The Year in Review 2018: Illicit Finance Hits Main Street America and Europe


The World Cup final in Moscow, end of the Castro era in Cuba and Democratic gains in the U.S. midterms rank among the top stories of 2018, alongside deadly wildfires in California, plans to draw down the U.S. presence in Syria and the killings of scores of journalists worldwide.

The year also saw notable developments in anti-money laundering regulation and compliance, and information illegally leaked from suspicious activity reports, or SARs, and other confidential banking data forming the basis of several headlines.

The six-year ramp up to the U.S. Treasury Department’s customer due-diligence rule finally culminated in May with AML professionals still uncertain of how deeply they must drill to identify beneficial owners, while EU officials pitched plans that would dramatically change AML supervision throughout the 28-nation bloc even as the United Kingdom prepared to exit.

Sinaloa cartel chief Joaquin Guzman’s trial in New York likely would have dominated the news in any other year. “El Chapo,” a self-styled Mexican bandit who escaped from prison twice, faces a life sentence for allegedly conspiring to murder dozens of rivals as head of an enterprise that generated and laundered an estimated $14 billion during his 25-year reign.

But 2018 was not “any other year,” and the progression of criminal investigations in Washington and New York into the Trump Organization, the now-defunct Trump Foundation and other ventures and transactions linked in varying degrees to the U.S. president kept most eyes on the White House.

Several investigations now swirl around the Oval Office, with more indictments expected.

Only the beginning?

On Dec. 12, President Donald Trump’s former attorney Michael Cohen was sentenced to three years in prison after pleading guilty to tax fraud, bank fraud and campaign finance violations stemming from his payment of more than $250,000 in hush money to two of his client’s alleged former sexual partners. More

Compliance officers told in April they were combing through their accounts to identify any links with Cohen. More

“Executive 1” in the indictment against Cohen, widely identified by news outlets as Trump Organization CFO Allen Weisselberg, allegedly approved $420,000 in reimbursements to the now-incarcerated attorney for arranging the payments. “Executive 1” falsely described the reimbursements as “legal expenses,” prosecutors claimed.

Weisselberg’s reported cooperation in exchange for immunity increases the chances that financial crimes will also be included in any forthcoming indictments against associates and entities linked to Trump, who, according to The Wall Street Journal, “was involved in or briefed on nearly every step” of the scheme. More

On the same day that Cohen pleaded guilty in New York, Virginia federal jurors convicted Trump’s former campaign chief Paul Manafort of tax fraud, bank fraud and failing to disclose an overseas bank account.

Special Counsel Robert Mueller subsequently accused Manafort in a Dec. 7 court filing of violating the terms of a plea agreement that spared him a second criminal trial on charges of obstructing justice, illegally lobbying for a foreign government and conspiring to launder money.

Manafort lied “in multiple ways and on multiple occasions,” including about his regular communications with the White House and a mysterious $125,000 wire transfer he allegedly arranged in 2017, according to a Dec. 7 court filing. More

Even as those two cases unfolded, U.S. officials sought to identify who among them was supplying a reporter a regular feed of confidential records kept by the Treasury Department’s Financial Crimes Enforcement Network on Manafort, Russian oligarch Aras Agalorov and other reported persons of interest in the Mueller-led investigation. More

On Oct. 17, prosecutors charged FinCEN employee Natalie Mayflower Sours Edwards with using cellphone encryption to send a reporter images and summaries of thousands of restricted documents, including 13 SARs tied to Manafort and “highly sensitive” data on Russia and Iran.

The 18-page indictment against Edwards suggested her boss at FinCEN, former U.S. intelligence agent Kip Brailey, also sent the reporter hundreds of texts and encrypted messages over the past year. The 12 news articles described in the complaint match the reporting of Jason Leopold, a journalist for Buzzfeed News.

