Financial Crime Wave – EU AML FIU Gaps Lead To Terror Gaffes, IRS FATCA Foibles, And More

In this week’s Financial Crime Wave, some European countries struggling to mesh financial intelligence unit anti-money laundering data with terror threats, a watchdog dings the U.S. Internal Revenue Service on implementing, examining for compliance with the Foreign Account Tax Compliance Act, Danske Bank money laundering scandal soared to more than $8 billion, and more.

The stories give insight into several major regulatory trends, financial crime gaps and investigative blind spots, including:

  • The need to better manage and analyze anti-money laundering (AML) data to more quickly uncover pressing terror and organized criminal risks
  • The growing intersection between anonymous virtual currencies and sanctions busters working on behalf of recalcitrant, rogue regimes
  • How when illicit groups find one bank with weak controls, they flock to it, opening the door to failures that can reach into the billions of dollars and bring countrywide reputational harm.


Terrorists in some European countries slipping through net thanks to national AML FIU delays, staffing, expertise gaps

In some European Union countries, national financial intelligence units (FIUs), the government bodies tasked with reviewing anti-money laundering (AML) suspicious activity reports filed by banks, are overwhelmed by incoming data, short staffed, with delays of as much as six months to get potential pressing leads tied to terrorists and other criminals to investigators, according to one report. In one instance, described in the present tense, the Financial Intelligence Unit is overworked and understaffed, say police and prosecutors. Staff only pass on tips six months after crimes are committed, creating a “security catastrophe.” It took a second glance to confirm what the officer was seeing and it was still unbelievable. The list of people suspected of money laundering at a bank included a member of Al Qaeda. The policeman, based in northern Germany, called it a “security catastrophe.”

Unfortunately, that wasn’t the only problem. It had taken more than six months for the list to reach the officer’s desk. He blames the national Financial Intelligence Unit (FIU). The relatively new unit is endangering the lives of German citizens, in his view. That was not an isolated incident. The AML agency has a backlog of tens of thousands of reports, is woefully understaffed, and so risks missing important leads about terrorism, according to Handelsblatt’s research. As one senior prosecutor in North Rhine-Westphalia commented: “I wouldn’t want to be in their shoes if there is an attack and it turns out there was an explicit tip in their files,” (via Handelsblatt).


AML legislation to hit more Kiwi businesses this month, capturing legal, real estate, and other sectors

The number of Kiwi businesses that need to comply with AML / CFT (Anti-Money Laundering and combating the Financing of Terrorism) legislation will quadruple this month. From July 1, legislative requirements will be imposed on the legal, real estate, sports betting, and high-value goods industries (jewelry, precious metals, precious stones, watches, motor vehicles, boats, art or antiques where they take cash payments of $15,000 or more). The impact of failing to comply with this global legislation can have severe consequences. This includes hefty fines or a jail term.

Rapid developments in financial information, technology and communication allow money to move anywhere in the world with speed and ease. This makes the task of combating money-laundering more urgent than ever. The cost of AML is estimated to be $800 billion to $2 trillion globally. Businesses must know who their clients are and where their funds have come from. It is not enough to park the funds in a trust account without inquiring about the origins, (via Scoop NZ).

Tax evasion

IRS Spent $380 Million But Took ‘Limited or No Action’ To Enforce Tax Compliance Act

Despite spending nearly $380 million to be in line with foreign tax-compliance rules, the Internal Revenue Service (IRS) took “limited or no action” in the matter and is still not prepared to enforce the Foreign Account Tax Compliance Act (FATCA), a nearly decade-old laws putting extreme pressure on foreign banks to look for indicia of U.S. account-holders, according to a new report by the Treasury Inspector General for Tax Administration (TIGTA), which oversees the IRS.

As TIGTA explains, “The U.S. Congress intended the Foreign Account Tax Compliance Act to improve U.S. taxpayer compliance with reporting foreign financial assets and offshore accounts.” The audit by TIGTA was done to “evaluate the IRS’s efforts to ensure that taxpayers, the FFIs [foreign financial institutions], and withholding agents comply with the FATCA,” The FACTA was enacted in March 2010, more than eight years ago, (via CSN).


More tendrils to global 1MDB fraud, this time in Switzerland

Swiss prosecutors said Tuesday they are investigating two banks and six individuals in connection with a multibillion-dollar fraud case in which senior officials allegedly siphoned off funds for “personal enrichment” from the Malaysian sovereign wealth fund at the center of corruption probes worldwide, (via Law 360).

