Skirting over financial crime due diligence when considering a quick transaction in an emerging market can cost you dearly down the line when regulators or shareholders discover issues with regulatory compliance after your transaction. The safer and ultimately more cost-effective course may be an independent assessment of the financial crimes compliance risks before completing cross-border
The UK Financial Conduct Authority (FCA) has fined Commerzbank AG’s London branch (Commerzbank London) £37.8 million for failing to institute adequate anti-money laundering (AML) controls from 2012 to 2017 in violation of Principle 3 of the FCA’s Principles for Businesses.
Mark Steward, the FCA’s Executive Director of Enforcement and Market Oversight stated that “Commerzbank London’s failings over several years created a significant risk that financial and other crime might be undetected,” although the FCA did not identify any evidence of financial crime having been caused or facilitated by Commerzbank London’s AML control failings.
Financial institutions operating in the United Kingdom, such as Commerzbank London, are responsible for minimizing their risk of being used for criminal purposes, including the risk of being used to facilitate money laundering or terrorist financing. UK firms are required to mitigate this risk by organizing and controlling their affairs responsibly and effectively, establishing and maintaining an effective, risk-based AML control framework and complying with the applicable Money Laundering Regulations.
The ink may barely be dry on (most) Member States’ national legislation transposing the EU’s Fifth Anti-Money Laundering Directive but the European Commission is pressing ahead with ever-more ambitious plans to tackle money laundering and terrorism financing with the aim of ensuring EU anti-money laundering laws are enforced consistently across all Member States. On 7 May, the Commission adopted a new action plan, together with a parallel public consultation, with a view to delivering on the proposed actions by early 2021.
The new action plan is built on six specified pillars:
- Effective implementation of existing rules;
- A single EU rulebook;
- EU-level supervision;
- A support and cooperation mechanism for financial intelligence units;
- Better use of information to enforce criminal law; and
- A stronger EU in the world.
According to the European Commission, fraud offences against the European Union (EU) budget cost the EU and its member states over €1 billion in losses in 2018, in addition to the annual losses of around €150 billion resulting from VAT fraud. With current criminal enforcement efforts across the EU apparently failing to effectively tackle such offences, the EU established the European Public Prosecutor’s Office (EPPO) to act as an independent and decentralized office with the power to investigate and prosecute crimes against the EU budget, such as fraud, corruption, misappropriation and cross-border VAT-related fraud.
Set to become fully operational in November 2020, based in Luxemburg, with its funding for 2020 increased by nearly 50%, the EPPO is expected to ramp up prosecutions of corporate crime concerning the EU’s financial interests and facilitate the recovery of misused EU funds. Previously, only national authorities could investigate and prosecute such offences within the scope of their own borders.
On March 4, 2020, the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department imposed a $450,000 civil money penalty against the former chief operational risk officer at US Bank National Association (US Bank), for his alleged role in failing to prevent violations of US anti-money laundering (AML) laws and regulations that occurred during his tenure.
FinCEN’s unprecedented individual enforcement action is the latest sign that US AML regulators intend to hold individual executives accountable for their roles in financial institutions’ violations of law. It serves as a reminder of the importance of strengthening compliance programs in order to minimize the likelihood of findings of individual liability. Meanwhile, authorities outside the United States, including in the UK, are increasingly focused on AML failings and individuals potentially liable for those failings.
On 5 February 2020, the UK Court of Appeal dismissed a challenge to the UK’s first Unexplained Wealth Order (UWO). Mrs. Zamira Hajiyeva, wife of the former chair of the International Bank of Azerbaijan who was sentenced to 15 years in jail in 2016 for defrauding the bank out of £2.2 billion, launched a challenge against the UK National Crime Agency’s (NCA) first ever UWO, attempting to overturn the UWO against a property in Knightsbridge, London, purchased for £11.5 million. Her arguments that the NCA mischaracterized her husband’s status as a politically exposed person (PEP) and that her husband’s conviction was the result of a “grossly unfair trial” were rejected by the Court of Appeal. This decision will likely energise and provide a boost to the NCA and other law enforcement agencies in seeking UWOs to seize ill-gotten gains in the future.