The last of them, published Oct. 15, described how TD Bank loaned $3 million to a subsidiary of Prevezon Holdings in 2012 despite knowing the firm’s Russian owner, Denis Katsyv, had paid a fine for laundering money in Israel and was suspected of involvement in a tax-rebate fraud discovered by Moscow attorney Sergei Magnitsky before he died in prison nine years ago. More

Nine months later, New York federal prosecutors accused Katsyv and his company of handling tens of millions of dollars from the fraud in Russia against Magnitsky’s employer, U.K. financier Bill Browder, and plowing some of the proceeds into U.S. real estate.

Buzzfeed News separately reported in January that shell companies formed in Delaware, Bermuda and other secrecy jurisdictions acquired more than 1,300 of the 6,400 Trump-branded condominiums sold in the United States since 1983, and paid for the units with cash. More

GTO extended, expanded

Legal-entity purchases of U.S. luxury properties in New York, Miami, Los Angeles, San Francisco, San Diego, San Antonio and Honolulu were the sole subject of FinCEN’s geographic targeting order until May, when the bureau expanded the measure to cover significantly less-expensive real estate as well as five additional metropolitan areas. More

U.S. officials and academics reported in July that legal-entity owners of high-end properties in Manhattan and South Florida generally took twice as long to sell their residences and may have avoided selling them altogether after the first real estate-related GTO took effect in 2016. More

The GTO may have helped launch or advance U.S. investigations into a Swiss banker and eight Venezuelan officials and businessmen accused of stealing at least $1.2 billion from state-owned oil firm PDVSA, then laundering hundreds of millions of dollars into Miami-area real estate.

U.S. officials have already seized $45 million as part of the investigation and are currently targeting 17 South Florida houses, condominiums and ranches with an aggregate value as high as $35 million, according to the Miami Herald. More

On Dec. 4, the Justice Department disclosed indictments against four individuals tied to firms linked to illicit finance by perhaps the most high-profile AML-related data-dump in recent years: the Panama Papers.

Panamanian citizen Ramses Owen, American citizen Richard Gaffey and German citizens Dirk Brauer and Harald Joachim von der Goltz face various counts of wire fraud, making false statements, and conspiring to launder money and defraud the United States. More

Meanwhile, the downward trend in bulk cash smuggling out of the United States appears to have continued in 2018.

“There’s only so many places you can hide cash in a car or truck,” Don Semesky, former chief of the Drug Enforcement Administration’s office of financial operations, said. “They’re finding how to get rid of it here by paying their drug debts here to Colombians, selling it on their own foreign exchange black market, or getting it to another country without placing it in Mexico first.”

Others attributed the decline to changes in federal asset-forfeiture policies and increasingly sophisticated and prevalent trade-based money laundering schemes. Meanwhile, the amount of suspicious funds moving through money services businesses has steadily risen. More

“In the past couple of years there have been investigations where smaller MSBs have been exploited,” said Rich Lebel, director of the Transaction Record Analysis Center in Phoenix. “In the conversations I’ve had with some of the smaller MSBs, their biggest concern is the complicit agent.”

Lift off

What some consider the most consequential event in terms of AML regulation and enforcement since the Patriot Act occurred in May, when FinCEN’s long-anticipated customer due-diligence rule came into effect. More

Under the CDD rule, banks, credit unions and other institutions in the United States must take steps to identify any individual who owns 25 percent or more of a legal entity that opens an account from May 11, 2018 onward, and one person with significant control over that legal entity.

The new disclosure requirements met resistance from prospective legal-entity customers of regional and community banks, where frontline staff sometimes failed to obtain critical ownership details and even signed forms for corporate clients. More

Some compliance officers plan to continue drilling below the mandatory 25-percent threshold in certain cases until further notice from FinCEN, which has yet to tag a bank with an enforcement action for failing to comply with the measure in the months since it took effect. More

“The new beneficial ownership rule … there’s still some doubt, questions that nobody wants to answer, such as: how often do you review an account? If you have no interaction with the customer for two years, are you required to go back and check on that?” Luis Cifuentes, chief compliance officer at Banco Bradesco in New York, said. “It’s not a clear picture.”