Hunting the Con Queen of Hollywood: Who’s the ‘Crazy Evil Genius’ Behind a Global Racket, with crazy accents and impersonations galore?

For more than a year, some of the most powerful women in entertainment — including Amy Pascal, Kathleen Kennedy, Stacey Snider and a ‘Homeland’ director — have been impersonated by a cunning thief who targets insiders with promises of work, then bilks them out of thousands of dollars. For the past two and a half years, hundreds of unwitting victims around the world have been ensnared by a small but cunning criminal organization whose contours are only beginning to be understood. Hollywood companies also are getting involved. Earlier this year, when Lucasfilm’s Kathleen Kennedy learned that she had been impersonated, she informed Disney’s internal security.

Victims of the elaborate ruse are led to believe they are speaking to powerful female entertainment executives, including billionaire producer and philanthropist Gigi Pritzker; former Paramount head Sherry Lansing; 20th Century Fox CEO Stacey Snider; and Lesli Linka Glatter, a director and executive producer on shows including HomelandThe Walking Dead and Mad Men. “This is such a terrible thing — I was shocked,” says Lansing, who left the industry a decade ago to focus on her philanthropic work, (via the Hollywood Reporter).

Historic medical field scammer take-down

A look at the largest Healthcare Fraud enforcement action in DOJ history, resulting in charges against more than 600 suspects, (via Thomson Reuters).

Corporate Transparency

Cayman fisticuffs on beneficial ownership brouhaha

Cayman to fight UK’s public register demands as more British territory beneficial ownership battles ahead related to updated AML rules, (via Loop Cayman).


Financial institutions in Spain could see penalties rain

Are Spanish AML penalties too high related to the offense? One analyst things that fines, which can be twice the unreported amount, are too draconian, (via Garrigues).


Pakistan working hard to strengthen financial crime, compliance defenses as global watchdog frets

Pakistan to address FATF’s concerns about smuggling of money with new plans to strengthen border posts, coordination between disparate agencies: report, (via Pakistan Today).

Elder financial abuse

DOJ indicts fraudsters preying on elders in scheme that defrauded victims of more than $100 million

The U.S. Department of Justice has charged five in multiple elder fraud schemes that bilked tens of thousands of victims out of more than $100 million using classic mass mailing tactics promising gifts and prizes that didn’t exist, (via DOJ).


Nigeria takes steps in right direction to bolster graft enforcement, asset freezing

Nigerian president taking stand against graft, financial crime by signing order that allows government to freeze the assets of individuals accused of corruption, (via Blue Print).

Money laundering

Bank’s financial crime compliance scandal spinning faster as potential laundering tally breaches $8 billion mark, more than double initial estimates 

Denmark, a Nordic kingdom not often associated with financial shenanigans, is facing a massive scandal with banking champion Danske Bank accused of helping to launder $8.3 billion through an Estonian subsidiary. Danske, Denmark’s biggest bank, had been in the crosshairs of investigators since Danish daily Berlingske last year claimed that it had been behind the laundering of around $3.9 billion of dirty money from a string of Eastern European countries. Overall, regulators and investigators, including in the U.S., U.K., and Europe, are attempting to better track international illicit money flows to see what regions, or even banks, with weak AML controls, rampant corruption or other gaps are allowing criminals easy entre into the global financial system.

But after receiving bank statements from 20 companies with accounts in Danske Bank’s Estonian branch between 2007 and 2015, the paper this week reported that the real figure was actually more than twice that. “This gravely serious case will become much worse if the latest information is correct,” Denmark’s business minister Rasmus Jarlov said on his Twitter account. “This casts a shadow of doubt over the entire financial sector,” Jarlov said, adding the Danish Financial Supervisory Authority is reviewing the information which appeared in Berlingske. The watchdog is in contact with its Estonian counterpart to discuss possible actions, (via the Daily Times).

Flow of Russian money slowing as London implements stronger AML rules, greater focus on risky real estate sector

The flow of Russian money into the capital is slowing as a result of government pressure and a tightening of anti-money laundering rules, with key officials not happy that watchdog groups are stating London is where risky Russian businesses and oligarchs want to put their money, experts say. For several years the story of Russian oligarchs buying up prime real estate in London has been a familiar headline, however, mortgage brokers are saying that this activity may now be cooling down. Though the political temperature between the UK and Russia has plummeted in recent months following the Salisbury poisonings, experts claim the slowdown in Russian investment has been in the making for several years.

