Venezuela just defaulted, moving deeper into crisis


The South American country defaulted on its debt, according to a statement issued Monday night by S&P Global Ratings. The agency said the 30-day grace period had expired for a payment that was due in October.

A debt default risks setting off a dangerous series of events that could exacerbate Venezuela’s food and medical shortages.

If enough holders of a particular bond demand full and immediate repayment, it can prompt investors across all Venezuelan bonds to demand the same thing. Since Venezuela doesn’t have the money to pay all its bondholders right now, investors would then be entitled to seize the country’s assets — primarily barrels of oil — outside its borders.

Venezuela has no other meaningful income other than the oil it sells abroad. The government, meanwhile, has failed for years to ship in enough food and medicine for its citizens. As a result, Venezuelans are waiting hours in line to buy food and dying in hospitals that lack basic resources.

If investors seize the country’s oil shipments, the food and medical shortages would worsen quickly.

“Then it’s pandemonium,” says Fernando Freijedo, an analyst at the Economist Intelligence Unit, a research firm. “The humanitarian crisis is already pretty dire … it boggles the mind what could happen next.”

It’s not immediately clear what steps bondholders will take. Argentina went through a vaguely similar default, and its bondholders battled with the government for about 15 years until settling in 2016. Every case is different, though.

Related: Venezuela admits it can’t pay all its debts anymore

Venezuela and its state-run oil company, PDVSA, owe more than $60 billion just to bondholders. In total, the country owes far more: $196 billion, according to a paper published by the Harvard Law Roundtable and authored by lawyers Mark Walker and Richard Cooper.

Beyond bond payments, Venezuela owes money to China, Russia, oil service providers, U.S. airlines and many other entities. The nation’s central bank only has $9.6 billion in reserves because it has slowly drained its bank account over the years to make payments.

The S&P default announcement Monday came after Venezuelan government officials met with bondholders in Caracas. The meeting was reportedly brief and offered no clarity on how the government plans to restructure its debt.

The Venezuelan government blames its debt woes — and inability to pay — on a longstanding “economic war” waged by the U.S. More recently, the Trump administration slapped financial sanctions on Venezuela and PDVSA, barring banks in the U.S. from trading or investing in any newly issued Venezuelan debt.

But experts say the socialist Venezuelan regime that has been in power since 1999 bears the brunt of the blame. It fixed — or froze — prices on everything from a cup of coffee to a tank of gas in an effort to make goods more affordable for the masses. For years, Venezuelan leaders also fixed the exchange rate for their currency, the bolivar.

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Demonetisation Has Failed to Tackle Black Money

Representative image. Credit: PTI

Government’s claim that a reduction of currency in circulation is proof of greater transparency is based on the flawed belief that a lower cash to GDP ratio indicates less corruption.

At its first anniversary, most of the analysis of the success or failure of demonetisation was connected to the objective of tackling black money. This was the raison d’etre that appealed to everyone and, therefore, the popular touchstone to judge its performance. As a result, the government’s claims about what demonetisation has done to the use of cash have not got the critical scrutiny they require. Yet, after the initial November 8 announcement, this was the objective the government seemed to most stress. So let’s look closely at this specific set of facts.

In the essay he posted on his blog on November 7, the finance minister said: “India has taken a big leap in digital payment during 2016-17”. To illustrate or prove his point he cited three facts.

First, in 2016-17, there were 110 crore transactions, valued at 3.3 lakh crore and carried out by credit cards, and a further 240 crore transactions, coincidentally once again valued at 3.3 lakh crore and carried out by debit cards. In the previous year, the value of transactions for debit and credit cards was 1.6 lakh crore and 2.4 lakh crore respectively.

Second, the total value of transactions with pre-paid instruments increased from Rs 48,800 crore in 2015-16 to Rs 83,800 crore in 2016-17.  In terms of volume, the number of such transactions during the same period increased from 75 crore to 196 crore.

Third, during 2016-17, the National Electronic Funds Transfer handled 160 crore transactions valued at 120 lakh crore, an increase from the 130 crore transactions worth 83 lakh crore in the previous year.

