In this report we observe and track all relevant events that have unfolded in the Anti-Money Laundering (AML), Cayman AML and digital asset space in the past seven days.
DIGITAL ASSETS AS LEGAL TENDER, FROZEN WALLETS AND DARKSIDE
There is always a first time and for bitcoin, the time has finally come as El Salvador becomes the first country to adopt bitcoin as legal tender. The legalisation comes after President Nayib Bukele’s drive for financial inclusion as only 30% of citizens have access to financial services. As the mandate stretches across all businesses, there might be some merchants that are not willing to take on the risk, government has backed their concern by undertaking to exchange their bitcoin for dollars. The government has gone even further and advised that it may also promote mining. Concerns have now been raised by the International Monetary Fund (IMF) as it is of the opinion that the adoption may lead to macroeconomic, financial and legal issues.
Binance has frozen a Hamas linked bitcoin wallet which was used to launder bitcoin donations. Blockchain analytics revealed that the Hamas group received $100,000 in bitcoin since the beginning of 2021. Binance cannot officially comment on the exact content of the transaction as they are still engaging with law enforcement as part of their investigation. It seems like there is no stopping cyber criminals when it comes to COVID-19 and fraud, as Interpol shuts down a racket of pharmacies selling counterfeited and fake medicine and products. The operations stretched over 92 countries and 112 websites resulting in 277 arrests and seizure of potentially dangerous pharmaceuticals worth more than $23M.
Darkside, a ransomware group which has been identified as the culprits who targeted Colonial Pipeline for ransom payment has been pinned down by the Federal Bureau of Investigation (FBI). The DOJ seized 63.7 bitcoins and stated that: “[r]ansom payments are the fuel that propels the digital extortion engine, and today’s announcement demonstrates that the United States will use all available tools to make these attacks more costly and less profitable for criminal enterprises.” This drive indicates the push of US justice department to minimalize the risk attached to digital assets. But the question begs on how the Feds were able to seize the ransomware coins? Apparently, this was achieved by tracing and obtaining the private key of the wallet, but there is no clear answer as to how this was done as theories circle of three potential scenarios from a crypto exchange holding the wallet to tracking the hacker to a physical location. Despite speculation, Coinbase has denied any involvement in the FBI’s search and seizure.
As this was not the only ransomware attack, LineStar Integrity Services was also targeted but kept on the down low despite 70 gigabytes of its internal files being stolen and dumped onto the dark web. The attacks did not stop there as JBS Holdings paid $11M in bitcoin to avoid disruption in its business.
TAKING ON GANGS, MONEY MULES, INDIVIDUAL LIABILITY AND NEW AC BODIES
Gangs that use digital assets to transfer illicit funds must now tread lightly as UK’s Scotland Yard has called for updated legislation and an extension of its reach to not only stop cyber criminals from trading in bitcoin, but also to have the ability to freeze these funds. This comes as the Crown Prosecution Service (CPS) has issued updated guidance on money laundering offences. Some tricks never get old, or at least when they are pulled on the young and inexperienced. Ireland has now seen an increase of ATM money mule scams where a group of men approach the young and inexperienced by depositing thousands of Euros into their bank accounts and forcing them to asset in withdrawing small amounts at numerous banks and ATMS’s.
The NYC Bar Association has now submitted draft proposal concerning the personal liability of Chief Compliance Officers (CCO) in the financial sector. The accountability will stem from the day-to-day performance of the COO compliance duties, but concerns have been raised that too stringent regulation will have adverse effects on their careers. This follows as a top NY regulator has warned cryptocurrency funds to build AML programs. Moldova has now launched a new anti-corruption body as it stated that the current body is not equipped to move at the pace criminals do. Its new body consists of anti-corruption experts, economists, and journalists funded by the EU and US with the main focus on the financial and banking sectors.
COMMITTEE OF EXPERTS, G7 AND TAX PROBES
The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) released its 2020 report and found that: “Criminals all over the world have found new ways to abuse the financial system by committing cybercrimes, engaging in fraudulent investment schemes, selling counterfeit medicines and exploiting the public health procurement sector.” The despite G7 striking a seismic agreement on global tax reform which will mean that the largest tech and pharma giants may pay tax in the countries in which they operate at a minimum rate of 15%, there are still some concerns that it is setting the bar to low. There have also now been calls for the G7 to act and tackle global corruption.
