We have a truly global feel to this week’s round up of what’s been happening in the world of financial crime. After kicking off with our usual look at the UK, and the UK Crown dependencies, we’ll take in South America in the shape of Peru and Brazil; Turkey, Italy, Germany and Austria all contribute from a European perspective; before finally visiting Australia, which is making its usual appearance.
In the Guardian, Prem Sikka of the University of Sheffield, argues that the new Ultimate Beneficial Owner (UBO) register for Crown dependencies will make little headway in the fight against financial crime, citing the case of a “bank” registered in the UK that has never conducted any banking.
The Telegraph reports that the need for lawyers in the UK has shot up on last year. The primary need for legal expertise stems from GDPR rules, which become live from next month, but also due to compliance legislation such as the Fourth Money Laundering Directive (4 MLD).
A gang of 17 have been jailed in Lancashire for robbery and money laundering. The gang, after robbing couriers of cash, would launder the money through fixed odds betting terminals in bookmakers. They have been sentenced to a combined 124 years in jail.
The Evening Standard has taken an alternative look at the creation of UBO registers for Crown dependencies such as the Caymans. Arguing on the basis that money will simply move to other jurisdictions where rules are even more lax; that UBO registers will be completely ineffective. “Investors looking to set up companies in non-transparent jurisdictions will simply do so in the Seychelles or other places that offer corporate secrecy,” one asset recovery expert said.”
And this morning (Friday 11 May), the Isle of Man – rightly concerned about their own status as a tax haven – passed new money laundering laws.
In a sure sign that no country on earth is immune from the threat of money launderers, a report stemming from Peru has highlighted how since 1998, at least $2.2 billion of dirty money has flown through the financial system. The report highlights poor Know Your Customer (KYC) checks, an overall lack of due diligence and a lack of employee vetting as the reasons the money laundering was able to go unchallenged.
Following up on the Car Wash scandal, Brazilian prosecutors are continuing to make arrests. On tuesday the Attorney General’s office announced arrests linked to a scheme involving bribes in exchange for government contracts. An excellent write-up can be found in InSight Crime.
Italian police have arrested a total of 14 people on money laundering charges, citing that the money being laundered was to be sent to Syria to fund jihadi groups. Transfers were as high as hundreds of thousands of Euros, with one as high as EUR 2 million.
Germany and Austria
Bloomberg News have written an interesting article highlighting the potential problems that can occur when different EU states – and particularly neighbouring states such as Germany and Austria – have different interpretations of 4 MLD. Bloomberg illustrate different case studies that would constitute breaking the law on one side of the border, but not the other.
Lawyer, Ilze Znotina has been selected to head up the Latvian Office for Prevention of Laundering of Proceeds Derived from Criminal Activity. The appointment comes after Latvian banks have been embroiled in a number of money laundering scandals.
A Turkish tax amnesty has prompted fears that it could be used for money laundering purposes. The proposal allows for individuals to bring money earned abroad into the country untaxed, if it is brought back by July. Commentators note that relatives of President Recep Tayyip Erdoğan and Prime Minister Binali Yıldırım have significant offshore funds.
For those interested in corruption and money laundering, we recommend following OCCRP closely. This week they have focused on the death of Maltese journalist Daphne Caruana Galizia. They have reported that she had been investigating Libyan traffickers and Sicilian organised crime. Their full write-up, including a famous Maltese footballer and a Libyan militia chief, deserves close examination.
The Royal Commission in Australia has generated more than its fair share of news headlines over the last few weeks, and the repercussions are sure to be huge. Indeed, such has been the volume of furore generated, that the Canberra Times has asked the question of whether “banking attracts cheats, or makes them”… The Sydney Morning Herald has focused its attention on the positive moves being made by Commonwealth Bank, the bank whose lapses led to the creation of the Royal Commission. From this, it appears there is still work to be done:
CBA has said previously that the cost of strengthening its ‘’know your customer’’ processes and upgrading its financial crime technology will be about $120 million. It is also hiring more than 50 new financial crime compliance professionals and upgrading its fraud monitoring technology, so there is a mix of capital investment and ongoing costs from beefing up its compliance functions.
Then, of course, there is the outcome of the review of CBA’s governance, culture and accountability that was released earlier this month, along with a set of CBA undertakings that included a $1 billion increase in its common equity tier one (CET1) ratio.
Meanwhile, the Federal Government has accepted the recommendations of the Senate White Collar Crime inquiry. Minister for Revenue and Financial Services, Kelly O’Dwyer, said:
The Turnbull Government is increasing penalties for corporate and financial misconduct to protect Australian consumers. These strong new penalties will both deter misconduct and also ensure that those who do engage in misconduct receive appropriately harsh punishment.
Pakistan’s National Accountability Bureau on Tuesday ordered a probe against former Pakistani Prime Minister Nawaz Sharif over charges of laundering $4.9 billion to India.
There have been two interesting articles of note looking at whether the online world has made money laundering easier for criminals. The first is a report from the FBI’s Internet Crime Complaint Center, which highlights that in 2017, 300,000 reports saw a total of $1.4 billion stolen from US companies. IT Portal ask the very question of whether the web has given rise to fraud and money laundering, pondering whether tools such as social media and peer-to-peer connections are making life easier for digital scammers.
