NPA Means No Prosecution Agreement

I have written about DPA‘s before, so, it shouldn’t be surprising to find out that there is an NPA as well. Obviously, NPA is a better deal than a DPA, although often a DPA is a de facto NPA.

Leslie Caldwell
Leslie Caldwell

Leslie Caldwell, Assistant Attorney General, is reported to having told ACFE (Association of Certified Fraud Examiners)  that NPA’s and DPA’s may be taken back and financial institutions could be forced to plead guilty.

This isn’t earth shattering news for big banks since most of them have plead guilty to something over the last couple of years. Caldwell’s statement comes when many of the major problems of the 2008 financial crisis are coming to a close, raising concerns about whether legal reserve funding has been adequate. The fines have been, at times, in the tens of billions of dollars, so this is a big deal. One bank, does doesn’t matter which one so I won’t name it, was fined more than the income earned on the activity that generated the income to begin with. These fines are no longer just a slap on the wrist. It is a warning for bank to brace themselves. And they had better make sure their businesses are ready to comply going forward, not just mitigate the damages of the past. Otherwise, they will be facing negative 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. 

Visa: Everywhere you want to be (in the US)

U.S. INDICTS ALLEGED CORRUPT CHINA OFFICIAL AND WIFE FOR MONEY LAUNDERING, VISA FRAUD – from FCPA Blog

Visa
Visa

Last month, US arrested Zhao Shilan and her ex husband Qiao Jianjun, both 51, in Newcastle, Washington, a suburb of Seattle. This isn’t the normal visa fraud story. It has multiple parts.

House in Newcastle, WA from South China Morning Post
House in Newcastle, WA from South China Morning Post

US has laws that allow a wealthy foreigners to own a business in the US with an investment of at least $500,000 and must create some jobs to gain a visa, specifically an EB-5. The idea is to encourage foreign direct investment. The minimum required is $500,000. The Chinese couple, they were married at the time, bought a home in Newcastle for $500,000.

Here’s the string of lies:

  • Zhou and Qiao are married, but they aren’t, so, Qiao doesn’t qualify as family.
  • Neither owns any business in China.
  • Qiao performed an illegal transaction at a grain storehouse, where he was a director, to acquire the funds for this real estate purchase.

Zhou has been arrested and faces charges for immigration fraud and money laundering, which could land her in jail for 30 years if she were to do them consecutively. Qiao is a fugitive and has not been found.

Qiao Jianjun from The Chinese Journal
Qiao Jianjun from The Chinese Journal

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How criminals got paid and got away.


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Greek Tax Evasion Is Money Laundering?

Yanis Varoufakis, Finance Minister of Greece
Yanis Varoufakis, Finance Minister of Greece

Tax evasion in Greece reached 49% in 2005. Has come down since but still above 40%.

Fakelaki means “little envelope”, the term being used as the bribes made to public servants to expedite certain services or look the other way on certain infractions.

Forokarta means “tax card”, the term being used as the failed proposal to give everyone in Greece a spending card to track how much each person is spending. If the spending be beyond the income, wealth and other financial resources available, then that person is a likely tax evader.

Tax evasion is a predicate crime to money laundering. Tax evasion is, in essence, skimping out on one’s debt to society. Many wealthy tax evaders hide their funds in tax havens with lax AML programs and loose incorporation standards. These are the same jurisdictions that tend to allow shell banks – banks that do not have a physical presence anywhere, just a bank on paper. If only half of Greece’s taxable income earners are paying taxes, that means the nation is half populated by money launderers. The reason Greece doesn’t consider them money launderers is because they are voters. Plus, Greece isn’t the only country with high tax evasion rates. It has been reported that about 20% of taxable income is never reported in Italy.

Tax collection is important for two main reasons:

  1. the need to pay government employees, and
  2. the need to show creditors that they have the ability to pay back its loan.