On the tax front, it is becoming more reported that connected persons are being audited and subject to a probe into unexplainable wealth. This is the case for a pilot and his wife who are now being probed by the Fiji Financial Intelligence Unit (FFIU) for unexplained wealth. It is not only connected persons that are in revenue authorities crosshairs but also governors such as Lebanon’s Central Bank Governor Riad Salameh who is being probed for criminal association and money laundering. In this investigation “[e]normous money laundering operations will be examined, which ought to open every nook and cranny of the mafia that has brought Lebanon to its knees.” DHL is also under investigation by Italian tax police as more that $24M of assets have been seized.
TIP-OFFS, CHARGES, ARERSTS AND SENTENCING
A tip-off has led to Irish security services seizing 22 tons of hashish valued over €220M in the Canary Islands. Meanwhile in Germany, Dutch police have arrested three individuals linked to the Coinhouse.eu exchange. The accused have been charged fraud and embezzlement in the pump-and-dumped scheme as they attempted to defraud investors by selling them a self-made cryptocurrency and then allegedly intentionally sinking its price, a Denver man was also later arrested for his alleged involvement. US officials are at it again and this time it is Coinseed’s turn – the trading app has now announced that it will stop all trading following the filing of a lawsuit for untruthful gains of $1M through its initial coin base offering and trading without a license. In China, police have arrested 1,100 people in connection with money laundering by utilizing cryptocurrencies.
The fund manager of JES Global Capital has pleaded not guilty to bank fraud where he attempted to persuade a bank to loan him $95M based on fraudulent documentation. Should he be convicted, he could be sentenced to 62 years in prison. Ex-Wirecard COO is being investigated for fraud and cybercrime in the Philippines. The charges for bank fraud and cybercrime, follows arrests of former chief executive Markus Braun and several other top executives on fraud and money laundering charges stemming from the scam. El Salvador is again making news as the former first lady was order to pay back $4.4M and sentenced to 10 years in jail for money laundering and illicit enrichment.
An Australian man has pleaded guilty to conspiracy to commit wire fraud stemming from his participation in a fraudulent scheme to charge hundreds of thousands of mobile phone customers millions of dollars in monthly fees for unsolicited, recurring text messages about topics such as horoscopes, celebrity gossip, and trivia facts, without the customers’ knowledge or consent.
TAKING US HOME – CAYMAN AML
Cayman Islands Monetary Authority (CIMA) revoked Hinduja Bank’s license over charges of money laundering and governance lapses which included failure to hold minimum net worth and submit audited accounts. This is not the bank’s first instance of turning a death ear to regulators as a court in Geneva fined the bank 157 million francs for tax violations and tribunals in Geneva and Mauritius brought allegations of company law violations.
CIMA has further issued a notice on the appointment, duties and responsibilities of AML Officers encouraging AMLCO and AMLRO’s to be cognizant of respective duties and responsibilities as set out in the Anti-Money Laundering Regulations (2020 Revision). It was reiterated that:
- AML Officers must be able to dedicate sufficient time for the efficient and effective discharge of their respective functions. Where an AML Officer has other professional roles and responsibilities, these should not compromise their independence or ability to carry out their AML functions.
- AML Officers must be versed in the different types of transactions that the business conducts which may give rise to opportunities for money-laundering, terrorist financing, proliferation financing and any direct or indirect activity with designated person or entities.
- Where the AML Officer function is outsourced, the Licensee or Registrant retains ultimate responsibility for compliance with the AMLRs and must maintain adequate policies and procedures.
This again stresses the importance of strict adherence to proper governance and adherence to company and anti-money laundering laws.
A global trend is emerging from the good and the bad towards an adoption and exploitation of digital assets. For bitcoin being adopted as legal tender may be the giant step but subpar regulation and ransomware attacks breaks a lot of momentum. We can only do better as in the AML sphere and ensure that proper governance and policies are in place to protect vulnerable companies and funds in the digital asset space.