes that critical changes are needed to crimp the flow of illicit funds from criminals moving bulk cash, including raising or lowering customer identification thresholds and amending laws to allow countries to search for and confiscate bulk cash in trade. The report highlights the prevalent use of cash in the world economy, approximating that 46% to 82% of all transactions in all countries are being conducted in cash.  The report also describes the physical transportation of cash across an international border as “widespread” and “one of the oldest and most basic forms of money laundering.” Criminal organizations smuggle cash across borders in order to break the audit trail, further obscuring the source of illegally obtained funds.  Cash smuggling is used to launder the proceeds of many types of illicit activities, including tax fraud, arms and drug trafficking, and terrorism finance. One such finding is that the standard disclosure or declaration system for cash reporting is insufficient to curb cash smuggling.  Cash is being concealed in cargo and adapted freight, which reveals a key vulnerability in FATF Recommendation 32 and its focus on reporting by “natural persons.”  Some countries are even legally prohibited from inspecting cargo for smuggled cash because cash is not a required item to be disclosed on customs declaration forms.  Moreover, the very nature of cash smuggling requires at least two countries, rendering it an international issue needing inter-governmental cooperation to effectively confront (via OFAClawyer.net).

Cybercrime

The European Parliament and Council have agreed to extend Europol’s powers to enable faster responses to terrorism, cybercrime and other organized crime. Europol said the powers will enable a faster response and come with strong data protection safeguards and democratic oversight. The European Parliament and Council agreed a draft regulation on governance rules for Europol on 26 November 2015. The Civil Liberties Committee of MEPs endorsed the regulation on 30 November. The regulation will make it easier for Europol to set up specialized units to respond immediately to emerging terrorist threats and other forms of serious and organized crime. It includes clear rules for existing units or centers such as the Internet Referral Unit, which ensures the swift removal of websites praising terrorist acts or encouraging EU citizens to join terrorist organizations; and the European Counter Terrorism Centre, which officially starts work on 1 January 2016. Europol will in some cases be able to exchange information directly with private entities such as firms or non-governmental organizations (NGOs), which should enable it to work faster. For example, Europol said it will be able to contact social network service provider Facebook directly to ask it to delete a web page run by Islamic State (IS), or request details of other pages that might be run by the same user to prevent the spread of terrorist propaganda. The new rules state that member states should provide Europol with the data necessary to fulfil its objectives, to avoid information gaps in the fight against organized crime and terrorism. Europol is in turn required to submit an annual report to the European Parliament, the Council, the Commission and national parliaments on the information provided by individual member states, to encourage further information sharing (via Computer Weekly).

Anti-money laundering

The Swiss Federal Council adopted an updated Anti-Money Laundering Ordinance (AMLO) to make the law more in line with updated standards released in 2012 and 2014 by the Paris-based Financial Action Task Force, which sets global financial crime standards. The new law will enter into force on January 1, 2016. The new due diligence obligations and reporting duties for traders set out in the AMLA will be fleshed out in the new AMLO. They will be applied when traders accept cash payments of more than CHF 100,000 in the course of trading activities. At the same time, the existing Federal Council Ordinance on the Professional Practice of Financial Intermediation (PFIO) will be written into the AMLO. Moreover, the new legal provisions on the reporting system for financial intermediaries will be implemented by amending the Ordinance on the Money Laundering Reporting Office Switzerland (MROSO). Finally, Parliament also decided to improve transparency in the law on foundations whereby ecclesiastical foundations will now also have to be registered in the commercial register. For ecclesiastical foundations which already exist, the details of this obligation will be specified in greater detail in the Commercial Register Ordinance (via the Law Professors Blog Network).

As investigators the world over struggle anew with the threat of terror attacks, New York Gov. Andrew Cuomo is working to impose new regulations on New York State banks to prevent illicit money from flowing through Wall Street and into the hands of militants and criminals, in some cases going beyond federal requirements and upping the penalty exposure of chief compliance officers. The proposed rules would clarify and expand the responsibility of New York State banks to thwart money laundering and the financing of terrorist groups, according to documents. The rules — a jolt to New York banks as well as to the federal regulators who typically police such transactions — would force a chief compliance officer to certify that a bank maintains systems to “detect, weed out and prevent illicit” money transfers. If compliance officers file an “incorrect or false” certification, they could face criminal charges under the rules, a rare effort to hold financial executives criminally liable. Broadly, the new rules would put never-before-seen scrutiny on the transaction monitoring and filtering systems used by banks to uncover money laundering, fraud, terror financing and other crimes and the individuals involved in any decisions on what is suspicious or involve potentially blacklisted entities (via the New York Times).

Fraud

More banks sharing data on potential instances of fraud and money laundering can lead to a broader number of institutions identifying more these crimes and doing so more quickly, on a near “real-time” payment basis, according to the Digital Policy Alliance (DPA). The group, whose members include political parties, academia, and a number of large corporations including SAP, recently spent 18 months looking at real-time payment fraud. The project researched a day’s data on faster payments from six banks, including three clearing banks, to determine whether real-time payment fraud could be detected within the constraint of data protection laws. The results were: collaboration between banks increased fraud detection from 10 percent to 70 percent, 50 percent of cases of fraud could be immediately identified when multiple parties provided data, twelve networks of money moving across chains of bank accounts, e.g. ‘money mules’, were discovered and all without breaking privacy rules. In the sample analyzed, approximately 64 payments per million were fraudulent – a number difficult for a single bank alone to identify. What is required is a minimum of two banks exchanging information, in accordance with data protection requirements, through a third party. A collaborative hub would help the payments industry facilitate the sharing of intelligence between multiple banks to detect and report suspicious transaction patterns invisible to individual banks and, collectively, become more secure against criminal and terrorist activities. The DPA’s findings also identified a dozen additional “networks of accounts” for investigation for possible facilitation of fraud and/or money laundering. Such networks are often designed to launder money, with the money moving from bank account to bank account often via ‘money mules’ before reaching the end destination, typically outside the country. US banks are already doing this through Patriot Act Section 314(b) and a mutually owned third-party company, Early Warning Services, which swims data together from more than a dozen large international banks to uncover crime across multiple banks (via Banking Tech).

Casinos

The London-based Remote Gambling Association (RGA), has published the Second Edition of its publication, “Anti-money laundering: Good practice guidelines for the online gambling industry,” in a bid to help licensed online gambling companies better improve programs and train employees to better uncover suspected money laundering and terrorist financing. It covers key areas such as the application of a risk-based approach, due diligence processes and internal controls, all areas that have been programmatic and regulatory pain points in large gambling locales including the United States and are believed to be less developed in far flung online operations. Clive Hawkswood, the RGA’s chief executive said, “Our first edition of these guidelines was well received and, more importantly, provided a useful tool for companies in the online gambling industry. In this Edition we have, among other things, sought to anticipate some of the changes that will flow from implementation of the EU’s 4th AML Directive. We will keep the guidelines under review so that they continue to reflect any new developments,” (via the RGA).