The finance minister believes this is impressive and calls it “a big leap in digital payments”. However, the details given by the National Payment Corporation of India (NCPI) to the Indian Express paint a very different picture. The NPCI figures prove that whilst digital transactions increased significantly after demonetisation was announced, a year later they were either back to where they were in November 2016 or had, at least, declined substantially.

The total value of digital transactions according to the NPCI in November 2016 was 94 lakh crore. They reached a high point of 149 lakh crore in March 2017 and then fell to 107 lakh crore in July 2017. In August, they were almost the same at 109 lakh crore. However, in September, they rose to 124 lakh crore but collapsed in October to 99 lakh crore. The October figure is accurate only until the 29th of that month.

Much the same is true of the volume of digital transactions. They were 671.49 million in November 2016, rising to 957.50 million in December, before falling to 862.38 million in July and, thereafter, remaining stable. In October they were 863.9 million.

So, the NPCI data shows that in value terms, digital transactions in October 2017 were almost exactly what they were in November last year. In volume terms, however, they increased by nearly 42% between November and December but, thereafter, declined significantly and flattened out.

More importantly, the NCPI data includes all debit and credit card usage as well as pre-paid instruments and NEFT. It also includes Bhim and UPI, e-wallets and Paytm. Which raises the question, did Mr Jaitley tell only half the story?

Let’s come to the government’s boast that post demonetisation, the cash to GDP ratio has fallen from 11.3% to 9.7%. In his blog essay, Jaitley added the reduction of currency in circulation is of the order of 3.89 lakh crore. In his press conference, the finance minister said this is proof India is a cleaner and more transparent economy and the capacity for corruption has significantly diminished.

his conclusion hinges on the interpretation that countries with a lower cash to GDP ratio are less corrupt whilst the higher the ratio the greater the potential for corruption. However, the ranking of countries in terms of their cash to GDP ratios, uploaded on June 29, 2017, in Kenneth Rogoff’s The Curse of Cash, doesn’t bear this out.

The country with the highest cash to GDP ratio is Japan with a figure of 19.40%. It also happens to be one of the least corrupt. Almost at the bottom is Nigeria, with a cash to GDP ratio of 1.55%. It’s one of the world’s most corrupt.

According to the same ranking, Singapore, Switzerland, Hong Kong and the whole of the Eurozone have cash to GDP ratios significantly above India’s. They’re also significantly less corrupt. On the other hand, Argentina, Colombia, South Africa and Brazil have cash to GDP ratios that are around half or less India’s but they’re perceived to be as corrupt.

The truth is the cash to GDP ratio is not a test of corruption or corruptibility because how much cash you hold doesn’t make or tempt you to be corrupt. What matters is the character of the people handling cash and what they do with it. That, in turn, is determined by the incentives or disincentives to encourage or deter corruption.

Regardless of what our cash to GDP ratio is or might become, our system encourages corruption. This is the core problem that has still to be tackled.

Karan Thapar is a senior journalist and television commentator

This article originally appeared in The Tribune and is republished with permission.














What are the Paradise Papers and why are they Significant?

By Euronews

The Paradise Papers placed the financial secrets of the world’s elite under the spotlight and those touched by the revelations were as high profile as Queen Elizabeth II of England and US Secretary of Commerce, Wilbur Ross.

But what exactly are they, how did they come to light and why are they so important?

What are the Paradise Papers?

The so-called Paradise Papers were a leak of 13.5 million documents, dating from 1950 to 2016, which revealed 350 million euros hidden in tax havens in the Caribbean and Pacific Islands.

Most of the information came from databases belonging to the law firm Appleby, one of the most important companies in the world in terms of offshore finance.

What does Appleby have to say?

In a statement on its website, the firm said its actions were not illegal: “The journalists do not allege, nor could they, that Appleby has done anything unlawful. There is no wrongdoing. It is a patchwork quilt of unrelated allegations with a clear political agenda and movement against offshore.”

In addition, they said the leak was the product of a computer theft: “Our systems were accessed by an intruder who deployed the tactics of a professional hacker and covered his trail to the point that a forensic investigation by a leading international Cyber & Threats concluded that there was no definitive proof that any data had left our systems.”

Who is behind the investigation?

Coordinated by the International Consortium of Investigative Journalists (ICIJ), 96 media organisations carried out a one-year analysis of the documents, including the American, the New York Times, the Guardian and French newspaper Le Monde.

