money laundering

Papua New Guinea: How good AML is pushing placement back to the gatekeepers

Effective anti-money laundering programmes in banks are moving the gateposts for placing dirty cash into the financial system back a few steps, into the offices of lawyers, accountants and other professional service providers.  Undercover reporters working with Global Witness have video-recorded two prominent lawyers in Papua New Guinea explaining exactly how to channel a large bribe to a government minister.

Corruption reaches “right to the top” in Papua New Guinea, a representative of the national anti-corruption task force states in the video posted above. Being a government minister is the fastest way to becoming a millionaire, one of the lawyers claims.

Papua New Guinea shares a resource rich island of New Guinea with the Indonesian provinces of Papua and West Papua. As noted by Global Witness,  despite its resource wealth, much of the money made from them fails to reach the majority of the population. Plagued by corruption, the people on the lowest rungs of the economy suffer while those at the top line their pockets.

Right to the top

While bribery may be a well-established norm in PNG, the method of channelling funds to corrupt politicians has evolved, largely due to more stringent anti-money laundering rules and closer transaction monitoring.

The days of  “banging a million bucks into a private account in Singapore” are over, one of the lawyers explained to the undercover reporter.

AML in banks is largely effective – huge investment in compliance expertise and monitoring software has pushed the threshold for placing dirty money into the system away from the banker and towards other professional services providers. Today’s enablers are lawyers, accountants, estate agents and others, employed to help disguise the funds before they reach the financial system.

Australia, according to Global Witness researchers, is providing an open door for anyone to place dirty cash in the country’s financial system. The Australian Federal Police have estimated that more than AUS200m (USD147m) laundered from PNG into Australia annually.

During a conversation with a prominent lawyer in Port Moresby, bribes are referred to as “ministerial improvements” and “mobilisation fees”. Paying bribes in large sums is ill-advised, as it attracts too much attention. “Small dribs and drabs”  – what some of us might call structuring – is recommended as an alternative method of getting the cash to the minister unnoticed.

False accounting – using inflated invoices for legal services – are touted as a method for sending bribe money to the intended recipient’s Australian bank account. The false invoicing method is well used to launder money, but this is the first time we’ve heard a law firm offer its own books to move the cash.

Alarmingly, this once again underscores how significant ‘gatekeepers’ – lawyers, estate agents, accountants – are in enabling financial crime. Both lawyers in this film quicky hid behind a veil of hypotheses once questioned by Global Witness after the recordings. They know how to do this, but for how long can they keep getting away with it? Lawyers and law firms for estate agents exposed in the ‘From Russia with Cash’ film know how to use the  law to protect their clients. But there is something more powerful going on here – an absence of ethics or simply the will to do anything for filthy lucre.

Being a politician provides the quickest route to becoming a property millionaire, one lawyer tells the Global Witness reporter. Well. you’ve got to stash the bribe money somewhere eh?



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.

Sino-Spanish laundry brought down in Operation Snake

The combined efforts of Europol and the Spanish Guardia Civil dismantled a six year old money laundering operation earlier this week. Investigators estimate the group sluiced more than EUR300m in the proceeds of crime since 2009. snakesmurfChinese citizens living in Spain operated the laundry, collecting and cleaning the proceeds of crimes from across Southern Europe. The majority of the cleaned money was sent across European borders, Europol said in a statement.

Members of the criminal organisation using the laundry generated funds from importing counterfeit goods into the EU, using false documents. The sales generated an estimated EUR14m in untaxed profits which was cleaned using ‘low-level’ associates who ‘smurfed’ the money back to China. Smurfing is the process of breaking down a large sum of money into smaller and less remarkable amounts, using many different people to transfer funds through personal bank accounts – which are also generally thought to be low risk and off the radar.

As they developed a robust system for moving their own dirty cash out of Europe, via smurfs, establishing complex corporate structures and relying on front men and third parties for transactions, the Chinese group offered their services out to other organised crime groups. In exchange for a percentage of the laundered funds the Spanish network cleaned filthy lucre for contacts in Belgium, Italy, the Netherlands, Portugal and the UK. The going rate for laundering someone else’s money used to be a flat ten per cent, but stories from the past few years claim this has decreased to five per cent.

Proving that criminal networks will lend a hand to anything that turns them a profit, no matter how reprehensible, the group also ran clothing factories in Madrid which exploited Chinese workers.

Police officers arrested 32 people in Operation Snake, searching 65 private residences and company premises in Madrid, Barcelona and Valencia and seizing of 20 high-value vehicles and more than EUR1m in cash.