Questions over the extent to which the CDD rule applies to credit cards, existing loans, certificates of deposit and other products that roll over at regular intervals were answered in May, when FinCEN Director Ken Blanco said the bureau would exempt them. More and More

Financial institutions also want exemptions for syndicated loans and existing corporate customers who open new accounts. More and More

The National Credit Union Administration announced in August that examiners would not view unintentional breaches of the CDD rule as “significant” violations of the Bank Secrecy Act until 2019, but the measure may still place credit unions in a legal bind when dealing with corporate clients that opened accounts before May 11. More

Banks supervised by the Office of the Comptroller of the Currency appear to have “made good use of the two-year implementation period” up to the rule’s effective date, Grovetta Gardineer, the OCC’s senior deputy comptroller for compliance and community affairs, said. “Thus far, we are finding very few instances of noncompliance.”

The Financial Industry Regulatory Authority disclosed in an annual report that 2018 examinations found more trades of low-float, low-priced securities through foreign accounts held by legal entities, some of which may have shared the same beneficial owners. Other firms failed to document their investigations of suspicious activity, Finra found in the report. More

But most companies Finra examined since May were found to have implemented “reasonably designed procedures” for complying with the CDD rule “despite some initial anxiety,” Mike Rufino, an executive vice president for the regulator, told in an email.

Complying with the rule may unearth attempts to circumvent U.S. sanctions and provide more opportunity for collaboration between FinCEN, federal banking regulators and the Office of Foreign Assets Control, or OFAC. More


While not significantly impacting U.S. banks, Trump’s unilateral decision to withdraw from a global nuclear accord with Iran and reinstitute secondary sanctions against foreign lenders caught transacting with the country from Nov. 5 onward signified a split with the European Union.

European officials immediately sought to protect trade between the European Union and Iran by barring firms from complying with U.S. sanctions previously suspended by the accord, and allowing them to sue for U.S. assets in Europe to cover any financial damages incurred by violating the American embargo. More

EU companies have mostly ignored the bloc’s pledge to protect them, and the Society for Worldwide Interbank Financial Telecommunication partially severed Iranian access to its platform shortly after the second tranche of U.S. sanctions took effect. More and More

“It’s surprising in a way that there has been little enforcement of U.S. secondary sanctions,” Maya Lester, an attorney with Brick Court Chambers in London, said. “There have not been many decisions enforcing them … but it’s still a very powerful threat given [European and U.K.] exposure to the U.S. dollar.”

FinCEN warned in October that cryptocurrencies may provide Iran a pathway around U.S. sanctions and OFAC blacklisted nine Iranian financial institutions, including Bank Mellat, for handling funds tied to the Islamic Revolutionary Guard Corps. More

U.S. officials responded to Venezuelan President Nicolas Maduro’s re-election in May by banning American individuals and entities from acquiring Venezuelan debt, including liabilities from state-owned oil firm PDVSA. More

In September, OFAC blacklisted Venezuelan Vice President Delcy Rodriguez, Defense Minister Vladimir Padrino and four other officials reportedly close to Maduro, and seized a $20 million private jet. More

Washington and Brussels mostly stayed on the same page in blacklisting Russian oligarchs, intelligence agents and other individuals involved in Russia’s occupation and annexation of Crimea and invasion of eastern Ukraine. More and More

On Dec. 1, Canadian authorities arrested Meng Wanzhou, the chief financial officer of Chinese telecom Huawei, who now faces extradition to the United States on suspicion of circumventing U.S. sanctions against Iran. More

Enforcement and prosecution

The year in AML and sanctions compliance began and ended with a bang in the United States.