We had a dearth of RegTech and FinTech articles to ponder last week, but safe to say they are back with a bang this week.
Niall Fraser in the South China Morning Post writes that a group of regulators have met in Hong Kong Wednesday to discuss new technologies, particularly FinTech uses, in the fight against financial crime.
Organisers of the summit to launch the Alliance for Financial Stability with Information Technology, also known as AFS-IT, say speakers and guests will include top-level representation across the banking, financial, technology and regulatory sectors as well as government officials from China, Hong Kong, Macau, the Philippines, Thailand, Cambodia, Myanmar, Vietnam and Singapore.
The group are exploring new technologies such as facial recognition to combat money laundering.
In FinTech Scotland, Thomas Gillan has welcomed the growth of the FinTech sector in Scotland, and has called for more to help “mission-driven businesses”.
Australia has launched its first regulatory sandbox. The ID Exchange Innovation Campus opened Monday. Joanne Cooper, ID Exchange founder and managing director, said:
It’s our everyday hackathon site where we can help to kickstart developers and invite commercial, government and educational institutions to collaborate on app concepts with the pure aim to get things done,
Andrew Frost, director, Investment Management Solutions at Lawson Conner, has looked at the impact of 4 MLD and other compliance legislation on the financial sector in FTSE Global Markets. Recognising the impact that RegTech can make for banks, he also calls for there to be a synthesis between automation and humans.
In a bid to waylay potential cybercriminals the City of London Police is planning on recruiting a new team of cyber-experts. The plan was announced at the same time as a new warning scheme for financial institutions was revealed; Cyber Griffin. Cyber Griffin will give threat briefings and incident response training to banks in response to cyber-attacks.
Ever wondered what’s happening when your Alexa begins speaking without being given a command? Well now The New York Times reports that researchers in China have been able to send high frequency commands to Amazon’s Alexa, Google’s Assistant and Apple’s Siri. They write:
With audio attacks, the researchers are exploiting the gap between human and machine speech recognition. Speech recognition systems typically translate each sound to a letter, eventually compiling those into words and phrases. By making slight changes to audio files, researchers were able to cancel out the sound that the speech recognition system was supposed to hear and replace it with a sound that would be transcribed differently by machines while being nearly undetectable to the human ear.
Launched during their I/O developer conference, Google has announced that its new voice technology, Duplex, will alert individuals that it is a robot when setting appointments. Duplex mimics human voice, and its use of deep learning and AI make it virtually impossible to distinguish from a human.
And for a final look on who is winning the war on voice technology, check out this report from CB Insights, published on Thursday.
Blockchain technology is now the most attractive skill for freelance workers according to freelance employment website Upwork. Backing this up is a an article in cointelegraph, illustrating that 30% of financial executives will commit more resource to blockchain. Survey participants anticipate utilising blockchain in order to expand analytic capabilities and advance financial reporting.
In the production of this article, there has been nothing that we haven’t seen that AI will either save or destroy. Today marks a first though, as Feng Xiang, a professor of law at Tsinghua University, China, has said that AI will signal the end of capitalism.
It is the very pervasiveness of AI that will spell the end of market dominance. The market may reasonably if unequally function if industry creates employment opportunities for most people. But when industry only produces joblessness, as robots take over more and more, there is no good alternative but for the state to step in. As AI invades economic and social life, all private law-related issues will soon become public ones. More and more, regulation of private companies will become a necessity to maintain some semblance of stability in societies roiled by constant innovation.
In a similarly dystopian future, the New Yorker asks the question, how scared should we be of AI?
Finextra has been examining what the future of work, and specifically offices, will look like after AI has reached peak potential. Improved production, lowered costs and improved productivity are all likely by-products of machines working with humans.
A report from research firm Autonomous, and cited by Fast Company has illustrated how AI could cost 2.5 million financial services jobs in America, but at the same time save banks around $1 trillion.
The New York Times has also been reporting on cryptocurrencies, writing that the parent of the New York Stock Exchange have been working on an online trading platform. The news followed reports that Goldman Sachs was to open a cryptocurrency trading desk.
Japan’s Financial Services Agency has also not been scared to work with cryptocurrencies, and this week have published a set of guidelines for exchanges to adhere to. Documentation reviews and visits to offices will be incorporated into the new guidelines.
Where such guidelines may be particularly welcomed is in Europe, where this week, two currencies have called for national parliaments to state their intentions and offer guidelines in order to give stability. Bitpanda in Austria and the UK’s, eToro have made the call for clarity.
Following the US’ departure from the Iran deal prohibiting its development of nuclear weapons, America has begun sanctioning Iranian companies. Sky News report that three companies and six individuals have been sanctioned amidst claims they are funnelling millions of dollars to the Islamic Revolutionary Guard’s elite Quds Force (IRGC-QF). The move has been condemned by the French Government, which has several companies working with in Iran, including Airbus and Peugeot.
US treasury secretary Steven Mnuchin said:
The Iranian regime and its central bank have abused access to entities in the UAE to acquire US dollars to fund the IRGC-QF’s malign activities, including to fund and arm its regional proxy groups, by concealing the purpose for which the US dollars were acquired.
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