Bank employees easiest path to financial crimes

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

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

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

 Employee crime categories

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

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

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

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

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

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

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

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

Swift action

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

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

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

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

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

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

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

Drop in remittances

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

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

The Middle East challenge

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

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

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

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

Hiding in plain sight: Why Hong Kong is a preferred spot for North Korea’s money launderers

By Joshua Berlinger, CNN

http://www.cnn.com/2017/10/16/asia/hong-kong-north-korea/index.html

Hong Kong (CNN)Easey Commercial Building is an unassuming mid-rise office tower on Hennessy Road, an artery that runs through Hong Kong’s busy Wan Chai district. The structure sits among scenery that’s classic Hong Kong: bright lights, tall buildings, people rushing about.

But camouflaged in the normalcy is a business that seemingly exists in name only.
At least, Unaforte is supposed to be there. That is the address listed on its publicly available corporate filings provided to the Hong Kong government. When CNN visited the office, it found neither Unaforte nor its listed company secretary, Prolive Consultants Limited.
Instead, room 2103 was home to a seemingly unrelated company: Cheerful Best Company Services. Only one man was there when CNN stopped by, and he said a representative for Prolive Consultants only comes by every so often to pick up mail. He had not heard of Unaforte.
The United Nations Panel of Experts on North Korea — the body charged with monitoring sanctions enforcement on the hermit nation — said in two recent reports that Unaforte opened and owned a bank in the North Korean city of Rason. That is likely a violation of the latest UN Security Council resolution banning joint international ventures with North Korea, according to Christopher Wall, a lawyer who specializes in international trade law and a partner at Pillsbury Winthrop Shaw Pittman in Washington, DC.
Unaforte is not unique. It’s just one of a handful of front companies identified by the United Nations, nongovernmental analysts and US law enforcement that help North Korea access the global financial system.
Front companies — also known as shell companies — are legitimate corporations that do not possess significant assets or maintain active business operations. Some serve licit business purposes — helping foreign companies establish a foothold in overseas markets, for one, or reap foreign tax benefits. Others help to conceal the true ownership of a business or the parties involved in illicit transactions.
Here’s an example: say business A wants to sell business B something potentially unlawful, like military-grade hardware. If investigators were already monitoring business A, business B could pay a front company for the weapons instead of business A. Or business B could create its own front company to pay business A’s front company, making the network even bigger and more nebulous.
North Korea is believed to use these types of practices to cover up much of its trade, from selling coal and fuel to exporting weapons.
“The (North Korean) regime accesses the international financial system through front companies and other deceptive financial practices in order to buy goods and services abroad,” Sigal Mandelker, the undersecretary for terrorism and financial intelligence at the US Department of the Treasury, said in Senate testimony on September 28.
Hong Kong is one of two business jurisdictions (along with the British Virgin Islands) where the UN Panel of Experts on North Korea has seen the largest share of North Korean-controlled front companies operating, said Hugh Griffiths, the panel’s coordinator.
“You can just count them up in our reports — Hong Kong is the preponderance,” Griffiths told CNN.
The city is no stranger to those looking to make a quick buck by skirting the law, whether it was the pirates who roamed the South China Sea in the 16th century or the Triads who spread their tentacles following Chinese Civil War, while the city was still under British control.
Today, Hong Kong is governed as a special administrative region of China. When the British handed control of the city to Beijing in 1997, the agreement was to run Hong Kong according to a policy known as “one country, two systems.” It promised Hong Kongers their own political system — with more individual liberties, market freedoms and lax corporate oversight and reporting requirements — would in large part continue as is, but Hong Kong would become part of China.
“It should come as no surprise that Hong Kong is featured so prominently in our report,” Griffiths said. “It’s the closest major international financial center to North Korea. It’s the closest major offshore international financial center to North Korea. And historically, it’s been a center of global and regional trade … and with fewer questions asked and looser regulation than, say, Beijing.”
CNN reached out to both Hong Kong police and its Joint Financial Intelligence Unit for comment on the United Nations reports, Unaforte and shell companies in Hong Kong altogether and was told “police do not comment on individual case(s).”

