When Basic AML Training Just Isn’t Enough

Deutsche Bank is reportedly leading an internal investigation into an alleged USD6bn laundry, using ‘relatively FCAbasictrainingsimple transactions’ to clean cash. Simple transactions used to launder money should be easy to identify – if the software does not pick it up, then the employees handling the transactions should be able to spot a suspicion. Basic anti-money laundering training would guide someone to tell their AML team if something in a transaction does not look right. What if it did, and the message is still not getting through?


Regulated financial institutions spend money on ineffective training programmes; employees spend time attending training sessions that offer no new information on the subject or on how to approach the issue at hand. There are a myriad reasons why training programmes do not have the desired effect, but why do firms still use them?

They do so because they have little choice. A robust regulatory environment, a requirement to train all employees on the risks associated with financial crime and the spectre of a large financial penalty for not doing so have backed banks and other regulated firms into a corner. Gone are the days of leaving all knowledge of money laundering, terrorist financing, sanctions busting and bribery to the compliance department. In the present environment, we have to train all employees, management, directors and the C-suite on financial crime risks. And this, as compliance officers know, comes at a great cost to a bank.

Compliance generates no revenue – the compliance department is a straight-up cost centre. Although the argument that having an effective compliance programme in place could save you a few million dollars in regulatory fines is quickly gaining ground, compliance officers – it appears – are still bound by tight budgets. This is sometimes to the detriment of quality training, forcing compliance officers to compromise on the standard of training they want to deliver to employees.

Compliance budgets are larger than they were a few years ago. The coffers are deep enough to attract and retain talented individuals to maintain good compliance procedures in banks, and to ensure that every employee has at least a basic grasp of anti-money laundering, sanctions and anti-bribery and corruption requirements – how it works and who the ‘bad guys’ are. But compliance training where employees sit through another session on placement, layering and integration and learn nothing more relevant to their role, do not encourage anyone to think in terms of risks posed to their business line.

Beyond the money laundering cycle

Basic training has done a great job; meet bank staff from any division in a corporate, retail or investment firm and they will be able to trot out the three stages, and this was not the case five years ago. Except now, the information comes by rote – it is learned, absorbed, recalled when asked but is it really embedded into how bank employees do their jobs?

FCAadvancedtrainingAdvanced or more specific AML/CTF training courses on the market should address the particular risks posed by different areas of banking. Looking into trade based money laundering operations using examples and knowledge from people who have worked in trade financing first hand, not simply adding a few slides to a power point describing false invoicing would be a good start; but this is rarely the case.

It’s about the people, stupid

Global AML efforts are now hinged upon a risk based approach – the basic principle of applying most resources where the greatest risks lie. To do this, employees need to understand the risks – what they look like, where and when they can occur. The emphasis must be on engaging the learners.

“To combat financial crime and terrorist financing, the people who work with clients must be aware of the risks. Not just compliance and the firm’s financial intelligence unit, but front line business people in an institution.” Kim Manchester, a compliance veteran and CEO of ManchesterCF told Financial Crime Asia.

This rings true. The customer facing employees – whether private banking relationship managers or traders creating OTC derivatives – know their client well enough to offer them precisely the right product at the right time. They also should be able to know with the same precision when a deal does not add up. Compliance officers can erroneously believe that ML/TF is not an issue for some of the more sophisticated financial products. Let’s take derivatives as an example. Some compliance officers do not consider AML/CTF something that derivatives traders need to be concerned with and so they did not need training on this area.

This is a huge oversight which could end up costing a financial institution. Mis-priced derivatives contracts can be used as an instrument to launder money and to channel funds to bribe takers. If the traders who engineer these products are able to recognise and report unusual activity – such as a price that does not chime with the market – compliance training is hitting the mark. But if these traders are sitting through a course which spends only a fraction of the time looking at how financial criminals try to manipulate sophisticated products, they might never spot a suspicious transaction. AML/CTF training must reach far beyond the basic stages and into the specific business lines run by banks on the markets. Because this is where the real financial crime takes place.


