Tendencias en los delitos financieros—Guía de FinCEN sobre el comercio de Marihuana, la caída de Libor, asalto a Bitcoin y más

Fecha: 19 de febrero de 2014
Por: Daniela Guzman y Brian Kindle

Navegar por la avalancha de noticias sobre delincuencia financiera puede ser un trabajo de tiempo completo. Es por eso que ACFCS le trae Tendencias en los Delitos Financieros, un trabajo semanal que proporciona actualizaciones rápidas sobre eventos y desarrollos clave en los diversos campos de la delincuencia financiera.

Esta semana cubriremos la nueva guía de FinCEN sobre la bancarización de comerciantes legales de marihuana, las secuelas del escándalo Libor, la inminente sanción contra BNP Paribas, el rogo de millones en Bitcoin por parte de Silk Road 2.0, y mucho más.

Lavado de dinero y sanciones

La guía de FinCEN sobre la marihuana legal deja a los bancos en la duda – Intentando despejar las dudas regulatorias en torno a la industria de la marihuana legal, la Red de Control de Delitos Financieros EEUU (FinCEN) publicó directrices el 14 de febrero para aclarar cómo las instituciones financieras pueden ofrecer servicios a las empresas legales de marihuana sin dejar de “cumplir las obligaciones de la Ley de Secreto Bancario [de la institución]”. El Departamento de Justicia de EEUU emitió una nota el mismo día que reiteró sus ocho prioridades de control relacionados con la marihuana, ninguna de las cuales incluye la bancarización de la industria de la marihuana legal. Si bien ambos anuncios pueden ayudar a confirmar la legitimidad del comercio de marihuana, los críticos de las asociaciones bancarias y algunos funcionarios electos no estaban muy convencidos de la profundidad de los anuncios. Como muchos señalaron, la guía no hace nada para resolver el enigma clave: más de 20 estados han permitido de alguna forma la marihuana, pero la ley federal se mantiene firme. La marihuana sigue siendo una sustancia ilegal, y hasta que esta situación cambie, los banqueros no parecen dispuestos a correr el riesgo de tomar el dinero de la marihuana.

La policía española desarma una red internacional de lavado de dinero del narcotráfico – Las autoridades desmantelaron una red criminal multinacional con sede en España que lavó cerca de US$ 7 millones provenientes del narcotráfico. Hubo 9 detenciones de pandilleros y se confiscaron más de US$11 millones. La red de lavado tenía estrechos vínculos con carteles de la droga en América Latina, y lavaban el dinero sucio invirtiendo en negocios deficitarios o en quiebra como fachada. La nación europea se ha convertido recientemente en un destino elegido por muchas operaciones de lavado transnacionales.

Canadá recibe elogios del GAFI sobre políticas ALD – El Grupo de Acción Financiera Internacional revisó las políticas de ALD de Canadá como parte de su evaluación anual y le dio una alta calificación, y recomendó que el país sea retirado del proceso de auditoría al que había sido sometido a desde 2008. El informe indicó que las deficiencias en la recopilación de información sobre los beneficiarios y la diligencia debida se habían abordado. El país es también uno de los últimos en firmar un Acuerdo Intergubernamental, o IGA, de conformidad con la Ley FATCA,  por el que debe enviar información a Estados Unidos  sobre las cuentas de personas de Estados Unidos que estén en Canadá.

Un banco francés reserva US$ 1100 millones por haber violado régimen de sanciones- BNP Paribas anunció la semana pasada que reservaría US$1100 millones para un posible acuerdo legal relacionado con violaciones de sanciones de Estados Unidos. El banco está siendo investigado por varias autoridades de Estados Unidos, como el Departamento de Justicia, La Oficina de Control de Activos Extranjeros, y el Tesoro. Las potenciales violaciones habrían tenido lugar en fecha tan reciente como 2009, y podrían haber involucrado transacciones con Cuba, Sudán e Irán. La revelación se produjo apenas una semana después de que el presidente francés, Francois Hollande diera una conferencia de prensa conjunta con el presidente Barack Obama para advertir a las empresas e instituciones financieras sobre la conducción de negocios en Irán antes de que se levanten las sanciones internacionales.

Cumplimiento Fiscal y FATCA

Los inversores temen reglas de FATCA para grupos de afiliados extendidos- Los fondos de cobertura están preocupados por las normativas FATCA que podrían tratarlos como grupos de afiliados extendidos, por lo tanto están sujetos a las mismas normas de información que las entidades financieras. Tres territorios británicos han recomendado nueva orientación sobre los IGAs que han firmado con EEUU con respecto a la ley. La propuesta, que puede restar presión a las normas relacionadas con los grupos de afiliados extendidos, podría reducir los niveles de certificación del cumplimiento de la ley.

Los republicanos protestan FATCA, en la Cámara y en el extranjero – La Ley FATCA recién entrará en vigor el 1 de julio pero los miembros y personas allegadas al Partido Republicano de EEUU están tomando una postura en contra de la ley, tanto en el Congreso como en línea. El mes pasado, el Comité Nacional Republicano adoptó una resolución en la que pide la derogación inmediata de la ley. Mientras tanto, los grupos de defensa de los exiliados estadounidenses, entre ellos uno llamado los republicanos en el extranjero (Republicans Overseas), están utilizando los medios sociales para reunir la oposición a FATCA.