A secretary and a director

When Unaforte’s company particulars show up in Hong Kong’s publicly available corporate records, the name of just one individual appears. He holds a passport from the small Caribbean island of Dominica. A passport number is there, but not a phone number.
Those details shed light on Hong Kong’s incorporation requirements. To start a company in Hong Kong, one needs at least one director (has to be an actual person) and a company secretary (which can either be a person or another company, but must be based in Hong Kong), according to the Companies Registry website.
Though the company’s registered office must be in Hong Kong, they are allowed to share an office with their company secretary and neither technically has to operate out of that address, an official with the Hong Kong Companies Registry told CNN on the phone. But doing that is considered a “red flag” for money laundering investigators.
“These practices, while legal, lend themselves to North Korean efforts to camouflage the real identity and nationality of those who stand behind these registered entities,” said Griffiths.
C4ADS, a Washington-based nonprofit firm which conducts data-driven analysis of security issues, identified 160 North Korean front companies in Hong Kong in a 2016 report. And Sayari Analytics, another firm that uses open data to monitor the connections between firms, has identified more than 100 entities in Hong Kong linked to sanctioned North Korean ones.
The system wasn’t designed for wrongdoing; rather, it makes Hong Kong an easy place for companies abroad do business, as they do not have to incur the cost of setting up a new shop, according to David Webb, a former investment banker who is now a Hong Kong-based activist investor.
“It’s common and it’s not a sign of wrongdoing itself,” Webb said.
To service offshore clients, there are plenty of secretarial services that provide company directors abroad with assistance. They often serve as company secretaries for their clients.
Prolive Consultants, the company secretary for Unaforte, appears to be one such company.
“As a company that offers secretarial services, we do not interfere with our clients’ business. What we do is just to help collect clients’ business registration certificates and forms, assist them,” said Amy Lam with Prolive Consultants, whose phone number CNN obtained after visiting the Easey Building office.
When asked by CNN what type of business Unaforte is engaged in, Lam said: “We do not interfere with what kind of business our client does. Whether they are successful or not, or whether their business is profitable or not, we don’t know.”

Ledgers and credits

The sale of about $6 million worth of refined sugar in 2009 helped bring another company doing business with Pyongyang to the attention of American authorities.
North Korea was ostensibly doing something simple: buying a food staple. But they did it through a complicated, labyrinthine transaction involving North Korea, Dandong Hongxiang Industrial Development (DHID), a bank and a Canadian company, according to a 2016 criminal complaint.
That’s because if companies like DHID or Unaforte are doing business in dollars, it means their transactions are likely to go through the United States at some point (unless they’re conducted in cash).
Companies that are sanctioned in most cases cannot easily conduct transactions in the dollar, as US banks have to back those deals and would filter and flag sanctioned entities, Anthony Ruggiero, an expert in the use of targeted financial measures at the Foundation for the Defense of Democracies, told CNN.
The DHID charges revealed that to get around US prying eyes, North Korea uses a complex ledger and credit scheme to hide North Korea’s involvement in dollar transactions, Ruggiero explained to Congress in September.
Thirteen of DHID’s front companies were located in Hong Kong. Eleven shared the same registered address in Wan Chai, less than a kilometer away from the Easey Commercial Building, the indictment said.

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

By Gene Maddaus, Variety

https://pagesix.com/2017/10/13/weinstein-co-president-linked-to-felons-money-laundering-case/

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Intel launches AI-enabled anti-money laundering adviser

http://www.zdnet.com/article/intel-launches-ai-enabled-anti-money-laundering-advisor/

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.

 

Bitcoin laundering suspect caught in US, Russia extradition spat

The two countries are fighting over where the Russian national should have his day in court.

By  for Zero Day

http://www.zdnet.com/article/bitcoin-launderer-suspect-caught-in-us-russia-extradition-spat/

Alexander Vinnik is a popular man, with both the United States and Russia fighting over which country has the right to charge the suspected Bitcoin laundering mastermind.

