Russia-Linked Money-Laundering Probe Looks at $150 Billion in Transactions

By Bradley Hope, Drew Hinshaw, and Patricia Knowsmann

Denmark’s largest bank is investigating whether companies with ties to Russia used it to launder money, examining $150 billion in transactions that flowed through a tiny branch in Estonia, according to people familiar with the matter.

The $150 billion figure, covering a period between 2007 and 2015, has been presented to the bank’s board of directors and would equal to more than a year’s worth of the corporate profits for the entire country of Russia at the time. The flows would have stayed in the branch for only a short time before leaving Estonia, according to a person familiar with the investigation, so they might not show up in deposit statistics, which reflect the balance at the end of month and not from day to day.

“Any conclusions should be drawn on the basis of verified facts and not fragmented pieces of information taken out of context,” Danske Bank Chairman Ole Andersen said in a statement. “As we have previously communicated, it is clear that the issues related to the portfolio were bigger than we had previously anticipated.” The bank says the results of its probe are being finalized.

Shares in the bank fell as much as 7% on Friday after The Wall Street Journal reported on the size of the amounts involved.

The U.S. has paid close attention to the ways Russia’s wealthy have taken money out of the country, according to U.S. officials, especially since sanctions imposed during the invasion of Crimea in 2014. Sanctions were strengthened following determinations of Russian meddling in the 2016 U.S. presidential election and again earlier this year.

Washington has watched illicit money flows channeled through European-regulated banks to the West. In February, the Treasury Department declared Latvia’s ABLV bank an “institutionalized money laundering” operation where weapons dealers and corrupt politicians from former Soviet Union countries sent their money into Europe. ABLV denied knowingly laundering money and later collapsed.

In 2017, Deutsche Bank agreed to pay nearly $630 million to settle investigations by U.K. and New York regulators into Russian equity trades that transferred $10 billion out of that country in violation of anti-money-laundering laws.

Since last year, NATO has positioned troops in three former Soviet Union republics—Estonia and its neighbors Latvia and Lithuania, all bordering Russia. In return, the U.S. has asked those governments to crack down on illicit Russian money flowing into the West through their banks, according to U.S. officials. That understanding was hammered out after Russia’s 2014 annexation of Crimea.

Danske’s Estonian branch is the subject of criminal investigations in Denmark and Estonia, prosecutors in the countries said. The Danish Financial Supervisory Authority reprimanded the bank for weak controls in May and ordered Danske to hold about $800 million more in capital, but didn’t issue a fine.

Shell companies, including many registered in the U.K., controlled most of the accounts in question, and many of the accounts had links to people in Russia and former Soviet Union countries, people familiar with the matter said. The U.K.’s Financial Conduct Authority isn’t probing the bank, according to a person familiar with the matter.

Danske Bank’s Estonian office in Tallinn.
Danske Bank’s Estonian office in Tallinn. PHOTO:INTS KALNINS/REUTERS

Estonia, a former Soviet Republic of 1.3 million people, became a European Union member in 2004 and joined the euro in 2011. Like its Baltic neighbor Latvia, it quickly became a way station for funds from other former Soviet states. The $150 billion figure is a substantial sum considering Estonia’s entire banking system reports total deposits of €17 billion ($19 billion).

At Danske, clients would typically move funds among several companies with accounts at its Estonia branch before transferring the money to accounts in banks in Turkey, Hong Kong, Latvia, the U.K. and other countries, one of the people familiar with the investigation said.

Danske’s management dragged its feet dealing with the issue, according to a report filed by Danish regulators this year, ignoring complaints from internal whistleblowers and correspondent banks, which made international payments and transfers on its behalf.

Estonian regulators complained to Danish counterparts as early as 2012 and compiled a 200-page report in 2014 detailing the local branch’s extensive failures to ask even basic questions about the source of its clients’ income.

“There were many red flags,” said Kilvar Kessler, chairman of the management board of Estonia’s banking supervisor, the Finantsinspektsioon.

It was only after another bank refused to deal with Danske’s Estonian unit that the bank shut down “nonresident” Estonian accounts in 2015.

Danske Chief Executive Thomas Borgen was in charge of international banking—including in Estonia—during part of the period under investigation. He was promoted to run the bank in 2013. He declined to comment.

Denmark’s Berlingske newspaper earlier reported around $8 billion of illicit money went through the Estonian branch. The Financial Times reported this month that some $30 billion flowed through the Estonian branch in the year 2013. In both instances, Danske said it needed time to look into the reports.