Fraude

Tres banqueros enfrentan a cargos penales en el Reino Unido, como secuela del escándalo Libor – Incluso después de dos años de los casos y de miles de millones de dólares de multas a algunas de las mayores instituciones financieras del mundo, las fuerzas británicas han indicado que el escándalo con las tasas Libor – y los procesamientos en relación con éste- no han terminado todavía. El 17 de febrero, la Oficina de Fraudes Graves del Reino Unido (Serious Fraud Office) anunció que habían presentado cargos penales contra un ex corredor y dos ex “peticionarios de tasa” de Barclays por conspiración para manipular el Libor, una tasa de interés de referencia que afecta a miles de millones de valores y productos de inversión en todo el mundo. Tres ciudadanos británicos ya han sido acusado penalmente en el Reino Unido en relación a la tasa Libor, y los fiscales británicos han prometido más medidas, diciendo que han identificado 22 conspiradores.

Anticorrupción Global

Investigación de Rolls Royce puede presentar acusación de corrupción – En una nueva vuelta de tuerca al escándalo de soborno de Rolls Royce, la Oficina de Fraudes Graves del Reino Unido (Serious Fraud Office) reveló que estaba investigando la compañía automotriz por hechos de corrupción en contratos firmados en fecha tan reciente como hace tres años, justo cuando el nueva Ley de Soborno del Reino Unido (UKBA) estaba entrando en vigor. Los sobornos fueron revelados a funcionarios británicos por dos denunciantes, uno de los cuales trabajaba anteriormente en Rolls-Royce. Alegan que Rolls Royce pagó sobornos a un funcionario contratado por dos aerolíneas chinas para ayudar a la compañía a obtener contrato de motores por un valor de US$2.000 millones. Dos donantes/aportantes políticos reconocidos en el Reino Unido también fueron detenidos en relación con el esquema de soborno.

Kenia y China se han unido para combatir la corrupción en el comercio de marfil – China es uno de los mercados más grandes del mundo para el marfil ilegal, un comercio ilícito que vale miles de millones al año que se facilita por la corrupción política. Una red de criminales en el contrabando chino se desbarató el mes pasado en Nairobi, como parte de un esfuerzo multinacional para detectar y detener el comercio ilegal de marfil. El plan conjunto es una campaña entre 28 países, incluyendo EEUU, para combatir el comercio ilegal que es en gran parte responsable de aniquilar el elefante africano. Gran parte del contrabando ha sido habilitado por el soborno de los funcionarios de aduanas e inmigraciones en Kenia y otros países africanos.

Ciberdelito y Monedas Virtuales

Silk Road 2.0 fue hackeado y se robaron fondos – El sitio anónimo del mercado negro Silk Road fue cerrado por la policía de EEUU en octubre del año pasado, pero era solo una cuestión de semanas antes de que reapareciera. Ahora, Silk Road 2.0 es uno de los varios sitios que comercializan con la moneda virtual Bitcoin  que son blanco de los hackers en los últimos días. El llamado bazar de drogas de la ” web profunda ” fue supuestamente hackeado por uno de sus proveedores en un multimillonario robo de la moneda virtual, según un anuncio administrativo. En total, US$36,1 millones fueron robados en Bitcoin tanto por los usuarios del sitio como el sitio mismo. Un administrador anónimo culpó a un ‘bug’ de Bitcoin ‘, que había afectado a otros comerciantes de Bitcoin, de interrumpir operaciones en la última semana. Los ciberataques contra la moneda han sido generalizados, incluso golpearon a gigantes como Yahoo . Los expertos en seguridad dijeron que el homepage había sido infectado durante un mes desde el pasado mes de diciembre, con el malware diseñado para explotar Bitcoins de los usuarios.

bitcoin

With arrest of Bitcoin executive, US enforcement agencies train sights on compliance officers

Date: January 29, 2014
By: Brian Kindle

Through a string of US Justice Department prosecutions, FBI seizures and regulatory guidance from the Financial Crimes Enforcement Network (FinCEN) over the last year, US agencies have made it clear that virtual currency is squarely in their sights.

The arrest this week of leading Bitcoin entrepreneur Charlie Shrem, on charges he laundered more than $1 million destined for the online drug marketplace Silk Road, raises the specter that enforcement agencies may be focusing on a new target – compliance officers of the burgeoning virtual currency industry.

In a criminal complaint unsealed in Manhattan on January 28, federal prosecutors charged Shrem, chief executive and compliance officer of the digital currency exchange BitInstant, and Robert Faiella with money laundering conspiracy and operating an unlicensed money transmitter (Title 18, US Code Section 1956 and 1960). The case is one of the very rare instances in which a compliance officer is directly implicated in a financial crime scheme, and facing individual criminal charges.

Faiella is accused of operating a currency trading service for Silk Road customers, using the name “BTCKing” and offering “easy, cheap [and] fast” exchange of cash for Bitcoin. A “deep web” site that could be accessed only by using anonymizing software, Silk Road became infamous as an online bazaar with virtually no limitation on what could be bought and sold, including drugs. Sellers accepted only Bitcoin as payment. The site was closed in October 2013 after US federal agents arrested its alleged founder and operator, Ross Ulbricht, in San Francisco.

Complaint includes rare criminal charges for failure to file SARs

Faiella’s arrest fits with the recent enforcement actions that target more or less brazenly criminal digital currency exchanges and administrators. Shrem’s alleged role in the money laundering operation is more surprising.

