FINANCIAL CRIME DIGEST April 2015
MAKE INFORMED DECISIONS
FINANCIAL CRIME DIGEST Welcome to the April 2015 Financial Crime Digest, covering updates from March 2015. This month’s updates include Serious Crime Act 2015 exemptions from civil liability for money laundering disclosures, the application of AML rules to digital currencies, the first inspection report of the NCA, and the FCA’s 2015/16 business plan. We also provide a round-up of recent press and media coverage of Anti-money laundering, sanctions, bribery & corruption, fraud, and insider trading issues.
TECHNICAL AND REGULATORY UPDATES The Serious Crime Act (Commencement No.1) Regulations 2015 (SI2015/820) were made on 19 March 2015. Under Regulation 3, section 37 of the Serious Crime Act 2015, relating to exemption from civil liability for money laundering disclosures, will come into force on 1 June 2015. Section 37 places civil immunity for money laundering disclosures on a statutory footing. The exemption provides that “where an authorised disclosure is made in good faith, no civil liability arises in respect to the disclosure on the part of the person or on whose behalf it is made.” The Regulations and explanatory notes are HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
Anti-money laundering and counter-terrorist finance supervision report is published by HM Treasury HM Treasury has published its fourth anti-money laundering and counter-terrorist finance supervision report. Chapter 5 of the report lists good and bad practice by UK supervisors on the following themes: l How supervisors adopt a risk-based approach l Monitoring activity
Financial Sanctions - Chancellor announces government implementation review In the Budget report (paragraph 1.102), the Treasury has announced that the government will review the structures within HM Treasury for the implementation of financial sanctions and its work with the law enforcement community to ensure these sanctions are fully enforced, with significant penalties for those who circumvent them. This review will take into account lessons from structures in other countries, including the U.S. Treasury Office of Foreign Assets Control. It
l Enforcement action and deterrence
will consider how to maintain and improve the
l Advice and outreach
service that HM Treasury provides to the private
l Information sharing The report is HERE.
sector, maintain the integrity of, and confidence in, the UK financial services sector, and strengthen the government’s ability to implement and help enforce this vital tool in the UK’s national security interests. The Budget report is HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES Anti-money laundering rules to apply to digital currency exchanges in the UK The Treasury's digital currency plans were outlined in a document which also summarised the 120 responses it received to its earlier call for information on digital currencies. In the report, it said that it plans to review whether the police are equipped with "effective skills, tools and legislation to identify and prosecute criminal activity relating to digital currencies". Work to develop new voluntary standards for consumer protection in the area of digital currencies will also be undertaken by the government in collaboration with the British Standards Institution and the digital currency industry. "The government notes the nascent state of the technology and the surrounding industry, and
HMIC issues ďŹ rst inspection report of
recognises that users of digital currencies are
the NCA
potentially exposed to a number of risks," the Treasury said. "In response, the government considers that a framework for best practice standards for consumer protection is the right step to take at this stage, in order to address the risks identified, but without imposing a disproportionate regulatory burden on the industry."
Her Majesty’s Inspectorate of the Constabulary, an independent inspectorate that is required to carry out inspections of the UK National Crime Agency, has issued its first report to the Home Secretary on the efficiency and effectiveness of the NCA. Amongst other matters, the report noted
An additional GBP 10 million of funding has also
that the NCA is receiving around 330,000
been earmarked for new research into the
suspicious activity reports per year, and that
"opportunities and challenges for digital currency
this number is increasing. As a result, the
technology". In recent months, financial services
current SAR database is now reaching the
regulators have taken an increasing interest in
end of its life, which may create risks. HMIC
digital currencies because of the growing popularity
noted that the NCA is fully aware of the
of 'Bitcoin'.
issues surrounding the database and is currently working to find a replacement
The response to the call for information is HERE.