Continue Reading UK Court of Appeal Rejects Unexplained Wealth Order Challenge
On October 11, the leaders of the Commodities Futures Trading Commission (CFTC), Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC) issued a joint statement regarding anti-money laundering (AML) compliance for persons engaged in certain activities involving digital assets. While the statement largely reaffirms known agency guidance and existing regulations, it is noteworthy for a number of reasons.
Continue Reading U.S. Regulators Issue Joint Statement on AML Compliance Involving Digital Assets
On May 9, 2019, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published long-awaited guidance addressing how FinCEN regulations apply to what the agency calls “convertible virtual currency” (CVC), which covers most types of cryptocurrencies and crypto-tokens. The guidance focuses on:
- Platforms engaged in exchange transactions involving securities, commodities, or futures contracts and fiat currency, CVC, or other value that substitute for currency;
- Natural persons providing CVC money transmission as person-to-person (P2P) exchangers;
- CVC wallets (differentiating among hosted, unhosted, and multiple signature wallet providers);
- CVC provided through electronic terminals, kiosks, or automated teller machines;
- CVC services provided through decentralized (software) applications (DApps), including anonymizing services;
- Payment processing services;
- Internet casinos;
- Initial Coin Offerings (ICOs) and the status of creators of CVC;
- DApp developers, users conducting financial activities, and DApps conducting CVC transactions; and
- Mining pools and cloud miners.
On February 13, the European Commission adopted a new list of “high-risk” jurisdictions that the Commission identified as posing significant threats to the European Union’s financial system as a result of strategic deficiencies in their anti-money laundering and counter-terrorism financing (AML/CFT) frameworks. In addition to countries like North Korea, Iran, and Syria, the list also includes four US territories. In response, the US Department of Treasury expressed “significant concerns about the substance of the list,” which diverges from the list published by the Financial Action Task Force (FATF), as well as the “flawed process” by which the list was developed. As a result of the new list, banks in the EU will be required to exercise enhanced due diligence when dealing with customers and financial institutions from the listed countries and territories.
According to the Commission, the new list reflects the broadened criteria for the identification of high-risk jurisdictions under the EU’s Fifth Anti-Money Laundering Directive, which now includes “the availability of information on the beneficial owners of companies and legal arrangements” including trusts. In creating this list, the Commission “developed its own methodology to identify high-risk countries, which relies on information from the Financial Action Task Force, complemented by its own expertise and other sources such as Europol.” EU Justice Commissioner Věra Jourová stated that the list is aimed at ensuring that “dirty money from other countries does not find its way [into the EU’s] financial system,” and urged the listed countries “to remedy their deficiencies swiftly.”…
Continue Reading European Commission Adds US Territories to “Dirty Money” List in Departure from FATF
On December 17, 2018, the Financial Crimes Enforcement Network (“FinCEN”) announced that UBS Financial Services, Inc. (“UBS”) had entered into a consent agreement to resolve violations of the Bank Secrecy Act (BSA). UBS is a global firm providing financial services in over 50 countries, including the US As part of this agreement, UBS will pay $14.5 million in civil penalties to US regulators — $5 million of which will be paid to the US Department of the Treasury, while the remainder will be made concurrent with penalties imposed by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
According to FinCEN, UBS willfully violated anti-money laundering (AML) program requirements and failed to conduct ongoing due diligence on correspondent accounts for foreign financial institutions for more than a decade. Violations included: failure to develop and implement an appropriate risk-based AML program that adequately addressed the risks associated with accounts that included both traditional brokerage and banking-like services; failure to implement appropriate policies and procedures to ensure the detection and reporting of suspicious activity; failure to hire and retain sufficient AML compliance staff to meet its obligations under the BSA, resulting in a backlog of cases that hindered UBS’s ability to investigate and report suspicious activity; and failure to adequately monitor foreign currency-denominated wire transfers conducted through commodities accounts and retail brokerage accounts. These practices violated UBS’s obligations as a brokerage firm providing bank-like services to develop and implement an adequate AML program.…
Continue Reading UBS Financial Services Agrees to Pay $14.5 Million to Resolve Anti-Money Laundering Violations