Danske’s investigation is overseen by the bank’s legal counsel and assisted by forensic accountants at PricewaterhouseCoopers LLP and consultants at Ernst & Young LLP. Both firms didn’t immediately respond to requests for comment. Promontory Financial Group, a unit of International Business Machines Corp. , and Palantir Technologies Inc. are also helping in the probe and declined to comment.

Such large sums were able to slip by European regulators’ watch for years largely because of a series of design flaws in the Continent’s anti-money-laundering systems, said James Oates, the founder of Cicero Capital, a financial adviser in the Estonian capital of Tallinn.

“Everybody was looking the other way because they thought they were covered, and it turns out they weren’t,” said Mr. Oates.

Danske Bank’s Estonia branch isn’t directly supervised by the European Central Bank, which in any case lacks the authority to investigate money-laundering cases. Estonian authorities, meanwhile, say that because Danske operated as a branch—and not a subsidiary with a legal entity based in Estonia—they had limited authority and incomplete information.

Parent bank Danske said in a September 2017 statement that the Estonia branch “operated very much as an independent unit, with its own systems, procedures and culture regarding anti-money-laundering measures.”

California marijuana purveyors go mainstream, except for the sacks of cash

Bay Area marijuana retailers who went fully mainstream this month were forced to act like gangsters anyway as they rumbled down freeways and across bridges in sport utility vehicles and sedans and, in at least one case, a Tesla, bearing cash piled in shopping bags and suitcases.

Everyone agrees the bundles of moola are a lure for criminals, but merchants who can’t access traditional banking have no other way to settle up. A month after California’s first recreational marijuana shops opened, the industry is mired in a fiscal free-for-all with few answers on how to handle the explosion of cash from rising sales and increased taxes.

Industry leaders estimate that 70 percent of the more than 1,600 recreational and medical dispensaries in the state are still dealing in cash. They must lug stacks of 20s, 50s and 100s to the tax collector every month, payments that are growing after California on Jan. 1 initiated a 15 percent cannabis tax on top of sales taxes.

The Wild West situation stems from marijuana remaining illegal under federal law, which prompts banks that might open accounts and extend loans to fear money-laundering charges.

In the latest bid for a solution, state Sen. Bob Hertzberg, D-Van Nuys,introduced legislation Thursday that would allow state-chartered banks, credit unions and other financial institutions to open accounts and issue checks for marijuana retailers.

Members of Congress have also sought protections, and Oakland and San Francisco have studied the idea of a public bank, but U.S. Attorney General Jeff Sessions has pushed in the other direction, signaling he favors a marijuana crackdown.

Frustrated state Treasurer John Chiang urged California in November to hire armored cars to help pick up the taxes, which industry experts predict will top $1 billion a year. But many courier services are fearful of being targeted by the federal Drug Enforcement Administration, and nothing has been done.

Instead, 90 percent of all cash tax payments to the state are now made by the cannabis industry, officials said.

“Certainly it’s an impediment to doing business,” said Erich Pearson, the founder of the San Francisco Patient and Resource Center, or SPARC, the city’s largest cannabis outlet. “A lack of banking has all sorts of logistical and operational challenges … so you have safes and cameras and security.”

The issue has intensified since Jan. 1, when the state put new taxes on retailers, growers and manufacturers. California businesses must normally pay a penalty for dealing in cash, but those in the cannabis trade can obtain a waiver, officials said.

Recent events in San Francisco and Oakland have only worsened the cash-only dilemma. The San Francisco tax collector closed in the fall after the office was accidentally flooded, forcing dozens of marijuana purveyors to drive to Oakland or Sacramento. The office reopened Jan. 22.

Earlier this month, the Oakland tax office became so swamped with currency that officials notified retailers it would only accept $20,000 in cash a day — a move that would have required some businesses to make multiple trips. The limit was rescinded shortly after The Chronicle inquired about it.

Tax authorities could not provide data on how much cash they are receiving and from how many businesses, but shop owners in San Francisco said it was not uncommon for them to haul in $80,000 at a time.

While no recent robberies have been reported publicly, dispensary workers across the country have fallen victim to cash heists over the years, including an Orange County dispensary owner who was kidnapped in 2012 and sexually tortured by four thieves trying to force him to hand over money. Another risk is that police or federal agents might confiscate gains considered ill-gotten.

“It’s a burden for the whole industry,” said Erick Alfaro, director of operations for the Green Cross in San Francisco, whose boss Kevin Reed had to make two trips to Oakland in his Tesla to pay taxes this month. “Walking around with that large amount of money is definitely a danger and a safety concern for us.”

