International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Wednesday, February 28, 2018

The cyber insurance market: Responding to a risk with few boundaries

With the growth of cybercrime, and intensive media coverage of privacy breaches and ransomware attacks over the last year, could complacency about cyber risks soon be a thing of the past? While consumers remain dismally bad at protecting themselves, boardrooms are increasingly hungry for protection, with larger companies taking the lead. 
» Read the full article
» Unleashing the potential of the cyber insurance market

February 28, 2018 in AML | Permalink | Comments (0)

Tuesday, February 27, 2018

Improving Global AML/CFT Compliance: On-going Process

As part of its on-going review of compliance with the AML/CFT standards, the FATF identifies the following jurisdictions that have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF. While the situations differ among each jurisdiction, each jurisdiction has provided a written high-level political commitment to address the identified deficiencies. The FATF welcomes these commitments.

A number of jurisdictions have not yet been reviewed by the FATF. The FATF continues to identify additional jurisdictions, on an on-going basis, that pose a risk to the international financial system.

The FATF and the FATF-style regional bodies (FSRBs) will continue to work with the jurisdictions noted below and to report on the progress made in addressing the identified deficiencies. The FATF calls on these jurisdictions to complete the implementation of action plans expeditiously and within the proposed timeframes. The FATF will closely monitor the implementation of these action plans and encourages its members to consider the information presented below.

Jurisdictions with strategic deficiencies

  Jurisdictions no longer subject to the FATF’s on-going global AML/CFT compliance process

Ethiopia
Iraq
Serbia
Sri Lanka
Syria
Trinidad and Tobago
Tunisia
Vanuatu
Yemen

 

Bosnia and Herzegovina

 

Ethiopia

Since February 2017, when Ethiopia made a high-level political commitment to work with the FATF and ESAAMLG to strengthen its effectiveness and address any related technical deficiencies, Ethiopia has taken steps towards improving its AML/CFT regime, including by conducting awareness-raising trainings for its DNFBPs, regulatory bodies, and investigative bodies and disseminating the UN sanctions lists to obliged entities without delay. Ethiopia should continue to work on implementing its action plan to address its deficiencies, including by: (1) fully implementing the results of its national risk assessment; (2) fully integrating designated non-financial businesses and professions into its AML/CFT regime; (3) ensuring that the proceeds and instrumentalities of crime are confiscated; (4) consistently implementing terrorism-related targeted financial sanctions and proportionately supervising non-profit organisations in line with a risk-based approach; and (5) establishing and implementing WMD-related targeted financial sanctions.

Iraq

Since October 2013, when Iraq made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Iraq has substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing an adequate legal framework for identifying, tracing, and freezing terrorist assets; (3) establishing effective customer due diligence measures; (4) establishing a fully operational and effectively functioning Financial Intelligence Unit; (5) establishing adequate suspicious transaction reporting requirements; and (6) establishing an adequate AML/CFT supervisory and oversight programme for the financial sector. The FATF will conduct an on-site visit to confirm that the implementation of these reforms has begun and is being sustained.

Serbia

In February 2018, Serbia made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies. Serbia will work to implement its action plan to accomplish these objectives, including by: (1) updating the NRA to develop a better understanding of key risks; (2) subjecting lawyers, notaries, and casinos to supervision; implementing risk-based AML/CFT supervision, and increasing supervisory staff resources commensurate with sectoral risks; (3) implementing measures related to CDD, politically exposed persons, and wire transfers in line with the FATF Standards; (4) establishing an effective mechanism for ensuring timely access to beneficial ownership information regarding legal persons, and a framework to ensure that such information is adequate, accurate, and current; (5) ensuring adequate and effective investigation and prosecution of third-party and stand-alone ML; (6) ensuring the implementation without delay of targeted financial sanctions measures related to terrorist financing, providing guidance to reporting entities, and taking proportionate measures for non-profit organisations in line with a risk-based approach; and (7) ensuring the implementation without delay of targeted financial sanctions related to proliferation financing. 

Sri Lanka

Since November 2017, when Sri Lanka made a high-level political commitment to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Sri Lanka has taken steps towards improving its AML/CFT regime, including by issuing CDD rules for DNFBPs. Sri Lanka should continue to work on implementing its action plan to address its deficiencies, including by: (1) enacting amendments to the MACMA to ensure that mutual legal assistance may be provided on the basis of reciprocity; (2) issuing any necessary guidance and ensuring that implementation of the CDD rules has begun, by way of supervisory actions; (3) enhancing risk-based supervision and outreach to FIs and high-risk DNFBPs, including through prompt and dissuasive enforcement actions and sanctions, as appropriate; (4) providing case studies and statistics to demonstrate that competent authorities can obtain beneficial ownership information in relation to legal persons in a timely manner; (5) issuing a revised Trust Ordinance and demonstrating that implementation has begun; and (6) establishing a TFS regime to implement relevant UNSCRs related to Iran, and demonstrating effective implementation on this and the UN Regulation related to the DPRK.

Syria

Since February 2010, when Syria made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Syria has made progress to improve its AML/CFT regime. In June 2014, the FATF determined that Syria had substantially addressed its action plan at a technical level, including by criminalising terrorist financing and establishing procedures for freezing terrorist assets. While the FATF determined that Syria has completed its agreed action plan, due to the security situation, the FATF has been unable to conduct an on-site visit to confirm whether the process of implementing the required reforms and actions has begun and is being sustained. The FATF will continue to monitor the situation, and will conduct an on-site visit at the earliest possible date.

Trinidad and Tobago

Since November 2017, when Trinidad and Tobago made a high-level political commitment to work with the FATF and CFATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Trinidad and Tobago has taken steps towards improving its AML/CFT regime, including the approval of the Counter Terrorism Strategy by the National Security Council, the issuance of a Case Prioritization Policy, and advancing legislation in a number of areas. Trinidad and Tobago should continue to work on implementing its action plan to address its deficiencies, including by: (1) adopting and implementing the relevant measures to enhance international cooperation; (2) addressing issues related to transparency and beneficial ownership; (3) completing the legislative efforts to enhance the processing of ML charges before the courts; (4) taking measures to enhance tracing and confiscation of criminal proceeds; (5) prioritising and prosecuting TF cases when they arise; (6) enacting the necessary amendments related to targeted financial sanctions and implementing measures to monitor NPOs on the basis of risk; and (7) developing, adopting, and implementing the necessary framework to counter proliferation financing.

Tunisia

Since November 2017, when Tunisia made a high-level political commitment to work with the FATF and MENAFATF to strengthen the effectiveness of its AML/CFT regime and address any related technical deficiencies, Tunisia has taken steps towards improving its AML/CFT regime, including by issuing a decree to implement terrorism-related targeted financial sanctions, preparing AML/CFT supervisory manuals, conducting trainings on AML/CFT supervision for the relevant authorities and increasing human resources within the financial intelligence unit. Tunisia should continue to work on implementing its action plan to address its deficiencies, including by: (1) implementing risk-based AML/CFT supervision of the financial sector and fully integrating designated non-financial businesses and professions into its AML/CFT regime; (2) maintaining comprehensive and updated commercial registries and strengthening the system of sanctions for violations of transparency obligations; (3) increasing the efficiency of suspicious transaction report processing by allocating the necessary resources to the financial intelligence unit; (4) establishing a fully functional terrorism-related targeted financial sanctions regime and appropriately monitoring the association sector; and (5) establishing and implementing WMD-related targeted financial sanctions.

Vanuatu

Since February 2016, when Vanuatu made a high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies, Vanuatu has substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing adequate procedures for the confiscation of assets related to money laundering; (3) establishing an adequate legal framework for identifying, tracing and freezing terrorist assets and other UN sanctions; (4) ensuring a fully operational and effectively functioning financial intelligence unit; (5) strengthening preventive measures, including for wire transfers; (6) establishing transparency for the financial sector, and for legal persons and arrangements; (7) establishing an adequate AML/CFT supervisory and oversight programme for the whole financial sector and trust and company service providers; and (8) establishing appropriate channels for international co-operation and domestic coordination policies and actions on identified risks and ensuring effective implementation. The FATF will conduct an on-site visit to confirm that the implementation of these reforms has begun and is being sustained. 

Yemen

Since February 2010, when Yemen made a high-level political commitment to work with the FATF and MENAFATF to address its strategic AML/CFT deficiencies, Yemen has made progress to improve its AML/CFT regime. In June 2014, the FATF determined that Yemen had substantially addressed its action plan at a technical level, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing procedures to identify and freeze terrorist assets; (3) improving its customer due diligence and suspicious transaction reporting requirements; (4) issuing guidance; (5) developing the monitoring and supervisory capacity of the financial sector supervisory authorities and the financial intelligence unit; and (6) establishing a fully operational and effectively functioning financial intelligence unit. While the FATF determined that Yemen has completed its agreed action plan, due to the security situation, the FATF has been unable to conduct an on-site visit to confirm whether the process of implementing the required reforms and actions has begun and is being sustained. The FATF will continue to monitor the situation, and conduct an on-site visit at the earliest possible date.

Jurisdictions No Longer Subject to the FATF’s On-Going Global AML/CFT Compliance Process

Bosnia and Herzegovina

The FATF welcomes Bosnia and Herzegovina’s significant progress in improving its AML/CFT regime and notes that Bosnia and Herzegovina has established the legal and regulatory framework to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in June 2015. Bosnia and Herzegovina is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Bosnia and Herzegovina will work with MONEYVAL to improve its AML/CFT framework.

February 27, 2018 in AML | Permalink | Comments (0)

Monday, February 26, 2018

FATF Counter Measures Against North Korea and EDD Against Iran

The Financial Action Task Force (FATF) is the global standard setting body for anti-money laundering and combating the financing of terrorism (AML/CFT). In order to protect the international financial system from money laundering and financing of terrorism (ML/FT) risks and to encourage greater compliance with the AML/CFT standards, the FATF identified jurisdictions that have strategic deficiencies and works with them to address those deficiencies that pose a risk to the international financial system.

Jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/FT) risks emanating from the DPRK.

Democratic People's Republic of Korea (DPRK)

The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threats they pose to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies. Further, FATF has serious concerns with the threat posed by DPRK’s illicit activities related to the proliferation of weapons of mass destruction (WMDs) and its financing.
The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies, financial institutions and those acting on their behalf. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with applicable United Nations Security Council Resolutions, to protect their financial sectors from money laundering, financing of terrorism and WMD proliferation financing (ML/FT/PF) risks emanating from the DPRK. Jurisdictions should take necessary measures to close existing branches, subsidiaries and representative offices of DPRK banks within their territories and terminate correspondent relationships with DPRK banks, where required by relevant UNSC Resolutions.

