When FinCrime Experts Go Bad

June 5, 2020 4 minute read

N95 masks get caught up in trade-based money laundering, Belgium is struggling to capture any dirty money and what happens when financial crime experts start committing financial crimes?

We share our financial regulatory highlights from the week of 1 June 2020.

N95 Fraudster Caught Out

Fraud crimes have increased during the global pandemic as criminals have seen opportunities to exploit panic and soaring demand for products.

Using a common method of fraud, a 35-year-old man in Singapore claimed to be a supplier of N95 masks and personal protection gowns, priced the items at nearly S$1 million, and contacted an overseas-based distributor for the purchase of these items.

The distributor paid for goods which then never arrived. The man was caught and is now facing cheating with a maximum sentence of 10 years in jail. He will also face money laundering charges.

While authorities were able to pinpoint the fraudster relatively quickly, it does draw attention to how easy it is for fraud and trade-based money laundering to occur. Criminal organizations could easily use this crisis to hide their own money-laundering activity.

“Disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins” – the textbook definition of trade-based money laundering from FATF. It’s a relatively simple activity for criminal organizations with the infrastructure to better take advantage of the crisis than an opportunistic individual.

Singapore police commented that: “Through quick intervention and close collaboration with the three local banks, namely DBS, OCBC and UOB, the police’s Anti-Scam Centre managed to recover more than S$370,000 of the amount scammed.”

Efforts are underway to recover the rest of the stolen money, but consider just how many bodies had to collaborate together to catch one man’s badly-executed crime. Financial institutions need to make sure that transaction monitoring rulesets that they have in place are robust enough to identify this sort of behavior even when there are no clear victims.

Missing All That Dirty Money

Financial authorities in Belgium are struggling to identify dirty money flowing through the nation according to an early copy of an annual report from Cell for Financial Information Processing (CIF) that was seen by De Tijd.

Cocaine makes up a great deal of the illicit money flowing through the nation that houses much of the European Union’s bureaucracy. The Belgian cocaine market has an estimated value of €30 billion per year according to CIF but the money laundering unit was only able to send €11.5 million of that to the courts.

€1.54 billion in suspicious transactions was also reported by CIF in the past year, similar to recent years, forming 1065 cases. All of this shows that AML efforts are currently only capturing a sliver of the true dirty money market.

And even when cases do go to court they’re rarely successful. Between 2010 and 2019 only 633 cases resulted in a verdict, seeing €308 million taken in fines and forfeits. But when the cases involve monies totaling €13 billion it’s easy to see why unscrupulous businesses would take the risk of not enforcing their compliance obligations seriously.

However, that’s only regarding the cases that saw a verdict. It’s commonplace to have businesses and regulators settle outside of court in order to reduce costs and stop scandal for businesses and for regulators to recover money faster. So the picture is not quite complete.

But it’s undeniable that financial institutions need to get tougher with their AML compliance solutions and use tools that are able to effectively identify money laundering behavior so that more than a fraction of dirty money is seized and goes to court.

Corruption Expert Launders Money

A former Miami professor and recognized expert on drug cartels and corruption pleaded guilty to two counts of money laundering, the US Attorney’s Office for the Southern District of New York announced on Monday.

Prosecutors say that Professor Bruce Bagley, 73, who taught international studies at the University of Miami, helped launder over $2 million originally meant for the Venezuelan people on behalf of corrupt foreign nationals — and took a little for himself off the top in the process.

The charges are notable, especially since Bagley made a name for himself as an expert on drug cartels and organized crime in Latin America. In addition to co-authoring a book on the topic, his expertise has been well-recognized; he has been an expert witness in trials and before Congress, and his insights have been published in numerous journals and news articles.

After opening a bank account in the name of a company he created, Bagley allegedly started receiving deposits of around $200,000 from Swiss and UAE bank accounts owned by a Colombian national. This occurred once a month for about a year, from November 2017 to October 2018. Using a cashier’s check, Bagley would then send about 90% of each deposit to another individual’s account and deposit the rest into his personal bank account.

And while the suspicious transactions prompted the closure of Bagley’s business bank account in October 2018, Bagley was able to open a second account and, prosecutors say, continued with the transfers. Fake contracts were also allegedly drawn up to disguise the illicit activity.

The professor was arrested and put on administrative leave last November. He is now retired and facing up to 20 years in prison for each count. His sentencing is scheduled for 1 October 2020.