Before January, medical dispensaries were required to pay state sales taxes that amounted to around $50 million annually, plus varying local taxes. Officials said only about a third of dispensaries paid all they owed — a shortfall that became one of the arguments for legalization.

The newly raised taxes will pay for marijuana research and regulation as well as programs to prevent drug abuse, protect the environment and test for pesticides.

Despite the windfall, bank managers contemplating opening cannabis accounts remain wary, and got no encouragement from Attorney General Sessions, who on Jan. 4 rescinded a memo issued under President Barack Obama’s administration that instructed the Department of Justice to leave cannabis businesses alone in states where the drug is legal.

“It would be ridiculous for banks like ours to bank in marijuana,” said Jim Brush, the president and chief executive of Summit State Bank in Santa Rosa, a state-chartered institution subject to federal regulation.

“Anytime we think there is anything to do with marijuana, we have to report that as suspicious activity because its illegal,” Brush said. “I have heard of some banks that have started it, but usually within a few months they aren’t doing it anymore. The fines can be substantial.”

Before Sessions rescinded the Obama administration directive, known as the Cole memo, 400 banks in the country had cannabis customers, according to a September 2017 study by the federal Financial Crimes Enforcement Network.

It isn’t clear how many banks have cut ties since. Industry experts say the institutions that remain are mostly small credit unions or banks where branch managers negotiate side deals without telling their corporate bosses about the clients’ marijuana connection.

Such arrangements can be fleeting, and many merchants have been forced to move from one institution to another as audits flag their accounts. Henry Wykowski, an attorney who represents Oakland’s Harborside dispensary and more than 100 other cannabis businesses in California, said he was bounced by Comerica Inc. after 25 years as a client, apparently after they found out he was depositing legal fees paid in cash by the dispensary.

Other outlets wire money to banks or use debit cards and ATM processing machines supplied by independent merchant-services groups, like CreditWeed and Green Kinex. But the fees can be 5 percent or more per transaction.

“We do receive inquiries from different companies offering credit card terminals, but there are quite a bit of fees,” said Alfaro, who recently received an offer with a 10-percent overall charge. “That wouldn’t be a really efficient way for us to run our business. It would be like them being a part-owner.”

Wykowski said the restrictions may open doors for drug cartels, which have experience dealing in cash and providing the kind of muscle needed to protect it.

“Not allowing cannabis businesses to engage in banking is actually detrimental to the federal government because there are now billions of dollars on the underground economy and all of it is cash that you can’t track,” Wykowski said. “Most businesses have found some type of accommodation, but the accommodation we have found is putting duct tape on the leaky pipe rather than replacing it.”

Are Artificial Intelligence And Machine Learning The Next Frontiers For Fighting Money Laundering?

Within the financial services sector, Anti-Money Laundering (AML) is a significant challenge for many institutions, often consuming large numbers of people and effort to manage the process and comply with the regulations.  As a result, these same institutions are looking for new solutions to help them reduce the burden and increase the controls in this complex space.   The combination of artificial intelligence (AI) and, more specifically, machine learning (ML), are increasingly being considered as enablers of a better solution.

Despite its potential, however, adoption of AI and ML within Anti-Money Laundering has been relatively slow.  This is due, in part, to the limited understanding of how AI and ML could be applied within compliance programs, and to the fact that regulators and compliance officers are often concerned that AI and ML are “black boxes” whose inner workings are not clearly understood.  Regulators typically require compliance officers to understand and validate not just the outputs, but also how the outcomes from AML models are derived.  Despite some of the concerns, we already see movement and application of these technologies.

Machine learning has been shown to be particularly useful in conducting suspicious activity monitoring and transaction monitoring, two key AML activities. A common challenge in transaction monitoring, for example, is the generation of a vast number of alerts, which in turn requires operation teams to triage and process the alerts.  ML can teach computers to detect and recognize suspicious behavior and to classify alerts as being of high, medium or lower risk.  Applying rules to these alert classifications can facilitate the automatic closing of alerts, allowing humans to supervise the machines that triage these alerts rather than reviewing all of the alerts manually, and making better use of the time of these experts.

Institutions leveraging ML can reduce their dependency on human operators to perform routine tasks, reduce the total time it takes to triage alerts, and allow personnel to focus on more valuable and complex activities.  There will always be a need for human involvement in the AML process; in fact, hybrid human/AI models and processes are the direction we see the function moving towards and should enable AML transaction monitoring to take a step forward in both the efficiency and effectiveness of alert operations teams.

