Anti-money laundering controls failing to detect terrorists, cartels, and sanctioned states

By Joshua Fruth

NEW YORK (Thomson Reuters Regulatory Intelligence) – Regulators are holding financial institutions responsible for the real-life consequences of anti-money laundering (AML) failures. Firms must reconfigure their transaction monitoring programs to identify the emergent, multi-dimensional money laundering and terrorism finance methods that are defeating today’s rules-based detection scenarios. Adopting an actor-centric hybrid threat finance (HTF) model can cut compliance costs, reduce risk, improve regulatory relations, and increase the usefulness of suspicious activity reports (SARs).

Financial institutions are required by the Bank Secrecy Act (BSA) to detect and report customers engaged in money laundering, fraud, terrorist financing, and sanctions violations. With millions of customers, banks have fielded automated transaction monitoring systems, which use money laundering detection scenarios known as rules, to alert firms to certain customers for potential violations. Current industry detection logic has proven flawed and inefficient at identifying financial crime, resulting in record-breaking regulatory fines for financial institutions that fail to detect terrorists, drug cartels, and sanctioned state actors exploiting the U.S. financial system.


Banks have spent billions on transaction monitoring systems that scrub their accounts for possible money laundering schemes. Detection rules are action-based and target suspicious transaction behaviors, such as excessive cash deposits, structured transactions intended to avoid government record-keeping thresholds, and rapid money movement through one bank to another.

Customers who violate the detection rules trigger a system-generated alert, which is reviewed by an internal investigator. Despite decades and billions of dollars in industry investment, over 95 percent of system-generated alerts are closed as “false positives” in the first phase of review, with approximately 98 percent of alerts never culminating in a suspicious activity report (SAR).

False positives cost the financial industry billions of dollars in wasted investigation time each year but more importantly, expose banks to steep fines and reputational damage for failing to identify bad actors involved in organized crime, sanctions evasion, or terrorism. Banks can reduce risk by reassessing their detection strategies, which presently lack the focus or sophistication to identify illicit source behavior.


Unlike fraud, money laundering stems from a precursor criminal act, like extortion, misappropriation of funds, or trafficking. As such, most global money laundering is perpetrated by transnational criminal organizations (TCOs), rather than individuals. Bank accounts used to launder illicit proceeds may be set up for personal or business use, but are most often used to cleanse funds on behalf of a threat organization. As one might imagine, different threat groups launder money in different ways.

For this reason, law enforcement agencies (unlike banks) target money laundering purpose; meaning they consider both source criminal behavior (e.g. drug trafficking) and illicit organizational membership. When a U.S. law enforcement investigation into a crime syndicate or terrorist group identifies suspect bank accounts, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issues request for information notices (known as 314(a) forms) to those banks. The resulting case investigations often reveal that banks failed to detect or investigate these suspicious accounts, leading to increased regulatory scrutiny that opens the floodgates to fines and remediation.


When bank AML programs neglect detection considerations for money laundering purpose and preceding illicit activities, they fail to identify bad actors exploiting the firm. Such failures have caused major institutions to incur hundreds of millions, or billions, in regulatory penalties and associated costs. Global and retail banks, money service businesses (MSB), digital currency exchanges, and casinos are all at risk of crushing enforcement actions. Financial institutions globally have been fined over $321 billion by regulators since 2008 (PDF)(here), with $42 billion in fines in 2016 alone.

The monetary penalty value, according to a McKinsey & Company analysis dating back to 2005, turns out to be the lesser issue when compared with the following:

—A regulatory fine is a top-five loss event for any bank (alongside embezzlement, loan fraud, revelations of deceptive sales practices, and anti-trust settlements);

— Corporate share values decline approximately 6 percent the day fines are announced;

— Cease and desist orders result in loss of new programs, vendors, and business plans;

— Remediation costs over the first 18 months are typically 12 times greater than the fine itself.

Firms incur not only financial loss, but also reputational harm. Regulatory enforcement actions often feature specific language indicating that banks aided and abetted terrorism, drug trafficking, and human trafficking by failing to detect and report illicit activity. Financial institutions have learned the hard way that regulators hold them responsible for the broader outcome of AML failures, not just their program’s procedures. Additionally, media outlets are quick to capitalize on negative news about large corporations, which can trigger a public relations disaster, especially when amplified by viral social media.


When a regulatory fine is enforced upon a bank, it is often accompanied by a consent order requiring a forensic (lookback) examination of customer data to identify previously undetected risks and suspicious activity. This often results in tens of thousands (or more) of historical transaction-monitoring alerts that need to be reviewed in tandem with current alert output. As a result, many banks hire external consulting firms to address the alert backlog, which can end up costing many times more than the regulatory fine itself.

Many of these same consulting firms market AML detection products and services that claim to reduce false positives and improve SAR filing percentages. For retail banks, these firms focus on tuning the very action-based rules that failed in the first place, without providing new scoring tables or custom data attributes to improve performance. In global correspondent banks, the detection rules are even less focused, due to limited information on external parties (i.e., non-customers) conducting global wire transfers.

