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Bank Scandals, Beneficial Owners and Brexit Turmoil: AML in 2019

By ACAMS moneylaundering.com

Read about U.K. AML and sanctions here.
Read about European AML and sanctions here.

2019 began with Brexit uncertainty and the world’s two largest economies locked in a trade war, moved on to street protests in Hong Kong and drone attacks on Saudi oil fields, and ended with the election of a U.K. prime minister and the impeachment of a U.S. president.

That is, of course, the condensed version of the year’s highest-profile events, each of which occurred against a backdrop of a worldwide migrant crisis, Uighur internment camps, ongoing war in Syria, and a U.S. investigation that did not establish that President Donald Trump colluded with Russia’s election interference, but did not fully exonerate him of obstruction.

2019 was also marked by significant anti-money laundering developments, nowhere more than in Europe, where financial regulators at times surpassed their American counterparts in pursuing enforcement actions and penalties against banks involved in a series of financial crime scandals.

Foot off the gas?

The Office of the Comptroller of the Currency and other U.S. regulators did not disclose the high-value enforcement actions of the type seen in years past but nonetheless pursued several compliance-related initiatives in 2019, with varying degrees of impact.

Perhaps the most significant AML action of the year came in July, against an individual, when the OCC barred Daniel Weiss, a former attorney for Rabobank’s U.S. affiliate, from the banking industry and fined him $50,000 for making false statements and failing to disclose an independent audit that unearthed shortcomings with the lender’s AML program. More

The OCC partnered with the Financial Crimes Enforcement Network, or FinCEN, Federal Reserve and other regulators that month in crafting a joint statement to explain their risk-based approach to AML supervision. The document mostly reiterated previous statements. More

“This is just reflective of the nature of interagency relationships and how difficult it is to get multiple agencies to agree to anything substantive,” Dan Stipano, former deputy chief counsel for the OCC, told moneylaundering.com after the statement. “This often leads to a lowest common denominator approach.”

In September, the OCC issued an interpretive letter approving a national bank’s proposal to use automated systems to file reports on transactions that appear intentionally structured under the $10,000 threshold for currency.

Regulators finished the year by lifting a requirement that financial institutions report all transactions tied to the commercial production of hemp, which was removed from a list of federally banned substances in November. More

Congressional focus on reforming federal beneficial-ownership rules culminated in October with House approval of The Corporate Transparency Act. More

The bill, which awaits consideration by the Senate, would mandate the creation of a government database for collecting and querying corporate ownership data to combat criminal exploitation of shell companies, and separately direct the government to provide financial institutions more feedback on their suspicious activity reports.

“That’s something the industry has been trying to get for 20 years, and law enforcement has started to recognize that the more they can share with us, the better off they are,” said Rob Rowe, vice president of the American Bankers Association in Washington, D.C. “There has been a reluctance from law enforcement because they don’t want to tip off criminals.”

The legislation would also direct FinCEN to revise a 2018 rule that tasks the private sector with gathering ownership information.

Senators have also yet to consider the Secure And Fair Enforcement Banking Act, which would bar federal regulators from banning, penalizing or discouraging lenders from serving state-licensed marijuana vendors. The SAFE Act passed the House in September by a vote of 321-103. More

Beneficial ownership, round 1

Grovetta Gardineer, the OCC’s senior deputy controller for bank supervision policy, told moneylaundering.com that although some institutions were found to have fallen short of collecting and analyzing enough ownership data in their first examinations since FinCEN’s due-diligence rule took effect, most have done so effectively.

“While the vast majority of banks have appropriate BSA [Bank Secrecy Act] programs, there are opportunities for improvement,” Gardineer wrote in an email.Some banks are challenged to meet corrective action timeframes for identified concerns. Others are dealing with data-quality issues impacting risk identification and monitoring.”