 

Jurisdictions subject to a FATF call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risks arising from the jurisdiction

Iran

In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in November 2017 to continue the suspension of counter-measures. 

Since November 2017, Iran has established a cash declaration regime and introduced draft amendments to its AML and CFT laws. However, Iran’s action plan has now expired with a majority of the action items remaining incomplete. Iran should fully address its remaining action items, including by: (1) adequately criminalising terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) ensuring the full independence of the Financial Intelligence Unit and requiring the submission of STRs for attempted transactions; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information; (8) establishing a broader range of penalties for violations of the ML offense; and (9) ensuring adequate legislation and procedures to provide for confiscation of property of corresponding value.

Given that Iran has draft legislation currently before Parliament, the FATF decided at its meeting this week to continue the suspension of counter-measures. Depending upon Iran’s progress in completing its action plan, the FATF will take further steps in June 2018. The FATF urgently expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items in its Action Plan by completing and implementing the necessary AML/CFT reforms, in particular passing the necessary legislation. 

Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19.

  

February 26, 2018 in AML | Permalink | Comments (0)

Sunday, February 25, 2018

Outcomes of the FATF Plenary meeting, Paris, 21-23 February, 2018

The main issues dealt with by this Plenary were:

 
  • Combatting terrorist financing, including the adoption of a new counter-terrorist financing operational plan and a statement on the actions taken under the 2016 counter-terrorist financing strategy.
  • Adoption of a report to the G20 Finance Ministers and Central Bank Governors.
  • Updated FATF Guidance on Counter Proliferation Financing.
  • Amendments to Recommendation 2 on national cooperation and coordination.
  • Discussion of the mutual evaluation report of Iceland.
  • Follow-up reports for the mutual evaluations of Spain and Norway where both countries sought technical compliance re-ratings.
  • Brazil’s progress in addressing the deficiencies identified in its mutual evaluation report since it agreed an action plan in November 2017.
  • Two public documents identifying jurisdictions that may pose a risk to the international financial system:
  • Monitoring Iran’s actions to address deficiencies in its AML/CFT system.
  • AML/CFT improvements in Bosnia and Herzegovina.
  • Revisions on information sharing to the FATF Methodology.
  • Update on recent developments on de-risking
  • Improving the understanding of virtual currencies risks.
  • Update on FinTech & RegTech Initiatives.
  • Improving the effectiveness of the Criminal Justice System: FATF global engagement with judges and prosecutors.
  • Outcomes of the meeting of the FATF Forum of Heads of Financial Intelligence Units (FIUs), which was held in the margins of the Plenary.
  • Strengthening FATF’s institutional basis.
  • Activities of the FATF Training and Research Institute in Busan, Korea.

Combatting terrorist financing, including the adoption of a new Counter-Terrorist Financing Operational Plan

FATF continues to focus its efforts on ensuring that its standards provide strong and powerful tools to enable countries to protect the integrity of the financial system and contribute to safety and security.

In February 2016, following the terrorist attacks in Paris, the FATF adopted a consolidated strategy to combat terrorist financing and an operational plan to focus its work in four key areas. Since then, the FATF has intensified its action to identify new and developing terrorist financing threats, strengthen or refine its standards accordingly and assess whether countries have implemented sound and effective measures to detect, prevent and punish cases of abuse of the financial system in support of terrorism. The FATF has achieved significant results in the four key areas identified in the 2016 operational plan

To further enhance the international fight against terrorist financing, the Plenary has adopted a new operational plan of action. This operational plan is a living document that provides a framework for a flexible and dynamic response to terrorist financing threats. It will build on existing results and focus on new areas which will increase understanding of terrorist financing risks and the effectiveness of measures to address these risks, while also being flexible to address the continuous evolution of this threat. Areas of focus include:

  • Further improving the identification and understanding of terrorist financing risks, both at country level and more broadly, which will have an impact on the effectiveness of international efforts to tackle terrorist financing.
  • Carry forward FATF’s work to enhance information-sharing, which will build on the work that FATF has already completed on domestic inter-agency information sharing and sharing within the private sector.
  • Ensure that efforts to detect terrorist financing lead to successful investigations, prosecutions and convictions including the President’s initiative on increased engagement with the criminal justice system and prosecution services.
  • Ensure a better global implementation of effective counter-terrorist financing measures through closer coordination with FATF’s regional bodies and the actions they are taking. 

FATF also continued the expanded update on the financing of ISIL, Al-Qaeda and affiliates.

Report to the G20 Finance Ministers and Central Bank Governors

The Plenary discussed the FATF’s report to the G20 Finance Ministers and Central Bank Governors. This report sets out FATF’s progress on counter terrorist financing, to improve transparency and the availability of beneficial ownership information, and in relation to work on correspondent banking and remittances, since the report to the G20 Leaders’ Summit in July 2017. The report includes an update on FATF’s work on counter proliferation financing and the President’s initiative for a global engagement with the criminal justice system and prosecution services. It also provides an update on FATF’s ongoing work to ensure a coherent and consistent approach to deal with the AML/CFT risks and opportunities related to FinTech, RegTech and virtual currencies, and its work to update knowledge on the financial flows associated with human trafficking.

Updated FATF Guidance on Counter Proliferation Financing

The FATF has updated its guidance on the implementation of financial provisions of United Nations Security Council Resolutions to counter the proliferation of weapons of mass destruction. This guidance will help countries understand and implement the financial provisions of UNSCRs on proliferation, to ensure that targeted financial sanctions are implemented, and each country has effective mechanisms in place to prevent breaches. Report t

Amendments to Recommendation 2 on national cooperation and coordination

The FATF adopted revisions to Recommendation 2 on national cooperation and coordination. These will expand the Recommendation to include information sharing between competent authorities, and emphasise that cooperation and cooperation should include coordination with the relevant authorities to ensure the compatibility of AML/CFT requirements with Data Protection and Privacy rules and other similar provisions (e.g. data security / localisation). Improving the compatibility of AML/CFT and DPP rules will facilitate exchange of information within the private sector.

Mutual evaluation report of Iceland

The Plenary discussed the mutual evaluation report of Iceland, which set out the level of effectiveness of Iceland’s AML/CFT system and its level of compliance with the FATF Recommendations. The report was prepared on the basis of the FATF Methodology for assessments, which requires countries to take into account the effectiveness with which AML/CFT measures are implemented, as well as technical compliance for each of the FATF Recommendations.

The Plenary discussed the key findings, priority actions, and recommendations regarding Iceland’s AML/CFT regime. The mutual evaluation report is expected to be published by April 2018 after the quality and consistency review, in accordance with procedures.

The follow-up report for the mutual evaluations of Spain and Norway

The Plenary discussed the progress that Spain and Norway have made since the adoption of their mutual evaluation reports in 2014. Both countries have made significant progress since the publication of their mutual evaluation report. For each country, the FATF Plenary agreed to re-rate a number of FATF Recommendations to reflect the country’s current level of technical compliance. After a quality and consistency review, the FATF will publish the follow-up reports which set out the actions that Spain and Norway have taken to strengthen the effectiveness of their measures to combat money laundering and the financing of terrorism and proliferation.

Brazil’s progress in addressing the deficiencies identified in its mutual evaluation report

The FATF also discussed the progress that Brazil has made in line with the action plan it agreed in November 2017.

Monitoring Iran’s actions to address deficiencies in its AML/CFT system

In June 2016, the FATF welcomed Iran’s high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of its action plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in November 2017 to continue the suspension of counter-measures.

Since November 2017, Iran has established a cash declaration regime and introduced draft amendments to its AML and CFT laws. However, Iran’s action plan has now expired with a majority of the action items remaining incomplete. Iran should fully address its remaining action items, including by: (1) adequately criminalising terrorist financing, including by removing the exemption for designated groups “attempting to end foreign occupation, colonialism and racism”; (2) identifying and freezing terrorist assets in line with the relevant United Nations Security Council resolutions; (3) ensuring an adequate and enforceable customer due diligence regime; (4) ensuring the full independence of the Financial Intelligence Unit and requiring the submission of STRs for attempted transactions; (5) demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers; (6) ratifying and implementing the Palermo and TF Conventions and clarifying the capability to provide mutual legal assistance; (7) ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information; (8) establishing a broader range of penalties for violations of the ML offense; and (9) ensuring adequate legislation and procedures to provide for confiscation of property of corresponding value.

Given that Iran has draft legislation currently before Parliament, the FATF decided at its meeting this week to continue the suspension of counter-measures. Depending upon Iran’s progress in completing its action plan, the FATF will take further steps in June 2018. The FATF urgently expects Iran to proceed swiftly in the reform path to ensure that it addresses all of the remaining items in its Action Plan by completing and implementing the necessary AML/CFT reforms, in particular passing the necessary legislation.
Iran will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19.

AML/CFT improvements in Bosnia and Herzegovina

The FATF congratulated Bosnia and Herzegovina for the significant progress made in addressing the strategic AML/CFT deficiencies earlier identified by the FATF and included in its action plan.

Bosnia and Herzegovina will no longer be subject to the FATF’s monitoring under its on-going global AML/CFT compliance process, and will work with MONEYVAL as it continues to further strengthen their AML/CFT regime.

Revisions on information sharing to the FATF Methodology

In November 2017, the FATF adopted revisions to the FATF Recommendations to clarify the FATF’s requirements on sharing of information. The FATF has adopted revisions to the Methodology to assess compliance with the FATF Recommendations. These revisions clarify how assessors should determine the extent of sharing of information at group-wide level, including with branches and subsidiaries, and the whether or not sufficient safeguards are in place to ensure confidentiality and prevent tipping-off.

Update on recent developments on de-risking

De-risking has been a concern for FATF since October 2014. Inappropriate de-risking undermines financial resilience and inclusion and promotes underground financial channels that can be misused by criminals and terrorists. The Plenary discussed recent international developments and engagement on de-risking, including through the FSB’s Remittance Task Force. Delegates discussed ongoing work to further enhance traction of FATF guidance on correspondent banking and risk-based approach for money and value transfer services, which clarify regulatory expectations under the risk-based approach. The FATF received a presentation from the Wolfsberg Group on their Correspondent Banking Due Diligence Questionnaire.

Improving the understanding of virtual currencies risks

FATF considered a report on the AML/CFT risks associated with virtual currencies and the regulatory measures being taken in different countries. The improved understanding of the misuse and risk of virtual currencies will lead to FATF undertaking additional work streams.