Vinnik, a 38-year-old Russian national, is at the heart of the fight as the suspected leader of a Bitcoin laundering scheme.

In July, Vinnik was arrested by US law enforcement for allegedly being involved in BTC-e, a cryptocurrency exchange platform which “washed” funds without taking customer information, allowing for laundering to take place.

According to US prosecutors, Vinnik owned a number of accounts on the platform and used them to launder cash — and may have also been involved in laundering Bitcoin received from the “hack” of now-defunct exchange platform Mt. Gox, as well as Tradehill, another dead exchange.

In total, the Bitcoin laundering scheme is believed to have laundered roughly $4 billion.

Mt. Gox was once a thriving Bitcoin exchange, but after its sudden collapse in 2014, investors lost roughly $375 million. Former CEO Mark Karpeles originally blamed the closure on unknown cyberattackers, but Japanese law enforcement is charging him with embezzlement.

It is believed that Vinnik not only funneled proceeds from Mt. Gox but has also been involved in identity theft and drug trafficking schemes.

US law enforcement wants to charge Vinnik on American soil with operating an unlicensed money service business, conspiracy to commit money laundering, money laundering, and engaging in unlawful monetary transactions.

If convicted, Vinnik could face up to 55 years behind bars.

The Russian national is currently being held in Greece, and a local court in Thessaloniki ruled on Wednesday that the United States is permitted to extradite him to face these charges.

However, the Russian government is not impressed with the Greek court’s decision.

On Friday, the Russian Ministry of Foreign Affairs said in a statement that the verdict was “unjust and a violation of international law.”

The ministry believes that as Vinnik is a Russian national, he should be prosecuted in his home country and this should overrule any other extradition requests. The Russian Prosecutor General’s Office requested an extradition order to Russia, but it appears this request has been ignored by the Greek authorities.

“Based on legal precedent, the Russian request should take priority as Mr. Vinnik is a citizen of Russia,” the ministry said. “The verdict is even more surprising in the context of the atmosphere of friendly relations between Russia and Greece.”

Vinnik has denied the charges but has agreed to be sent back to Russia, according to the Reuters news agency.

However, Vinnik’s legal team have appealed the ruling, and now the Russian national’s case will be considered by the Supreme Civil and Criminal Court of Greece, before being submitted to the Greek Minister of Justice for approval.

“We hope the Greek authorities will consider the Russian Prosecutor General’s Office request, and Russia’s reasoning, and act in strict compliance with international law,” the ministry says.

ZDNet has reached out to the US Department of Justice (DoJ) and Greek Ministry of Foreign Affairs and will update if we hear back.

Couple admits to stealing $1.2M from Amazon with elaborate scam

INDIANAPOLIS – An Indiana couple has admitted stealing more than $1.2 million in merchandise from Amazon in an elaborate scheme. Erin Joseph Finan, 38, and Leah Jeanette Finan, 37, pleaded guilty in federal court in Indianapolis to charges of mail fraud and money laundering in connection with the racket, the Star Press reports.

The duo bought hundreds of electronics such as Go Pro cameras, Samsung smartwatches, and Xboxes, then told Amazon the products weren’t working and requested replacements at no charge.

The couple created “hundreds” of false identities to conceal the scam. Prosecutors say the Finans sold the loot to Danijel Glumac, 28, who marked it up before reselling it to an unnamed New York outfit, Fox59 reported in May when the trio was busted.

Glumac, who was also charged, allegedly paid the Finans about $725,000. The merchandise was eventually resold on the black market. “Consumer fraud is absorbed by all of us through higher retail prices,” US Attorney John Minkler said at the time.

The Finans were ordered to repay Amazon $1.2 million, and they face up to 20 years in prison. Sentencing is set for Nov. 9. (A cashier managed to embezzle $13 million.)