Shrem is the co-founder of BitInstant, and as the chief compliance officer he was largely responsible for designing the company’s AML program. According to the criminal complaint, he was also responsible for thwarting those same AML controls. It is alleged he instructed Faiella on how to avoid drawing attention as he funneled funds to Silk Road users by using multiple emails.

In an unusual charge, the complaint also accuses Schrem of a Bank Secrecy Act criminal violation of “willfully failing to file any suspicious activity report” concerning Faiella’s transactions (Title 31, US Code Sections 5318 and 5322).

A criminal complaint is usually filed in anticipation of an indictment by a federal grand jury. It is typically based on an affidavit filed by an agent of a US law enforcement agency. The Internal Revenue Service Criminal Investigation Division is the lead agency in this case.

In virtual currency, tension between compliance and anonymity

If the government succeeds in its case against Shrem, it would be another setback for a young industry that is still struggling with anti-money laundering and BSA compliance challenges. Bitcoin’s value and number of users have soared recently, and other virtual currencies are also flourishing. The industry’s rise is drawing venture capital funds and other investors, and tying virtual currency businesses more closely to the traditional financial sector.

Yet Bitcoin and other virtual currency still retain certain features, such as the potential for largely anonymous and instantaneous cross-border transactions, which make them highly attractive to financial criminals.

“Can compliance be achieved in the virtual currency industry? Absolutely,” says Dan Friedberg, an attorney at Riddell Williams, in Seattle, and an expert on emerging payment systems.

“But there’s an element of Bitcoin [and other currencies] that is fundamentally at odds with the traditional regulatory structure,” he adds, citing the libertarian streak that initially inspired Bitcoin’s creation as an alternative to traditional currencies.

“Ultimately, for Bitcoin to continue to be successful, that point of tension will have to be resolved.”

Arrests come on eve of hearings by NY regulator

Shrem is a well-known figure in the virtual currency field, having served as a vice president of the Bitcoin Foundation, an advocacy group that helps promote the currency and fund the software infrastructure that runs it. He also has been a vocal advocate at industry events for the necessity of compliance programs at virtual currency exchanges and administrators.

His arrest preceded two days of hearings by the New York Department of Financial Services (NYDFS) on virtual currency and the regulatory considerations on January 28 and 29. The case quickly became a topic of conversation at the hearings. Reactions were mixed.

“Bad guys are going to do bad things, and they’ll use whatever technology is available to them,” said Barry Silbert, CEO of the alternative securities trading platform, SecondMarket, at the hearing. Other industry members echoed this view, saying that virtual currency is just another financial instrument, no more vulnerable to financial crime use than currency.

At the hearings, some regulatory representatives noted that even currency transactions occur within the regulatory framework, such as the duty to file Currency Transaction Reports imposed on financial institutions and other businesses concerning transactions above certain thresholds.

Virtual currency regulation still in ‘Wild West’ phase

Virtual currencies are required to comply with the regulations governing United States money services businesses, according to guidance by the Financial Crimes Enforcement Network issued in March 2013. In most other jurisdictions, including the states of the United States, regulations do not exist.

“Right now, the regulation of virtual currency is still akin to a virtual Wild West,” said Benjamin Lawsky, Superintendent of the NYDFS, at the Jan. 28 hearing. He said the hearings would lay the foundation for proposed state regulation of virtual currency later in the year.

The case against Shrem and Faiella and the prosecution of Silk Road may ultimately help accelerate the push for financial crime compliance in the virtual currency industry, says Friedberg.

“Getting rid of Silk Road is a very good thing for Bitcoin,” he concluded. “However, there’s going to be a period of fallout from it. The case [against Shrem] is part of that. It’s an aftershock of Silk Road, not an attack on Bitcoin as a whole.”

Virtual currencies and their financial crime risks will be probed in detail on the panel “New World of Bitcoin and Other Virtual Currencies” at the ACFCS 2014 Conference, February 5 – 7 at the Marriott Marquis in New York. Expert speakers, including a member of the Bitcoin Foundation, a representative of FinCEN, a federal prosecutor and an ediscovery specialist will provide critical knowledge and insights on one of the key financial crime challenges of the time. To register, visit http://www.financialcrimeconference.com/

conference

‘Super Bowl’ of financial crime draws financial crime players and leading experts to New York for ACFCS Conference, February 5-7

Date: January 29, 2014
By: ACFCS Staff

Three days after the top United States professional football teams clash in the Super Bowl near New York, many of the leading players in the financial crime field will gather in Manhattan for a scrimmage of their own to tackle the most pressing financial crime issues they face.

The encounter will take place at the ACFCS 2014 Financial Crime Conference & Exhibition on February 5-7 at the Marriott Marquis, New York.

More than 40 senior financial crime compliance officials, regulators, law enforcement agents, and other veterans will train attendees coming from many regions. Attendees will have 12 opportunities at top-rated networking events to meet the experts, their fellow attendees and first-class service providers and the Exhibition Hall.

The Conference will provide hands-on training on the hottest topics in financial crime, such as virtual currency, threat finance, cybersecurity, the law called FATCA, which takes effect July 1, anti-money laundering and other topics.

