Anti-money laundering controls failing to detect terrorists, cartels, and sanctioned states

By Joshua Fruth

NEW YORK (Thomson Reuters Regulatory Intelligence) – Regulators are holding financial institutions responsible for the real-life consequences of anti-money laundering (AML) failures. Firms must reconfigure their transaction monitoring programs to identify the emergent, multi-dimensional money laundering and terrorism finance methods that are defeating today’s rules-based detection scenarios. Adopting an actor-centric hybrid threat finance (HTF) model can cut compliance costs, reduce risk, improve regulatory relations, and increase the usefulness of suspicious activity reports (SARs).

Financial institutions are required by the Bank Secrecy Act (BSA) to detect and report customers engaged in money laundering, fraud, terrorist financing, and sanctions violations. With millions of customers, banks have fielded automated transaction monitoring systems, which use money laundering detection scenarios known as rules, to alert firms to certain customers for potential violations. Current industry detection logic has proven flawed and inefficient at identifying financial crime, resulting in record-breaking regulatory fines for financial institutions that fail to detect terrorists, drug cartels, and sanctioned state actors exploiting the U.S. financial system.


Banks have spent billions on transaction monitoring systems that scrub their accounts for possible money laundering schemes. Detection rules are action-based and target suspicious transaction behaviors, such as excessive cash deposits, structured transactions intended to avoid government record-keeping thresholds, and rapid money movement through one bank to another.

Customers who violate the detection rules trigger a system-generated alert, which is reviewed by an internal investigator. Despite decades and billions of dollars in industry investment, over 95 percent of system-generated alerts are closed as “false positives” in the first phase of review, with approximately 98 percent of alerts never culminating in a suspicious activity report (SAR).

False positives cost the financial industry billions of dollars in wasted investigation time each year but more importantly, expose banks to steep fines and reputational damage for failing to identify bad actors involved in organized crime, sanctions evasion, or terrorism. Banks can reduce risk by reassessing their detection strategies, which presently lack the focus or sophistication to identify illicit source behavior.


Unlike fraud, money laundering stems from a precursor criminal act, like extortion, misappropriation of funds, or trafficking. As such, most global money laundering is perpetrated by transnational criminal organizations (TCOs), rather than individuals. Bank accounts used to launder illicit proceeds may be set up for personal or business use, but are most often used to cleanse funds on behalf of a threat organization. As one might imagine, different threat groups launder money in different ways.

For this reason, law enforcement agencies (unlike banks) target money laundering purpose; meaning they consider both source criminal behavior (e.g. drug trafficking) and illicit organizational membership. When a U.S. law enforcement investigation into a crime syndicate or terrorist group identifies suspect bank accounts, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issues request for information notices (known as 314(a) forms) to those banks. The resulting case investigations often reveal that banks failed to detect or investigate these suspicious accounts, leading to increased regulatory scrutiny that opens the floodgates to fines and remediation.


When bank AML programs neglect detection considerations for money laundering purpose and preceding illicit activities, they fail to identify bad actors exploiting the firm. Such failures have caused major institutions to incur hundreds of millions, or billions, in regulatory penalties and associated costs. Global and retail banks, money service businesses (MSB), digital currency exchanges, and casinos are all at risk of crushing enforcement actions. Financial institutions globally have been fined over $321 billion by regulators since 2008 (PDF)(here), with $42 billion in fines in 2016 alone.

The monetary penalty value, according to a McKinsey & Company analysis dating back to 2005, turns out to be the lesser issue when compared with the following:

—A regulatory fine is a top-five loss event for any bank (alongside embezzlement, loan fraud, revelations of deceptive sales practices, and anti-trust settlements);

— Corporate share values decline approximately 6 percent the day fines are announced;

— Cease and desist orders result in loss of new programs, vendors, and business plans;

— Remediation costs over the first 18 months are typically 12 times greater than the fine itself.

Firms incur not only financial loss, but also reputational harm. Regulatory enforcement actions often feature specific language indicating that banks aided and abetted terrorism, drug trafficking, and human trafficking by failing to detect and report illicit activity. Financial institutions have learned the hard way that regulators hold them responsible for the broader outcome of AML failures, not just their program’s procedures. Additionally, media outlets are quick to capitalize on negative news about large corporations, which can trigger a public relations disaster, especially when amplified by viral social media.


When a regulatory fine is enforced upon a bank, it is often accompanied by a consent order requiring a forensic (lookback) examination of customer data to identify previously undetected risks and suspicious activity. This often results in tens of thousands (or more) of historical transaction-monitoring alerts that need to be reviewed in tandem with current alert output. As a result, many banks hire external consulting firms to address the alert backlog, which can end up costing many times more than the regulatory fine itself.

