Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) recently published a report titled Virtual Assets: Red Flag Indicators of Money Laundering and Terrorist Financing. The report discusses a number of red flag indicators of suspicious virtual asset (VA) activities identified “through more than one hundred case studies collected since 2017 from across the FATF Global Network, literature reviews, and open source research.” The purpose of the report is to help financial institutions (FIs), designated non-financial businesses and professions (DNFBPs), and virtual asset service providers (VASPs) to create a “risk-based approach to their Customer Due Diligence (CDD) requirements.”

The report focuses on the following six categories of red flag indicators: those (1) related to transactions, (2) related to transaction patterns, (3) related to anonymity, (4) about senders or recipients, (5) in the source of funds or wealth, and (6) related to geographical risks.

When discussing red flags relating to transactions, FATF suggests that the size and frequency of transactions can be a good indicator of suspicious activity. For example, making multiple high-value transactions in short succession (i.e. within a 24-hour period) or in a staggered and regular pattern, with no further transactions during a long period afterwards. With regard to transaction patterns, FATF notes that large initial deposits with new users or transactions involving multiple accounts should also raise suspicion.
Continue Reading FATF Identifies Red Flags for Virtual Assets and Money Laundering

Regulators’ Joint Statement Attempts to Clarify AML Expectations Regarding Potential Corrupt Actors

On August 21, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and other banking regulators – specifically the Federal Reserve, the FDIC, the National Credit Union Administration, and the OCC – issued a joint statement that provides additional guidance in applying Bank Secrecy

AML Standards May Exist in Theory, But Often are Not Enforced in Practice

Today we are very pleased to welcome, once again, guest bloggers Gretta Fenner and Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”). The Basel Institute recently issued its Basel AML Index for 2020. Ms. Fenner and Dr. Boguslavska guest blogged for Money Laundering Watch last year on this data-rich and fascinating annual Index, which is one of several online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime. The Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing.

Established in 2003, the Basel Institute is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption, and is an Associated Institute of the University of Basel. The Basel Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Gretta Fenner is the Managing Director of the Basel Institute, where she also holds the position of Director of the Institute’s International Centre for Asset Recovery. She is a political scientist by training and holds bachelor’s and master’s degrees from the Otto-Suhr-Institute at the Free University Berlin, Germany, and the Paris Institute for Political Science (Sciences Po), France. She also holds an MBA from the Curtin University Graduate School of Business, Australia.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post again takes the form of a Q & A session, in which Ms. Fenner and Dr. Boguslavska respond to several questions posed by Money Laundering Watch about the Basel AML Index 2020. We hope you enjoy this discussion of global money laundering risks — which addresses AML standards vs. their actual implementation, human trafficking, AML vulnerabilities in the U.S., the effects of covid-19, and more. –Peter Hardy
Continue Reading The Basel AML Index 2020: Across the Globe, Weak Oversight and Dormant Enforcement Systems. A Guest Blog.

This is a picture of a Black Rhinoceros.  It is one of two Rhinoceros species in Africa.  It is estimated that there were approximately 125,000 Black Rhinoceroses in 1960.  Now, there are less than 6,000. Three subspecies are already extinct. Although loss of habitat is certainly a contributing factor, much of this decimation is attributable to poaching and the illegal wildlife trade (“IWT”).

The Financial Action Task Force (“FATF”) just released an important report entitled Money Laundering and the Illegal Wildlife Trade (the “Report”).  The lengthy and detailed Report makes clear that the IWT is pernicious cocktail of animal slaughter/abuse and complex financial crime, often run by highly organized groups that thrive on international cooperation by complicit actors and the use of shell companies.  The Report bemoans the fact that the IWT benefits from a lack of focus and priority by law enforcement. Accordingly, the Report seeks to spread awareness of the IWT, provide general guidance on combatting it, and propose action steps.  One theme of the Report is that effectively combatting the IWT requires financial investigations and money laundering charges.
Continue Reading Money Laundering and the Illegal Wildlife Trade

The Border with North Korea

Indictment Again Highlights the Role of Correspondent Banking in Money Laundering

On May 28, 2020, the U.S. Department of Justice (“DOJ”) unsealed a 50-page indictment against 28 North Korean and 5 Chinese bankers accused of using more than 250 front companies to obscure $2.5 billion in illicit financial dealings (“the Indictment”). The complex and far-flung scheme purportedly involved covert branches of North Korea’s state-owned Foreign Trade Bank (“FTB”)—all opened in foreign countries in an attempt to access the U.S. financial system, and to circumvent sanctions intended to guard against threats to national security, foreign policy, and the U.S. economy. The Indictment charges the individuals with conspiring to launder money, violations of the “international” prong of the money laundering statute (about which we have blogged), bank fraud, and violations of the International Emergency Economic Powers Act.

