Global standard for cryptocurrency anti-money laundering to be agreed

The global anti-money laundering task force has said it is closer to establishing a worldwide set of standards to apply to virtual currencies.

The president of the Financial Action Task Force, Marshall Billingslea, said he is optimistic that at its plenary, due in October, the FATF will agree a series of standards that will close the anti-money laundering “gaps” that all nations face.

“It is essential that we establish a global set of standards that are applied in a uniform manner,” he added.

The task force has accelerated its work and made significant progress on reaching a “consensus across nations” after the G20 requested the organisation tackle the issue as a matter of urgency.

In October, the FATF will discuss which of its existing standards need to be updated to address virtual assets, since its current recommendations do not acknowledge them. It will then revise the methodology it uses to assess how countries implement these standards and when this revised assessment methodology will take effect.

Mr Billingslea, who is also assistant secretary to the US secretary, said currently the adoption of anti-money laundering standards and regimes pertaining to digital assets and virtual currencies is “very much a patchwork quilt or spotty process,” which is “creating significant vulnerabilities for both national and international financial systems”.

China and South Korea have clamped down on the sector, while other countries — including France, Switzerland, Malta and Gibraltar — are drawing up regimes for formally policing the space in an attempt to attract fintech business.

UK MPs also highlighted on Wednesday the urgent need to regulate “Wild West” crypto-asset markets. The Commons Treasury select committee warned that a dearth of regulation around crypto-assets had left investors exposed to a “litany of risks” — without any of the protections usually afforded to consumers, such as access to compensation.

Cryptocurrencies are not regulated by central banks but are held digitally via electronic identities that in many cases allow their owners to remain anonymous. As a result, they have been linked to payments for prohibited goods such as guns and drugs and are a target for hackers.

Mr Billingslea said there were concerns of an emerging use of virtual currencies by terrorist organisations including Isis, as well as in extortion schemes, such as the WannaCry attacks.

His comments come after some observers argued that authorities such as Europol, Europe’s law enforcement agency, should devise a centralised system that flags cryptocurrency wallets linked to nefarious activities to major exchanges, so that they can block the owners from exchanging those funds for hard cash.

Despite the risks associated with digital assets, Mr Billingslea said they also presented “a great opportunity”. In terms of regulation, he said, “you can’t tilt too far in one direction or another” since blockchain, the technology that underpins virtual assets, “will continue to evolve”.

The EU Has a Problem With Dirty Money

After a string of scandals, the European Commission has unveiled new plans to crack down on money laundering. It’s right to take this problem seriously — but its proposals are weak. Instead of setting up a new agency and equipping it to do the job, Europe plans to keep relying on national authorities, some of which aren’t up to the task.

Banks in Denmarkthe NetherlandsLatvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea. The EU has moved to centralize banking supervision, but money laundering has remained a national responsibility. It was the U.S. Treasury Departmentthat found out that ABLV, a Latvian lender, was involved in “institutionalized money laundering,” prompting EU authorities to withdraw its banking license. And a report by the European Banking Authority (EBA) concluded that the Maltese regulator had “failed to conduct an effective supervision” of Pilatus Bank, a lender with links to Iran.

In principle, there’s nothing wrong with national regulation of international financial crime. The U.S. Treasury’s Office of Terrorism and Financial Intelligence deals with money laundering. But some EU governments, concerned about the reputation of their respective banks, have taken an unduly lax approach. A common EU agency would be less susceptible to local pressure. Also, EU banks can set up branches across the union on preferential terms thanks to its so-called passporting system — so EU banking is intrinsically cross-border, strengthening the case for more centralized supervision.

Brussels wants to give new powers to the EBA, so that the agency can tell national supervisors to investigate cases and consider possible sanctions. This is a step in the right direction. But the EBA isn’t equipped for the job. The London-based agency is primarily responsible for designing stress tests and overseeing prudential rules. Some aspects of money laundering fall under its review, but it currently has just two officials assigned to the task. The EU wants to add 10 more. That isn’t enough.