This article originally appeared on Newser: Couple Admits Fleecing Amazon Out of $1.2M

Money launderers remain ahead of authorities by using ‘sophisticated methods’, US expert says

Money launderers are using more sophisticated methods to remain one step ahead of law enforcement, says one expert — so how do countries stop them?

What is money laundering?

  • Disguising original ownership and control of proceeds of crime by making it appear to have come from a legitimate source
  • The three stages of laundering money are first introducing dirty money into a financial system, washing it, and finally reintroducing it back into the legitimate economy

Allegations that the Commonwealth Bank breached anti-money laundering laws on almost 54,000 occasions have raised concerns that Australia’s financial system is exposed to criminal elements, including the likes of drug runners.

While the extent of the alleged breaches shocked the CBA and regulators, a former US Treasury official and undercover intelligence agent said he was not surprised.

John Cassara has come face-to-face with money launderers over a 26-year career, and he warned that both the US and Australia were losing the battle in enforcing money laundering laws.

Mr Cassara said the recent case of the Commonwealth Bank just proved how exposed Australia was to sophisticated money laundering gangs.

“[That] case is kind of like a microcosm of some of the challenges that we face combatting money laundering around the world,” Mr Cassara said.

“The allegations that the CBA was compromised simply demonstrated the vulnerabilities of the current financial system.

“I don’t think most people understand how very large the scale of money laundering is.”

Mr Cassara cited International Monetary Fund estimates that worldwide money laundering is 2 to 5 per cent of global GDP, which very roughly translates to about US$5 trillion a year.

“And it’s probably a lot higher than that,” Mr Cassara said.

He said tax evasion could also potentially be considered a form of money laundering, and would add trillions of dollars to the IMF’s estimate.

Mr Cassara said Australia, like many other modern developed countries, faces similar challenges to the US.

Some of those challenges include underground financial systems, trade-based money laundering, cyber and new payment methods — all of which are already found in both Australia and the US.

“Some countries do better than others, the United States does pretty well, Australia is getting a lot better — certainly better than they were say 10 years ago,” he said.

“I mean, to be a money launderer today you have to be either very, very stupid or very unlucky to get caught.”

Looking into the future and challenges faced by countries trying to reign in money launderers, Mr Cassara said what is being done right now “just isn’t working”.

“I can say that with certainty from the US perspective. If you look at the numbers, they’re not good. And I think that holds true for Australia as well.”

With ‘unlimited resources’, how do you stop them?

Just how sophisticated are money launderers? Extremely so, Mr Cassara said, and they are equipped with “almost unlimited resources”.

“That’s something that governments, law enforcement, intelligence agencies, customer services — they do not have that,” he said.

Money launderers are able to use state-of-the-art techniques and hire the best and the brightest in the business, including lawyers, and accountants.

But Mr Cassara said in the end, “old-fashioned” ways of moving money, such as bulk cash smuggling, continue to be extremely difficult to detect.

“Basically the smuggling of drug proceeds — somewhere between $20-$40 billion a year is probably moved across the southern US border into Mexico,” he said.

‘Laws aren’t the problem, we need more enforcement’

Post 9/11, Mr Cassara said countries around the world put in place robust money laundering and counter-terrorism finance regimes.

But in the fight against money launderers, the problem is not with the laws, rules and regulations, but with enforcement.

Mr Cassara said current money laundering systems in place were constantly exposed to potential failure, which is why more regulation in certain industries is necessary.

“I know that in the United States and Australia there’s been a lot of talk about, for example, real estate agents should be reporting — [and] attorneys, accountants, this type of thing,” he said.

“There are always things that we need to do. But where we’ve fallen down is lack of law enforcement.”

A perceived loophole in Australian law means lawyers, accountants and real estate agents do not have to declare anything over $10,000.

Australia’s anti-money laundering law in fact does not cover those industries, despite promises when the law was enacted in 2006 the legislation would be widened.

Mr Cassara said it was essential for such designated professionals to be made to adhere to anti-money laundering guidelines.

