ACAMS on British comedy show


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
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. 

Ethics Does Not Have To Be Serious
credit Digital Transcendence

Ethics has to be real. Ethics has to be appropriate. However, ethics does not have to be serious. Seriousness is a style. And there shouldn’t be a prohibition on taking pleasure in doing the right thing.

I was asked to distinguish between ethics and morality. Morality is what is considered right or wrong by a person or society. Ethics is morality in action. So, if you believe that Jesus Christ was the son of God, then it would be unethical for you to desecrate his image. For that matter, if you don’t believe that Jesus Christ was the son of God but you do believe in respecting other people’s beliefs, you would avoid desecrating images of God worshipped by others.

Notice, I framed morality based on an individual’s belief and, in my second example, I changed the belief but applied the decision to act the same way. There are subtle difference that I won’t get into in this post.

Obviously, desecration of holy objects is a very grave matter. But the non-desecration should not be. It should simply be the norm that people are respectful of each other’s beliefs.

This can be applied to corporations. There is one difficulty with corporations, though: they aren’t democracies. The president or CEO gets to prescribe the appropriate behaviors and one must keep morality to the self. This is an HR issue.

I want to talk about ethics and sales. Financial advisors may have their own personal beliefs, but they take an oath to act in accordance with a set of codified conducts. The industry set these up specifically because FAs are knowledge workers and what they provide is not just financial products but advice. For this reason, an inappropriate product for a certain type of client is forbidden. This hurts the investor and it makes the industry look like cheaters. So, if you want to join the industry, you much follow the ethical guidelines prescribed to you.

This prescription even goes as far as breaking the code of coduct of the financial institution the FA is working for. Against, this no-exemption exists so that firms cannot create an environment where financial advisors are permitted to dismiss their oath.

This is all serious stuff. Why? Because we are talking about harming investors.

But for an FA who loves providing value advice and access to products to his or her clients and the guidelines make him feel secure that his competitors cannot cheat, then why shouldn’t they have a smile on their faces?

So, smile.

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. 

Don’t be fooled by student debt article

This is not about financial regulatory compliance from the perspectives of regulators or financial institutions. This is about compliance from a personal finance perspective. The short and skinny of it all is, you should not borrow money for education if at all possible.  The reason is because it is one of the worst to get toward financial independence.

I will explain why by first explaining how income taxes and their associated fines work when you don’t pay your income taxes. If you earned $100,000 in 2015, your effective earn income tax rate is 28%, or $28,000, unmarried non-head of household taxpayer. If you didn’t pay any of that, you would pay a fine of up to 25%. This in on top of the unpaid taxes you must pay. Basically, the IRS is punishing you for borrowing money you owe them. That makes sense. So, 125% of $28,000 is $35,000, or an effective tax rate becomes 35%. This is only applied to the years you did not pay your income taxes, of course.

Let’s see what that looks like when it is converted to student loans. If you borrowed $100,000 for your higher education, and if your interest rate is 5%, and you are in repayment, then this year you would pay $12,727.92, of which about 95% of it in your first year of repayment will be interest, or $12,091.53. Essentially, you are paying this interest to the government, which, if you think about, is a tax because this is not the amount you borrowed; it is on top of it. And, also, you must pay all of the borrowed money back. It is kind of like having a very low interest rate for this portion of borrowed “income.”

Since you are in repayment for our example. You would get a deducation of up to $2,500 from your pre-tax income, the deduction cannot exceed the amount of interest paid. So, now you will pay 27.3% or $27,300 on your earned income, a savings of $700. Plus you will have been paying the government an additional $12,091.53, so, you will have paid the government a total of $39,391.53. And this will continue for ten years, albeit the “tax” portion of it will decrease. Another way to look at it, regardless of whether you pay all of the interest, you will still have to pay more interest for at least ten years, unlike not paying taxes, which you will only have to pay interest as long as you don’t pay.

In order to pay an effective tax rate of 39.3% on your earned income, you would have to make $14.3 Million. Another way to think about it this: in order for student loans to really make sense is if you either make enough money to live on comfortably even after you pay your student loans and you are guaranteed to have your job(s) for the duration of the repayment period, or make a break even amount the first year and then an increase in your income to the amount of the interest rate each year (which becomes easier to do each successive year because the even monthly payments effectively reduce the interest payments over time).