‘The Operation is still on-going and new arrests and seizures are expected to take place over the next hours and days,’ read the Europol statement.

A good result for the Guardia Civil, which has never shied away from getting its hands dirty in organised crime Eurosinvestigations. Although the EUR1m haul represents a fraction of the total figure estimated. It will be interesting to know how much this operation cost Europol and the Guardia Civil. While there is no doubt that criminal enterprises that make fortunes from exploiting people must be stopped, and cost should not deter law enforcement agencies from doing their jobs, it is worth considering where the rest of the money has gone, via which financial channels, and whether it will ever be recovered.

LA police force breaks USD100m laundry ring

The Los Angeles police force’s latest raid on a money laundering network hidden in the fashion business offers a few insights into the world of ML.

Firstly, the old style laundry is still happening, although the garment emporia fronting the operation were all about selling clothes and not cleaning them. Mexican cartels used the clothing stores to store, hide and launder the cash, investigators believe. The businesses in this operation were involved in an old-style laundering typology – the Black Market Peso Exchange (BMPE), which is a form of trade based money laundering.

  • A peso broker works with a drug trafficker, for example, who has dollars in the US that he needs to bring to Mexico and convert into pesos.
  • The broker finds business owners in Mexico who buy goods from vendors in the US and who need dollars to pay for those goods.
  • The broker arranges for the dirty dollars to be delivered to the US vendors, the garment stores and they use these illegally obtained dollars to pay for the goods purchased by the foreign customers.
  • Once the goods are shipped to Mexico and sold by the business owner in exchange for pesos, the pesos are turned over to the broker, who then pays trafficker in the pesos.

The money is laundered, everybody gets paid, everyone is a winner. Until they get caught.

It looks like the drug trafficking capital of the world may have shifted base from Miami to Los Angeles, as police made raids this week on a series of fashion industry businesses and found USD100m in cash.

According to this video from NBC News, officers found cardboard boxes stuffed with cash, somet with USD1m written on the side. Each box weighed 40lb (18kg). So, now we know how heavy USD1m is.

Lastly, and humourously, it looks like the brains behind this operation was making a tongue in cheek reference to another famous drug related business. In the TV show Weeds, the cartel opened a maternity clothes shop on the California side of the border, dug a tunnel underneath it across to the Mexican side through which it transported drugs north and money south. In the LA ‘Fashion Police‘ operation, one of the shops used to front the laundry was a maternity store.

Does crime imitate art, or are launderers not as smart as they used to be? Watch the video here.

Read the US Department of Justice‘ press release on the raid and the suspected use of a Black Market Peso Exchange here.



Philippines: Regulator’s warning highlights gaps in AML

Anti-money laundering (AML) professionals in the Philippines are warning firms against a few tactical errors which could result in legal or regulatory failures. A speech given by a senior compliance officer at the Financial Executives Institute of Cebu meeting last week highlights a few areas, which banks in the country could be struggling with. FCA - Cebu

  • Due diligence: carrying out due diligence on all clients, accounts, transactions and products should shed light on the risks they pose to the institution. There are no excuses for claiming you letting money laundering or terrorist financing occur.
  • Advice: offering a client advise on how to commit money laundering is considered an offence.
  • Reporting: an employee who fails to report on suspicious activity is liable.
  • Legal knowledge: the government expanded the definition of money laundering, to require include more institutions to report suspicions. Jewellers, dealers in precious stones, real estate brokers and similar agencies are now required to report.
  • Account freezing: account managers may not automatically lift freeze orders without getting clearance from compliance. bank managers to approach their compliance officers once periods lapse so the clearance can be secured.



Myanmar PEP bribery probe targets property investment

Property is, without doubt, one of the preferred tools for laundering the proceeds of crime. Where better to hide the bribe money given by the fixer of a foreign arms company, or the hoards of cash made selling off a state enterprise or historical artefact you did not pay tax on than in the construction of a brand new 14 storey condominium slap bang in the heart of a developing capital city?



Myanmar‘s capital Yangon is undergoing a property boom, and the Financial Intelligence Unit, part of the Ministry of Home Affairs, is working to identify and stem the flow of dirty money into the real estate sector.

Legally, property companies are not required by law to report suspicious transactions to the FIU, however the government is encouraging them to report any transaction worth more than K100m (Kyat) (USD102,000) for investigation. New money laundering regulations scheduled to pass in the Burmese parliament in October will make suspicious transaction reporting mandatory for more business sectors.

