ILLICIT CASH and High Tide in Havana

June 14, 2019 5 minute read

Head of Financial Crime, Livia Benisty shares her financial crime highlights from the week of June 10th, 2019.

Such Limited Power

The Chief Executive of the European Banking Authority has stated that new powers given to the body to tackle money laundering are insufficient. He’s probably right. Jose Manuel Campa told the Financial Times in an interview that the mandate was a narrow co-ordinating role. It does appear to be mostly collecting, analyzing and disseminating information.

They’ve been given ten staff.

His argument is that to affect serious change legislation is needed to truly harmonize AML across the EU and yet that is not what is being asked of the EBA. This is despite the fact that AML powers in the region were centralized at the EBA in the wake of the Danske scandal which led to calls for a more powerful central authority to deal with the issue of Money Laundering.

Meanwhile, the European Commission is reviewing past cases such as Deutsche Bank and Societe General to decide if rules need to change. The findings will be issued in a report published this summer. The purpose of the review is to identify factors that contributed to failures documented at a series of institutions between 2012 and 2018.

Unfortunately for Deutsche, its case is far from in the past. Further weaknesses have apparently been identified by the bank’s Internal Audit team, specifically around cheques and high-value electronic payments. The issues seem never-ending for Deutsche at the moment, but something tells me (possibly the fact that I’ve worked in Compliance for large banks) that the fact this was found by Internal Audit is going to make the sting that much worse…

No More Shell Games

This week a bipartisan group of US senators announced they were introducing a bill requiring shell companies to disclose ultimate beneficial ownership. For those of you getting a sense of deja vu, you may be thinking about the Corporate Transparency Act 2019 (CTA) which I’ve written about before, but that’s going through the House of Representatives.

The Senate version is later to the game, but they have made up for it by the name. if you thought the USA PATRIOT Act was a great use of an acronym, wait for this: it’s called the ILLICIT CASH Act, Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings.

One key provision is to create federal reporting requirements that all beneficial ownership information of US Companies is held in a “comprehensive federal database” accessible to federal and local regulators.

In the CTA, applicants forming a corporation or LLC would have to report beneficial ownership information directly to FinCEN and keep that information up to date. Remember in Europe, the fifth anti-money laundering directive instructs member states to make sure that beneficial ownership is available to the general public. The availability of the information at least to regulated financial institutions is key here as any AML officer will know.

The US solution to have regulators access the information is only part of what’s needed; Banks need the information to conduct meaningful due diligence on potential clients. This information goes part of the way to determining if activity across that client’s account is likely to be legitimate. Saying all of that, as evidenced in the UK the information is only helpful to the extent that it is verified.

As with any piece of legislation, the devil will be in the implementation, although given the history of similar bills in the US, it will be interesting to see if it actually gets that far.

The House Doesn’t Always Win

Four gambling businesses have been fined £4.5 million for money laundering failures as part of an 18-month crackdown on the industry. Since the investigation began, 5 operators have surrendered their UK license. Last November 3 companies paid nearly £14 million for failures to put in place adequate measures against money laundering.

In December 2018 the Gambling Commission issued updated guidance which included FATF recommendations. The guidance emphasized the operators needed to establish more ‘detailed and specific’ arrangements. The onus is on senior staff to manage the relevant risks, and the guidance assists with implementing a risk-based approach. This article provides a meaningful summary of the guidance and the requirements in place, as well as detailing red flags which are important to consider when setting up your monitoring tools.

How Not to Get Away With Money Laundering

The NCA issued a release giving details of the dismantling of an extensive criminal organization that supplied class A drugs and laundered millions. It is a really interesting read detailing how officers conducted the investigation and some of the triggers which should arouse suspicion.

High Tide in Havana

The US has banned cruise ships from sailing to Cuba – flying in the face of the past three years of foreign policy aimed at easing relations with the superpower’s neighbor. The newest sanction is evidently punishment for Havana’s support for Venezuela. Private, public and knowledge-based boat trips have all been prohibited. It could cost Cuba’s economy tens of millions of dollars. The country saw 250,000 US visitors in the first four months of 2019 – double the total number who visited in 2018.

Economic Weapons

Finally, if you enjoyed the very high- level discussion from two weeks ago around why the US can deploy extraterritorial sanctions and the dominance of the dollar in the global economy you should read the Economist story discussing the US’s “wholesale weaponization of economic tools” which can be found here.