No More Gaps For AML?

May 15, 2020 4 minute read

The EU plugs some regulatory gaps, Zahid is back on trial and the US renews its GTOs.

We share our financial regulatory highlights from the week of 11 May 2020.

European Commission Closes AML/CFT Gaps

The European Commission is planning to disrupt the current supervision model for AML/CFT issues. The EU body has published a 12-month plan to close loopholes and plug gaps that allow money laundering. It’s accompanied by a public consultation on the issue which closes at the end of July.

A public consultation is always valuable as it shows the EC means business and is willing to work with companies to make sure that these closures are workable for all parties.

In a bid to combat regulatory divergence amongst Member States of the EU, the European Commission is proposing a ‘single EU rulebook’ to be published in Q1 2021. This would make for significant progress in combating money laundering as banks and financial institutions often find themselves having to calibrate compliance needs for similar but subtler different territories and that eats into effective compliance.

The plan has measures proposed to supply individual financial intelligence units (FIUs) with EU support regarding suspicious activity and transaction reports.

Numerous high-risk third countries were added to a list which is part of the new EC plan last week. These countries have been identified as having ‘strategic deficiencies’, however, the list has been plagued with political squabbling as to which countries should be included and seems to mix FATF’s greylist and blacklist together.

It’s unfortunate that a supranational group, which has seen numerous high-profile money laundering scandals in its own region, hesitates to tackle its internal issues as effectively by shifting focus to third party nations.

Zahid on Trial

Malaysia’s High Court has set new trial dates for UMNO President and former Deputy Prime Minister, Ahmad Zahid Hamidi.

The politician stands accused of 27 money laundering, eight corruption and 12 criminal breach of trust charges. He is facing a total of 47 charges, and 43 witnesses have been called to testify against him.

The court case had been delayed due to Malaysia’s Movement Control Order as a response to the global pandemic crisis but will resume on May 19.

Zahid is accused of having laundered tens of millions of ringgit funds from Malaysian charity foundation Yayasan Alkabudi.

The case has been beleaguered by delays prior to the pandemic and there have been fears that the case would be dropped now that Zahid’s party is back in power through a coalition government in Malaysia. This has been dismissed by Zahid himself who remains committed to clearing his name in court without case withdrawal.

US Real Estate GTOs Renewed

US regulator, FinCEN, recently renewed its geographic targeting orders (GTOs) for 12 metropolitan areas. Counties within the metropolitan areas of Boston, Chicago, New York City, Miami, Dallas-Fort Worth, San Antonio, Las Vegas, Los Angeles, San Diego, San Francisco, Seattle and Honolulu are affected.

The GTOs, which remain unchanged from the ones issued in November 2019, require title insurance companies within those areas to identify and report on the beneficial ownership of companies involved in all-cash residential real estate purchases of $300,000 or more. They remain in effect until 5 November 2020.

The first GTO was issued over four years ago in an attempt to close some of the gaps within the real estate market that make it an attractive option for criminals who are looking to launder their ill-gotten gains via the purchase of residential properties. The number of counties included has expanded since then — having started just with Miami and NYC — and the threshold for reporting has lowered over the years.

Also, while all-cash transactions have remained the focus, the GTOs have been revised to encompass more payment methods, including wire and other funds transfers and payments made with virtual currency.

The orders have been touted as successful, with lawmakers considering whether to enact similar regulations on a national scale. Research also suggests that shell company purchases of homes dropped significantly in the targeted markets after the first GTOs were announced in 2016. Yet overall sales remained unchanged, and buyers have likely just found other ways around the new reporting requirements.

Even so, FinCEN maintains that these GTOs have produced “valuable data,” and it seems likely these initially temporary measures will be renewed (and will perhaps extend to other jurisdictions) indefinitely. Title insurance companies in other real estate markets — especially emerging hotspots — would do well to ensure they are prepared for future regulatory guidance.