AML Weekly – 12 July 2021

In this report we observe and track all relevant events that have unfolded in the Anti-Money Laundering (AML) and digital asset space in the past seven days.

DOJ AUCTIONING BITCOIN, FATF, AMLA, EXITING HONG KONG AND BLOCKCHAIN AND CORRUPTION

The US Department of Justise (DOJ) previously seized USD$5.1m in 2018 following the arrest of Mark Simon who pleaded guilty to charges of identity counterfeiting and money laundering. In a surprising turn, the DOJ has now sold the bitcoin for a whopping USD$19m. In its second 12 Month Review on Standards of Virtual Asset Service Providers (VASPS) the Financial Action Task Force found that many jurisdictions and VASP in the sector have continued to make progress in implementing the revised FATF Standards on virtual assets and VASPS. It was further found that: “74% of the FATF membership reported that they have now incorporated the revised FATF Standards into their domestic law and there has been some progress on technology solutions for the travel rule. However, challenges still remain. Many jurisdictions’ AML/CFT regime for VASPs are not yet operational and some have not yet established regimes, particularly amongst the FATF’s broader Global Network.”

In the DeFi space, Crypto lobbyists have in an open letter put DeFi proposals to FATF, which contains six proposals to regulate the DeFi sector headed by six trade bodies representing global crypto firms. The six proposals are in a nutshell: regulation imposed on a business should consider broader contextual factors in relation to the corresponding business model; regulation should not introduce analogue or manual steps into otherwise digital processes; allow financial intermediaries to collaborate when identifying clients; regulation should recognize the reduced risk of public blockchain-based transactions and therefore develop a differentiated, risk-based approach; implementation guidelines of basic regulatory principles should be conducted in a collaborative way with the DeFi industry; and an enhanced level of cooperation and collaboration between regulators and the industry is required.

The EU has in a progressive move taken steps to create its own anti-money laundering authority. The aim is to set up the Anti-Money Laundering Authority (AMLA) and have it in working condition by 2024. As the imposition of additional regulation is always welcome caution should be applied where regulation is excessive in nature, as it may lead to adverse effects on entities operating in a jurisdiction as may now be seen in Hong Kong where the increasing data protection policies and regulations may force the hand of many tech companies including Google, Facebook and Twitter to stop offering services in the jurisdiction.

As the bitcoin price hits its current low, is not deterring governments and organizations to utilize the technology behind the cryptocurrency to eliminate bribery and corruption. The OECD estimates 10-30% of the investment in publicly funded construction projects may be lost to corruption but this may be brought to a stop by using blockchain tech as it increases transparency in the disclosure of procurement processes and public investments. The blockchain technology can also be used to enhance property and land registry systems, streamlining lengthy processes and protecting people’s rights. By utilizing this type of technology, governments may create a fair and transparent market where corruption can be rooted out.

COMPANY HOUSE, CHAINALYSIS AND COMPARIS.CH

In the UK, Companies House has been labeled and ‘Enabler of illegal activity’ as it cannot be considered a reliable source of information due to the lack in its statutory power to verify the information of a said entity. The organization only has the power to do basic checks – “[o]ne example found by The Sunday Times is that of Grantedge Trading Investment, which offers a range of products, including cryptocurrencies, and claims investors can make returns of up to 3.4 per cent in just six days. It claims to already have two million customers and Companies House documents reveal that there are a number of billionaires behind the business.” Government has now approved that the organization will be issued with additional powers to fully investigate the incorporation of entities.

In their latest article, Chainalysis reported that in 2020 ransomware attackers successfully extorted at least $412 million from victim organizations, more than quadrupling their 2019 totals. The report goes further to state that collaboration is key to reduce the effects and occurrence of ransomware through international collaboration, intelligence sharing and public-and- private partnerships. Comparis.ch, a popular Swiss price comparison website, has fallen the latest victim to a ransomware attack as the website has been shut down pending a USD$400,000 payment. The FBI has also issued a warning to crypto exchange owners of a substantial increase in attacks.

BUSTS, ARERSTS, SEIZURES, CHARGES, AND SENTENCING

As terror financing is on the rise in the Covid-19 pandemic, Italian police have arrested four people in connection with a USD$1,2m terror financing scheme. The scheme involved money being sent over the course of five years from a money transfer office in Puglia, to 42 foreign collectors based in different countries. Elliptic has also reported that Hamas-Linked Wallets have Received $7.7 Million in Cryptoassets, including Dogecoin. The National Bureau for Counter Terror Financing (NBCTF) has issued a seizure order against 84 crypto asset addresses believed to be controlled by Hamas, or otherwise used in terror-related activity.

9 Individuals have been arrested in France and Moldova for a their involvement in a €2m immigration fraud racket. New York State Department of Financial Services (NYDFS) and Robinhood have reached a settlement agreement in which the exchange will need to pay USD$15m to the NYDFS in the handling of its cybersecurity and anti-money laundering policies. The settlement also includes a government appointed moderator. Hanno Berger, a German lawyer, has been arrested for an elaborate tax fraud scam dubbed “cum-ex” which defrauded European treasuries by billions of pounds. He faces 10 years in prison should he be found guilty. Thailand authorities have seized 315 kilograms of heroin worth estimated USD$29m neatly wrapped in paint canisters bound for Australia.

Darius James Andrew Pearce who was a Jersey jewelry maker has been caught red-handed in a string of money laundering practices. He ran a jewelry shop front where he would use cash received to purchase gold and later use the gold to fund the illicit importation of drugs. Pearce was arrested and sentenced to 74 years for numerous counts of money laundering. Lastly, two former Shell employees have been sentenced to a collective 18 years in jail for a gas-oil heist totaling more than USD$200m.

TAKE HOME

With the significant increase of ransomware attacks we see a global move towards regulation of digital assets. The standards being imposed on VASPS is testament of the progress made to regulate the space. In addition, the innovative use of blockchain technology may be the answer to some of the issues we face in the daily practice of compliance and anti-money laundering as transparency is key to combat certain illicit acts such as corruption. Furthermore, the drive from stakeholders to partake in proposed regulation of the DeFi space makes for interesting developments as it is important to get it right from the start.

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