On Jan. 4, the New York State Department of Financial Services disclosed a $60 million penalty against Western Union for withholding information from state authorities that informed the firm’s $586 million settlement with federal authorities a year earlier. More

Rabobank agreed on Feb. 7 to forfeit nearly $369 million for ignoring the flow of hundreds of millions of dollars in suspicious funds through its branches near the U.S. border with Mexico, and withholding a third-party report on the bank’s subpar AML program from the OCC. More

One week later, the Justice Department, Federal Reserve and FinCEN disclosed $613 million in penalties against Minneapolis-headquartered U.S. Bank for violating AML rules from 2009 to 2015, and, similar to Rabobank, concealing damaging information from the OCC. More

Also in February, FinCEN proposed to designate Latvia’s ABLV Bank as a money-laundering conduit and block it from the U.S. financial system for handling billions of dollars in illicit foreign funds. The bank collapsed within weeks, leaving Latvian authorities to handle a complex and difficult liquidation. More and More

Capital One Bank paid $100 million in October for not addressing AML deficiencies first cited by the OCC in 2015. More

On Nov. 1, U.S. prosecutors said they had charged fugitive financier Jho Low and former Goldman Sachs bankers Tim Leissner and Roger Ng with conspiring to launder nearly $3 billion from 1MDB. Ng has been detained in Malaysia, while Leissner, who chaired Goldman’s operations in Southeast Asia until 2016, pleaded guilty. More

But larger penalties against Goldman may still be in the works. The investment bank is now under investigation in Malaysia and reportedly in the United States for handling funds embezzled from the 1MDB sovereign wealth account. More and More

The assessment of $1.3 billion in penalties against Societe Generale on Nov. 19 topped U.S. enforcement in the second half of 2018. Federal and state officials accused the French lender of failing multiple AML examinations, and said staff in Paris stripped incriminating details from financial messages tied to more than 2,000 payments involving Iran, Cuba and Sudan. More

Republican and Democratic lawmakers alike voiced support for modernizing AML and Bank Secrecy Act rules in 2018, but legislation to implement those plans appears to have stalled … again. More

Canada’s Department of Finance pitched more than a dozen revisions to AML regulations, including changes to eliminate shortcomings cited by the Financial Action Task Force, or FATF, in 2016. More

Nada Semaan, director of Canada’s financial intelligence unit, the Financial Transactions and Reports Analysis Centre of Canada, pledged in October to outline the process by which regulators calculate penalties in response to violations. More

The collapse of a broad investigation into British Columbian casinos during the second half of the year cast doubt over the ability of Canadian federal and provincial governments to combat money laundering and cross-border financial crime. More

Reports emerged in late November that U.S. officials had approached Deutsche Bank and Bank of America for information on correspondent transactions involving Denmark’s Danske Bank and its branch in Estonia, though authorities closer to the scene got first bite of the apple. More

Over there, over there

2018 was a remarkable year for European financial institutions in terms of AML.

In May, the Danish Financial Supervisory Authority directed Danske Bank, Denmark’s largest by assets, to upgrade its AML controls after identifying “serious weaknesses” that enabled clients to use its branch in Estonia “for criminal activities involving vast amounts.” More

Estonia launched a criminal investigation into Danske Bank’s local affiliate in July after Browder, the U.K. financier, accused the institution of handling more than $200 million of proceeds from the tax-rebate fraud in Russia investigated by his employee, Magnitsky. More

Attorneys for Danske Bank recommended criminal proceedings against eight former employees of Danske Bank Estonia suspected of willfully laundering billions of dollars for hundreds of clients from 2007 to 2015, including clients involved in the $21 billion Russian Laundromat scheme and a similar, $2.9 billion scheme now called the Azerbaijani Laundromat. More

Estonian authorities announced Dec. 19 they had arrested and questioned 10 former employees of Danske Bank Estonia as the investigation sprawled into the United Kingdom and United States, according to Reuters. More

Some of the $260 million generated from the tax-rebate fraud, which Browder claimed was perpetrated by Russian organized crime and complicit officials, may have transited through ABLV, the Latvian lender blacklisted by FinCEN in February. More

High-profile compliance scandals also engulfed Malta’s Pilatus Bank and Dutch bank ING, with the latter consenting to a record €775-million penalty in September for failing to vet legal entities and identify suspicious transactions through their accounts. More