ICIJ made a database available to the public, in which it combined information from the Panama Papers with the recently published Paradise Papers, where both could be consulted and connected with the name of a country, a person or a company.

How were they obtained?

The leaks were transmitted to the German newspaper Süddeutsche Zeitung, the same media that received last year’s Panama Papers.

The Süddeutsche Zeitung shared the documents with the ICIJ, who organised international collaboration and did not made its sources public (and had no plan to do so).

Why are they important?

The documents reveal that the web of tax havens is larger and more complex than previously thought. They also put names to a multitude of companies and people around the world who avoid paying taxes using artificial structures, among which are leading figures such as the Queen of England and Bono.

It is the second-largest data leak in history, after the Panama Papers.

Did the leak uncover illegal activity?

No, it is not illegal to establish companies abroad. In general, companies do so as a measure of facilitating international operations such as purchases and mergers.

The questions leaks like the Panama Papers or the Paradise Papers raise are not legal but moral; Is it right for a rich person to hide their money abroad to avoid paying taxes?

Link to Article:

Jack Henry and SAS team on financial crime

Source: Jack Henry

Jack Henry & Associates, Inc. (NASDAQ:JKHY) has introduced JHA Enterprise Risk Mitigation Solutions™, a single, fully hosted anti-money laundering (AML), fraud identification and analysis solution for regional and community financial institutions. .

JHA Enterprise Risk Mitigation Solutions is powered by analytics leader SAS, recognized by many industry analyst firms as foremost in financial crimes predictive analytics software. Jack Henry & Associates has an agreement with SAS to provide its cloud-based analytics solution to banks and credit unions in the United States below $30 billion in assets as well as Jack Henry & Associates’ core clients.

As the largest independent vendor in the business intelligence market, SAS traditionally serves tier one and tier two financial institutions, working with 99 of the top 100 global banks. Offering its advanced risk and analytics solutions through JHA Enterprise Risk Mitigation Solutions expands financial institutions’ access to efficient and comprehensive AML and fraud solutions.

Boston-based Brookline Bancorp, a bank holding company with approximately $6.7 billion in assets, is an early adopter of JHA Enterprise Risk Mitigation Solutions, gravitating toward its flexibility to set parameters specific to the institution’s own risk needs. Janice Costa, Brookline’s Director of BSA/AML Compliance, said, “JHA Enterprise Risk Mitigation Solutions is scalable, configurable, and intuitive. We are in control of creating a number of scenarios and variable conditions to target activity specific to our area, and have already successfully identified instances of abuse and fraud that might have gone unnoticed. We can visualize the efficiencies delivered via this solution by receiving even higher quality, meaningful alerts, which results in giving our bank more time to focus on other areas of risk.”

Costa added that Jack Henry & Associates’ partnership with SAS was also a huge selling point. “Jack Henry & Associates and SAS are giving more banks ease of access to advanced and intuitive risk identification and management.”

A customization of SAS® Visual Investigator, the analytic giant’s financial crime investigative case management product, JHA Enterprise Risk Mitigation Solutions centralizes intelligence from multiple sources, combining transactional and user data for more complete customer risk assessments. Merging fraud and AML prevention strategies allows financial institutions to identify complex risk events by layering a common view of e-fraud, suspicious activity, insider fraud, and real-time threats. The solution’s intuitive workflow and case management capabilities enable users to manage investigations and reach resolutions more efficiently, reducing false positives and increasing productivity.

“Fraud is an ever-growing and ever-evolving challenge for financial institutions of all sizes,” said SAS CEO Jim Goodnight. “Together, Jack Henry & Associates and SAS can empower more mid-tier and community banks and credit unions to take on that challenge with robust prescriptive and predictive analytics.”

Ryan Schmiedl, SAS Vice President of Product Management, explained, “Banks need every advantage to detect suspicious activity and stop fraud in its tracks, and this platform delivers just that. From surveillance and alerting through case investigation and beyond, cloud-ready JHA Enterprise Risk Mitigation Solutions translates disparate data into powerful insights – all shared across the entire investigative team via a simple and dynamic visual interface.”