Most important, the EU wants domestic regulators to stay in charge. It would have been better to harmonize the rules, create a new agency, and give it lead responsibility for investigating offenders. The EU has missed an opportunity to move to a better system and improve its reputation for sound financial supervision.

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.”

Canada a hotbed for money laundering: Report

Canada is being taken advantage by criminal organizations who launder dirty money from drug trafficking, smuggling, corruption and fraud, according to a report by the C.D. Howe Institute.

And the feds have failed to enact the proper legislation to stop it, the Canadian research institute says.

Money laundering in Canada is estimate to be between $5 billion and $100 billion, Denis Meunier writes in the study. Taxes evaded on these illicit funds become a burden for those honest, hardworking individuals who pay their taxes as they have to cover the bulk of government costs, it states. Canada is a hotbed for this illegal activity because of a lack of transparency in beneficial corporate ownership, Meunier explains.

Simply put, a beneficial owner is someone who owns 25% or more of a company or corporation. Other countries, especially in Europe, require corporations to have publicly accessible registries for beneficial ownership. But here, these registries aren’t public and the onus is on the financial service provider, such as a bank, to verify the accuracy of the information of the beneficial owners and directors.

However, the study states, they generally rely on customers for this information. This is a lower bar than is required for buying a car or getting a library card which often require photo identification, proof of address, email and phone number.

Canada is ranked 21st worst in the Tax Justice Network’s 2018 Financial Secrecy Index of 112 jurisdictions, the study notes.

“There is a clear link between money laundering and hidden beneficial ownership,” Meunier writes. “The abuse of corporate vehicles and camouflaged beneficial ownership is a recognized means of laundering money — and a worldwide problem.”

It points to a World Bank study that in 85% of 150 grand corruption cases (more than US$1 million) reviewed, companies were used to launder money.

“In more than half of these cases, corrupt officials used nominees, shell corporations and trusts to disguise their beneficial ownership and the proceeds of their crimes,” it states.

The report recommends the feds create a central, publicly accessible beneficial ownership registry and make corporations and trusts to “truthfully and fully disclose” information for that database.

Swiss watchdog to propose looser anti-money laundering rules for fintechs

By Brenna Hughes Neghaiwi

ZURICH (Reuters) – Swiss financial regulator FINMA is planning to loosen anti-money laundering rules for smaller financial technology firms, part of a drive to boost innovation and shore up the country’s position as a leading money management hub.

The revisions, prompted by a new ‘fintech’ licensing category carved out by the Swiss parliament in June, will clarify how non-banks applying for the new license must ensure due diligence.

“As a rule, all financial institutions are subject to similar due-diligence requirements relating to combating money laundering. However, as most fintech license applicants are likely to be smaller institutions, FINMA proposes to introduce some organizational relaxations for such institutions,” the financial supervisor said in a statement on Tuesday.

Its proposal defines small institutions as those with gross revenues under 1.5 million Swiss francs ($1.5 million).

Under its terms small institutions, unlike banks, will not for instance have to establish an independent anti-money laundering unit with monitoring duties, it said.

The move comes after Switzerland’s parliament voted in June to amend the Swiss Banking Act, creating a new fintech license category to ease rules imposed on financial endeavors that take in funds and provide certain bank-like functions, but do not make money by investing or receiving interest on the funds.

Switzerland, the world’s largest center for offshore wealth, has gained prominence in recent years as a hub for financial technology providers, such as banking software groups Temenos (TEMN.S) and Avaloq AVLN.S, as well as cryptocurrency projects.

But advocates have warned that as banks face increasing margin pressure and tougher competition from technological rivals, more must be done to promote innovation if Switzerland is to remain a leading financial hub.

The new license, intended to promote financial innovation, will apply to groups which accept public deposits of up to 100 million francs but don’t invest the funds or pay interest.

It will likely have the biggest immediate impact on activities such as crowdfunding, which under current rules could often require a banking license.

Cryptocurrency projects — which often fall under anti-money laundering or securities regulations under FINMA’s current guidelines but generally don’t require a banking license — are unlikely to be affected by the changes.