More expensive providers market high-tech applications, like unsupervised machine learning (UML) and artificial intelligence (AI) software, billed as a turnkey solution that updates scenarios based on quantitative abnormalities that lack common-sense detection logic. These applications are largely developed by technical specialists such as computer scientists who are unlikely to possess the requisite law enforcement, intelligence, and financial crime backgrounds to effectively target emergent risks.

AML detection is a dynamic process that requires awareness and consideration of transnational security issues, public policy, and the regulatory climate – areas simply not being calculated into these AI scenarios. While UML/AI software improves efficiency in many business areas by instantly siphoning through vast quantities of structured and unstructured data, the complexities of money laundering tradecraft means there can be no magic bullet for solving detection challenges.

Keep in mind: AML detection is already automated, just not predictive. Transnational criminal organizations employ professional money laundering cells that do not operate within the confines of expected, predefined, overly-broad transactional actions. Firms that continue to focus their detection strategies on UML/AI software and broad action-based targeting will fail to identify emergent threats and risk the ire of regulatory agencies.


Criminal cartels, hostile states, and terrorist groups today form hybrid threat alliances that extend through their finances. In some cases, one single group may be classified as a hybrid threat organization. The Lebanese Shiite Islamic group Hezbollah is one such example.

Designated by the U.S. State Department as a terrorist organization, Hezbollah is aligned with the Iranian Islamic Revolutionary Guard Corps (IRGC), Palestinian Hamas, Yemen’s Houthi rebels, and nearly one-hundred Shiite militant groups in Iraq, Syria, Afghanistan, and elswehere. These connected Shiite militant groups (Hamas is Sunni) collectively report to Iranian Supreme Leader Ali Khamenei. Iran is subject to a number of U.S. and international economic sanctions.

Hezbollah has recently become a hot-ticket political issue for U.S. Attorney General Jeff Sessions, who in January 2018 announced the Hezbollah Financing and Narcoterrorism Team (HTNT)(here), an interagency team of prosecutors and investigators tasked with targeting Hezbollah’s criminal and money laundering networks. This announcement followed revelations outlined in a media report alleging the Obama administration derailed a Drug Enforcement Administration (DEA) program targeting Hezbollah’s trafficking operations(here), in order to secure the 2015 Iran nuclear deal(here).

Sessions has indicated(here) that targeting Hezbollah’s money laundering operations will be a primary focus of the current administration; an emphasis set to extend to bank regulators.

According to a December 2016 terrorism finance report (PDF)(here) by the U.S. House of Representatives Financial Services Committee, Hezbollah is a hybrid threat organization with a global footprint. With a structure that includes a Lebanese political party, conventional military, Iranian terrorist proxy force, and crime syndicate, Hezbollah is one of the world’s most unique and versatile threat groups.

Hezbollah’s crime syndicate is extremely multi-faceted, with long-held narcotics, human trafficking, and counterfeit goods underworld networks throughout the tri-border Area of Latin America, the Middle East, North/West Africa, and Asia.

Hezbollah maintains one of the most sophisticated and efficient trade-based money laundering (TBML) operations in the world, as evidenced by the 2012 Lebanese Canadian Bank laundering case (PDF)( Their TBML tradecraft is so proficient that they hide drugs and cleanse narcotics proceeds by owning all parts of an elaborate global distribution network that falsifies the number of shipments and amount of products shipped, while concurrently hiding counterfeit goods among legitimate products(here).

This double-dipping smuggling and false invoicing operation provides the profit margin Hezbollah needs to purchase weapons, tactical kit, and to provide logistical support to their global insurgency operations in places like Iraq(here), Syria(here), and Yemen(here).

Hezbollah’s business and money laundering tactics are extremely specific and unique (compared to other groups) and require seasoned intelligence practitioners to identify. They use virtually all banking products, including international wires, retail services, prepaid products, and money service businesses (MSBs) at different operational echelons, ranging from international/strategic to regional, domestic support companies (DSC), and at the tactical level.

Accordingly, this one organization presents separate enforcement and reputational risks at different levels of operation.

Like Hezbollah, other militant groups, drug trafficking organizations (DTOs), human trafficking outfits, and hostile nation-state actors are also competent money launderers. They too possess a hierarchical, multi-echelon global structure that utilizes numerous controls designed to subvert modern AML detection mechanisms. These groups hire professional money launderers with a detailed knowledge of compliance that could rival the AML experts working at banks.

Professional money launderers working for global threat organizations launder funds in ways that superficially appear entirely legitimate, failing to raise red flags through conventional detection strategies. Put simply, these professional criminals are unlikely to make amateur mistakes, such as structuring or rapid withdrawal of cash.


Detection logic focused on simple transactional behavior will never successfully identify money laundering operations by sophisticated hybrid threats like Hezbollah. Banks might think unsupervised machine learning (UML) and artificial intelligence (AI) software sounds new and exciting, but these programs detect anomalies and mistakes that professional money launderers are unlikely to make.


The best way to address these challenges is with a detection platform based on the hybrid threat finance (HTF) concept derived from the U.S. Department of Defense “hybrid threat” doctrine. The military, intelligence, and law enforcement communities recognize the hybrid nature of international conflict relations, in that threat organizations across different classifications are deeply interconnected. HTF methodology targets the extension of those connections into financial markets, focusing detection strategies on the fund flows and intersections between one or more threat groups or operational echelons in international and retail banking, gaming, MSBs, and digital currency exchanges.

