Money Mule Mire

November 29, 2019 5 minute read

Westpac shares fall after response plan revealed, UK organizations launch money mule awareness campaign and Apple settles with OFAC.

We share our financial regulatory highlights from the week of 25 November 2019.

Response Plan Falls Short

Following on from one of last week’s stories, Westpac has taken steps to address the fallout from AUSTRAC’s allegations that it is responsible for 23 million anti-money laundering breaches, including some that facilitated child exploitation in South East Asia. In a statement released Monday, Australia’s second-largest bank announced its response plan, which details immediate actions, as well as longer-term efforts to lift standards and more effectively protect people from financial crime.

Immediate actions include closing two international-funds transfer products identified as having facilitated suspicious transactions, freezing executive bonuses and working with law enforcement on their ongoing investigation. The firm will also “prioritize for action” transactions involving high-risk locations that they believe may indicate possible child exploitation, reporting those to AUSTRAC within 24 hours.

Among other longer-term measures, Westpac pledges to invest $25 million to improve data sharing and plans to hire an external auditor to review the company’s financial crime program. In addition, it will seek recommendations on actions it can take to help prevent online child exploitation in the future.

But for many, these initial steps may be too little, too late. The bank’s share price has suffered several consecutive days of losses due to last week’s revelations, and it tumbled an additional 1.57% in the first half-hour of trading after the response plan was revealed.

Senior members of Australia’s government have also condemned Westpac’s failure to comply with AML/CFT laws, demanding it go further in taking responsibility for its actions. The prime minister called on the CEO, Brian Hartzer, to step down — a call that was answered Tuesday — while Home Affairs Minister Peter Dutton accused the bank of giving “a free pass to pedophiles” and asserted that a “price will be paid.”

The final form that price will take remains to be seen. But it’s clear this scandal is far from over. As the investigation moves forward, it’ll be interesting to see if the findings result in not just additional punitive action but also meaningful legislative changes.

Money Mule Mire

Students in the UK are the targets of a new and slippery scam. Organized crime gangs are tricking young people into handing over their bank details, usually by way of a genuine-seeming offer of quick cash or employment. They then use the accounts to launder their ill-gotten gains by depositing funds and asking the scammed individuals — or money mules — to transfer the money to another account, keeping a small amount for themselves.

It’s a scam that has quickly picked up steam, with the number of cases increasing 73 percent in two years, from 3,360 in 2016 to just over 5,800 in 2018. Teenagers aged 14-18 are particularly vulnerable, although fraudsters have targeted younger children in a similar scheme.

Transaction monitoring tools will alert banks to suspicious activity, but the number of false positives these tools can generate means immediate attention is less likely to be paid to accounts belonging to school-aged children. By the time they’re investigated, the fraudsters (and money) are long gone. Though teens may be unwitting accomplices, the consequences of getting caught are serious, ranging from difficulty accessing student loans and applying for credit to prison time.

In an effort to combat the steep rise in cases, Cifas and UK Finance, a trade association representing over 250 firms, launched the Don’t Be Fooled campaign to raise awareness of the scam, its warning signs and the consequences of falling victim to such schemes. They have partnered with schools — secondary schools as well as colleges and universities — and police forces nationwide to promote the campaign and reach both students and parents.

While the campaign officially launched in 2017, Andy Foster, a fraud protect officer working for the South Yorkshire Police, states that efforts to raise awareness are especially timely as we enter the holiday season. Strapped-for-cash students looking to buy gifts for friends and family are easy prey. Keeping your guard up and understanding how the scheme operates is the first step to prevention.

Silicon Valley Sanctions Violations

Apple, Inc. will pay just under $467,000 for apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR), the US Treasury’s Office of Foreign Assets Control announced Monday.

The tech company entered into a legitimate agreement with SIS, an app developer in Slovenia, in 2008. But when the US sanctioned SIS and its majority owner in 2015 for their alleged involvement in international steroid trafficking, Apple’s sanctions-screening tool failed to flag the company due to a variation in case and punctuation. Even though the address matched, OFAC listed the company’s name as “SIS d.o.o.,” while Apple’s system used “SIS DOO.”

Apple also failed to identify the app developer’s majority owner, Savo Stjepanovic, because the company did not screen individual users against sanctions lists at that time.

SIS and Stjepanovic remained on OFAC’s sanctions list until May 2017. During those two years, Apple continued to host the developer on the App Store, allowed SIS to transfer ownership of its apps to two other companies and made a total of 47 payments related to the apps. Improvements to its sanctions compliance processes partially uncovered the error in February 2017. But while direct payments to SIS and one of the two companies were halted then, it took several months to detect and stop payment to the third company.

OFAC’s settlement with Apple is the latest in a series of high-profile actions by the agency, which has significantly stepped up its enforcement efforts. That such simple errors tripped up one of the largest tech companies in the world illustrates how easy it is to make a grave mistake when you lack the proper technology or processes. Companies, large and small, would be wise to take note and invest in advanced tools that enhance their own compliance programs.

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