Global Money Laundering

Part
01
of six
Part
01

Global Money Laundering - Trends

Five of the biggest trends in global money laundering include money laundering cases that involve cryptocurrency, criminals offering 'crime as a service' (CaaS), money muling, money laundering in real estate, and prevalent cybercriminal activities for money laundering.

1. Money Laundering Cases that Involve Cryptocurrency

WHY IS IT A TREND?
  • There is an increase in money laundering cases that involve cryptocurrency as reported by Japan Times since 2018. This trend showed a dramatic increase from the data reported in 2017. While the number of reported cases did see a huge increase, it represents only 1.6% of the total number of money laundering cases in the country.
  • The U.S. Drug Enforcement Administration (DEA) reported that bitcoin is being used to facilitate trade-based money laundering (TBML) schemes. DEA mentioned that bitcoin is widely popular in China and it can be used to anonymously transfer value overseas, circumventing China’s capital controls. Many China-based firms manufacturing goods now prefer to accept Bitcoin.
  • DEA also reported that China-based groups prefer using the cryptocurrency in an effort to bypass capital controls and it is believed that the OTC bitcoin brokers will continue to help facilitate the cross-border transactions.
  • According to PWC, the use of digital currencies to launder illicit money is a growing trend based on the data gathered from criminal proceeds being laundered in Europe, Russia, and Iran through cryptocurrencies.
HOW IS IT A BIG TREND?
  • Organizations such as PWC and the U.S. Drug Enforcement Administration (DEA) reports money laundering cases from several countries including the United States, China, Europe, Russia, and Iran. Another media page such as Japan Times also published reports on this trend.

2. Criminals Offering 'Crime as a Service' (CaaS)

WHY IS IT A TREND?
  • There are a growing number of cases that involves criminals offering “crime as a service” (CaaS) based on the joint effort of Spanish law enforcement and Europol. This trend is a large-scale cryptocurrency money laundering operation that was offering services to other criminal organizations.
  • Reports also mentioned that similar incidents took place last year when the police department in Spain and Colombia arrested members of two criminal gangs involved in cryptocurrency money laundering.
  • Europol stated that an increasing number of individual criminal entrepreneurs offer crime as a service (CaaS) in the European Union Serious and Organized Crime Threat Assessment (SOCTA) 2017. Online trade enables individual criminals to operate their own criminal business without the need for the infrastructures maintained by ‘traditional’ organized crime groups.
HOW IS IT A BIG TREND?
  • Media pages/organizations such as OCCRP and Micky Media reported criminal cases offering 'crime as a service' (CaaS) with official reports from the Europol, the European Union Agency for Law Enforcement Cooperation involving criminal arrests from Spain, Columbia, and New York.

3. Money Mules

WHY IS IT A TREND?
  • According to Wikipedia, "a money mule, sometimes called a 'smurfer', is a person who transfers money acquired illegally (e.g., stolen) in person, through a courier service, or electronically, on behalf of others. Money muling has grown to such an extent that Southern African Fraud Prevention Service (SAFPS) has opened a new category of fraud due to the increasing number of bank accounts that have been abused by third parties in this manner.
  • The Australian Banking Association Inc. also reported how criminals include unsuspecting innocent people in their illegal activities. Global scam methods include fraudulent employment advertisements posted online, emails that are sent to random addresses, and romance scams where vulnerable singles are targeted and asked to receive money and send it to a third party.
  • 2017 statistics from CIFAS, the UK’s fraud prevention service released data that showed a 75% rise in the number of 18 to 24 year old’s who are letting their bank accounts be used to transfer the proceeds of crime. The facilitation of proceeds of crime through ‘mule accounts’ is a growing financial crime risk, especially for the retail banking industry. It was also reported that 65% of the 17,040 incidents in the UK in the first six months of 2017 were committed by those under 30.
  • Europol has also noted the rapid growth of money mule activity, nearly 90% of which relates to cybercrime owing to the widespread availability of online bank accounts.
  • Money muling is one of the seemingly endless cycles of money-laundering schemes that law enforcement officials are scrambling to slow through a combination of prosecution and public awareness. Europol had identified 1,504 money mules and arrested 168 in a continent-wide bust, while FBI announced the arrests of 74 people, including 29 in Nigeria, for schemes targeting businesses and the elderly.
HOW IS IT A BIG TREND?
  • Media pages such as CBS News, Bizcommunity, Independent, and organizations such as Australian Banking Association Inc., Europol, CIFAS, and Southern African Fraud Prevention Service (SAFPS) published reports on the increasing growth of money mule activity globally.

4. Money Laundering in Real Estate

WHY IS IT A TREND?
  • Accuity, a global risk and compliance company reported that money laundering through real estate is a growing, worldwide problem. It is estimated to have reached USD 1.6 trillion a year. Several cases from China, Venezuela, Azerbaijan, Vancouver, Manhattan, and London involved a list of suspects accused of using their ill-gained financial proceeds to purchase properties at some of the most exclusive addresses in the world.
  • It has become increasingly apparent in countries such as America, Australia, and the United Kingdom that a number of assets being purchased could be linked to political or criminal activities where money laundering can occur.
  • Government organizations such as the U.S. Treasury Department, The British Parliament, and Germany lawmakers are making efforts to help combat scams in real estate.
  • The impacts of money laundering in the real estate market in B.C. have pushed the prices by 3.7% to 7.5%. B.C is one of the most unaffordable real estate markets in the world.
HOW IS IT A BIG TREND?

