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.
DIGITAL ASSETS, TECH AND MINING
It has been an exciting week in the AML space as the digital asset roller coaster is tracked on Elon Musk’s Twitter feed. Despite the tanking of the bitcoin price and speculative panic selling, some investors are not blinking an eye at the environmental impact and remain true to bitcoin by filling their wallets. Notwithstanding the ups and downs, Digivault becomes the first stand-alone digital custodian to receive approval from the UK Financial Conduct Authority (FCA) to store crypto. This affords confidence in their digital solutions by providing one of the widest custody offerings and pioneering the way in hot and cold storage.
Some exciting tech developments have let to Elliptic designing a technology that uses blockchain analysis to ensure ransomware operators cannot cash-out or exchange their bitcoin proceed and launder money. As the environmental impact of digital assets that have protocols based on proof of work remains a hot topic, the illicit trade of mining rigs increase. In Turkey, over 500 Bitcoin mining rigs (worth approximately $600,000.00) have been confiscated in its biggest bust against crypto mining smuggler as calls mount for increased regulation in the sector.
FRAUD AND FICTIOUS NOTIFICATIONS
The Coindesk team talks to Aaron Lammer, about the collapse of the Canadian crypto exchange QuadrigaCX and the perceived death of former CEO, Gerald Cotten from Crohn’s disease. This is in-depth podcast showcases all the warning signs and how expert blockchain analysis could have uncovered the fraud prior to the former CEO’s untimely passing. While the matter is still being ventilated in court, the mystery remains as to how much investors will be paid out.
In the US, the Office of the Comptroller of the Currency (OCC) has now reported fictitious notifications regarding the use of bitcoin wallets for release of funds. The OCC advised that this is a fabricated notification requests reading that a “Bitcoin Wallet Address ID NO” needs to be provided prior to the transfer of made-up funds. It is further directed by the OCC not to respond and report any such activity.
BANKING, CASINOS, LOTTERIES AND BOLSTERING AML
On the banking front, pages from the Goldman Sachs report on crypto (still to be released) shows a U-turn on its stance on crypto as it is now of the view that digital assets have cemented itself as an “official asset class.” As the good is always followed by the bad, a large number of digital banking customers have reported that their accounts are being unexpectedly frozen by major stakeholders such as Pockit, Revolut, Monese and Monzo. As this surely is quite alarming for the account holders, the banks, as we know in the AML field, need not disclose to the holders the reasons for freezing the accounts where suspicious activity is sighted (complicit or not). Where investigations and reporting have been resolved and completed, some accounts have been unfrozen but many still remain closed.
Stepping away from the digital reporting, New Zealand has failed in its AML/CFT supervision as the Financial Action Task Force’s (FATF) latest mutual evaluation report revealed the central bank had only five full-time staff dedicated to financial crime compliance supervision. This again stresses the importance of not only developing policies and procedures, but actually implementing and enforcing them to the T. BaFin has ordered Deutsche Bank to strengthen it’s AML policies, procedures, staff and enforcement despite the bank already investing more than $1Bilion in its AML controls. The Swiss Financial Market Supervisory Authority (FINMA) has reported that the management of Credit Suisse had overlooked breaches of regulations for multiple years and is at the forefront of ongoing FINMA investigations. This all despite FINMA’s previous warnings to remedy the breaches.
UAB New Miracle has been fined approximately $12,000.00 as it failed to properly identify and verify customers prior to onboarding and apply EDD where necessary. The Lithuanian Gaming Control Authority ruled that it breached regulations related to money laundering and terrorist financing for its operations in 2019 and 2020. UAB New Miracle has been ordered to make the relevant changes to its operations by 7 June 2021, failing which they risk total shutdown.
The Cullen Commission (CC), in British Columbia (BC) is going full circle as Rich Coleman, Former Canadian Gaming Minister, has some trouble sticking to his story. Coleman was accused of casino money laundering operations and has now been summoned to the CC to address discrepancies in his former testimony and only time will tell whether he shoot true. On the other side of the globe, the Royal Commission heard that Crown had shown willful blindness to the activities of junket operators who were often linked to organized crime. This was only possible through increased staff capacity and again emphasizes the importance of a four eye approach and the value of a fully stacked team.
As size does not always matter, the Financial Conduct Authority (FCA) has ordered thousands of its employees to upskill and complete compulsory cyber and information security courses. This is an effort to keep with times as the surge in fintech / digital banks continue and the need increases to combat financial crime, such as money laundering and fraud in the digital asset space. One thing is clear, without understanding the technology, proper regulation cannot be enforced.
IMPOSING FINES AND SENTENCING
In the UK, two individuals were running a scam by impersonating the administrators of courses at Prior Park College in Bath, Somerset. Their scheme flowed as follows, they would engage with foreign nationals promise admission to the school and enroll them in a fake business course after receiving full payment of up to £6,500.00.
The catch is that when the foreign nationals arrive to attend the course, they would be informed by the Collage that the course does not exist and subsequently be deported and £6,500.00 out of pocket. Some students brought the information to authorities, who after investigations traced the money back to two perpetrators who were in total fined £60,000.00 and sentenced to 49 months in prison, suspended for two years.
Wire fraud conspiracy and computer intrusions were some of the counts on which a Russian citizen was tried and convicted for a tax scheme he was involved in. As part of their operations, they would steal personal tax information of US citizens by hacking into private tax firms and use this information to claim refunds in the amount of $1,500,000.00 from the US Department of Treasury. The Russian citizen was found guilty of Cyber Tax Fraud Scheme and sentenced to 60 moth’s imprisonment.
A BIT CLOSER TO HOME
In a new effort to fight terrorist financing pervious high-risk jurisdictions, Gibraltar, Guernsey, Jersey and the Isle of Man have come together to form the Countering the Financing of Terrorism Forum (CFTF). Adrian Hale, head of Guernsey Police’s Financial Intelligence Unit (GPFI) said that: “this forum is an ideal mechanism to share intelligence from suspicious activity reports in respect of terrorist financing, common trends and typologies, and upskill the FIU and Economic Financial Crime Bureau staff on emerging terrorist financing risks that may impact the Bailiwick as an international finance center.” The specialist officers share their experiences and is also an ideal opportunity to develop best practices with fellow agencies.
TAKING US HOME
The Cayman Island Monetary Authority (CIMA) has fined Intertrust $4,230,000.00 for breaching the Anti-Money Laundering Regs (AMLRs) The fine was imposed due to lack of CDD, verification of source of funds, retaining documentation relating to business relations and other risk factors to name a few. As there is still room for Intertrust to apply the recommendations and/or to appeal, CIMA is doing everything in its power to move out of the Financial Action Task Force’s (FATF) Grey List of jurisdictions with strategic deficiencies.
As the law is always open for interpretation, especially in a risk based system, two entities of the Maples Group are now approaching the courts for judicial review on CIMA’s interpretation and practical application of the AMLRs. The entities are seeking clarity on the application as they are of the view that CIMA’s interpretation stems against the risk based approach.
The AML space is everchanging and far reaching; however, we can see from this week’s report that when the markets turn, there is an increased need for regulation, implantation, and enforcement. We can never exactly anticipate how digital assets will influence the AML scene, but we must ensure that we have the necessary tech, teams and procedures in place that makes AML compliance a smooth ride.