The role of professional money launderers

August 29, 2018 3 minute read

Swiss bankers, Maltese FIs and Venezuelan elite – a recipe to embezzle $1.2 billion

Between 2014 and 2015 Venezuela’s now President, Nicolas Maduro and his three stepsons alledgly embezzled over $1.2 billion from Venezuela’s state oil and gas company, PDVSA.  The money was laundered through two companies using a currency exchange scheme and deposited into the accounts of Maltese domiciled financial institutions, Portmann Capital Management and Sparkese Bank. Real estate in Miami was also used to hide some of the money. It was in Miami last week, that Matthias Krull, a former managing director of a Swiss bank was charged for his role in orchestrating the scheme from Switzerland.

In his guilty plea Krull gave telling evidence on the exact way he set up the scheme. A particularly worrying element was his use of complicit money managers, brokerage firms, banks and real estate investment firms in the United States and elsewhere, to launder the funds. It should be no surprise that such a large sum of money needed a network to launder it but what will happen to these complicit parties? Likely very little, which is why the FATF recently released a report looking at the methods and networks used by professional money launderers. This story and the report should serve as a reminder that many of the people who play a vital role in the laundering of money are often much closer than we think.

Could Europe undermine US sanctions on Iran?

US sanctions are beginning to have a real impact in Iran. Last week, British Airways and Air France announced that they would be stopping flights to Tehran and the Independent reported on the impact of sanctions on the average Iranian citizen. The value of the rial has fallen by over half since April and there are reports that the black market in greenbacks is thriving. Iran’s economic plight is so bad that government representatives even appealed to the International Court of Justice to ban the US from reintroducing sanctions. The Trump administration certainly seems to be achieving their desired objective.

But this may not last long. During a press conference on Monday, the German and French Finance Ministers said they were working on a way to “sidestep” US sanctions. A “Franco-German” financing tool would offer the opportunity to continue euro-based trade between the continent and Iran. For Iran, this would offer vital access to foreign currency and an additional trading partner to Russia and China. Creating a financing tool which doesn’t infringe on the extra-territorial nature of US sanctions will however, require some economic wizardry. If successful, Europe will send a strong message to the US that they will no longer be pawns in America’s increasingly lonely foreign policy agenda. 

Will the hills be alive with the sound of FinTech?

Switzerland’s financial regulator, Finma has been quietly at work. Back in June, they launched a new licensing category for FinTechs designed to foster innovation in the country’s financial services sector. It effectively created a FinTech license but to ensure responsible innovation it has now opened a consultation on the best way to incorporate this new category under the country’s AML legislation, the Anti-Money Laundering Ordinance (AMLO). The current legislation places all financial institutions under the same CDD requirement, the consultation proposes relaxing these requirements for smaller FinTechs removing compliance as a barrier to entry.

Finma’s approach is interesting. The consultation proposes that companies who have a gross revenue of less than CHF 1.5 million (USD $1.536 million) would not need to set up an independent AML unit and would have to follow much more limited reporting requirements than large financial institutions. This consultation is certainly progressive and will make Switzerland an attractive place to set up a FinTech business, something that the regulator may have been aiming for. Zug, the “crypto valley of Europe” was once the hottest place to establish a crypto-related business, but increased competition from the Caribbean and other offshore regions has diverted entrepreneurs elsewhere. As the Swiss review their AML/CFT legislation they will hope to remain attractive to cryptos and FinTechs alike.