That magical break even income for the example’s first year is… about $66,700. How do I figure? Well, if living comfortable on average costs about $40,000 per year, and your effective tax rate will upwards of nearly 40%, then you need to make $40,000 after tax. This $66,700 only accounts for Federal Income Tax. It does not account for Social Security, Medicare, local taxes. Most of those other taxes amounts to about 10% of your income, depending on where you are. That means, you’d need about $80,ooo.

Who gets paid $80,000 on their first job after undergrad? Engineers and investment bankers. Is it no wonder that they have the bandwidth to accomplish a lot of other things in their early lives?

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. 

IRS Cyber-Security Severely Underfunded

credit Wikipedia via Bing

TIGTA is the abbreviation for Treasury Inspector General for Tax Administration, the officer that tracks down fraud schemes by taxpayers and, increasingly, on taxpayers. The current TIGTA have been making progress in impeding the efforts of IRS impersonators. Inspector General, J. Russell George, said, “Perpetrators used to be able to get a victim every 40-50 calls, now they must make 300-400 attempts to claim a victim.”

Still, George’s boss, Secretary of Treasury Jack Lew, assessed that the programs that combat cybercrime on taxpayers is “severely underfunded.”

This is a serious problem because cybercriminals, like all criminals, try different methods when a previously effective method is closed off. Most of these methods almost always include a cybercriminal getting identification information to file a bogus tax return in order to get a refund. The average refund is about $3,000, so, it only takes about 34 to get over $100,000. There are about 60 working days between the end of January, when W-2’s are sent to employees and tax day, so, if a fraudster were to treat this like work, the booty could be about $180,000 when the success rate is just one per day, pretty good work for working less than a quarter of the year.

Over  nine in ten taxfilers file online, which adds other methods of identity theft that could result in more than just a stolen tax refund.

President Obama is proud of having reduced the deficit by reducing Federal spending, but a reduction in the enforcement of such a lucractive crime is a poor way to reduce the deficit. He has reduced the decifit in other bad ways, but that’s not to do with cybercrime and IRS. For now, he and his Secretary of the Treasury disagree on how much is needed to fund the cybersecurity of the IRS.

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 will you know government is targeting your GMail?

Google will tell you.

In the latest effort to fight the FBI is the court of public opinion, Google has decided to just let you know when you are being targeted by a government entity.

The way this will work is that a warning will pop up before the user visits a site from a link provided in GMail. The warning will be just like the “safe browsing” warning that shows up in Google Chrome when a link leads the user to a suspicious or known malicious site.

Google is doing this in light of FBI’s pursuit of Apple’s encryption keys.

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. 

Wealth Management in China might not be managing wealth

Lack of auditing financial statements and going concern by professionals is a problem around the wholebut in China, the scale is just different. Everything is just bigger.

Guangdong Bangjia sold financial products that promised returns up to 47% on loans and loan funds. The Company targeted senior citizens for these investment opportunities. In a country that is so new to financial products and so large that scale of things just are immense, many investors took the bait. Some 230,000 of them have been investing in the Company during the course of about a decade. But there were no investments. It was a Ponzi scheme.

How did Chinese senior citizens end up investing in this Company’s funds? Well, the Company invested in itself first. It spent money on lavish and grand marketing exhibitions, proving that it can afford to do such things because of its success.

I didn’t intend to write three articles consecutively on financial crimes in China, but I couldn’t help it but notice how big financial crimes can easily get in China. This is a place with very little wealth for the ordinary citizen. But because of the countries fantastic rise and people being exposed to media that show them how wonderfully wealthy some people of little means have become, people are willing to take a chance.

The sad thing is that the United States is becoming this sort of place. Getting ahead by working hard is less and less secure, so, more and more people are gambling. US has the lowest labor participation in a very long time and the average income per employee hasn’t kept up to pace with inflation, even while productivity per employee has increased over the past three decades. Financial crimes involving financial professionals offering hope of a better life is going to be more prevalent if we don’t start doing something to make sure we do something about the system that makes us want outrageous investment returns.

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. 

When 95% of borrowers are fake

The following story is an argument for having good auditing laws and securities regulations protecting investors.

e-Zubao was an Anhui-based Chinese online financing company. It was small, just 21 people. And in just 18 months, it became the largest online financing company in China. It provided loans to consumers, promarily, at 9% to 15% interest. Investors loved it. This company was going to make hand-over-fist. Almost a million investors invested in the company through the stock exchange.