5. Prevalent Cybercriminal Activities for Money Laundering

WHY IS IT A TREND?
  • A comprehensive research study by Bromium®, Inc. reveals cybercriminal proceeds make up an estimated 8-10% of total illegal profits laundered globally. Virtual currencies have become the primary tool used by cybercriminals for money laundering while other methods include the usage of PayPal and other digital payment systems. Digital payment systems laundering often involves the use of micro-laundering techniques where multiple small payments are made so laundering limits aren’t triggered.
  • Laundering through in-game currency and goods is also on the rise and the trend is prevalent in countries like South Korea and China.
  • A study led by Michael McGuire, the senior lecturer in criminology at Surrey University revealed that there is a growing use of digital payment systems by cybercriminals that are creating significant problems for the global financial system.
  • Cybercriminals are responsible for up to 10% of the total illegal profits being laundered globally and they are using combination methods such as new cryptocurrencies, gaming currencies, and micro-payments to launder up to $200 billion via ill-gotten gains.
  • Cybercriminal activity in underground markets noted a spike in overall malware detection from the last quarter of 2017 to the start of 2018, mostly from Turkey, the United Arab Emirates (UAE), and Saudi Arabia. Based on the MENA underground report in 2017, different aspects of cybercriminal activity reported cashout services that were widespread in the underground. In multiple underground forums, these money laundering operations are found in dedicated sections called 'broker' services or 'contracts'.
HOW IS IT A BIG TREND?

YOUR RESEARCH TEAM APPLIED THE FOLLOWING STRATEGY:

We were able to gather information on the current trends in global money laundering from media articles, financial and banking domains, and government, university and non-profit organization research portals. Trends that appeared in multiple sources have been presented in this brief.
The 'biggest' trends in global money laundering were determined based on the data pertaining to different countries and their prevalence.
Most of these trends are expected to grow, increase or continue as technology is upgraded even further and more criminal methods emerge. Authorities from government agencies globally are enacting by submitting bills and rules to resolve these activities.
The key findings are of global scope and represent different cases, activities, or techniques in money laundering. We only included trends related to the process by which money is obtained illegally, laundering methods, amounts of money laundered, and the type of businesses used for laundering.
Part
02
of six
Part
02

Global Money Laundering - Regulatory Environment Evolution

The Bank Secrecy Act of 1970 in the US opened the doors for other countries to fight money laundering, allowing laws and regulations to evolve and guarantee global coverage of these criminal actions. The punishments have also evolved from fines of $15,000 to fines of $500,000 and prison time from 5 years to 20 years or even the death penalty.

CHANGES IN ANTI-MONEY LAUNDERING LAWS THROUGH THE PAST 50 YEARS

UNITED STATES

  • The anti-money laundering (AML) fight began around 50 years ago with the 1970s Bank Secrecy Act (BSA).
    • This law created the first requirements of record and report of financial transactions to financial institutions, banks, and individuals.
    • The BSA's focus and regulation were designed to control and understand monetary and currency movements, volumes, sources, transportation, and transfers in any financial institution in or out of the US.
    • This law required banks to present a report using the official Currency Transaction Report (CTR) of any transaction made above $10,000.
    • The law also required banks to properly identify the person making the transaction.
    • Finally, it required banks to keep a paper trail of all financial transactions.
  • In 1984, the Comprehensive Crime Control Act was created to include money laundering under Racketeer Influenced and Corrupt Organizations (RICO), allowing the government to seize the capital proceeding from illegal activities.
    • This regulation allowed the government to categorize the act as a criminal and civil crime.
    • This gave authorization to border agents to check if a person carries a high amount of undisclosed money and to pay informants for reporting information.
  • In 1986, the Money Laundering Control Act was implemented.
    • This law defined money laundering for the first time as a federal crime.
    • This law also made the first prohibitions on transaction structures designed to evade filling out a CTR.
    • Finally, it is required from banks to create processes that would ensure the monitoring and the compliance with the BSA report and record requirements.
  • After the Money Laundering Control Act of 1986, the 1988 Anti-Drug Abuse Act followed, which included laws like reporting any large transactions of currency from businesses.
    • This law included car dealers and real estate as part of the financial institutions asking for them to report any large transaction.
    • The banks are required to verify the identity of any purchasers of any monetary instruments with a value above $3,000.
    • This act reduced the amount that needs reporting from $10,000 to $3,000.
  • The 1992 Anti-Money Laundering Act gave an opening to form the Bank Secrecy Advisory Group (BSAAG).
  • In 1994, the Money Laundering Suppression Act was created with new requirements from bank agencies.
  • In 1998, the Money Laundering and Financial Crimes Strategy Act was created.
    • This new act asked banks to train their examiners in AML.
    • This act also pushed the Department of the Treasury and more entities to create a national strategy to fight money laundering.
    • Under this act, the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) was created focusing on law enforcement in any zone⁠—in industries, financial institutions, or financial institution groups⁠—where money laundering is common.
  • The next big change came after 9/11 in 2001 with the Patriot Act, which included a part called the International Money Laundering Abatement and Financial Anti-Terrorism Act.
    • This law seeks to cover areas that were missing from the 1970 and 1986 laws.
    • This law increased the regulation of customer identification, BSA framework, and criminalized financing of terrorism.
    • This law also prohibits any financial institution from making businesses with foreign banks used as shells.
    • Required due diligence processes to be enhanced by the financial institutions and any process between private banks and foreign correspondents.
    • Required the sharing of information from government institutions and voluntary sharing from financial institutions to improve the sharing of information between both.
    • Created a new law where banks have 120 hours to respond with any information asked for regulatory requests and to facilitate access to their records.
    • They also made a requirement to federal banks to check the AML records of a bank they try to do acquire, merge with or do any business combination.
  • In 2004, the Intelligence Reform & Terrorism Prevention Act was implemented.

INTERNATIONAL

  • The US pressure towards AML impulsed the rest of the world to tighten its laws, getting companies worldwide to invest in AML services. This trend is expected to continue to grow.
  • Thanks to the BSA other countries like UK and Switzerland decided to create similar laws.
  • In 1988, the UN held a convention in Vienna to determine global laws against the trafficking of narcotics and other illegal substances.
    • This is one of the most important money laundering treaties of the past 50 years since in this it was required from all the participating states to sign and recognize money laundering as a criminal act in their countries and establish a common reinforcement method.
    • During this convention, it was required from all states to create anti-money laundering laws in their countries, which recover earnings from drugs and illegal activities.
    • In this convention, money laundering was recognized for the first time as a criminal act in the Caribbean.
  • The International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 requests financial institutions to expand the Anti-Money Laundering programs and create reports on bank accounts that are foreign.