A dearth of guidance has complicated efforts by federal AML supervisors to determine whether or not the banks they examine conduct enough due diligence on money services businesses and monitor their transactions, the Government Accountability Office found in a Dec. 3 report. More

The government watchdog concluded in a report two months earlier that the Federal Reserve and OCC erred in conveying their expectations that financial institutions validate their risk assessment models, including those that gauge BSA-related risk, in guidance instead of a rule. More

FinCEN announced an unprecedented enforcement action against a peer-to-peer cryptocurrency exchange in April, ordering California resident Eric Powers to pay $35,000 for failing to register as a money services business, establish an AML program and report suspicious activity. More

In May, weeks after the penalty, the bureau for the first time explicitly stated in formal guidance that a wider range of cryptocurrency firms, including mixers, tumblers—even individual peer-to-peer exchangers—must adopt AML programs. More

U.S. officials asked lawmakers to disburse millions of dollars in additional funding to FinCEN to support the bureau’s campaign to hire 27 additional full-time staff, administer special measures, supervise the cryptocurrency industry and pursue other initiatives. More and More

FinCEN Director Ken Blanco and other regulators closed the year with a pledge to streamline U.S AML rules and reduce the compliance burden on the financial services industry. More

Sanctions, prosecutions and rulings

The executive branch was more prolific in administering sanctions than enforcing AML rules in 2019. More

“The bottom line is that this administration likes sanctions,” said Brian O’Toole, a former senior advisor with the Treasury Department’s Office of Foreign Assets Control. “Congress has also demonstrated the past few years that sanctions are one of the few things both left and right can agree on, as seen with the authorization of sanctions with respect to the protests in Hong Kong.”

Sanctions against Venezuela are especially significant for American parties given the interconnectedness of the U.S. and Venezuelan economies, said O’Toole, now a senior nonresident fellow with the Atlantic Council in Washington, D.C.

Violations formed the basis of several U.S. prosecutions.

In April, London’s Standard Chartered Bank agreed to pay $1.1 billion to the U.K. Financial Conduct Authority, OFAC, New York State Department of Financial Services and other agencies for processing thousands of transactions that violated U.S. sanctions against Iran. More

U.S. prosecutors and regulators then extracted $1.3 billion from Italy’s UniCredit Group after the institution admitted that its branches in Germany engaged in similar infractions by helping Iran move hundreds of millions of dollars through U.S. bank accounts.

“These cases show we will not hesitate to prosecute criminal wrongdoing when we find it,” Deborah Connor, chief of the Justice Department’s Money Laundering and Asset Recovery Section, told moneylaundering.com. “They also show cooperation with national and international partners, and reflect prioritization on prosecuting individuals.”

In July, federal jurors in New Jersey charged four Chinese nationals and a Chinese firm, Dandong Hongxiang Industrial Development Co. Ltd., of openly working with North Korea’s Kwangson Banking Corporation, which OFAC blacklisted 10 years ago, and using front companies to evade U.S. sanctions against the country. More

In August, a federal judge in Washington, D.C., sentenced an alleged financier of Hezbollah to five years in prison and ordered him to forfeit $50 million as part of an intensified U.S. campaign targeting the Lebanese militia’s global supporters. More

The Bank of Tokyo-Mitsubishi UFJ agreed to pay $33 million to settle a lawsuit brought by a state regulator, the Department of Financial Services, which accused the lender of switching from a New York charter to a federal one in 2017 to avoid an investigation for alleged sanctions and AML violations. More

Prosecutors separately charged Turkiye Halk Bankasi, a Turkish state-owned lender also known as Halkbank, with money laundering, sanctions violations and other infractions for moving and concealing roughly $20 billion in proceeds from oil and gas from Iran, and helping route at least $1 billion of those funds through the U.S. More

In other cases, New York federal prosecutors opened the year by accusing three former Credit Suisse bankers with concealing their clients’ suspected involvement in financial crimes and receiving millions of dollars in kickbacks as part of a $2 billion corruption and fraud scheme in Mozambique. More

One of the bankers, Andrew Pearse, the former chief of Credit Suisse’s global finance division at the time, later pleaded guilty to wire fraud.

