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.
AML AND GAMERS
A new phenomenon has emerged where gamers are now unknowingly assisting hackers to fill their pockets as hidden malware is being spliced into the cracked games. The malware contains a crypto-mining algorithm known as Crackonosh, that has the sole purpose of mining crypto once the game has been downloaded. It has been reported that the hackers have pocketed approximately $2m through this illicit scheme and some of the side-affects affected parties may suffer include: slower computes speed; breakdown of components due to overuse; and a substantial increase in their electricity bill. The FaZe Clan has dropped 1 member and suspended another 3 following allegations of their involvement into the Save The Kids token project. The clan members were reportedly paid to promote the altcoin before dumping their investments onto the market but denied any active involvement in the scheme.
FATF, FCA AND BINANCE, WAZIR-X, AFRICRYPT, REVERSAL OF CRYPTO TRANSACTIONS, AUSTRAC AND FINCEN
The Financial Action Task Force (FATF) is considering potential amendments to Recommendation 24 on the transparency and beneficial ownership (BO) of legal persons. The FATF has released a whitepaper for public comment with the objective to: “strengthen the international standard on beneficial ownership of legal persons so as to ensure greater transparency about the ultimate ownership and control of legal persons, providing competent authorities timely access to adequate, accurate and up-to-date beneficial ownership information, and to take more effective action to mitigate the risks of misuse.” Stakeholders may submit comments to email@example.com by 20 August 2021. FATF has also issued updated guidance on Proliferation Financing Risk Assessment and Mitigation; and recommendations on Opportunities and Challenges of New Technologies for AML/CFT.
The Financial Conduct Authority (FCA), has also issued consumer warning on Binance Markets Limited and the Binance Group. This follows the pervious warnings issued by Japan’s Financial Services Agency (FSA) that the entity is not registered to do business in the country. The FCA has now stated that: “Binance Markets Limited is not permitted to undertake any regulated activity in the UK … and not currently permitted to undertake any regulated activities without the prior written consent of the FCA”. Thailand and Cayman Islands have also now taken action against Binance as it is not authorized to operate in the Caymans and Thailand has filed a criminal case against Binance for operating a non-licensed exchange.
Wazir-X has been issued a show cause-notice by India’s Enforcement Directorate (ED) pertaining to two separate cases which involves money laundering allegations and transactions going against the grain India’s money laundering and terror financing Acts. In what has been labelled the biggest bitcoin heist, the founders of the Africrypt have terminated their lawyers mandate. As the founders and the alleged $3.6 billion remain missing, South Africa has undertaken to fast-track its regulation of digital assets.
Congress in the US has called for laws that allows government to identify cryptocurrency users and reverse crypto transactions. This comes after a substantial increase in ransomware attacks and instances where criminals are asking for bitcoin and not cash. In the UK, HM Revenue and Customs has issued a guidance note for participants in the art market on the risks involved with money laundering and how to take action. The risk assessment identifies the key areas that art market participants should consider as they carry out supervised business activities.
The Australian Transaction Reports and Analysis Centre (AUSTRAC), has issued a complete assessment guide on non-bank lending and financing sector on ML/TF risks at the national level. The aim is to assist the sector in identifying and disrupting ML/TF risks to Australia’s financial system, and reporting suspected crimes to AUSTRAC. The guide enables players in the sector to: “inform their own ML/TF risk assessments; strengthen their risk mitigation systems and controls; and enhance their understanding of risk in the sector.” AUSTRAC has also issued additional information on customer due diligence (CDD) pertaining to source of wealth and source of funds considerations. Lastly AUSTRAC released guidance on digital currencies and how to manage the risks in the dynamic and innovative sector.