The first module of JHA Enterprise Risk Mitigation Solutions emphasizes AML data such as risk rating, transaction monitoring for AML patterns and due diligence. Additional intelligence brought into its enterprise risk assessments in subsequent releases will combine cross-channel fraud events, including:
• Check, deposit, and insider fraud;
• Electronic transaction fraud such as faster payments, online banking, mobile, RDC, P2P, bill pay, and ACH; and
• Debit and credit card fraud.

Advanced reporting features also allow for data to be reported to an institution’s board of directors, as well as examiners, in any format.

David Foss, president and CEO of Jack Henry & Associates, added, “SAS and Jack Henry & Associates are like-minded companies; we are committed to positioning our businesses for the future through R&D, dedicated to providing superior work environments, and passionate about advancing the financial services industry. The powerful fraud solution resulting from this partnership will be a great differentiator for both core and non-core clients. Banks and credit unions do not have to be daunted by the tasks associated with the sheer volume of false positives, or unstructured and structured data. The stronger reporting and faster responses delivered by SAS can enhance processes and reduce losses across deposit and payment channels.”

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.

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.




In mid-January, Global RADAR reported on the growth of transaction laundering, a troubling trend that began gaining relevance at the international level beginning roughly one year ago. Defined in a basic sense as the action whereby one e-commerce merchant processes payment card transactions on behalf of another merchant, transaction laundering (TL) is commonly viewed as a more sophisticated form of money laundering and has emerged as one of the largest threats facing the financial services sector today. Transaction laundering is also becoming the primary means for the funding of dangerous terrorist activities due to the relative ease at which the process can be undertaken and performed successfully. Unfortunately for financial institutions conducting business both domestically and abroad, federal regulators have turned up the metaphorical heat in regards to the strict compliance requirements banks of all sizes have been subjected to in recent years. The imposition of multi-million dollar fines against organizations with anti-money laundering (AML) failures has become commonplace of late, and the risks involved with the respective failures to detect and prevent illicit financial activity have only increased with the arrival of new, pervasive criminal measures.

Since our last update on this topic, the transaction laundering trend has continued to grow, both in prevalence and scope of practice. The article “The growing threat of transaction laundering”, cited in BSA News Now on September 20th, 2017, discusses the fundamentals involved with the new features of the practice, and touches on additional areas that surround the issue, such as the response by federal regulators to transaction laundering, and the overall scale of activities of this nature. The article notes, “The biggest transaction launderers are the purveyors of counterfeit merchandise, illegal drugs, sex services, and Internet casinos operating without a license” (Reuters, 2017). Through this practice, fake merchants are able to direct unauthorized transactions into legitimate payment networks while avoiding detection by both regulators and payment processors themselves in some cases. As was covered in the general definition provided earlier, front companies are one of the principal means used to cover for criminal activities, but pass-through companies and the use of funnel accounts have also grown in usage over the course of 2017. Pass-through companies function by processing credit card receipts for illicit activity through the use of a legitimate company’s payments processing account. The author writes that “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” (Reuters, 2017). Funnel accounts work by accepting credit card charges from companies engaged in illegal activity, and essentially entering legitimate payments for these companies on their own payment processing system.

The amount of laundered payments has continued to escalate, especially with the incorporation of these criminal efforts of this nature. Statistics provided in the article from the Electronic Transactions Association (ETA) show that “50%-70% of online sales for illicit drugs, counterfeit goods, and unlawful adult content involve some form of transaction laundering” (Reuters, 2017). Additionally, transaction laundering is also used by nearly 95% of illegal gambling websites to add card receipts into the payment system, a practice that reportedly accounts for billions of dollars annually. These striking findings have not gone unnoticed however, as the payments industry is beginning to introduce new measures to combat these illicit practices, and regulators have stepped up enforcement as well. As a result, the Financial Crime Enforcement Network (FinCEN), the bureau of the U.S. Treasury Department that combats domestic and international money laundering, terror financing, and financial crimes overall, has begun to crack down on financial institutions that use third-party payment processors. The article discusses one of a slew of measures developed by FinCEN to better establish beneficial ownership. In this circumstance, “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” (Reuters, 2017). Regulators have had to adapt to these new forms of fraud, leading to increased fines and greater restrictions imposed on financial institutions, which have made navigating through the already complex realm of compliance even more complicated for banks and their respective compliance departments.

