financial crime digest april 2015

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FINANCIAL CRIME DIGESTApril 2015

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FINANCIAL CRIME DIGEST

The Serious Crime Act (Commencement No.1) Regulations2015 (SI2015/820) were made on 19 March 2015.

Under Regulation 3, section 37 of the Serious Crime Act 2015,

relating to exemption from civil liability for money laundering

disclosures, will come into force on 1 June 2015.

Section 37 places civil immunity for money laundering

disclosures on a statutory footing. The exemption provides that

where an authorised disclosure is made in good faith, no civil

liability arises in respect to the disclosure on the part of the

person or on whose behalf it is made.

The Regulations and explanatory notes are HERE.

Welcome to the April 2015 Financial Crime Digest,covering updates from March 2015.

This months updates include Serious Crime Act 2015exemptions from civil liability for money launderingdisclosures, the application of AML rules to digitalcurrencies, the first inspection report of the NCA, andthe FCAs 2015/16 business plan. We also provide around-up of recent press and media coverage of Anti-money laundering, sanctions, bribery & corruption, fraud, and insider trading issues.

TECHNICAL AND REGULATORY UPDATES

1




2

Anti-money laundering and counter-terroristnance supervision report is published byHM Treasury

HM Treasury has published its fourth anti-money

laundering and counter-terrorist finance

supervision report. Chapter 5 of the report lists

good and bad practice by UK supervisors on the

following themes:

l How supervisors adopt a risk-based approach

l Monitoring activity

l Enforcement action and deterrence

l Advice and outreach

l Information sharing

The report is HERE.

Financial Sanctions - Chancellor announcesgovernment implementation review

In the Budget report (paragraph 1.102), the

Treasury has announced that the government

will review the structures within HM Treasury for

the implementation of financial sanctions and its

work with the law enforcement community to

ensure these sanctions are fully enforced, with

significant penalties for those who circumvent

them. This review will take into account lessons

from structures in other countries, including the

U.S. Treasury Office of Foreign Assets Control. It

will consider how to maintain and improve the

service that HM Treasury provides to the private

sector, maintain the integrity of, and confidence

in, the UK financial services sector, and

strengthen the governments ability to implement

and help enforce this vital tool in the UKs

national security interests.

The Budget report is HERE.

HMIC issues rst inspection report ofthe NCA

Her Majestys Inspectorate of the

Constabulary, an independent inspectorate

that is required to carry out inspections of

the UK National Crime Agency, has issued

its first report to the Home Secretary on the

efficiency and effectiveness of the NCA.

Amongst other matters, the report noted

that the NCA is receiving around 330,000

suspicious activity reports per year, and that

this number is increasing. As a result, the

current SAR database is now reaching the

end of its life, which may create risks. HMIC

noted that the NCA is fully aware of the

issues surrounding the database and is

currently working to find a replacement

system.

The HMIC report of the NCA can be found

HERE.




3

Anti-money laundering rules to apply to digitalcurrency exchanges in the UK

The Treasury's digital currency plans were outlined in

a document which also summarised the 120

responses it received to its earlier call for

information on digital currencies. In the report, it said

that it plans to review whether the police are

equipped with "effective skills, tools and legislation

to identify and prosecute criminal activity relating to

digital currencies".

Work to develop new voluntary standards for

consumer protection in the area of digital currencies

will also be undertaken by the government in

collaboration with the British Standards Institution

and the digital currency industry.

"The government notes the nascent state of the

technology and the surrounding industry, and

recognises that users of digital currencies are

potentially exposed to a number of risks," the

Treasury said. "In response, the government

considers that a framework for best practice

standards for consumer protection is the right step

to take at this stage, in order to address the risks

identified, but without imposing a disproportionate

regulatory burden on the industry."

An additional GBP 10 million of funding has also

been earmarked for new research into the

"opportunities and challenges for digital currency

technology". In recent months, financial services

regulators have taken an increasing interest in

digital currencies because of the growing popularity

of 'Bitcoin'.

The response to the call for information is HERE.




