Financial Crime Summary – Q3 2019


Each quarter, Laven looks at the most interesting and relevant financial crime news to give an idea of the ongoing regulatory approach taken against money laundering and terrorist financing. This allows us to make clients and other regulated firms aware of the potential risks they face. We also provide alerts on any preventive measures firms can take. Passages are linked throughout to more in-depth articles should our readers want to explore certain aspects of the summary further.

EU issues note on the impact of future actions on Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT)

Ahead of a meeting of the EU’s Economic and Financial Affairs Council (ECOFIN) on 10 October 2019, the President of the Council of the European Union has issued a note focusing on how possible future actions may impact anti-money laundering and counter-terrorism financing.

The note highlights several issues likely to continue impeding the effectiveness of the European AML/CFT framework, namely:

  • Differentiated implementation amongst member states, and wide national discretion in framing the obligations of banks and other obliged entities;
  • Divergent tasks, competences and powers of the various authorities and bodies in charge of AML/CFT;
  • Substantial differences in the nature/amount/use of sanctions across the EU;
  • Unclear supervision/supervisory responsibilities of cross-border activities (group dimension largely underdeveloped);
  • Insufficient cooperation between AML/CFT supervisors, prudential supervisors, Financial Intelligence Units (FIUs) and law enforcement authorities, including those in third countries;
  • Insufficient coordination and support for FIUs in carrying out their general tasks, including joint analysis.

In light of this, the Presidency considers AML/CFT a key area and the Council will aim to set strategic priorities to guide the Commission on long-term actions in the area. In particular, the note emphasises that the EU Member States need to consider the scope of possible future actions, the ways to further harmonise the legal framework, possible initiatives for ensuring effective supervision throughout the Union and seamless cooperation between the various authorities and enhanced cooperation between Financial Intelligence Units.

The outcome of the meeting was as follows:

  • Strategic priorities which will guide the Commission’s longer-term actions in implementing the anti-money laundering action plan, set out in December 2018, will be adopted in December 2019;
  • Ministers discussed a “post-mortem” review of recent alleged money laundering cases involving EU banks. They stressed the importance of implementing recently agreed reforms, in particular the 5th revision of the AML directive, the new capital requirements for banks (CRD5) and the revised European system of financial supervision, and of enhancing cooperation and exchanges of information among competent authorities;
  • Ministers also discussed the possibility of further harmonising AML rules, in particular by turning the AML directive into regulation and conferring specific AML supervisory tasks to an EU body;
  • Ministers exchanged views on the main elements of the Commission’s revised methodology for preparing a list of “high-risk third countries” in the area of money laundering and terrorist financing. Once the methodology is settled, the Commission will put forward a new draft list of countries in the form of a delegated act.

ABN Amro NV discloses money laundering criminal probe

Dutch prosecutors allege that ABN Amro failed to carry out sufficient client due diligence, monitored bank accounts insufficiently and failed to report suspicious transactions, or reported them too late. The bank also failed to provide a timeline over which possible violations took place. The bank may have also been involved in a money-laundering network that allegedly channelled billions of dollars through Russia. Shares in the bank fell by as much as 10.3% once news of the investigation broke; ABN is also currently 50% government-owned after a bailout in 2009.

In light of the allegations, ABN has stated that it will review its five million retail clients and has allocated 114 million euros for the checks, in addition to the 85 million euros the bank set aside for improving financial crime prevention at the end of last year. This comes after ABN announced that it was joining forces with ING, Rabobank, Triodos Bank and Volksbank to possibly set up a joint organisation to monitor payment transactions and stating that it was already making every effort to identify movements of criminal funds. Recent money laundering fines such as the 775 million euro fine against fellow Dutch bank ING last year serve as a benchmark for the possible penalty ABN could face.

The Netherlands has been the subject of multiple inquiries into suspected money laundering over recent years. Investigators last year estimated that roughly 13 billion euros were laundered each year through the Netherlands between 2004 and 2014, equivalent to around 2% of Dutch GDP.

ESAs issue Joint Opinion on the risks of money laundering and terrorist financing in the EU’s financial sector

On 4th October 2019, the European Supervisory Authorities (ESAs) published a Joint Opinion analysing current and emerging money laundering (AML) and terrorist financing (CTF) risks affecting the EU’s financial sector. The ESAs identified cross-sectoral and sector-specific risks.

