It’s been an interesting week for the compliance world, Malta came under fire from MoneyVal, the MAS is cracking open shell companies and casinos might be key to beating financial crime. We share our financial crime highlights from the week of 12th August 2019.
No Fight Left
A draft copy of Malta’s assessment by Moneyval has revealed that the experts on money laundering have taken a harsh view of the island nation’s commitment to investigating and prosecuting financial crime.
The criticism comes hot on the heels of further issues revealed last month by the Council of Europe after Malta’s failure of a final review on money laundering. The tax haven[link] was found to have dire shortcomings in fighting financial crime, with police both under-resourced and lacking the requisite knowledge to investigate financial crimes.
Malta has been judged, by the draft assessment, to view combating money laundering as a non-priority. The findings have the potential to “create within the wider public the perception that there may exist a culture of inactivity or impunity”.
Recent financial crime activity hasn’t helped the island’s reputation. A Malta-registered gaming firm operating in Italy failed to report €5bn and avoided a €124mn tax bill amid involved with the Italian mafia. That was just the latest in a long line of Malta-registered companies involved with organized crime.
It remains to be seen how the Maltese regulator will respond to the flurry of negative press. Hopefully, robust regulations will be delivered soon; criticisms from politicians have suggested that the increase in money laundering is a direct result of “the meltdown of the state institutions which are meant to fight money laundering.”
Shells Under the Microscope
The Monetary Authority of Singapore (MAS) closed accounts for various onshore shell companies after finding criminal transactions. It marks a change in criminal behavior worldwide to using onshore companies in financial hubs to escape detection from authorities.
Head of the MAS, Valerie Tay, warned that “when the modus operandi of criminals shifts to evade detection and the industry isn’t vigilant enough, the criminals can get their way.” While criminals getting their way is something no-one wants, it’s worth noting that 99% of laundered money is already evading capture. So perhaps criminals have been getting their way for a considerable length of time already.
Banks in Singapore have been directed by the MAS to search out shell companies that could facilitate the movement of money for criminal activity. Large and high-velocity transactions are key indicators for money laundering at most shell companies, using data analytics and network analysis focused on these factors banks have been able to trace the relationships between shell companies.
The method has potentially great efficiency in capturing laundered money as Singapore has managed to identify and return $225 million of the stolen 1MDB cash to Malaysia. However, the fund lost approximately $4.5 billion to money laundering, that’s roughly a 5% return over three years. There’s plenty of room for improvement in stamping out financial crime.
Singapore’s push towards AML comes in the wake of Malaysia’s 1MDB scandal from 2015. A significant amount of money embezzled from the fund was laundered through Singapore’s financial system. Since then the MAS’ AML department has been set up to consolidate AML efforts that were previously spread out across various departments.
Crime Fighting Casinos
FinCEN Director Kenneth Blanco has appealed to the gambling industry for its help in fighting financial crime. In a speech made at the 12th Annual Las Vegas Anti-Money Laundering Conference he detailed how network effects boost money laundering and the efficiency of financial crime.
Blanco focused on the power of diligence and transparency in combating financial crime, but in a way that hasn’t been done before. The Director of FinCEN wants to leverage the SARs that casinos submit under the Banking Secrecy Act using advanced technologies like AI and Machine Learning. He believes they can be a tool for law enforcement to track down and arrest bad actors in the financial system.
The speech contained a few coded accusations that the casinos have been slowing down on their compliance activity. Compliance budgets have been slashed in favor of retaining customers plus the quality and quantity of reporting are lower than FinCEN would like.
It’s a strange state of affairs considering the velocity and volume of transactions in the gambling space has skyrocketed since a landmark Supreme Court decision in 2018 opened up mobile betting. After all, casinos are still in charge of making sure these new transactions are legitimate.
FinCEN has yet to make any moves against the gambling sector but Blanco made a stark warning. The regulator is looking closely at the market and expects it to do better. It’s time for casinos to improve their regulatory due diligence and fight financial crime in the digital age alongside every other legitimate business in the financial network.
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