Update on FinTech & RegTech Initiatives

At the November 2017 Plenary, the FATF expressed its strong support for responsible financial innovation in line with the FATF Standards and to explore the opportunities that new financial and regulatory technologies present for improving the effective implementation of AML/CFT. Various work streams on FinTech and RegTech are currently underway as the FATF considers how its standards apply in this context. The FATF Plenary heard presentations from some of its member countries concerning the FinTech and RegTech initiatives they were implementing. The FATF is also working to improve its understanding of the misuse and potential risks which may be posed by virtual currencies.

Improving the effectiveness of the Criminal Justice System: FATF global engagement with judges and prosecutors

The Argentinean FATF Presidency has made one of FATF priorities to enhance engagement with national Prosecution Services and other experts within Criminal Justice Systems. The FATF President updated the Plenary on the outcomes of the second workshop with judges and prosecutors, organised in collaboration with FATF-Style Regional Bodies APG and EAG and hosted by China. Prosecutors and the judiciary are an important component of AML/CFT efforts and this event provided a venue to gather and share experiences and views from practitioners on the challenges and good practices in investigating and prosecuting money laundering and terrorist financing cases, and seizing and confiscating criminal proceeds and instrumentalities. The workshop is the second in a series of events that will contribute to improve the effectiveness of prosecution action against those who abuse the financial system, and to confiscate their criminal proceeds.

Outcomes of the meeting of the FATF Forum of Heads of Financial Intelligence Units (FIUs), which was held in the margins of the Plenary

FATF Heads of FIUs discussed how to enhance the effectiveness of suspicious transaction reporting (STR) regimes and the quality of financial intelligence. Participants shared their views on the importance of FIU autonomy and independence and its impact on the strategic and operational work of FIUs. The private sector plays an important role in detecting and reporting suspicious transactions, and participants discussed the practical/operational considerations in further developing public/private partnerships and the application of IT tools to improve the quality of financial intelligence.

Strengthening FATF’s institutional basis

FATF members continued to explore options to reinforce its legal capacity, international standing and independence.

Activities of the FATF Training and Research Institute in Busan, Korea

The FATF Training and Research Institute, FATF TREIN, updated the Plenary on its activities since November 2017. FATF TREIN research and training programme included the APG-FATF TREIN Joint Typologies and Capacity Building Workshop. Almost 200 participants, representing FATF and APG members and observers as well as private sector participants took part in this event. The discussion provided valuable information which will contribute to on-going research projects.

February 25, 2018 in AML | Permalink | Comments (0)

Saturday, February 24, 2018

OECD Job: Adviser for Tax Treaties, Transfer Pricing and Financial Transactions (CTPA/TTP)(Job Number: 11917)

Application Closing Date: March 6, 2018

The OECD is a global economic forum working with 35 member countries and more than 100 emerging and developing economies to make better policies for better lives. Our mission is to promote policies that will improve the economic and social well-being of people around the world. The Organisation provides a unique forum in which governments work together to share experiences on what drives economic, social and environmental change, seeking solutions to common problems.  

The OECD has earned a leading role in international tax issues. The Centre for Tax Policy and Administration (CTPA) is the focal point for the OECD’s work on all taxation issues, both international and domestic, and it works to advance the Strategic Orientations of the Secretary General, ensuring impact of the OECD tax work in the international governance architecture, in co-ordination with the OECD Sherpa team. The CTPA collaborates with other parts of the Organisation on issues such as tax and climate change, tax and growth, and the impact of taxation on labour markets and several other multidisciplinary projects. The CTPA also provides the analytical support to the OECD’s Committee on Fiscal Affairs, which consists of senior tax policy and administration officials from OECD countries, Associate and Partner countries and other international and regional tax organisations. Through its work, the CTPA enhances the OECD’s global role in standard-setting, building knowledge, communicating with the world and interacting with governments from around the world to inform and influence policy making in the tax area.

Tax treaty issues form a major part of the G20/OECD Project on Base Erosion and Profit Shifting (BEPS), which reflects the fact that tax treaty issues are some of the top challenges in the international tax field. The CTPA is looking for an Adviser to provide technical expertise and guidance in implementing the OECD standards developped in the BEPS project, both from a policy and tax administration perspective, and within OECD member and non-member economies. A key component of the next phase of the BEPS work is ensuring effective and consistent implementation of the BEPS tax treaty outcomes as well as completing the remaining technical work. This work will be carried out in an inclusive framework that will enable interested developing countries and jurisdictions to participate on an equal footing. 

The successful candidate will work under the supervision of the Head of the Tax Treaty Unit in the Tax Treaty, Transfer Pricing and Financial Transactions Division (TTP) of the CTPA.

Main Responsibilities 

Co-ordination, liaison and representation 

  • Develop and execute the Tax Treaty Unit’s outreach programme and conduct missions to OECD and non-OECD economies in the area of tax treaties (including theMultilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS).
  • Liaise, where necessary, with other relevant CTPA Divisions to ensure co-ordination among the different areas of work.
  • Contribute to the organisation and preparation for the meetings of Working Party 1 on Tax Conventions and Related Questions where required.
  • Present, discuss and explain the OECD’s work in the area of tax treaties at meetings, seminars and conferences.

Monitoring, Analysis, Drafting

  • Contribute to the development of the policy work of the Tax Treaty Unit, respond quickly to new priorities and emerging challenges, and present creative proposals for improving the content of the Tax Treaty Unit’s programme of work.
  • Draft analytical reports for discussion and approval by Working Party 1.
  • Participate in discussions on those reports at relevant meetings with a view to achieve consensus.
  • Assist in delivering the work programme of Working Party 1 and related bodies in a timely manner.
  • Provide guidance and technical support on the tax treaty aspects of the Tax and Development Programme.

Other

  • Contribute to the wider development of the CTP’s work on taxation.

Ideal Candidate profile

Academic Background

  • An advanced university degree or equivalent in taxation, economics, business, accounting or law.

Professional Background

  • At least three, preferably five years’ experience in the field of tax treaties gained in a national government, the private sector or in an international organisation.
  • Experience in conceptualising and analysing complex issues and in providing strategic leadership in the tax treaty and tax planning areas.
  • Proven experience in negotiating tax treaties.
  • Experience negotiating or implementing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS would be an asset.
  • Experience conducting missions for non-OECD economies in the area of tax treaties would be an asset.

Languages

  • Fluency in one of the two OECD official languages (English and French) and knowledge of the other, with a commitment to reach a good working level.
  • Knowledge of Spanish would be an asset.

Core Competencies

  • For this role, the following competencies would be particularly important:Achievement focus, Analytical thinking, Drafting skills, Flexible thinking, Teamwork, Diplomatic sensitivity, Negotiating, Developing talent, Strategic thinking.
  • Please refer to the level 3 indicators of the OECD Core Competencies.

 Contract Duration

  • Two years fixed term appointment, with the possibility of renewal.
  • Ideal starting date: August 2018.

What the OECD offers

  • Depending on level of experience, monthly salary starts at either 5,800 EUR or 7;100 EUR, plus allowances based on eligibility, exempt of French income tax.

February 24, 2018 in OECD | Permalink | Comments (0)

Friday, February 23, 2018

First Global Conference of the Platform for Collaboration on Tax - Taxation and the Sustainable Development Goals

The Platform for Collaboration on Tax (PCT) held its First Global Conference on February 14-16, 2018 at the United Nations Headquarters in New York. The conference focused on the key directions for tax policy and administration needed to meet the Sustainable Development Goals (SDGs). Speakers and participants included senior country policymakers, tax administrators, and representatives from academia, the private sector, civil society, donor organizations, and regional tax organizations. Conference sessions will cover five thematic areas:

  • domestic resource mobilization and the state

  • the role of tax in supporting sustainable economic growth, investment and trade

  • the social dimensions of tax (poverty, inequality, and human development)

  • tax capacity development

  • tax cooperation. 

The conference built on the vibrant global dialogue on taxation, and insights and views from the conference helped inform and shape the future work of the PCT and its members. The conference provided guidance to individual countries and other stakeholders on how to better target tax efforts to achieve the Sustainable Development Goals (SDGs).

Plenary sessions were broadcast live herehttp://webtv.un.org   

About the PCT

The PCT is a joint initiative of the International Monetary Fund (IMF)Organization for Economic Co-operation and Development (OECD)United Nations (UN), and the World Bank Group to strengthen collaboration on domestic resource mobilization (DRM). The Platform, which is also supported by the governments ofLuxemburg, Switzerland, and the United Kingdom, fosters collective action for stronger tax systems in developing and emerging countries. The four PCT members each support country efforts through policy dialogue, technical assistance and capacity building, knowledge creation and dissemination, and input into the design and implementation of standards for international tax matters. The PCT also produces guidance and tools on key issues of capacity building and international taxation, and has also developed the Medium-Term Revenue Strategy, which is an approach for coordinated and sustained support to country-led tax reform.

February 23, 2018 in BEPS | Permalink | Comments (0)

Serbia joins the OECD Framework on BEPS

 

The Inclusive Framework on Base Erosion and Profit Shifting (BEPS) welcomed Serbia as its newest members, bringing to 112 the total
number of countries and jurisdictions participating on an equal footing in the project.

Members of the Inclusive Framework have the opportunity to work together with other OECD and G20 countries on implementing the BEPS package consistently and on developing further standards to address remaining BEPS issues.

 

February 23, 2018 in BEPS | Permalink | Comments (0)

Thursday, February 22, 2018

FTC Warns Consumers About Online Dating Scams

If an online love interest asks you for money, it’s probably a scam. The Federal Trade Commission receives thousands of reports each year about romance scammers who create fake online relationships only to rob their victims. Millions of Americans use dating sites, social networking sites and chat rooms to meet people, but scammers use them too, and eventually they ask for money. The FTC’s new infographic, developed with the American Bankers Association Foundation, lists common signs of online dating scams and how to handle them.

February 22, 2018 in AML | Permalink | Comments (0)

Wednesday, February 21, 2018

CFTC Orders AMP Global Clearing LLC to Pay $100,000 for Supervision Failures Related to Cybersecurity of its Customers’ Records and Information

The Commodity Futures Trading Commission (CFTC)  issued an Order filing and simultaneously settling charges against AMP Global Clearing LLC (AMP), a registered Futures Commission Merchant since 2010, for its failure between June 21, 2016 and April 17, 2017 to supervise diligently the implementation of critical provisions in AMP’s information systems security program (ISSP). As a result of this failure, a significant amount of AMP’s customers’ records and information were left unprotected for nearly ten months. In April 2017, as a result of this failure, a third party unaffiliated with AMP (Third Party) accessed AMP’s information technology network and copied approximately 97,000 files, which included customers’ records and information, including personally identifiable information. The Third Party thereafter contacted federal authorities about securing the copied information, and subsequently informed AMP that the copied information had been secured and was no longer in the Third Party’s possession. After becoming aware of the vulnerability and unauthorized access, AMP cooperated with the CFTC and worked diligently to remediate the issue.