The federal government plans the amendments to take effect from Jan. 1, and FINMA said its own adjustments to the Anti-Money Laundering Ordinance should enter into force simultaneously, if possible.

FINMA opened a review period for its proposal on Tuesday to run through October 26.

($1 = 0.9957 Swiss francs)

Fugitive Malaysian Moneyman, Jho Low, Is Charged With Money Laundering

By Sharon Tan & Richard C. Paddock

KUALA LUMPUR, Malaysia — The fugitive Malaysian financier Jho Low, a prime suspect in the theft of billions of dollars from the government, was charged Friday with eight counts of laundering money, much of it reportedly used to purchase a $250 million yacht.

The Malaysian police issued arrest warrants for Mr. Low and his father, Low Hock Peng, who was charged with one count of money laundering.

The warrants are a first step in seeking the pair’s extradition. Their whereabouts are unknown but there has been recent speculation in the news media that the younger Mr. Low is in China.

He is accused of playing a key role in the theft of at least $4.5 billion from a government investment fund, 1 Malaysia Development Berhad, that was established and overseen by the former prime minister, Najib Razak.

The scandal over missing government money, including the diversion of $731 million to Mr. Najib’s personal account, outraged many Malaysians and helped secure Mr. Najib’s upset election defeat in May.

Since taking office, the new government of Prime Minister Mahathir Mohamad has aggressively pursued a criminal investigation into the missing funds.

Shortly after the election, the police seized $273 million in cash, jewelry, luxury handbags and other valuables during raids on properties controlled by Mr. Najib and his wife, Rosmah.

Mr. Najib has since been charged with seven counts of money laundering, criminal breach of trust and corruption. He has pleaded not guilty. He and his wife are prohibited from leaving the country.

Mr. Low’s megayacht, Equanimity, was seized in Indonesia last month and handed over to the Malaysian government. On Friday, the government won court approval for a quick sale of the ship.

The eight charges against Mr. Jho Low accuse him of laundering $450 million in stolen funds through bank accounts in Singapore, the United States, the Cayman Islands and Switzerland.

Mr. Low’s father was charged with transferring $56.4 million in stolen funds to an account controlled by his son.

Each charge could be punished by as much as five years in prison.

The charges against Mr. Low and his father were first reported by The Edge, a Malaysian media organization. Two of its print publications, the Edge Weekly and the Edge Financial Daily, were suspended for three months in 2015 by Mr. Najib’s government for their coverage of the investment fund scandal.

The Edge reported Friday that most of the money cited in the charges against the Lows was used to purchase the Equanimity.

An Australian public relations firm representing the younger Mr. Low issued a statement saying that he had not violated the law.

“Mr. Low maintains his innocence and is confident he will be vindicated,” said the statement released by Benjamin Haslem, co-CEO of the firm, Wells Haslem Mayhew Strategic Public Affairs.

Mr. Haslem declined to say where the Lows were or to answer questions about the case.

The statement asserted that the criminal charges were an attempt to distract attention from the seizure of the Equanimity and the government’s plan to sell it.

It also sought to cast the case as political, calling Mr. Mahathir’s elected government a “regime” and asserting that the criminal charges amount to “political reprisal.”

Mr. Low, the statement said, “will not submit to any jurisdiction where guilt has been predetermined by politics and self-interest overrules legal process.”

Feds freeze millions in assets linked to stolen Venezuelan oil funds laundered in South Florida

Federal prosecutors have frozen hundreds of millions of dollars in South Florida luxury real estate and other assets linked to a network of Venezuelan business people and former government officials charged with laundering more than $1 billion that U.S. authorities say was stolen from the country’s vast oil income.

Among the targeted assets are at least 17 South Florida homes, condos and horse ranches ranging in total value from $22 million to $35 million, based on property assessments in public records and real estate market estimates.

They include a condo in the Porsche Design Tower in Sunny Isles, a residence on Hibiscus Island overlooking Biscayne Bay, four homes in the exclusive Cocoplum neighborhood of Coral Gables, and two ranches in the wealthy equestrian community of Wellington in Palm Beach County.