China: Spectre of Corruption Haunts Huawei

(Beijing) – More than 100 company employees at Huawei Technologies, China’s biggest telecoms equipment maker, have been implicated in allegations of graft, triggering tightened internal scrutiny on its employees and sales agents. FCA - Huawei China

At an internal meeting in Beijing on September 4, Huawei executives highlighted the company’s urgent attempt to fight against corruption in deals involving rebates in corporate businesses.

According to the company, as of August 16, Huawei detected 116 employees on suspicion of corruption in cases which were linked to 69 sales agents of the company. Four employees have been handed over to the judicial system.

Several of Huawei’s agents told Caixin that one of Huawei’s branch heads was detained during a trip, and many of his subordinates are also involved in the case.

“The current figures only refer to cases with detailed evidence,” said one source from Huawei, adding the company has stepped up internal reviews on corrupt activity and promised harsh punishment for misconduct.

Facing lukewarm growth in device sales and business with telecom operators, Huawei has focused on the corporate network business. In 2013, corporate business reported 15.2 billion yuan in revenue, a year-on-year increase of 32 percent.

However, aggressive competition among sales agents in corporate deals and the reward power of sales managers to offer rebates has shaped opportunities for corruption.

A Huawei staffer said corruption usually occurs in giving product rebates to sales agents. Huawei has a complicated rebate system with large gaps in varying rebate levels.

The bigger the rebate, the larger the profit margin for agents, said the source. “To get more rebates, some agents bribe Huawei employees while other employees even ask for a bribe.”

Sources told Caixin that among the 69 agents accused of bribery by Huawei, 53 sent bribes solicited by company employees.

In addition to the corporate network business, other divisions of Huawei are taking more precautions against corruption. Recently, Yu Chengdong, chairman of Huawei’s device department, issued an internal email to his employees warning that some of the department’s staffers had been found taking bribes from agents.

Huawei’s device department has products ranging from mobile phones, tablets to broadband devices and corporate network equipment. In 2013, revenue from device sales reached 57 billion yuan.

Huawei’s total revenue amounted to 239 billion yuan last year, an increase of 8.5 percent from the previous year.

Source: Caixin

China halts dollar transactions with most Afghan banks –

May 22 (Reuters) – Chinese banks have halted dollar transactions with most FCA - dollarsAfghan commercial banks, the central bank governor said on Thursday, making it difficult for businesses to pay for imports with one of the Afghanistan’s biggest trading partners.

China is a major country that was handling those bank transfers, and now they have told the banks they can’t do it,” governor Noorullah Delawari told Reuters.

The impact on business had been felt immediately, he said. (Reporting by Jessica Donati, Editing by Maria Golovnina and Angus MacSwan)



Source: Reuters

Enhanced by Zemanta

UK Bribery ACT: new guidance and advice on entertaining

The UK Bribery Act 2010 has extra-territorial provisions which could mean prosecution in the UK courts for foreign entities who are carrying on business in the UK.

The Old Bailey, London

The Old Bailey, London

In May, UK lobby group the British Bankers Association, published new guidance on Anti-Bribery and Corruption which includes six principles of compliance from the UK Ministry of Justice:

  • Proportionate procedures
  • Top-level commitment
  • Risk Assessment
  • Due Diligence on Associated persons/Third Parties
  • Training and communication
  • Monitoring, review and management information

The guidance also looks at incident management and reporting and gifts and entertaining.

In a well timed op-ed piece, The Drum interviews two lawyers from Sheridans law firm who offer their perspective on why firms should not be concerned about entertaining clients and risking a breach of the UKBA.


Enhanced by Zemanta

Russian oligarchs hiding wealth in Western havens

FCA - Man Suit Tax Haven

A truism, but one worth exploring further. Russia’s oligarchs and massive state structures are making use of the tax havens created by the west to keep their money and their deals away from prying eyes. Laughably, the prying eyes now belong to the western governments who allowed these secrecy havens to flourish in the first place. The UK government has courted Russian billionaires in the very recent past, keen to secure the glamour and faux prestige of playing home to the world’s obscenely wealthy. It didn’t seem to mind that their money was all offshore. Things look a bit different since the US is encouraging allies to impose tough economic sanctions on some of the same oligarchs and their businesses. The opaque veils of secrecy shrouding offshore funds are doing their job very well – stopping anyone from seeing the people behind the money.