This second reason is often overlooked by people who are not involved in sovereign debt markets. Simply put, if the borrower shows that it should be able to bring in a certain amount of money each year but its history shows that it always brings in less, then the stated projection is not to be trusted. Once trust is gone, it is very difficult to get it back. While Italy might be able to win trust back quickly if it gets its act in order because it is such a large economy, Greece is not in such a recoverable state at the moment. Not only does it have among the lowest tax collection rates in the Eurozone, but it is also a very small economy in it as well. Greece makes up about 2% of the Eurozone GDP. The only importance Greece has is a symbolic one: the Euro currency stand to lose trust in the world markets if Euro economies can leave the currency zone.

This is a long way of saying that Greece’s economic problem might start to get solve simply by reclassifying tax evasion, a minor offense, to money laundering, a major offense. This reclassification does not take any change in laws because Greece already has laws that state that tax evasion is money laundering. It had to write such laws to join the Financial Action Task Force, the world’s leader in the promotion of anti-money laundering.

Note: While all of the figures are correct, they might be a little outdated. The difference with updated data should not material change the issues.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is the author of the forthcoming book History of Money Laundering: How Criminals Got Paid and Got Away.


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Tech-up Compliance Now with CompliTech!

ABA Center For Regulatory Compliance
ABA Compliance Central

Compliance has a much bigger role in the business of banking than responding to regulators. Compliance must prevent mishaps.

Banks are continually investing in technology to defend themselves against cyber crime. But because Compliance as a function of its own only has come into prominence in the last few years, there aren’t any status quo compliance technologies. Plus, Compliance is an area that covers a lot of ground. There are the core Compliance functions like AML, Compliance Training, Compliance Audit and Compliance Advisory. And then there are both support functions and regulatory groups. The knowledge required to have a fully functional Compliance department is as large as the number of products and services the financial institution has. The major investment in technology right now support monitoring, reporting and analysis. And these tools are fairly rudimentary.

The solution is to have startups who partner with law firms and compliance professionals to develop Compliance products and services using a SaaS model. SaaS is Software as a Service. If you’ve never heard of it, you have definitely been involved with it. Cloud computing is generally SaaS-model business. Dropbox is a SaaS-modeled business. It provides the customer with storage space on a need-basis. Amazon has a cloud system for web businesses. Tumblr uses Amazon’s cloud.

The SaaS model is perfect for most banks. Most banks do not have profits in the billions. Investment in tailored technology is just not feasible. Community banks sometimes eek out a profit in the hundreds of thousands. Credit Unions are theoretically profit neutral, but if there is a surplus that can be set aside for technology investment, they are just trying to keep up with all of the various online and mobile banking products and services that are available for customers.

So, someone needs to marry Compliance with Technology for these smaller financial institutions that simply cannot afford the develop their own technology and yet they face all of the same AML risks and most of the same Compliance requirements.

I would be willing to to join someone who is interested in doing this. I am not a Luddite but I am not a query master. My area of expertise is in managing Compliance departments, relationships with regulators and operations. A truly well rounded CompliTech firm should have the following people as founders or early on: lawyer, AML specialist, statistician, UI/UX developer, database developer and Compliance specialist. I fulfill two of those areas. If you think this is a viable business, let me know.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Switzerland, Private But Not Criminal

Attorney General of Switzerland, Michael Lauber, froze $400 Million of Petrobras’s assets in the Alpine private banking hub. Lauber has identified more than 60 suspicious transactions spanning over 300 accounts in more than 30 banks. Aside from an investigation in the Brazil-owned petroleum firm, Lauber has opened nine investigations on individual. Eight of the nine are Brazilian nationals.

http://www.bilanz.ch/unternehmen/bundesanwaltschaft-mutmacher
Michael Lauber, Attorney General of Switzerland

“The Brazilian bribery scandal affects Switzerland’s financial center and its anti-money-laundering strategy,” said Lauber.

The money laundering schemes stem from sides deals made on corporate deals. Funds were skimmed from contracts as fees for making deals, which were then paid through Swiss banks to conceal their true sources and beneficiaries.

