Global Watchdogs Take On Financial Crime – The Weekly Round-Up

March 22, 2019 5 minute read

Head of Financial Crime, Livia Benisty shares her financial crime highlights from the week that’s past.

Regulators around the world were hard at work last week putting in place initiatives to strengthen financial crime controls: Congress put forward three new bills to reform the BSA, Canada launched a new AML taskforce and UK regulators signed a MOU with EU counterparts to secure continuation post-Brexit. With these vital initiatives being set into motion, it will be fascinating to see what comes of it. 

1.US House Committee proposes bills to codify financial crime reform

The US House Financial Services Committee has proposed three bills to codify proposed reforms to financial crime regulation. The “BSA / AML Reform Bill” is divided into strengthening the treasury, improving oversight, and modernizing the AML system. There are two points I picked up on in particular. The first is an amendment to the BSA allowing banks to share SARs with foreign affiliates. I can attest to the difficulties of understanding the holistic risk within a global organisation when you can’t know why account activity at a foreign branch was suspicious; this amendment could go far to rectify this. The second is the creation of Innovation Labs to encourage the use of new technologies when complying with the BSA. It’s encouraging to see official recognition that new technology is needed to fix the system.

The Corporate Transparency Act of 2019 requires disclosure of beneficial owners of corporations and LLCs in the US. Finally the Kleptocracy Asset Recovery Rewards Act (KARRA) establishes a rewards program to incentivize individuals to notify the U.S. government of assets in U.S. financial institutions that are linked to foreign corruption.

2. Canada’s new anti-money laundering taskforce

The UK and US aren’t the only ones looking at governmental intervention to tackle financial crime. In his budget on Tuesday (19th March) Prime Minister of Canada, Justin Trudeau, announced funding for an anti-money laundering taskforce. The measures amount to funding of approximately C$200m in five years and additional ongoing funding.

Measures come at a time where Canada’s record for achieving prosecutions in money laundering cases has been criticized. In November 2018, criminal charges were stayed without explanation against two Vancouver-area residents in a massive money laundering case just about to go to trial in British Columbia; FATF suggested that more than $1 billion a year was laundered through the operation. British Columbia’s attorney general has suggested as much as C$2bn was laundered through the regions casinos and luxury real estate.

3. US being sued by sanctions targets

Close ally of Vladimir Putin, Oleg Deripaska is suing the US Treasury after being sanctioned by them last year. He claims the sanctions have wiped out 80% of his earnings and rendered him a “pariah” among banks and business partners. Deripaska was sanctioned last April for profiting from connections with Putin and the “malign” influence of Russia around the world. The lawsuit questions if the US can back up those claims.

Iran is also filing against individuals involved in US sanctions saying their reimposition was a “crime against humanity”.  

Meanwhile Trump has said the US could go tougher on sanctions against Venezuela.

4. ING faces renewed money laundering woes

Back in Europe, ING is not having a good year. In September 2018, they were fined $900m by US regulators for chronic and structural weaknesses which prevented them from stopping money laundering. This week the Bank of Italy has banned the bank from taking on any new customers in the country. This comes 6 years after being fined $619m for facilitating payments on behalf of Cuban and Iranian clients contrary to sanctions regulations.

The latest accusations come from investigations into funds stolen from various online accounts and ending up in accounts opened by ING Milan. One report states the main failure was around behavioral monitoring.

5. Baltics’ financial services face destabilisation with possibility of bank exits

With Danske and Nordea leaving the Baltic region, regulators there now fear Swedish banks are next in line. With the region being almost completely dependent on Swedish banks for their local banks, the impact would be large. As the Financial Times reports, Swedbank and SEB have market shares of more than 50 per cent in Estonia and Lithuania and 42 per cent in Latvia, based on assets or deposits. Money laundering scandals surrounding the Baltic arms of these banks have led to speculation over massive fines, and actions being taken by shareholders for millions of dollars.

Given the proximity of the Baltic countries to Russia, they are viewed as high risk for being a first point of entry for money launderers, a perception not helped by recent events. Swedbank is due to release the results of its external investigation today, Friday (22nd March).

Is the point here that the Baltics will end up with fewer banks and that this is bad for competition and the consumer? If so, I think this needs to be more explicit.

6. Bank of England, FCA and EBA sign MOU in case of no-deal Brexit

If a no deal Brexit happens, the British Financial watchdogs will continue to cooperate with their European counterparts. Information sharing is a key issue when considering what will happen once the UK leaves. Many have made the point that the UK should ensure that these channels remain open to ensure risks of illicit flows going through the country don’t increase. The Memorandum of Understanding (MoU) is not unexpected as there were reports of this being worked on in January, but it is a positive and timely announcement given the last few days.