Although new methods of fraud detection and prevention continue to be developed in the financial industry, criminals are quick to adapt and alter their own approach to capitalize on loopholes and areas that can be exploited.  One of the only ways to detect and prevent transaction laundering is to do your due diligence into a merchant’s website, their volume of business, and other areas such as age of the website and merchant codes used. These screening of these areas are often covered by comprehensive, automated AML services however, so research and investment into one of these technologies can ultimately be quite beneficial to financial institutions, and in the fight against transaction and money laundering altogether.





Earlier this week at a banking conference in New York, Jamie Dimon, CEO of JP Morgan, openly denounced cybercurrencies such as the ultra-popular Bitcoin that have taken the world by storm in recent years. In candid fashion, Dimon shared his critical opinion of the growing industry, stating his firm belief that the currency is a “fraud” that will inevitably fail because “you can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart” (Athow, 2017). Dimon points to the greater sense of anonymity provided to individuals through Bitcoin and other cryptocurrency options as one of several potentially problematic components that would benefit financial criminals attempting to launder funds without being apprehended.

Dimon’s comments have angered the masses in the crypto-community, as many have found the seasoned financial veteran’s views to be antiquated and uneducated in this regard. The executive’s comments are also ironic considering that they come from someone who runs a financial intermediary, the same entities that are being removed from financial transactions made through various cybercurrencies. The comments were also surprising in that while “Mr.Dimon openly criticizes Bitcoin, JP Morgan is quietly advancing its own, proprietary crypto ledger, Quorum” which is based on the cyber currency Ethereum (Athow, 2017). Regardless of the strange circumstances that surround this criticism, many believe that the comments that came from an individual as renowned as Dimon had a significant negative impact on the 6% drop in the value of Bitcoin seen last week. We will simply have to wait to see if the effects of these comments continue to bring about more negative outcomes in the coming weeks, or if this instance was simply a blip on the radar for a currency steered for long-term success.



Following the tragic hurricanes that wreaked havoc in the Caribbean, United States, and other parts of the world in the last month, a post-storm period generally designated for recovery and aid can often be a time of great profit for scammers and financial criminals preying on the weak and naïve. A report from Forbes highlights several scams that criminals often employ in their attempts to con the victims of natural disasters and other catastrophic events. The primary areas exploited following disasters have been found to be charities and donation services. The Department of Justice’s National Center for Disaster Fraud recently “issued a statement to the public to be aware of fraudulent activity related to relief operations and funding for victims”, as a reported “743 domain names containing the phrase ‘Irma’ and most include a combination of the words ‘help,’ ‘relief,’ ‘victims,’ ‘recover,’ ‘claims,’ or ‘lawsuits’” were registered as of September 7th, according to The Center of Internet Security (Peck, 2017). Crowd-funding pages are commonly created to raise money for victims, but unfortunately in many cases these funds never make it to those that are in need. Many believe that more of these potentially-malicious domains are likely to arise in the coming weeks as more hurricanes are on the horizon.

Other scams commonly run by criminals are the posing as insurance representatives, Federal Emergency Management Agency (FEMA) officials, and local power company employees in attempts to con citizens out of funds and valuable information. In addition, individuals often offer help with unlicensed home repairs and other services, only to never perform the service(s) after being paid up-front. The article offers solutions to many of these issues however, including verifying the licensing information of individuals arriving at your home or business, avoiding making cash donations (as legit charities almost never require cash payments), and exercising caution and always researching an individual and/or organization before donating.



Earlier this week, Australian federal and state investigators revealed the findings of their recent investigations into regional financial crime that do not bode well for the financial services sector, nor the major banks of Australia. The investigations discovered that “Australian crime gangs launder up to $5 million AUD ($4 million USD) per day through major banks”, due in large part to failures seen in the anti-money laundering procedures found within these respective institutions (Southurst, 2017). The findings involve Australia’s four largest banks: Commonwealth Bank (CBA), ANZ, National Australia Bank (NAB) and Westpac. Commonwealth Bank in particular has been the subject of international headlines recently due to the severe civil penalties the organization faced earlier this summer for allegedly allowing hundreds of millions of Australian dollars to be laundered by way of cash deposits made through the intelligent deposit machines that the bank employs.

