QUARTER 3, 2015

2nd December 2015

Summary of Relevant Output on Money Laundering and Financial Crime 

Period 1st August 2015 to 30th September 2015


Sites Reviewed for this bulletin: 

Financial Conduct Authority (FCA)

Prudential Regulation Authority (PRA)

British Bankers’ Association (BBA)

European Securities and Markets Authority (ESMA) 

Commodities Futures Trading Commission (CFTC)

Financial Action Task Force (FATF)

HM Treasury (HMT)  

Joint Money Laundering Steering Group (JMLSG)

National Crime Agency (NCA)

Transparency International (TI)

Deloitte Forensic Centre (DFC)

Credit Industry Fraud Avoidance System (CIFAS) 

Financial Fraud Action UK (FFA)

International Compliance Association (ICA)

Emerald: Journal of Financial Crime (JFC)

Financial Fraud Action, Police: The DCPCU

BBC Business

Telegraph Finance

Financial Times

New York Times





 Each quarter, CPA Audit looks for the most interesting, relevant and pressing financial crime news, in order to engage your interest and open your eyes to potential risks your firm might face. Some of these cases you may have heard about on the news, whilst others may be more obscure.

 The aim of this summary is to give you a picture of financial crime across the first period of 2015 – the cases below demonstrate the vital importance of having systems and controls in place to protect against financial crime potentially impacting your own business.


Under the spotlight: Fourth EU Anti Money Laundering Directive

 The Fourth Money Laundering Directive (MLD4) came into force on 26th June 2015. The directive focuses on a more risk based approach to combating money laundering and terrorist financing compared to the previous directives. Member States must transpose MLD4 into national law by 26 June 2017.

 Of particular interest is the directive’s mandate to EU members to set up registers that record the “beneficial owners” of businesses. In the case of a corporate entity, the directive defines a “beneficial owner” as the person who ultimately owns or controls it by means of a 25% or larger stake. There will be an obligation on the relevant corporate and legal entities to make this information available to its law enforcement authorities, “obligated entities” such as financial institutions conducting customer due diligence and others, such as journalists, who can show a “legitimate interest” in getting access. Many experts and advocates have argued that having such a record of beneficial owners is an important transparency tool for preventing financial crimes as it reveals who ultimately owns the respective company. This would therefore make it difficult to obscure money laundering activity and tax evasion. 

 Furthermore, the directive will require financial firms to take a more nuanced and thorough risk-based approach to their customer due diligence procedures. Financial firms should expect significant action from prosecution if they fail to meet the requirements and if found to be involved in illicit transactions, they should expect to come under harsh scrutiny to identify the beneficial owner.

 For more details of the new requirements of the directive and how it can affect your firm please see our Regulatory Bulletin (insert hyperlink).


UK to reduce AML red tape burden

The importance of battling financial crime has become essential for the UK government with huge corporations such as FIFA and HSBC coming under the spotlight for significant fraudulent behaviour. As the financial sector is under huge pressure to ensure it is not offering a route to criminals and terrorists, an unfortunate by product of this has been the ceasing of operations with customers who are linked with risky and susceptible countries such as Somalia. Indeed, although this decreases the chances of banks facing legal action, it has also resulted in innocent customers not being allowed to send money back home to their families. As the FCA’s Chief Executive told MPs earlier this year, “de-risking is banks acting in a blanket way … it will make potentially significant parts of geographic, ethnic and business classes unbanked if allowed to continue”.

From the point of view of banks, even if they are well intentioned they can still face legal action whilst losing potential customers.  There is hope among financial services firms that the upcoming new review of anti-money laundering rules will allow space for authorities to deal with cases of dirty money slipping through the net in a more lenient manner. Of course, this would only be the case if the banks could prove they implemented through measures to stop it from happening in the first place.

As such, it has recently been reported that the government is looking to reduce the burden of the anti-money laundering regime on banks. It has launched a review which aims to improve the effectiveness of anti-money laundering and terrorist financing rules as part of its drive to cut red tape. The Government says businesses have expressed concerns that the rules and proof of identity requirements can be “unnecessarily cumbersome and complicated”. It says there is also confusion and inconsistency over how the regime should be applied.

British lenders HSBC Holdings Plc and Standard Chartered Plc have been fined almost $2.3 billion between them by U.S. authorities for failures in their money-laundering controls. In June Chancellor George Osborne announced his plan to establish a “new settlement” which would make Britain “the best place for global bank HQs” and bring an end to a period where banks are being given increasingly large fines.

Business secretary Sajid Javid stated: “We are committed to saving businesses a further £10bn in red tape. This new review is about making sure the rules we have to protect our strong financial services industry from abuse are not unintentionally holding back new and existing British business. I want firms to come forward and tell us where regulation is unclear or its enforcement ineffective.”

