FinCEN is targeting its powers, Ghosn has had a blockbuster escape and Malaysia is seeing a significant shift in compliance.

We share our financial regulatory highlights from the week of 30 December 2019.

The 311 for FinCEN

FinCEN’s newest division overseeing foreign and domestic investigations, the Global Investigations Division, may soon require US financial institutions to provide more customer information to Treasury in a bid to curb foreign money-laundering entering the US economy.

While that’s the reason being touted this could also be to bring US standards in-line with FATF recommendations, which are currently being transposed across EU Member States through 5AMLD. It’s as yet unclear what information is going to be required from financial institutions operating in the US. But for EU Members there’s a new requirement to provide a great deal more customer information in an easily accessible form for authorities.

However, FinCEN is also reportedly expected to use its targeted investigative powers more often – calling on the Patriot Act to block foreign banks from opening correspondent accounts with US financial institutions. It raises the question as to how foreign money will be able to enter the US economy.

This is typified through the US relationship with Iran which has seen FinCEN name the Middle Eastern country as a primary money laundering concern and prohibited Iranian financial institutions from opening U.S. correspondent accounts.

It may also be that this is part of US efforts to use sanctions as a primary diplomacy tool. Using what’s known as Section 311 authority, FinCEN can compel banks to follow certain requirements such as record keeping or increased CDD.

Section 311 has not traditionally been used in a domestic context, often used to target foreign banks and jurisdictions. The agency is keeping quiet about what types of account or transactions it could target but one thing’s for sure, Section 311 powers being used on domestic US institutions means that each one of them is going to need to make sure it can comply at a moment’s notice.

Ghosn Ghosts Japan

Right now there’s a financial crime drama unfolding across Europe and the Asian-Pacific that’s more gripping than any Netflix Special.

Former Nissan chairman and ex-CEO of Renault SA, Carlos Ghosn, fled Tuesday to his homeland of Lebanon from Japan, where he had been awaiting trial on charges of financial misconduct.

Mystery surrounds the escape, with four pilots having been detained in Turkey since it came to light that the former automobile executive — a citizen of Brazil, Lebanon and France — traveled by private jet to Istanbul and then Beirut. Ghosn was under house arrest in Tokyo and is not in possession of any of his passports.

The arrests were made after it came to light that Turkish authorities were not made aware that Ghosn was on-board the plane – providing some explanation as to how the accused ex-CEO managed to flee Japan without his passports. Reports regarding his escape from house arrest via a musical instrument box following a visit from a Christmas band are still uncorroborated.

This development is the latest in a lengthy legal saga that has made headlines since Ghosn’s initial arrest in late 2018. Tokyo prosecutors allege that the mastermind behind the Renault-Nissan-Mitsubishi alliance underreported his earnings and misused company resources for his own gain — including diverting $14.7 million from Nissan to a business partner for personal reasons and $5 million to a distributor in which he had a controlling interest.

Ghosn has maintained his innocence claiming that he is a victim in a plot constructed by some within Nissan who opposed deepening the alliance between the three auto companies. These conspirators are as yet unnamed but it appears as though accusations could be made soon.

Ghosn’s lawyer, Junchiro Hironaka, said he had not been made aware of any plans to escape but speculates that Ghosn feared he would not receive a fair trial in Japan. Whether or not that’s true, a not-guilty verdict appears improbable: Japan’s conviction rate is over 99%. With Ghosn facing a possible sentence of up to 15 years in prison, fleeing likely seemed the best option, especially as Japan doesn’t have an extradition agreement with Lebanon.

Given that Ghosn’s success such a point of pride for the Lebanese people that he was featured on a postage stamp in 2017, it’s unlikely that extradition requests will be granted. Especially when Ghosn has invested extensively in Lebanon, owning vineyards and real estate.

Carole Ghosn, his wife and believed chief architect of his escape, has in the past made many comments that attack the French government, lambasting President Macron’s inaction over her husband’s arrest. Carlos Ghosn is a French citizen.

Ghosn is poised to make a statement about his escape and the charges leveled against him once the holidays are over so keep your eyes peeled, it’s sure to be an interesting speech. Especially for a man with so many axes to grind.

Compliance Shifts in Malaysia

The central bank of Malaysia, Bank Negara Malaysia (BNM) has stepped up its activity on AML/CFT. A move that’s been long expected given the fallout from the 1MDB scandal.

BNM issued a revised policy document on AML/CFT that’s focused on targeted financial sanctions (TFS). These types of sanctions cover both asset freezing and prohibitions to prevent funds or other assets from being made available to the parties concerned.

It’s an area of compliance that will be a concern for many of the designated non-financial businesses and professions (DNFBPs) and non-bank financial institutions (NBFIs) that have been working to meet the requirements of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (AMLA) since 2001.

With this new guidance, it’s clear that BNM feels that previous efforts have been off the mark. Clarity will help but it would be interesting to see if BNM will work more closely with DNFBPs and NBFIs in the near future to create guidance that takes advantage of unique positions in the market and understands the capacity of the companies.

The guidance is tailored for these DNFBPs and NBFIs and outlines the obligations that these businesses will have to meet following on from failures that plagued Malaysia during the last decade.

It’s worth noting that the guidance takes effect from 1 January 2020 and was released on 31 December 2019. Making immediate adherence a patent impossibility for any institution and showcasing the importance of staying ahead of the curve on compliance requirements, because when changes are implemented sometimes it’s without any warning at all.

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