In our weekly roundups, the encompass team take you through all the breaking news on Know Your Customer (KYC), compliance and financial crime, keeping you informed at all times. This week, we look at strengthening AML regulations in Asia, a new head at the Serious Fraud Office and criticism for the EU’s new FinTech steering group.
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As always, encompass has sought out the best stories from across the globe to bring you this Friday. As well as our usual smattering from the UK, we also traverse the globe in the shape of news from Australia, Korea, Ireland, Japan and the United States.
At a European level, the European Council has agreed new rules to punish those found guilty of money laundering offences. The new directive aims at disrupting and blocking access by criminals to financial resources, including those used for terrorist activities. The big headline is that EU states have agreed to a minimum jail term of four years for money launderers. It will further hold legal entities to account for money laundering, with sanctions available against them.
While money laundering is often associated with corrupt governments, especially in the developing world, Political Insights has written that it is in fact the scourge of wealthy nations – looking specifically at the UK, and the failings in it’s financial system, particularly in the UK’s use of tax havens.
Lisa Osofsky has been announced as the new director of the Serious Fraud Office. While as a lawyer, Osofsky prosecuted over 100 cases in regards to serious crime in the United States. A dual UK-US citizen, she has more than thirty years legal experience in financial crime matter.
The Home Secretary, Sajid Javid has launched the UK’s new counter-terrorism strategy. On Monday, it was revealed that the UK faces the threat of Islamist extremism for at least another two years. Of the 193 terms issued for terrorism offences between 2007 and 2016, more than 80 will run out by the end of this year. In his speech, Javid called for greater cooperation from businesses to nullify “safe space” for terrorists to operate. He said:
“Ultimately, our approach is about ensuring that there are no safe spaces for terrorists. No safe spaces internationally in which terrorist ideology can develop and from where complex attacks can be launched. No safe spaces in the UK for terrorists to spread their vile views, or for them to plan and carry out attacks. And no safe spaces online for terrorist propaganda and technical expertise to be shared, and for people to be radicalised in a matter of weeks.”
Lawyer Syedur Rahman has written in Real Business on Thomson Reuters’ alarming report that nearly 50% of businesses have fallen foul of financial crime, illustrating there are no excuses for organisations not to act should they suspect that they have been a victim of crime. Frequently cited excuses include the time and cost implications and that they lack the skills to do so.
In a stark reminder of the importance of successfully identifying customers, a Daily Mail article illustrates how a 13 year old schoolboy opened betting accounts using photos of his father’s credit cards. He subsequently lost £80,000. This applies across industries however, as This is Money reports on a secret police list of bank accounts set up with fake details.
“The Metropolitan Police list shows that the fraudsters repeatedly used the same names to open accounts with different banks, suggesting that the same fake ID were being used multiple times. Money Mail understands that the criminals were using the 82 accounts, among others, to scam shoppers on websites such as eBay. It is feared that this is just the tip of the iceberg.”
South Korea has sought to close some of the loopholes that will make it more difficult for money laundering and terrorism financing to occur in the Asian state. The country’s Financial Services Commission has been strengthening money laundering rules. Japanese regulators have similarly been busy, announcing that they are to launch a fact finding survey of all banks and credit unions in order be able to prevent money laundering. Mainichi has reported that Japanese small and medium size enterprises have been lenient in their money laundering provisions
David Drumm, the former head of the now defunct Anglo-Irish bank has been jailed for deceiving depositors during the financial crisis of 2008. He “dishonestly” created the impression that Anglo’s deposits were EUR 7.2 billion larger than they actually were. He will be sentenced on June 20th.
The largest bank in Australia have agreed to pay 700 million Australian dollars for failures in its internal anti-money laundering procedures.
“Commonwealth bank admitted that it was late in reporting more than 53,500 suspicious transactions exceeding AU$10,000 between 2012 and 2015. Each offense was punishable by a fine of up to AU$21 million. The suspicious transactions were conducted by people connected to the international drug trade and the bank suspected some transactions may have been associated with terrorism financing.”
Examinations of the RegTech scene abound this week. Starting with the Independent Banker who confirm that RegTech can help banks streamline their compliance processes. Vice president of Wolters Kluwer’s community bank and credit unions group, Samir Agarwal, said:
“If we use technological solutions the right way. We achieve automation that is consistent, repeatable and uniform. It can mitigate or remove the human error factor from the equation and allow us to focus on business needs. It can also free up management to address other non-technology-related needs.”
Writing in Asset Finance International, John Maslen writes that RegTech offers a wealth of routes for banks to stay compliant – particularly in light of new regulations being passed by the EU and elsewhere.