Many of these same consulting firms market AML detection products and services that claim to reduce false positives and improve SAR filing percentages. For retail banks, these firms focus on tuning the very action-based rules that failed in the first place, without providing new scoring tables or custom data attributes to improve performance. In global correspondent banks, the detection rules are even less focused, due to limited information on external parties (i.e., non-customers) conducting global wire transfers.

More expensive providers market high-tech applications, like unsupervised machine learning (UML) and artificial intelligence (AI) software, billed as a turnkey solution that updates scenarios based on quantitative abnormalities that lack common-sense detection logic. These applications are largely developed by technical specialists such as computer scientists who are unlikely to possess the requisite law enforcement, intelligence, and financial crime backgrounds to effectively target emergent risks.

AML detection is a dynamic process that requires awareness and consideration of transnational security issues, public policy, and the regulatory climate – areas simply not being calculated into these AI scenarios. While UML/AI software improves efficiency in many business areas by instantly siphoning through vast quantities of structured and unstructured data, the complexities of money laundering tradecraft means there can be no magic bullet for solving detection challenges.

Keep in mind: AML detection is already automated, just not predictive. Transnational criminal organizations employ professional money laundering cells that do not operate within the confines of expected, predefined, overly-broad transactional actions. Firms that continue to focus their detection strategies on UML/AI software and broad action-based targeting will fail to identify emergent threats and risk the ire of regulatory agencies.


Criminal cartels, hostile states, and terrorist groups today form hybrid threat alliances that extend through their finances. In some cases, one single group may be classified as a hybrid threat organization. The Lebanese Shiite Islamic group Hezbollah is one such example.

Designated by the U.S. State Department as a terrorist organization, Hezbollah is aligned with the Iranian Islamic Revolutionary Guard Corps (IRGC), Palestinian Hamas, Yemen’s Houthi rebels, and nearly one-hundred Shiite militant groups in Iraq, Syria, Afghanistan, and elswehere. These connected Shiite militant groups (Hamas is Sunni) collectively report to Iranian Supreme Leader Ali Khamenei. Iran is subject to a number of U.S. and international economic sanctions.

Hezbollah has recently become a hot-ticket political issue for U.S. Attorney General Jeff Sessions, who in January 2018 announced the Hezbollah Financing and Narcoterrorism Team (HTNT)(here), an interagency team of prosecutors and investigators tasked with targeting Hezbollah’s criminal and money laundering networks. This announcement followed revelations outlined in a media report alleging the Obama administration derailed a Drug Enforcement Administration (DEA) program targeting Hezbollah’s trafficking operations(here), in order to secure the 2015 Iran nuclear deal(here).

Sessions has indicated(here) that targeting Hezbollah’s money laundering operations will be a primary focus of the current administration; an emphasis set to extend to bank regulators.

According to a December 2016 terrorism finance report (PDF)(here) by the U.S. House of Representatives Financial Services Committee, Hezbollah is a hybrid threat organization with a global footprint. With a structure that includes a Lebanese political party, conventional military, Iranian terrorist proxy force, and crime syndicate, Hezbollah is one of the world’s most unique and versatile threat groups.

Hezbollah’s crime syndicate is extremely multi-faceted, with long-held narcotics, human trafficking, and counterfeit goods underworld networks throughout the tri-border Area of Latin America, the Middle East, North/West Africa, and Asia.

Hezbollah maintains one of the most sophisticated and efficient trade-based money laundering (TBML) operations in the world, as evidenced by the 2012 Lebanese Canadian Bank laundering case (PDF)( Their TBML tradecraft is so proficient that they hide drugs and cleanse narcotics proceeds by owning all parts of an elaborate global distribution network that falsifies the number of shipments and amount of products shipped, while concurrently hiding counterfeit goods among legitimate products(here).

This double-dipping smuggling and false invoicing operation provides the profit margin Hezbollah needs to purchase weapons, tactical kit, and to provide logistical support to their global insurgency operations in places like Iraq(here), Syria(here), and Yemen(here).

Hezbollah’s business and money laundering tactics are extremely specific and unique (compared to other groups) and require seasoned intelligence practitioners to identify. They use virtually all banking products, including international wires, retail services, prepaid products, and money service businesses (MSBs) at different operational echelons, ranging from international/strategic to regional, domestic support companies (DSC), and at the tactical level.

Accordingly, this one organization presents separate enforcement and reputational risks at different levels of operation.