Also facing federal forfeiture: More than $45 million that has already been seized by U.S. authorities in the past year, along with additional deposits at City National Bank of New Jersey and other financial institutions in the Bahamas, England and Switzerland.

This week, the U.S. Attorney’s Office filed a motion to freeze the assets of nine defendants recently charged with conspiring to commit money laundering by transferring funds from Venezuela’s state-owned oil company, PDVSA, to South Florida, the Caribbean, Europe and Central America for their personal enrichment. Some of the defendants are close to the nation’s president, Nicolás Maduro, who is also under investigation, the Miami Herald has learned.

Their assets — including the Porsche Design Tower condo owned by former PDVSA legal counsel Carmelo Urdaneta Aqui — are typically listed in other people’s names or corporate companies to disguise the defendants’ ownership interests, prosecutors say.

U.S. District Judge Kathleen Williams granted the prosecution’s motion, which prevents the defendants from selling their assets. The Feds can seize the properties only if they secure convictions through plea deals or at trial.

Only two of the nine defendants charged so far are in custody. Matthias Krull, a German national who resided in Panama and also worked as a private-wealth management banker in Switzerland, pleaded guilty on Wednesday in Miami federal court to conspiring to commit money laundering. Krull, 44, who was arrested last month at Miami International Airport and is being held at the Federal Detention Center, admitted in court that he was involved in at least $550 million worth of money-laundering activities.

Krull, represented by lawyer Oscar S. Rodriguez, is cooperating with Homeland Security Investigations and the U.S. Attorney’s Office, according to his plea agreement. By pleading guilty, Krull faces up to 10 years in prison instead of potentially twice that amount of time under an indictment charging the other eight defendants. Krull’s sentencing hearing is set for Oct. 29 before U.S. District Judge Cecilia Altonaga.

The only other defendant in custody is Miami-based investment broker Gustavo Adolfo Hernandez Frieri, 45, who was arrested last month in Italy and is facing extradition. Hernandez, 45, a Colombian-born naturalized U.S. citizen, is accused of using his Miami financial firm, Global Securities Advisors, and another firm, Global Strategic Investments, to launder money with false mutual-fund investments. A Homeland Security investigator says in a criminal affidavit that the two brokerage companies, which are listed as having offices at 701 Brickell Ave., are “affiliated” and were used by Hernandez for meetings with members of the money-laundering network.

Representatives of Global Strategic Investments insist Hernandez has had no involvement in the firm, which is headed by Hernandez’s brother, Cesar.

The remaining seven defendants, including two former PDVSA senior officials accused of pocketing bribes as part of the alleged massive money-laundering scheme, are in Venezuela or other foreign countries.

The Miami criminal case is the largest money-laundering racket — totaling at least $1.2 billion — ever alleged against former Venezuelan officials and business people, some of whom are close to Venezuelan President Maduro. Maduro himself is also under investigation, along with his three stepsons and a TV network mogul, Raúl Gorrín, who also owns a Cocoplum home that he recently put on the market for $8 million. But Maduro, the stepsons and Gorrín have not been charged in the ongoing investigation.

Even if Maduro, who became president after Hugo Chávez’s death in 2013, is ultimately charged, it’s unlikely he would be brought to the U.S. for prosecution. But the probe could add to the political challenges already facing the embattled president. Maduro has been the focus of months of protests over his country’s failing economy.

The president’s stepsons, Gorrín and others are suspected of receiving hundreds of millions of dollars in funds from Venezuela’s national oil company that were transferred to bank accounts set up in other people’s names in Europe.

On Wednesday, it was disclosed that about $200 million in the country’s oil funds was transferred overseas to the president’s stepsons in the name of Mario Enrique Bonilla Vallera, a Venezuelan businessman who U.S. authorities say was a “straw” owner of their bank accounts. Bonilla, who was added as a defendant to the new indictment, is also listed as the registered officer for three Florida businesses whose mailing addresses are linked to one of the four Cocoplum residences being seized by federal prosecutors, state records show.

Maduro, his stepsons and Gorrín, however, were not identified in the court hearing or in case records.