Chinese money

The move comes hot on the heels of a report in the China Securities Journal, claiming that K31.7tr (USD32.5bn) in illegal foreign currency investment was flowing into Myanmar from China annually.

Bitcoin foundation sues for common sense in Florida laundry sting trial

Back in February, Florida police officers posed as money launderers hoping to wash cash by buying bitcoin (BTC) from two men they found on FCA - Bitcoinan on-line bitcoin marketplace. Officers arrested the man and one other after they agreed to convert $30,000 in laundered money into bitcoin, according to reports. The men face charges of unauthorised money transmission.

The Bitcoin Foundation has stepped in with an amicus curiae which intends to protect the wider community of users in Florida from being closed down by ‘laws that put undue restrictions on their ability to transact with the digital currency.’ In short, if the defendants are tried for not being authorised money transmitters, the consequences for bitcoin use in the state could be significant, forcing all users to register as money transmitters.

The Bitcoin Foundation’s legal advocacy committee chair clarified the stance: “The foundation’s position at its core is this: state prosecutors are improperly applying Florida statutes regulating ‘money service businesses’ to individuals conducting peer-to-peer sales of bitcoins.”

Sting in the tail

FCA- stingThe foundation is clearly pushing to protect genuine BTC users and the use of the world’s fastest growing crypto-currency  from regulators who have not yet figured out how to manage the currency and are looking at sledgehammer tactics to close it down before it gets out of their reach. Some would argue that it already is out of their reach, it was designed that way. The only place regulators have in a BTC transaction is when it is exchanged for fiat currency.

But here is something equally important worth noting. Although the men were willing to trade BTC for funds they thought were the proceeds of fraud, and greed usually trips up the unscrupulous (see Ponzi and Advanced Fee Fraud), the cash offered never existed in the first place. It was invented for the purposes of a sting operation, a trap set by Florida State Police. I question the legitimacy of sting operations which are use widely in the US to entrap people who may never have committed a crime in the first place.


Australia: cash smuggling ex-banker jailed

A judge in Sydney has sentenced a former Bank of China employee to four months behind bars for attempting to shift AUD800,000 (USD751,000).

The court used Australia‘s anti-money laundering laws to prosecute the woman and an unnamed co-accused who had used a password to collect the cash from a third party at a Sydney railway station. There were no details of money laundering as we know it, but the judge did comment on the woman’s personal financial situation.

Source: The Age


FBME Bank Ltd. Named As Primary Money Laundering Concern

The U.S. Treasury Department named FBME Bank Ltd. as a “financial institution of primary money laundering concern,” effectively shutting the bank off from the U.S. financial system.

The agency’s Financial Crimes Enforcement Network said that the bank, formerly known as the Federal Bank 500469.BY -0.02% of the Middle East, had a “large shell company customer base” and openly advertised its willingness to help potential customers flout anti-money laundering regulations.

The bank has shown a “willingness to service the global criminal element,” Fincen said in a press release. It is used by customers involved in terrorist financing, transnational organized crime and sanctions evasion, among other nefarious activities, the agency said.

The bank is now based in Tanzania, but has changed its country of incorporation multiple times and does most of its global banking business through branches in Cyprus, Fincen said.

FBME didn’t immediately respond to a request for comment but in the past has said it was ”fully applying” money-laundering regulations in Tanzania and Cyprus.

The Central Bank of Cyprus has found weaknesses in in the bank’s AML controls and said last year that the bank may be subject to a fine of up to 240 million euros for alleged violations of capital controls, according to Fincen.

FBME has turned up in connection with other allegations that the U.S. authorities has pursued. For instance, the Treasury of Equatorial Guinea wired $7.2 million to a British shell company using an FBME account as a part of transactions that were consistent with Justice Department allegations of corruption against the president of the country’s son and his associates.

The designation bars U.S. banks from keeping accounts tied to the bank.

Write to Rachel Louise Ensign at

Source: WSJ

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Iraqi banks take aim at money laundering

The Iraqi Private Banks League on Thursday (July 17th) announced new measures to prevent money laundering and terrorist financing attempts.FCA Iraq blast

“The new measures include creating an inter-bank database on suspicious clients, sharing pictures of individuals wanted in connection with financial crimes, and banning dealings with those who do not provide transparent reports on their financial activities and the licenses of their companies approved by security authorities,” said league member Salam al-Khayyat.

The measures may cause banks difficulties, but they are an important step, he told Al-Shorfa.

Source: Al-Shorfa