4

Home Ofce issues Call for Information on Suspicious Activity Reports

The UK Anti-corruption Plan, published on 18 December 2014, announced a review of the Suspicious

Activity Reports regime under the Proceeds of Crime Act 2002 and the Terrorist Act 2000. The purpose of

this review is to develop ways of better identifying money laundering and the financing of terrorism, and to

prevent the movement and use of the proceeds of crime.

The Home Office has now issued a call for information. It seeks responses to the questions in Section 3 of

the Call for Information document. The scope of this Call for Information is the overall operation of the

SARs regime, including its legislative foundation, and the way the system operates in practice. The Home

Office is seeking views on both money laundering and terrorist finance, particularly from those with

responsibilities under POCA or the Terrorism Act 2000 for reporting suspicious transactions, and those with

responsibility for oversight or supervision of the regulated sector.

Responses to the Call for Information were due on 25 March 2015.

The Call for Information is HERE.




5

The Clearing House calls on FinCEN to allowgreater sharing of SARs

The Clearing House, the oldest banking

association and payments company in the United

States, has called on FinCEN to allow U.S.

headquartered depository institutions and U.S.

branches of foreign headquartered depository

institutions to lift restrictions on the sharing of

suspicious activity report data.

The Clearing House criticised existing restrictions

which it said impede the ability of globally-active

U.S. depository institutions to conduct effective and

efcient enterprise-wide AML risk management, risk

assessment, and activity monitoring. The Clearing

House added that, in the context of SARs in

particular, we continue to be strong proponents of

the ability of banks to share information across their

organisational structures.

The Clearing House letter to FinCEN is HERE.

The Financial Action Task Force publishes aspeech by Je-Yoon Shin, FATF Vice President

The FATF has published a speech by Je-Yoon Shin,

FATF Vice President on the current FATF agenda

and priorities. The speech covered the following

themes:

l The global regulatory arena

l The risk-based approach

l De-risking

l FATFs mutual evaluation process

l FATF action on terrorist nance

With reference to terrorist nance, Je-Yoon Shin

stated that the UN has published, and recently

updated, a consolidated sanctions list on its

website, and requests feedback from the private

sector.

The speech is HERE.

The consolidated sanctions list published by the

UN is HERE.

Egmont Group publishes compilation of100 cases

The Egmont Group of Financial Intelligence

Units has released a compilation of 100

cases. The cases have been subdivided into

six categories containing five general money

laundering typologies and one chapter

focusing on intelligence exchange successes.

The categories used were:

l Concealment within Business Structures

l Misuse of Legitimate Businesses

l Use of False Identities, Documents, or

Straw Men

l Exploiting International Jurisdictional

Issues

l Use of Anonymous Asset Types

l Effective Use of Intelligence Exchanges

The compilation of cases can be found HERE.

FCA publishes its 2015/16 business plan

The FCA has published its business plan for

2015/16, which includes a key focus on financial

crime risk. The FCA said: Financial crime poses a

significant threat to the realisation of our objective

to promote and enhance the integrity of the UK

financial system. It added that financial crime risks

arise from steps not being taken to address money

laundering, bribery, and corruption. The FCA stated

that it would continue to challenge the often poor

anti-money laundering systems and controls we see

in firms of all sizes.

The 2015/16 FCA business plan can be found HERE.



6


HM Treasury issues Advisory Notice

HM Treasury has issued an Advisory Notice regarding the risks posed by unsatisfactory money laundering

and terrorist financing controls in a number of jurisdictions. This advice supersedes previous advice issued

by HM Treasury in connection with deficiencies in these areas.

HM Treasury advises to consider the following jurisdictions as high risk for the purposes of the Money

Laundering Regulations 2007, and so advises firms to apply enhanced due diligence measures in

accordance with the risks: Algeria, DPRK, Ecuador, Iran and Myanmar.

Additionally, it is advised to take appropriate actions in relation to the following jurisdictions to minimise

the associated risks, which may include enhanced due diligence measures in high risk situations:

Afghanistan, Angola, Guyana, Indonesia, Iraq, Lao PDR, Panama, Papua New Guinea, Sudan, Syria, Uganda,

and Yemen.