Some of the top 41 experts, who make up the outstanding speaker roster, and their contributions, are:

  • Barry Koch, Chief Compliance Officer, Western Unionthought leader in financial crime and the new quantitative, data-driven approach to AML; a global expert in financial crime compliance at money services businesses and banks
  • Serrin Turner, US Federal Prosecutor, Manhattanspecializes in virtual currency prosecutions and leads the landmark cases involving Liberty Reserve, Silk Road and others
  • Jim Bischoff, Chief, Counter Threat Finance, US Special Operations CommandSpearheads the US military’s operational mission to choke off the finances of national security threats, such as terrorism, drug, human and weapons trafficking and foreign corruption, in collaboration with financial institutions and other private sector entities
  • Hon. Ryan Pinder, Minister of Financial Services of The Bahamas – has launched a Center for Excellence in financial services, a pioneering undertaking to help financial institution personnel hone their skills across the board, particularly in financial crime control
  • Alan Cox, Acting Director, Liaison Divison, FinCEN – Veteran financial crime professional and virtual currency expert with an insider’s perspective on regulations and risks for the digital payment revolutiion
  • Mike Benardo, Chief of Cyberfraud and Financial Crime, FDIC – Leading authority and US government leader on the many cyber risks facing financial institutions and best practices to counter them
  • Jim Keenan, Well Fargo’s FATCA lead and head of customer due diligenceSenior compliance executive with hands-on expertise in building an effective FATCA compliance program in tandem with other compliance duties, such as AML
  • Paul Pelletier, Member, Mintz LevinTough-as-nails lawyer and former federal prosecutor who drove the United States FCPA enforcement surge and put megafraudster Allan Stanford in prison
  • Delena Spann, Special Agent, US Secret ServiceInvestigative expert who specializes in using innovative data analytic tools and techniques to hunt down fraudsters, and published book author on the subject
  • Dan Boylan, Senior Vice President and Audit Director, Bank of AmericaAML expert with unique insight on leveraging anti-money laundering tools and techniques for FCPA and anti-corruption compliance, and how to audit these procedures

Panels train on critical financial crime risks and hottest topics

The 13 Conference panels are packed with knowledge and insights and will cover the full range of 21st Century financial crime issues, from data analytics in AML compliance, to the risks of virtual currency, to the surge in global anti-corruption enforcement and the complexity of compliance with the new law called FATCA, which takes effect July 1, 2014. A few of the key panels include:

  • New World of Bitcoin and Virtual CurrencyCombating the financial crime threats of the new digital era
  • Data Security and Cybercrime – Innovative weapons to combat digital threats and new risks
  • FATCAWhat US and US and non-US institutions must do to comply by July 1, 2014, the effective date, and afterwards
  • Open Source Intelligence — Capitalizing on ‘OSINT’ and social media for compliance, due diligence and investigations
  • Anti-Money Laundering in the New World Order – Meeting the challenge of new laws, technologies and risks with new approaches that meet evolving regulatory expectations

“The panels will give attendees great information and practical guidance they can apply immediately and directly,” says Charles Intriago, president and founder of ACFCS, a former federal prosecutor and a pioneer in the AML field with his 1989 publication, Money Laundering Alert. “Every panel and speaker can provide attendees with crucial tips and best practices on detecting, preventing, regulating and prosecuting financial crime.”

Conference features many networking, career-building opportunities

In addition to the best practices they will learn from the experts, the attendees will meet and interact with the speakers one-on-one at the 12 networking sessions, including two receptions, two luncheons, to breakfast and several refreshment breaks.

“ACFCS recognizes that while knowledge is essential, financial crime professionals also need to build their connections and further their careers,” says Brian Kindle, ACFCS Training Director. “That’s why our conference goes to great lengths to provide great networking, so that attendees can connect with one another, with the outstanding technology and services providers in the Exhibition Hall and the great roster of speakers.”

About ACFCS

ACFCS is a global member organization that offers the Certified Financial Crime Specialist (CFCS) certification, the credential that verifies the skill and competence of private and public sector specialists across all fields of financial crime, including FATCA and AML. ACFCS also offers training, analysis, networking and community to its worldwide audience of members and specialists.

For more information on the 2014 conference and to register now, visit www.financialcrimeconference.com

(Accredited members of the media may obtain press credentials to cover the conference by contacting Brian Kindle at 786-517-2720 or bkindle@ACFCS.org or Daniela Guzmán at 786-517-2731 or dguzman@ACFCS.org.)

 

‘Three Rs’ of FATCA compliance for non-US institutions vexes them and their US correspondents

Date: January 29, 2014
By Daniela Guzman

The Foreign Account Tax Compliance Act (FATCA) of 2010 is set to take effect July 1, 2014, and every financial institution is its target. Banks, securities firms, many insurance companies and commercial corporations will be affected by this dragnet law that aims, on the surface, to identify tax evaders.

The law, whose principles have now been adopted by many important countries, is a broad attempt to curb tax evasion by uncovering the financial accounts and other assets of US persons that are held in other countries. All financial institutions worldwide will be required to report information on these accounts to the US Internal Revenue Service (IRS). The penalty for noncompliance is a 30% withholding on payments that are to be received from the United States.

FATCA is not without important compliance obligations that are imposed on US financial institutions. In anticipation of the effective date on July 1, US institutions are scrambling to assure that their FATCA compliance program is up to the task.

Bruce Zagaris, an expert on international taxation and financial crime and partner at Berliner, Corcoran & Rowe, in Washington, DC, is editor of International Enforcement Law Reporter, a respected monthly publication.

