US regulators are united on hemp, 1MDB enters a new chapter and money mules are busted across the world.
We share our financial regulatory highlights from the week of 2 December 2019.
Regulators Unify on Hemp
Federal regulators have moved to clarify how removing hemp from Schedule I of the Controlled Substances Act affects reporting requirements for banks under the Bank Secrecy Act.
In a joint statement published Tuesday, four federal agencies and the Conference of State Bank Supervisors (CSBS) confirmed that financial institutions are no longer required to file suspicious activity reports (SARs) for businesses related to the growth and production of hemp simply because that’s the nature of their business. Instead, standard SAR procedures should apply, with a SAR filed only in the event of suspicious activity. It also explicitly puts the onus of complying with hemp regulations on the customers themselves, as opposed to having financial institutions try to assume that responsibility.
Even though the US government legalized hemp late last year with the Agriculture Improvement Act of 2018 (aka the 2018 Farm Bill), financial institutions have been wary of extending banking services to hemp-related businesses due to lingering confusion over compliance regulations. As a result, hemp companies, like their counterparts in the marijuana industry, have continued to primarily deal in cash to conduct business, which presents a safety risk and further complicates tax collection and auditing procedures.
That the effort to clarify the appropriate treatment of hemp-related businesses was a multi-agency one is encouraging and will go a long way toward reassuring financial institutions that they won’t get caught in a compliance quagmire. This, together with an interim rule issued in October by the Department of Agriculture that established a domestic hemp production program, should alleviate the all-cash issue. Additional guidance from FinCEN on this interim rule is expected in the coming months and will also help paint a clearer picture of what is expected of financial institutions that decide to engage with hemp-related businesses.
Marijuana-related businesses, however, will continue to occupy a gray area since it remains an illegal substance in the federal government’s eyes, even as many states have voted to legalize cannabis on a state-level.
Standing for Corruption
Najib Razak, former Malaysian Prime Minister, opened his defense against charges of abuse of power, money laundering and breach of trust while in office by taking to the stand.
The former head of state is also accused of taking $10.1 million from SRC International, a company now linked to the alleged embezzlement scandal of state fund 1MDB. Najib is pleading not guilty to all charges and claims that he has been at the heart of a witch hunt since last year, following the election of current Prime Minister Mahathir Mohammad.
Najib’s defense relies heavily on convincing the court that infamous financier, Low Taek Jho aka Jho Low was the mastermind behind the embezzlement and that Najib was duped. The former prime minister’s lawyers have some strong backing for their arguments – US investigators have identified Low, who allegedly used some of the embezzled funds to have the film Wolf of Wallstreet produced, as the mastermind.
Low is currently in hiding from authorities in the USA and Malaysia but has denied all wrongdoing.
Najib has said that Low and his compatriots were responsible for the scheme that saw approximately $4.5 billion taken from the 1MDB fund. The former prime minister faces between 15 and 20 years in jail if found guilty.
Breaking Money Mule Rings
228 people spanning 31 countries have been arrested through a Europol raid targeting money mules. The European Money Mule Action aka ‘EMMA’ saw combined action across Australia, Europe and the USA.
3833 money mules have been identified and Europol, with help from 650 banks, was able to make significant arrests. 7520 fraudulent transactions were investigated between September and November 2019 – more than 1000 criminal investigations have been opened and the action has seen €12.9 million seized.
Collaboration with financial institutions was vital to the operation. Money mules are transferring illicit cash through digital borders rather than physical ones so having FIs that are working closely with regulators and law enforcement to understand behavior is key.
We’ve written extensively on money mules in our schools and all walks of life this year. It’s a prevalent issue, often disguised as get rich quick schemes online or posted as job ads on social media. In some cases, unlucky victims are romanced into opening an account in their name and funneling illicit funds through it.
In the wake of this increase in money mules, Europol has launched its #DontbeaMule campaign with information on how to avoid becoming a victim and criminal in 25 languages.