Although the Indictment is interesting standing alone, it also represents the latest in a series of enforcement actions involving North Korea and the U.S. financial system.
Continue Reading 28 North Korean and 5 Chinese Bankers Accused of a $2.5 Billion Laundering Scheme

Travel These Days

Kenneth Blanco, Director of the Financial Crimes Enforcement Network (“FinCEN”), recently provided remarks about FinCEN’s “Travel Rule” at the first truly-virtual Consensus Blockchain Conference. The Travel Rule, which became effective in 1996, requires money services businesses (“MSBs”) – including cryptocurrency exchanges – to maintain identifying information on all parties in fund transfers of over $3,000 between financial institutions. As we discuss below, this principle creates real-world practical problems in the digital currency industry, in which it is not necessarily easy to obtain such information, unlike the traditional banking industry.

During his remarks, Director Blanco applauded the Financial Action Task Force’s (“FATF”) guidance issued last June, about which we have blogged here, instructing its 180 international member governments to similarly demand that virtual asset service providers (“VASPs”) collect “accurate originator information and required beneficiary information” on transactions of $1,000 or more. FATF’s pronouncement sent some shockwaves through the digital currency industry.

Notably, Director Blanco also lauded the efforts of cross-sector organizations and working groups to develop international standards and solutions to aid compliance with the Travel Rule. He urged for continued cooperation between FinCEN and the virtual currency industry to effectively implement Anti-Money Laundering (“AML”) measures consistent with the Travel Rule.
Continue Reading FinCEN Director Blanco Urges Collaboration Across Virtual Currency Industry to Comply with Travel Rule

On May 4, the Financial Action Task Force (“FATF”) issued a paper entitled “Covid-19-Related Money Laundering and Terrorist Financing – Risk and Policy Responses (“Paper”). This Paper follows up on the April 1, 2020 statement issued by FATF’s President on COVID-19 and measures to combat illicit financing, on which we previously blogged. As we also have blogged, the COVID-19 pandemic will cause many financial institutions to face significant Anti-Money Laundering (“AML”) issues because of the unfortunate confluence of increased fraud schemes seeking to capitalize on the pandemic, coupled with the fact that many BSA/AML compliance teams will be straining to maintain an adequate amount of staff and degree of communication.
Continue Reading FATF Issues Paper on COVID-19 Enhanced AML and Fraud Risks

For years, lawyers have been in the cross hairs of prosecutors and regulators, who sometimes regard lawyers as potential gatekeepers responsible for preventing wrongdoing by clients. On April 29, 2020, the American Bar Association (“ABA”) issued an important opinion (“Opinion 491”) reminding lawyers that they are responsible for conducting sufficient inquiry into the facts and circumstances of a matter a client or prospective client asks them to undertake if there is a “high probability” that the client is seeking to use the lawyer’s services to commit a crime.

As we frequently blog, there are myriad ways that lawyers can hit the tripwire and face ethical or criminal liability for professional work performed for clients. The need for lawyers to be on guard against potential money laundering activity by clients is a primary focus of Opinion 491.
Continue Reading ABA Issues Formal Opinion on Lawyers as “Gatekeepers” for Client Criminality

Second Post in a Two-Post Series on Recent FATF Activity

As we just blogged, the Financial Action Task Force (“FATF”) issued a statement from its President on COVID-19 and measures to combat illicit financing during the pandemic (the “Statement”). Before turning its attention to COVID-19, however, FATF issued a more traditional report, and one with potentially longer-term implications: its 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating of the United States’s Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) (the “United States Report”) measures. The United States Report was the third follow-up on a mutual evaluation report of the United States that was adopted in October 2016. During the first two evaluations, “certain technical compliance deficiencies” were identified. The United States Report evaluates the United States efforts’ in addressing those deficiencies. Moreover, FATF evaluated the United States’ progress in implementing new recommendations since February 2016.

FATF’s judgment: The United States has improved, particularly in the area of customer due diligence and the identification of beneficial ownership.
Continue Reading Financial Action Task Force Grades America’s AML Compliance

First Post in a Two-Post Series on Recent FATF Activity

Members presumably working from home, the Financial Action Task Force (“FATF”) was active last week, first issuing its 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating of the United States’s Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) (the “United States Report”) measures and, later, a statement from its President on COVID-19 and measures to combat illicit financing (the “Statement”).

In this post, we will discuss FATF’s Statement on the Coronavirus. In our next post, we will address FATF’s United States Report.

The Statement, issued on April 1, 2020, functions as both a high-level reminder to financial institutions of methods for continuing to carry-out know-your-customer (“KYC”) and other AML obligations while “facing confinement or strict social-distancing measures” and a warning to financial institutions to remain vigilant to increases in fraudulent activity – and resulting money laundering – so often associated with crises like the current Coronavirus pandemic.

The thrust of the Statement is an acknowledgement that the Coronavirus pandemic has created a perfect storm for money laundering where rapid and high-volume financial transactions from myriad sources for myriad purposes are occurring simultaneously with the almost spontaneous and enormous downsizing in personnel to monitor those transactions as many AML professionals shelter from home. Indeed, we recently blogged on this very threat posed by COVID-19 to financial institutions’ AML and anti-fraud systems (that is, the combination of increased fraud and a reduced capacity to guard against it) when discussing FinCEN’s latest pronouncement on COVID-19 issues.
Continue Reading Financial Action Task Force Update: Statement on COVID-19’s Implications for AML Programs