“Unfortunately this is taking a lot of time, there’s a lot of pushback from the industry, there’s a lot of lobbying going on,” he said.

“Eventually it will happen, but I just hope it’s sooner rather than later.”

http://www.abc.net.au/news/2017-10-05/how-can-countries-stop-money-launderers/9017578

FinCEN Issues Advisory on Widespread Public Corruption in Venezuela

FinCEN Issues Advisory on Widespread Public Corruption in Venezuela

The Financial Crimes Enforcement Network (FinCEN) released an advisory on September 20, 2017, to alert financial institutions of widespread public corruption in Venezuela and the methods Venezuelan senior political figures may use to move and hide corruption proceeds.1

The advisory also identified red flags that may assist financial institutions in identifying suspicious activity that may be indicative of Venezuelan corruption, including the abuse of Venezuelan government contracts, wire transfers from shell corporations, and real estate purchases in the South Florida and Houston, Texas regions. The FinCEN advisory also reminds financial institutions of their obligations to monitor, detect, and report such conduct.

Background

Venezuela has been in political and economic turmoil due to the deterioration of its democratic and constitutional order. FinCEN warns that widespread corruption may further destabilize its economic growth and stability. In recent years, financial institutions have reported to FinCEN suspicions that transactions may be linked to Venezuelan public corruption, including government contracts. As a result of these reports and other relevant information, FinCEN considers all Venezuelan government agencies and bodies, including state owned enterprises (SOEs), vulnerable to public corruption and money laundering. According to FinCEN, the Venezuelan government appears to use its control over large parts of the economy to enrich government officials and SOE executives, their families, and associates. FinCEN, therefore, believes that there exists a high risk of corruption involving Venezuelan government officials and employees at all levels, including those managing or working at Venezuelan SOEs.2

FinCEN warns that transactions involving Venezuelan government agencies and SOEs, particularly those involving government contracts, can potentially be used as vehicles to move, launder, and conceal embezzled corruption proceeds. SOEs and their officials may also try to use the U.S. financial system to move or hide proceeds of public corruption. In an effort to thwart the movement of these proceeds, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has recently designated as persons engaged in, or materially assisting, sponsoring, or supporting, public corruption various Venezuelan SOEs, including: National Center for Foreign Commerce (CENCOEX), Suministros Venezolanos Industriales, CA (SUVINCA), the Foreign Trade Bank (BANCOEX), the National Telephone Company (CANTV), the National Electric Corporation (CORPELEC), and the Venezuelan Economic and Social Bank (BANDES). As scrutiny of these enterprises increases, FinCEN warns financial institutions that corrupt officials may try to channel illicit proceeds through lesser-known or newly-created SOEs.

FinCEN also identified red flags that may help financial institutions identify corrupt schemes:

  • Transactions involving Venezuelan government contracts that are directed to personal accounts;
  • Transactions involving Venezuelan government contracts that are directed to companies that operate in an unrelated line of business (e.g., payments for construction projects directed to textile merchants);
  • Transactions involving Venezuelan government contracts that originate with, or are directed to, entities that are shell corporations, general “trading companies,” or companies that lack a general business purpose;
  • Documentation corroborating transactions involving Venezuelan government contracts (e.g., invoices) that include charges at substantially higher prices than market rates or that include overly simple documentation or lack traditional details (e.g., valuations for goods and services). Venezuelan officials who receive preferential access to U.S. dollars at the more favorable, official exchange rate may exploit this multi-tier exchange rate system for profit;
  • Payments involving Venezuelan government contracts that originate from non-official Venezuelan accounts, particularly accounts located in jurisdictions outside of Venezuela (e.g., Panama or the Caribbean);
  • Payments involving Venezuelan government contracts that originate from third parties that are not official Venezuelan government entities;
  • Cash deposits instead of wire transfers into the accounts of companies with Venezuelan government contracts;
  • Transactions for the purchase of real estate—primarily in the South Florida and Houston, Texas regions—involving current or former Venezuelan government officials, family members or associates that are not commensurate with their official salaries; and
  • Corrupt Venezuelan government officials seeking to abuse a U.S. or foreign bank’s wealth management units by using complex financial transactions to move and hide corruption proceeds.