The alleged money-laundering conspiracy began in December 2014 with a currency-exchange scheme to embezzle $600 million from PDVSA obtained through bribes and fraud, the criminal affidavit says. The defendants used an associate, who would later become a confidential source for the feds, to launder a portion of the PDVSA funds. By May of 2015, the conspiracy had doubled to $1.2 billion embezzled from Venezuela’s national oil company.

In early 2016, the associate approached Homeland Security investigators in Miami about cooperating and becoming a confidential source, according to the affidavit. The source agreed to wear a recording device to launder $78 million in PDVSA funds that he had received from a loan contract with the national oil company.

The federal probe, called Operation Money Flight, was launched with the initial focus on the defendants’ efforts to launder a portion of the $78 million. That investigation uncovered the broader money laundering, according to the affidavit.

The eight defendants named in the complaint are accused of embezzling funds from Venezuela’s oil income and exploiting its foreign-currency exchange system to amass illegal fortunes in the United States and other countries. To leverage their profits, the defendants took advantage of their access to the Venezuelan government’s foreign-currency exchange system, which offers a far more favorable rate than the everyday market. The system was used to convert dollars and euros to bolivars and then back to dollars and euros as the defendants stole from the country’s oil riches for overseas investments in Florida, Europe and other parts of the world.

A factual statement filed with Krull’s plea agreement Wednesday jibes with the initial criminal affidavit that was unsealed upon his arrest last month. The court records put Krull in the middle of the money-laundering racket as the go-to banker for the Venezuelans and others. Some met with Krull at the banker’s Panama office as well as at Gorrín’s office in Caracas and condo on Fisher Island in Miami.

While Maduro is not mentioned by name in any court records, there are references to him as “Venezuelan Official 2” and to his stepsons, according to multiple sources familiar with the probe. His stepsons — Yosser Gavidia Flores, Walter Gavidia Flores and Yoswal Gavidia Flores — though also unnamed are described by the sources as receiving an estimated $200 million in funds stolen from the nation’s national oil company, Petroleos de Venezuela, S.A., or PDVSA, that were wired to a European bank in late 2014 and early 2015.

The deposits for his three stepsons — the grown children of Maduro’s wife, Cilia Flores, from previous relationships — were among 10 wire transfers totaling about $600 million, according to the affidavit by Homeland Security Investigations. Flores is not mentioned by name in any court records either.

The affidavit says the wire transfers were made from PDVSA, with about $265 million going to accounts linked to the complaint’s lead defendant, Francisco Convit Guruceaga, a Venezuelan billionaire businessman. He and other members of the wealthy class are often referred to as the “boliburgués,” an elite politically connected group in Venezuela. An unnamed conspirator also received some of the money, according to the affidavit filed by Assistant U.S. Attorney Francisco Maderal.

Roughly $200 million went to the grown stepsons of Venezuelan Official 2. Sources say that Venezuelan Official 2 is Maduro.

Court documents say another $80 million went to “Conspirator 7.” Sources familiar with the affidavit told the Herald that Conspirator 7 is Gorrín, owner of the Globovision television network in Venezuela. Gorrín, who has close ties to Maduro and the late president Chávez, has been sharply criticized for turning a pro-opposition news network into one more friendly to the president.

In late 2017, Gorrín tried to broker an exit strategy with the Trump administration for Venezuela’s beleaguered government, according to various Washington sources, by peddling the idea that Maduro and other key government leaders might be willing to negotiate a transition in Venezuela in exchange for amnesty. He also retained Ballard Partners — the firm of President Donald Trump’s former Florida lobbyist — ostensibly to help his Venezuelan TV network company expand into U.S. markets.

Gorrín’s lawyer in Miami, Howard Srebnick, denied any wrongdoing by his client.

Meeting anti-money laundering obligations in the Dominican Republic

Last summer, tens of thousands of people flooded onto the streets of Santo Domingo, dressed mostly in green. The Marcha Verde protests were a clear indication of the strength of public feeling about the Dominican Republic’s history of corruption in both the private and public sector. But the tide is turning. Change is underway.