Like Hezbollah, other militant groups, drug trafficking organizations (DTOs), human trafficking outfits, and hostile nation-state actors are also competent money launderers. They too possess a hierarchical, multi-echelon global structure that utilizes numerous controls designed to subvert modern AML detection mechanisms. These groups hire professional money launderers with a detailed knowledge of compliance that could rival the AML experts working at banks.

Professional money launderers working for global threat organizations launder funds in ways that superficially appear entirely legitimate, failing to raise red flags through conventional detection strategies. Put simply, these professional criminals are unlikely to make amateur mistakes, such as structuring or rapid withdrawal of cash.


Detection logic focused on simple transactional behavior will never successfully identify money laundering operations by sophisticated hybrid threats like Hezbollah. Banks might think unsupervised machine learning (UML) and artificial intelligence (AI) software sounds new and exciting, but these programs detect anomalies and mistakes that professional money launderers are unlikely to make.


The best way to address these challenges is with a detection platform based on the hybrid threat finance (HTF) concept derived from the U.S. Department of Defense “hybrid threat” doctrine. The military, intelligence, and law enforcement communities recognize the hybrid nature of international conflict relations, in that threat organizations across different classifications are deeply interconnected. HTF methodology targets the extension of those connections into financial markets, focusing detection strategies on the fund flows and intersections between one or more threat groups or operational echelons in international and retail banking, gaming, MSBs, and digital currency exchanges.

Institutions should adopt an “actor-centric” HTF model that targets bad actors with precision, increasing SAR efficacy rates and decreasing false-positive alerts. This concept relies heavily on a typology matrix, which analyzes a bank’s geographic nexus of services, products, and customer base, while cross-referencing identified risks in the global threat landscape. Matches between geography, product line, and high-risk customer profile are tied to specific threats, which leads to the implementation of targeted detection scenarios.

Additionally, it is incumbent upon banks to also train their investigations, sanctions, and risk personnel in these new detection scenarios. Sound detection strategies are of little value if the people investigating the behavior lack the requisite knowledge to identify and escalate threat activity.


The New York Department of Financial Services (NYDFS) in 2017 implemented new bank transaction monitoring requirements (Part 504) (PDF)(here), which redefined SARs to include the following language: “identifies suspicious or potentially suspicious or illegal activities”. This is in stark contrast to past regulatory language that called for the identification of suspicious “transactions”.

Regulators are holding financial institutions responsible for the outcomes of compliance failures, not just their processes. AML units who update their detection logic to a hybrid threat finance model stand to cut costs, reduce risk, improve regulatory relations, and provide improved financial intelligence products to law enforcement, intelligence, and military officials keeping our nation safe.

Amex investment spotlights e-commerce’s money laundering problem

By Penny Crossman

As U.S. banks struggle to cope with traditional money laundering, criminals are gravitating toward a cheaper, easier way of money laundering — through e-commerce.

While banks won’t knowingly accept known drug cartels or terrorist organizations as merchants, criminals have three ways around this

One is to create innocent-looking websites that sell flowers or furniture or something innocuous and funnel the illegal transactions through the acceptable site. Another is to take advantage of well-established e-commerce sites, and a third is to funnel money through merchant affiliate networks.

The problem is growing as the use of e-commerce itself evolves, according to Harshul Sanghi, managing partner of American Express Ventures, the strategic investment group of American Express, which announced Tuesday that it is investing in EverCompliant, a startup intent on stamping out e-commerce-related money laundering.

It joins existing EverCompliant investors Arbor Ventures, Carmel Ventures, StarFarm Ventures and Nyca Partners.

American Express Ventures would not disclose the size of the investment. The unit tends to invest in fraud prevention, security and regtech startups; other funding recipients have included Menlo Security, Signifyd, Trulioo, Enigma and InAuth, a company that American Express acquired in December 2016.

“Payments are becoming more digital and commerce is becoming more digital, on mobile and online,” Sanghi said. “It becomes a lot easier to accept payments cards online, which is good, but it also creates an unwanted effect of illicit players participating in that ecosystem. That is the challenge. We have to stay one step ahead of that.”

Money laundering rules have not caught up with this form of criminal activity, according to Ron Teicher, founder and CEO of EverCompliant.

“While the regulators grasp the notion of old-school money laundering, not everyone has fully realized the impact, and the reality, of money laundering over e-commerce,” he said. “Instead of buying a costly business and hiring people to run and manage it and have all the overhead, you could set up 1,000 businesses overnight by opening e-commerce websites, and it’s not going to cost you anything. And the risk of getting caught drops dramatically.”