To implement ML as part of a transaction monitoring solution, firms need to get key elements in place.  These include:

• High quality data.   All monitoring systems and analytics, not just ML applications, depend upon high quality data.  Static files such as Know Your Customer data as well as dynamic data on customer transactions held by financial services firms frequently have low completeness ratios in areas such as payment information, along with high error rates.  Profile refreshes, conducted as part of sales and marketing exercises, can update data while increasing customer outreach and identifying cross-selling opportunities.

• A 360-degree view of the customer.  Currently, financial services firms do not have the global freedom to share information about their customers to build a comprehensive network, and they do not formally collaborate on AML initiatives.  Regulators are, however, increasingly leaning toward data sharing between banks.  Over time, as ownership and privacy concerns are addressed, large amounts of transactional data could become available on intrabank data clouds, making a 360-degree view of the customer more feasible.

• Expertise in financial services and ML.  Very few people are experts in both ML techniques and financial services.  As a result, there have been fewer applications targeting financial services problems from start-ups and established vendors, limiting acceptance of ML within the sector.  Firms hiring ML experts can provide the needed financial expertise, if they institute appropriate training and development programs.

• Straightforward systems and processes.  ML is a relatively new technology and there are few established, straightforward processes to follow to implement it.  Without knowing what to look for, teaching systems to detect certain types of financial crime can be tricky.  For example, how does one teach a system to recognize terrorist financing?  There are more established processes for managing fraud, but nothing as comprehensive for terrorist financing, other than name matching against terrorist lists.

Financial services firms are making progress in addressing these challenges and their appetite for automation is increasing rapidly.  Many banks have started implementing business process automation in the form of Robotic Process Automation (RPA). In fact, robotics and AI/ML solutions can exist independently of each other and each can support the other’s capabilities.  Robotics can be used to train AI/ML models and AI/ML models can be used to add decision-making or reading capabilities to robotics models.

In Anti-Money Laundering, as in so many other areas of compliance, operations, risk and finance, AI and ML could be important steps in financial services firms’ journey to greater efficiency and effectiveness. These improvements in compliance and resilience capabilities can help to benefit firms’ shareholders and customers, make regulators’ jobs easier, and strengthen the global financial system

Pakistan says taking steps to curb terror financing, money laundering


Adviser to the Prime Minister on Finance Dr Miftah Ismail informed US Acting Assistant Secretary of State for South and Central Asian Affairs, Ambassador Alice G Wells, about the measures the country was taking to fulfill the requirements of a global body working to curb terrorism financing and money laundering.

Wells said that the relationship between the two countries was important and the US would like to carry it forward, according to a handout of the finance ministry. She lauded the reforms that Pakistan has undertaken in different economic spheres and expressed the US support for similar reform efforts in the future, it added.

Her statement suggests that the US would like to engage with Islamabad contrary to the intentions recently expressed by US President Donald Trump.

 “They discuss current state of ties between the two countries, with particular emphasis on the economic cooperation”, the Ministry of Finance stated in the official handout.

During the meeting, the adviser informed the US delegation about the actions that Islamabad has taken two weeks ago against proscribed organisations, according to officials privy to meeting discussions.

Islamabad has stopped banned outfits from collecting donations aimed at averting a possible action that the Financial Action Task Force (FATF) may propose against the country during its meeting scheduled for next month.

The adviser did not raise the issue of outstanding $9 billion that Washington owes to Islamabad on account of the Coalition Support Fund, said the officials.

Miftah Ismail said that bilateral visits were helpful in understanding each other’s point of view, according to a statement issued by the finance ministry.

The adviser stated that the relations between the two countries have been affected by certain recent developments and it was important to remove the misconceptions, it added.

Adviser Finance also welcomed the planned visits of US business delegations and said that people to people contacts were an important part of a bilateral relationship. He expressed his support for business community’s efforts aimed at furthering Pak-US economic ties.

Miftah Ismail also briefed the US acting assistant secretary of state about the state of the economy and the measures that his government was taking to correct macroeconomic imbalances on the external front.

Ismail said Pakistan has made visible headway in overcoming energy shortages that has given a boost to the country’s productive sectors. This in turn is having a positive impact on the overall economic activities and GDP is growing steadily, he added.

US Ambassador David Hale, Finance Secretary Arif Ahmed Khan and other senior officials of the Ministry of Finance were present on the occasion.

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.