In May, Luis Fernando Figueroa, a retail banker based in Tijuana, Mexico, pleaded guilty to using accounts at his employer, Wells Fargo, to launder drug profits. More

The U.S. 9th Circuit Court of Appeals separately rejected a narrow reading of U.S. money-laundering statutes in upholding the conviction of a South Korean seismologist convicted in 2017 of soliciting and funneling bribes through U.S. banks. More and More

In October, federal prosecutors in Manhattan accused two associates of U.S. President Donald Trump’s attorney Rudy Giuliani, Lev Parnas and Igor Fruman, of using a Delaware shell company to hide more than $300,000 in illegal U.S. campaign contributions made from a Ukrainian official. More

Buoyed by a $1 billion settlement with Woodbridge Group of Companies and its owners for orchestrating a Ponzi scheme against roughly 8,400 investors and laundering the proceeds, U.S. securities regulators approached record enforcement levels in 2019 while promulgating AML-related guidance of their own. More

Analysts told moneylaundering.com in May that small securities firms would be challenged to implement the Financial Industry Regulatory Authority’s updated list of nearly 100 red flags of potential money laundering. More

A federal ruling against a clearing broker in Salt Lake City prompted concerns that brokerages would have to add significantly more detail to suspicious activity reports, or SARs, going forward. More

Two New York-based broker dealers affiliated with French bank BNP Paribas consented to a combined $15 million in penalties in August after FINRA accused them of neglecting to screen penny stocks for signs of suspicious activity from 2013 to 2017. More

FINRA ended the year by fining Citigroup Global Markets, JPMorgan Securities and three other firms a combined $1.4 million for not sufficiently monitoring custodial accounts. More

Northern neighbors

2019 in some ways ended much as it began for Canada’s law enforcement and compliance community, with concerns over the flow of illicit funds into the country’s gaming and real estate sectors not fully addressed.

But those longstanding issues belie what was in fact an eventful year for Canadian AML.

In February, nearly three years after a high court criticized the country’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada, for operating without transparency, the agency published its 66-page manual for measuring AML compliance. More

July ushered in new policies for filing suspicious transaction reports and a new definition of “virtual currency” to align Canada’s policies with those of the Financial Action Task Force. More

Fintrac then disclosed the methods officials use to measure the impact of seven types of compliance violations and the maximum penalties each can trigger, then published updated guidance for verifying the identities of corporate and individual clients. More

“It’s all incredibly significant,” said Jackie Shinfield, a Toronto-based attorney with Blake, Cassels & Graydon. “This affects the whole regime and how it’s interpreted.”

Across the pond…

The sum paid by Standard Chartered Bank in April included a £102 million outlay to the Financial Conduct Authority, which last year showed an increased willingness to respond more robustly against employees involved in egregious AML regulatory infractions. More

“Where historically we’ve seen regulatory outcomes, they’re looking to use their criminal powers in the more egregious cases involving senior managers,” said Steve Smith, former senior enforcement attorney for the agency. “That is quite a big sea change.”

HM Revenue and Customs disclosed a record £7.8 million penalty against Touma Foreign Exchange, one of an estimated 9,500 money services businesses in London, for neglecting to build an AML program, train staff in compliance protocols and otherwise shield itself from financial crime. More

“We’ve been trying to adopt a more collaborative approach to MSBs with the FCA and HMRC,” Detective Chief Superintendent Mick Gallagher of the London Metropolitan Police said. “Many MSBs are quite loosely regulated, and this is providing opportunities for organized crime to move a lot of dirty money around with a sense of impunity.”

The U.K. National Crime Agency obtained unexplained wealth orders in three cases last year, prompting a number of foreign politically exposed persons and their associates to audit their finances and gather data on the sources of their wealth preemptively, sources told moneylaundering.com. More

The agency also showed a greater appetite for using account freezing orders, a power introduced alongside UWOs under the Criminal Finances Act 2017, to restrain suspected proceeds of corruption sitting in U.K. bank accounts. More

In November, a judicial panel in London ruled in favor of the NCA in turning away a petition by the son of a former Moldovan prime minister to retrieve nearly £500,000 seized from him in February on suspicion of corruption. More

U.K. officials may begin imposing “tactical targeting orders,” their version of a U.S. geographic targeting order, to collect financial intelligence on a temporary basis from real estate agents and other professionals who typically do not fall under AML rules. More

