Say Hello To My Little Friend…

… I call him FinCEN.

FinCEN, the Financial Crimes Enforcement Network, a division of the US Department of Treasury, issued  a GTO, or Geographic Targeting Order. This is a rarely used order, for the obvious reason that money laundering is usually not concentrated in any one place. But Miami businesses are going to receive closer scrutiny from the sub-Treasury group because of money laundering related to drug trafficking. Effectively, this lowers the currency reporting threshold from $10,000 to $3,000.

'You've not been involved with money laundering before have you Joe!'This is a good time as any to discuss Black Market Peso Exchanges, or BMPE. This is a money laundering scheme often used by Colombian drug cartels to repatriot their US earnings back to Colombia. The exchange serves as the middle man. The exchange imports good into Colombia from the US, the imports being products that the cartel wanted, either to sell to the local market or for themselves. Cartel gives the exchange US funds, which is used to purchase goods for export. Effectively, it looks like the exchange is shipping many small orders from retail customers in Colombia, but actually, it is just laundering money.


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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Inversion Mergers Raise Compliance Concerns

In 2014, many firms merged with foreign firms to execute an inversion so that they will be subjects of a different tax jurisdiction. The idea was to answer to foreign taxation first, only paying the difference, if anything at all, to the US government, creating massive savings. Inversion is a cross-border merger where the smaller foreign firm takes over a larger domestic firm. It is truly an inversion of the classic merger, but for the recent inversions, this is legal mumble-jumble. While technically the foreign firm took over the larger firm, the larger domestic firm is assuming a subsidiary role in name only. For this reason, The Department of Treasury started cracking down on foreign inversions.

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image from Bloomberg Business

Now that the mergers have happened, in order to maintain the inverted status, a true merger must take place. That requires merging the operations of the two firms. All of the usual headaches of merger implementations apply. One of those headaches is compliance.

Inversion generally took place outside of the financial services world because that was an industry already global in nature on a firm to firm basis. So, the regulatory compliance issues pertaining to inverted firms are unique to each merger.

What isn’t unique is the US operations having to comply with foreign regulators. Here is where the US firm will need to be guided by their foreign counterparts, who may not be all that eager to help since the executives at the smaller foreign firm might be out of a job by the end of the year if the merger implementation goes smoothly.

And then then there are labors laws. The EU has TUPE — Transfer of Undertakings Protection of Employment. (Most of the inversion took place between US and Europe.) This protects many employees when transferring to new employers. Americans have long left unions behind but Europe is much more labor friendly. Shedding the European workforce after the merger might get tricky. Even complying with simple issues like mandatory national holiday and vacation day rules might create an inequality on which the US counterparts may demand parity.

And then there is the tricky situation of US expatriates working for the newly formed non-US firm. Are they still expatriates or are they immigrants? How these employees get paid, now that they are no longer working abroad for their firms?

A successful merger is a one time expense and, hopefully, in the mad rush to find foreign dancing partners, Americans didn’t partner up with one with two left feet. Constantly replacing one shoes will get expensive.


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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Bank in Andorra helped money launderers

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Banca Privada D’Andorra Logo

Do you know where Andorra is?

Probably not. It is the Switzerland of the Pyrénées.

It shares many traits as Switzerland. It is a tourist economy. It has a successful ski resort industry. It is a tax haven. And it has bank secrecy laws that make it a attractive for the wealthy to hide their wealth.

Anywhere bank secrecy laws make it easy to hide wealth is a place that attracts those who acquire wealth through illicit business. Andorra is no exception.

The Chief Executive Officer of the Banca Privada d’Andorra is facing money laundering charges. He is accused of helping clients from China, Russia and Venezuela and possibly others after a more comprehensive investigation commences. The arrest is a reaction to the bank being placed on US Treasury list of “primary money-laundering concern.” Entities and persons on this list are often barred from the US financial system, which, in return, cascades to reciprocal severances from other financial systems.


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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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.


AML Means Anti-Money Laundering

Money Laundering is the process of making earning from criminal activities into legitimate money. It’s called “laundering” because the money from criminal activities is considered “dirty” money, so, “laundering” it would “clean” it. AML is the activity of preventing and identifying those activities.

The general process of money laundering begins by placing the dirty money into the financial system, layering it under the cover of a legitimate business and then integrating it by acquiring the funds legally. There are various strategies and tactics to successfully laundering money but with the aid of technology and broader reach of the global financial system, it is much more difficult to succeed.

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Van Heusen Advert via Erotic Mad Science

Because there are so many ways and so many places criminals try to launder money, there are many organizations involved. FATF was formed to provide guidelines for enforcement of anti-money laundering activities. All of the financial regulators are involved in oversight, review, exam and enforce AML activities. Intelligence and law enforcement organizations are also involved because the criminal activities tend to be mixed with other criminal activities.


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.


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

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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.