CFTC’s Director of Enforcement Comments

James McDonald, the CFTC’s Director of Enforcement, commented: “Entities entrusted with sensitive information must work diligently to protect that information. That’s not only good business, but when it comes to registrants in our markets, it’s the law. As this case shows, the CFTC will work hard to ensure regulated entities live up to that responsibility, which has taken on increasing importance as cyber threats extend across our financial system.”

Specifically, the Order finds that AMP failed to supervise its IT Provider’s implementation of ISSP provisions it was delegated with implementing under AMP’s supervision, including identifying and performing risk assessments of access routes into AMP’s network, performing quarterly network risk assessments to identify vulnerabilities, maintaining strict firewall rules, and detecting unauthorized activity on the network. This failure left a significant amount of AMP’s customers’ records and information vulnerable to cyber-exploitation for nearly ten months, until the Third Party accessed AMP’s network.

The Order finds that the vulnerability in AMP’s network involved an open access route in a network attached storage device (NASD). Three successive quarterly network risk assessments failed to identify this vulnerability. Indeed, the Order finds that, before the Third Party accessed the NASD’s contents, the media had reported three other incidents of unauthorized access of NASDs used by organizations other than AMP, including some from the same manufacturer of AMP’s NASD. Yet AMP did not detect the vulnerability until its network was accessed and customer records and information compromised.

The Order requires AMP to pay a $100,000 civil monetary penalty and cease and desist from violating the CFTC regulation governing diligent supervision. The Order further requires AMP to provide two written follow-up reports, within one-year of entry of the Order, to the CFTC verifying AMP’s ongoing efforts to maintain and strengthen the security of its network and its compliance with its ISSP’s requirements.

The Order recognizes AMP’s substantial cooperation and remediation during the CFTC’s Division of Enforcement’s investigation of this matter, which included providing important information and analysis to the Division that helped the Division to efficiently and effectively undertake its investigation. The Order notes that the civil monetary penalty imposed on AMP reflects AMP’s cooperation.

February 21, 2018 in AML | Permalink | Comments (0)

Tuesday, February 20, 2018

Former ICE Chief Counsel Pleads Guilty to Using the Identities of Numerous Aliens for Wire Fraud and Aggravated Identity Theft Scheme

Former Chief Counsel Raphael A. Sanchez of U.S. Immigration and Customs Enforcement’s (ICE) Office of Principal Legal Advisor pleaded guilty today for a wire fraud and aggravated identity theft scheme involving the identities of numerous aliens, announced Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and ICE Deputy Director Thomas D. Homan.

Sanchez, 44, of Seattle, Washington, will be sentenced on May 11, before U.S. District Judge Robert S. Lansik of the Western District of Washington. 

“It is the duty of our federal immigration authorities to ensure the honest enforcement of our nation’s immigration laws,” said Acting Assistant Attorney General Cronan.  “Raphael Sanchez betrayed that solemn responsibility and abused his official position to prey upon aliens for his own personal gain.  We should not let one bad actor detract from the dedicated work done by all ICE agents and attorneys to keep our neighborhoods safe, and ICE should be commended for quickly and fully investigating this matter and referring it to the Justice Department for prosecution.” 

“At the top of ICE’s core values is integrity, with an expectation that our employees adhere to the highest standards of honesty and professional conduct,” said Deputy Director Homan.  “While I am appalled by these egregious, independent acts of criminal misconduct by Mr. Sanchez, I am grateful to the men and women of ICE who do their job with the utmost professionalism every day, including those in the Seattle Office of Chief Counsel, who I’m confident will continue to accomplish their mission with integrity and dedication, and our agents in the ICE Office of Professional Responsibility, who investigated this case and presented it for successful prosecution.”

According to admissions in the plea agreement, from October 2013 through Oct. 25, 2017, Sanchez, who had responsibility over immigration removal proceedings in Alaska, Idaho, Oregon and Washington, intentionally devised a scheme to defraud seven aliens in various stages of immigration removal proceedings.  For his own personal gain, Sanchez used the personally identifiable information of those aliens to open lines of credit and personal loans in their names, manipulated their credit bureau files and transferred funds to and purchased goods for himself using credit cards issued in their names.    

Sanchez admitted that he obtained personally identifiable information of the victim aliens by using ICE’s official computer database systems and by accessing their official, hard-copy immigration A-files, and then forged identification documents on his work computer, such as social security cards and Washington State driver’s licenses, in the victims’ names.  Sanchez used the forged documents to open credit card and bank accounts in the names of aliens, which he controlled.  

In furtherance of the scheme, Sanchez listed his home address as the aliens’ residences on account paperwork; in some cases, created public utility account statements in their names to provide the necessary proof of residence in order to open lines of credit in their names or to conceal the scheme; and opened e-mail and online financial accounts in the names of several aliens.  Sanchez also manufactured a false earnings and leave statement in the name of one alien in furtherance of the scheme and registered a car in her name. 

Sanchez further admitted that once the accounts were approved and opened, he made charges or drew payments totaling more than $190,000 in the names of aliens to himself or entities that he controlled, often using PayPal and mobile point of sale devices from Amazon, Square, Venmo and Coin to process fraudulent Internet transactions.  In a number of cases, Sanchez purchased goods online in the names of aliens and had them shipped to his residence.  Sanchez also employed credit monitoring services on some of these aliens and corresponded with credit bureaus in the names of aliens to conceal his fraud scheme.  Finally, as part of the scheme to defraud, Sanchez also claimed three aliens as relative dependents on his tax returns for 2014 through 2016. 

February 20, 2018 in AML | Permalink | Comments (0)

Monday, February 19, 2018

Russian Nationals Sentenced to Prison for Massive Data Breach Conspiracy

Hackers Targeted Major Payment Processors, Retailers and Financial Institutions Around the World

Two Russian nationals were sentenced yesterday to federal prison terms for their respective roles in a worldwide hacking and data breach scheme that targeted major corporate networks, compromised 160 million credit card numbers and resulted in hundreds of millions of dollars in losses –  one of the largest such schemes ever prosecuted in the United States.

The  sentences were announced by Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, First Assistant U.S. Attorney William E. Fitzpatrick of the District of New Jersey and Director Randolph D. Alles of the U.S. Secret Service.

Vladimir Drinkman, 37, of Syktyvkar and Moscow, Russia, was sentenced to 144 months in prison.  Drinkman previously pleaded guilty before U.S. District Judge Jerome B. Simandle of the District of New Jersey to one count of conspiracy to commit unauthorized access of protected computers and one count of conspiracy to commit wire fraud in a manner affecting a financial institution.  Dmitriy Smilianets, 34, of Moscow, previously pleaded guilty to conspiracy to commit wire fraud in a manner affecting a financial institution and was sentenced to 51 months and 21 days in prison.  Both men pleaded guilty in September 2015 before Judge Simandle, who imposed the sentences yesterday in Camden, New Jersey federal court.  In addition to the prison terms, Judge Simandle sentenced Drinkman to three years of supervised release and Smilianets to five years of supervised release. 

Drinkman and Smilianets were arrested in the Netherlands on June 28, 2012. Drinkman was extradited to the District of New Jersey on Feb. 17, 2015, and Smilianets was extradited on Sept. 7, 2012.

“Drinkman and Smilianets not only stole over 160 million credit card numbers from credit card processors, banks, retailers, and other corporate victims, they also used their bounty to fuel a robust underground market for hacked information,” said Acting Assistant Attorney General Cronan. “While mega breaches like these continue to affect millions of individuals around the world, hackers and would-be hackers should know that the Department of Justice will use all available tools to identify, arrest, and prosecute anyone who attacks the networks on which businesses and their customers rely.”

“These defendants operated at the highest levels of illegal hacking and trafficking of stolen identities,” First Assistant U.S. Attorney Fitzpatrick. “They used their sophisticated computer skills to infiltrate computer networks, steal information and sell it for a profit. Perpetrators of some of the largest data breaches in history, these defendants posed a real threat to our economy, privacy and national security, and cannot be tolerated.”

“This case demonstrates the investigative capabilities of the U.S. Secret Service and the collaborative efforts of our law enforcement partners, specifically the U.S. Attorney’s Office for the District of New Jersey, and the Dutch Ministry of Security and Justice,” Special Agent in Charge McKevitt said.  “The Secret Service will continue to develop innovative ways to protect the financial infrastructure of the United States and bring to justice cyber criminals who use emerging technologies to conduct business.”

According to documents filed in this case and statements made in court: 

Drinkman and Smilianets admitted to their roles in a conspiracy with three co-defendants to hack into the networks of corporate victims engaged in financial transactions, retailers that received and transmitted financial data and other institutions with information that the conspirators could exploit for profit, including the computer networks of NASDAQ, 7-Eleven, Carrefour, JCP, Hannaford, Heartland, Wet Seal, Commidea, Dexia, JetBlue, Dow Jones, Euronet, Visa Jordan, Global Payment, Diners Singapore and Ingenicard. 

According to the indictment in this case and statements made in court, the five defendants each played specific roles in the scheme.  Drinkman and Alexandr Kalinin, 31, of St. Petersburg, Russia, allegedly specialized in penetrating network security and gaining access to the corporate victims’ systems. Drinkman and Roman Kotov, 36, of Moscow, allegedly specialized in mining the networks to steal valuable data. The hackers hid their activities using anonymous web-hosting services allegedly provided by Mikhail Rytikov, 30, of Odessa, Ukraine.  Smilianets sold the information stolen by the other conspirators and distributed the proceeds of the scheme to the participants.

Drinkman and Kalinin were previously charged in New Jersey as “Hacker 2” and “Hacker 1” in a 2009 indictment charging Albert Gonzalez, 34, of Miami, Florida, in connection with five corporate data breaches – including the breach of Heartland Payment Systems Inc., which at the time was the largest ever reported. Gonzalez is currently serving 20 years in federal prison for those offenses. Kalinin is also charged in two federal indictments in the Southern District of New York: the first charges Kalinin in connection with hacking certain computer servers used by NASDAQ and the second charges him and another Russian hacker, Nikolay Nasenkov, with an international scheme to steal bank account information from U.S.-based financial institutions. Rytikov was previously charged in the Eastern District of Virginia with an unrelated scheme. 

Kalinin, Kotov and Rytikov remain at large. 

The Attacks

According to documents filed in this case and statements made in court, the five defendants allegedly penetrated the computer networks of corporate victims and stole user names and passwords, means of identification, credit and debit card numbers and other corresponding personal identification information of cardholders, acquiring more than 160 million card numbers through hacking.