CHANGES IN ANTI-MONEY LAUNDERING PUNISHMENTS THROUGH THE PAST 50 YEARS

UNITED STATES

  • The 1970 BSA was designed as a control regulation of currency and financial movements, but money laundering was still not considered a crime to be penalized.
  • The 1984 Comprehensive Crime Control Act fined up to $15,000 from felonies of $1,000 and above and/or prison time for up to five years.
  • In 1986, the Money Laundering Control Act defined money laundering for the first time as a federal crime and developed the first criminal and civil forfeitures for violating the Bank Secrecy Act regulations mentioned above.
  • In 1988, the Anti-Drug Abuse Act added the minimum penalties related to drug offenses and also to add the death penalty if the person sentenced killed while they were violating the BSA.
  • The 1992 Anti-Money Laundering Act created strong sanctions towards any violation of the BSA.
  • In 2001, the Patriot Act again increased the penalties given to criminal and civil acts of money laundering.
    • This act also gives power to the Secretary of the Treasury to take "special measures" on any institution, transaction, or jurisdictions that are suspected of money laundering.

INTERNATIONAL

  • In 2001, the International Money Laundering Abatement and Financial Anti-Terrorism Act quadrupled the penalty given for currency counterfeit.
  • According to the international Financial Action Task Force, the punishment applied by the countries should include predicate offenses, and the imprisonment should be based on the predicate offense.
    • If the country decides to punish based on the threshold approach, the predicate offenses need to include the minimum of all offenses that are considered serious offenses based on the laws of each country or include offenses that are penalized by maximum penalty guaranteeing more than 1 year of prison.
    • If they apply the minimum threshold, it should be a minimum of six-month prison penalty.

EXPECTATIONS ON FUTURE ANTI-MONEY LAUNDERING LAWS

EXPECTATIONS ON FUTURE ANTI-MONEY LAUNDERING PUNISHMENTS

INTERNATIONAL


Part
03
of six
Part
03

Global Money Laundering - Financial/Reputational Liabilities

DANSKE BANK MONEY LAUNDERING CASE

OVERVIEW
  • The money laundering scandal of Danske Bank first arose in March 2017, when an organization of journalists OCCRP, Berlingske, and Russian daily Novaya Gazeta published the enormous amount of money being passed on by Danske Bank Estonia and bank Nordea in Copenhagen to different banks without client and transaction verification.
  • Deutsche Bank, which was always caught up in a money laundering scheme, was also involved based on a whistleblower's testimony revealing that the bank funneled an estimated "$150 billion in suspected funds."
  • This scandal is considered as the largest in history due to its extensiveness in involving 32 currencies, companies from Cyprus, the British Virgin Islands, and Seychelles. Customers in question include the Putin family and FSB, a Russian security service.
FINANCIAL LIABILITY
  • The financial liability of Danske Bank is to its shareholders.
  • In January 2019, a group of Danske Bank shareholders gathered to sue the bank in its involvement in the scandal.
  • The shareholders sought compensation for the loss of millions of euros due to the decline in Danske's shares due to the scandal. Additionally, the bank's failure to disclose the circumstances of the alleged money laundering activities and the lack of an internal report, which has delayed the investigation has prejudiced its investors.
LEGAL FINES
  • The Danske Bank case is still ongoing, and fines haven’t been determined yet, as other charges may apply.
  • According to the Denmark government, Danske Bank may face a fine amounting to 4 billion kroner ($630 million), based on the estimate of Danske's profit from shady transactions of 1.5 billion kroner.
  • And because of the massive scandal, a Danish lawmaker revised the fine to add 700% to "the existing limit on fines for money laundering," but this is not retroactive, and therefore, cannot be applied to the Danske Bank case.
  • Additionally, Danske may face a tax evasion case, and since the transaction is cross-border, countries such as the US, Denmark and Estonia, and other European countries are all looking into the case.
PUBLIC REPUTATION
  • Caliber is a Denmark-based company which tracks and studies the public's perception of prominent companies in the country, daily using a 100 point-scale measurement.
  • According to Caliber, the money laundering scandal of Danske Bank negatively impacts its reputation, in which the bank received an all-time low of 37.8/100. Among Danish companies, Danske Bank was among the top fallers, recording a significant reduction in its reputation score by 10.1 points.
IMPACT ON FINANCIALS
  • The scandal brought financial losses to Danske Bank. The company's shares declined by 49% since March 2018, wiping out an approximate $15 billion market value.
  • Due to the scandal, Danske Bank was ordered to shut down its Estonian branch, and just announced the end of its operation in countries such as Russia, Lithuania, and Latvia.
  • Other banks which were involved in the scandal such as Nordea reported a 36% decline in the first-quarter its operating profit, while its shares fell by 2.3%.
  • While Deutsche Bank's stock price recorded a drop of 6%, which was stated to be the lowest the company had, its stocks lost half of its value in the aftermath of the scandal. Its perpetual notes fell significantly by 2.3%, making it "the biggest one-day decline since May," according to Bloomberg.
PUNISHMENT ON PERSONNEL INVOLVED
    In May 2019, ten former Danske Bank executives were charged with a money laundering case, including its former CEO Thomas Bo stepped down from the positions in October 2018. All of these employees left Danske Bank after the money laundering scandal.
  • NOTE: The case is still ongoing, and the people involved have not been declared guilty or not, to determine the legal sanctions imposed.