The review is seeking evidence on the approach of the FCA and HM Revenue & Customs in supervising the anti-money laundering regime, as well as examples of where enforcement and supervision is not proportionate to the risks posed. The call for evidence closes on 23 October. However, it should be interesting to see how plans to ease the AML red burden will work alongside the more thorough risk based approach to customer due diligence procedures which the AML4 directive expects EU countries to implement by 2017.

U.S unravels money laundering stings by going undercover

The U.S. has been closing in on businessmen working as “incorporators”; those who help clients form offshore shell companies for tax planning purposes. The cases come at a time when U.S prosecutors are hunting down suspected foreign incorporators in countries which serve as a safe haven due to corporate secrecy and extradition laws, rendering investigative efforts useless.  Thus U.S authorities are now enticing these service providers into leaving their overseas havens and entering the United States, where they are vulnerable to undercover operations, wiretaps, stings etc.

Patrick Poulin, a lawyer who helped clients set up offshore corporations in the Caribbean, is one of the “incorporators” who had been caught under these operations. He arrived in Miami expecting to meet two Americans who wanted him to invest $2 million from a real estate deal. In reality they were federal agents who were targeting him as part of a money laundering sting and proceeded to arrest him at the airport. Poulin eventually pleaded guilty to conspiracy and spent a year in prison.

This new front in the long-running battle against money-laundering is opening as part of a broader U.S. crackdown on tax evasion. Taxpayers who seek amnesty under Internal Revenue Service disclosure programs are backstabbing incorporators, as well as naming Swiss banks and the bankers who aided them. “Leads have been pouring into the government with respect to offshore constructs that are available to help people do money laundering, and securities fraud and tax evasion, and all kinds of misdeeds,” said Miriam Fisher, global chair of Latham & Watkins LLP’s tax controversy practice, to Bloomberg.

The aggressive strategies are likely meant to send a message to incorporators that they’re being watched, said Jeffrey Neiman, a former federal prosecutor who worked on the ground-breaking 2009 tax evasion case against UBS Group AG. “It plants the seed around the world that just maybe the government is listening to this conversation,” he said to Bloomberg.

Of course not all offshore incorporation is a veneer for illegal activity and arguably some wealthy people could be seeking confidentiality to avoid being targets of extortion. Poulin claims that he believed he was providing legitimate services offering clients privacy and help with minimizing taxes, saying that he started out in incorporation work by handling real estate deals for “people coming down on vacation, people wanting to buy a condo,” he said. He said he turned away people who were obviously criminals seeking help with funds associated with prostitution, drugs or terrorism, but that “the line between unhappy creditor and fraud” isn’t “super easy to define”.

 International Securities Services Association to set out principles for tracking financial crime

The International Securities Services Association (ISSA) is a non-profit association which facilitates international collaboration between financial industry stakeholders in order to encourage progressive solutions which mitigate risk within the global securities services industry. Recently, ISSA adopted a set of compliance principles to address the “critical challenges” posed by financial crime. ISSA said that financial crime compliance has become a priority for both regulators and banks but the focus has primarily been on cross-border payment processing and trade finance. The new principles aim to establish “a clear global standard for the opening and maintenance of cross-border securities accounts”.

The principles provide practical guidance on how to most effectively counter the risks of money laundering, terrorist financing, market abuse, corruption, fraud and the evasion of sanctions to global custodians, sub-custodians, fund distributors, trustees/depositary banks, brokers, prime brokers and International Central Securities Depositories that intermediate cross-border securities.

“As the only association representing firms active in all aspects of securities services, ISSA has been uniquely placed to translate the demand from senior executives from across the industry for an effective and practical response to the challenges posed by financial crime”, stated  Josef Landolt, chief of ISSA.

ISSA has also founded a working group to provide securities service providers with the tools and the practical guidance they will need to apply the standards in the coming years. The group will aim to:

  • Develop principles that should govern the securities intermediation and the tools that are available to the industry.
  • Define the securities equivalent of the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking.
  • Evaluate the relevant costs and benefits of different account holding structures.
  • Evaluate technical solutions/options.

This could prove as very useful guidance on the international level. Indeed, Matt Allen, financial crime director at the British Bankers’ Association has stated how it is important for the British government to co-ordinate its efforts internationally, to reduce the variation in rules between the countries in which the banks operate. “Consistency of regulatory approach is important. Most of our member banks operate across the world and they need to consider financial crime compliance through a group wide and global lens,” Mr Allen told the Telegraph: “Greater consistency and clarity on regulatory expectations at a global level would be extremely helpful. The banking industry is speaking with a number of international bodies on these matters.”


The above is just a brief snapshot of financial crime in the third quarter of 2015 – as ever, financial crime is a huge and complex topic and much more could have been brought to your attention.

If you have any concerns about how your own firm is acting to minimise the risk of financial crime, please do not hesitate to talk to any member of the CPA compliance team.

A final word on training

As ever, the online training materials provided on our website represent the quickest and easiest way to get everyone in your firm up to date on the latest regulatory developments.

Alternatively, if you wish to discuss other training options, speak to a member of the CPA team.


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