In addition to the shocking laundering findings, it has also been reported by local media outlets that Aussie “crime syndicate members have acquired franchises in mid-tier banks, like Bendigo Bank and Bank of Queensland” (Southurst, 2017). Many of these issues fall on failures within compliance departments, specifically in regards to know your customer (KYC) requirements that are not being met, and a lack of information sharing amongst regional financial institutions and law enforcements agencies. In addition, the creation of shell companies to facilitate the movement of illicit funds has made the task of keeping up with this activity very difficult for banks with fully-functional and adequate compliance departments, let alone smaller banks that have far fewer AML capabilities at their disposal. Unfortunately, this now-negative connotation that accompanies Australian banks has led to an increased sense of public mistrust in the world’s sixth largest country, with a resolution to these issues currently being nowhere in sight.



Athow, Desire. “JP Morgan CEO Publicly Denounces Bitcoin as ‘currency for

Criminals’.” TechRadar. TechRadar Pro IT Insights for Business, 15 Sept. 2017. Web.

Liu, Winnie. “The Growing Threat of Transaction Laundering.” Dealbreaker.

Thomson Reuters, 19 Sept. 2017. Web.

Peck, Liz Frazier. “In The Wake Of Harvey, Irma And Equifax – 3 Strategies Criminals

Are Using To Run Scams.” Forbes. Forbes Magazine, 14 Sept. 2017. Web.

Southurst, Jon. “Gangs Launder $4 Million a Day Through Aussie Banks:

Police.” Bitsonline. 15 Sept. 2017. Web.

How is AI disrupting financial industry?

How is AI disrupting financial industry?

by Xinhua writers Wang Naishui, Li Ming

NEW YORK, Sept. 17 (Xinhua) — Artificial intelligence (AI), along with other financial technology (fintech) innovations, are significantly changing the ways that financial business are being run, especially in the fields like trading, insurance and risk management, leading the traditional financial industry into a new era.


Back in 2000, Goldman Sach’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s clients. Today there are just two equity traders left, as automated trading programs have taken over the rest of the work.

Meanwhile, BlackRock, the world’s biggest money manager, also cut more than 40 jobs earlier this year, replacing some of its human portfolio managers with artificially intelligent, computerized stock-trading algorithms.

Those two big companies are not the only financial institutions replacing human jobs with robots.

By 2025, AI technologies will reduce employees in the capital markets by 230,000 people worldwide, according to a report by the financial services consultancy Opimas.

“Asset managers, analysts, traders, compliance administrators, back-office data collection and analysts are most likely to lose their jobs, because their jobs are easier to be replaced by automation and AI,” Henry Huang, an associate professor at Yeshiva University’s Sy Syms School of Business, told Xinhua.

“The net effect of this kind of automation will be more about increasing the productivity of the workforce than of robots simply replacing people,” said Richard Lumb, group chief executive of Accenture’s Financial Services operating group.

The best automated firms will outperform their competitors by making existing workforces more productive through AI, he added.

While humans are losing jobs in the financial industry, companies are enjoying the benefits bringing by AI technologies.

“Initially AI will add the most value and have the largest impacts in compliance (especially anti-money laundering and know-your-customer functions), cybersecurity and robo-advice,” Lumb told Xinhua.


Facing rising pressures from fintech innovations, represented by AI, Wall Street financial institutions choose to embrace the new trend.

“In general, we see the outlook for fintech as strong. Demand for fintech by banks is growing because of regulatory and capital pressures, competition from large technology players like Google and Amazon and the abundance of new security threats,” Lumb said.

The FinTech Innovation Lab, an annual program launched in 2010 by Accenture and the Partnership Fund for New York City to foster fintech growth, has helped New York participants raise more than 440 million U.S. dollars.

“The FinTech lab has proven to be a significant program for engagement between entrepreneurial technology companies and New York’s financial industry,” said James D. Robinson III, General Partner and Co-founder of RRE Ventures.

In New York City alone, fintech investment overall has increased from 216 million dollars in 2010 to 2.4 billion dollars in 2016.

“Big new frontiers are only just beginning to opening up in fintech – from AI, block chain and robotics to biometrics, augmented reality and cybersecurity,” Lumb said.

Among all the fintech innovations, the prospect of the block chain has the highest expectation.