This in-depth article by the 100 Reporters project looks into the role of western ‘enablers’.




Enhanced by Zemanta

Infographic: the US financial sector in 19 years, from 37 to 4

Four banks dominate the US banking sector; they have developed out of a group of 37 individual institutions that operated in 1990.

Sources: Federal Reserve, GAO, Collated by Exposing the Truth

Sources: Federal Reserve, GAO, Collated by Exposing the Truth

This chart compiled by Exposing the Truth takes data from the Federal Reserve and the Government Accountability Office to show how 37 banks have closed, disappeared, merged, sold and squeezed in 19 years between 1990 to 2009 into four mega institutions which have benefited from the ‘too big to fail’ umbrellas.

The US financial sector in 1990 drew a starkly different landscape from the one we see in 2014.  The 1990s brought in many changes in regulation, precipitated by the financial crisis of the late 1980s. The introduction of the Basel Capital Accord in 1988 changed how financial institutions assess and counter risks. Technology was little used in retail banking in 199; on-line banking was undeveloped, mobile banking was merely a twinkle in  a WAP developers eye.

The nature of  banking was different. Institutions were smaller, they served a localised clientèle, whether state wide or city wide or regional. Banks had personality; clients could talk to the manager, who had more control over how a branch ran. My regulatory knowledge of banking back in mid 90s US is limited, I own, so I do not know how many banks were closed by regulators for compliance failures, or were censured for gross misconduct or criminality.

Compliance and regulation specialists use examples of how regulators and regulatory penalties have forced institutions to close in the past. Wachovia, the bank which laundered cash for Mexican cocaine trafficking cartels, made it through to the final stages of the 19-year competition, losing out to Wells Fargo only in 2008.

I would be interested to hear from readers how many more of these 37 institutions were forced out of the market as a result of poor market practice resulting in a breach of regulations or legislation.


Enhanced by Zemanta

China: Zhou’s House of PEPs Infographic

Think that Frank Underwood from Netflix‘ House of Cards series and his network are ruthless in their relentless pursuit of power? Wait until you read about one of China’s FCA - Zhoupolitico-business families. Sanctions officers might consider placing this infographic on their desktops as a reminder of who is who and who they have done business with.

Meet the Zhous, China’s very own House of PEPs, which is odd given they have thrived in a Communist country which expounds the virtues of equality for all and no citizen being better than the next. The infographic shows the prominent politically exposed persons in the clan, how they are related, and shows the business investments they have made and lists the companies connected to them via investment or other business dealings.

The thirteen members of the Zhou family depicted in this New York Times Infographic appear to have stakes in more pies than they have fingers. Seven of the clan have been detained by Chinese authorities,  the whereabouts of six of them is reported ominously as ‘unknown’. One of the clan lives in California and is presumably, for now at least, safe from prosecution by China. Two more are on the lam; they are not under arrest, as far as we know, but no one knows where they are.

The Zhous at a glance 

Zhou Yongkan, the patriarch of the family sits at the top of the tree. He has held various positions in government and state entreprises. His is under arrest and Chinese authorities have already seized USD14.5bn in assets belonging to Zhou and his associates.

Wang Shuhua, his first wife, is deceased, but their son Zhou Bin took an 80 percent stake in the energy investment company, Zhongxu, in 2009. He is also underarrest.

Jia Xiaoye, his second wife, us under arrest – location unknown.

Zhou Bin’s wife Huang Wan and her father Huang Yusheng are both being detained for questioning in undisclosed locations, while her mother Zhian Minli is in California.

Zhou Yuangqing, Yongkang‘s brother, his sister-in-law Zhou Lingying and nephew are also mentioned on this ominous family tree; while mum and dad are under arrest, the whereabouts of Zhou Feng, the nephew, is unknown.