Zagaris, a featured speaker at the ACFCS International Financial Crime Conference & Exhibition, February 5-7, 2014, at the Marriot Marquis in New York, has developed an expertise on FATCA and how non-U.S. institutions will manage the costs and organizational challenges. The following is an extract from the paper he will submit at the conference. He explains how foreign institutions should meet their compliance duties, and particularly the registration, reporting and due diligence duties that FATCA imposes.

An excerpt from the Zagaris paper (read more here):

The ‘Three Rs’ of FATCA compliance for non-US financial institutions with US customers

“FATCA compliance impacts the operational areas of accounting, information technology and legal departments; withholding and report; communications with accountholders and owners; product design and development; sales and distribution; on-boarding and many other business areas.  A business must analyze and determine whether to modify the areas in order to comply.   A large organization may have business processes and data sources that vary across products and geographies, thereby multiplying the variable decisions to consider.

“At present large organizations are working to become FATCA compliant. Organizations must ensure that the processes, system enhancements and controls are integrated into future models to ensure that FATCA compliance is sustainable in the long term. In addition, as five countries in the EU have agreed to start a pilot automatic exchange program and the OECD is examining an automatic exchange system, FATCA provides an opportunity for an organization to develop sustainable controls.

“Financial institutions must make decisions of who in the organization is best to serve as the RO.  FATCA’s requirements emphasize tax reporting, withholding, and investor due diligence.  However, many of the key procedures for FATCA are in areas outside the tax function, such as account on-boarding, operations, and technology). The RO may be a person outside the tax department. Most importantly, the RO should be at a high enough level in the organization to see the entity’s operations broadly and have the ability to leverage resources across the organization. The RO will have ultimate responsibility to certify on behalf of the FFI. Hence, the organization should select a person involved in the development of the enterprise’s FATCA compliance policies and procedures.”

(Bruce Zagaris will be joined by 41 other leading financial crime experts as speakers at the ACFCS Financial Crime Conference & Exhibition, February 5-7, 2014, at the Marriott Marquis, New York. Go to financial crimeconference.com to register and for information.)

jobs

Financial crime compliance jobs booming, but skills needed to stand out, jobs matchmaker says

Date: January 29, 2014
By: Daniela Guzman

Finding a job in the financial industry is not always easy, but one prominent job matchmaker says financial institutions have been on a hiring spree for compliance professionals to improve their financial crime prevention and compliance. Compliance has become an indispensable investment for financial institutions and other corporations, says Jack Kelly, Managing Director of Compliance Search Group, LLP, in New York.

Institutions and companies seeking to build and maintain robust compliance programs are looking for persons with demonstrable expertise in all areas of financial crime and verifiable skills and knowledge. ACFCS.org talked with Kelly for an in-depth look at how the compliance job market has changed and is developing.

His experience in recruiting has given him an inside look at how compliance jobs have grown in demand, status and salary. He says the hiring trend will continue, as companies place more importance on making sure their practices are in line with the law.

data-analytics

Data analytics helps unmask financial crime, Secret Service expert describes

Date: January 29, 2014
By: Daniela Guzman

Delena D. Spann is a fraud analysis expert of the United States Secret Service based in Chicago where she is assigned to the Electronic and Financial Crimes Task Force. For well over 15 years she has developed an expertise in linking patterns and trends of fraud schemes and anomalies in financial transactions to establish patterns of criminal activity. A member of the ACFCS Threat Finance Task Force and the Charter Class of Certified Financial Crime Specialists, Spann will be speaking at the ACFCS International Financial Crime Conference and Exhibition on Feb.5-7, 2014 in New York on the Threat Finance and Big Data panels, where she will share some of her expertise on these topics.  In preparing for her speaking appearance, ACFCS asked her these questions.

What is data analytics from your perspective?
Data analytics is a way to combat fraud by analyzing transactional data in an organization’s accounting records and financial statements.

 How does a fraud investigation use data to uncover and zero-in on fraud?
A fraud investigation uses data to uncover fraud by examining and understanding the data that has been provided via a subpoena or other means of legal compliance. Key elements to facilitate the fraud investigation:

– Review the data and the information to analyze prior to approaching the fraud investigation, analysis process and/or fraud examination.
– Strategize your approach to the fraud investigation.
– Understand the complexity of the data & verify the validity.
– Determine the necessary documents needed for review (financial statements, checks, deposits, withdrawals, tax returns, and wire transfer receipts)

The noted elements are a start for a concise and thorough analysis.

After you gather the data, how can it be analyzed?
Data can be analyzed in a variety of ways; however, it depends on the organization and their determining factor of what process will be most useful.  I would think that most organizations will apply the most effective approach in determining the direction of the analysis, querying data, confirming associations through link analysis, commodity flow analysis, strategic analysis or a more straight forward apparatus.
Henceforth, after the analysis process a much vital component is knowing how to interpret the data; and within the data mining process lies the identity of red flags, patterns and schemes that are associated within the fraud investigation.

 How can structured compared to unstructured data, such as social network information, be used to conduct a fraud or financial crime investigation?
I am not privy to unstructured data within the data analysis process. Most of the information connected with a financial crime investigation is structured. Structured data is consistent, reliable and it verifies the source. Knowing the source of the data is critical. However, with unstructured data, you would never know the unknown or invisible actors.  An example would be the virtual world-whose actors are known as “AVATARS” who use and provide information anonymously. Within the realm of financial investigations there is always a need for more information than less to support your findings and recommendations. Most prosecutors rely heavily on accurate analysis.