Andy Schmidt, managing director at consulting firm ACS Insights, agreed that the current e-commerce environment is a breeding ground for money laundering.

“Part of it is you’re not always sure where the funds are coming from or going to,” said Schmidt, who until recently was with the technology research firm Gartner. “If it’s a pass-through from a merchant affiliate, they’re not going to check to make sure that their affiliate actually shipped what they were supposed to ship or did what they were supposed to do. They’re assuming everyone’s aboveboard until they’re told otherwise.”

EverCompliant, according to Teicher, conducts surveillance on all e-commerce activity on the web and can root out the connections between legitimate and illegitimate websites.

“If you’re able to expose that, you’re able to break the money chain and prevent the criminal money from entering the system,” he said.

This type of behavioral analysis makes sense, Schmidt said. Such analyses could leverage the Office of Foreign Assets Control and other sanctions lists as well as a bank’s own lists. It would be most powerful at the network level, he suggested — watching everything over the automated clearing house network or credit card networks, for instance.

The technology passed all of American Express Venture’s due diligence filters, Sanghi said. “Having said that, it’s a startup, let’s be clear. It’s not a billion-dollar company. We definitely think it has use cases and it’s very promising. We wouldn’t be investing in it if we didn’t think that’s true.”

For every 100 merchants or submerchants legitimately using banks’ processing networks, there are another 6 to 10 doing so without the banks’ knowledge or consent. This comes to $500 billion a year in transaction laundering worldwide, according to the company.

Will banks use this?

Assuming EverCompliant’s technology works as promised, will card issuers and banks want to use it?

Financial institutions don’t suffer from this type of money laundering today and, in fact, it may boost their business. And regulators are not cracking down on it.

“The question in terms of adoption is, what’s the penalty they would avoid?” Schmidt said. “Do the banks get penalized for not knowing or well-earned ignorance?”

EverCompliant is counting on banks not wanting to be associated with criminal groups.

“There’s certainly a stigma that comes with that,” Schmidt said. “The question is, how strong or deep is that stigma and how long does it last? In today’s news cycle, someone being compromised by a terrorist network is unfortunate but not necessarily the bank’s fault, depending on the scenario. If they should have known better, if it was someone inside, that’s one thing. If it’s something where someone was gaming the system and they’re one step ahead, now they’ve learned and now they can adapt, then not so much.”

It will become a trade-off, he said: Will it cost more to find these guys than it would be to pay a fine for not finding them?

Sanghi suggested that card issuers and financial institutions have a regulatory obligation to catch bad guys.

“Acquirers have guidelines, there are rules around all those areas,” he said. “You have to do what you can to protect innocent players and from a regulatory standpoint you have to stay within the bounds. That’s something all of us are trying our best to do.

Latvia banks still complicit in money laundering, claims US

The US has warned Latvia that its banks are still involved in money laundering despite the enforced liquidation of the country’s third-largest lender following similar allegations, according to the Baltic state’s finance minister. Dana Reizniece-Ozola met Marshall Billingsea, the US assistant secretary for terrorist financing, in Riga on Thursday to discuss American concern and Latvia’s attempted clean-up. “We are being told that banks are still used to transfer funds associated with persons, companies or countries on which sanctions have been imposed . . . It was made clear during the meeting that problems still exist in the financial sector,” Ms Reizniece-Ozola said after the meeting, according to state broadcaster LSM. The comments highlight how the US is keeping up the pressure over money laundering on Latvia, known for attracting large deposits from Russians and from people from other former Soviet states as part of a previous pledge to become the Switzerland of the east. Latvia’s government has promised to crack down on what it calls the non-resident sector, which is almost completely separate from its domestic banking industry, dominated by Swedish lenders. Latvia’s finance minister added: “The risks have to be reduced as quickly as possible. Banks must realise that they have to give up this dangerous type of business: either they have to change their business methods or fold.” Ms Reizniece-Ozola said that US officials had yet to provide proof of their new claims. Latvian officials had earlier complained that the US had not offered evidence for its allegations about ABLV.

ABLV received what some in Riga have termed a “death sentence” after a US Treasury official accused it of “institutionalised money laundering” and helping finance North Korea’s missile activity. It was only then that the matter came to the attention of the European Central Bank, which was ABLV’s supervisor. A little over a week later, it decided ABLV should close. Concern over Latvia’s non-resident banks is long established. French worries almost delayed Latvia’s entry into the euro amid concern for the potential of money from former Soviet countries entering the EU through such lenders. Latvia has also faced scrutiny of its financial system after its central bank governor was detained in an anti-corruption probe. Ilmars Rimsevics, who denies the allegations, has been banned by Latvian authorities from travelling abroad. Latvian ministers want him to resign but cannot sack him. Mr Billingslea declined to comment to journalists in Riga. The ECB said on Thursday that it had asked the EU’s top court to rule if it were legal for Latvian authorities to ban Mr Rimsevics from his duties.

