FRA Managers Carolyn Hodgson and Michelle Zhao recently attended the Financial Intelligence & Information Sharing Working Group (FIIS WG) 2019 Fall Symposium in New York City. The event covered relevant Financial Intelligence (FININT) topics, including protection of critical financial infrastructure, prevention of fraud, and obstruction of terror finance and money laundering. Below are some of their key takeaways from the event.
- Regarding transparency, the UK is leading an international campaign to change beneficial ownership transparency by 2023. The EU is requiring all member states to register beneficial owners.
- In relation to Money Laundering and “nesting”, financial havens are changing from traditional countries such as Switzerland. There is a trend towards financial havens locations in larger countries, such as China or Russia, or places with relaxed controls.
- In the realm of cryptocurrency, countries are starting to mine their own coins (for example Russia, North Korea, and China) which is not illegal. However they are also creating their own blockchains, which makes it even more challenging to trace. The main cryptocurrency concern is Bitcoin, though Monero could be the next threat. Monero advertises itself as privacy-focused cryptocurrency that cannot be tracked or traced.
- Cryptocurrencies are currently designated as commodities by the US government which effects what legal actions can and cannot be taken against cryptocurrency transactions. However, as more markets begin to recognize cryptocurrency as a legitimate currency, this could change and would affect enforcement actions available against this type of activity.
- For financial institutions, it is important to consider proliferation implications, especially with regards to any sort of North Korea nexus. For KYC on-boarding purposes, it is important to recognize your customers’ line of business and whether that line of business includes strategic goods. Another consideration to put into practice at the time of customer on-boarding is the use of more than just the sanctioned list for screening. It is also important to look to other sources, both domestic and foreign lists, e.g., US BIS list.
- With respect to “government nesting”, sanctioned entities go through “rogue” government entities before reaching the clearing bank. The shareholders of such government entities are usually hidden and challenging to identify during the due diligence process, such as the state-owned-enterprises in China.
- Some typical indicators of money laundering schemes include unnecessary confidentiality, encrypted communication, routing through opaque financial havens, delays, transactions in odd currencies, transactions with odd counterparties or unnecessary complications.
- Since some of the Bitcoin Automated Teller Machines (BTMs) don’t require identification and only need a phone number and an email address, they have become the favored tools of bad actors. BTMs at airports, universities, coffee shops, shopping malls are high risk targets. Bad actors can even own or operate their own BTMs.