The Financial Crimes Enforcement Network (FinCEN), has recognised the significant impact of Bank Secrecy Act (BSA) data on law enforcement efforts. The network’s acting director, Michael Mosier, stated that: “The law enforcement work that we recognize today highlights both the importance of an effective partnership between FinCEN, financial institutions, and our law enforcement agencies, and the value of BSA reporting in protecting the American people from fraud, cybercrime, and the illicit finance threats confronting our nation.” FinCEN has also issued first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (the “Priorities”)
COPYRIGHT AND TAXES
London’s High Court on 28 June 2021 granted the alleged Bitcoin creator, Dr Craig Wright, default judgment in his copyright infringement action against ‘Cøbra’, the pseudonymous operator and publisher of the bitcoin.org website. The English High Court found in favor of Dr. Wright, recognizing his copyright in the white paper and ordering that Cøbra cease infringing Dr. Wright’s copyright by removing the Bitcoin White Paper from the website. Swiss bank UBS has failed in its latest appeal as the court rejected a challenge filed linked to constitutional aspects of its French tax case stemming form 2019. The court is set to deliver final ruling on the 5.36 billion fine, on 27 September 2021.
A 25-page indictment filed in a lower Manhattan courtroom, has revealed 15 counts of fraud and tax evasion by the Trump Organization and its CEO Allen Weisselberg. This explosive indictment shows hundreds of thousands of dollars being improperly used for the gain of the organization and its CEO. The former president and namesake to the organization has not been charged. A former UK NHS manager has been jailed for defrauding hundreds of thousands of pounds from a hospital trust where he was employed. “He abused his position at the Mid Essex Hospital Trust and betrayed the trust to pocket £802,9987 of taxpayers’ money over several years.”
BUSTS, ARERSTS, SEIZURES, CHARGES, AND SENTENCING
A criminal gang has been busted in Aalsmeer for cocaine trafficking. Three arrests followed the bust where police offices believed that the accused used a flower auction to smuggle 200 kilograms of cocaine. In Columbia, six metric tons of cocaine has been seized from the National Liberation Army (ELN), the group, however, has denied any involvement in the trafficking of illicit drugs.
A top art collector has been arrested in Portugal over fraud allegations. Mr Joe Berardo has been accused of shifting valuable artworks into a trust to protect them from creditors. José Luis Moreno has also been arrested on fraud and money laundering charges stemming from the division of the profits from criminal activities into its multiple businesses, most of them being linked to the cinematographic and audiovisual world. The South Korean police have arrested the senior executives of crypto exchange V Global and raided its offices following allegations of fraud and money-laundering in the excess of USD $2bn. Police officials have made public that the alleged platform was in fact nothing more than a front for a pyramid scheme.
Scotland Yard has seized $158M bitcoin as part of a money-laundering investigation which was more than double the amount of cash seized in all of 2020 and is the biggest crypto take in UK history. A Microsoft employee who stole more than 152,000 Xbox gift cards, worth $10.1 million has finally been caught and sentenced to 9 years imprisonment. The former employee generated the gift cards and then sell on other platforms in exchange for bitcoins. Following his conviction Volodymyr Kvashuk, is likely to be deported back to Ukraine after serving time in prison until March 2027 and will have to make restitution of $8.3 million.
Alexander Vinnik, a Russian national, who was convicted last December in France on money laundering charges appealed his sentence earlier in 2021. The Paris Court of Appeal, however, upheld the charges and Vinnik will have to serve his full term of five years. The Department of Justice (DOJ) in the US has sentenced Shmuel Galio 60 months’ imprisonment for his role in a long-running odometer tampering and money laundering scheme and ordered to pay $3,936,000 in restitution. In South Africa, former president Jacob Zuma has been sentenced to 15 months in prison by the Constitutional Court for contempt of court after failing to appear by issued subpoena to the Zondo state capture commission. The former president has, however, now applied for recission of the judgement, which will be heard later in July.
AML TAKE HOME
This week we look deeper into the effects digital assets have on the gaming industry as hidden crypto-mining malware is being spliced into cracked games and illicit gaming gift cards are being exchanged for bitcoin. As the digital asset space continues to grow, more and more regulators are issuing protocols and guidance notes, to assist entities in their AML practices and promoting CTF regs. It is fantastic to see guidance and active involvement of regulators who are the driving force in minimizing the risk and exposure of tax, money-laundering and terror financing.