Institutions should adopt an “actor-centric” HTF model that targets bad actors with precision, increasing SAR efficacy rates and decreasing false-positive alerts. This concept relies heavily on a typology matrix, which analyzes a bank’s geographic nexus of services, products, and customer base, while cross-referencing identified risks in the global threat landscape. Matches between geography, product line, and high-risk customer profile are tied to specific threats, which leads to the implementation of targeted detection scenarios.

Additionally, it is incumbent upon banks to also train their investigations, sanctions, and risk personnel in these new detection scenarios. Sound detection strategies are of little value if the people investigating the behavior lack the requisite knowledge to identify and escalate threat activity.


The New York Department of Financial Services (NYDFS) in 2017 implemented new bank transaction monitoring requirements (Part 504) (PDF)(here), which redefined SARs to include the following language: “identifies suspicious or potentially suspicious or illegal activities”. This is in stark contrast to past regulatory language that called for the identification of suspicious “transactions”.

Regulators are holding financial institutions responsible for the outcomes of compliance failures, not just their processes. AML units who update their detection logic to a hybrid threat finance model stand to cut costs, reduce risk, improve regulatory relations, and provide improved financial intelligence products to law enforcement, intelligence, and military officials keeping our nation safe.

Latvia banks still complicit in money laundering, claims US

The US has warned Latvia that its banks are still involved in money laundering despite the enforced liquidation of the country’s third-largest lender following similar allegations, according to the Baltic state’s finance minister. Dana Reizniece-Ozola met Marshall Billingsea, the US assistant secretary for terrorist financing, in Riga on Thursday to discuss American concern and Latvia’s attempted clean-up. “We are being told that banks are still used to transfer funds associated with persons, companies or countries on which sanctions have been imposed . . . It was made clear during the meeting that problems still exist in the financial sector,” Ms Reizniece-Ozola said after the meeting, according to state broadcaster LSM. The comments highlight how the US is keeping up the pressure over money laundering on Latvia, known for attracting large deposits from Russians and from people from other former Soviet states as part of a previous pledge to become the Switzerland of the east. Latvia’s government has promised to crack down on what it calls the non-resident sector, which is almost completely separate from its domestic banking industry, dominated by Swedish lenders. Latvia’s finance minister added: “The risks have to be reduced as quickly as possible. Banks must realise that they have to give up this dangerous type of business: either they have to change their business methods or fold.” Ms Reizniece-Ozola said that US officials had yet to provide proof of their new claims. Latvian officials had earlier complained that the US had not offered evidence for its allegations about ABLV.

ABLV received what some in Riga have termed a “death sentence” after a US Treasury official accused it of “institutionalised money laundering” and helping finance North Korea’s missile activity. It was only then that the matter came to the attention of the European Central Bank, which was ABLV’s supervisor. A little over a week later, it decided ABLV should close. Concern over Latvia’s non-resident banks is long established. French worries almost delayed Latvia’s entry into the euro amid concern for the potential of money from former Soviet countries entering the EU through such lenders. Latvia has also faced scrutiny of its financial system after its central bank governor was detained in an anti-corruption probe. Ilmars Rimsevics, who denies the allegations, has been banned by Latvian authorities from travelling abroad. Latvian ministers want him to resign but cannot sack him. Mr Billingslea declined to comment to journalists in Riga. The ECB said on Thursday that it had asked the EU’s top court to rule if it were legal for Latvian authorities to ban Mr Rimsevics from his duties.

Massive money laundering, drug network taken down by federal authorities

ederal prosecutors in San Diego announced Thursday they have indicted 75 people nationwide, including 40 in San Diego, in a massive drugs and money operation that interim U.S. Attorney Adam Braverman called the biggest money laundering investigation ever in San Diego.

The defendants laundered drug proceeds from the Sinaloa cartel for years, Braverman said at a news conference at the federal building in downtown San Diego announcing the wide-ranging operation. He said the network was responsible for laundering tens of millions of dollars in drug profits in the past three years.

Investigators have seized $6 million in cash as a result of a three-year probe undertaken by a long roster of federal and local law enforcement under the FBI’s Cross Border Violence Task Force, as well as hundreds of pounds of drugs like methamphetamine, fentanyl, heroin, cocaine and marijuana.

The leader of the operation, 32-year-old Jose Roberto Lopez-Albarran, was arrested in San Diego on Feb. 9 and has been in custody ever since. He made an initial court appearance Thursday afternoon in federal court.

Another 21 people who were named in a series of four related indictments handed down by a San Diego grand jury are also in custody, officials said. The balance of the 19 San Diego defendants are under indictment but remain fugitives.

While the investigation was centered in San Diego and has the majority of defendants, Braverman said another 35 people were charged for their role in the money laundering and drug sales in federal courts in Ohio, Kentucky, Kansas and Washington. At least 25 of those defendants were in custody as of Thursday.

The leader of the organization was Lopez, who authorities said oversaw a large network of people dubbed “money movers” who shuttled huge amounts of cash around the country, picking up drug sale proceeds for eventual transfer to Mexico.