Source: The New York Times

Enhanced by Zemanta

What’s driving Pharma’s international bribery scandals?

Reviewing some of the points in raised about why pharmaceutical firms are caught up in bribery cases, and how they are disguising the grease payments, here are the highlights of a report from the Inquirer.

Does this ever happen?

Does this ever happen?

  • Bribery is the norm in emerging nations; it is routine and systematic
  • Disguising the source and money trail left by bribes.
  • Competitive advantage trumps bribery penalties.
  • Compliance is destined to fail when corrupt employees are considered to be ‘savvy’.
  • Fines and penalties are not deterrents.
  • Flagging business performance is worrying firms and encouraging the unethical pursuit of sales

The system is sophisticated enough to merit its own laundry. Of course, no one wants to openly accept a bribe so figuring out how to hide the source of funds becomes a requirement. If the money goes straight to a service business used by the intended bribe recipients, such as a travel agency, the agency can lay it all off as travel expenses, from luxury cars, to suites at five star hotels and extravagant tours. While the payments appear as such on the books, they are only bookings, and the money is instead channelled to the intended bribe recipient, minus the agency’s commission.

The investigations into the big-pharma bribery scandals highlights the abject failure of anti-bribery and corruption efforts to date. Big-pharma, and any other company operating in emerging nations, with ever decreasing profit margins and an apparent absence of ethics is still focusing on the money, no matter how they get it. It appears, from the CEO comments, that corruption happens systematically even when improper behaviour exposes bribe givers to prosecution and fines.

Progression or regression?

“Once again, a progression first attributed to Steve Jobs and previously cited here applies to pharma.  When a company and its industry are growing and producing products of value that its customers want to buy, then their scientists, engineers and other R&D people drive the business.  Once the innovation and the value of new products decline and demand slackens, then marketing and sales drive things.  That works for a time until it no longer remains possible to continue selling old wine in new bottles.  Then finance drives everything, catering to Wall Street with cost cutting, layoffs, mergers, divestitures, and arithmetic sleights of hand.  That also works for a while, until it no longer does.  In the final stage, some businesses resort to cheating, bribery or other underhanded methods.”  From the Inquirer article.

Enhanced by Zemanta

SEC warning on agents and controls in HP bribery case

The computer giant Hewlett Packard has come under fire from the US Securities and Exchange Commission for breaches of the Foreign Corrupt Practices Act, related to payments made by company subsidiaries in Mexico, Poland and Russia. Issuing a USD108m penalty to HP, the SEC took the opportunity to issue a reminder of its FCA - Magnifying glass womanexpectations and requirements under the FCPA.

(On a personal note, I bought a new HP laptop a few months ago, had I known about the bribery case then, I probably would not have gone with them. I doubt losing my sale is anything more than a speck of dust on the HP magnifying glass, but imagine if everyone thought like that?)..

Back to the story…

Commissions paid for services are under scrutiny by the SEC and abuses or attempts to hide bribes under ‘commissions’ in company accounts will be penalised.

Internal controls – including anti-bribery policies, procedures and training should be implemented across firms, including in subsidiaries. This post from yesterday has some useful resources on internal controls.

Agents used to facilitate operations and conduct business on behalf of the firm should be subjected to due diligence.

“The company’s books and records reflected the payments as legitimate commissions and expenses. Companies have a fundamental obligation to ensure that their internal controls are both reasonably designed and appropriately implemented across their entire business operations, and they should take a hard look at the agents conducting business on their behalf.” Karen Brockmeyer, SEC Enforcement

The FCPA is not the only extra-territorial legislation that firms need to be on alert for. The UK Bribery Act 2010 affects UK citizens and companies globally, as well as foreign firms that are carrying on business in the UK.

More information in this report from The Guardian.

Enhanced by Zemanta

Corruption: Does my bung look big in this?