“There has been some government pressure around lending to foreign nationals and offshore companies, which has been felt in the mortgage community,” said Lucy Barrett, managing director of broker Vantage Finance. In 2013 estate agency Knight Frank placed Russians as the biggest spenders on properties worth more than £1 million in London. NGO Transparency International claims that more recently Russian investors are looking outwards as Islington, Clapham and Pimlico showed higher levels of Russian investment, growing from just two to 11 per cent of market share in those areas between 2014 and 2015, (via This is Money).

Virtual currencies

The dirty secret about Bitcoin: It’s amplifying ransomware, cybercrime and darknet money laundering as the illicit go to coin of the realm

Cybercriminals are drawn to Bitcoin and other currencies like it due to its anonymity and decentralized system, as reported in a new NullTX infographic. According to NullTX, the darknet has become the place to go for illegal activity online. Because of the anonymous nature of cryptocurrency, it has become the currency of choice for darknet criminals. NullTX reported that a shocking 97 percent of darknet illicit activity has been conducted through Bitcoin over the years. While similar currencies such as Monero are growing in popularity, Bitcoin continues to be the leading one, specifically due to its liquid market. According to the infographic, a number of crimes have found a platform through the darknet and cryptocurrency, most notably drugs, money laundering, and ransomware.

The graphic reported that money laundering is a common crime on the darknet. These transactions appear to be “clean” with the anonymous currency and could potentially lead to tax evasion. As noted in the graphic, some 36% of Bitcoin investors knowingly won’t report capital gains or losses from their cryptocurrency. Hackers also often demand ransoms for locked systems be paid in cryptocurrency as well, in regards to ransomware attacks. As noted in the graphic, Bitcoin is the most popular ransom payment method to avoid law enforcement, (via Tech Republic).

Cryptocurrencies driving a new, more tech-driven era of money laundering, with virtual exchanges prime targets

An increase in the theft of cryptocurrencies is driving the rise of a new, high-tech era of virtual money laundering, with hackers and criminal groups more aggressively targeting virtual currency exchanges, a report released last week said. In the first half of 2018, more than US$760 million in cryptocurrency was stolen from exchanges – a threefold increase from all of 2017, according to CipherTrace, a California-based blockchain security firm. In the past two years alone, criminals have made off with some $1.21 billion in virtual cash, the firm’s quarterly report on the subject said. There are currently close to 2,000 different crypto coins, all of which provide a desirable amount of anonymity for criminals wishing to hide their true identities, such as terrorists, extortionists, identity thieves, drug and weapons dealers, and human traffickers.

Crypto transactions do not require people to use their real names and do not move through financial intermediaries like banks or PayPal. Instead, users buying and selling coins are typically represented by unidentifiable addresses. Cryptocurrency gambling sites, of which there are some 200 available, are also frequently used as money laundering tools, the report said. These sites have little to no “Know Your Customer” regulation, making it difficult for law enforcement to investigate the trail of money moving in and out of these services, (via the OCCRP). To read the full report, click here.

U.S. forms new counter-crime task force, with special focus on crypto fraud, laundering 

Digital currency fraud will form one of the areas of “particular attention” for a new U.S. anti-crime task force with participation from several government bodies, according to an executive order issued July 11, (via Coin Telegraph).


Intersection of crypto currencies and shifting Iran sanctions rules creating new problems for compliance teams

Exposure to the illicit use of state-issued cryptocurrencies became a greater concern for multinational financial institutions when the U.S. Treasury’s Office of Foreign Assets Control (OFAC) issued new guidance on cryptocurrencies earlier this year in response to the launch of Venezuela’s “Petro” token. There is likely to be growing interest from US regulators that Iran may be following in Venezuela’s footsteps.

As post-JCPOA sanctions are ratcheted up by the US, an Iranian government minister announced in May that a national cryptocurrency could “facilitate economic deals and circumvent sanctions,” directly challenging US financial pressure. Conversely, however, Iran recently banned other banks from creating crypto coins due to fears it would fuel even more capital flight, a major problem (via Chainalysis).

Airlines erring on side of caution after latest Iran sanctions designation

The U.S. Treasury Department has designated for sanctions a Malaysia-based ticketing agent that does business with Iranian airline Mahan Air, which the department accuses of supporting terrorism, (via Aviation Week).

Shell companies and forgery: US reveals details of Iranian network in UAE that funneled millions of dollars to blacklisted groups

The Iranian operatives in a recently caught UAE-based ring were using a network of front and shell companies to forge documents to send money to proxies backed by Tehran, a senior US official said on Thursday, noting the continuous international vulnerability of opaque beneficial owners. Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence at the US Treasury, gave a detailed breakdown of a network that had been funneling millions to the Iranian Revolutionary Guard for payment to proxy forces. The unmasking of the group was first reported in May although it was unclear exactly when the network was broken up.

