SWIFT-ly robbed

https://en.wikipedia.org/wiki/Society_for_Worldwide_Interbank_Financial_Telecommunication
from Wikipedia

SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is the messaging system banks use across the world to send each other messages. These messages contain transfers of money, securities and instructions on what to do with them. It is being reported everywhere that its servers at the Federal Reserve Bank of New York was breached and a number of accounts have been touched. The current estimate is that the cybercriminals got away with $81 Million from Bangladeshi account at the FRB.

Here’s are the latest:

 


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

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Compliance: a bridge but not a goal

Law and Business often play by opposing rules. Law is about justice and playing fairly and business is about winning and gathering unfair advantages. Compliance is the bridge.

I don’t need to explain why this is the case. But I do need to explain how the goals of law and business are achieved, and where we stand currently.

People outside of regulated industries often believe that compliance is a way to defend companies. They also believe that regulators are out to “get” companies. And then they are shocked to find out that a regulator tried to work with a company who had breached a rule. They are appalled that regulators would actually try to help “fix” the problem rather than punish breacher company. Outsiders who feel this way miss the point of compliance.

Because compliance is trying to keep the competitive spirit alive and well in the industry while keeping companies in line, regulators and compliance officers are on the same side in different organizations. Regulators do not want the industry to be punished for an incredible effort to comply with rules and regulations because mistakes happen. Punishment doled out by regulators is more often to deter companies from making that mistake again. They put a heavy price for mistakes. Unlike customers who can simply move their business to another firm if the company does something they don’t like, regulators do not have that power. So, that’s where fines come into play.

Other than that, regulators are trying to keep business going. They are regulating, not preventing.

What we have seen in the past few years is the lack of understanding by the public. Financial institutions complain about the harsh regulatory climate they are in while the public generally seems to believe that all of it is well deserved. In aggregate that might be true. In reality, what we have done is punish the system, not the bad actors. If the system is broken, it should be fixed. Punishing people trying their best in a broken system leads to inefficiencies, it leads to many unforeseen economic costs.

Two quick examples.

Because of the incredible risks taken by some firms, we merged those firms with better firms. We have merged so many firms that thirty three banks have become four. Now we have institutions that we must prop up if they are at risk of falling. We called them Systemically Important Financial Institutions, SIFI, for short. These institutions are so large and forced to reduce so much risk that unless you do not need a loan, you basically don’t qualify for a loan. That’s the result. SIFI’s can’t take the risk of financing startup companies. And we have fewer banks that can. Companies have fewer options for financing. If I recall correctly, there have only been two applications for new banks in the past five years. Ten years ago, we averaged one hundred applications for new banks each year. We thought that new regulations decreased risk to our economy. Instead, we have ingrained a new risk. Yes, we no longer have large financial institutions that will take the economy with it upon collapse, but we have instituted a requirement that you have to be financed by wealthy people in private equity and venture capital in order to start a business. Or you need to have perfect credit and no debt in order to qualify for a loan. Essentially, you already have to be connected with wealthy people and be wealthy yourself in order to start a business. That’s what the regulations seem to be doing.

http://www.sintetia.com/espana-un-pais-de-pymes-descapitalizadas/
credit Sintetia

A few years ago, a number of states banned employers from checking the credit histories of applicants. This makes sense for the most part. What does the credit history of an applicant say about the applicant’s ability to do the job? Probably, nothing. But the result was… well, let me have Planet Money explain it for you:

(Robert) SMITH: The theory in passing the laws against credit checks was that it would help black applicants, that it would help young applicants, people who tend to have lower credit scores. But now that employers were asking for more experience, asking for more education, [researchers] found that the laws were hurting the very same people they were meant to help.

(Danny) SHOAG: The switch from checking credit scores to relying on other signals like education and experience actually created relatively worse outcomes for African-Americans.

SMITH: So fewer African-Americans were getting jobs?

SHOAG: Yeah. Employment went down for African-Americans – and for young people.

Compliance can help make sure we are following the rules and regulations, and regulators can supervise that activity and deter bad behavior. But regulations that address whole systems in reaction to a few bad actors tend to have these types of fundamentally unproductive consequences.

As a compliance officer, I am always concerned with this. I know that I am helping firms play the economic game fairly, by the rules we have agreed to follow as a society, but our society often seem to set my goals that shoot it in the foot. I know I am doing good, but by doing good I see what outsiders often don’t see, which is that it is bad and we don’t even know it.

And that is the limitation of compliance. Now, I know that my role is supposed to be compliance. We need people to do compliance. I just wish that we as a society would take observations by people like me and then adjust the rules and regulations so that complying with them would lead to the outcomes we sought in the first place.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

CAMS Examination Practice Test

CAMS Examination Practice Test One - COVEROn May 3rd, 2016, two of my three books on studying for the CAMS Examination will be published.

  • CAMS Examination Practice Test One (978-0-9975335-0-7)
  • CAMS Examination Practice Test Two (978-0-9975335-1-4)

I will post links to where you can buy them when I get them!

My third and final book will be a complete study guide. Publishing date is not set, but likely end of May or in June.