Impact and Regulatory Obligations

The recent FinCEN advisory also reminds U.S. financial institutions that in order to meet their due diligence obligations that would apply to activity involving certain Venezuelan persons, they should generally be aware of public reports of high-level corruption associated with senior Venezuelan foreign political figures and those associated with them; they should assess the risk of laundering the proceeds of public corruption associated with specific particular customers and transactions; and they should be aware of OFAC designations related to Venezuela.

FinCEN also recommends that financial institutions take reasonable, risk-based steps to identify and limit any exposure they may have to funds and other assets associated with Venezuelan public corruption, taking care not to put into question a financial institution’s ability to maintain or continue otherwise appropriate relationships with customers or other financial institutions. FinCEN warns, however, that such steps should not be used as the basis to engage in wholesale or indiscriminate de-risking of any class of customers or financial institutions.

The FinCEN advisory also reminds financial institutions of the applicable regulatory obligations that are intended to facilitate the discovery and disclosure of attempts to move and hide corruption proceeds from Venezuela:

  • Enhanced Due Diligence Obligations for Private Bank Accounts: Covered financial institutions maintaining private banking accounts for senior foreign political figures are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption, consistent with obligations under Section 312 of the USA PATRIOT Act (31 U.S.C. § 5318(i)) and FinCEN’s regulations implementing that Section.
  • General Obligations for Correspondent Account Due Diligence Money Laundering (AML) Programs: U.S. financial institutions must comply with their general due diligence and AML obligations,3 ensuring that their due diligence programs, which address correspondent accounts maintained for foreign financial institutions, include appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity involving accounts in the United States.
  • Suspicious Activity Reporting: A financial institution is required to file a suspicious activity report (SAR) if it knows, suspects, or has reason to suspect a transaction involves funds derived from illegal activity, or attempts to disguise funds derived from illegal activity; is designed to evade regulations promulgated under the Bank Secrecy Act (BSA); lacks a business or apparent lawful purpose; or involves the use of the financial institution to facilitate criminal activity, including foreign corruption.

Conclusion

FinCEN emphasizes that reports and information from financial institutions are critical to stopping, deterring, and preventing the proceeds tied to suspected Venezuelan public corruption from moving through the U.S. financial system. Accordingly, companies should remain vigilant of these risks and ensure their due diligence and monitoring programs are up-to-date and comply with all relevant regulatory obligations.

https://www.lexology.com/library/detail.aspx?g=1b0f91d1-43b9-4031-83e7-fbf2ed5768ab

A True Tale of Drug Cartels, Money Laundering and Horse Racing

A True Tale of Drug Cartels, Money Laundering and Horse Racing

By 

In September 2010, bettors at the All American Futurity race in New Mexico watched the long-shot Mr. Piloto gallop to the million-dollar first prize by less than a nose, the second-closest win in the race’s history. Meanwhile, over the border in Mexico, a gang of drug traffickers from the Zetas cartel cheered the victory with whiskey, from a safe house. Mr. Piloto was registered to the company of a Dallas bricklayer named José Treviño Morales, but the money to buy him had come from his brother Miguel Treviño, alias “El Cuarenta,” a Zeta boss blamed for some of the worst massacres in Mexico’s drug war. Bloodstained dollars had gone from American drug users over the Rio Grande to cartel killers, and then back north into the American racing industry.

The true-life tale of the Zetas’ foray into quarter horses is masterfully recounted by the journalist Joe Tone in his debut book, “Bones.” He shines a light on an often overlooked corner of the blood bath ravaging Mexico: how cartel money is laundered in the United States. In this case, federal agents finally busted the operation, seizing more than 400 “narco horses,” which they auctioned off for $12 million. But with Americans estimated to spend $100 billion a year on illegal drugs, this is probably just the tip of an iceberg.

