Head of Financial Crime, Livia Benisty shares her financial crime highlights from the week that’s past.
Danske scandal sees first senior indictment as Danish authorities push for transparency
In the wake of the Danske scandal Denmark has cracked down on corporates with unidentified owners, doubling the number of corporate bankruptcies in April 2019 compared to a year earlier. The move comes as part of efforts to fight tax evasion and money laundering.
The drive towards greater transparency for legal entities is mirrored by efforts in the UK and the US through reform of Companies House and the Corporate Transparency Act 2019 respectively (see the story below). That said, the shadow of the Danske scandal hangs heavy over the Danish actions in particular.
This week Danske’s former chief executive, Thomas Borgen, has become the first senior manager to be indicted (the bank itself and several junior employees of the Estonian branch have been charged). Borgen’s rise to Chief Exec was fuelled in part by good results from the Baltic business which he managed after the global financial crisis.
Corporate Transparency initiatives get a boost both sides of the Atlantic
Companies House is to be given “major upgrade”, which will be “aimed at tackling misuse and ensuring its accuracy. The ‘overhaul’ will include “boosting staff, digital capabilities and other resources” to verify the details of owners and controllers of businesses registered in the UK.
The UK’s corporate registry has been accused of being “worse than useless” given the lack of basic checks they perform, allowing criminals to capitalise on a false sense of transparency in setting up corporate entities to hide illicit gains.
Meanwhile in the US, the Corporate Transparency Act of 2019 is set for discussion in Congress this week. The bill requires companies established in the US to disclose their real owners to the Treasury Department.
Nearly 2 million corporations and limited liability companies are registered in the US each year. Compliance officers often like to cite the stat that there are more companies registered in Delaware than people living there. A previous iteration of the Bill died due to inclusion of company service providers under obliged entities.
Japanese banks strengthen cross-border payments framework in advance of FATF review
Banks in Japan may stop counter services for overseas remittances which bypass bank accounts. MUFG will terminate the service next month, following their consent order earlier this year. The action is being taken in advance of the FATF mutual evaluation being conducted later this year. Regional banks have taken the lead in stopping some forms of such transfers as the services were found to be unprofitable in smaller cities.
Bank accounts belonging to foreign students and workers who had left the country were found to be kept open and sold for extra income and then used for fraud and money laundering. The Financial Services Agency and National Police agency have warned of this risk and are informing financial institutions to urge these expats to close their bank accounts when they return home.
US sanctions activity is yet to slow down
OFAC published a “Framework for OFAC Compliance Commitments” detailing what they believe to be the five essential components of a risk based sanctions compliance program (SCP). These are management commitment, risk assessment, internal controls, testing and auditing, and training. Overall the document is a reminder that firms have to be aware of evolving sanctions regimes, and consider their specific business model and risk profile when designing an appropriate SCP.
Speaking of evolving sanctions regimes, France has said international sanctions could be reimposed on Iran if it follows through on stated plans to roll back some of its 2015 commitments under its nuclear deal. Tehran has said it would scale back compliance after the US pulled out. Previously key European governments have remained signed up to the deal and worked to establish a workaround the reimposition of US sanctions, although thus far efforts have failed. If Iran does fail to comply with its end of the bargain European support could start to shift.
Finally, I’ve written before about how the use of sanctions as a foreign policy tool is inherently entwined with other political realities – in case you still had any doubts look at the calls to sanction China for detention of Muslims being held off for fear of derailing trade talks. Congress has been pushing for economic penalties on senior officials.