In March, the US Department of Justice has slapped a USD88m fine on Japanese firm Marubeni for their involvement in a seven-year campaign to bribe high ranking FCA - US DOJIndonesian members of parliament and other public officials. The DOJ account of how the bribes were orchestrated sheds some light on the process. One of the most amusing elements of the case reveals how deep-seated bribery and corruption plays out in the meeting rooms of corporations, using specially drafted consultants to manage the deals and how officials react when they feel they are being short-changed.

The first ‘graft’ consultant was offered three per cent of the total deal in commission, for feeding the appropriate hands in parliament and at state-owned companies. The bribe-takers, in this case officials at the national power company, griped that their gifts might not be substantial enough to secure their favour and when word of their unhappiness reached the right ears, his commission was reduced to one per cent and a second ‘graft’ specialist was brought in to seal the deal. This is how bribes are made – no brown envelopes, nothing is under the counter. It is open, documented and built into the budget.

The DOJ used the extra-territorial provisions of the Foreign Corrupt Practices Act to target the firm. Marubeni pleaded guilty to eight charges – read the full DOJ report here


Repercussions for the firm extend far beyond the dollar fine. Marubeni is subject to investigation by the Federal Bureau of Investigations, and the presence of the agents alone around the US offices is enough to cause concern for future clients.

Damage to its reputation could have a significant effect on future business, allowing the competition to step in and win contracts based on the fact that they are not on the receiving end of a DOJ penalty and probe.

Last but by no means least, comes the remedial action the firm must take, as dictated by the terms of their plea agreement. This is the real meat for Governance, Risk and Compliance professionals.

Marubeni has agreed to maintain and implement an enhanced global anti-corruption compliance program and to cooperate with the department’s ongoing investigation. This will be a large cost to the firm. The agreement also highlights the apparent lack of an effective ‘compliance and ethics program’ as a factor in the final plea agreement.

Regrettably for Marubeni, all of its dirty dealings were recorded in emails which detail conversations between consultants and Marubeni, including percentages to be paid in commissions.

Two former executives have pleaded guilty to FCPA breaches and two more face charges.

A consortium of failures

Some of the failings noted in the DOJ final notice.

Two senior executives,, both in sales’ positions, have pleaded guilty to conspiracy to breach the FCPA.

Allegations of bribery were laid against two more executives in July 2013; by March 2014, these allegations were not proven.

According to court filings, Marubeni, its employees, and other parties paid bribes to officials in Indonesia for assistance in securing a USD118m contract, known as the Tarahan project. The contract was for Marubeni and its consortium partner to provide power-related services for the citizens of Indonesia.

The bribe-takers included a high-ranking member of the Indonesian Parliament, senior members of Perusahaan Listrik Negara (PLN), the state-owned and state-controlled electricity company.

The two consultants hired in connection with the Taharan project to provide legitimate consulting services were, according to the DOJ, taken on to pay bribes to Indonesian officials.

Does my bung look big in this?

E-mails between employees at the Marubeni subsidiary in Indonesia gave details of the bribery system and concerns or demands of the bribe takers.

Officials from the state power company expressed ‘concern’ about whether the agent FCA - Pocket moneywould provide them with satisfactory ‘rewards’ or maybe her would ‘only give them pocket money and disappear.’ Clearly, the bent state-employees of Indonesia can see when their own warped integrity could be devalued. Comments that the agent has not shown he was ‘willing to spend money’ might even suggest that, radically, he was not prepared to offer enormous bribes.

Either way, he lost the gig. A mail sent by Marubeni employees stated the following: “unfortunately our agent almost did not execute his function at all, so far. In case we don’t take immediate action now now [sic], we don’t have any chance to get this project forever.”

The first graft consultant still got his one per cent commission, even though a second bribe expert was brought in to close the deal, on the remaining two per cent commission.

The report concludes with this comment:

“Marubeni and its co-conspirators were successful in securing the Tarahan project and subsequently made payments to the consultants for the purpose of bribing the Indonesian officials. Marubeni and its co-conspirators paid hundreds of thousands of dollars into the first consultant’s bank account in Maryland to be used to bribe the member of Parliament. The consultant then allegedly transferred the bribe money to a bank account in Indonesia for the benefit of the official.”

Enhanced by Zemanta