COMMONWEALTH BANK OF AUSTRALIA MONEY LAUNDERING CASE

OVERVIEW
  • The money laundering case against the Commonwealth Bank of Australia involving intelligent deposit machines (IDMs), where customers are allowed to deposit money without deposit limits. As such, a person could deposit millions of dollars through this machine.
  • The people involved were Arslan Shaffi and Salman Khan, as well as four other criminal syndicates.
  • Based on the Financial Transaction Reports Act of 1988 (FTR Act), all banks in the country must report all cash transactions greater than A$10,000, or any transaction that could be viewed as suspicious. CBA, however, failed to do so.
  • The suspicious IDM transactions amounted to A$625 million ($440 million) from over 700,000 accounts. The charge was raised due to CBA's failure to assess and manage their IDMs as money laundering channels.

FINANCIAL LIABILITY
  • Following the announcement of the investigation into CBA for money laundering, law firm Maurice Blackburn, speculated that CBA could be faced with a possible class action from its shareholders due to the loss of stock price after the money laundering scandal started.
  • According to Maurice Blackburn, the suit was based on the failure of CBA to disclose to its investors any information that affects the stock price.
  • Based on their calculations, the claims would be huge, amounting to more than $100 million.
LEGAL FINES
  • CBA paid A$700 million for violating AUSTRAC AML/CTF laws which were considered record-breaking at the time. They also paid A$2.5 million for legal fees with the condition that CBA must "must keep a minimum of A$1 billion in reserve capital until it proves to government officials and regulators that it has more control and governance."
  • They were also ordered to keep A$200 million for "costs and compliance from the banking financial services royal commission" and another A$100 million to improve the bank's AML/CTF systems.
  • CBA's fines ranked 4th position in the list of the largest-paid penalties for a money laundering case.
PUBLIC REPUTATION
  • Reputation Institute's Australian Corporate Reputation, established in 2008, ranks a company's reputation based on its leadership, governance, citizenship, workplace, products, performance, and innovations.
  • Due to the money laundering scandal which CBA faced, its reputation took a fall from 36th to 57th position in the Australian Corporate Reputation ranking.
  • The online survey of 6,000 respondents revealed that CBA's leadership criteria "took a particular hammering over the year."
  • According to a 2018 report, the bank is struggling to regain the trust of the public after the scandal.
IMPACT ON FINANCIALS
  • Due to the scandal, CBA's share price declined by 13% in 2018.
  • The cash profit of CBA has continued to fall by 4.8%, which is stated to be the bank's first decline in nine years.
PUNISHMENT ON PERSONNEL INVOLVED
  • Due to money laundering scandals, the chief executive officer of CBA David Borgen, and several of its executives departed from the company.
  • In November 2017, two directors who were part of the board's audit committee left, while in 2018, CBA's directors and CEO left without disclosing any reason.
  • However, there were no criminal charges brought to any of the bankers, and no employee was held responsible. This same report mentioned that no banker was punished for the BNP Paribas, HSBC, and Bancorp money laundering cases.

RESEARCH STRATEGY

Your research team began by reviewing financial industry and media news reports from credible media and finance-related sources such as Forbes, Bloomberg, Reuters, and the New York Times, to find pre-compiled information on any singular standards when it comes to financial liability, punishments, and damage brought about by money laundering scandals for a financial institution. However, there was no definitive data which provided a direct answer, as most cases found, had different outcomes for fines, personnel sanctioned, etc.
Next, the team looked for a global organization or authority for money launderings such as the Financial Action Task Force (FATF) and the International Monetary Fund (IMF), to see if they imposed a global standard. However, while these organizations or groups have some measures to combat money laundering schemes, there was no information found on a worldwide standard for financial liabilities, fines, sanctions, punishments on financial institutions and personnel involving money laundering crimes. Also, based on the FATF's description, only 38 countries are members, and these do not encompass every nation in the globe. The IMF, on the other hand, provides a donor-support fund to member countries in anti-money laundering development and strategy.
Lastly, the team tried to triangulate the answer by looking for recent money laundering cases from Seven Pillars Institute and KYC (Risk Screen 360), reviewing each case to compare if they have the same set of legal punishments, sanctions, and fines for financial institutions or persons involved in money laundering. Based on information found here, the financial liability, fines, punishment differ on a case-by-case basis due to several factors such as the law in countries where the money laundering scheme occurred, the decision by authorities on the magnitude of fines, who faces the penalty, and such. In money laundering cases such as that for HSBC, Commonwealth Bank of Australia, and BNP Paribas, the penalties were different for each case. Also, no bankers were penalized legally for these three companies. The impact of their losses differs, too. However, in the recent Danske Bank case, ten employees have been charged.
In trying to provide clear insights into this request topic, your research team provided case studies of two financial institutions that were involved in money laundering scandals, to give a descriptive scenario of its impact. The team provided details of how each company faced financial liability, paid the legal fines, compensated for financial losses, as well as the fate of the bank employees involved in the scandal.
The unavailability of a direct answer to this question is due because laws differ by country, and only a comprehensive study of these countries, taking into account their legal differences, can provide a thorough analysis, or place a definitive value/estimate of a fee depending on the gravity of the case. Thus, the answer to this request is dynamic, and can only be provided based on the level allegation brought against the financial institution.


Part
04
of six
Part
04

Global Money Laundering - AML Approaches

Banks like Chase and Citibank are more focused on complying and meeting strict regulations associated with Know Your Customer (KYC) and Anti-Money Laundering (AML) laws like the Bank Secrecy Act to approach AML, while fintech players are using proactive and real-time monitoring aside from existing laws to easily catch violators. PayPal is developing and utilizing new methods of identification and authentication that go beyond the traditional KYC collection of static data elements.

BANKS

JPMORGAN CHASE & CO.
  • JPMorgan Chase and Co. and every one of its majority-owned subsidiaries are solidly dedicated to partaking in international efforts to battle money laundering and the funding the activities of terrorists.
  • The firm has executed a risk-based worldwide AML Compliance Program ("AML Program") intended to consent to AML laws and regulations in the US, including the Bank Secrecy Act and other relevant laws and guidelines relating to the prevention of money laundering and the funding the activities of terrorist in the jurisdictions where the firm operates.

