The US sanctions Turkey in curious circumstances, art regulations see a high-security increase and BaFin launches a public-private partnership.

We share our financial crime highlights from the week of 14 October 2019.

US Sanctions Turkey

The US announced Monday it’s imposing sanctions on Turkey to punish the country for its continued advance into Syria.

This action is aimed specifically at Turkey’s defense, energy and interior ministers and, more broadly, at the country’s defense and energy departments. It also imposes secondary sanctions on any financial institutions that carry out transactions on behalf of these entities.

Other measures taken include doubling the tariff rate imposed on Turkish steel (from 25% to 50%) and immediately suspending trade negotiations between the two countries.

The move comes just one week after the administration began withdrawing US troops from along the border between Syria and Turkey—a decision that has drawn criticism from both major US political parties.

Tensions between Turkey and the Kurds, long-time allies of the US in its fight against ISIS, have been simmering for years. And many believe this was the opening Turkey needed to launch a military offensive against the Kurdish people.

Initial reactions to the sanctions and other punitive measures indicate these were more lenient than many had expected. And the Treasury has confirmed it plans to issue waivers to avoid disruptions to business conducted on behalf of the US government or Turkey’s energy supply. Yet President Trump has warned that continued military action will lead to additional, harsher penalties that could cripple the Turkish economy.

For its part, Turkey has shown no signs of backing down. But with Congress also expected to introduce much harsher legislation aimed at ratcheting up the pressure on Turkey, it’s clear that additional actions will follow. It stands to reason that any company doing business with Turkish entities will be subject to rigorous scrutiny for the foreseeable future.

High-Security Art Regulations

It’s no surprise to anyone that 5MLD is going to include the art world. Currently, the illicit art market has no concretely decided upon value and is frequently subjected to outlandish claims.

However, as of 2014, the global art and antiquities market was valued at €51 billion. The market is often used to hide money laundering activity.

Philip Rivkin demonstrated this sensationally by selling fake renewable carbon energy credits to oil companies and then hiding an estimated $15 million by purchasing art. It was a lucrative scam he had going before being sentenced to 10 years in prison in 2016.

Of course, 5MLD is more of a concern for European countries than the USA, but hopefully, where one jurisdiction goes, others will follow. The issue has hit the news again as art magazines are reminding the industry to prepare for change.

From January 10, 2020, the proposed enforcement date for 5MLD, banks and FIs will need to report any suspicious deals of €10,000 or higher or linked transaction of the same. This includes art deals and functions regardless of the form of payment. This includes activity in freeports as well.

The rule has come under criticism from art dealers and intermediaries mainly due to the €10,000 threshold which applies to most art deals. The International Confederation of Art and Antique Dealer Associations (CINOA) argues that the directive creates more bureaucracy for small businesses.

5MLD will see art dealers forced to provide information on all deals and customers to regulators. They will also have to establish the parties of deals and check intermediaries. Given the propensity for anonymous art purchases, it’s unclear what effect this will have on the art market in the short term.

Public-Private Crime Fighters

BaFin has entered into a public-private partnership with banks and other public authorities to combat financial crime.

The German regulator has launched the Anti Financial Crime Alliance (AFCA) alongside the Financial Intelligence Unit (FIU), the Federal Criminal Police Office (Bundeskriminalamt) and 14 banks, including Commerzbank..

Members of the AFCA intend to use the new partnership to quickly swap information on financial crime in a secure way.

There’s a great deal of positive sentiment around the partnership, BaFin Chief Executive Director, Dr Thorsten Pötzsch commented: “We are pleased that the AFCA has been launched and that we will be chairing the very first working group on the financial sector together with Commerzbank”.

The initiative seems similar to the UK’s Economic Crime Plan and it’ll be interesting to see which approach is more effective in tackling crime. It will likely hinge on whichever framework proves to be more efficient at communicating.

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