What would you consider the biggest obstacle when searching for data and analyzing it in a fraud or other financial crime investigation?
The biggest obstacle would be sifting through a plethora of documentation. Whether, you’ve been provided  the information in electronic format or paper, the most viable assertion is time.   I cannot speak for all professional entities; however, from a general perspective; what once took months and years-now takes a week or depending upon the magnitude of data-a few days at the most.  I applaud the technological industry for creating more sophisticated fraud analytic tools that provide the efficiency and speed.

Is there any human element that still remains important in this investigation process?
The human element that is so vital to the investigation process is having a keen eye of  the information attained and understanding the information.No one needs to reiterate   that the devil is in the details; a fraud investigation is approaching and the perpetrator must be exposed. The end result lends itself to the following—exposing the various schemes and uncovering the nefarious workings.

 (Hear Delena D. Spann speak on data analytics and the following topics at the ACFCS Financial Crime Conference & Exhibition, at the Marriott Marquis in New York on February 5-7, 2014:

– Definition of threat finance from the perspective of Secret Service and other US enforcement agencies
– Human trafficking as emerging threat, and criminal networks involved
Public-private information-sharing and cooperation on threat finance issues
Virtual currencies and virtual worlds, and their use by threat actors
– Fraud analytic tools used by Secret Service and other US law enforcement
Tools and techniques and their application in real-world cases
Data sources and types of data needed in order to utilize analytic tools in fraud cases

To register for the ACFCS annual conference, visit our site: http://www.financialcrimeconference.com/

FCW 01-22-14

Financial Crime Wave – Basel’s new AML guidance, Bitcoin seizures, and more

Navigating the flood of financial crime news can be a full-time job. That’s why ACFCS brings you the Financial Crime Wave, a weekly feature providing quick updates on key events and developments across diverse fields of financial crime.

This week’s Crime Wave covers new AML standards from the Basel Committee, Canada’s hunt for tax evaders, Bitcoin seizures, and more.

Money Laundering and Sanctions

  • In new guidance, Basel Committee sets standards for AML risk managementOne of the world’s key standard-setters in the financial crime field released new guidance on recommended policies and procedures for AML programs at financial institutions this week. The document, the drily titled “Sound Management of Risks Related to Money Laundering and Financing of Terrorists,” offers a broad range of compliance best practices, from risk assessment and monitoring to staff training. The Basel Committee is made up of the central banks or banking supervisory agencies of 27 countries, and its guidance sets the pace for the formal financial sector. Read the guidance here.
  • US seizes $28 million in Bitcoins from black market websiteEven as virtual currencies like Bitcoin grow in popularity and value, they remain attractive to cyberfraudsters, drug traffickers and money launderers. That fact was driven home by the largest-ever US government seizure of Bitcoins last week from the illicit online marketplace Silk Road. The operator of the black market website, 29-year-old Ross William Ulbricht, was arrested in October on charges of hacking and drug trafficking. Prosecutors at the time estimated the seizure at $3.6 million, but since then, Bitcoin has more than tripled in value. While virtual currencies can be legitimate ways to make transactions, Silk Road is becoming a prime example of how they can be used to facilitate financial crime. Read more here.
  • Rabobank wrestles with AML, Libor rigging failings – The Dutch financial institution Rabobank was hit with a consent order by the Office of the Comptroller of the Currency in December, requiring the bank to remediate its AML program, the US regulator announced last week. In 2013, the bank was fined $1 billion by US and European regulators for participating in illegal Libor rate-rigging, resulting in the indictment of several former traders last week. Read more here.

Tax Evasion and Enforcement

  • Canada hunts tax cheats with bounty for informersJoining the global push against tax evaders, the Canadian government will offer rewards to informants who tip off tax authorities to significant offshore evasion. Starting last week, the Canadian Revenue Agency is paying up to 15% to tipsters whose information leads to the recovery of any lost taxes over 100,000 Canadian dollars (roughly $91,000 in US dollars). It is part of a number of new measures designed to crack down on tax evasion by Canadian persons. Read more here.
  • Out of options and time, 60 Swiss banks join US tax evasion dealAhead of a Jan. 1, 2014 deadline, at least 60 Swiss financial institutions agreed to enter a program with the US Justice Department that would see them turn over information on their US account holders in exchange for leniency in tax fraud prosecutions. The program creates four “levels” that Swiss banks can apply for, depending on the degree of their involvement in allegedly facilitating tax evasion by US persons with undeclared assets stashed in Switzerland. Some banks in the program will enter into “non-target” or non-prosecution agreements with US enforcement agencies, while others may still face criminal charges and monetary penalties. Read more here

 Global Anti-Corruption

  •  Fresh off latest fiasco, UK’s SFO rallies for Rolls Royce probeDespite a string of failed prosecutions and collapsed cases, the UK’s Serious Fraud Office appears undaunted in its efforts to bring corruption charges against UK companies. Most recently, the beleaguered enforcement agency has reportedly been given a surprise surge in funding reportedly “in the low millions of pounds” to pursue an investigation of Rolls Royce for violations of the UK Bribery Act. The company, the world’s second-largest aircraft manufacturer, is suspected of making bribes to government officials in China and Indonesia. Read more here.
  •  In FCPA cases, remediation pays offThe US Department of Justice and Securities and Exchange Commission have long trumpeted the importance of a proactive response to anti-corruption compliance, urging companies to correct compliance failings as soon as they are uncovered. This year, US enforcement agencies drove that guidance home, granting “significant credit” to two companies that remediated their compliance programs while FCPA investigations were still underway, according to FCPA expert Mike Volkov. Read more here. 
target

Target data breach gives vital lessons in protecting against cybercrime

Date: Jan. 22, 201
By: Allison Walton, President, Fortis Quay

The red bull’s-eye that the huge retailer Target uses as its brand logo took on ominous new overtones when the company landed in the crosshairs of a cyberattack last month.