Despite an economy that is among the largest in the Caribbean, the Dominican Republic (DR) has struggled to assert itself on the international financial stage because of poor regulatory controls. A 2014 assessment by the Bureau of International Narcotics and Law Enforcement Affairs said that ‘corruption, the presence of international illicit trafficking cartels, a large informal economy, and a fragile formal economy make the DR vulnerable to money laundering and terrorism financing threats’.

New regulations introduced in 2017, though, are changing the landscape. The new Anti-money Laundering and Terrorist Financing Act came into effect on 1 June 2017, replacing the existing Anti-money Laundering Act and bringing DR into line with financial crime legislation already in place in many developed nations. The new Act is based on the recommendations of the Financial Action Task Force (FATF – the G7 organization set up to develop an international response to the growing threat of money laundering) and will, it is hoped, help to greatly improve the country’s access to foreign credit and the support of international organizations.

Jay Ryan
Jay Ryan

Implementation of the Act is now well underway, with the full support of President Danilo Medina. In January 2018 President Medina urged government officials to work to achieve a satisfactory evaluation from the International Financial Action Group of Latin America, which is tasked with coordinating anti-money laundering efforts in the region.

The new law introduces more stringent money laundering and terrorist financing regulation by improving the due diligence and data transparency around financial transactions and involving a wider group of professionals in the fight against financial crime. It also establishes a number of government agencies as competent authorities responsible for the detection and prevention of money laundering.

The law considerably broadens the activities that are defined as money laundering, which now include tax evasion, counterfeiting, copyright infringement and market manipulation. Critically, the new law also extends anti-money laundering (AML) compliance requirements that have until now only applied to financial institutions to a far wider group of non-financial professions. This includes:

  • Savings and loan cooperatives
  • Lotteries and sports betting companies
  • Factoring companies
  • Pawn houses
  • Traders in vehicles, metals, precious stones and jewelry
  • Construction companies
  • Real estate brokers
  • Lawyers, notaries and accountants who participate in a wide range of activities on behalf of their clients, including real estate transactions.

These professionals are now expected to meet far higher standards of compliance than has ever been seen in the DR before. All entities that fall under the Act are required to introduce and maintain a compliance program that includes detailed policies and procedures to:

  • Evaluate the money laundering and terrorist financing risks in their business
  • Manage and mitigate that risk effectively
  • Carry out detailed due diligence on their clients
  • Monitor the financial activities of their clients, and
  • Report suspicious activity to the Financial Analysis Unit within five days of the event.

Customer due diligence is one of the biggest challenges introduced by the Act. The new law specifies that due diligence of a customer or client means establishing and verifying their identity – and if someone is acting on behalf of a client, their identity must also be verified, as well as their authorization to act for the client. If the client is a company, the ultimate beneficial owner must also be identified. In all cases, this monitoring of clients and client activity must be continuous and regularly updated. Merely asking the client for this information will not satisfy the Act’s requirements – it makes clear that the data must be verified from ‘reliable and independent sources’.

Few of the professions affected by the new Act were prepared for its sudden implementation last summer. The penalties for failing to comply with the Act are severe – fines of millions of pesos and, in some cases, imprisonment.

Meeting the full requirements of the Act will take extensive planning, the establishment of clear policies and procedures, and on-going training of staff; and the Dominican Republic has already taken some proactive steps to progress in these areas. In recent months, the government has consulted Accuity on how to achieve best practices in financial crime compliance and our subject matter experts have provided a series of practical recommendations. The good news is that there are excellent automated systems available that effectively and efficiently screen customers, accounts and transactions.

Firco Compliance Link is ideal for businesses and professionals who want to keep their business flowing and keep costs down, while being confident that they are meeting their regulatory obligations. It can be installed on site or as part of a SaaS solution, providing a consolidated view of all account, transaction and trade activity. It can be configured to meet individual risk appetite and creates the clear audit trail that regulators expect.