Who's in Charge

  • The firm has built up a Global Sanctions Compliance Program comprised of the accompanying components: (I) techniques, systems, and interior controls intended to comply with applicable sanctions; (ii) an assigned individual in charge of the everyday implementation and activity of the GSC Program; (iii) independent testing; (iv) a continuous training program; and (v) reporting and record keeping.
  • GSC is headed by the Director of Global Sanctions Compliance who is designated by the Head of Global Financial Crimes Compliance.
  • Dorothy Bennett is the Global Sanctions Director at Chase.


CITIBANK
  • According to their website, the accompanying key standards administer Citi's way to deal with controlling AML risk: "Compliance with AML laws and guidelines; Collaboration with and support of regulators and law implementation offices in their endeavors to anticipate, identify and control money related crime; Serving clients and providing products and services consistent with Citi's AML risk appetite and responsibility to capable fund and the most astounding moral gauges, and Adherence to the requirements of Citi's Global AML Program."
  • Citi's AML web page includes the following: "Citi has built up an extensive Global AML Program to help secure both our customers and our establishment from the risks of money laundering, terrorist financing and other money related crimes. The foundation of this global program is Citi's Global Anti-Money Laundering Policy, which provides a globally consistent system of controls to identify and mitigate AML risks and comply with AML laws and regulations. These include: Bank Secrecy Act (BSA) Officer and Governance and Enterprise-wide controls."

Who's in Charge

  • Bank Secrecy Act (BSA) Officer: The Global AML Compliance Officer has been assigned by Citi's Board of Directors as the BSA Officer in charge of regulating Citi AML Program, including apprising the Board of Directors and senior management of AML compliance initiatives, any critical consistence insufficiencies, and the detailing of suspicious action.
  • Governance and Enterprise-wide controls: This control framework oversees the general program, including Global AML policies, procedures, training, and testing.
  • Denise Reilly is the Global Head AML Program at Citibank


FINTECH PLAYER

PAYPAL
  • PayPal's way of thinking is to create and use new techniques for identification and verification that go past the traditional KYC collection of static data elements.
  • PayPal is a closed-loop system (having an association with both the sender and collector) that enables us to recognize suspicious action more easily than contending systems.
  • PayPal's Customer Due Diligence program gathers identity details at sign-up while remaining generally frictionless. When certain edges are met, in compliance with a pertinent market guideline, PayPal will subject clients to additional KYC requirements for identity verification.
  • According to their website, "PayPal screens records and exchange history on a nightly basis, covering the whole client base. We cross-reference our data against an assortment of records from regulators, governments, and more (OFAC's Specially Designated Nationals list, UN Security Council sanctions list, Commission de Surveillance du Secteur Financier in the EU, etc.)."
  • PayPal's vision to approach AML: "Policymakers ought to perceive the changing landscape of technology-enabled criminal behavior. We urge policymakers to empower the utilization of real-time data and account monitoring (as opposed to depending intensely on static data adopt collection for traditional KYC procedures) and to adopt a risk-based approach."

Who's in Charge

  • According to their customer protection page, "PayPal conducts a global AML/CTF and Sanctions risk assessment consistent with the Financial Action Task Force (FATF) guidance to identify, assess and understand the ML/TF risks PayPal faces. This is consistent with a risk-based approach (RBA) which impacts global policy decision-making and implementation of program elements. "
  • Aaron Karczmer is the Chief Risk, Compliance, and Security Officer at PayPal. Karczmer is the principal architect of PayPal’s unified data-driven approach to oversight for all risk disciplines, to help ensure PayPal meets its regulatory and business objectives. His team is also responsible for fulfilling PayPal’s commitment to combat money laundering.
Part
05
of six
Part
05

Global Money Laundering - Cloud-based Technology

Cloud-based technology is changing the way anti-money laundering (AML) technology is created and used by implementing Machine Learning and Big Data Analytics.


HOW CLOUD TECHNOLOGY IS CHANGING AML TECHNOLOGY

  • Traditional AML tools (based on business rules and models trained historical data) suffer from several limitations when it comes to identifying money-laundry activities; however, from trusts to black market currency exchanges or loan-back schemes, there is no typical ML case, which makes the historical analysis unreliable.
  • Banks and institutions are required to comply with the Bank Secrecy act and implement AML rules. As technology evolves, these rules have become more demanding and complex with hundreds of rules regarding KYC (know your customer) activity and SAR (suspicious activity report) filling.
  • According to Mckinsey, in response to an increase in money-laundry crimes, many banks have expanded staff in compliance teams; however, that method has not been effective.
  • The same reports pointed it out that in order to be truly effective, banks should invest in efficient data-aggregation platforms, advanced statistical modeling, and automation of the process.
  • Because AML is becoming more difficult to monitor, numerous financial institutions are using AI, ML, and big data analytics to detect ML cases. When combined these can merge across massive spectrums of data sources and dig through mountains of data.
  • These new technologies have proven to have benefits such as "compliance-error rates measured through sample-based testing can be reduced from more than 30 percent to less than 5 percent. At the same time, "false-positive alerts can be brought down from over 90 percent to below 50 percent."
  • The scalability of cloud-technology means that banks can scan thousands of transactions per second, which would greatly improve their ability to combat financial crime and to reduce false positives.
  • Cloud computing facilitates accessing, bringing together and enriching data from numerous systems when performing KYC, beneficial ownership or other AML remediation activities.
  • Cloud computing also offers the improved risk-scoring capability.
  • Cloud computing further enhances the power of data analytics by overcoming the storage limitations of on-premise servers.
  • This automation enables data to be pieced together to discover new money laundering patterns, which may be easily overlooked when the processes are divided and conducted manually across large compliance teams.
  • Unsupervised ML (machine learning) and Big Data Analytics are the great drivers for innovation when it comes to cloud-based solutions for AML purposes.