system. The HMIC report of the NCA can be found HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES
Home OfďŹ ce issues Call for Information on Suspicious Activity Reports The UK Anti-corruption Plan, published on 18 December 2014, announced a review of the Suspicious Activity Reports regime under the Proceeds of Crime Act 2002 and the Terrorist Act 2000. The purpose of this review is to develop ways of better identifying money laundering and the financing of terrorism, and to prevent the movement and use of the proceeds of crime. The Home Office has now issued a call for information. It seeks responses to the questions in Section 3 of the Call for Information document. The scope of this Call for Information is the overall operation of the SARs regime, including its legislative foundation, and the way the system operates in practice. The Home Office is seeking views on both money laundering and terrorist finance, particularly from those with responsibilities under POCA or the Terrorism Act 2000 for reporting suspicious transactions, and those with responsibility for oversight or supervision of the regulated sector. Responses to the Call for Information were due on 25 March 2015. The Call for Information is HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES The Clearing House calls on FinCEN to allow
The Clearing House criticised existing restrictions
greater sharing of SARs
which it said “impede the ability of globally-active U.S. depository institutions to conduct effective and
The Clearing House, the oldest banking
efficient enterprise-wide AML risk management, risk
association and payments company in the United
assessment, and activity monitoring”. The Clearing
States, has called on FinCEN to allow U.S.
House added that, in the context of SARs in
headquartered depository institutions and U.S.
particular, “we continue to be strong proponents of
branches of foreign headquartered depository
the ability of banks to share information across their
institutions to lift restrictions on the sharing of
organisational structures.”
suspicious activity report data. The Clearing House letter to FinCEN is HERE.
The Financial Action Task Force publishes a speech by Je-Yoon Shin, FATF Vice President
Egmont Group publishes compilation of 100 cases
The FATF has published a speech by Je-Yoon Shin, FATF Vice President on the current FATF agenda
The Egmont Group of Financial Intelligence
and priorities. The speech covered the following
Units has released a compilation of 100
themes:
cases. The cases have been subdivided into six categories containing five general money
l The global regulatory arena
laundering typologies and one chapter
l The risk-based approach
focusing on intelligence exchange successes.
l De-risking
The categories used were:
l FATF’s mutual evaluation process
l Concealment within Business Structures
l FATF action on terrorist finance
l Misuse of Legitimate Businesses
With reference to terrorist finance, Je-Yoon Shin
l Use of False Identities, Documents, or
stated that the UN has published, and recently updated, a consolidated sanctions list on its website, and requests feedback from the private sector.
Straw Men l Exploiting International Jurisdictional Issues l Use of Anonymous Asset Types
The speech is HERE.
l Effective Use of Intelligence Exchanges
The consolidated sanctions list published by the
The compilation of cases can be found HERE.
UN is HERE.
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FINANCIAL CRIME DIGEST TECHNICAL AND REGULATORY UPDATES HM Treasury issues Advisory Notice HM Treasury has issued an Advisory Notice regarding the risks posed by unsatisfactory money laundering and terrorist financing controls in a number of jurisdictions. This advice supersedes previous advice issued by HM Treasury in connection with deficiencies in these areas. HM Treasury advises to consider the following jurisdictions as high risk for the purposes of the Money Laundering Regulations 2007, and so advises firms to apply enhanced due diligence measures in accordance with the risks: Algeria, DPRK, Ecuador, Iran and Myanmar. Additionally, it is advised to take appropriate actions in relation to the following jurisdictions to minimise the associated risks, which may include enhanced due diligence measures in high risk situations: Afghanistan, Angola, Guyana, Indonesia, Iraq, Lao PDR, Panama, Papua New Guinea, Sudan, Syria, Uganda, and Yemen. The notice can be found HERE.
OFAC sanctions updates The U.S. Treasury Office of Financial Assets Control has added a number of individuals and entities to its sanctions lists for VENEZUELA, UKRAINE and SYRIA. A number of individuals and entities associated with CUBA have been removed from the OFAC sanctions list.