Meanwhile, the U.K.’s planned exit from the EU has complicated AML supervision in the bloc, where regulators must now oversee the relocation of scores of financial institutions from London. More

Across the Channel…

Regulators in France, a popular destination for U.K. financial institutions seeking an EU base ahead of Brexit, warned banks in the country to more frequently exchange data on clients and transactions with their overseas branches as stipulated by the bloc’s Fourth AML Directive more than three years ago. More

France assessed a €1 million penalty against Western Union for AML violations at the beginning of the year, €900,000 more than the country’s previous record penalty against an MSB. More

Weeks later, a high court in Paris ordered Swiss lender UBS to pay a record €3.7 billion for engaging in fraud and money laundering by enabling thousands of French clients to hide billions of euros in taxes. More

The penalty exceeded payments UBS has made to settle similar cases around the world, including in the U.S., where authorities collected $780 million from the Swiss lender in 2009.

Plans by Facebook to launch a new cryptocurrency, Libra, raised skepticism in France, which in April began requiring cryptocurrency exchanges and wallet providers to register with the government and undergo compliance examinations. More

In August, a former chief executive of HSBC Private Bank in Switzerland became the first banker to avoid a French jail cell under the “comparution sur reconnaissance prealable de culpabilite,” the French analogue of a U.S. deferred prosecution agreement.

The banker, Peter Braunwalder, received a suspended sentence of one year in prison and a €500,000 fine after pleading guilty to unlawful financial solicitation and laundering the proceeds of tax fraud. More

HSBC separately agreed to pay more than €294 million to avoid trial in Belgium after allegedly helping thousands of customers conceal billions of euros from tax authorities, breaking the country’s previous record penalty of €160 million against Omega Diamonds six years earlier. More

Across the Rhine…

Germany’s Finance Ministry published the country’s first national risk assessment in October, acknowledging the general failure of German real estate agents, notaries and bankers to report suspicious acquisitions and sales of property.

In an unusual turn, the assessment identified several jurisdictions by name that officials claimed present a high threat of financial crime to Germany. More and More

German lawmakers debated a host of AML-related measures to bring their country in line with the EU’s latest AML directive, 5AMLD, which takes effect in January. More and More

“After Danske Bank, every bank had to review its correspondent banking relations, but now the awareness is high, and it’s becoming materially better and better,” Dirk Scherp, of counsel with Gleiss Lutz in Frankfurt, said. “It was a hard year.”

German banks lobbied to tone down personal liability for compliance staff two years after the conviction of a chief AML officer for reporting suspicious transactions too late. More

2019 also entailed intense preparation for Germany’s assessment by FATF, as well as a massive spike in suspicious activity reports, from roughly 78,000 in 2018 to more than 110,000 by year’s end, Jens Furhoff, head of money laundering prevention at the country’s Federal Financial Supervisory Authority, or BaFin, told moneylaundering.com.

“It’s still a big challenge to constantly provide a dataset with really up-to-date customer files,” Furhoff said. “Here the fragmented KYC requirements in the different jurisdictions, also with the European Union, are a huge burden for each, not only German, institution which carries out cross-border business.”

A rise in the number of flagged transactions piled more pressure on Germany’s financial intelligence unit, which as of August had filled only half of the 475 full-time positions it planned to have staffed by the end of the year.

Separately, the German branches of Barclays, HSBC, Western Union, several state-owned German lenders and the country’s two largest commercial banks, Deutsche Bank and Commerzbank, joined a new platform for sharing information with investigators on the channels used by terrorists and criminals to move funds. More

“Recent actions show that law enforcement, regulatory and intelligence agencies and financial institutions should work collaboratively,” Lora von Ploetz, a compliance executive with Commerzbank, told moneylaundering.com. “Public–private data-sharing has changed the way in which financial crime and terrorist financing can be understood, analyzed and mitigated.”

The whip hand

Journalists and whistleblowers continued driving enforcement and compliance in 2019, three years after the International Consortium of Investigative Journalists and Suddeutsche Zeitung began reporting on secretive financial schemes outlined by the Panama Papers, a cache of more than 11 million records leaked from global law firm Mossack Fonseca.

