Money Laundering In London’s Eyes

Money Laundering through real estate in London is in focus. NPR is reporting that about $200 Billion in real estate is owned by offshore corporations. Offshore corporations could be owned by a complex web of owners, ultimately owned by criminals. With foreign money feeding the real estate markets in major global cities like London and New York, law enforcement is bounding to investigate the compliance procedures taken to ensure the prevention of money laundering through real estate in these markets.


Will Standard Charters’ compliance leadership changes make a difference?


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



Many Banks Cut Clients Over Money Laundering Fears

http://robertkaplinsky.com/work/drug-money/
(credit: Robert Kaplinsky)

Many banks have cut clients over money laundering fears. With fewer clients, low interest rates and low volatility, there are less ways for financial institutions with multiple lines of businesses can earn money. Bank of America, Citigroup and JPMorgan Chase combined cut 50,000 jobs in 2014. Industry wide, some have reported 80,000 cuts. Profits are up at banks because of the job cuts, not because of improving economy.

One area that hasn’t seen a decline in headcount is Compliance. All compliance-related areas of the bank (Compliance, Legal, Risk, Controls, Audit) have all seen headcount increases. For many of the areas, skills from other areas of the bank is quite transferable. Knowledge as well.

But knowledge of AML is particularly lax. And, sadly, many of the top decision makers are not versed enough in AML issues to figure out a way to restructure the organization to keep clients. So, the only thing they can do is to cut clients.

While this might be good for the domestic banking industry, on the long run, this will be bad when these firms are trying to compete with their large Chinese competitors. The five largest Chinese banks have an edge on AML programs, should they choose to implement it: government support.

Because Chinese banks are essentially government owned, AML programs in these institutions can implement government level standards even with bank secrecy laws. This integrated approach is at the risk of bank secrecy laws, but it also means that even without knowledge of AML, top decision makers can decide to keep all clients and adjust AML programs as the government sees fit.

This issue has been playing out the last few years because the US has been seeking ways to punish Chinese bank clients through their correspondent accounts for revenue from counterfeit products they sell. The measure should really be tied to counterfeit products that are made, not those that are sold, but that’s especially difficult since the US government has no jurisdiction in production abroad. But US laws allow extra-jurisdictional reach on banking when correspondent bank accounts are in the US. But, of course, Chinese banks are against this. So is the Chinese government. On the other hand, the Chinese government doesn’t want their economy to be so heavily depended on counterfeit products. So, the conundrum is for the Chinese government. The US is enforcing the type of laws they would like to implement, but the punishment will be doled out in the US. If the Chinese government also pursues this, the punishment will be on both sides. And the Chinese government also has to look out for the short term economy, which is heavily depended on counterfeits.

So, at least US and European banks can breath one sigh a relief: the clients they are dropping must find banks within the western government jurisdictions because shifting the economics of counterfeit financing and transactions would provide more leverage to implement more stringent AML programs on the institutions that currently do not have such programs.


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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Stealing from an investigation about stealing

The News

Two federal agents are charged with stealing digital currency during the Silk Road investigation. Two secret agents were from the DEA and the Secret Service. The charges are wire fraud and money laundering.

http://www.occupy.com/sites/default/files/medialibrary/ross.jpg
Ross Ulbricht

About Silk Road

Silk Road was an underground online marketplace where everything and anything could be sold in secrecy using Bitcoin and other digital currency. Silk Road was run by a user named Dread Pirate Roberts, the famous character from the movie The Princess Bride. Silk Road was shut down in October 2013. Dread Pirate Roberts is presumed to be Ross Ulbricht, who was charged for conspiracy to commit drug trafficking and money laundering. Ulbricht denies that he is Dread Pirate Roberts.

Opinion

Cryptocurrencies, especially Bitcoin, will play a big role in transactions. Bitcoin, only because it is the most accepted cryptocurrency. Cryptocurrencies because their value is material economically. Transactions using cryptocurrency on markets like Silk Road provide privacy that the non-cash economy we live in no longer does. The cost of transaction is very small. There is little chance of hyper inflation due to over-creation of the currency. There are some major downsides of Bitcoins for the user as well, but for governments and financial institutions, the main issue is the lack of transparency. It is not that governments want to get rid of privacy. It’s just that where there is privacy, crime is more likely to take place.


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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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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Cleaning Money At Soaplands

Police in Tokyo arrested a manager at Kanaden, an electronics parts company. He was charged with bribing Hideyuki Tominaga, head of the development division of Japan Freight Railway. The bribes were supposed to encourage development work to be given to Kanaden.

What is interesting, and scintillating, is the way the bribes were executed. Tominaga would over pay for massages at a soapland, the change going to Kanaden. This is a lot like money laundering techniques export-importers use.

http://www.pornjapan.jp/jp_sexculture/soapland.html
a soapland scene by Riana Natsukawa

For those of you who do not know what a soapland is… Well, it isn’t exactly safe for work to show you. The image I provided give you an idea if you don’t want to do a search. The quick description would be that a man would go in to an establishment called a soapland. He is assigned to a beautiful female attendant who washes him, baths him and massages him in private. You can see all of the potential, can’t you? One thing to note, in Japan, only intercourse for pay is considered prostitution. All other types of sexual activity can be compensated without going afoul of the laws.

In this particular case, the only part that was afoul of the laws was the bribery. Another interesting thing is that paying money for more business is generally not a bribe in Japan. Japan Freight Railway, however, is a pseudo-private company. Meaning, it is state sponsored, although it is in most other ways just like any other company. But these pseudo-private companies must follow all government business practice standards.

So, what is amazing about this case from a compliance standpoint is that neither the use of sexually charged, if not actual sex, service nor paying to direct business their way are illegal acts in themselves. Tominaga really had to work hard to run afoul of the law.


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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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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