“The block chain will change the way people store information, which is real, spreading fast and cross-border, and its ‘de-centric’ feature will allow everyone to know what other people are doing. The application of block chain in finance will once again bring about a revolutionary impact on the industry, just like AI does,” said Huang.


Although it is hard to tell which country is leading the fintech innovations, many experts agree that China has outperformed other countries in fintech services adoption.

“The work in China has been dramatically ahead of anywhere else in the world,” said Jim Bruene, founder of Finovate conferences, which showcase cutting-edge banking and financial technology.

With more intelligent, in-context financial services, especially commerce activities built around social media applications, “China is likely five or six years ahead of the United States,” Bruene told Xinhua.

The latest report by Ernst & Young showed that China’s fintech adoption rate came at 69 percent in an index that measures users’ activity in various areas, including money transfer, payments, investments, borrowing and insurance, the highest among 20 major markets globally.

Wechat Pay, the e-payment platform built inside the 900-million-user Chinese social media application Wechat, is seen as the future of fintech services by many experts.

“Messaging is the next web browser, fintech and all other applications are going to live in a mobile messaging application like Wechat, just like how they lived in web browsers,” said Greg Ratner, co-founder and chief technology officer of Troops, a U.S. artificial intelligence startup.

“It is going to be the future and is already happening in China. And I think it will come to the United States in the next five years,” Ratner told Xinhua.

According to Huang’s observation, there is a major difference between China and the United States in fintech development model.

“In the U.S., banks are the main driver of fintech innovations, while in China, BAT (Baidu, Alibaba, Tencent) representing the enterprises contribute most to the fintech development,” Huang said.

“Considering the scale of banks in China, they should play a more important role in fintech innovations,” he suggested.

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

CLEAR online investigations software provides a solution to your compliance and investigative needs. By providing consistent, comprehensive, and defensible results, CLEAR can uncover weak links in a customer or vendor’s history in the form of politically exposed persons, criminals, bankruptcy, high-risk business officials, and other dubious entities. With CLEAR you can access key proprietary and public records; receive real-time records such as arrests, watch lists, and social media; and instantaneously analyze search results to shorten investigation time.

Learn more about CLEAR for anti-money laundering.






Azeri Rulers Accused of $3 Billion Money-Laundering Scheme

Azerbaijan was accused of running a 2.5 billion euro ($3 billion) scheme to pay off European politicians, launder money and buy luxury goods, allegations that prompted the government to block an investigative-reporting project’s website.

The so-called “Azerbaijani Laundromat” was uncovered in a joint investigation by 17 European media organizations including the Guardianand Le Monde and was published by the Organized Crime and Corruption Reporting Project, known as OCCRP. Azeri authorities blocked access to the OCCRP’s website after the report was published.

Banking records of transactions via four U.K.-registered shell companies showed that “members of the country’s ruling elite were using a secret slush fund” to make the payments and purchases as well as “launder money, and otherwise benefit themselves,” the OCCRP said. The records were leaked to the Danish newspaper Berlingske, which shared them with other media and the OCCRP, according to the report.

“Among other things, the money bought silence,” the OCCRP said. During this period, the government “threw more than 90 human rights activists, opposition politicians, and journalists such as OCCRP journalist Khadija Ismayilova into prison on politically motivated charges.”

At least three European politicians and a journalist who wrote stories friendly to the Azeri government were among recipients of the money, it said. While the precise origin of the funds was hidden behind a series of secretive shell companies, there’s “ample evidence” of its connection to the Aliyev family, according to the report.

‘Shell Company’

Almost half of the 2.5 billion euros came from an account held in the state-owned International Bank of Azerbaijan by a “mysterious shell company linked to the Aliyevs,” the OCCRP reported. Two offshore companies with “direct connections to a regime insider” were the second and third biggest contributors, according to its report.

Neither the president nor members of his family have anything to do with the alleged scheme, Aliyev’s office said in a statement carried by the state news agency Azartac. The accusations are “totally groundless, biased and provocative,” according to the statement.

The IBA last week completed restructuring of $3.3 billion of foreign debt after defaulting in May. The bank’s former director, Jahangir Haciyev, was sentenced to 15 years in prison last year for embezzlement and abuse of office, charges he denied.