The mover stashed the cash in hidden compartments of vehicles, or in cash-stuffed duffel bags, luggage, even shoe boxes. They picked up the cash in parking lots, hotels and restaurants in San Diego and other cities large and small — Dayton, Ohio, Los Angeles, and Lexington, Ky.

The cash was then deposited in banks using so-called “funnel accounts.” Such accounts, a tool of money-laundering criminal groups, are set up at U.S. banks that can receive deposits from multiple states. The money is deposited in chunks of less than $10,000 — the threshold over which banks are required to file official reports with regulators.

The money would then be wire transferred to Mexican bank accounts for bogus Mexican companies, which were actually businesses controlled by the organization. Another co-defendant, Manuel Reynoso Garcia, orchestrated the money-laundering activities.

The 62-year-old Garcia was charged last month in federal court here with money laundering conspiracy and other charges. He has pleaded not guilty. Court records show he was released on Jan. 31 on a $25,000 bond and ordered to remain on home detention and wear a GPS device to track his movements.

The investigation involved undercover work by investigators from the District Attorney’s office, sheriff and Chula Vista police to infiltrate the organization, Braverman said. Their work identified both the money movers and, through them, a network of drug trafficking cells across the country, according to authorities.

The organization used code words as well as WhatsApp, a messaging application, to communicate about the money movements and transfers.

“We have siphoned the cash and life out of a San Diego-based international money laundering organization with ties to the Sinaloa cartel,” Braverman said.

UK Art Dealer Matthew Green Charged In $9 Million Picasso Money Laundering Scheme

US government officials have charged British art dealer Matthew Green with using a pricey Picasso painting to help launder more than $9.2 million (£6.7 million), a representative for the Department of Justice confirmed to artnet News. Green was arrested in the US last week and is currently being detained.

Investigators allege that the proposed Picasso sale was connected to a $50 million stock scam. Green, who is the son of prominent London dealer Richard Green and was a co-director of the Richard Green Gallery and, more recently, Mayfair Fine Art, is one of ten people and corporations named in the 29-page indictment. The indictment, which was unsealed by the US Attorney’s office on February 28, focuses on the stock manipulation scheme and violations of US law requiring citizens and taxpayers to report offshore and international holdings to the IRS.

 The indictments are the result of work by several undercover FBI agents who recorded their conversations with defendants regarding alleged stock manipulation, money laundering, and falsifying the ID’s of the various offshore account holders.

“As alleged in the indictment, the defendants engaged in an elaborate multi-year scheme to defraud the investing public of millions of dollars through deceit and manipulative stock trading, and then worked to launder the fraudulent proceeds through off-shore bank accounts and the art world, including the proposed purchase of a Picasso painting,” US Attorney Richard P. Donoghue said in a statement.

Two of the other defendants, Beaufort Securities investment manager Peter Kyriacou and his uncle Aristos Aristodemou, suggested to an undercover FBI agent the possibility that he launder the proceeds of his illegal stock manipulation with an art transaction, according to the indictment. Kyriacou and Aristodemou then offered to introduce the agent to Green, and Aristodemou explained that the art trade is “the only market that is unregulated” and advised that art was a profitable investment because of “money laundering,” according to court papers.

The indictment alleges that between March 2014 and February 2018, Kyriacou, Aristodemou, and Beaufort were involved in defrauding investors in various publicly traded companies in the US “by concealing the true ownership” of the companies and “manipulating the price and trading volume in the stocks of those companies.”

Kyriacou, Aristodemou, and Green allegedly proposed that the undercover agent purchase, from Green, Pablo Picasso‘s Personnages (1965). Green “provided paperwork for the painting’s purchase. The money laundering scheme was halted prior to the transfer of ownership of the painting,” according to a statement from the Justice Department.

A Picasso painting matching that title and date was last offered publicly at an Impressionist and Modern evening sale at Christie’s London in 2010, according to the artnet Price Database. At the time it carried an estimate of £3 million to £5 million ($4 million to $7 million) and failed to sell.

Past owners of the painting, as listed in the provenance, or history of ownership, include a Paris gallery, a private collection in Switzerland, a private collection in Sweden, a Berlin gallery, and an unknown buyer who acquired it in 2000. It is not clear when Green acquired the painting or if he was the actual owner or was offering to sell it on behalf of a consignor. A source familiar with the work told artnet News that the painting is currently on loan to a museum in Denmark.

According to the indictment, on or about February 5, the agent met with Kyriacou, Aristodemou, and Green in London. During the meeting the undercover agent “once again explained his involvement in stock manipulation deals.” The defendants proposed that, after buying and maintaining ownership of the painting for an unspecified period of time, Green would arrange for the resale of the Picasso and then transfer proceeds back to the undercover agent through a bank in the US.

During the meeting, Green said that, in part, “it was important for him to make more than a five percent profit on the transaction so that he would not be asked why he was ‘in the money laundering business’,” according to the indictment. He further stated that he would address an invoice for the painting to a company that the undercover agent specified.

Pakistani businessmen plead guilty to money laundering in US

Two Pakistani businessmen have pleaded guilty before a US court to money laundering in connection with funds they received for the unlawful export of goods to Pakistan.

Muhammad Ismail, 67, and Kamran Khan 38, now face a maximum jail term of 20 years.

