AML technology failings at Danske Bank
The money laundering saga at Danske Bank continues to drag on. Last Wednesday, news that the CEO had resigned made headlines across Europe. On Thursday, the UK’s NCA announced that they are investigating a suspect British firm that might have been involved in facilitating the scandal. But, perhaps the most interesting revelation from last week was made by the Wall Street Journal, who highlighted a section in the bank’s internal report on the failings of its IT system.
When the Estonian Branch of Danske Bank was acquired it was never migrated on to the wider group’s IT system for AML compliance. At the time, in 2008, the bank was feeling the pressure of the global financial crisis and it was seen as an unnecessary expense to change systems. This meant that not only was the bank’s central financial crime team unfamiliar with the parameters of the system but it was also not aligned with its tested central policies. These factors coupled with the fact that customer information was held and generated in either Estonian or Russian meant that the bank had little visibility on what was happening at the branch. Without visibility of customers or transactions, the bank was unable to tailor transaction monitoring rules to the appropriate risk of the branch, allowing potentially suspicious transactions to slip under the radar. The question to ask here is to what extent did this oversight contribute to one of Europe’s largest ever money laundering scandals?
A watched pot boils – Rising tensions between the US, Russia, China and North Korea
A new report by the UN has found that North Korea is evading international sanctions “with impunity”. The report, which has not been made public contains details of how the rogue nation continues to trade weapons, oil, and coal despite all being subject to sanctions. One of the most worrying findings is that North Korea is supplying and has supplied weapons to the Houthis rebels, perpetuating the civil war in Yemen. But rather than this report refocusing international efforts on sanctions enforcement it has been at the center of a tug of war between the US and Russia.
The US insists that Russia “watered” down the findings of the report. They allegedly did so to conceal their own involvement in breaching sanctions by trading oil with North Korea. Russia was also at the center of another diplomatic spat last week. The US placed new sanctions on China for purchasing Russian-made fighter jets and missiles. This move proved highly unpopular with the Chinese who summoned the US Ambassador to justify the new sanctions. With world leaders gathered in New York this week to hear Trump’s address to the UN General Assembly and Security Council tensions around sanctions are expected to be high.
Corralling crypto – the UK Treasury wants an end to the Wild West
The UK Treasury Select Committee last week released a much-anticipated report into crypto-assets. The report assesses a number of factors relating to them such as the wider use of blockchain in financial services, problems relating to price volatility and hacking and of course, financial crime. The report acknowledges that the financial crime risks posed by crypto-assets are closely tied to the level of anonymity offered by different products and that the lack of regulation on exchanges has become a key vulnerability.
The report concludes that the current ambiguity around crypto-asset regulation is not sustainable. Fortunate then, that the current FATF President, Marshall Billingslea announced last week that the international standards-setter is expecting to have guidance for the sector ready in time for its Plenary in late October. What this guidance is likely to include is being closely watched by the industry. The FATF FinTech and RegTech Forum earlier this month gave little away. Discussions mainly focused on the merits of existing regulatory regimes and the extent of risk presented by different players in the ecosystem. Whatever the outcome of the Treasury’s or FATF’s work it seems like days of the Crypto Wild West may be coming to an end.