The initial entry was often gained using a “SQL injection attack.” SQL, or Structured Query Language, is a type of programing language designed to manage data held in particular types of databases; the hackers allegedly identified vulnerabilities in SQL databases and used those vulnerabilities to infiltrate a computer network. Once the network was infiltrated, the defendants allegedly placed malicious code, or malware, in the system.  This malware created a “back door,” leaving the system vulnerable and helping the defendants maintain access to the network.  In some cases, the defendants lost access to the system due to companies’ security efforts, but were allegedly able to regain access through persistent attacks.  

Instant message chats obtained by law enforcement revealed the defendants allegedly often targeted the victim companies for many months, waiting patiently as their efforts to bypass security were underway.  The defendants had malware implanted in multiple companies’ servers for more than a year. 
The defendants allegedly used their access to the networks to install “sniffers,” which were programs designed to identify, collect and steal data from the victims’ computer networks. The defendants then allegedly used an array of computers located around the world to store the stolen data and ultimately sell it to others.

Selling the Data

According to documents filed in the case and statements made in court, after acquiring the card numbers and associated data – which they referred to as “dumps” – the conspirators sold it to resellers around the world. The buyers then sold the dumps through online forums or directly to individuals and organizations. Smilianets was in charge of sales, selling the data only to trusted identity theft wholesalers. He charged approximately $10 for each stolen American credit card number and associated data, approximately $50 for each European credit card number and associated data and approximately $15 for each Canadian credit card number and associated data – offering discounted pricing to bulk and repeat customers. Ultimately, the end users encoded each dump onto the magnetic strip of a blank plastic card and cashed out the value of the dump by withdrawing money from ATMs or making purchases with the cards. 

Covering Their Tracks

According to documents filed in the case and statements made in court, the defendants allegedly used a number of methods to conceal the scheme. Unlike traditional Internet service providers, Rytikov allowed his clients to hack with the knowledge he would never keep records of their online activities or share information with law enforcement.  

Over the course of the conspiracy, the defendants allegedly communicated through private and encrypted communications channels to avoid detection. Fearing law enforcement would intercept even those communications, some of the conspirators attempted to meet in person.

To protect against detection by the victim companies, the defendants allegedly altered the settings on victim company networks to disable security mechanisms from logging their actions. The defendants also worked to evade existing protections by security software.

As a result of the scheme, financial institutions, credit card companies and consumers suffered hundreds of millions in losses – including more than $300 million in losses reported by just three of the corporate victims – and immeasurable losses to the identity theft victims in costs associated with stolen identities and false charges. The charges and allegations contained in indictments against the remaining defendants are merely accusations and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The case was investigated by special agents of the U.S. Secret Service, Newark Field Office and Criminal Investigative Division. The case is being prosecuted by by Trial Attorneys Andrew S. Pak and Richard Green and Deputy Chief of Litigation James Silver of the Criminal Division’s Computer Crime and Intellectual Property Section, and Assistant U.S. Attorney Justin Herring of the Computer Hacking and Intellectual Property Section of the Economic Crimes Unit and the Justice Department’s Office of International Affairs.  The Criminal Division’s Office of International Affairs also provided substantial assistance in this case.

February 19, 2018 in AML | Permalink | Comments (0)

Sunday, February 18, 2018

CFTC Issues First Pump-and-Dump Virtual Currency Customer Protection Advisory

The Commodity Futures Trading Commission (CFTC) issued a Customer Protection Advisory that warns customers to beware of and avoid pump-and-dump schemes that can occur in thinly traded or new “alternative” virtual currencies, digital coins or tokens.

"As with many online frauds, this type of scam is not new - it simply deploys an emerging technology to capitalize on public interest in digital assets," said CFTC Director of Public Affairs Erica Elliott Richardson. "Pump-and-dump schemes long pre-date the invention of virtual currencies, and typically conjure the image of penny stock boiler rooms, but customers should know that these frauds have evolved and are prevalent online. Even experienced investors can become targets of professional fraudsters who are experts at deploying seemingly credible information in an attempt to deceive. The CFTC encourages all customers to thoroughly research potential investments, stay informed about tactics commonly used in investment fraud, and avoid investment opportunities they don't fully understand."

Pump-and-dump schemes are mostly anonymous and are organized in public chat rooms or via mobile messaging apps. They are coordinated efforts to create phony demand (the pump) and then sell quickly (the dump) to profit by taking advantage of traders who are unaware of the scheme. This type of market manipulation occurs in the largely unregulated cash market for virtual currencies and digital tokens, and typically on platforms that offer a wide array of coin pairings for traders to buy and sell.

Customers should avoid purchasing virtual currency or tokens based on tips shared over social media. The organizers of the scheme will commonly spread rumors and urge immediate buying. Victims will commonly react to the currency’s or token’s rising prices, and not verify the rumors. Then the dump begins. The price falls and victims are left with currency or tokens that are worth much less than what they expected. From beginning to end, these scams can be over in just a few minutes.

CFTC Has Received Complaints

The CFTC has received complaints from customers who have lost money to pump-and-dump schemes, and the CFTC maintains general anti-fraud and manipulation enforcement authority over virtual currency cash markets as a commodity in interstate commerce.

Customers Can Protect Themselves

Customers can best protect themselves by purchasing only alternative virtual currencies, digital coins, or tokens that have been thoroughly researched – to separate hype from facts. The bottom line: Customers should not purchase virtual currencies, digital coins, or tokens based on social media tips or sudden price spikes. For more virtual currency resources, visit the CFTC’s dedicated virtual currency web page, cftc.gov/bitcoin.

February 18, 2018 in Financial Regulation | Permalink | Comments (0)

Saturday, February 17, 2018

CFTC Files Eight Anti-Spoofing Enforcement Actions against Three Banks (Deutsche Bank, HSBC & UBS) & Six Individuals

 The Commodity Futures Trading Commission today announced, in conjunction with the Department of Justice and Federal Bureau of Investigation’s Criminal Investigative Division, criminal and civil enforcement actions against three banks and six individuals involved in commodities fraud and spoofing schemes.

Division of Enforcement Director James McDonald said, “Spoofing is a particularly pernicious example of bad actors seeking to manipulate the market through the abuse of technology.  The technological developments that enabled electronic and algorithmic trading have created new opportunities in our markets.  At the CFTC, we are committed to facilitating these market-enhancing developments.  But at the same time, we recognize that these new developments also present new opportunities for bad actors.  We are equally committed to identifying and punishing these bad actors.  The CFTC’s enforcement program is built around the twin goals of holding wrongdoers accountable and deterring future misconduct.  We believe these goals are best achieved when we hold accountable not just companies, but also the individuals involved.  As these cases show, we will work hard to identify and prosecute the individual traders who engage in spoofing, but we will also seek to find and hold accountable those who teach others how to spoof, who build the tools designed to spoof, or who otherwise aid and abet the wrongdoing.  These cases should send a strong signal that we at the CFTC are committed to identifying individuals responsible for unlawful activity and holding them accountable.”

See summary of actions below. Full press releases, including charging documents and specific comments on each case from McDonald at cftc.gov.

Deutsche Bank

The CFTC today issued an Order filing and settling charges against Deutsche Bank AG (DB AG) and Deutsche Bank Securities Inc. (DBSI) (collectively, DB), requiring DB to pay a $30 million civil monetary penalty and to undertake remedial relief. The Order finds that from at least February 2008 and continuing through at least September 2014, DB AG, by and through certain precious metals traders (Traders), engaged in a scheme to manipulate the price of precious metals futures contracts by utilizing a variety of manual spoofing techniques with respect to precious metals futures contracts traded on the Commodity Exchange, Inc. (COMEX), and by trading in a manner to trigger customer stop-loss orders.

UBS

The CFTC today issued an Order filing and settling charges against UBS AG(UBS), requiring UBS to pay a $15 million civil monetary penalty and to undertake remedial relief.  The Order finds that from January 2008 through at least December 2013, UBS, by and through the acts of certain precious metals traders on the spot desk (Traders), attempted to manipulate the price of precious metals futures contracts by utilizing a variety of manual spoofing techniques with respect to precious metals futures contracts traded on the Commodity Exchange, Inc. (COMEX), including gold and silver, and by trading in a manner to trigger customer stop-loss orders.

HSBC

The CFTC today issued an Order filing and settling charges against HSBC Securities (USA) Inc. (HSBC) for engaging in numerous acts of spoofing with respect to certain futures products in gold and other precious metals traded on the Commodity Exchange, Inc. (COMEX). The Order finds that HSBC engaged in this activity through one of its traders based in HSBC’s New York office. The Order requires HSBC to pay a civil monetary penalty of $1.6 million, to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing, and to take specified steps to implement and strengthen their training, systems, and controls to detect and deter spoofing by HSBC personnel in the futures markets. In accepting HSBC’s offer of settlement, the CFTC recognizes the bank’s cooperation during the Division of Enforcement’s investigation of this matter.

Krishna Mohan

The CFTC today announced the filing of a federal court enforcement action in the U.S. District Court for the Southern District of Texas against Krishna Mohanof New York City, New York, charging him with spoofing (bidding or offering with the intent to cancel before execution) and engaging in a manipulative and deceptive scheme in the E-mini Dow ($5) futures contract market on the Chicago Board of Trade and the E-mini NASDAQ 100 futures contract market on the Chicago Mercantile Exchange.

Jitesh Thakkar & Edge Financial Technologies

The CFTC today announced the filing of a federal court enforcement action in the U.S. District Court for the Northern District of Illinois, charging Jitesh Thakkar of Naperville, Illinois, and his company, Edge Financial Technologies, Inc. (Edge), with aiding and abetting spoofing and a manipulative and deceptive scheme in the E-mini S&P futures contract market on the Chicago Mercantile Exchange (E-mini S&P).

Jiongsheng Zhao

The CFTC today announced the filing of a federal court enforcement action in the U.S. District Court for the Northern District of Illinois against Defendant Jiongsheng Zhao, of Australia, charging him with spoofing and engaging in a manipulative and deceptive scheme in the E-mini S&P 500 futures contract market on the Chicago Mercantile Exchange (CME).

James Vorley & Cedric Chanu

The CFTC announced the filing of a civil enforcement action in the U.S. District Court for the Northern District of Illinois against James Vorley, a U.K. resident, and Cedric Chanu, a United Arab Emirates resident, charging them with spoofing and engaging in a manipulative and deceptive scheme in the precious metals futures markets.

Andre Flotron

The CFTC announced the filing of a civil enforcement action in the U.S. District Court for the District of Connecticut against Andre Flotron, of Switzerland, charging him with engaging in a manipulative and deceptive scheme and spoofing in the precious metals futures markets on a registered entity.