The notice can be found HERE.

OFAC sanctions updates

The U.S. Treasury Office of Financial Assets

Control has added a number of individuals and

entities to its sanctions lists for VENEZUELA,

UKRAINE and SYRIA. A number of individuals

and entities associated with CUBA have been

removed from the OFAC sanctions list.



7

PRESS AND MEDIA: MONEY LAUNDERING

The Bank of Beirut has been fined GBP 2.1 million by the Financial

Conduct Authority and stopped from acquiring new high risk

customers for 126 days. The bank was found to have repeatedly

provided the regulator with misleading information after it was

required to address concerns relating to its financial crime systems

and controls. Anthony Wills and Michael Allin, respectively the

former compliance officer and former internal auditor at the bank,

were also fined. The final notices can be accessed HERE.

Banca Privada dAndorra, one of five

national banks in Andorra, has been

designated a foreign financial

institution of primary money laundering

concern by FinCEN. Subsequently to

the announcement, Andorran

authorities have reportedly taken direct

control of the bank. Andorras credit

rating has been reduced by Standard &

Poors as a direct result of the FinCEN

action. The FinCEN notice is HERE.

HSBC has announced that it is reviewingcustomer accounts held in Jersey forsufciency of client identicationdocumentation. The bank is said to have exitedcustomers where there are concerns over taxcompliance issues. HMRC reportedly began aninvestigation into certain customers tax affairsin Jersey three years ago, following a tip-offfrom a whistle blower.



8

Kenya has brought charges against 12 people

accused of involvement in what has become

known as the Anglo Leasing bribery and

corruption scandal. The case centres on a

Liverpool-based company that, in 2004, was

linked to 18 allegedly inflated state security

contracts reported to be worth USD 700 million, in

some cases awarded to phantom entities. The

case led to public outrage, but a legal case fell

apart in 2005 due to a lack of evidence. The

countrys political elite were accused of being

complicit in the schemes.

Romanias anti-corruption chief has been arrested,

on corruption charges. Horia Georgescu, director

of Romanias National Integrity Agency, was

detained on suspicion of overvaluing property

seized by the communist government before it

was returned to its previous owners. The alleged

crimes were committed in 2008 to 2009, when he

was on the committee for National Authority for

Property Restitution, and they may have

defrauded the state of some GBP 54 million.

PRESS AND MEDIA: BRIBERY & CORRUPTION

Switzerlands Ofce of the Attorney

General has announced it has frozen

around USD 400 million in assets

relating to the bribery and corruption

scandal at Petrobras, and that ongoing

probes have identified more than 300

accounts at more than 30 "banking

institutions" in the country that the

officials say were apparently used to

process bribery payments now under

investigation in Brazil.

Chinas Ministry of Public Security has launched

a new round of its campaign, code-named

operation Fox Hunt, to track down foreign

assets of corrupt Chinese officials. In a

statement by the ministry, it announced that the

new Skynet operation would focus on arresting

corrupt officials or suspects involved in similar

crimes who fled to major Western countries,

including the U.S., Canada, and Australia. The

ministry said it would be working closely with the

Peoples Bank of China and the State

Administration of Foreign Exchange to monitor

suspicious flows of monies remitted to foreign

bank accounts. It also said it would launch a

crackdown on underground banks.



9

PRESS AND MEDIA: SANCTIONS

Commerzbank AG agreed to pay USD 1.45 billion

to settle actions relating to charges that it

processed payments on behalf of entities

designated by US sanctions on Iran and in

relation to accusations that the bank enabled

Olympus Corporation of Japan to orchestrate a

huge accounting fraud. In addition to the USD

1.45 billion penalty divided among the New

York Department of Financial Services, the

Manhattan district attorneys office, the United

States attorneys office in Manhattan, the

Treasury Department, the Federal Reserve, and

the Justice Departments criminal division the

bank agreed to admit to its conduct in a

statement of facts. The deal with the New York

regulator, Benjamin M. Lawsky, also required the

bank to install an independent monitor and

dismiss individual employees tied to the case,

leading to the resignation of the person in charge

of money laundering and sanctions compliance in

the banks New York office.