“The network of currency exchange abused the UAE’s financial network by transferring cash out of Iran and covering it to US dollars,” Ms Mandelker said. The funds were used to support regional proxy groups such as Lebanon’s Hezbollah, Shiite rebels in Yemen and embattled Syrian President Bashar Al Assad. She disclosed that the operation follows a close collaboration between Washington and Abu Dhabi, which designated dozens of individuals and entities on its terrorism list in May. The individuals and groups were identified after they were found to have transferred millions of dollars to the Iranian Revolutionary Guard, the Emirates news agency said. Last month the UAE’s central bank announced it had limited the operations of seven currency exchange companies for unspecified violation of anti-money laundering and other regulations, (via The National).

Human trafficking

Closure of for alleged human trafficking, prostitution has closed intelligence channel for some investigators

The seizure and closure of has effectively “blinded” some undercover vice investigators in Indianapolis,  they say, noting the site was a digital data rich when attempting to monitor and eventually arrest pimps and larger scale human traffickers, (via Tech Crunch).

Corporate espionage

Judge orders Chinese wind turbine operation to pay nearly $60 million for stealing trade secrets

A federal judge has ordered China’s largest wind-turbine firm, Sinovel, to pay $59 million for stealing trade secrets from a Massachusetts-based technology company. Last January, Sinovel was found guilty of stealing trade secrets in federal criminal court in Madison, Wis. The company paid an Austria-based employee of American Superconductor Corp. to steal its source code for software that powered wind turbines. This kind of intellectual property theft has been highlighted by the Trump administration as a reason for levying 25 percent tariffs on $34 billion of Chinese goods entering the U.S., which began on Friday. China retaliated with tariffs on $34 billion worth of U.S. goods, (via NPR).

United Kingdom

U.K. regulator gets tougher on AML penalties, doubling fines for prior year, but overall figures remain low compared to other major financial hub countries

The U.K. tax authority has almost doubled the fines it hands out for money laundering rule violations in the most recent financial year. According to the Financial Times, HM Revenue & Customs (HMRC), one of 27 organizations that oversees compliance with anti-money laundering regulations, fined companies £2.3 million in 2017-18, an increase from £1.2 million a year earlier. The overall figures are even comparatively low to say, a single anti-money laundering (AML) penalty from the United States, with institutions fined as high as $9 billion.

The rise comes as HMRC actually reduced the total number of penalties it handed down to 655, from 901 a year earlier, which resulted in the average fine more than doubling as it focused on fewer, but more complex breaches. HMRC oversees businesses including accounting firms, estate agents and dealers in luxury goods. But anti-corruption advocates said the fines were not enough to ensure companies did not facilitate money launderers, who move an estimated £90 billion in corrupt money through the U.K. each year, (via Pymnts).


India’s sweeping AML updates comes under scrutiny as some question are they a grand statement without true political will

Money laundering and abuse of sophisticated financial instruments have come under increasing scrutiny from regulators in India, following a global trend following where and how criminals move and secret away their ill-gotten gains. However observers warn high-profile initiatives often act as a distraction from a lack of genuine political will to tackle global financial crime. For example, India’s leading stock exchange, the BSE, de-listed 222 dormant shell companies on July 3, as part of its government’s much-touted crackdown on “black money.”

It is the latest move in Prime Minister Narendra Modi’s long-term pledge to crack down on organized crime, and follows moves from regulators in the UK and elsewhere to try to reduce use of anonymous or inactive financial vehicles to hide the origin of criminally-acquired wealth. Experts told WikiTribune that these shell companies have long played a key role in global money laundering, but bouts of activity such as this rarely indicate comprehensive action, (via the Wiki Tribune).


Top Latvian banking official accused of grand graft, bribing shareholders

European Central Bank governing council member and Bank of Latvia governor Ilmars Rimsevics has been accused of accepting bribes from shareholders of Trasta Komercbanka. This follows the closing of Latvia’s third-largest bank, ABLV, after it was accused of money laundering, (via the IELR Blog).


Tech underlining virtual currencies helping in public services arena

Two dozen European countries commit to the introduction of blockchain-based public services, revealing an issue bank compliance teams will have to contend with, (via the Business Review).

Author: Brian Monroe

Source: ACFCS

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