Massive money laundering, drug network taken down by federal authorities

ederal prosecutors in San Diego announced Thursday they have indicted 75 people nationwide, including 40 in San Diego, in a massive drugs and money operation that interim U.S. Attorney Adam Braverman called the biggest money laundering investigation ever in San Diego.

The defendants laundered drug proceeds from the Sinaloa cartel for years, Braverman said at a news conference at the federal building in downtown San Diego announcing the wide-ranging operation. He said the network was responsible for laundering tens of millions of dollars in drug profits in the past three years.

Investigators have seized $6 million in cash as a result of a three-year probe undertaken by a long roster of federal and local law enforcement under the FBI’s Cross Border Violence Task Force, as well as hundreds of pounds of drugs like methamphetamine, fentanyl, heroin, cocaine and marijuana.

The leader of the operation, 32-year-old Jose Roberto Lopez-Albarran, was arrested in San Diego on Feb. 9 and has been in custody ever since. He made an initial court appearance Thursday afternoon in federal court.

Another 21 people who were named in a series of four related indictments handed down by a San Diego grand jury are also in custody, officials said. The balance of the 19 San Diego defendants are under indictment but remain fugitives.

While the investigation was centered in San Diego and has the majority of defendants, Braverman said another 35 people were charged for their role in the money laundering and drug sales in federal courts in Ohio, Kentucky, Kansas and Washington. At least 25 of those defendants were in custody as of Thursday.

The leader of the organization was Lopez, who authorities said oversaw a large network of people dubbed “money movers” who shuttled huge amounts of cash around the country, picking up drug sale proceeds for eventual transfer to Mexico.

The mover stashed the cash in hidden compartments of vehicles, or in cash-stuffed duffel bags, luggage, even shoe boxes. They picked up the cash in parking lots, hotels and restaurants in San Diego and other cities large and small — Dayton, Ohio, Los Angeles, and Lexington, Ky.

The cash was then deposited in banks using so-called “funnel accounts.” Such accounts, a tool of money-laundering criminal groups, are set up at U.S. banks that can receive deposits from multiple states. The money is deposited in chunks of less than $10,000 — the threshold over which banks are required to file official reports with regulators.

The money would then be wire transferred to Mexican bank accounts for bogus Mexican companies, which were actually businesses controlled by the organization. Another co-defendant, Manuel Reynoso Garcia, orchestrated the money-laundering activities.

The 62-year-old Garcia was charged last month in federal court here with money laundering conspiracy and other charges. He has pleaded not guilty. Court records show he was released on Jan. 31 on a $25,000 bond and ordered to remain on home detention and wear a GPS device to track his movements.

The investigation involved undercover work by investigators from the District Attorney’s office, sheriff and Chula Vista police to infiltrate the organization, Braverman said. Their work identified both the money movers and, through them, a network of drug trafficking cells across the country, according to authorities.

The organization used code words as well as WhatsApp, a messaging application, to communicate about the money movements and transfers.

“We have siphoned the cash and life out of a San Diego-based international money laundering organization with ties to the Sinaloa cartel,” Braverman said.

UK Art Dealer Matthew Green Charged In $9 Million Picasso Money Laundering Scheme

US government officials have charged British art dealer Matthew Green with using a pricey Picasso painting to help launder more than $9.2 million (£6.7 million), a representative for the Department of Justice confirmed to artnet News. Green was arrested in the US last week and is currently being detained.

Investigators allege that the proposed Picasso sale was connected to a $50 million stock scam. Green, who is the son of prominent London dealer Richard Green and was a co-director of the Richard Green Gallery and, more recently, Mayfair Fine Art, is one of ten people and corporations named in the 29-page indictment. The indictment, which was unsealed by the US Attorney’s office on February 28, focuses on the stock manipulation scheme and violations of US law requiring citizens and taxpayers to report offshore and international holdings to the IRS.

 The indictments are the result of work by several undercover FBI agents who recorded their conversations with defendants regarding alleged stock manipulation, money laundering, and falsifying the ID’s of the various offshore account holders.