CURRENT-CLOUD-BASED TECHNOLOGY USE FOR AML PURPOSES

  • The British Banker’s Association defined three key drivers for the adoption of cloud-based services by banks: Agile innovation, risk mitigation, and cost benefits.
  • However, a Gartner survey has shown that cloud computing ranks as the top risk concern for executives in risk, audit, finance, and compliance.
  • Despite some progress, many organizations in Asia remain fearful of the regulatory, data privacy and operational risks associated with cloud computing.
  • Most banks are still in the first stages of cloud maturity, characterized by a preference for private over public cloud, mainly because of data privacy concerns.
  • According to the ACCA, new generation analytics are emerging as key tools to improve fraud and criminal activity detection. For example, data analytics detects potential internal fraud by examining employees’ communication lines and alerting investigators of atypical patterns that may signal collusion between employees.
  • This prevention mechanism enables FSIs to identify and manage potential threats before they materialize, increasing the effectiveness of an FSI’s compliance and vigilance activities and minimizing the financial, legal or damage of reputations that internal fraud may cause.


CASE STUDIES

1. Indonesia’s Bank Central Asia

  • Bank Central Asia (BCA) is a private bank headquartered in Jakarta which offers business transactions, credit loans, and financial solutions.
  • BCA was looking to accelerate its service innovation and increase its operational agility and responsiveness, while protecting sensitive client and financial data and maintaining a high level of availability. This led it to adopt Cisco’s software-defined networking (SDN) solution to increase software flexibility and performance scalability.
  • The implementation of Cisco ACI improved infrastructure visibility by bringing down technological and procedural walls that previously separated operations, server and application teams, while strengthening BCA’s overall security posture.


2. Singapore’s DBS Bank

  • DBS is a leading financial services group in Asia. It has 280 branches across 18 markets. It leverages digital technology with the goal of redefining the future of banking.
  • DBS was named “World’s Best Digital Bank” by Euromoney in 2016.
  • DBS has begun using cloud technology to experiment in digital ways and produce new applications rapidly, maintaining their high-security measures.
  • The cloud quickly scales the capacity of its computing grid up or down without having to make provisions for permanent overcapacity.
  • The bank leverages AWS for the purpose of pricing and valuing financial instruments for risk management as this requires extensive computing power.


3. HSBC and Google Cloud

  • In cooperation with Google Cloud, banks have been utilizing data analytics to incorporate the program, which would include machine learning to inspect the data from the banking behavior of more than 38 million customers.
  • Additionally, the program would work by assessing the large amounts of data and assigning a bank customer with a financial crime score. Those with an appropriate score would be singled out for closer scrutiny.
  • The system cross-references customer actions and flags unusual activity for review. It also analyzes transactions and networks to help the bank find any indications of illegal activity.
  • Jennifer Calvery, HSBC's global head of financial crime threat mitigation said the system’s ability to handle massive amounts of data will change the way the bank handles financial risk.
  • The system analyzed data on customers’ behavior, comparing it with the behavior of other similar customers and flagging anomalies for review. The system also analyses customers’ transactions and their networks to establish a picture of who they are dealing with and whether there are any financial crime indicators in customers’ wider networks.
  • In the beginning of 2018, HSBC predicted it would have 100 petabytes of data on the Google Cloud platform by the end of 2018. Its two first projects on the cloud are focused on using machine learning for the AML prototype and for country-by-country liquidity reporting.
  • According to Calvary, “the system it’s a gamechanger because it’s something we can scale when you operate in more than 60 jurisdictions. It will enable us to have consistency in how we do AML.”


HOW CLOUD-BASED TECHNOLOGY IS EXPECTED TO CHANGE FUTURE AML TECHNOLOGY

  • The adoption of cloud-solutions for AML purposes is still in its infancy.
  • On-premise deployment type contributed the largest share to the AML software market in 2017, owing to a higher level of consumer data security provided as compared to cloud deployment. However, cloud deployment is expected to witness higher growth rate during the 2018-2023 period.
  • The widespread adoption of cloud-based delivery models is expected to be witnessed in the future, due to the lower entry cost than that of on-premise deployment models.
  • A great increase in the adoption of automation, AI and machine learning for AML monitoring should decrease the number of false positives.
  • Many fraud management departments will likely add blockchain technology to monitor complex transactions in conjunction with AI technology. Since blockchain is a cryptographic ledger that is decentralized, secure and immutable in nature, it is an ideal technology for maintaining AML compliance.
  • This means that building an AML system with AI on the blockchain will identify and stop suspicious transactions effectively with minimal friction and high efficiency.
  • Cloud solutions are predicted to improve data quality, reduce false positives, automate manual functions, reduce costs and provide a cloud-based API infrastructure.
Part
06
of six
Part
06

Global Money Laundering - Top AML Vendors

The top five AML vendors globally are Actimize, Biz4X, Clear View KYC, SAS Anti Money Laundering, and Trulioo.

TOP AML VENDORS

1. Actimize

  • Actimize can be found on the list of the most widely-used AML vendors based on Google keyword searches, according to VentureRadar.
  • Actimize is also one of the top companies according to product reviews on Capterra and G2 Crowd. Additionally, Actimize is recognized by the industry as the best in the field with multiple awards received by the company in the last year.
  • Actimize detects, prevents, and investigates "money laundering, fraud, and compliance violations with a holistic view of risk across each organization." ​
  • The services offered include Anti-Money Laundering (AML), Fraud & Authentication Management, Financial Markets Compliance, Investigation and Case Management, and Cloud Protection.
  • Costs are not listed online but can be acquired by contacting the sales representatives here.
  • Actimize is located across the world, with offices in the US, UK, Europe, Asia, and South America.
  • Actimize's clients include PwC and leading U.S., UK, Canadian, and European banks.