FCA publishes its 2015/16 business plan The FCA has published its business plan for 2015/16, which includes a key focus on financial crime risk. The FCA said: “Financial crime poses a significant threat to the realisation of our objective to promote and enhance the integrity of the UK financial system”. It added that financial crime risks arise from steps not being taken to address money laundering, bribery, and corruption. The FCA stated that it would continue to challenge the “often poor anti-money laundering systems and controls we see in firms of all sizes”. The 2015/16 FCA business plan can be found HERE.
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FINANCIAL CRIME DIGEST
PRESS AND MEDIA: MONEY LAUNDERING
The Bank of Beirut has been fined GBP 2.1 million by the Financial Conduct Authority and stopped from acquiring new high risk customers for 126 days. The bank was found to have repeatedly provided the regulator with misleading information after it was required to address concerns relating to its financial crime systems and controls. Anthony Wills and Michael Allin, respectively the former compliance officer and former internal auditor at the bank, were also fined. The final notices can be accessed HERE.
Banca Privada d’Andorra, one of five
HSBC has announced that it is reviewing customer accounts held in Jersey for sufficiency of client identification documentation. The bank is said to have exited customers where there are concerns over tax compliance issues. HMRC reportedly began an investigation into certain customers’ tax affairs in Jersey three years ago, following a tip-off from a whistle blower.
national banks in Andorra, has been designated a foreign financial institution of primary money laundering concern by FinCEN. Subsequently to the announcement, Andorran authorities have reportedly taken direct control of the bank. Andorra’s credit rating has been reduced by Standard & Poor’s as a direct result of the FinCEN action. The FinCEN notice is HERE.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: BRIBERY & CORRUPTION Kenya has brought charges against 12 people
Romania’s anti-corruption chief has been arrested,
accused of involvement in what has become
on corruption charges. Horia Georgescu, director
known as the Anglo Leasing bribery and
of Romania’s National Integrity Agency, was
corruption scandal. The case centres on a
detained on suspicion of overvaluing property
Liverpool-based company that, in 2004, was
seized by the communist government before it
linked to 18 allegedly inflated state security
was returned to its previous owners. The alleged
contracts reported to be worth USD 700 million, in
crimes were committed in 2008 to 2009, when he
some cases awarded to phantom entities. The
was on the committee for National Authority for
case led to public outrage, but a legal case fell
Property Restitution, and they may have
apart in 2005 due to a lack of evidence. The
defrauded the state of some GBP 54 million.
country’s political elite were accused of being complicit in the schemes.
China’s Ministry of Public Security has launched a new round of its campaign, code-named operation “Fox Hunt”, to track down foreign assets of corrupt Chinese officials. In a statement by the ministry, it announced that the new “Skynet” operation would focus on arresting corrupt officials or suspects involved in similar crimes who fled to major Western countries, including the U.S., Canada, and Australia. The ministry said it would be working closely with the People’s Bank of China and the State Administration of Foreign Exchange to monitor suspicious flows of monies remitted to foreign bank accounts. It also said it would launch a crackdown on underground banks.
Switzerland’s Office of the Attorney General has announced it has frozen around USD 400 million in assets relating to the bribery and corruption scandal at Petrobras, and that ongoing probes have identified more than 300 accounts at more than 30 "banking institutions" in the country that the officials say were apparently used to process bribery payments now under investigation in Brazil.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: SANCTIONS
Commerzbank AG agreed to pay USD 1.45 billion to settle actions relating to charges that it processed payments on behalf of entities designated by US sanctions on Iran and in relation to accusations that the bank enabled Olympus Corporation of Japan to orchestrate a huge accounting fraud. In addition to the USD 1.45 billion penalty — divided among the New York Department of Financial Services, the Manhattan district attorney’s office, the United States attorney’s office in Manhattan, the Treasury Department, the Federal Reserve, and the Justice Department’s criminal division — the bank agreed to admit to its conduct in a statement of facts. The deal with the New York regulator, Benjamin M. Lawsky, also required the bank to install an independent monitor and dismiss individual employees tied to the case, leading to the resignation of the person in charge of money laundering and sanctions compliance in the bank’s New York office.