February 17, 2018 in Financial Regulation | Permalink | Comments (0)

Thursday, February 15, 2018

Five Former Venezuelan Government Officials Charged in Money Laundering Scheme Involving Foreign Bribery

Charges were unsealed against five former Venezuelan government officials for their alleged participation in an international money laundering scheme involving bribes made to corruptly secure energy contracts from Venezuela’s state-owned and state-controlled energy company, Petroleos de Venezuela S.A. (PDVSA).  Two of the five defendants are also charged with conspiracy to violate the Foreign Corrupt Practices Act (FCPA).  Download PDVSA Indictment

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Ryan K. Patrick of the Southern District of Texas and Special Agent in Charge Mark Dawson of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) in Houston made the announcement.

Four of the defendants, Luis Carlos De Leon Perez (De Leon), 41; Nervis Gerardo Villalobos Cardenas (Villalobos), 50; Cesar David Rincon Godoy (Cesar Rincon), 50; and Rafael Ernesto Reiter Munoz (Reiter), 39, were arrested in Spain in October 2017 by Spanish authorities on arrest warrants based on a 20-count indictment returned in the Southern District of Texas on Aug. 23, 2017.  Cesar Rincon was extradited from Spain on Feb. 9, and made his initial appearance today before U.S. Magistrate Judge MJ Stephen Smith of the Southern District of Texas.  De Leon, Villalobos and Reiter remain in Spanish custody pending extradition.  A fifth defendant, Alejandro Isturiz Chiesa (Isturiz), 33, remains at large.  All five defendants are citizens of Venezuela; De Leon is also a U.S. citizen.

De Leon, Villalobos, Reiter and Isturiz are each charged with one count of conspiracy to commit money laundering.  Cesar Rincon is charged with two counts of conspiracy to commit money laundering.  Each of the defendants is charged with one or more counts of money laundering, as follows:  De Leon, Cesar Rincon and Reiter, four counts each; Villalobos, one count; and Isturiz, five counts.  De Leon and Villalobos are also each charged with one count of conspiracy to violate the FCPA.

“Corruption threatens economic and political stability, and victimizes ordinary law-abiding people by diverting public funds into the pockets of corrupt officials and bribe payers,” said Acting Assistant Attorney General Cronan.  “The charges announced today demonstrate our commitment to fighting corruption at its source and to prosecuting those who allegedly launder their illicit gains through American financial institutions and real estate.  Through cases like this, we are sending a strong message to corrupt foreign officials: if you launder your ill-gotten gains through the United States, you will be prosecuted.”

“Effective deterrence of corruption requires prosecution of culpable individuals, wherever those individuals are located,” said U.S. Attorney Patrick. “We will continue to enforce the FCPA against those that avail themselves of the privileges of the American marketplace.”

“This case is an example of what can be accomplished when international law enforcement agencies work together to thwart complex cross-border crimes” said Special Agent in Charge Dawson.   “HSI is committed to upholding the rule of law and investigating those that would participate in illegal practices.

The indictment alleges that the five defendants, all of whom were then-current officials of PDVSA and its subsidiaries or former officials of other Venezuelan government agencies or instrumentalities, were known as the “management team” and wielded significant influence within PDVSA.  According to the indictment, the management team conspired with each other and others to solicit several PDVSA vendors, including vendors who were residents of the United States, and who owned and controlled businesses incorporated and based in the United States, for bribes and kickbacks in exchange for providing assistance to those vendors in connection with their PDVSA business.  The indictment further alleges that the co-conspirators then laundered the proceeds of the bribery scheme through a series of complex international financial transactions, including to, from or through bank accounts in the United States, and, in some instances, laundered the bribe proceeds in the form of real estate transactions and other investments in the United States. 

According to the indictment, two PDVSA vendors, Roberto Enrique Rincon Fernandez (Roberto Rincon), 57, of The Woodlands, Texas, and Abraham Jose Shiera Bastidas (Shiera), 54, of Coral Gables, Florida, sent over $27 million in bribe payments to an account in Switzerland for which De Leon was a beneficial owner and De Leon and Villalobos were authorized signers.  The indictment alleges that those funds were later transferred to other accounts in Switzerland.  Both Roberto Rincon and Shiera previously pleaded guilty in the Southern District of Texas to FCPA charges in connection with a scheme to bribe PDVSA officials.  According to admissions made in connection with their pleas, Roberto Rincon and Shiera paid bribes and provided other things of value to PDVSA officials to ensure that their companies were placed on PDVSA bidding panels and ensure that they were given payment priority so that they would get paid ahead of other PDVSA vendors with outstanding invoices.  Roberto Rincon and Shiera are currently awaiting sentencing.    

An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

With the unsealing of the indictment today, the Justice Department has announced charges against 15 individuals, 10 of whom have pleaded guilty, as part of a larger, ongoing investigation by the U.S. government into bribery at PDVSA.  HSI in Houston is conducting the ongoing investigation with assistance from HSI in Boston and Madrid, as well as from Internal Revenue Service Criminal Investigation.  Trial Attorneys Jeremy R. Sanders and Sarah E. Edwards of the Criminal Division’s Fraud Section and Deputy Chief John Pearson and Assistant U.S. Attorney Robert S. Johnson of the Southern District of Texas are prosecuting the case.  Assistant U.S. Attorney Kristine Rollinson of the Southern District of Texas is handling the forfeiture aspects of the case.

February 15, 2018 in AML | Permalink | Comments (0)

Wednesday, February 14, 2018

IRS to Revoke U.S. Passports for Tax Debts Starting February 2018

Caplin & Drysdale reports:  As detailed in our prior alert (here), Congress enacted Fixing America’s Surface Transportation Act (the “FAST Act”) in December 2015 and authorized the Internal Revenue Service (“IRS”) to notify the Department of State (“State Department”) when any individual has a “seriously delinquent tax debt.” After receiving notice, the Secretary of State may deny that person the right to use, obtain, or renew a U.S. passport. Though the law was enacted more than two years ago, the IRS has not yet implemented it. That will soon change, as IRS deputy chief counsel (Operations), Drita Tonuzi, indicated during the American Bar Association midyear meeting that the IRS will begin sending certifications of seriously delinquent tax debts to the State Department this month.

Read the full analysis and its impact here.

February 14, 2018 in Tax Compliance | Permalink | Comments (0)

Six Individuals Charged in $7 Million International Investment Scam

Charges were unsealed in Houston, Texas, against six individuals for their alleged participation in an elaborate international advance fee and money laundering scheme.  The scheme allegedly involved the impersonation of Branch Banking & Trust (BB&T) and JPMorgan Chase (Chase) executives, the fabrication of U.S. government documents, the creation of fraudulent investment agreements in the name of BB&T and Chase, and the purchase of luxury vehicles to launder the proceeds of the scheme.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Ryan Patrick of the Southern District of Texas, Special Agent in Charge Perrye K. Turner of the FBI’s Houston Field Office and Inspector General Steve A. Linick for the U.S. Department of State made the announcement.

Uju Okigbo, 48, of Richmond, Texas; Chioma Okafor, 28, of Houston, Texas; Marita Ranalan Underwood, 61, of Manila, Philippines; John Christian Rutledge, 64, of Yaphank, New York; and Osa May Martin, 68, of Carthage, Missouri, were charged in an indictment unsealed today in the Southern District of Texas.  All five defendants were charged with one count of conspiracy to commit wire fraud.  Okigbo and Okafor were also charged with one count of conspiracy to launder monetary instruments, as well as two counts each of wire fraud and two counts each of concealment money laundering.  Okigbo is also charged with three counts of engaging in transactions with proceeds of specified unlawful activity, and one count of aggravated identity theft for impersonating a U.S. banking executive.  Underwood, Rutledge and Martin are also charged with one count of conspiracy to wrongfully use government seals.

Okigbo was already in custody as of today.  Martin made her initial appearance this afternoon in front of a U.S. magistrate judge in Springfield, Missouri, and Rutledge is scheduled to make his initial appearance. 

A sixth individual, Tiffany Sourjohn, 47, of Miami, Oklahoma, was charged by an information with one count of conspiracy to commit wire fraud and wrongful use of government seals, which was also unsealed today.  Sourjohn made her initial appearance this morning and entered a guilty plea to the information in front of Senior U.S. District Court Judge Ewing Werlein Jr. of the Southern District of Texas.

According to the charging documents, the scheme involved fraudulent offers of investment funding by perpetrators primarily living in Nigeria who impersonated U.S. bank officials and financial consultants over the Internet and over the phone.   Victims in various countries were deceived into believing they would receive millions of dollars of investment funding as part of joint ventures with U.S. banks, usually BB&T or Chase.  The perpetrators utilized false domain names to make it appear that senders of emails were actually affiliated with BB&T or Chase.  To convince victims that the opportunities were authentic, the perpetrators recruited U.S. citizens to pose as bank “representatives” at in-person meetings with victims around the world, and, if occurring abroad, utilized sham visits to the local U.S. embassy or consulate and fabricated U.S. government documents to make the victims believe the U.S. government was sponsoring the investment agreements.  The victims were then allegedly induced to pay tens of thousands, and often hundreds of thousands, of dollars to U.S.-based bank accounts on the belief that such payments were necessary to effectuate their investment agreements. 

According to the charging documents, to ensure the proceeds made it back to Nigeria, after victims wired in funds, money movers who controlled the U.S. bank accounts liquidated the proceeds through outgoing wire transfers to exporters, cash withdrawals and purchases of vehicles, including luxury brands such as Land Rover and Mercedes Benz, which were then shipped to Nigeria.  According to the charging documents, Okigbo and Okafor were primarily money movers in the scheme, while Underwood, Rutledge, Martin and Sourjohn were representatives.

The scheme allegedly resulted in losses of more than $7 million from victims in more than 20 countries.  To date, a house in Richmond, a 2014 Land Rover Range Rover, and approximately $200,000 in cash, all directly traceable to victims’ payments, have been seized.

February 14, 2018 in AML | Permalink | Comments (0)

Tuesday, February 13, 2018

Treasury Proposes Repeal of Nearly 300 Outdated Tax Regulations

The U.S. Department of the Treasury today proposed repealing 298 tax regulations that are unnecessary, duplicative or obsolete and force taxpayers to navigate needlessly complex or confusing rules. President Trump issued an Executive Order on April 21, 2017, directing Treasury to review tax regulations to ensure a simple, fair, efficient, and pro-growth tax system. Today’s actions are a direct result of that review.

“We continue our work to ensure that our tax regulatory system promotes economic growth,” said Secretary Steven T. Mnuchin. “These 298 regulations serve no useful purpose to taxpayers and we have proposed eliminating them.  I look forward to continuing to build on our efforts to make the regulatory system more efficient and effective.” 