“According to Christoffer O. Hernæs, chief digital officer of Sbanken, Norway’s first online-only bank, following the financial crisis regulatory load has increased globally by more than 500%,while for US banks compliance can account for more than 10% of operating costs. European banks say the average cost of compliance is 4% of total revenue, rising to 10% by 2022.”
The European Commission has taken fire for the makeup of its new FinTech steering group. Of the 14 representatives, five are individuals, and the others are all organisations. The European FinTech Alliance (EFA) has accused the Commission of not giving FinTech startups a voice within the organisation.
Technology never sleeps, and neither does our reporting of it.
In the United States, Fairfax Media have lodged court documents that suggest that fellow technology firm ZTE was set up with the explicit purpose of gathering information. The documents allege that ZTE was founded by China’s Ministry of Aerospace to spy on foreign targets. Another Chinese company, Huawei, has been alleged by the Washington Post to have a data sharing relationship with Facebook. Huawei also has links to the Chinese state.
We wrote last week on internal wrangles at Google over their involvement in Project Maven. Now, according to reports, Google will end it involvement in the project when their contract ends next year.
In an interview with Business Insider, Chancellor of the Exchequer Philip Hammond responded to a question on the regulation of tech firms thus:
“What I said was that the changing shape of the economy and, in particular, the digital revolution, is presenting new challenges to our established institutions and structures, like competition policy. And for example, in some areas we’re seeing a business model which involves big established players buying up potential challengers with new technologies, competing technologies, in a way that consolidates — what starts to look quite like monopoly power.”
Sweden, Denmark and Finland have come out in opposition to a digital tax. They cite fears that it could damage the European economy.
Professor of electrical engineering, public policy, and management at UCLA, John Villasenor has written in Forbes on the five main obstacles to blockchains widespread adoption. He cites hype, lack of integrity, ICOs that raise hundreds of millions of dollars based on very little, finding the right balance in regulation and cybersecurity as the five big obstacles.
A report from McAfee has highlighted how AI could help banks and financial institutions in their identification of customers. Customer ID and verification has become of importance to banks, as legislated for in the 4th Money Laundering Directive (MLD 4).
The Royal Society of Arts, Manufactures and Commerce (RSA), has conducted a survey in conjunction with YouGov which has highlighted that the public are still nervous about the role of AI in the public sector.
Public Finance report;
“The report said that many public bodies in the UK are now exploring and experimenting with the use of the technology to make decisions regarding planning and managing new infrastructure, reducing tax fraud, rating the performance of schools and hospitals, and deploying policing resources. The RSA added it is important that the public feels confident this technology is being deployed responsibly and will “uplift society”.”
Moreover, a report from Brookings in the US has illustrated how AI could cause a revolution in the not for profit sectors. Areas such as finance, HR and communications could all reap the benefits of investing in AI. This could potentially be boosted by an announcement from the White House Tuesday, where it was stated that the Government would release data from AI research.
Gizmodo reports on how AI is changing the fight against cancer. AI has already been cited as being the saviour of the National Health Service (NHS), and new reports illustrate how research is being transformed by advances in AI.
Ripple has donated $50m to 17 universities in the United States. Ripple said the initiative had been launched because of the need for graduates with the right skillsets.
Technology and cryptocurrency experts have been investigating what capacity North Korea has to develop crypto faculties. With South Korea having suffered a number of attacks on digital currencies, some speculate that the North could be utilising cryptocurrency as a workaround to international sanctions.
“A study by P.A.ID Strategies found that 68 per cent of the 25 most prominent cryptocurrency exchanges and wallets in the EU and US do not perform identity checks on their clients before allowing them to trade” write City AM.
In a sombre reminder that a digital currency is still just a digital currency, a man on a PR stunt for ASKfm has died on Mount Everest. The cryptocurrency had dropped “hardware wallets containing $50,000 of the company’s token” near the summit of Everest, and had encouraged individuals to find them.
The potential trade war between the US and EU, Canada and Mexico shows no sign of abating. Following President’s Trump announcement that tariffs on steel and aluminium would be applied, the EU has announced reciprocal tariffs on whisky, motorbikes and Levi’s jeans. The tariffs are expected to come into force from early July.
“The new duties start applying in July,” European Commission Vice-President Maros Sefcovic told reporters. “It is a measured and proportionate response to the unilateral and illegal decision taken by the United States.”
The Wall Street Journal has also reported on the difficulties the trade war will bring to compliance teams. It is now more imperative than ever for companies to have the correct paperwork in order. They must further be able to confirm the country of origin to know whether they are subject to sanctions or not.
The Independent has focused its attentions on some of the withering comments that have been directed at the US President, particularly from Canada’s Justin Trudeau, and French President, Emmanuel Macron. The Guardian writes that Theresa May has called the tariffs “unjustified and deeply disappointing”.
Mexico has also joined the EU in retaliatory sanctions against the US.