“As alleged in the indictment, the defendants engaged in an elaborate multi-year scheme to defraud the investing public of millions of dollars through deceit and manipulative stock trading, and then worked to launder the fraudulent proceeds through off-shore bank accounts and the art world, including the proposed purchase of a Picasso painting,” US Attorney Richard P. Donoghue said in a statement.

Two of the other defendants, Beaufort Securities investment manager Peter Kyriacou and his uncle Aristos Aristodemou, suggested to an undercover FBI agent the possibility that he launder the proceeds of his illegal stock manipulation with an art transaction, according to the indictment. Kyriacou and Aristodemou then offered to introduce the agent to Green, and Aristodemou explained that the art trade is “the only market that is unregulated” and advised that art was a profitable investment because of “money laundering,” according to court papers.

The indictment alleges that between March 2014 and February 2018, Kyriacou, Aristodemou, and Beaufort were involved in defrauding investors in various publicly traded companies in the US “by concealing the true ownership” of the companies and “manipulating the price and trading volume in the stocks of those companies.”

Kyriacou, Aristodemou, and Green allegedly proposed that the undercover agent purchase, from Green, Pablo Picasso‘s Personnages (1965). Green “provided paperwork for the painting’s purchase. The money laundering scheme was halted prior to the transfer of ownership of the painting,” according to a statement from the Justice Department.

A Picasso painting matching that title and date was last offered publicly at an Impressionist and Modern evening sale at Christie’s London in 2010, according to the artnet Price Database. At the time it carried an estimate of £3 million to £5 million ($4 million to $7 million) and failed to sell.

Past owners of the painting, as listed in the provenance, or history of ownership, include a Paris gallery, a private collection in Switzerland, a private collection in Sweden, a Berlin gallery, and an unknown buyer who acquired it in 2000. It is not clear when Green acquired the painting or if he was the actual owner or was offering to sell it on behalf of a consignor. A source familiar with the work told artnet News that the painting is currently on loan to a museum in Denmark.

According to the indictment, on or about February 5, the agent met with Kyriacou, Aristodemou, and Green in London. During the meeting the undercover agent “once again explained his involvement in stock manipulation deals.” The defendants proposed that, after buying and maintaining ownership of the painting for an unspecified period of time, Green would arrange for the resale of the Picasso and then transfer proceeds back to the undercover agent through a bank in the US.

During the meeting, Green said that, in part, “it was important for him to make more than a five percent profit on the transaction so that he would not be asked why he was ‘in the money laundering business’,” according to the indictment. He further stated that he would address an invoice for the painting to a company that the undercover agent specified.

Pakistani businessmen plead guilty to money laundering in US

Two Pakistani businessmen have pleaded guilty before a US court to money laundering in connection with funds they received for the unlawful export of goods to Pakistan.

Muhammad Ismail, 67, and Kamran Khan 38, now face a maximum jail term of 20 years.

Since the time of their arrests in December 2016, Ismail has been released on a USD 50,000 bond, and Kamran Khan has been released on a USD 100,000 bond.

According to court documents and statements made in court, from 2012 to December 2016, Ismail, and his two sons, Kamran and Imran Khan, were engaged in a scheme to purchase goods that were controlled under the Export Administration Regulations (EAR) and to export those goods without a license to Pakistan, is violation of the EAR

Imran, 43, has already pleaded guilty to violating US export laws.

Through companies conducting business as Brush Locker Tools, Kauser Enterprises-USA and Kauser Enterprises-Pakistan, the three defendants received orders from a Pakistani company that procured materials and equipment for the Pakistani military, requesting them to procure specific products that were subject to the EAR.

When US manufacturers asked about the end-user for a product, they either informed the manufacturer that the product would remain in the US or completed an end-user certification indicating that the product would not be exported, federal prosecutors said.

After the products were purchased, they were shipped by the manufacturer to them in Connecticut. The products were then shipped to Pakistan on behalf of either the Pakistan Atomic Energy Commission, the Pakistan Space & Upper Atmosphere Research Commission or the National Institute of Lasers & Optronics, all of which were listed on the US Department of Commerce Entity List.

The Entity List identifies foreign parties that are prohibited from receiving some or all items subject to the EAR unless the exporter secures a license.

They never obtained a license to export any item to the designated entities even though they knew that a license was required prior to export.

Money laundering is a massive threat. The financial sector can help prevent it.

Money laundering is the process of converting funds obtained through illegal activities into clean cash. This type of crime hurts society because it robs public coffers and deprives citizens of revenues that could fund better public services. And it has devastating consequences for the economy, society and our security.

