AML

A Temporary Truce and the Spoils of Corruption

Head of Financial Crime, Livia Benisty shares her financial crime highlights from the week of June 3rd 2019.

Regulators Look Deeper into Technology in Financial Services


The Bank of England and the FCA surveyed more than 200 banks, insurers and financial market infrastructure firms in March. This
article claims it is their first systematic survey of using AI in money laundering checks. However, looking at a speech by James Proudman, Executive Director of UK Deposit Takers Supervision, on the 4th June at the FCA Conference on Governance in Banking, it doesn’t appear the survey was focused on AML. The focus was around understanding current and intended adoption of AI / ML, barriers to adoption, and how firms view risks arising from the technology. Full results from the survey will be published in Q3.

On the same day, Nick Cook, Director of Innovation at the FCA spoke at the Central Bank Executive Summit about how technology is changing financial markets and the importance of regulators embracing technology to regulate effectively. It had a slightly different tone, much more around the potential opportunities for tech and how essential it is to be at the forefront of innovation (to be expected given his role), and spoke about technology much more broadly than just AI/ML.

The disharmony on tone around AI/ML is intriguing, even within the FCA – known for being at the forefront of the issue – there’s a range of different appetites for the technology. . Looking to the US, however, I think the disparities can be even more pronounced. I’m thinking particularly of the OCC semiannual risk review which within the same document spoke about the high level of risk technological innovation brought to the stability of the industry and then went on to say how innovative tools need to be used for regulation, supervision and encouraging that development. I think we can expect to continue to see regulators increasingly demonstrating both optimism and caution when it comes to their approach to the issues, but particularly in the US a more consistent message overall would help clear the path for further investment and implementation.

A Temporary Truce Between EU and US over Iran Sanctions


In last week’s round up I talked about Instex, the result of the effort by European partners to continue to do business with Iran in the face of US sanctions. Towards the end of last week talks between US Secretary of State Mike Pompeo and his German counterpart, Heiko Mass, seemed to imply a full clash was avoided.

Pompeo noted that there were items that were not sanctioned by the US, such as humanitarian goods. These goods would be permitted to move through any mechanism, including Instex. Maas confirmed that the purpose of Instex was created to organise payment for transactions involving business activities and commercial deals that are ‘legal’, i.e. not subjected to US sanctions. Previously Europe has said it wants to expand the facility in the long term.

Meanwhile, tougher enforcement of sanctions on Iran’s petrochemical sector by the US has been delayed as tensions have risen between Iran and the US. Apparently, Iranian traders selling commodities said they had prepared for further sanctions by alerting front companies in places like Hong Kong. Whilst Iran has managed to sell oil by transferring cargoes to third parties, apparently, petrochemicals would be harder to smuggle due to the unique chemical properties of each factory’s products.

Corruption Spoils Found in Jersey Bank Account


More than $267 million (£210 million) belonging to Sani Abacha has been seized from a Jersey bank account. The money was “derived through corruption” during the presidency of the former Nigerian dictator in the 1990s. The funds were held in a shell company and frozen in 2014. But the sum is only a fraction of the $4 billion Abacha is said to have stolen while in power.

The case is a reminder of the volumes gained through corruption by those using their political status as a platform for criminal activity. In that context, the continued regulatory focus on Politically Exposed Persons is necessary. It’s also worth noting that the funds were in a shell company given the current push towards corporate transparency on both sides of the Atlantic.

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