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

Bollywood Money Migration

http://mediacbs.blogspot.com/2014/05/foto-foto-aishwarya-rai-memukau-di.html
Aishwarya Rai at Cannes (credit: Media CBS)

 

Bollywood is now being watched. It turns out, the Panama Papers revealed that many Bollywood actors have been moving their money to the Carribean in order to evade tax and restsrictions. Aishwarya Rai, probably the most recognizable Bollywood performer in the West, also has companies setup by Mossack Fonseca, the fourth largest law firm in Panama that specializes in these legal entities. Rai denies knowledge of these entities. Mossack Fonseca, if you recall, is the source of all of the Papers. Panamanian authorities, under pressure from.. the world, has raided the offices. The Firm also has office around the world and those are being investigated as well.

Indian Express Online has put together a very nice video explanation.

As of right now, it is hard to tell how much money has left India, but the Prime Minister has started an investigation with 50 people already on the list.

 


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

ACAMS on British comedy show

image

Association of Certified Anti-Money Laundering Specialists (ACAMS) made an appearance on BBC Radio 4’s The Now Show, a Friday night comedy show based on current events. The biggest news right now is the Panama Papers, much of which references the ultra-wealthy as tax dodgers, making them money launderers. The show seemed to have taken liberties with some of the definitions it learned from ACAMS’s website for comesic effect, but the liberties were slight and technical at best. While educating the public of various terms in the business of money laundering, the show entertained.

M. C. Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience.

 


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. 

How to hide a billion dollars: learn from the best

http://tierrauno.utero.pe/2016/04/04/por-que-panamapapers-y-los-paraisos-fiscales-perjudican-a-todo-el-mundo/
credit Utero

If you haven’t heard, the world’s leaders have been hiding billions of dollars. And one law firm is telling exactly how they do it. Well, they aren’t exactly telling you how, it’s just that someone has stolen their data and given it to journalists. Here are some headlines and links to what I am talking about before I move onto the next layer of analysis.

Brief Overview

Mossack Fonseca is a law firm that helps people and companies setup shell corporations. It has helped many political leaders in Russia, China, Iceland, to name a few. It has also helped private citizens. FIFA executives come into mind. And though Amazon probably wasn’t a client of Mossack Fonseca, the company uses a shell company based in Luxembourg to “avoid” taxes on UK income. So, this is a common strategy for hiding assets and evading taxation.

What is notable about this data leak is both the shear amount of data that was leaked: over 200 people had setup more than 214,000 companies shown in 11.5 million files amounting to 2.6 terabytes of data covering 40 years of the law firm’s work.

Here are some highlights of what the data shows:

  • Since the AML enforcement boosts of 2009, there have been more deactivations than incorporations of shell companies.
  • United States is one of the top intermediary firm incorporators.
  • United Kingdom is one of the top places to locate intermediaries and acted as a tax haven.
  • British Virgin Islands is the most sought after location for shell corporations formed by Mossack Fonseca.
  • Banks, though required to report potential money laundering, have been actively involved. Seven of the top ten banks that  Mossack Fonseca was involved with are well known international firms you probably have heard of.
  • Mossack Fonseca has also helped companies that provided access to funds to the Syrian government, the same government that has been tear the country apart and killing many.
  • The first politician to fall because of this leak is Iceland’s Prime Minister
  • VIX, the indicator of risk in the financial markets was up 10.2% by noon in Chicago on the day that the Icelandic Prime Minister resigned.

Importance of understanding Shell Corporations for AML Programs

Shell corporations are worrisome because the laws that allow such companies provide secrecy. And there is nothing wrong with secrecy in itself, but it attracts and fosters tax evasion and financing of some dubious activity, some of which result in death. Any comprehensive source of AML focus on the importance of routing out shell corporations, but the forces to have shell corporations is much greater. Banks and law firms make billions on hiding money for clients while AML programs are tiny in comparison. Just think about it. Large global banks based in the US and Western Europe have about 2% of their headcount in Compliance, of which, about half of it in AML Program. How much of their headcount is in High Net Worth Wealth Management groups? 10%? 15%? And that doesn’t include investment banking units that help corporations setup shell corporations.

Crime will not be completely wiped out, no matter what we do. But one things seems to be pretty clear: Wealth Inequality fuels shell corporation. As the world creates more people getting a ever smaller share of global growth, those with a share of the global growth is inclined to hide it. The pattern is stark. Greater the inequality, more likely the wealthy are likely to form shell corporations. This is a very odd result to such logic. Countries like Denmark have very few people involved in forming shell corporations and hiding assets and income from tax authorities even though their tax rates are much higher than places like the United States. Denmark’s public school teachers and kitchen staff get paid enough to afford a five week vacation while most Americans are one medicial bill away from bankruptcy. As a matter of fact, the US needs lenient bankruptcy rules because we bankrupt so many people.

I know that this article has turned into a economics argument, but the truth is that AML Programs are a way to cope with the symptoms of an climate and culture of beating the system, not a way of improving it.

Please donate to The International Consortium of Investigative Journalists. They provided organized and funded much of the 100+ journalists who analyzed the material. DONATE HERE.

 


Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.