Photo

Miguel Treviño MoralesCreditU.S. Drug Enforcement Administration

In addition to following the drug money, Tone has found a great yarn. His finely-painted cast of characters includes a rookie F.B.I. agent hungry to make his name, a Texas cowboy fighting to keep his family business afloat and a talented Mexican horseman picking winners for a very dangerous boss. Tone weaves the threads together with skillful pacing and sharp prose, marking him as an important new talent in narrative nonfiction.

He is helped along by ample documentation of the case. While much of the narco world remains in the shadows, Treviño and his cronies were brought to trial in Austin, in 2013, in one of the most extensive lawsuits against a Mexican cartel to be heard in an American courtroom. (Major Mexican traffickers often don’t go to trial, because they cut deals.) Even though he builds on the reporting of Ginger Thompson, who broke the story in The New York Times, Tone adds some vivid details, recounting wiretapped phone calls and drawing the full back story from Lawson, the rookie F.B.I. agent who pursued the case. “Lawson could hear the horses if he listened closely,” Tone writes. “He was standing outside the black-iron gate with the horse silhouettes, at the bottom of a long driveway that led up to José’s brick homestead. It was a little after six in the morning, the earliest moment the court would allow them to raid without a judge’s permission.”

Photo

Tone digs deep into the colorful world of quarter-horse racing, a variant of the sport developed by white cowboys, Mexican ranchers and Native Americans. He also shows how some players in the horse industry reaped the drug money and went on to enjoy their profits; how those arrested were all Hispanic while some white horsemen doing similar things remained free; how José Treviño’s daughter, a college student who married a Marine, was caught up in the sweep.

Like many journalists of the drug war, Tone sheds doubt on the whole strategy of fighting the trade. “Better answers might lie in the halls of American power and influence — in the way drugs are regulated, drug users treated, drug traffickers sentenced.” He is right to push for more debate on how to stop the billions of drug dollars from funding the crime armies tearing Mexico apart. But law enforcement agents still need to keep hacking at the tentacles of cartel finances that stretch through the United States, where the blood wealth of narcos could be right before your eyes.

TRANSACTION LAUNDERING: CONTINUING ITS EVOLUTION

TRANSACTION LAUNDERING: CONTINUING ITS EVOLUTION

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

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

The amount of laundered payments has continued to escalate, especially with the incorporation of these criminal efforts of this nature. Statistics provided in the article from the Electronic Transactions Association (ETA) show that “50%-70% of online sales for illicit drugs, counterfeit goods, and unlawful adult content involve some form of transaction laundering” (Reuters, 2017). Additionally, transaction laundering is also used by nearly 95% of illegal gambling websites to add card receipts into the payment system, a practice that reportedly accounts for billions of dollars annually. These striking findings have not gone unnoticed however, as the payments industry is beginning to introduce new measures to combat these illicit practices, and regulators have stepped up enforcement as well. As a result, the Financial Crime Enforcement Network (FinCEN), the bureau of the U.S. Treasury Department that combats domestic and international money laundering, terror financing, and financial crimes overall, has begun to crack down on financial institutions that use third-party payment processors. The article discusses one of a slew of measures developed by FinCEN to better establish beneficial ownership. In this circumstance, “FinCEN requires financial institutions (FIs) to verify the identities of all nominees with a 25% or greater ownership stake in any company for which they open an account” (Reuters, 2017). Regulators have had to adapt to these new forms of fraud, leading to increased fines and greater restrictions imposed on financial institutions, which have made navigating through the already complex realm of compliance even more complicated for banks and their respective compliance departments.

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

 

WEEKLY ROUNDUP

 

CRYPTOCURRENCIES CALLED OUT BY BIG BANK CEO

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

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

 

SCAMS EMERGING FOLLOWING HURRICANES

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

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

 

SEVERE LAUNDERING OCCURRING IN AUSTRALIAN BANKS

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

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

 

CITATIONS

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

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

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

Thomson Reuters, 19 Sept. 2017. Web.

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

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

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

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