Since the time of their arrests in December 2016, Ismail has been released on a USD 50,000 bond, and Kamran Khan has been released on a USD 100,000 bond.

According to court documents and statements made in court, from 2012 to December 2016, Ismail, and his two sons, Kamran and Imran Khan, were engaged in a scheme to purchase goods that were controlled under the Export Administration Regulations (EAR) and to export those goods without a license to Pakistan, is violation of the EAR

Imran, 43, has already pleaded guilty to violating US export laws.

Through companies conducting business as Brush Locker Tools, Kauser Enterprises-USA and Kauser Enterprises-Pakistan, the three defendants received orders from a Pakistani company that procured materials and equipment for the Pakistani military, requesting them to procure specific products that were subject to the EAR.

When US manufacturers asked about the end-user for a product, they either informed the manufacturer that the product would remain in the US or completed an end-user certification indicating that the product would not be exported, federal prosecutors said.

After the products were purchased, they were shipped by the manufacturer to them in Connecticut. The products were then shipped to Pakistan on behalf of either the Pakistan Atomic Energy Commission, the Pakistan Space & Upper Atmosphere Research Commission or the National Institute of Lasers & Optronics, all of which were listed on the US Department of Commerce Entity List.

The Entity List identifies foreign parties that are prohibited from receiving some or all items subject to the EAR unless the exporter secures a license.

They never obtained a license to export any item to the designated entities even though they knew that a license was required prior to export.

Money laundering is a massive threat. The financial sector can help prevent it.

Money laundering is the process of converting funds obtained through illegal activities into clean cash. This type of crime hurts society because it robs public coffers and deprives citizens of revenues that could fund better public services. And it has devastating consequences for the economy, society and our security.

Most people associate money laundering with activities such as drug dealing, prostitution and gambling. But those are just its most recognized facets. A multitude of illicit activities, such as terrorism, arms dealing, sex trade, government corruption, organized crime and human trafficking are also connected to financial crime.

Its magnitude is enormous: It represents a staggering 2 percent to 5 percent of the global GDP, or roughly $1 to $2 trillion annually, according to the United Nations Office on Drugs and Crime. Only a small fraction of that is apprehended by authorities. To put that in perspective, Canada, one of the world’s 10 largest economies, had a 2016 GDP of $1.5 trillion, according to the World Bank.

Money laundering is closely associated with the financial sector. And that’s why professionals in banking and finance must be vigilant and trained with the latest tools available to combat financial crime.

In the past few years, there have been a spate of headlines involving money laundering in South Florida. Among them: the illegally mined gold scheme, in which a Miami-based company aided Latin American drug lords to smuggle the precious metal into the U.S.; the corruption charges that led to the downfall of the mayor of Hallandale Beach; and the Miami-based couple accused of running a sophisticated human smuggling ring. All relied on money laundering to legitimize their financial operations. Over the years there have been numerous other high-profile cases — many with strong South Florida and Latin American ties — that involved well organized money-laundering plots, including Bernard Madoff and the FIFA scandal.

Because criminal organizations rely on financial institutions to launder and move funds around the world, banks and other financial services firms are subject to very strict anti-money laundering (AML) regulations. These financial institutions collaborate closely with government agencies and spend hundreds of billions of dollars to detect and report suspicious activities. The number of compliance personnel has continued to grow, and the technology has advanced.

Yet, the struggle against financial crime continues more intensely than ever. And this is why we must increase our focus.

AML efforts are being shaped by challenges from increasingly sophisticated criminal organizations and an ever-changing compliance landscape. And with a globalizing economy, financial systems are becoming more interconnected, with an increasing volume of transactions moving around the world.

Added to the challenge: Financial crime legislation can vary greatly from country to country, so criminals flock to regions where they have a greater chance of avoiding detection — countries with the weakest money-laundering laws, such as many developing economies.

Also, money laundering has benefited from technology and has grown with it. New payment methods (including cryptocurrencies) and increasingly automated customer interactions, combined with larger volumes of financial transactions add to the challenge of preventing money laundering.

These are formidable challenges. But we have the power to overcome them. Every banking professional must take responsibility and stay abreast of the risks posed by financial crime to better prevent it, including the following basic actions:

▪ Understand their customers by conducting rigorous due diligence.

▪ More swiftly report suspicious activities to authorities.

▪ Undergo frequent training to stay current with best practices and latest technologies.

If financial sector professionals follow these ground rules, we have a real chance of preventing financial crime and eradicating the perpetrators behind it.

David Schwartz is president and CEO of the Florida International Bankers Association (FIBA).

Global AML Watchdog to Step Up Crypto Money Laundering Scrutiny

The Financial Action Task Force (FATF), a global inter-governmental body that aims to tackle financial crime, has said it will step up its efforts in monitoring the use of cryptocurrencies in money laundering.

According to a memo published last Friday of its latest meeting, the task force said it has taken on board the findings of a recent report regarding the risks of cryptocurrency money laundering and the regulatory measures being adopted in different countries.

As a result, the FAFT has decided to implement additional initiatives to address the risks of cryptocurrency in money laundering.

Founded in 1989, the task force consists of ministers from its member jurisdictions who help determine standards and execute legal, regulatory and operational measures to fight money laundering, terrorist financing and other cross-border financial crimes.

Although the agency has yet to put out a concrete policy for implementation, the meeting nonetheless signals growing attention from worldwide regulators over illicit uses of cryptocurrency that could undermine the global financial system.

In fact, according to South Korea news agency Yonhap, the country’s financial regulator, the Financial Service Commission, was required to brief other 36 member states on its work bringing in anti-money laundering compliance rules for domestic cryptocurrency exchanges.

As reported previously by CoinDesk, South Korea had long been allowing exchanges in the country to offer trading services for investors via anonymous accounts, which, according to the South Korean customs agency, helped facilitate unregistered mvement of over $600 million in capital.

South Korea subsequently banned anonymous trading accounts and is now requiring exchange platforms to put in place real name verification of accounts before resuming operations.

Money laundering watchdog places Pakistan back on terrorist financing list with potentially painful consequences

  • A global money-laundering watchdog has decided to place Pakistan back on its terrorist financing watchlist.
  • The move is part of a broader U.S. strategy to pressure Pakistan to cut alleged links to Islamist militants unleashing chaos in neighboring Afghanistan and backing attacks in India.
  • Pakistan had launched last-minute efforts to avoid being placed on the list, such as taking over charities linked to a powerful Islamist figure.

ISLAMABAD (Reuters) – A global money-laundering watchdog has decided to place Pakistan back on its terrorist financing watchlist, a government official and a diplomat said on Friday, in a likely blow to Pakistan’s economy and its strained relations with the United States.

The move is part of a broader U.S. strategy to pressure Pakistan to cut alleged links to Islamist militants unleashing chaos in neighboring Afghanistan and backing attacks in India.

It comes days after reports that Pakistan had been given a three-month reprieve before being placed on the list, which could hamper banking and hurt foreign investment.

The United States has spent the past week lobbying member countries of the Financial Action Task Force (FATF) to place Pakistan on a so-called grey list of nations that are not doing enough to combat terrorism financing.

Pakistan had launched last-minute efforts to avoid being placed on the list, such as taking over charities linked to a powerful Islamist figure.

But the campaign proved insufficient and the group decided late on Thursday that Pakistan would be put back on the watchlist, a senior Pakistani official and a diplomat with knowledge of the latest FATF discussions told Reuters.

“The decision was taken yesterday. The chair (of FATF) is expected to make a statement some time this afternoon in Paris,” the diplomat said.

Both officials spoke on condition of anonymity.

Pakistan’s foreign ministry spokesman declined to confirm or deny the news at a regular news briefing on Friday, saying the FATF would make an announcement on its website.

“Let the things come out, and then we can comment on the U.S.-Pakistan relationship,” spokesman Mohammad Faisal said.

Pakistan was on the list for three years until 2015.

Painful consequences?

Camp David GCC
U.S. President Barack Obama hosts a working session of the six-nation Gulf Cooperation Council (GCC) at Camp David in Maryland May 14, 2015.

Earlier in the week China, Turkey, and the Gulf Cooperation Council (GCC) were opposing the U.S.-led move against Pakistan but by late on Thursday, both China and the GCC dropped their opposition, the diplomatic source said.

He added that the financial consequences would not kick in until June, which, in theory, could allow Pakistan time to fix financing issues.

“But the odds of that, particularly in an election year, seem slim,” he added.

Pakistani officials and analysts fear being on the FATF list could endanger Pakistan’s handful of remaining banking links to the outside world, causing real financial pain to the economy just as a general election looms.

Under FATF rules one country’s opposition is not enough to prevent a motion from being successful. Britain, France and Germany backed the U.S. move.

Pakistan has sought to head off its inclusion on the list by amending its anti-terrorism laws and by taking over organizations controlled by Hafiz Saeed, a Pakistan-based Islamist accused by the United States and India of being behind 2008 militant attacks on the Indian city of Mumbai in which 166 people were killed.

On Tuesday, Foreign Minister Khawaja Asif tweeted that Pakistan had received a three-month reprieve, adding that it was “grateful to friends who helped”.

U.S. President Donald Trump last month ordered big cuts in security aid to Pakistan over what the United States sees as its failure to crack down on militants.

Pakistan rejects accusations that it sponsors Taliban militants fighting U.S. forces in neighboring Afghanistan and says it is doing all it can to combat militancy

NH Lawmaker Says State Liquor Commission Aiding Cross-Border ‘Money Laundering’

In New England, New Hampshire is well known for tax-free liquor sales, which makes the Granite State a popular destination for out-of-staters looking to stock up on alcohol.

State-run liquor outlets dot highways near the state’s borders.

But now, a politician is accusing the New Hampshire State Liquor Commission, which regulates alcohol sales, of skirting federal law.

With few exceptions, the IRS requires businesses to document when someone spends more than $10,000 in cash on a single purchase. State liquor rules also require employees to fill out this IRS documentation anytime someone is “purchasing a volume of product totaling $10,000 or more in cash, either through one or multiple related transactions.”

New Hampshire Executive Councilor Andru Volinsky alleges the agency is turning a blind eye to illegal cash transactions involving out-of-state purchasers. Volinsky claims the commission may be allowing bulk liquor buyers to evade IRS reporting requirements, or steering staffers away from documenting smaller purchases that are, in fact, part of larger buying sprees.

He says the issues were brought to his attention by liquor store employees, and he also observed some of them firsthand.

With the help of an employee who was acting as a whistleblower, Volinsky said he recently witnessed two people spend $24,000 in a series of bulk purchases— all in increments under the $10,000+ limit — paid for using “a very large wad of cash” and a credit card.

“What I personally observed on February 3, 2018 confirmed what I had been told; that is, that cash bulk sales transactions appear to be done openly, are widespread and the practice is long running,” Volinsky wrote in a letter to the New Hampshire Governor and Attorney General.

Large, illicit purchases by out-of-state residents at New Hampshire liquor stores are well-documented in recent years.

In December, a New York City man was arrested with 757 liters of liquor in his vehicle. The driver of the vehicle drove to New Hampshire, where he made purchases at five different liquor outlets in the state, according to law enforcement officials there. He was arrested in New York, and pleaded not guilty to two counts of felony tax evasion, which carry up to a four year prison sentence.

“It is clear that our state is profiting from cash bulk transactions where at least some of the cash is coming from illegal trafficking, whether in drugs, guns or humans,” Volinsky wrote in his letter. “The stories are widespread of customers arriving at stores in out-of-state trucks and SUVs with wads of cash stuffed into their pockets, money belts and socks.”

And Volinsky alleges the Liquor Commission is disregarding the practice. He points to a memo from liquor commission leadership discouraging store employees from reporting cash liquor purchases to the IRS unless they have a definitive reason to believe a customer is making a series of purchases that add up to $10,000 or more.

Volinsky claims he’s been told that state liquor store employees have been instructed not to look closely at the cars of people buying bulk liquor in cash, “to avoid learning that the customer has purchased cases of liquor at other [New Hampshire Liquor and Wine Outlet] stores.” He also claims that the liquor commission has installed cash counting machines in some of its stores, which he interprets as a further indication that the state is at some level aware of the problem.

Separately, State Employees’ Association President Rich Gulla said that liquor store employees have voiced concerns about the same issues, but fear speaking up publicly would put them at risk for retaliation from the Commission.

“They are starting to feel like a drug dealer,” Gulla said. “Because it is not common for folks to come in and drop $9,000 all on Hennessy products, and then leave and go to another store and do the same thing.”

Volinsky is now calling for an outside investigation.

The State Liquor Commission, which reported record-breaking $698.2 million in sales last year, acknowledges no such wrongdoing. In turn, the agency accuses Volinsky of conducting a “sting operation” in an attempt to turn the commission into a “political football.”

The liquor commission says “there’s nothing illegal or unscrupulous about making large sales to out of state customers as long as our employees follow the policies in place set forth by the State and federal government.”

They say the memo discouraging employees from some reporting was framed as a response to what liquor commissioners described as excessive filing patterns and potentially discriminatory practices at some of their stores. Commissioners wrote that some staff were allegedly “profiling customers” and reporting cash transactions that fell under the IRS threshold “without providing any proof of illegal activity.”

And they claim Volinsky is the one who may have broken state rules.

“Among those infractions included violating policies set to protect the security of our store, privacy of our customers and integrity of our inventory,” the liquor commission wrote in a statement. “More awkward and alarming was the three hours of video footage of the Councilor lurking around the interior, exterior and backroom of the store, and curious attempts to conceal his [sic] identity during his ‘sting operation.’ ”

The Commission also suggests that Volinsky and Gulla “allowed or pressured a long-tenured manager to continue with the sale, when they knew of the potential personnel actions that could be taken against an employee in violation of these policies.”

In Vermont, local law enforcement were notified by New York State officials to be on the lookout for vehicles carrying large quantities of liquor purchased at New Hampshire liquor stores during promotional periods.

In the last six months, Vermont Commissioner of Liquor Control Patrick Delaney says his enforcement officers made two arrests — one with an estimated $40,000 worth of New Hampshire purchased liquor in the back of an SUV, the other with an estimated $28,000 worth.

In each of those cases, Delaney believes the defendants made all-cash and reward-card based bulk purchases at multiple liquor store locations.

“By using cash, there is obviously no paper trail, if an authority were to investigate it,” says Delaney. “The activity itself is basically tax evasion.”

The two drivers allegedly violated Vermont state law, which prohibits anyone from carrying more than nine liters of distilled spirits across its state line.

Delaney adds that his agency’s focus is not on transactions taking place between New Hampshire liquor stores and their customers, but does note that the IRS did contact him about all-cash transactions in the Granite State.

The IRS would not confirm any active investigation into all-cash bulk transactions.

“While we will not discuss a particular taxpayer’s situation,” writes a spokesperson for the IRS, “we are aware of this and similar schemes being used in a variety of different forms in order to evade certain reporting requirements.”

Neither of these cases confirm Volinsky’s allegations that the New Hampshire Liquor Commission is facilitating money laundering activities, or turning a blind eye to potentially illegal bulk cash transactions. And the councilor acknowledges as much.

But ruling that out, he says, requires some kind of independent investigation.