Most people associate money laundering with activities such as drug dealing, prostitution and gambling. But those are just its most recognized facets. A multitude of illicit activities, such as terrorism, arms dealing, sex trade, government corruption, organized crime and human trafficking are also connected to financial crime.

Its magnitude is enormous: It represents a staggering 2 percent to 5 percent of the global GDP, or roughly $1 to $2 trillion annually, according to the United Nations Office on Drugs and Crime. Only a small fraction of that is apprehended by authorities. To put that in perspective, Canada, one of the world’s 10 largest economies, had a 2016 GDP of $1.5 trillion, according to the World Bank.

Money laundering is closely associated with the financial sector. And that’s why professionals in banking and finance must be vigilant and trained with the latest tools available to combat financial crime.

In the past few years, there have been a spate of headlines involving money laundering in South Florida. Among them: the illegally mined gold scheme, in which a Miami-based company aided Latin American drug lords to smuggle the precious metal into the U.S.; the corruption charges that led to the downfall of the mayor of Hallandale Beach; and the Miami-based couple accused of running a sophisticated human smuggling ring. All relied on money laundering to legitimize their financial operations. Over the years there have been numerous other high-profile cases — many with strong South Florida and Latin American ties — that involved well organized money-laundering plots, including Bernard Madoff and the FIFA scandal.

Because criminal organizations rely on financial institutions to launder and move funds around the world, banks and other financial services firms are subject to very strict anti-money laundering (AML) regulations. These financial institutions collaborate closely with government agencies and spend hundreds of billions of dollars to detect and report suspicious activities. The number of compliance personnel has continued to grow, and the technology has advanced.

Yet, the struggle against financial crime continues more intensely than ever. And this is why we must increase our focus.

AML efforts are being shaped by challenges from increasingly sophisticated criminal organizations and an ever-changing compliance landscape. And with a globalizing economy, financial systems are becoming more interconnected, with an increasing volume of transactions moving around the world.

Added to the challenge: Financial crime legislation can vary greatly from country to country, so criminals flock to regions where they have a greater chance of avoiding detection — countries with the weakest money-laundering laws, such as many developing economies.

Also, money laundering has benefited from technology and has grown with it. New payment methods (including cryptocurrencies) and increasingly automated customer interactions, combined with larger volumes of financial transactions add to the challenge of preventing money laundering.

These are formidable challenges. But we have the power to overcome them. Every banking professional must take responsibility and stay abreast of the risks posed by financial crime to better prevent it, including the following basic actions:

▪ Understand their customers by conducting rigorous due diligence.

▪ More swiftly report suspicious activities to authorities.

▪ Undergo frequent training to stay current with best practices and latest technologies.

If financial sector professionals follow these ground rules, we have a real chance of preventing financial crime and eradicating the perpetrators behind it.

David Schwartz is president and CEO of the Florida International Bankers Association (FIBA).

ICE HSI Mexico City hosts money laundering and asset forfeiture courses

U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) Mexico City and the Department of Justice’s Office of Overseas Prosecutorial Development Assistance and Training (DOJ-OPDAT) hosted the first in a series of four money laundering and asset forfeiture courses Feb. 13-15 in Aguascalientes, Mexico.

The three-day course featured instructors from HSI, DOJ and the Government of Mexico (GOM) providing instruction to more than 50 GOM employees including representatives from the Office of the Prosecutor General of the Republic of Mexico, Federal Police, Financial Investigations Unit and multiple additional agencies.  These agencies are actively participating in money laundering and asset forfeiture investigations in conjunction with the HSI Mexico City International Financial Crimes and Asset Recovery Team (IFCART).  The four series course is designed to begin with basic money laundering and asset forfeiture and progress into increasingly complex investigative techniques and methods with each subsequent course.

Money laundering linked to drug trade a ‘structural’ issue: SFU criminologist

Structural changes are required to clamp down on the unregulated private lending networks that drug traffickers are using to launder their illicit gains, a Simon Fraser University criminologist says.

A recent Globe and Mail investigation identified people connected to the local fentanyl trade who are also private lenders, using Vancouver-area real estate to clean their cash.

Neil Boyd, a criminology professor at SFU, said the complexity of these private lending networks and similar white-collar crimes make them notoriously hard to prosecute.

“Sometimes you can uncover it, but to prosecute it, to get the evidence, to go to court and convince a judge is incredibly difficult,” Prof. Boyd said.

“The resources required to prosecute in this area are really considerable, in contrast to a lot of the street-level crime that shows up in our courts. I think the solutions there are at the level of structure, putting in place systems that make this movement of money much more accountable.”