The colossal data breach it suffered reportedly affected the personally-identifiable information of about 70 million customers and 40 million credit and debit card accounts. It also set off a public relations nightmare that may take years to subside when all the ensuing legal problems for the company end.

If a data breach can strike a megastore with $73 billion in revenue – even one that likely has conducted extensive penetration testing, created sophisticated prevention programs, and invested in custom technology – it can happen to any organization, large or small.

The Target data breach teaches many valuable lessons to organizations about how to prevent, manage and mitigate data breaches. It also illustrates the consequences that flow from one and provides a map for organizations on how to achieve a “litigation-ready” posture.

Breach triggers ‘preservation’ duties

Data breaches can come through a broad range of channels and malicious attacks.  They can take the form of phishing, hacking, malware, physical theft and other events. This ongoing specter provides impetus for organizations to constantly stand guard to protect all aspects of its cyber infrastructure at all times.

Data breaches frequently trigger the legal standard of “reasonable anticipation” of litigation. Once litigation is reasonably anticipated, or foreseeable, a “legal hold” should be deployed as a best practice, meaning that procedures should be implemented promptly to assure that no internal relevant records or files should be deleted or destroyed, even as part of a normal document retention and destruction policy.

Maintaining data safety is further complicated by the risks presented by high volumes of business and the complexities of maintaining both an online and a physical presence. No one expects perfection in the area of data breach, but courts and regulators expect reasonable, preventive measures and efforts to be taken.

Common pitfalls

Although perfection is not the standard, an organization encounters trouble when it neglects or fails to:

  • Implement technology and programs for intrusion and data loss prevention,
  • Train individuals appropriately, and
  • Conduct testing to ensure that it is compliant and protected.

For Target, the breach has major implications involving many financial institutions and other businesses and locations worldwide. It is facing lawsuits from customers over information that was stolen from its systems and later used for criminal purposes. The financial institutions whose data and customers were affected by the fraud may be next in line.

The following steps are essential when an organization is dealing with a data breach.

Three necessary steps when data breach occurs

1. Place relevant data sources and custodians on legal hold

When a data breach occurs, a legal hold should be executed and data of all relevant sources and custodians must be preserved for use in potential criminal or civil cases. Organizations should create and be prepared to execute a viable plan for data collection. Consider the following:

  • Government investigators and regulatory agencies will invariably probe how an organization handled the data breach, with special attention to when the organization found out, what systems it had in place, if and how it issued a litigation hold, and what steps it took to mitigate future risk.
  • Target acknowledged the breach on December 19. Almost immediately, plaintiff lawyers filed multiple lawsuits across the United States.
  • Consumer groups and state attorneys general are also planning suits. A 30-state coalition has been formed in response to the Target breach.

While the scope of the breach is important, proving damages in data breach and privacy cases is a necessary element if the plaintiffs are to succeed. By issuing a legal hold directed at relevant data sources and custodians and preparing for extensive discovery, organizations can immediately start mitigating regulatory and legal liability.

2. Conduct internal investigation

After a legal hold has been issued and disseminated, it is important to use all internal and external resources to reconstruct how the breach occurred.

  • Security, legal and IT departments, at a minimum, should participate in this evaluation.
  • Organizations should document the steps they took internally and produce all log analyses from affected systems. To assess the vulnerability of other data systems, the organizations should run penetration tests.
  • Organizations that don’t have appropriate in-house resources should have a plan to enlist the services of third parties when a data breach occurs. Last-minute decisions about partners that must be trusted is not advisable. The plan should address technical security and legal issues, which are intertwined.

Organizations that have conducted an internal review of the facts and circumstances of a breach are best prepared to respond to litigation and investigations.

3. Implement compliance programs and mitigating efforts

Data protection is a large endeavor. Organizations should consider implementing customized compliance training for employees to assure that they are protecting proprietary and sensitive data. These training and testing efforts should be measured, documented and ongoing.

  • Customer notification is a crucial aspect of how to manage a data breach. The notice should state what happened, what the consumer should do, and what the organization is doing and offering to help alleviate the damage.
  • For complete transparency, organizations should consider conducting conference calls with affected parties and their representatives.
  • Organizations should also establish a legal fund for its own defense in the potential fallout and for shareholder protection.

State attorneys general will consider the steps taken by Target to mitigate data breach risks and what it did to control the damage. Target took a welcomed step of providing breach victims with one year of free credit monitoring, identity theft insurance and issuance of new cards.

Prevention of a data breach is always the best option, but in an era of increasing cyberattacks it is difficult to achieve. If a breach occurs, organizations can reduce their legal liability and potential regulatory penalties by showing they have done their best to mitigate the risks associated with the breach.