 


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Cuckoo Smurfing Means Criminal A Pays Criminal B In Different Countries

Cuckoo Smurfing is a way for criminals to move money from one country to another, usually. Sometimes it is used to move money from one bank to another within a country but with so many ways to move money these days, intra-country movements don’t requires an elaborate procedure.

large Cuckoo chick and smaller non-Cuckoo surrogate

The term comes from two things. First is cuckoo, which is a sneaky bird. When a bird of a similar or slight smaller build lays eggs and leaves the nest to find food, a cuckoo will push off some of those eggs and lay its own. What happens is that the cuckoo eggs will be taken care of by the unsuspecting bird. The bird will take care of it after it is hatched and because cuckoo chicks tend to grow more quickly than other bird, it will compete better when asking for food, causing other chicks to be malnourished and often die. Second is Smurfing, which is a verb created by the creators of The Smurfs, a Belgian television show from the 1960s that became very popular all over the world. The smurfs often replaced verbs with the word smurf. So, a smurf might say, I feel like smurfing some bread, replacing “eating” with “smurfing.” Combined, Cuckoo Smurfing is discretely replacing funds to take care of a transaction that criminals needed done to begin with.

It is important to note, in order for cuckoo smurfing to work, a money remitter must be knowledgeably involved.

Here’s how it works:

  1. NY Criminal (NC) has a need to pay London Criminal (LC) $10,000.
  2. A London Merchant (LM) has a need to pay NY Supplier (NL) $10,000.
  3. LM goes to the London Bank (or any money service that can make this transaction), and provides $10K with instructions to have it transferred to NL to the New York Bank.
  4. Banker at London Bank is part of this cuckoo smurfing operation. He instructs NC to deposit $10,000 to NL’s New York Bank account. Then he gives LC $10,000.
    Neither LM nor NL know that the fund was never transferred because what matters to them is that LM paid $10,000 and NL received $10,000. But doing this transaction this way, NC has successfully paid LC the $10K he owed.

There are many places that describe this on the internet but what almost all of them fail to describe the procedure in any meaningful way. They fail for two reasons. They do not:

  1. start by what criminal need creates the need to make the transfer to begin with, and
  2. explain the significance of having performed this transaction this way.

I hope I was able to describe it in a way that is more enlightening. I may do a video about this transaction since there doesn’t seem to be one that exists.

UPDATE Feb. 18/2016: There is now a video explaining Cuckoo Smurfing.

 


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. 

PayPal’s $7.7 million fine is a boost to CompliTech

PayPal Logo
PayPal Logo

Last week, PayPal, the eBay owned online payment company, was fined $7.7 Million for 486 OFAC violations. And that was a reduced fine just for 2013. 2014 investigations have not been completed at this time. That comes to nearly $16,000 per violation. Considering the number of transactions PayPal does, 486 is nothing. But then again, if fines were applied to a larger number of transactions, PayPal wouldn’t have a viable business model. And these violations were made with a strong compliance and anti-money laundering department. Imagine the violations without such a department in place.

PayPal and other Financial Technology (FinTech) firms are categorized as Money Service Businesses (MSB’s), not banks, because they do not offer depository services. this categorization does not absolve them from regulations pertaining to transactions and sanctions, like banks. Last week, they found out what it will cost them to stay compliant.

Generally, FinTech firms consider themselves to be the new alternative to banks. So, they don’t work with banks unless forced. So, compliance is not something FinTech spends a lot of time worrying about, resulting in less compliance experience.

Banks, however, despite their effort to reduce the effects of regulations, have been beefing up their compliance departments as well as vendor services. Some of the vendors are in the new sector of Compliance Technology, or CompliTech.

CompliTech has been around a decade or more but its recognition as a sector of its own is brand new. CompliTech is made up of a handful of firms across the US and Europe as well as groups within existing large bank systems providers. Their products are not yet fully tested, still require incredible amounts of human intervention and are expensive. Small financial players like community banks, credit unions and FinTech cannot afford their services.