The Globe investigation identified, for example, Ying Zhang, Zhi Guang Zhang and Wei Zhang, a trio of private lenders that has issued millions of dollars in registered mortgages and short-term loans. In all, The Globe identified 12 private lenders associated with the illicit drug trade and other crimes.

Just as a bank does, they grant a loan, then register a land-title charge against the borrower’s real estate equal to the value of the debt, plus interest. The charge, which gives them a stake in the real estate, remains in place until the debt is cleared. If the property is sold, the loan is paid out from the sale proceeds, in clean money, all seemingly legal.

Except these financiers are unregulated and unlicensed, and the loans they grant are in cash likely derived from drug deals or other crimes. The Zhangs charge interest rates of up to 39.6 per cent, with some private lenders demanding up to 120 per cent. In the spring of 2016, police seized from the Zhangs a total of $660,970 in small bills – with traces of fentanyl and other street drugs – after watching them conduct business in and around Vancouver.

They were not charged with any crimes, but the money was seized as proceeds of crime under B.C.’s Civil Forfeiture Act. The Globe has contacted the Zhangs for comment, but has received no response.

“I don’t think there’s any doubt that people in law enforcement would like to act against this kind of predatory conduct, but I think the problem is structural,” Prof. Boyd said. “It’s almost like a shadow economic system that operates: It’s not legitimate, but how you control that system is going to require international co-operation and, in all likelihood, pretty significant restrictions against private lending.”

Staff-Sergeant Darin Sheppard of the RCMP’s Federal Serious and Organized Crime Synthetic Drug Operations, said while the scale of the issue is not yet known, it’s common for traffickers to look for new ways to launder cash. A popular newer method is through cryptocurrencies such as bitcoin.

“Drug trafficking and money laundering go hand in hand, and any method that organized crime can find to legitimize their money, they’ll likely take,” Staff-Sgt. Sheppard said. “[Private lending] is just another example.”

While people such as the Zhangs may be on police radar for an apparent connection to the local fentanyl trade, Staff-Sgt. Sheppard said the difficulty lies in drawing a direct line that would result in a conviction.

“Some of the anonymity factors that go along with all the ways that money is laundered pose challenges, as is trying to draw that line from Point A to Point B when money is being filtered, or layered, through the community,” he said.

Staff-Sgt. Sheppard said regulatory changes, such as stronger reporting requirements from all financial institutions, including private lenders, would help in investigating and prosecuting these crimes.

Attorney-General David Eby called the findings of The Globe’s investigation “very serious and deeply troubling,” and said a review expected to be complete by the end of March will be informed by its revelations.

When asked why the lenders identified by The Globe have not been charged, Mr. Eby said police are “very engaged” in an “active investigation.”

Report: Putin family used Estonian bank for money laundering

COPENHAGEN, Denmark — A Danish newspaper said Tuesday a whistleblower warned the management of Denmark’s biggest bank in 2013 that family members of Russian President Vladimir Putin and Russia’s spy agency were using its Estonian bank branch for money laundering.

Denmark’s Berlingske daily says the leaked internal report indicated that the Danske Bank leadership knew “of far more serious conditions than previously stated.”

The paper adds that Danske Bank in 2013 shut down 20 Russian customer accounts following a whistleblower report alleging that its Estonian branch possibly had been involved in illegal activity. The clients’ identities were kept secret at the time.
The paper shared details of the scheme with the Organized Crime and Corruption Reporting Project, a group of anti-corruption reporters, and Britain’s Guardian newspaper.
The Guardian said that a different group of firms, mostly registered in London, were involved, including Lantana Trade LLP, which had filed “false accounts.” The British daily said the ultimate owners of Lantana and related partnerships were Russians but “their identities were hidden behind a series of offshore management firms based in the Marshall Islands and the Seychelles.”
It was not clear how the investigative reporters connected Putin’s family members and Russia’s Federal Security Service to the transactions.
Danske Bank told The Associated Press it had carried out “a thorough investigation to get to the bottom of the events at that time in our Estonian branch,” adding it had no comments “until the investigation has (been) finalized.”
“Furthermore, we are unable to comment on specific customers, but the entire portfolio in question (non-residents) has been closed down,” the bank said in a statement.
Danske Bank earlier had acknowledged illegitimate transactions at its Estonian branch in 2011-2014, including money-laundering schemes, involving billions of dollars from Azerbaijan.
“As we have previously said, on the basis of what we know now, we should have done this faster. Today, we have a very different and stronger control setup in Estonia,” the bank added.