2. Biz4X

  • Biz4X is one of the top companies according to product reviews on Capterra and G2 Crowd.
  • Biz4X is a company that provides "market data, compliance, business management, digital storefronts and wholesale trading features for money services businesses."
  • The features available from Biz4X include AML compliance, financial market data, rate boards, banknotes trading and business management features.
  • The company serves Money Services Businesses, Fintechs, Professional Services, and Financial Institutions.
  • There are three different plans available: Starter, Premium, and Enterprise. All three offer a free trial but no pricing is available online.
  • 4xLabs is headquartered in Singapore and the company has a development hub in Vietnam, as well as a network of sales representatives across the South Asian region.

3. Clear View KYC

  • Clear View KYC is one of the top companies according to product reviews on Capterra and G2 Crowd.
  • Clear View KYC is an "enterprise solution for watch list management, sanctions and PEP screening enables financial applications to comply with AML and CTF regulations, using the single endpoint enterprise level Backend-as-a-Service (BaaS)."
  • The company services high risk industries, the banking sector, casinos, and money service businesses.
  • The features available from Clear View KYC include backend servers designed to scale, failover server services, geo-redundancy, and secure 4096 bit SSL.
  • The screening is performed against 10 Sanction lists, including PEP Screening, HIO Screening. Live Currency Rates, Country Risks, Country-wide Blanket Sanctions, White-lists, Simple web service API, Fuzzy search, Daily updates of all lists, and Audit Report Generation
  • Costs are not listed online but can be acquired by contacting the sales representatives here.
  • Clear View KYC has offices in North Vancouver, Canada.

4. SAS Anti Money Laundering

  • SAS Anti Money Laundering is one of the top companies according to product reviews on Capterra and G2 Crowd.
  • SAS allows for companies to take a risk-based approach by providing a solution that "analyzes financial data, detects deviance or dubious operations, and creates appropriate alerts."
  • The features offered include Data management, High-performance analytics and visualization, Suspicious activity monitoring and reporting, Watch-list matching, Investigation and alert management, Peer-group anomaly detection, Search, and Multitenant.
  • SAS Anti Money Laundering services a range of industries including automotive, financial, travel, sport, and media. The clients listed include Bank of America, Lufthansa, Honda, and Orlando Magic.
  • Costs are not listed online but can be acquired by contacting the sales representatives here.
  • SAS' headquarters are located in Cary, North Carolina. The company has offices all over the world.

5. Trulioo

  • Trulioo can be found on the list of the most widely-used AML vendors based on Google keyword searches, according to VentureRadar. Additionally, Trulioo is also one of the top companies according to product reviews on Capterra and G2 Crowd.
  • Trulioo helps businesses "comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) rules, and supports a diverse range of international electronic identity verification requirements."
  • The features include Electronic Identity Verification, Document Verification, and secure access to over 400 trusted global data sources.
  • There are no specific industries Trulioo focuses on as they service over 5 billion people and 250 million companies worldwide.
  • Costs are not listed online but can be acquired by contacting the sales representatives here.
  • Trulioo's offices are located in Vancouver, Canada.

RESEARCH METHODOLOGY

In order to establish the most trusted and widely used vendors of anti-money laundering (AML) technology around the world, we used three pre-compiled lists of top AML vendors:
  • Capterra and G2 Crowd both list the top most trusted AML companies based on user reviews.
  • VentureRadar lists the top most widely-used AML companies based on Google keyword searches and rankings.
In order for the company to be featured on our list of top AML vendors, it had to be mentioned on at least two of the three lists which then confirms that the company is known across the board as most trusted and widely used.
Sources
Sources