The ESAs identified the UK’s withdrawal from the EU as a key cross-sectoral risk to the EU’s financial sector. Brexit has generated uncertainty, and its effect on AML/CTF risks in the EU has yet to be determined. The uncertainty around Brexit has prompted firms to relocate to their Member States and the ESAs have highlighted the possible strain on firms’ resources to obtain authorisation and establish themselves in another Member State after the UK leaves the EU. Competent Authorities (CAs) from that Member State may, in turn, have insufficient resources to be able to accurately assess the AML/CTF risks associated with the business models and ownership and control structures of a potentially large number of applicant firms. These firms will additionally need supervision by competent authorities to ensure compliance with their Member State’s AML/CTF obligations, which may not be adequately robust due to the possible strain on the resources of competent authorities.

The ESAs additionally focused on the risks posed by the emergence of new innovations in both FinTech and RegTech solutions. Although most CAs agree that FinTech and RegTech pose AML/CFT risks, they have adopted different approaches to the assessment of these risks, with some being more advanced than others. Therefore, the ESAs suggest that CAs may need to develop a better understanding of FinTech and RegTech products and services and their control frameworks, which may be different from the traditional controls that the CAs are familiar with. The AML/CFT risks associated with FinTech include the provision of unregulated financial products and services that do not fall within the scope of AML/CFT legislation; the quality of information gathered as part of the Customer Due Diligence (CDD) process, particularly the application of incomplete or ineffective CDD measures, and a lack of understanding by FinTech providers of their obligations under the AML/CFT legislation and the overall financial regulatory framework. The risks associated with RegTech include firms’ over‐reliance on information technology solutions, which could lead to a loss of human professional expertise and judgement in monitoring processes; a lack of provisions in the current legal framework dealing with RegTech solutions, which means that different standards are applied by different solutions, and firms’ lack of understanding of new technologies that are used in their CDD processes, which may expose firms to ML/TF vulnerabilities. The ESAs also highlighted risks relating to virtual currencies, particularly that they are often unregulated financial products which are poorly understood by firms and CAs, leading to insufficient impact assessments and limited customer identification and verification checks being carried out.

The ESAs proposed a number of actions for CAs to take in an effort to mitigate cross-sectoral risks, including acknowledging and adapting to the implications of Fintechs and RegTechs, and monitoring developments in relation to virtual currencies and assessing if any changes to the national legal and regulatory AML/CFT frameworks are required. Responses from CAs also showed that credit institutions, payment institutions, bureaux de change and e-money institutions are considered the most vulnerable to ML/TF.

FCA issues press release on the sentencing of Richard Baldwin in money laundering trial

The FCA issued a press release on the sentencing of Richard Baldwin on 3 September 2019. Mr Baldwin was sentenced to 5 years and 8 months’ imprisonment in his absence after absconding from justice during his trial for money laundering in July 2017.

Mr Baldwin laundered criminal property between October 2007 and November 2008 that were, in part, the proceeds of insider dealing committed by Martyn Dodgson and Andrew Hind. The proceeds of the insider dealing were subsequently laundered through Panamanian companies, off-shore bank account and false invoices.

He was also convicted for several contempts of court, committed in 2015, relating to the breach of a Restraint Order given in June 2011.  The Restraint Order prevented Mr Baldwin from in any way disposing of, dealing with or diminishing the value of any of his assets within or outside of England & Wales.

Mr Baldwin is the sixth man to be convicted as part of Operation Tabernula, launched by the FCA. Martyn Dodgson and Andrew Hind were also previously convicted by jury trial in May 2016 for insider dealing during the investigation. Operation Tabernula is the FCA’s largest and most complex investigation to date, carried out in partnership with the National Crime Agency, spanning 11 years. The benefit figure for confiscation by the FCA as a result of the investigation has been estimated by commentators to be as high as £7 million. During confiscation proceedings, the FCA alleged that Mr Dodgson and Mr Hind may have benefitted by £3 million; however, the available amounts were agreed in the sum of £1,074,236 for Dodgson and £624,521 for Hind.

As of 10 October 2019, Mr Baldwin remains at large.

How can we help?

At Laven our consultants can help identify the actions your firm needs to take to ensure you are compliant with new regulations, provide training to staff, assist in drafting new policies and procedures that need to be put in place, as well as assisting with your ongoing compliance using our compliance software. Our expertise includes:

  • AML Training
  • Ongoing Compliance Support
  • Crypto Consultancy
  • Operational Due Diligence Support

Laven has also built Laven Tech, a unique RegTech solution that leverages advanced technology with our vast subject matter expertise. It is this combination which sets Laven apart in the RegTech space and allows us to mitigate the potential risks that the ESA describes. Our RegTech solutions are designed to assist fund managers, service providers and investors to meet today’s growing demands.

If you would like to know more, get in touch at [email protected] or call +44 (0)20 7838 0010.

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