Alternatively, the online screening option, Firco Online Compliance, is a fast and easy-to-use solution that automates Know-Your-Customer checks using the latest verified data. With comprehensive data on more than three million entities in 250 jurisdictions and over 1,300 enforcement agencies, these solutions allow businesses in all regulated fields to quickly and effectively meet their obligations under the new Act.

There is no doubt that the new requirements that financial and non-financial businesses face are stringent and will require work to implement effectively. But the new Act marks a significant step in DR’s history. Having worked a long time in advising governments in the area, we feel confident the government has the right spirit to drive forward the development of a trustworthy and well-regulated financial environment that will bring DR, and its businesses, onto the international stage.

Danske’s Woes Grow as Denmark Opens Money Laundering Probe

By Peter Levring

Danske Bank A/S’s legal jeopardy is deepening.

Prosecutors in Denmark said on Monday they had opened a criminal investigation into the bank, acting on “multiple complaints” that the Estonian unit of the country’s biggest lender was used to funnel billions of kroner of dirty money.

The prosecutors said that they had been following “the case very closely” for a long period “due to the very serious nature and scope of the case” and vowed to “turn every stone.”

A similar investigation was launched by Estonia last week. The probes come after Bill Browder, co-founder and chief executive officer of Hermitage Capital, filed criminal complaints in July alleging that Danske was guilty of “gross negligence and money laundering and related offenses.”

According to Browder, Danske became a hub for financial crime from 2007 to 2015, as more than $8 billion in illicit funds from Russia, Moldova and Azerbaijan were funneled through its Estonian operation and into Europe. The case takes its starting point in $230 million that Browder says can be traced back to transactions linked to the death of his lawyer, Sergei Magnitsky. He says the full amount laundered through the bank may exceed $9 billion.

Serious Case

The state prosecutor said it was too early to say if the investigation would result in charges. A spokesman for the office declined to comment about any potential targets or on how long the probe might take.

Danish anti-money laundering legislation allows for financial penalties tied to the number of suspicious transactions, meaning fines may “significantly exceed profits,” prosecutors said.

In a survey of five analysts by Bloomberg last month, estimates of a potential fine for Danske ranged from a high of $4.7 billion to a low of $315 million, with at least two saying the bank may avoid penalties altogether.

Danske shares slid 0.5 percent on Tuesday in Copenhagen, bringing this year’s decline to 25.5 percent. That compares with a 10 percent drop in the Bloomberg European Banks index. Analysts Kapilan Pillai at Jefferies International and Paulina Sokolova at Barclays said in recent notes the stock is now cheap relative to peers.

For more on the stock, read this: Danske Shares Are Oversold, Barclays Says

With the case having spooked investors, Danske Chief Executive Officer Thomas Borgen has apologized publicly for Danske’s failure to act sooner. Borgen said in June that he and the board had discussed whether he should step down, but that it was decided his experience was needed to steer the bank.

Danske said it would be assisting prosecutors in their investigation.

“We have a good and constructive dialog on an ongoing basis with the authorities, and we will be at the service of SOIK if it needs further clarification on specific matters,” Flemming Pristed, Danske’s general counsel, said in a statement.

Danske Bank said last month it will donate the gross income from suspicious transactions in its Estonian non-resident portfolio (roughly 1.5 billion kroner, or $233 million) to support social programs, including combating financial crime.

The lender agreed in December to pay a $2 million fine after prosecutors charged the bank with breaching rules requiring monitoring of transactions with correspondent banks. In May, Denmark’s financial supervisor raised Danske’s capital requirements by 5 billion kroner as part of a scathing report on the bank’s multiple failures to halt the laundering.

Business Minister Rasmus Jarlov welcomed the probe and said the government would “tighten anti-money laundering even more.”


By Zac Cohen

Banks are spending $20 billion on compliance in an effort to combat money laundering, yet only one per cent of illicit financial flows are seized by authorities every year. While regulations have been introduced to crack-down on money laundering, so far they have had a limited effect. Given that banks will incur more than $400 billion in fines by 2020, as a result of misconduct and inadequate AML measures, organisations are under pressure to strengthen their own customer due diligence in order to avoid heavy fines.