 

med-mar

States legalize marijuana, but money laundering laws block banking relations

Date: Jan. 22, 2014
By: Daniela Guzman

It is a booming industry with multi-billion dollar revenues, a broad customer base, and projections of explosive growth. Yet it’s also an industry whose businesses can’t find a bank willing to open an account and accept their ever-expanding revenues.

The reason? The industry in question is the recreational and in some cases medical marijuana trade in the United States, a business sector whose funds are essentially untouchable by US financial institutions due to conflicts between state legalization and federal money laundering laws.

While 20 states have enacted laws fully or partially legalizing marijuana for medical purposes, and Washington and Colorado now allow marijuana for recreational use, federal law hasn’t budged. Marijuana still remains an illegal drug, designated among the most dangerous “Schedule I” drugs listed in the Controlled Substances Act of 1970.

Under the US money laundering law, at Title 18, US Code Sec. 1956, conducting transactions with the proceeds of the sale of controlled substances, or moving the proceeds internationally, is considered a “specified unlawful activity” and  a “predicate” offense to a money laundering prosecution.

Laundering charges could face financial institutions

Financial institutions that conduct such transactions, which includes taking funds that originate with legalized marijuana dispensaries, could be exposed to money laundering charges under the US law. This offense, upon conviction, could result in huge criminal fines for the institution and prison sentences of up to 20 years for individuals that are convicted.

As a result, legal dispensaries in states like Washington and Colorado, as well as some medical marijuana businesses in other states, have been largely barred from accessing financial services, from bank accounts to loans and insurance. Until federal law is amended, US institutions face a stark choice – continue to turn away businesses connected to the marijuana trade, or risk prosecution and penalties from regulators for violating US money laundering laws.

“I see no wiggle room for banks because they cannot cross this line,” said Michael McDonald, a retired Special Agent of the Internal Revenue Service Criminal Investigation and a pioneer in money laundering law enforcement. He now advises financial institutions, including money services businesses, on compliance with the US Bank Secrecy Act and money laundering laws.

“If they do so, they do at their own risk.”

As profits soar, investors eye marijuana trade despite risks

Since California first decriminalized medical marijuana in 1996, legalization efforts have steadily gathered force across the US. Medical and recreational marijuana has already injected millions of dollars into state economies, and profits are projected to grow rapidly.

Colorado is the most recent state to pass a legalization law early this year, decriminalizing marijuana for recreational use.  Recreational dispensaries in Colorado have reported soaring profits just two weeks after the legislation went into effect.

ArcView Group, a San Francisco-based investor network, predicts that the legal U.S. marijuana industry will rise to a net worth of $2.34 billion (this year?). With an estimated growth rate of 64% for 2014, the marijuana market is increasingly attracting the attention of hedge funds and private investment firms.

Even so, the young, burgeoning industry faces serious legal roadblocks, and federal regulators and enforcement agencies have largely been silent on guidance to financial institutions.

Federal agencies acknowledge quandary, but offer no solutions

While the Department of Justice issued a memo last year saying that they would focus on eight priorities in relation to prosecution of larger marijuana-related federal crimes, they did not mention banking legal marijuana businesses as one of them. Since then, pressure from marijuana legalization advocates and some US financial institutions has placed the issue on the Justice Department’s agenda.

“In September, Deputy Attorney General Cole agreed that this issue needed to be dealt with and acknowledged that the department had begun talks with financial regulatory officials,” said Department of Justice spokesperson Ellen Canale.

“Since then the department has continued to work with relevant partners to find an appropriate solution.”

The Financial Crimes Enforcement Network, the federal agency with primary responsibility for crafting BSA and AML-related regulations for US financial institutions, has issued no guidance or rules related to the legal marijuana industry. Reportedly, FinCEN officials feel that their hands are tied unless the US Congress takes action to alter federal laws.

As banks heighten due diligence, legal marijuana goes underground

Afraid of running afoul of regulators or law enforcement, institutions in some states have increased due diligence to detect customers connected to the marijuana trade. Banks in Washington and Colorado have closed accounts associated with marijuana distributors.

As a result, billions of dollars of legal marijuana money may be circulating in cash. Without access to financial services, the business practices of legal marijuana dispensary owners don’t differ much from those of the criminal drug underworld.

Many dispensary owners have resorted to cash-only businesses that leave no paper trail. Others have taken to counting their businesses’ cash themselves, carrying it in bags, and depositing into varying ATMS at different times. This raises the specter of structuring violations at institutions who receive the deposits.

It also increases the risk that dispensary owners will themselves become victims of crime, said Erik Altieri, the communications director for the legalization advocacy group Norml.

“It’s putting an undue burden on these business owners,” Altieri said, “and the government needs to allow them to have the same tools that every other business has at their disposal.

With Congress unlikely to act, no recourse for US banks

Ultimately, it falls on the US Congress to resolve the conflict by amending existing laws, possibly by tweaking the specified unlawful activities under Section 1956. Over the last two years, six bills have been introduced in the House of Representatives that would help resolve the clash between state and federal policy on marijuana.

With all proposed bills languishing in subcommittees, however, it is unlikely that Congress will take any action on the still-contentious issue of legal marijuana in the near future. Until then, the legal marijuana industry may be stuck in the haze of illegitimacy, and US financial institutions will be forced to stay far away.

“It’s going to lend itself to tax evasion and going to create a subterranean economy,” says McDonald.

“If a distributor can’t have a bank account, they can’t be transparent from a business perspective.”