A U.S. Justice Department official has said that

some banks that have non-prosecution

agreements over failures to police actions to

control financial crime could see those deals

withdrawn or be forced to plead guilty. Assistant

Attorney General Leslie Caldwell said: The

criminal division will not hesitate to tear up that

agreement when that action is appropriate". In the

last three years, HSBC Holdings Plc, Standard

Chartered Plc, JPMorgan Chase & Co, and

Commerzbank AG have entered into either non-

prosecution agreements or deferred-prosecution

agreements. The agreements allow cases to be

settled in return for fines and pledges by banks to

prevent a recurrence of the violations.



10

PRESS AND MEDIA: FRAUD

A court in Israel found Ehud

Olmert, the countrys former

Prime Minister, guilty of fraud

and breach of trust after a

retrial of the corruption case

that had forced him to resign

six years ago. The court ruled

that Olmert had accepted

cash stuffed in envelopes

totalling approximately USD

150,000 from American

businessman Morris

Talansky between the period

of 1992, when Olmert first

ran for mayor of Jerusalem,

and 2005 when he was

minister of trade. In 2014,

Olmert was sentenced to six

years in jail for accepting

bribes in a real estate deal

while he was mayor of

Jerusalem. Olmert is

currently appealing the 2014

sentence, whereas he is due

to be sentenced for the fraud

case in May.

Two U.S. federal ofcials involved in the investigation into Silk

Road, a digital marketplace known for its association with payments

in Bitcoins, have resigned and been charged with money laundering

and fraud. Former DEA agent Carl Mark Force IV is alleged to have

stolen and converted, for his own use, approximately USD 776,000

worth of Bitcoins. Former Secret Service agent Shaun W. Bridges is

alleged to have diverted more than USD 800,000 to his own

account. A lawyer for the alleged mastermind behind Silk Road has

called the federal investigation flawed. Force reportedly had

moonlighted as a compliance officer for CoinMKT, a currency

exchange firm, whilst working as a DEA agent.

The UKs Serious Fraud Ofce began a probe into theBank of Englands emergency lending measures takenduring the 2007-2008 nancial crisis, amid fears thatthe central bank may have been affected by the City-wide rigging scandal. The probe was initiated after theBank of England passed on ndings to the SFO of itsown investigation which focused on whether seniorcentral bankers were aware that money-marketauctions may have been rigged in 2007-2008.



11

PRESS AND MEDIA: INSIDER TRADING

Julian Rifat, a former trader at Mayfair hedge fund

manager Moore Capital, was sentenced to 19

months imprisonment for his part in an insider

trading scheme that made nearly GBP 1 million.

Rifat was targeted as part of the FCAs Operation

Tabernula, the UKs largest ever insider trading

investigation. He was found to have colluded with

Graeme Shelley, a trader at Novum Securities, and

Paul Milsom, an equities trader at Legal & General.

Milsom and Rifat, with senior responsibilities for

dealing with market-sensitive information, would

pass this information on to Shelley, who would

proceed to make heavy spread-bet and contract-

for-difference trades via his brokers, making

profits as soon as the market moved.

The Financial Times reported that the Financial

Conduct Authority has experienced a sharp

increase in the number of suspicious transaction

reports (STRs) in 2014 that flagged possible

instances of market abuse. A total of 1,626 STRs

were filed in 2014, up from 1,308 in the previous

year. The number of STRs also contrasted sharply

with those made during the pre-financial crisis

era: in 2007, only 328 STRs indicating possible

market abuse were filed, according to statistics

from the FCA. Commentators stated that the

FCAs policy of credible deterrence had led to a

culture of if in doubt, raise an STR. The FCA has

levied penalties against a number of banks for

failures to properly report transactions (although

these were not necessarily suspicious in nature).

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financial crime digest april 2015

Documents

report listsgood

report notedthat

inspection report ofthe

budget report paragraph

money launderingdisclosures

byhm treasury hm treasury

uk supervisors

civil liability