A U.S. Justice Department official has said that some banks that have non-prosecution agreements over failures to police actions to control financial crime could see those deals withdrawn or be forced to plead guilty. Assistant Attorney General Leslie Caldwell said: “The criminal division will not hesitate to tear up that agreement when that action is appropriate". In the last three years, HSBC Holdings Plc, Standard Chartered Plc, JPMorgan Chase & Co, and Commerzbank AG have entered into either nonprosecution agreements or deferred-prosecution agreements. The agreements allow cases to be settled in return for fines and pledges by banks to prevent a recurrence of the violations.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: FRAUD
A court in Israel found Ehud Olmert, the country’s former Prime Minister, guilty of fraud and breach of trust after a retrial of the corruption case that had forced him to resign six years ago. The court ruled that Olmert had accepted cash stuffed in envelopes totalling approximately USD 150,000 from American businessman Morris Talansky between the period of 1992, when Olmert first ran for mayor of Jerusalem, Two U.S. federal officials involved in the investigation into Silk
and 2005 when he was
Road, a digital marketplace known for its association with payments
minister of trade. In 2014,
in Bitcoins, have resigned and been charged with money laundering
Olmert was sentenced to six
and fraud. Former DEA agent Carl Mark Force IV is alleged to have
years in jail for accepting
stolen and converted, for his own use, approximately USD 776,000
bribes in a real estate deal
worth of Bitcoins. Former Secret Service agent Shaun W. Bridges is
while he was mayor of
alleged to have diverted more than USD 800,000 to his own
Jerusalem. Olmert is
account. A lawyer for the alleged mastermind behind Silk Road has
currently appealing the 2014
called the federal investigation flawed. Force reportedly had
sentence, whereas he is due
moonlighted as a compliance officer for CoinMKT, a currency
to be sentenced for the fraud
exchange firm, whilst working as a DEA agent.
case in May.
The UK’s Serious Fraud Office began a probe into the Bank of England’s emergency lending measures taken during the 2007-2008 financial crisis, amid fears that the central bank may have been affected by the Citywide rigging scandal. The probe was initiated after the Bank of England passed on findings to the SFO of its own investigation which focused on whether senior central bankers were aware that money-market auctions may have been rigged in 2007-2008.
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FINANCIAL CRIME DIGEST PRESS AND MEDIA: INSIDER TRADING
Julian Rifat, a former trader at Mayfair hedge fund
The Financial Times reported that the Financial
manager Moore Capital, was sentenced to 19
Conduct Authority has experienced a sharp
months’ imprisonment for his part in an insider
increase in the number of suspicious transaction
trading scheme that made nearly GBP 1 million.
reports (STRs) in 2014 that flagged possible
Rifat was targeted as part of the FCA’s Operation
instances of market abuse. A total of 1,626 STRs
Tabernula, the UK’s largest ever insider trading
were filed in 2014, up from 1,308 in the previous
investigation. He was found to have colluded with
year. The number of STRs also contrasted sharply
Graeme Shelley, a trader at Novum Securities, and
with those made during the pre-financial crisis
Paul Milsom, an equities trader at Legal & General.
era: in 2007, only 328 STRs indicating possible
Milsom and Rifat, with senior responsibilities for
market abuse were filed, according to statistics
dealing with market-sensitive information, would
from the FCA. Commentators stated that the
pass this information on to Shelley, who would
FCA’s policy of “credible deterrence” had led to a
proceed to make heavy spread-bet and contract-
culture of “if in doubt, raise an STR”. The FCA has
for-difference trades via his brokers, making
levied penalties against a number of banks for
profits as soon as the market moved.
failures to properly report transactions (although these were not necessarily suspicious in nature).
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