But these are the very firms that need CompliTech services the most. If an organization is trying to provide inexpensive products and services with convenience without compliance programs afforded by economies of scale afforded at large institutions, they run a greater risk of serving cash-based businesses and immigrant populations with ties to foreign businesses. These providers face all of the threats of global banking without the benefits. To make matters worse, when a few CompliTech firms emerge as the leaders in the industry, big banks, bank systems providers and large consulting firms are more likely to snatch them up, leaving fewer options for FinTech to fend for themselves.

PayPal is an exception to all of this, as it is an exception in FinTech. It has been a round a while, it is large, and, these afford it a sophisticated compliance program. It hires PhD’s to do statistical analyses and ex-military intelligence officers to execute counter-terror financing. What startup can afford such programs?

CompliTech will eventually get around to serving FinTech. But until then, FinTech is far from taking over the transaction space.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


FinCEN sets enhanced due diligence against high risk countries

FinCEN is increasing its effort to fight money laundering and terrorist financing. It is doing it by setting higher risk-based due diligence requirements for financial service institutions. The requirements meet the standards set by FATF.

FinCEN also  provided a list of countries that these requirements will be applied to, though if the risk-based approach results in similarly high risk issues in other countries, financial institutions are required to use these due diligence measures as well. The countries are as follows:

http://www.undervaluedequity.com/Country-Risk-Ranking-System-How-I-Assess-My-Stock's-Country-Risk.html
image from Jeroen Snoeks
Sanctioned countries:

  • Iran
  • Democratic People’s Republic of Korea (DPRK)

subject to FinCEN enhanced due diligence requirements:

  • Algeria
  • Ecuador
  • Myanmar

Improving Global AML/CFT Compliance: on-going process (also, subject to FinCEN enhanced due diligence):

  • Afghanistan
  • Angola
  • Guyana
  • Indonesia
  • Iraq
  • Lao PDR
  • Panama
  • Papua New Guinea
  • Sudan
  • Syria
  • Yemen

Jurisdictions not making sufficient progress (also, subject to FinCEN enhanced due diligence):

  • Uganda

Jurisdictions no longer subject to listing and monitoring (FinCEN recommends that financial institutions take the FATF’s decisions and the reasons behind the delisting into consideration when assessing risk):

  • Albania
  • Cambodia
  • Kuwait
  • Namibia
  • Nicaragua
  • Pakistan
  • Zimbabwe

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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OFAC Means Office of Foreign Assets Control

OFAC is an office within the Terrorism and Financial Intelligence Office at the US Department of the Treasury.

The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement organization of the U.S. government charged with planning and execution of economic and trade sanctions in support of U.S. national security and foreign policy objectives. Acting under Presidential national emergency powers, OFAC carries out its activities against problematic foreign states, organizations and individuals alike. – Wikipedia

http://historiasbastardasextraordinarias.blogspot.com/2014/12/critica-cine-the-interview.html
Randall Park in The Interview via Historias Bastardas Extraordinarias

Historically, OFAC was dealing with sanctions on Iran, North Korea and Cuba, the usual suspects. But nowadays, OFAC also deals with individuals connected to Russian President Vladimir Putin and individual terrorists.

Making a career in this area of regulations involves great amount of interest in both financial crimes investigations and geopolitics. It also involves keeping up with information on what other regulatory bodies are doing, such as FinCEN, FINRA and Department of Homeland Security.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


CFT Means Counter-Financing of Terrorism

Counter-Financing of Terrorism (CFT) is also known as Combating the Financing of Terrorism. Both are abbreviated as CFT and mean the same thing.

IMFThis is an AML activity that encompasses surveillance, assessment, investigation, sanctions and other traditional AML activity. A bank can receive instructions or guidance from any number of government entities. International Monetary Fund (IMF) has developed standards for assessment through its Offshore Financial Centers assessment program. Surveillance guidance is provided by Financial Sector Assessment Program (FSAP), which is another the IMF. And the Financial Action Task Force (FATF) plays a crucial role in developing the standards for assessment.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.