From Part 01
Quotes
  • "Nearly 6,000 cases of suspected money laundering linked to cryptocurrency were reported to police in the January to October period, National Police Agency officials said Thursday."
Quotes
  • "The paper’s authors argue that over-the-counter (OTC) bitcoin brokers are helping to facilitate these cross-border transactions – a trend they write will continue."
Quotes
  • "Part of a growing trend of criminals offering “crime as a service” (CaaS), the money laundering ring would take fiat currency gained through illicit means and convert it to cryptocurrency in order to hide its criminal origin."
Quotes
  • "Money laundering through real estate is a growing, worldwide problem, estimated to have reached US$1.6 trillion a year, reports Accuity."
Quotes
  • "It was becoming increasingly apparent in countries such as Australia, America, and the United Kingdom that a number of assets being purchased could possibly be linked to political or criminal activities where money laundering was about to occur."
Quotes
  • "Cyber criminals are using a combination of new cryptocurrencies, gaming currencies and micro-payments to launder up to $200bn in ill-gotten gains, research has revealed."
  • "Cyber criminals are responsible for up to 10% of the total illegal profits being laundered globally, which UN figures indicate equates to about $200bn a year, a study shows."
From Part 03
Quotes
  • "The first chapter in the money laundering case started in March 2017, when Berlingske joined with the journalism organisation OCCRP, Russian daily Novaya Gazeta and other media outlets to reveal how substantial amounts of money had passed unhindered through Danske Bank Estonia and rival bank Nordea in Copenhagen, without these banks verifying the clients and transactions involved, as required by international anti-money laundering rules."
  • "It also emerged that Danish authorities received a detailed warning from a reputable British law firm concerning money laundering through these Danish banks as early as 2013."
  • "It later emerged that both the Danish financial regulator, Finanstilsynet, and Danske Bank’s own legal department were aware of suspicious Russian clients at the Estonia branch as early as the beginning of 2012, when the suspected laundering of billions of kroner was its height."
Quotes
  • "Denmark’s biggest lender is trying to restore trust among investors and clients after it said last year that it had channeled 200 billion euros ($223 billion) of suspicious payments through its Estonian branch between 2007 and 2015."
  • "On Tuesday it said the considerable investments it is making in compliance to repair its image had pushed up costs, while higher funding costs also weighed on its first quarter performance. That heaped further pressure on its share price, which slid more than 8 percent in morning trade."
  • "Its share price, which has more than halved since March last year, was trading 8.3 percent lower at 119.85 crowns at 0936 GMT."
  • "Profit before tax fell 35 percent to 4.01 billion Danish crowns in the period, below the 4.47 billion forecast by analysts in a Reuters poll."
Quotes
  • "Analyst estimates for fines range from below $1 billion to more than $8 billion. Meanwhile, the bank is still looking for a permanent CEO to replace Borgen, after he was removed in October for his role in the laundering scandal."
Quotes
  • "Denmark’s largest lender Danske Bank said Tuesday it would follow the Estonian banking watchdog FSA’s order to shut its Estonian branch within eight months, after a money laundering scandal."
  • "Last December, Estonian authorities detained 10 former Danske employees on suspicion they had facilitated money laundering via non-resident clients, including many Russians."
Quotes
  • "Around half a dozen groups have said they are gathering shareholders to sue Danske bank over a scandal that has already cost it its CEO and chairman, triggered a raft of criminal investigations. Danske’s shares have plunged 49 percent since last March, wiping around $15 billion from its market value."
  • "“The action will seek compensation for shareholders who lost millions of euros in value as a result of perceived errors and omissions committed … and Danske Bank’s failure to disclose to the market the circumstances and magnitude of alleged unlawful activities within its Estonian branch,” IMF said."
Quotes
  • "The Danske Bank money laundering scandal continues to make headlines, and the impact of this story on the sector’s reputation seems to be evolving. The bank’s reputation has now fallen to a new all-time low score of 37.8 – an unusually dramatic drop of more than 10 points in one quarter – ranking it at #98 on the top 100 list"
Quotes
  • "In June 2018 CBA was fined a record-breaking A$700 million by AUSTRAC for its violation of AML/CTF laws. CBA was also fined an additional A$2.5 million to cover the legal fees for the court hearings. On top of the fine, the bank is also required to take extra steps to prevent future events like this from happening again."
  • "The CBA fine also ranks in at the 4th biggest fine in the world for violation of AML/CTF laws with only Bancorp (US, A$805M), HSBC (US, A$1.9B), and BNP Paribas (US, A$12B) being ahead of them. Estimations in the financial markets had the fine going up all the way to A$1B while CBA had only set aside A$375 million in anticipation for the fine."
  • "By 2018 CBA announced that a total of four CBA directors and CEO Ian Narev would be leaving the company for undisclosed reasons. Two of the directors, Launa Inman and Harrison Young, left CBA in November 2017."
Quotes
  • "Austrac, a regulator that focuses on financial crime, said Monday that CBA (CBAUF) would pay $700 million Australian dollars ($534 million) to settle a lawsuit after the bank admitted it failed to observe laws to prevent money laundering and financing of terrorism."
  • "It's the second blow in just over two months for the bank, whose shares are down about 13% so far this year."
Quotes
  • "Maurice Blackburn said the Commonwealth Bank has around 800,000 shareholders who suffered a significant share price drop when AUSTRAC launched its Federal Court proceedings on Thursday August 3."
  • "While Commonwealth Bank shares did not move much that day, they fell 3.9 per cent the day after, when traders had a chance to digest the seriousness of the breaches and the prospect of multi-billion-dollar penalties."
  • "The $3.25-a-share decline on that Friday alone wiped around $5.6 billion off CBA's market value, giving a sense of the potential scale of the lawsuit's claim."
  • "News of the looming lawsuit dented CBA shares, which had traded higher early in the session, but were down 0.6 per cent at $78.16 by 1:13pm (AEST) and lagging the other three major banks."
Quotes
  • "The bank was entirely unaware of the scam until the Guardian and Organised Crime and Corruption Reporting Project (OCCRP) broke the story in March 2017, the report says. The first it knew was an email from the Guardian and Germany’s Süddeutsche Zeitung newspaper asking for comment."
  • "In 2017, the UK’s Financial Conduct Authority imposed its largest fine – £163m – after Deutsche carried out a $10bn “mirror trade” scheme run out of its branch in Moscow. The New York Department of Financial Services (DFS) fined the bank $425m over the same case, in which roubles were converted into dollars via fake trades on behalf of VIP Russian clients."
  • "The bank is under investigation for its role in Europe’s biggest banking scandal, involving Denmark’s Danske Bank. Danske laundered €200bn (£178bn) of Russian money via its branch in Estonia. Deutsche provided correspondent banking services via its US subsidiary."
Quotes
  • "Deutsche bank dropped as much as 6 percent in Frankfurt to 8.05 euros, the lowest in records compiled by Bloomberg, before closing at 8.15 euros. The stock has lost almost half its value this year."
  • "Deutsche Bank’s 1.75 billion-euro ($2 billion) 6 percent perpetual notes slumped 2.3 euro cents to about 89.5 in the biggest one-day decline since May, data compiled by Bloomberg show."
Quotes
  • "Commonwealth Bank's corporate reputation has taken a battering after a year in which it was embroiled in a series of scandals and saw the departure of its chief executive and a number of executives."
  • "The ranking of the nation's biggest bank in the Reputation Institute's Australian Corporate Reputation Index plummeted 21 places from 36 to 57."
Quotes
  • "Ten former leading employees with Danske Bank have been charged in connection with Danish police economic crime unit SØIK's investigation into money laundering, according to a report."
  • "One of the indictments, former CEO Thomas Borgen, was already known."
  • "The ten individuals will face charges in connection with activities at Danske Bank's Estonian branch, newspaper Berlingske reports."
Quotes
  • "Denmark’s government says Danske Bank is potentially facing a fine as big as 4 billion kroner, or about $630 million, if found guilty for its role in one of Europe’s biggest money laundering scandals."
Quotes
  • "Cash profit from continuing operations fell 4.8 percent to A$9.23 billion ($6.85 billion) in the 12 months ended June 30, the Sydney-based lender said in a statement Wednesday. That was the first drop in annual profit in nine years."
From Part 06