The regulations proposed to be repealed fall into three categories:

  1. Regulations interpreting provisions of the Code that have been repealed;
  2. Regulations interpreting provisions that have been significantly revised and the existing regulations do not account for these revisions; and
  3. Regulations that are no longer applicable.

Click here to read the regulatory notice.

February 13, 2018 in Tax Compliance | Permalink | Comments (0)

American Bar Association Proposes One-Third Distance Education Credits For JDs

Under the proposal, Standard 306, which concerns distance learning allowed in J.D. programs, would change from an absolute number to a percentage of whatever credits a law school requires for graduation. If adopted, law schools could allow one-third of its required credits be taught online. The current rule limits the number of such credits to 15.  ... As proposed, the revised standard would effectively raise the number of credits for distance learning to at least 28 credit hours and, in many cases, 30 credit hours.  Read the ABA News here.

William Byrnes, an early nineties pioneer of distance education for law who founded the first online LL.M. acquiesced by the ABA and by SACS, shared, "I encourage faculty to think innovatively about online opportunities in the context of communication, learning, and community. There is certainly a value in residential learning via the development of diverse social communities.  Yet, merely putting persons together on campus is not in and of itself a learning community, and certainly does not guarantee diversity within the community.  It is how often the persons have incidence of meaningful interaction with each other and how they engage with each other during those interactions that impacts learning.  Studies have established that learning can be influenced by how a group interacts via support mechanisms.  Online, based on best pedagogical practices, has a significant, integrated role to play within legal education.  Merely being a passive residential student member of a group, such as a typical 30 - 60 student JD course,  does not affect learning.  Online technology can help solve some issues that all faculty recognize with pure residential education."

Byrnes continued: "Diverse social communities may potentially be created via online methods that do not require large capital expenditures on brick and mortar, and will achieve the same elements of social interaction.  By example of hybrid education with distance learning, the following residential activities may be employed:

  • Regular residential study group meetings for peers-only, or with a moderator.
  • Coordinated group social opportunities using on-campus facilities such as cafes, lounges, and even health clubs.
  • Designed periodic on-campus learning and social experiences.
  • Campus library designed for social interaction and collaboration.
  • Enhanced student organization experiences."

"This proposal represents the recognition by the ABA that online courses are able to produce good learning outcomes for a student's development. And it is a big win for law schools that have geographic challenges for access to a robust legal career market," concluded Byrnes. "Schools that are in, and able to access, large legal markets like D.C. and New York City have less need to pursue distance education for pedagogical, community, and diversity reasons. But these schools may leverage online with externship credits to encourage transfers of the highest performing students from lower ranked schools."

February 13, 2018 in Education | Permalink | Comments (0)

Rabobank NA Pleads Guilty, Agrees to Pay Over $360 Million

As a Result of Rabobank’s Bank Secrecy Act and Anti-Money Laundering Failures it Processed over $360 Million in Illicit Funds and then Conspired with its Executives in an Attempt to Conceal These Ongoing Failures From its Regulator
 

Rabobank National Association (Rabobank), a Roseville, California subsidiary of the Netherlands-based Coöperatieve Rabobank U.A., appeared before U.S. Magistrate Judge Jill L. Burkhardt and pleaded guilty to a felony conspiracy charge for impairing, impeding and obstructing its primary regulator, the Department of the Treasury’s Office of the Comptroller of the Currency (the OCC) by concealing deficiencies in its anti-money laundering (AML) program and for obstructing the OCC’s examination of Rabobank.  Rabobank will forfeit $368,701,259 as a result of allowing illicit funds to be processed through the bank without adequate Bank Secrecy Act (BSA) or AML review. 

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Adam L. Braverman for the Southern District of California, Special Agent in Charge Dave Shaw of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) in San Diego and Special Agent in Charge R. Damon Rowe of Internal Revenue Service Criminal Investigation (IRS-CI) made the announcement.

At today’s hearing, Rabobank pleaded guilty to conspiracy to defraud the United States and to corruptly obstruct an examination of a financial institution. In pleading guilty, Rabobank admitted to conspiring with several former executives to defraud the United States by unlawfully impeding the OCC’s ability to regulate the bank, and to obstruct an examination by the OCC of its operations throughout California, including its Calexico and Tecate bank branches.  Rabobank admitted that its deficient AML program allowed hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, to be deposited into its rural bank branches in Imperial County, and transferred via wire transfers, checks, and cash transactions, without proper notification to federal regulators as required by law.  Knowing these failures, during the OCC’s 2012 examination of Rabobank’s BSA/AML compliance program, Rabobank executives actively sought to hide and minimize the deficiencies in its AML program in an effort to deceive the regulators as to its true state in hopes of avoiding regulatory sanctions that had previously been imposed on Rabobank in 2006 and 2008 for nearly identical failures.

Rabobank’s guilty plea comes less than two months after a former Rabobank vice president, George Martin, entered into a deferred prosecution agreement with the United States for his role in aiding and abetting Rabobank’s failure to maintain an AML program that met BSA requirements. Martin admitted his conduct in federal court in San Diego on Dec. 14, 2017.  As part of its guilty plea, Rabobank agreed to cooperate with the United States’ continuing investigation.           

“When Rabobank learned that substantial numbers of its customers’ transactions were indicative of international narcotics trafficking, organized crime, and money laundering activities, it chose to look the other way and to cover up deficiencies in its anti-money laundering program,” said Acting Assistant Attorney General Cronan.  “Worse still, Rabobank took steps to obstruct an examination by its regulator into those same deficiencies.   The integrity of our financial system depends on prompt reporting by banks and other financial institutions of suspicious, potentially criminal transactions, and on these entities’ truthfulness and transparency with their regulators.  Rabobank’s guilty plea today and forfeiture of more than $360 million is a warning to financial institutions that there are significant consequences for banks that engage in obstructive conduct in an effort to hide their anti-money laundering program failures from their regulators.”

“Rabobank had an obligation to shine light on suspected drug traffickers, money launderers and organized crime,” said U.S. Attorney Braverman. “Instead, this bank deliberately allowed hundreds of millions of dollars of suspicious cash transactions and wire transfers to flow through its branches and took measures to hide this activity from regulators. We will vigorously protect the integrity of the banking system, and we will not allow the financial institutions in our communities to play any role in facilitating international money laundering or financing transnational criminal organizations.”

“It is the responsibility of Homeland Security Investigations to monitor and investigate activity which exploits the global infrastructure, to include financial systems,” said Special Agent in Charge Shaw.  “This complex investigation revealed, and Rabobank admits, that Rabobank was aware of the extreme risk that it was processing hundreds of millions of dollars related to transnational crime and international money laundering – activity which plagues the Southwest Border.  This plea and significant forfeiture send a strong message to financial institutions that this activity will not be tolerated.”

“Today, Rabobank is being held accountable for its illegal actions involving the movement of more than $360 million through the U.S. financial system on behalf of high risk customers,” said Special Agent in Charge Rowe.  “In today’s environment of increasingly sophisticated financial markets, it’s critical that global institutions follow U.S. law and abide by our anti-money laundering regulations.  The IRS is proud to share its world-renowned financial investigative expertise in this and other complex financial investigations.”

The BSA requires financial institutions to implement and maintain an AML compliance program reasonably designed, among other things: (i) to detect suspicious activity indicative of money laundering and other crimes and (ii) to assure and monitor compliance with the BSA’s recordkeeping and reporting requirements, including to report to the U.S. Department of the Treasury any suspicious transactions (through the filing “suspicious activity reports” or “SARs”) indicative of a possible violation of the law.  In its plea agreement, Rabobank admitted knowing that between 2009 and 2012 its BSA/AML program failed in significant ways.  Some of these BSA/AML program failures resulted from policies and procedures at Rabobank that precluded and suppressed investigations into suspicious transactions that occurred at its branches, by its accountholders, or by individuals conducting transactions on behalf of its accountholders that had various indications of being involved in, derived from, or promoting illegal conduct.

According to court documents, Rabobank received regular alerts of transactions by “High-Risk” customers, or through accounts deemed to be “High-Risk,” and that had been the subject of prior SARs filed by Rabobank.  These High-Risk customers and accounts included those controlled and managed by Mexican businesses, nonresident aliens, and U.S.-based accountholders who transacted hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, into and through Rabobank accounts. 

According to court documents, Rabobank also created and implemented policies and procedures to prevent adequate investigations into these suspicious transactions, customers, and accounts.  Among those policies and procedures was Rabobank’s “Verified List” – a policy that effectively resulted in Rabobank executing an end-run the BSA/AML and SAR requirements.  In particular, Rabobank instructed its employees that if a customer was on the “Verified List,” no further review of that customer’s transactions was necessary -- even if the transactions generated an internal alert, or the customer’s activity had changed dramatically from when it was “verified.”  Rabobank’s BSA/AML staff were further instructed to aggressively increase the number of bank accounts on the Verified List, as evidenced by the fact that in 2009, Rabobank had less than 10 “verified” customers, but by 2012, as a result of its defective BSA/AML policies and procedures, it had more than 1,000 “verified” customers.

Additionally, Rabobank admitted failing to monitor and conduct adequate investigations into these transactions and submit SARs to the Financial Crimes Enforcement Network (FinCEN), as required by the BSA.  Rabobank’s border branches, including those located in Calexico and Tecate in Imperial County, California, were heavily dependent on cash deposits from Mexico.  Rabobank knew that millions of dollars in cash deposits at these branches were likely tied to illicit conduct.  In particular, the Calexico branch, located about two blocks from the U.S.-Mexico border, was the “highest performing” branch in the Imperial Valley region due to the cash deposits from Mexico.  Throughout the relevant time period, Rabobank continued this practice of soliciting cash-intensive customers from Mexico and elsewhere, all the while employing the foregoing inadequate BSA/AML policies and procedures to address the obvious, known “High Risks” associated with these accounts, transactions, and transactors.

When the OCC began conducting its periodic examination of Rabobank in 2012, Rabobank, acting through three of its executives, agreed to, among other things, knowingly obstruct the OCC’s examination.  Rabobank responded to the OCC’s February 2013 initial report of examination with false and misleading information about the state of Rabobank’s BSA/AML program.  Rabobank also made false and misleading statements to the OCC regarding the existence of reports developed by a third-party consultant, which detailed the deficiencies and resulting ineffectiveness of Rabobank’s BSA/AML program. 

To further conceal the inadequate nature of its BSA/AML program and to avoid “others contradicting our findings” and statements to the OCC, Rabobank demoted or terminated two RNA employees who were raising questions about the adequacy of Rabobank’s BSA/AML program.