BaFin began measuring the extent to which German lenders conduct due diligence on correspondent clients following news of Deutsche Bank’s indirect links to illicit finance in the Baltics. More

Deutsche Bank’s former correspondent client, Danske Bank Estonia, is the target of several investigations in the U.S. and Europe for processing €200 billion of suspicious illicit funds from Russia and other ex-Soviet states across several years. Estonia ordered the lender to close shop in February. More

Swedbank, Sweden’s largest lender, now faces investigations in Sweden, Latvia, Lithuania and Estonia after SVT reported that the institution processed thousands of transactions tied to the scheme at Danske Bank’s Baltic affiliate. More

Swedbank executives announced in October that attorneys and accountants were reviewing 30 billion transactions as part of an internal investigation that has cost the lender more than $100 million to date. More

From October to December 2016, according to internal Swedbank records obtained by moneylaundering.com, Carbo One, a coal trading company registered in Cyprus but run from Russia, wired more than €11 million from Swedbank Estonia to a Scottish legal entity, Carbotrade LP, which held an account with Latvia’s now-defunct ABLV Bank. More

In March, moneylaundering.com reported that banks in Europe and the U.S. had begun combing through their accounts for links with individuals and corporate entities named in the latest leak of confidential records, the “Troika Laundromat.” More

Spurred by those and other scandals, the EU’s slow progression towards a single set of AML rules and common supervision continued through most of 2019 and into December, though a lack of details and deadlines left some questioning whether and when more concrete plans will take form. More, More, More and More

“The most explosive development would be a move from directives to regulations, but also to centralized supervision and enforcement,” said Anna Bradshaw, an attorney with Peters & Peters in London. “Some may ask why the same approach could not be used for sanctions, but both prospects are problematic for member states from a competency and sovereignty perspective.”

Russian authorities closed dozens of banks and opened nearly 40 investigations in response to a series of multibillion dollar laundromat schemes but mostly avoided pursuing punitive action against the bankers who enabled them, the Financial Action Task Force concluded in a report first obtained by moneylaundering.com. More

The report’s generally positive findings on Russia’s campaign against money laundering and other financial crimes drew sharp criticism. More

FATF’s executive secretary told attendees of an industry event in November that the first evaluations conducted under a grading system adopted in 2013 found that many nations comply with global AML standards on paper but do not enforce them in practice. More

Suspicious transaction reports have reached record volumes in Europe but still vary dramatically from jurisdiction to jurisdiction, with Amazon and PayPal driving a significant uptick of STRs in Luxembourg. More and More

The Netherlands sought to reduce the flood of reports to the country’s financial intelligence unit by scrapping a requirement that financial institutions automatically flag any transaction involving jurisdictions on an EU money-laundering blacklist. More

Dutch authorities and the country’s four largest banks agreed to share data on organized crime, including transactions involving a “relatively small group of very influential” professional enablers with access to “logistical and financial systems.” More

“On the one hand, you have to be able to manage your business-as-usual compliance, while on the other invest and participate in these valuable partnerships,” said Hugo Grimbel du Bois, a compliance manager at Rabobank in Utrecht. “We’re very much dedicated to [partnerships] so that we can better align our priorities with those of law enforcement.”

Dutch banks would be required to exchange data on high-risk clients with each other under proposed legislation that would separately clear a path for them to create a single “utility,” or platform, to jointly monitor all transactions. More

ABN Amro, the third largest lender in the Netherlands, was separately ordered to reconduct due diligence on 5 million retail clients amid a criminal investigation into suspected compliance lapses that could result in more than €100 million in penalties.

Swiss attorney Rene Brulhart left the Vatican’s Financial Information Authority in November after the agency’s deputy official, Italian national Tommaso Di Ruzza, was suspended amid an investigation into a payment tied to the purchase of luxury real estate in London.

Topics : Anti-money laundering , Counterterrorist Financing , Sanctions
Source: United Kingdom , Russia , Netherlands , U.S.: OCC , U.S.: Congress , U.S.: FinCEN , U.S.: White House/U.S. President , U.S.: Courts , U.S.: Finra (NASD/NYSE) , Canada , France , Germany
Document Date: January 3, 2020