Head of Financial Crime, Livia Benisty shares her financial crime highlights from the week that’s past.
Crypto enforcement firsts for FinCEN and State of New York
In its first enforcement action against a peer-to-peer cryptocurrency exchanger, FinCEN has penalized a California based cryptocurrency trader for violating the BSA’s registration and reporting requirements. Eric Powers conducted an unregistered peer-to-peer exchange which is required by US law to observe the AML program regarding money transmitters.
Powers is accused of processing numerous suspicious transactions – including over 100 related to the Silk Road marketplace – without filing a suspicious activity report (SAR). Many of the transactions also involved the physical exchange of currency worth over $10,000 without filing currency transaction reports (CTRs).
New York State also conducted its first conviction, this time for crypto money laundering. The Manhattan District Attorney’s Office named two individuals who laundered $2.8 million through sales of steroids and other drugs via their website and on the dark web.
Bitcoin payments were laundered through intermediary wallets and then converted to US dollars using an exchange platform. In addition to crypto, the defendants accepted fiat currency via Western Union which they then laundered through false identities or international wire transfers from receivers outside the US.
Unicredit gets largest sanctions fine amidst ongoing US developments
Italy’s UniCredit S.p.A together with the German and Austrian subsidiaries will pay $1.3 billion to US authorities after pleading guilty to violations of sanctions on Iran and other countries. The fine is one of the highest issued in the US for sanctions related activities, probably reflective of the deliberate and willful activity highlighted in the prosecution.
Not only did the bank engage with the transactions but “work(ed) to cover their tracks to avoid detection”. According to Bloomberg “the bank’s core compliance team came up with an instructional guide designed to help the bank’s employees work around” the sanctions filtering tool implemented in 2004. The guide explained how to submit payments in an “OFAC-neutral” manner to not trigger any red flags. (I would have loved to be an investigator discovering that guide). The transactions occurred between 2002 and 2011.
Meanwhile, US sanctions policy continues to make news. The Iranian foreign minister stated on Wednesday that Iran will continue to defy US sanctions by finding buyers for its oil, and warned Washington there will be consequences if it tries to stop it. Waivers affecting China, India, and others are set to expire on May 2nd. There have also been many reports about how Iran, North Korea, and Venezuela have been attempting to evade sanctions through various schemes, however, Reuters has corrected a story it published saying Venezuelan state oil company PDVSA had been passing invoices from its oil sail to Russian state energy giant Rosneft. The correction issued this week said Reuters “could not determine payments were made under the proposed arrangement” and “experts see no violation of sanctions”. The story changed after Rosneft threatened to ban the news agency from operating in Russia.
UK Government releases key AML docs: FCA business plan and HMT open consultation on 5MLD
The UK Treasury (HMT) released an open consultation regarding the transposition of the Fifth Money Laundering Directive (5MLD). Even in the event of Brexit the UK is currently planning to implement the directive, which HMT states they played a significant role in negotiating. The consultation seeks views on how the government is planning to transpose the directive into UK law and evidence on potential costs and benefits of the changes.
It’s quite a long document, but in reading it I found a few points I found particularly interesting:
- On crypto assets, the consultation asks questions on topics including the appropriate definition to be used, the scale of illicit activity involving crypto assets and the scope of requirements around crypto asset ATMs and peer-to-peer platforms.
- On electronic money, there are questions as to whether the government should apply the exemptions in 5MLD, and whether payments should be allowed using anonymous cards.
- On the requirement to do enhanced due diligence (EDD) on business relationships or transactions involving high-risk 3rd countries there are questions around what it means to be ‘involved’ in a relationship or transaction
The most crucial point overall though is the question of whether the UK government should go above and beyond 5MLD requirements (called ‘gold-plating’). It’s clear it’s a possibility, however they state only “where there is good evidence that a material ML / TF risk exists that must be addressed”.
Also in the UK this week, the Financial Conduct Authority (FCA) published it’s 2019/20 business plan. The document outlines key priorities for the coming year. From the outset there is a focus on technological change, both in terms of the risks it brings to consumers and the financial system, and also the opportunities for innovation. A key cross-sector priority is improving tackling money laundering through intelligence and data. “We are also strengthening our ability to use technology to target criminals. We will use more advanced data analytics and machine learning techniques against money launderers and other financial criminals”.
The FCA also notes that intelligence sharing will be key, although focuses on sharing with government and other relevant agencies. I’ll be more excited when information between private sector firms is tackled in a meaningful way.