None of the above is false. But they did falsify one thing: the number of borrowers. There were none. Well, not exactly none. About 5% of the stated borrowers were actually borrowers. The rest were made-up ghosts. To put it in terms of returns, to make the same kind of returns it stated it would be making, it would have to have just one employee, and all other costs must also be 20 time less.

You can imagine the horror when investors found out that their explosive company imploded.

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. 

Paper is a problem in China

China’s banking system has a paper problem. It uses too much of it. In today’s realtime-tracking systems and continuous risk calculations and cross-market arbitrage algorthms, much of China’s $700 Billion financing market is funded through paper loans. In one incident late 2015, Citic Bank, one of China’s major banks, discovered a fraud scheme that approved $150 Million of approved loans using a financial instrument called Banker’s Acceptance. This is a short term loan that does not need to meet all of the stricter requirements of a traditional loan. This fraud was done through the production of fake documents.

As a result, China Banking Regulatory Commission publicly asked banks to review their banker’s acceptance bills financing instruments. This is in the face of an industry with little domestic competition, and, therefore, no real need to manage risks. For that matter, the domestic operations of Chinese banks is quite archaic. Only one in five loans are done electronically. This often means, loan proceeds are given to borrowers before a complete review has been completed.

The problem here is two fold. There is the direct problem, which is that the industry needs to have a regulation that requires full reviews, and, hopefully, will pressure banks to make their loan application and review process be more electronic. And then there is the systemic issue. With every bank essentially acting as an arm of the central bank, there is no competitions, so, there is no motivations to compete. Without such competition, why should any executive risk the bank’s operations with costly and unproven improvements? There is very little upside.

The irony is that Chinese bank operations in other countries, like the US are highly risk averse. They more risk averse than their Western counterparts.

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. 

33 banks lost to create 4

from Exposing Truth
from Exposing Truth

Risk is always two sides. Get rid of one risk and it comes with another. Insurance plans, for example, supposedly reduce risk, but if you pay the insurance premium, you are essentially getting rid of the substantive risk for a financial one. One of the ways we have thought about reducing risk is by making each financial institution insure itself through sheer size. The local pizzeria simple isn’t much of a loan risk to a bank with trillions of dollars. We have offset that risk with the risk of less personal interaction. We have made banking more and more transactional and less and less transformational.

The day-to-day business of a bank is really transactional. But the purpose of all of those transactions are supposed to be both transactional and transformational. Transactional in that the money gets wired, or deposit is recorded, or loan is approved. Transformational in that the money wired could provide someone the funds to get to work that day, or the deposit recorded provides the documentation for a mortgage loan, or loan approved so that the borrower can start a new business.

The question for Americans in regards to the size of financial institutions is whether the transactional efficiency now hinders the economic transformation that it is supposed to foster. More efficient transactions free up funds for other economic activity. But have we gotten to a point where the freed up capital is primarily helping wealthier people who then are equipped to more resources to make them wealthier while leaving the less-wealthy behind?

This is not a new question, of course. And I certainly don’t have the solution for what is the right amount of competition in banking that will foster more economic transformation while keeping risk relatively low. One test that I place to begin my inquiry is this: What percentage of transformational projects have been funded by bank loans versus investment from wealthy people? As a follow up, I would ask, When did these transformational projects get funded? I don’t know the answers to these questions but my feeling is that greater transformational projects have been funded by wealthy people over time. While I don’t know what proportion is the right proportion for the American economy, we are probably in a period where bank loans do not transform much of the economy anymore. If my feelings were on the mark, it would probably also mean that banks play a less important role in transforming the economy than before, and, therefore, might need a shake up of some sort. That shake up could come in the form of bank breakups, which increases the number of leaders in the industry with smaller pockets, forcing them to rely on ideas to have bank loans compete better with equity investments. But then again we are not in the mood to taken on more risk these days, and competing with equity investors to fund projects is a riskier activity.

So, I guess what I’m saying is: We are thinking about risk to the financial system all wrong. Size itself is just one variable but it isn’t big enough of a variable to change the economy in any meaningful way. Our mentality now is that banks simply move money around and store it and lend it to known risks. People used to start business with loans. Now, less people start businesses with loans. We have given debt a bad name. And that won’t change with having smaller banks… after all, banks, regardless of size, are enablers of debt.

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.