IS COMPLIANCE RELIANCE UPON DATABASES OF HIGH-RISK INDIVIDUALS AND ENTITIES A MISTAKE, AND HAS TECHNOLOGY RENDERED THEM OBOLETE AGAINST MONEY LAUNDERING AND TERRORIST FINANCING?

We note this week that a hacker group has, once again, reportedly stolen a well-known (and often relied upon) database used by compliance officers to detect unsuitable individuals and companies at account opening, and is demanding a large payment to refrain from releasing it on the Internet. Having spent many years working for two of those companies during much less complicated AML/CFT times, I understand their widespread utility as a major compliance tool. Unfortunately, the advance of technology, and greed and corruption on the part of many amoral government officials in the developing world, have, in my humble opinion, rendered their use ineffective against professional money launderers and terrorist financiers.

Laundrymen, and their terrorist financier cousins, can obtain legitimate official identity documents (passports and ID cards) from corrupt government leaders which, together with supporting official material such as drivers' licenses, real estate deeds and professional certificates, established them as legitimate individuals. These documents survive any attempts to disprove their accuracy, because they are actually genuine. How on earth can a legacy open-source database cope with such documents? The answer simply is, it cannot.

Add to the problem that proliferation of Citizenship by Investment (CBI/CIP) passport sales, conducted by needy or greedy jurisdictions, has resulted in tens of thousands of what are documents, complete with aliases and bogus places and dates of birth, which are used by money launderers and terrorist financiers to open accounts in laces where, with a nod and a wink, placement of money that should have been blocked is admitted into the global financial structure, only to traverse the world with impunity.

We now have a perfect storm for the success of money laundering, thanks to these two tools for laundrymen determined, and able, to defeat traditional compliance tactics. Only through the use of facial recognition software, backed up by an impressive image database, and supported by a vigorous enhanced due diligence investigation each time, can success at customer identification be assured, with any degree of consistency and accuracy, and I do not see that happening at most banks and non-bank financial institutions in 2024.

Therefore, please stop your blind faith that any legacy commercial-of-the-shelf database will protect your bank from professional money launderers, and their terrorist financier brethren, and move forward, using these effective tools, notwithstanding their expense, and the additional time and trouble involved, if you truly want to be an effective compliance officer at CIP, and keep out the financial barbarians at the gates, because right now, your toolbox isn't working.

COMPLIANCE OFFICERS, EXPECT A HEAVY DOSE OF PRO-BEIJING PROPAGANDA FROM HONG KONG FROM NOW ON

What you are reading is recent from the SCMP, pushing economic development and urging HK readers to ignore new laws infringing upon human rights. It smacks of 1984  and Big Brother. I think it's time to take ANY news out of Hong Kong with a healthy dose of caution, especially financial news. Remember, reporting from within HK, on Chinese companies, could get you a long term in a Mainland Chinese PRC prison; I kid you not. Look at the latest two national security laws now in place. And they are definitely not "home-grown" national security laws. These are straight from Beijing's autocratic leadership.

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Hong Kong has come a long way, in a relatively short time, since the anti-government protest chaos of 2019 plunged the city into an existential crisis and placed its future in jeopardy.

Fast forward to this week and the city marked National Security Education Day with added significance, being the first such occasion following the enactment of Hong Kong’s home-grown national security law. Officials also put the emphasis on the same day, April 15, marking the 10th anniversary of President Xi Jinping’s launch of a holistic approach to protecting the entire country amid geopolitical tensions with China’s adversaries.

While the United States and its allies continue to raise the alarm about an “erosion of Hong Kong’s rights and freedoms” with the enactment of the domestic national security legislation, the city itself is moving on to shift its focus to economic development.

That message was amplified by Xia Baolong, Beijing’s top man on Hong Kong affairs, who urged the city to embrace a “new era” and “go all out for the economy”. He also promised a string of favourable policies would be coming to give Hong Kong a boost.

The city is doing its part to raise its international profile and attract talent, with the government reporting that nearly 2,000 professionals earning HK$10 million or more a year have successfully applied over the past 12 months to live here.

The government also invited more than 2,000 people, among them so-called social media influencers and international celebrities, to the city last year to help promote tourism. It will be up to lawmakers to scrutinise how effective the spending of taxpayers’ money has been on that front.

PROMINENT AMERICAN FILM PRODUCTION COMPANY TO EXPOSE RAMPANT CORRUPTION IN THE CARIBBEAN CITIZENSHIP BY INVESTMENT INDUSTRY THROUGH LITIGATION

MSR MEDIA, a major American motion picture production company that was approved by St. Kitts & