Bank employees easiest path to financial crimes

Fees make up a large part of any bank’s profits. And when it comes to correspondent banking, such as when money is wired across borders from one bank to another, this includes service fees that create an important aspect of banking incomes.

That aspect of a bank’s returns is hurting which could make a bad situation worse, especially with government spending and private sector lending  slowing as a result of an anemic oil price situation.

To start with, look at what some bank employees are doing to undermine these types of transactions:

 Employee crime categories

According to PriceWaterhouseCoopers 2017 study and survey of businesses, 40 per cent of respondents indicated that their organisations had never performed a fraud risk assessment and that 65 per cent cited opportunity as the biggest factor driving crimes that are committed by employees.

The survey said that 49 per cent of the time, the crime involved asset misappropriation, 12 per cent of the time cybercrime, 15 per cent bribery and corruption and 16 per cent procurement fraud.

“74 per cent of all economic crimes reported in the last two years were committed by staff,” said PWC.

It said that global spending on anti-money laundering compliance could top $8bn by 2017.

According to the Committee on Payments and Market Infrastructures (CPMI), an international financial organization that promotes the safety of payments, correspondent banking is “an arrangement under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks.”

Unless well regulated, these types of transactions are fraught with dangers, including tax transparency issues, money laundering and terrorism funding.

According to an IMF 2017 report, correspondent banking relationships (CBRs), which facilitate global trade and economic activities, have been under pressure in several countries.

“Factors leading to global banks’ withdrawal of CBRs are multiple, generally reflecting correspondent banks’ assessment of the profitability and risk of the relationships. In particular, decisions to terminate CBRs often relate to the correspondent bank’s lack of confidence in the respondent bank’s capacity to effectively manage risk,” said the report.

Swift action

In September 2017, SWIFT, the global provider of secure financial messaging services, announced that Saudi Arabia’s National Commercial Bank (NCB) signed up for its global payments innovation (gpi) service.

“The bank is the first in the country to join forces with over 100 leading banks globally. SWIFT gpi dramatically improves the customer experience in cross-border payments by increasing the speed, transparency and end-to-end tracking of transactions,” SWIFT said in a statement.

SWIFT gpi banks are able to log in to instantly check the status of the payments that they have sent, of those in progress and of those that have been received.

The IMF says that communication between correspondent and respondent banks needs to be robust, and financial institutions are to implement regulatory and supervisory frameworks, particularly those geared for anti-money laundering and terrorism funding.

According to SWIFT data, between beginning-2011 and end-2016, the number of active corridors decreased by 6.3 per cent and the number of active correspondents went down

For both the U.S. Dollar (USD) and Euro (EUR), the number of active correspondents decreased over that same period by around -15 per cent.

“While these two currencies make up about a third of the number correspondent accounts, they represent the vast majority of the value of payments made through SWIFT messages (82 per cent in December 2016), against 5 per cent for the next most used currency, the British pound (GBP),” said Swift in a 2017 report.

Drop in remittances

According to a recent article by the Economist, remittances to developing countries fell in 2015 and 2016 (to $429bn). It said that charities had also experienced financial issues, such as delayed transfers or account closures, for fear of involvement in illicit activities.

Qatar’s banking system was accused of being tolerant of fund-raising for terrorist groups, and was partly responsible for the current isolation of the GCC member.

The Middle East challenge

According to a 2016 PWC report, the Middle East region faces special challenges, including very high level of money service businesses and cash transactions.

The report said that 1 in 6 financial services respondents experienced enforcement actions by a regulator and 35 per cent of correspondents cited challenges with data quality.

“Only 52 per cent of money laundering transactions were detected by system alerts, while 35 per cent of respondents say the ability to hire (expertise in the area) is the biggest challenge,” PWC said.

Finally, PWC says that 18 per cent of surveyed businesses feel that they are struggling with upgrading or implementing systems and that 34 per cent have systems that generate large numbers of false positive alerts, which is high compared to 23 per cent globally.

Feds Order Wells Fargo To Pay $3.4M In Fines

Winston-Salem Journal (NC)

This time, the agency ordered $3.4 million in customer restitution related to investment advice provided from July 2010 to May 2012 by Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC.

The agency said Wells Fargo neither admitted nor denied the charges in the settlement.

Regulators said the Wells Fargo units provided “unsuitable recommendations of volatility-linked exchange-traded products and related supervisory failures.”

It determined some Wells Fargo representatives recommended the products “without fully understanding their risks and features,” in particular “mistakenly believing that the products could be used as a long-term hedge on their customers’ equity positions in the event of a market downturn.”

In fact, the agency said, volatility-linked ETPs typically are considered short-term trading products that degrade significantly over time and “should not be used as part of a long-term buy-and-hold investment strategy.”

The agency issued a regulatory notice to financial institutions that reminds them “of their sales practice obligations relating to these products.”

The agency said it took into consideration that Wells Fargo “took remedial action to correct its supervisory deficiencies in May 2012, prior to detection by FINRA and around the time that the firm was fined for similar violations relating to sales of leveraged and inverse ETPs.” The bank assisted the agency in its investigation.

“FINRA seeks restitution when customers have been harmed by a member firm’s misconduct,” Susan Schroeder, executive vice president of the agency’s enforcement department, said in a statement. “We also credit firms that proactively detect and correct issues prior to detection by FINRA, as Wells Fargo did in this matter.”

Wells Fargo confirmed the settlement in a statement.

“We are committed to helping our clients achieve their investment goals through advice that is regularly reviewed and aligned to their objectives and risk tolerances,” according to the statement.

“In cooperating fully with FINRA, we have made significant policy and supervision changes, including the discontinuation of the ETPs in focus.”

On Dec. 22, five Wells Fargo financial-services units were fined a combined $5.5 million by FINRA “for significant deficiencies relating to the preservation of broker-dealer and customer records in a format that prevents alteration.”

Wells Fargo Securities LLC and Wells Fargo Prime Services LLC were jointly fined $4 million. Wells Fargo Advisors LLC, Wells Fargo Advisors Financial Network and First Clearing LLC were jointly fined $1.5 million.

In 2013, FINRA ordered Bank of America Corp. and Wells Fargo to pay fines and restitution to settle charges that investor clients were pushed into investments that were inconsistent with their risk preferences. The Wells Fargo Advisors unit was fined $1.25 million and ordered to reimburse $2 million in losses to 239 customers.

In May 2012, FINRA imposed more than $2.7 million in fines and penalties on Wells Fargo Advisors for investment-related violations stemming from January 2008 to June 2009. Some of the violations were related to Wachovia Securities, which Wells Fargo took over at the end of 2008.

Wells Fargo was fined $2.1 million and ordered to pay $641,489 in restitution.

Also affected at that time were Citigroup ($2 million fine and $146,431 in restitution), Morgan Stanley ($1.75 million fine and $604,584 in restitution), and UBS ($1.5 million fine and $431,488 in restitution).

Wachovia, now Wells Fargo, sold risky nontraditional exchange-traded funds to customers who did not want that type of investment strategy, FINRA said.

Weinstein Co. president linked to felon’s money laundering case

By Gene Maddaus, Variety

David Glasser has been Harvey Weinstein’s right-hand man for the better part of a decade. Now, after Weinstein’s spectacular downfall in a sex harassment scandal this week, Glasser has been put in charge of the mogul’s imploding entertainment company alongside Weinstein’s brother, Bob.

But Glasser, who serves as president and chief operating officer of the Weinstein Co., has long been dogged by legal issues that date back more than two decades. In the most serious case, Glasser’s former company was used to launder the proceeds of a massive stock manipulation scheme which, according to federal prosecutors, was connected to the Genovese crime family. The mastermind of the scheme, Roy Ageloff, pleaded guilty to securities fraud and was sentenced to eight years in prison. Ageloff also helped launch Glasser’s career as a producer, and even tried to produce a film with Glasser about his own life, to be titled “Sold Short.” Glasser was never charged with a crime.

Glasser’s legal problems have hindered his Hollywood career in the past. Two years ago, Glasser announced he would be leaving the Weinstein Co. to seek a “new opportunity.” A few weeks later, he reversed course and announced that he would stay on. According to sources familiar with the matter, Glasser was offered a top executive role at DreamWorks Animation. But after digging into his past, DreamWorks rescinded the offer. The sources say the board felt that Glasser’s legal troubles made it impossible for him to hold an executive job at a publicly traded company.

In a statement to Variety, Glasser says he was 24 when he met Ageloff and was unaware of his misconduct. He also denies that DreamWorks had rescinded the offer due to his legal issues. “This is simply not true, a rumor and you have no one on the record,” he says.

The revelations come as the Weinstein Co.’s future is teetering on the brink of collapse. Industry insiders are speculating about the company’s ability to produce projects, a possible sale or bankruptcy filing, and whether Glasser and Bob Weinstein may be the next to depart. Glasser tells Variety that he has not yet accepted the board’s offer to run the company, and is still weighing whether to stay.

A former child actor, Glasser broke into the producing business in the mid-1990s. In 1997, his company, Cutting Edge Entertainment, produced a film entitled “Fait Accompli.” One of the actors was Ageloff, who played the role of “Murt.” According to federal court filings, Ageloff invested $3.5 million in Cutting Edge in 1997 and 1998. He would go on to have a half dozen minor roles in films, all but one of which were produced by Glasser.

By 1997, Ageloff was already infamous on Wall Street for running high-pressure boiler rooms that touted obscure stock offerings. Ageloff and his partner, Robert Catoggio, ran the brokerage firm of Hanover Sterling, which employed more than 100 brokers in offices in Manhattan and Boca Raton, Florida. In July 1996, Fortune called Hanover a “lowlife brokerage firm,” and noted that the FBI was looking into questionable IPOs. Ageloff and his associates were indicted in June 1999, and accused of swindling investors out of $150 million in a series of “pump and dump” schemes. Prosecutors alleged that Catoggio funneled millions of dollars in proceeds to a captain in the Genovese crime family, whose stepson was one of the brokers who pleaded guilty. Ageloff pleaded guilty in 2000 and was sent to a medium-security prison in Florida in 2001.

At some point, Ageloff came up with an idea for a movie called “Sold Short,” about his career in the brokerage business. He turned to Glasser to produce it. According to a deal memo dated January 2002 — that is, a few months after Ageloff entered prison — Glasser agreed to make the film with a budget between $10 to $25 million. Glasser would pay Ageloff a producer fee of $500,000 upon commencement of principal photography. The film was never made.

According to Glasser, he produced only two films with Ageloff — “Fait Accompli” and “In the Shadows” — and did not become aware of Ageloff’s criminal conduct until much later.

“Years later we found out that he was being indicted for stock fraud on a old business that he had,” Glasser says. “Years later I was contacted by the team who prosecuted him, interviewed and they went through all my emails, correspondence and contracts. It was concluded that I had done nothing wrong other than got in business with the wrong guy and next time I should make sure I know where these investments are coming from. I was young and did nothing wrong here and in hindsight (I) learned a valuable lesson on vetting your investors.”

In September 2002, Glasser signed a note agreeing to pay $1.5 million by 2004 to the Ageloff Education Irrevocable Trust, which Ageloff set up to benefit his children. According to court records, Glasser put up 20% of his new company, Splendid Pictures, as collateral in the deal. A few months later, Glasser took a 20% equity stake in another company, a distributor named Syndicate Films International. Under a confidential agreement, he pledged to give Ageloff half of his proceeds from his stake in the company. The Ageloff trust later filed a federal suit against Glasser, alleging that he failed to pay the debt when it came due. Glasser did not contest the lawsuit, and a default judgment was entered in the amount of $1,622,821.

In 2008, shortly before Ageloff was to be released, federal prosecutors in Florida brought another case against him, alleging that he had hidden assets from the government and laundered money. The indictment does not name Glasser, but it does reference the $3.5 million investment of tainted money into “various movie productions” in 1997 and 1998.

Ageloff pleaded guilty to money laundering and was sentenced to an additional five years behind bars. According to the plea agreement, his brother, Michael, received $160,000 in “movie money” in August 2002 from “an unindicted co-conspirator,” who is not named. The plea also states that Michael Ageloff received a $500,000 payout in 2003 from the sale of Cutting Edge Entertainment. He received two checks, in the amounts of $300,000 and $200,000, which the government alleged was part of the money laundering scheme.

Ageloff’s attorney, Daniel Brodersen, addressed the $3.5 million in movie investments in a pre-sentencing memorandum, arguing that New York prosecutors were aware of it when Ageloff entered his original plea in 2000. “Not all of the monies that the Defendant invested constituted illegal proceeds,” Brodersen wrote. “Furthermore, this investment and the Defendant’s corresponding interest in Cutting Edge Entertainment was fully disclosed to the court, the probation office, and the prosecution in the Eastern District of New York.”

“There has never been any attempt on the part of the Defendant to conceal these monies, his interest in Cutting Edge Entertainment, and the fact that he was defrauded by David C. Glasser, with whom he invested those funds in 1997,” Brodersen wrote.

Under the plea deal, Ageloff forfeited the $1.6 million judgment to the U.S. government.

“The United States was able to identify funds that flowed from that Ageloff trust account to Glasser,” says Dan Eckhart, the former federal prosecutor who handled the case. “Ageloff admitted the trust contained proceeds from his criminal activity in his plea agreement, and we were able to forfeit those assets.”

Glasser was not prosecuted, nor were others who allegedly received tainted money from Ageloff in the laundering case.

“If these weren’t proceeds involved in money laundering, the government wouldn’t have been able to seize them and obtain a forfeiture judgment,” says Eckhart, who is now a criminal defense attorney in Orlando.

Since then, Glasser has been paying down the debt to the government.

Glasser has been sued many other times over the years. Alec Baldwin sued him in 2001, alleging that he and other talent on “The Devil and Daniel Webster” had not been paid. The suit was later withdrawn, and the film was released several years later under a different title. In a 2002 interview with Variety, Glasser said he had always paid up eventually. His motto, he said, was “Be guilty of being late. Don’t be guilty of screwing someone.”

Glasser’s career moved ahead in spite of these issues. He took a job at Yari Film Group, which would later produce the movie “Crash.”

In 2005, Glasser met an investor named Jeff Cooper. In a meeting at Yari Film Group, he urged Cooper to invest in a new film venture, called Hi-Def Entertainment, which would be run by Glasser’s younger brother Phillip, who lived in Tennessee.

“He put on a dog and pony show,” Cooper recalls. “It was one lie after the other.”

Cooper says that he put faith in Glasser’s connections in the industry, and says that Glasser said he could divert promising material from Yari to Hi-Def.

“David was the key man,” Cooper says. “I wouldn’t have done it if it wasn’t for David.”

The only thing that ever came out of the company was a forgettable Jamie Kennedy film, “Kickin’ It Old School.” In 2008, Glasser left Yari Film Group for the Weinstein Co.

“When the opportunity with Harvey came along, Hi-Def Entertainment and I were left sucking pond water,” Cooper says.

Cooper says the recent revelations about Weinstein helped him understand why Glasser fit in there. When the two were at the Cannes Film Festival in 2005, he remembers Glasser making numerous vulgar remarks to women.

“We’d be in a car going down the street, and he’d be shouting obscenities to every girl we passed,” Cooper says. “It was totally unprofessional,” he says, adding that he felt pressured not to raise objections. “I turned the other cheek to it — business is business.”

Cooper lost his entire $500,000 investment, and sued for fraud. The case ultimately settled for a confidential amount.

Glasser disputes Cooper’s account, saying he only met him once and never promised anything.

“[T]his was thrown out of court three times,” Glasser says. “I finally settled with him for a tiny amount as this was a nuisance.”

He also adamantly denies Cooper’s claim about harassing women at Cannes.

Bob Yari, the president of Yari Film Group, had fonder memories of Glasser, who ran foreign sales for him for several years.

“He’s a real go-getter,” Yari says. “He was made for this business, in my opinion.”

Yari says he was well aware of Glasser’s reputation for lawsuits when he hired him.

“I spent a lot of time analyzing it and actually working with him to change those past ways,” Yari says. “I don’t think he was a wrongdoer. He was a wheeler-dealer and got himself into a lot of trouble.”

Intel launches AI-enabled anti-money laundering adviser

Ben Fox Rubin/CNET

Leveraging the technology it gained via its 2015 acquisition of Saffron, Intel on Wednesday launched the Saffron anti-money laundering (AML) Advisor — the first product on the market, Intel says, to use “associative memory” AI for the financial services sector.

Intel Saffron’s associative memory AI mimics the way the human brain learns and creates new associations, and then recalls connected information. It can fuse together associated information from different data stores, surfacing similarities and anomalies that otherwise would’ve remained hidden.

Utilizing associative memory, the AML Advisor promises to detect financial crime by unifying structured and unstructured data from enterprise systems, email, web, and other data sources. It can surface patterns from that data and transparently explain how the connections were identified, helping organizations catch money launderers.

“The amount of data that banks and insurers collect is growing at massive scale, doubling every two years,” Gayle Sheppard, VP and GM of Saffron AI Group at Intel, said in a statement. “While the quantity of data is growing, so are the types and sources of data, which means today that much of the data isn’t queried for insights, because it’s simply not accessible with traditional tools at scale.”

Because AML Advisor surfaces patterns in a transparent way, it helps financial services organizations comply with regulatory standards by explaining the rationale behind recommendations.

Unlike traditional machine learning methods, the AML Advisor offers “continuous learning.” In other words, it doesn’t require domain-specific models or training and retraining. This helps surface insights more quickly and is especially useful in a dynamic landscape like financial services.

Intel on Wednesday also announced the Intel Saffron Early Adopter Program (EAP) for organizations that want “the first-mover advantage” in the use of associative memory AI. The Bank of New Zealand (BNZ) has joined the Intel Saffron EAP, expanding its existing relationship with Intel.


World’s largest asset manager says digital currencies show how much money laundering is going on

  • BlackRock CEO Larry Fink says activity in digital currencies comes mostly from Asian investors’ speculation and heavy use in money laundering.
  • U.S. authorities cracked down on several dark web marketplaces, which tend to use digital currencies for transactions, and exchanges for their involvement in illegal activities.
  • Fink does see “huge opportunities” in digital currencies but says most of the interest right now comes from speculation.

By: Evelyn Cheng

Larry Fink, the head of the world’s largest money manager, said Tuesday he thinks the rise of digital currencies reflects how much money laundering is going on.

“Most importantly, when I think about most of the cryptocurrencies, it just identifies how much money laundering is being done in the world,” Fink, founder, chairman and CEO of BlackRock, said in a Bloomberg TV interview.

“It’s much more of a speculative platform for Asia and it’s heavily used for money laundering,” Fink said.

 South Korean, Japanese and, until last month, Chinese investors, are major traders of the largest digital currencies by market cap, bitcoin and ethereum.

U.S. authorities have repeatedly shut down online marketplaces in the part of the internet known as the dark web, where illegal goods are sold and money laundering often occurs. Transactions on those websites often occur in bitcoin or other digital currencies in an attempt to preserve anonymity.

Just this summer, the U.S. Justice Department and Europol announced the closure of AlphaBay and Hansa, the two largest dark web marketplaces at the time. A grand jury in the U.S. District Court for the Northern District of California also charged Russian national Alexander Vinnik and the digital currency exchange he allegedly operated, BTC-e, with money laundering and related crimes.

Fink joins a number of major Wall Street executives who have spoken on digital currencies in the last several weeks.

JPMorgan Chase CEO Jamie Dimon called bitcoin a “fraud” and warned that if digital currencies grow too large, governments will close them down. On the other hand, Morgan Stanley CEO James Gorman said cryptocurrencies are “certainly something more than just a fad” and authorities may actually need to adapt to the growth of the digital currencies.

Goldman Sachs CEO Lloyd Blankfein put a message on Twitter Tuesday, “Still thinking about #Bitcoin. No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.”


President Donald Trump’s Statement On Las Vegas


My fellow Americans, we are joined together today in sadness, shock, and grief. Last night, a gunman opened fire on a large crowd at a country music concert in Las Vegas, Nevada. He brutally murdered more than 50 people, and wounded hundreds more. It was an act of pure evil.

The FBI and the Department of Homeland Security are working closely with local authorities to assist with the investigation, and they will provide updates as to the investigation and how it develops.

I want to thank the Las Vegas Metropolitan Police Department and all of the first responders for their courageous efforts, and for helping to save the lives of so many. The speed with which they acted is miraculous, and prevented further loss of life. To have found the shooter so quickly after the first shots were fired is something for which we will always be thankful and grateful. It shows what true professionalism is all about.

Hundreds of our fellow citizens are now mourning the sudden loss of a loved one — a parent, a child, a brother or sister. We cannot fathom their pain. We cannot imagine their loss. To the families of the victims: We are praying for you and we are here for you, and we ask God to help see you through this very dark period.

Scripture teaches us, “The Lord is close to the brokenhearted and saves those who are crushed in spirit.” We seek comfort in those words, for we know that God lives in the hearts of those who grieve. To the wounded who are now recovering in hospitals, we are praying for your full and speedy recovery, and pledge to you our support from this day forward.

In memory of the fallen, I have directed that our great flag be flown at half-staff.

I will be visiting Las Vegas on Wednesday to meet with law enforcement, first responders, and the families of the victims.

In moments of tragedy and horror, America comes together as one — and it always has. We call upon the bonds that unite us — our faith, our family, and our shared values. We call upon the bonds of citizenship, the ties of community, and the comfort of our common humanity.

Our unity cannot be shattered by evil. Our bonds cannot be broken by violence. And though we feel such great anger at the senseless murder of our fellow citizens, it is our love that defines us today — and always will, forever.

In times such as these, I know we are searching for some kind of meaning in the chaos, some kind of light in the darkness. The answers do not come easy. But we can take solace knowing that even the darkest space can be brightened by a single light, and even the most terrible despair can be illuminated by a single ray of hope.

Melania and I are praying for every American who has been hurt, wounded, or lost the ones they love so dearly in this terrible, terrible attack. We pray for the entire nation to find unity and peace. And we pray for the day when evil is banished, and the innocent are safe from hatred and from fear.

May God bless the souls of the lives that are lost. May God give us the grace of healing. And may God provide the grieving families with strength to carry on.

Thank you. God bless America. Thank you.

The growing threat of transaction laundering

With federal regulators levying $400 million in penalties for anti-money laundering (AML) compliance violations in 2015 alone, detecting and preventing transaction laundering has become a pressing concern for the payments industry.1

Spurred by the growth of online commerce and the anonymity of the Web, transaction laundering is surging worldwide. Regulators and credit card networks have launched a campaign to derail these efforts by holding acquirers and payment processors accountable for the actions of their merchants.

Forms of transaction laundering

The biggest transaction launderers are the purveyors of counterfeit merchandise, illegal drugs, sex services, and Internet casinos operating without a license. Even when the goods or services are sold legally, falsely representing the nature of a credit card payment violates the processing merchant’s agreement with its acquiring bank.

There are three principal forms of transaction laundering:

  1. Front companies use legitimate businesses as a cover for criminal activities. An example would be a nutritional supplements seller that launders drug money by inflating its receipts or that sells counterfeit pharmaceuticals under the vitamin and supplement Merchant Category Code.
  2. Pass-through companies allow illegal businesses to process their credit card receipts by giving them access to the legitimate company’s payments processing account. Often this is done by embedding a payment link on the illegitimate company’s website and then manually entering the illicit sales into the payment system to make them harder to detect.
  3. Funnel accounts are legal businesses that accept credit card charges from multiple companies that do not have their own merchant payment account because they are either too small or they engage in illicit transactions. The funnel company then enters these payments as legitimate transactions into the card payment processing system.

A growing problem

While the scale of the problem is difficult to quantify, it is both extensive and growing. About 50%-70% of online sales for illicit drugs, counterfeit goods, and unlawful adult content involve some form of transaction laundering, according to the Electronic Transactions Association (ETA), and more than 90% of illegal gambling sites use transaction laundering to move their credit card receipts into the payment system. These are enormous markets that account for hundreds of billions of dollars in annual sales.

With the volume of laundered payments rapidly escalating, regulators and the payments industry are becoming more diligent. Sellers of contraband have been forced to become more sophisticated and are learning how to use a legitimate merchant account to pass through sales from a Web front or pass-through site.

A new focus for regulators

These developments have led the Financial Crimes Enforcement Network (FinCEN) and other regulators to come down harder on banks using third-party payment processors. To help establish beneficial ownership, FinCEN requires financial institutions (FIs) to verify the identities of all nominees with a 25% or greater ownership stake in any company for which they open an account. They are also required to identify the principal decision maker for the site. FinCEN’s rule is only one of several legal requirements for banks to know their customers.

Regulatory bodies are also focusing on the new forms of transaction laundering – such as funnels and pass-through accounts – as a way to fight fraud.

The Department of Justice’s Operation Choke Point investigated U.S. banks and third-party processors associated with commercial activities at high risk of money laundering, such as dating and escort services, Web-based sellers of ammunition and pharmaceuticals, and home-based charities. As a result of the initiative, substantial fines in excess of $1 million were levied against at least two U.S. banks.3, 4

Payments industry should expect little tolerance from FinCEN and should quickly adhere to these electronic payments guidelines. Failure to do so will subject participants to substantial fines, including restrictions on participating in the industry and bans from the business.

Big fines for a midsize bank

On Feb. 27, 2017, the U.S. Treasury’s (FinCEN) slapped a $7 million fine on a midsize California bank for violations of the Bank Secrecy Act related to transaction laundering, and another $1 million was tacked on by the OCC for the same infractions.2

The penalties were levied for failing “to establish and implement an adequate anti-money laundering program” and for allowing “billions of dollars to flow through the U.S. financial system without effective monitoring.”

FinCEN said that in one instance the bank processed $192 million from high-risk foreign customers during a three-month period.

While many of the particulars were unique to the bank and its customer base, the incident is indicative of the threat posed by transaction processing to FIs that don’t recognize the risk and take steps to mitigate it.

The challenge for payment processors

The payments industry is constantly deploying new fraud detection techniques, such as chip cards and tokenization. Despite the stepped-up enforcement by regulators and the increased due diligence of banks and ISOs, the use of transaction laundering continues to spread—this is due, in part, to criminal’s growing sophistication with the payment system.

The Web’s inherent anonymity complicates the problem. True identities of as many as 6-10% of online merchants remain hidden from their payment processor. Corrupt sites fail to draw the attention of their ISO because most laundered transactions are relatively small.

Complying with FinCEN’s requirements and preventing laundered transactions

To detect transaction laundering, good underwriting is the key. That starts with relatively simple, manual steps:

  1. Examine the merchant’s website. Does it add up? Would a consumer be inclined to purchase its products? Many fraudulent websites don’t meet this simple standard and can be ferreted out by taking a close look at the site’s offerings.
  2. Compare the site’s content with its volume of business. Often, when something is amiss, these do not align. A merchant might tell its ISO that it anticipates bringing in $175,000 a month in sales, but their site offers only two products. Either the sales projection is way off, or the revenue will be coming from someplace else.
  3. Consider the age of the website. Sites typically don’t sell a large quantity of merchandise when they first launch. Flags should be thrown for any site that claims robust sales out of the gate.
  4. Compare the site’s products with its average sale price and the merchant codes it uses. Other telltale signs that a site may be laundering transactions include sudden and unexplained spikes in sales transactions or a jump in the size of each sale. Why would an apparel site with average sales of $175 suddenly start posting routine sales of $450?

Another giveaway is the type of merchant codes the site uses to enter sales slips. If these don’t conform to the types of goods that the site is supposedly selling, then it’s a good bet that something is wrong.

Merchant Monitoring Service Providers

Not every bank and ISO has the wherewithal or technology to conduct its own due diligence. These capabilities are available through third parties known as Merchant Monitoring Service Providers (MMSPs), which use computer algorithms and other techniques to examine merchant sites electronically.

MMSPs have an extensive database of merchants with a history of fraud and other questionable behaviors in which they can examine the information provided by a merchant’s site and compare it with their database to identify launderers.

MMSPs also look for suspicious site elements that the human eye might not detect. Based on what they find, they score the site and inform the ISO of the probability that the site is engaged in money laundering activity, keeping tabs on an ongoing basis.

Transaction laundering violates the merchant’s agreement with its acquirer, flouts AML laws, and attracts unwanted attention from regulators. To protect themselves, acquirers should address the problem through diligent underwriting, sophisticated technology, and partnerships with these service providers.

How Thomson Reuters Can Help

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Learn more about CLEAR for anti-money laundering.






Money-Laundering Prosecutor Joins Trump-Russia Probe

An attorney working on the Justice Department’s highest-profile money-laundering case recently transferred off that assignment in order to join the staff of the special prosecutor investigating the Trump campaign’s potential ties to Russia, POLITICO has learned.

Attorney Kyle Freeny was among the prosecutors on hand Friday as Jason Maloni, a spokesman for former Trump campaign chairman Paul Manafort, testified before a grand jury at federal court in Washington.

Freeny, whose assignment to special counsel Robert Mueller’s staff has not been previously reported, is the 16th lawyer known to be working with the former FBI chief on the investigation into Russian meddling in the 2016 presidential election. She departed from the courthouse Friday with two other members of Mueller’s squad: former Criminal Division chief and Enron prosecutor Andrew Weissman and Civil Division appellate attorney Adam Jed, a former clerk to Supreme Court Justice John Paul Stevens.

Before being detailed to Mueller’s team, Freeny was shepherding the Justice Department’s headline-grabbing effort to seize the profits from the film “The Wolf of Wall Street” on grounds that the film was financed with assets looted from the Malaysian government.

Freeny withdrew from the “Wolf of Wall Street” case on June 26, court records show, shortly before many of Mueller’s attorneys joined his team in early July.

Lawyers for the production company behind the film, Red Granite Pictures, said in a court filing in Los Angeles on Friday that they’ve reached a settlement with prosecutors. A Justice Department spokesperson said he was aware of the filing, but declined to comment.

July 4th, A Time To Be Thankful For Our Freedom

As the 4th of July arrives upon us, Patriots all across the Untied States will be celebrating the day of our Independence. Year after year we have the opportunity to reflect on the day our Declaration of Independence was signed, which gave us independence from the tyrannical British King George III. Thomas Jefferson, the main author of the Declaration of Independence, stated in his works that:

“…We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness … “

These are words that we must cherish and embrace while remembering that we as a society, though we may be different from each other, are ultimately Americans. Most importantly though, we are humans that are blessed with certain rights and the permission and ability to create our own happiness. As Americans it is also our commitment to pledge allegiance to our flag, to the United States, and to each other. And we shall do this as “one nation under God, with liberty and justice for all.”

In these uncertain times that have been darkened by evil, we must remember the vision of our forefathers and apply it to our lives. It is imperative to know that our nation will stand together against any evil, and never forget that “In God We Trust.” We are a nation of freedom, liberty, and honor and will never be a nation in fear. Our freedoms and liberties have come at an ultimate cost, and must be defended, but these are the prices we have to pay. Freedom is not free, and we remember those who have lost their lives to protect us and defend our freedom.

Independence Day encompasses all that it means to be an American. We are truly blessed to have been born in a country where anything is possible to anyone. Our freedoms, equality, and fellow countrymen are all very important things to celebrate on the 4th of July, along with the birth of our great nation the United States of America.

John Adams, himself a signer of the Declaration, thought that Americans should henceforth celebrate a “great anniversary festival.” In a letter to his wife Abigail he wrote, “It ought to be commemorated as the day of deliverance, by solemn acts of devotion to God Almighty. It ought to be solemnized with pomp and parade, with shows, games, sports, guns, bells, bonfires, and illuminations, from one end of this continent to the other, from this time forward forevermore.”

And so it began in 1776, the celebration of Independence and the beginning of one of the greatest nations on earth. Let us remember that a nation is only as good as its people are to each other. Be unified, go in love and go in peace.