Simultaneously, international trade is also becoming increasingly susceptible to trade based money laundering (TBML). Although the World Trade Organisation anticipates merchandise trade volume growth of 4.4 per cent in 2018, TBML accounts for hundreds of billions of dollars of illegal money flows annually.

Operating on such a large scale, techniques for money laundering have become increasingly sophisticated over time. Illegal activities are often masked under massive volumes of legitimate trade, making them challenging to uncover. For example, techniques such as under- or over-invoicing, falsifying documents, and misrepresenting financial transactions, are difficult to trace as they can involve multiple parties, jurisdictions and transactions. To be able to uncover these illicit activities, it is imperative to be able to identify and verify the people behind them.

Establishing ‘Beneficial Ownership’ and Business Verification

For the last two years, the European Union has been working on legislation to combat money laundering. The 4th Anti Money Laundering (AML) directive lays out the need to discover the beneficial owner of business customers, partners, suppliers and other business relationships.

Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.Financial Action Task Force (FATF)

That is to say, you need to know who you are doing business with and the person (or group of people) who owns or controls that business.

Procedures and processes have to be put in place to collect information about the beneficial owner. By making use of the wide variety of technology available, a scalable solution to authentication can be created across companies and across borders. Automated systems and technology driven by Artificial Intelligence (AI) can be used to scour company documents in order to identify beneficial owners and make transactions more transparent. Cross-referenceing this against electronic ID verification solutions that leverage reliable and unique data from global sources around the world will help forma full picture of each beneficial owner of a business.

By knowing the businesses and knowing the key players within it, it is easier to differentiate between legal and fraudulent transactions, taking advantage of a transparent and secure approach to the global issue of money laundering.

A Global Solution for a Global Issue

Since money laundering is an international issue, it only makes sense for the solution to be cross-border as well. However, in reality, the ‘politics of Anti-Money Laundering’ is largely social and political. The leaders of any organisation set the tone, the priorities, and the agenda that permeates throughout the system. The leaders of a country are no different. They have varying influence and impact based upon their political capital, the willingness and strength of the bureaucracy to push through or downplay the leader’s decisions, and the agendas of the courts and legislators.

Moreover, as with any political issue, public interest in AML rises and falls depending on circumstances. When corruption scandals such as the Panama Papers hit the news, the public takes notice. In response, politicians and regulators note the loopholes and various actions are proposed and/or implemented.

It’s clear that a secure, reliable and global solution is required to fight money laundering and the financing of terrorism.As money laundering is so widespread and sophisticated, it will also require coordinated international efforts from numerous agencies, regulators and financial institutions to successfully combat money laundering. Allowing financial institutions to securely see more information from exporters, importers, shippers, and authorities enables them to better perform due diligence and monitoring.If regulators across borders can agree on standards for better, safer information sharing, money laundering can dramatically be reduced.

In order to take an active rather than reactive approach, renewed focus must be put on collaboration between policymakers, regulators and governments to leverage new technology and close gaps and loopholes. With that said, one of the most important factors is ensuring these technologies share information securely, especially on such a large scale. A combination of new technology, alongside ironclad policies for secure sharing, could help countries tackle the ever-evolving threat of money laundering, terrorist financing, fraud and tax evasion.

The purpose of a collaborative approach, reliant on secure data sharing, is to ensure swift authentication and verification of individuals and businesses. The data that European governments and companies hold on their citizens and consumers serves little purpose if kept in siloed departments. But if linked together, they can act as pieces of a puzzle and provide a holistic image of any individual or business.

The way forward

The increasing risk of money laundering and fraudulent activities, coupled with the pressure on banks and businesses to comply with regulations, proves the need to revamp the existing system for dealing with these activities. By securely accessing databases that include people and companies that pose financial crime risk, such as OFAC, sanctions, politically exposed persons lists, and existing fraud ledgers, a robust approach can be taken to flagging risk and verifying identity. Not only is it imperative to develop a shared and secured system of information sharing, the process of business and customer verification needs to be automated and digitised to keep up with the world of virtual transactions.