The investigation was conducted by HSI, IRS-CI, and the Financial Investigations and Border Crimes Task Force (the FIBC), a multiagency Task Force based in San Diego and Imperial Counties, and funded by the Treasury Executive Office of Asset Forfeiture (TEOAF).  The investigation occurred in parallel with regulatory investigations by the OCC, Office of General Counsel, and FinCEN, Enforcement Division.  The case is being prosecuted by Trial Attorneys Kevin G. Mosley and Maria Vento of the Criminal Division’s Money Laundering and Asset Recovery Section and Assistant U.S. Attorneys Daniel C. Silva, Mark W. Pletcher and David J. Rawls from the Southern District of California. 

February 13, 2018 in AML | Permalink | Comments (0)

Monday, February 12, 2018

Thirty-six Defendants Indicted for Alleged Roles in Transnational Criminal Organization Responsible for More than $530 Million in Losses from Cybercrimes

Law Enforcement Dismantles Forum Used to Victimize Millions in all 50 States and Worldwide in One of the Largest Cyberfraud Enterprises Ever Prosecuted by the Department of Justice
 

A federal indictment was unsealed charging 36 individuals for their alleged roles in the Infraud Organization, an Internet-based cybercriminal enterprise engaged in the large-scale acquisition, sale, and dissemination of stolen identities, compromised debit and credit cards, personally identifiable information, financial and banking information, computer malware, and other contraband.

Following the return of a nine-count superseding indictment by a Las Vegas, Nevada, grand jury alleging racketeering conspiracy and other crimes, federal, state, local, and international law enforcement authorities arrested 13 defendants from the United States and six countries: Australia, the United Kingdom, France, Italy, Kosovo and Serbia.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Dayle Elieson of the District of Nevada, and Acting Executive Associate Director Derek N. Benner of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) made the announcement.

“Today’s indictment and arrests mark one of the largest cyberfraud enterprise prosecutions ever undertaken by the Department of Justice,” said Acting Assistant Attorney General Cronan.  “As alleged in the indictment, Infraud operated like a business to facilitate cyberfraud on a global scale.  Its members allegedly caused more than $530 million in actual losses to consumers, businesses, and financial institutions alike—and it is alleged that the losses they intended to cause amounted to more than $2.2 billion.  The Department of Justice refuses to allow these cybercriminals to use the perceived anonymity of the Internet as a shield for their crimes.  We are committed to working closely with our international counterparts to identify, investigate, and bring to justice the perpetrators of these crimes, wherever in the world they operate.”

“The U.S. Attorney’s Office is steadfastly committed to protecting America’s national and economic security,” said U.S. Attorney Elieson. “Criminals cannot hide behind their computer screens. We are working vigilantly with American and international law enforcement partners to identify and disrupt transnational cybercrime organizations, such as the Infraud Organization.”

“Criminal cyber organizations like Infraud threaten not just U.S. citizens but people in every corner of the globe,” said HSI Acting Executive Associate Director Benner. “The actions of computer hackers and identity thieves not only harm countless innocent Americans, but the threat they pose to our financial system and global commerce cannot be overstated.  The criminals involved in such schemes may think they can escape detection by hiding behind their computer screens here and overseas, but as this case shows, cyberspace is not a refuge from justice.  HSI will continue working with our law enforcement partners in this country and around the world to aggressively target cyber thieves to ensure the perpetrators face the full weight of the law.”

According to the indictment, the Infraud Organization was created in October 2010 by Svyatoslav Bondarenko aka “Obnon,” aka “Rector,” aka “Helkern,” 34, of Ukraine, to promote and grow interest in the Infraud Organization as the premier destination for carding—purchasing retail items with counterfeit or stolen credit card information—on the Internet.  Under the slogan, “In Fraud We Trust,” the organization directed traffic and potential purchasers to the automated vending sites of its members, which served as online conduits to traffic in stolen means of identification, stolen financial and banking information, malware, and other illicit goods.  It also provided an escrow service to facilitate illicit digital currency transactions among its members and employed screening protocols that purported to ensure only high quality vendors of stolen cards, personally identifiable information, and other contraband were permitted to advertise to members. 

According to the indictment, Infraud members held defined roles within the organization’s hierarchy.  “Administrators” managed day-to-day operation of and strategic planning for the organization, approved and monitored membership, and meted out punishments and rewards to members.  “Super Moderators” oversaw and administered specific subject-matter areas within their expertise.  “Moderators” moderated one or two specific sub-forums within their areas of subject-matter expertise.  “Vendors” sold illicit products and services to Infraud members.  Finally, “VIP Members” and “Members” used the Infraud forum to gather information and to facilitate their criminal activities.  As of March 2017, there were 10,901 registered members of the Infraud Organization. 

During the course of its seven-year history, the Infraud Organization inflicted approximately $2.2 billion in intended losses, and more than $530 million in actual losses, on a wide swath of financial institutions, merchants, and private individuals, and would have continued to do so for the foreseeable future if left unchecked. 

The defendants indicted for their alleged roles in the Infraud Organization’s transnational racketeering conspiracy include:

  • Svyatoslav Bondarkeno of Ukraine;
  • Amjad Ali aka “Amjad Ali Chaudary,” aka “RedruMZ,” aka “Amjad Chaudary,” 35, of Pakistan;
  • Roland Patrick N’Djimbi Tchikaya aka “Darker,” aka “dark3r.cvv,” 37, of France;
  • Miroslav Kovacevic aka “Goldjunge,” 32, of Serbia;
  • Frederick Thomas aka “Mosto,” aka “1stunna,” aka “Bestssn,” 37, of Alabama;
  • Osama Abdelhamed aka “MrShrnofr,” aka “DrOsama,” aka “DrOsama1,” 27, of Egypt;
  • Besart Hoxha aka “Pizza,” 25, of Kosovo;
  • Raihan Ahmed aka “Chan,” aka “Cyber Hacker,” aka “Mae Tony,” aka “Tony,” 26, of Bangladesh;
  • Andrey Sergeevich Novak aka “Unicc,” aka “Faaxxx,” aka “Faxtrod” of the Russian Federation;
  • Valerian Chiochiu aka “Onassis,” aka “Flagler,” aka “Socrate,” aka “Eclessiastes,” 28, of Moldova;
  • John Doe #8 aka “Aimless88;”
  • Gennaro Fioretti aka “DannyLogort,” aka “Genny Fioretti,” 56, of Italy;
  • Edgar Rojas aka “Edgar Andres Viloria Rojas,” aka “Guapo,” aka “Guapo1988,” aka “Onlyshop,” 27, of Australia;
  • John Telusma aka “John Westley Telusma,” aka “Peterelliot,” aka “Pete,” aka “Pette,” 33, of Brooklyn, New York;
  • Rami Fawaz aka “Rami Imad Fawaz,” aka “Validshop,” aka “Th3d,” aka “Zatcher,” aka “Darkeyes,” 26, of Ivory Coast;
  • Muhammad Shiraz aka “Moviestar,” aka “Leslie” of Pakistan;
  • Jose Gamboa aka “Jose Gamboa-Soto,” aka “Rafael Garcia,” aka “Rafael101,” aka “Memberplex2006” aka “Knowledge,” 29, of Los Angeles, California;
  • Alexey Klimenko aka “Grandhost,” 34, of Ukraine;
  • Edward Lavoile aka “Eddie Lavoie,” aka “Skizo,” aka “Eddy Lavoile,” 29, of Canada;
  • Anthony Nnamdi Okeakpu aka “Aslike1,” aka “Aslike,” aka “Moneymafia,” aka “Shilonng,” 29, of the United Kingdom;
  • Pius Sushil Wilson aka “FDIC,” aka “TheRealGuru,” aka “TheRealGuruNYC,” aka “RealGuru,” aka “Po1son,” aka “1nfection,” aka “1nfected,” 31, of Flushing, New York;
  • Muhammad Khan aka “CoolJ2,” aka “CoolJ,” aka “Secureroot,” aka “Secureroot1,” aka “Secureroot2,” aka “Mohammed Khan,” 41, of Pakistan;
  • John Doe #7 aka “Muad’Dib;”
  • John Doe #1 aka “Carlitos,” aka “TonyMontana;”
  • David Jonathan Vargas aka “Cashmoneyinc,” aka “Avb,” aka “Poony,” aka “Renegade11,” aka “DvdSVrgs,” 33, of San Diego, California;
  • John Doe #2;
  • Marko Leopard aka “Leopardmk,” 28, of Macedonia;
  • John Doe #4 aka “Best4Best,” aka “Wazo,” aka “Modmod,” aka “Alone1,” aka“Shadow,” aka “Banderas,” aka “Banadoura;”
  • Liridon Musliu aka “Ccstore,” aka “Bowl,” aka “Hulk,” 26, of Kosovo;
  • John Doe #5 aka “Deputat,” aka “Zo0mer;”
  • Mena Mouries Abd El-Malak aka “Mina Morris,” aka “Source,” aka “Mena2341,” aka “MenaSex,” 34, of Egypt; and
  • John Doe #6 aka “Goldenshop,”aka “Malov.”

In addition, Novak and “Goldenshop” are charged with three counts each and “Deputat” and Musliu one count each of possession of 15 or more counterfeit and unauthorized access devices.

The superseding indictment is the result of an investigation conducted by the Las Vegas Office of Homeland Security Investigations; the Henderson, Nevada, Police Department; the Criminal Division’s Organized Crime and Gang Section; and the U.S. Attorney’s Office for the District of Nevada.

The international operation to dismantle the Infraud Organization would have been impossible without the significant efforts and timely cooperation of the Justice Department’s Office of International Affairs and International Organized Crime Intelligence and Operations Center; Interpol Rome; Interpol Tirana; the Italian National Police (Postal and Communications Police); the Australian Federal Police  and the International Crime Cooperation Central Authority, Australian Government Attorney-General’s Department; the U.S. Diplomatic Security Service, Regional Security Office at U.S. Embassy Tirana, Albania; the City of London Police, DCPCU; the French Ministry of Justice, the Paris Prosecutor, L’Office Central de Lutte contre la Criminalité liée aux Technologies de l’Information et de la Communication; the judicial and police authorities of the Grand Duchy of Luxembourg; the Directorate for Organized Crime Investigation, Sector for Cyber Crime Investigation; the Basic Prosecution Office Pristina, Kosovo; and the Ministry of Justice of the Republic of Kosova, Department for International Legal Cooperation and the Special Prosecution Office for High-Tech Crime of the Republic of Serbia. 

The charges in the indictment are merely allegations, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Trial Attorneys Kelly Pearson and Chimaobim Nwachukwu of the Criminal Division’s Organized Crime and Gang Section and Assistant U.S. Attorney Chad W. McHenry of the District of Nevada are prosecuting the case.

February 12, 2018 in AML | Permalink | Comments (0)