We share our financial crime highlights from the week of 29th July 2019.
Money Laundering with Abenomics
Japan is suffering from unprecedented levels of money laundering cases at the moment. Recorded cases have increased by 40% since 2000.
The money laundering spike could be an unexpected consequence of Prime Minister Shinzo Abe’s approach to revitalize the economy by repositioning Japan as a global player by creating free-trade agreements and encouraging a regulatory environment conducive to foreign investment.
International money laundering is rampant according to the whitepaper published by Japanese police, in one case Nigerian suspects withdrew approximately 37 million yen ($340,000) in conjunction with a U.S.-based scam.
The archipelago is well-placed as a waypoint for money laundering, there are 3.5 million SMEs in the country many of which operate overseas. It’s been suggested that this has made Japan attractive to criminal organizations due to the velocity and frequency of transactions working to disguise illegal activity. And it’s believed that organized crime forms at least 12.7% of all money laundering related crimes.
But Japan’s crypto market also has a role to play, cryptocurrency exchanges reported more than 10 times as many suspicious incidents of money laundering and illicit profits than in 2017. Japan toughened its stance on crypto storage and trading in May after long being open to decentralized currency. It remains to be seen if this will have any effect on the nation’s issues with money laundering.
Japan’s keen to tackle its money laundering problem and recently sent staff to FATF to facilitate international coordination.
PEPs Down Under
Politically exposed persons are always worth keeping an eye on. Something especially true in the case of Ming Chai, cousin of Chinese President Xi Jiping. The 61-year-old Australian citizen is accused of using a money laundering front company to help gamblers and suspected gang members to move funds through Australia.
The discovery was made by Australian law enforcement as part of a wider probe into organized crime, money laundering and supposed Chinese-influencing. Ming wagered large sums in high-stakes gambling at Melbourne’s Crown Casino and authorities are trying to track down the source of the money. Ming was considered a VVIP of the casino. This isn’t Ming’s first brush with the law, he was allegedly on a private jet that was searched in 2016 by Australian authorities seeking those connected to money laundering.
Criminal links are also potentially provided by Crown, the casino did business with a Macau junket operator that’s allegedly linked to triad syndicates. This was when the casino was attempting to attract the Chinese market back in 2016. It should be noted that the relationship between some of Macau’s junket operators and triads is essentially an open secret.
Ming Chai bet $39 million at the Crown Casino between 2012 and 2013 and was projected to bet $41 million in 2015 according to the casino’s internal documents. The case is a marked example of how money laundering in the gambling industry can still easily occur. It remains to be seen if the industry will respond and what regulators will do as a consequence of the affair.
The story draws some parallels with the Vancouver model, where the Canadian province was an unwitting bystander and accomplice to laundering over C$100 million over the course of a decade, since 2009. In that scenario, ill-gotten money was brought into the casino in cash and laundered through the games. In both cases, the casinos were not doing enough to check the source of incoming cash.
When Vancouver made it mandatory for gamblers to prove a legitimate source for the money being used they supposedly saw a 100 fold drop in suspicious transactions, so the solution seems simple enough from a distance.
Federal Risk-Based Assessments
Federal banking agencies in the US have issued a joint statement on risk-based assessments. The statement clarified that agencies will use a risk-based approach for examinations and that comprehensive risk assessments are “a critical part of sound risk management”. Although the statement is geared towards banks, it’s an important point for other regulated institutions; most regulators recognize that risk assessments are essential to implementing an effective program and will examine accordingly.
The emphasis on a bank’s own self-assessment of its risks could provide a key element of control during an exam, defining the boundaries of the program they have in place. It also becomes the target of an initial assessment which could set a positive tone for the rest of it.
The statement was also another call against de-risking. Banks doing what they are supposed to, operating in compliance with regulation and mitigating risks are “neither prohibited nor discouraged from providing banking services”, i.e. to entire categories of customers. De-risking has become a key concern of regulators and governments in recent years given rising costs of compliance and enforcement of regulation.
Money Mules in Schools
Money Laundering gangs are targeting school children to act as money mules. By coaxing older children into bullying and coercing younger ones to hand over their bank details and pin codes, groups use the accounts to deposit dirty money, usually by bank transfer, and withdraw it in cash.
Bank accounts belonging to children are likely to be ‘clean’, i.e. not have any history of suspicious activity. When looking at alerts from transaction monitoring tools, which notoriously generate large amounts of false positives, more attention is likely to be given to alerts on accounts with a history of such hits compared to those with no prior queries against them. Barclays’ analysis showed over 700 children aged 16 and under were victims of money muling in 2018. This number is up 1,400% over two years, demonstrating the increasing popularity of this method for masking illicit funds.