“I don’t know that anyone has committed a crime; I don’t know that anyone is doing anything illegal,” Volinsky said on Thursday. “But there is enough here that this needs to be looked at, and you can’t count on the agency that’s being looked at to provide you the answers.”

This report comes from the New England News Collaborative, eight public media companies, including Rhode Island Public Radio, joining together to tell stories of a changing region with support from the Corporation for Public Broadcasting.

Money Laundering Via Author Impersonation on Amazon?


Patrick Reames had no idea why sent him a 1099 form saying he’d made almost $24,000 selling books via Createspace, the company’s on-demand publishing arm. That is, until he searched the site for his name and discovered someone has been using it to peddle a $555 book that’s full of nothing but gibberish.

Reames is a credited author on Amazon by way of several commodity industry books, although none of them made anywhere near the amount Amazon is reporting to the Internal Revenue Service. Nor does he have a personal account with Createspace.

But that didn’t stop someone from publishing a “novel” under his name. That word is in quotations because the publication appears to be little more than computer-generated text, almost like the gibberish one might find in a spam email.

“Based on what I could see from the ‘sneak peak’ function, the book was nothing more than a computer generated ‘story’ with no structure, chapters or paragraphs — only lines of text with a carriage return after each sentence,” Reames said in an interview with KrebsOnSecurity.

The impersonator priced the book at $555 and it was posted to multiple Amazon sites in different countries. The book — which as been removed from most Amazon country pages as of a few days ago — is titled “Lower Days Ahead,” and was published on Oct 7, 2017.

Reames said he suspects someone has been buying the book using stolen credit and/or debit cards, and pocketing the 60 percent that Amazon gives to authors. At $555 a pop, it would only take approximately 70 sales over three months to rack up the earnings that Amazon said he made.

“This book is very unlikely to ever sell on its own, much less sell enough copies in 12 weeks to generate that level of revenue,” Reames said. “As such, I assume it was used for money laundering, in addition to tax fraud/evasion by using my Social Security number. Amazon refuses to issue a corrected 1099 or provide me with any information I can use to determine where or how they were remitting the royalties.”

Reames said the books he has sold on Amazon under his name were done through his publisher, not directly via a personal account (the royalties for those books accrue to his former employer) so he’d never given Amazon his Social Security number. But the fraudster evidently had, and that was apparently enough to convince Amazon that the imposter was him.

Reames said after learning of the impersonation, he got curious enough to start looking for other examples of author oddities on Amazon’s Createspace platform.

“I have reviewed numerous Createspace titles and its clear to me that there may be hundreds if not thousands of similar fraudulent books on their site,” Reames said. “These books contain no real content, only dozens of pages of gibberish or computer generated text.”

For example, searching Amazon for the name Vyacheslav Grzhibovskiy turns up dozens of Kindle “books” that appear to be similar gibberish works — most of which have the words “quadrillion,” “trillion” or a similar word in their titles. Some retail for just one or two dollars, while others are inexplicably priced between $220 and $320.

“Its not hard to imagine how these books could be used to launder money using stolen credit cards or facilitating transactions for illicit materials or funding of illegal activities,” Reames said. “I can not believe Amazon is unaware of this and is unwilling to intercede to stop it. I also believe they are not properly vetting their new accounts to limit tax fraud via stolen identities.”

Reames said Amazon refuses to send him a corrected 1099, or to discuss anything about the identity thief.

“They say all they can do at this point is send me a letter acknowledging than I’m disputing ever having received the funds, because they said they couldn’t prove I didn’t receive the funds. So I told them, ‘If you’re saying you can’t say whether I did receive the funds, tell me where they went?’ And they said, “Oh, no, we can’t do that.’ So I can’t clear myself and they won’t clear me.”

Amazon said in a statement that the security of customer accounts is one of its highest priorities.

“We have policies and security measures in place to help protect them. Whenever we become aware of actions like the ones you describe, we take steps to stop them. If you’re concerned about your account, please contact Amazon customer service immediately using the help section on our website.”

Beware, however, if you plan to contact Amazon customer support via phone. Performing a simple online search for Amazon customer support phone numbers can turn up some dubious and outright fraudulent results.

Earlier this month, KrebsOnSecurity heard from a fraud investigator for a mid-sized bank who’d recently had several customers who got suckered into scams after searching for the customer support line for Amazon. She said most of these customers were seeking to cancel an Amazon Prime membership after the trial period ended and they were charged a $99 fee.

The fraud investigator said her customers ended up calling fake Amazon support numbers, which were answered by people with a foreign accent who proceeded to request all manner of personal data, including bank account and credit card information. In short order, the customers’ accounts were used to set up new Amazon accounts as well as accounts at, a service that facilitates the purchase of virtual currencies like Bitcoin.

This Web site does a good job documenting the dozens of phony Amazon customer support numbers that are hoodwinking unsuspecting customers. Amazingly, many of these numbers seem to be heavily promoted using Amazon’s own online customer support discussion forums, in addition to third-party sites like

Interestingly, clicking on the Customer Help Forum link link from the Amazon Support Options and Contact Us page currently sends visitors to the page pictured below, which displays a “Sorry, We Couldn’t Find That Page” error. Perhaps the company is simply cleaning things up after being notified last week by KrebsOnSecurity about the bogus phone numbers being promoted on the forum.