The scandals fueled support for centralizing AML supervision in the European Union, including by empowering the European Banking Authority to ensure national authorities act more decisively against financial institutions caught violating AML standards. More, More and More

EU officials may also seek to implement AML rules through direct, bloc-wide regulation going forward after finding that several member states still have not fully implemented the Fourth AML Directive two years past deadline—even after lawmakers adopted the bloc’s Fifth AML Directive in April. More and More

The European Union’s decision to prioritize money laundering and asset recovery in the fight against organized crime demanded much of financial crime investigators in 2018, according to Simon Riondet, head of financial intelligence at Europol.

“Of course one of the goals is to have better-coordinated money-laundering investigations, meaning that in tackling every one of the crime priorities, such as drug trafficking or human trafficking, we have to incorporate some actions around financial investigation and asset recovery,” he said.

In October, the Financial Action Task Force, or FATF, advised jurisdictions to subject cryptocurrency firms to AML and transaction-monitoring rules and require them to register with national authorities or apply for licenses. More and More

U.K. authorities instructed banks to consider conducting enhanced due-diligence on cryptocurrency firms, including those raising investments online through initial coin offerings. More

“We’re seeing an increase in the use of privacy coins—Monero especially—but in the same way that cash is still king in the real world, Bitcoin is still the king on the dark web,” Iggy Azad, detective sergeant with the cybercrime unit of London’s Metropolitan Police, said.

Organized crime syndicates have now turned to Bitcoin ATMs to launder funds tied to shipments of cocaine from South America. More

“We’ve seen a huge increase in Bitcoin ATMs, according to our last figures there are 4,000 [worldwide] and that’s a concern,” said Riondet, Europol’s financial-intelligence chief. “They’re used to cut the money trail, and not only are they offering Bitcoin but also other cryptocurrencies.”

Amid the global focus on cryptocurrency and sprawling banking scandals, British officials not only appear to have persuaded FATF to water down criticism found in a draft report on the U.K. AML regime, but also secured their country the highest ratings out of 60 nations assessed since 2013.

FATF’s earlier call for a review of the U.K. Financial Intelligence Unit’s system for forwarding leads to investigators was included in the draft report obtained by, but did not appear in the final report published Dec. 7.

Nor did the group’s skepticism as to whether U.K. regulatory penalties assessed since the country’s last mutual evaluation more than 10 years ago actually deterred violations. More, More and More

As for British domestic regulation, several compliance officers under investigation by the U.K. Financial Conduct Authority during the first half of 2018 allegedly neglected to conduct rigorous background checks on foreign officials and other high-risk customers. More

“The FCA has actually had one of their most active years to date,” said Steve Smith, a former senior attorney with the agency’s enforcement division. “I suspect they’ve been busy working in the background and a number of icebergs will start to rise up out of the sea in terms of enforcement outcomes next year.”

Germany’s Federal Financial Supervisory Authority, BaFin, finally cleared a backlog of nearly 30,000 suspicious transaction reports, but as of August still faced a crisis of confidence after being described by investigators as “a significant danger to domestic security.” More

Standard Chartered landed in hot water in Singapore, and Commonwealth Bank of Australia agreed to pay Australian regulators a record $530 million in June to cover nearly 54,000 violations of AML rules. More and More

French officials announced Dec. 24 they had fined Banque Postale €50 million for processing 75 funds transfers to and from individuals suspected of links to terrorism. More

The year ended brightly enough with the Vatican securing its first-ever conviction against a money launderer. More­­­­­­­

Topics : Anti-money laundering , Corruption/Bribery , Counterterrorist Financing , Cryptocurrencies , Know Your Customer , Money Services Businesses , Sanctions , Securities
Source: U.S.: FinCEN , European Union , U.S.: OFAC , U.S.: White House/U.S. President , United Kingdom , U.S.: OCC , U.S.: FDIC , U.S.: Federal Reserve Board
Document Date: January 2, 2019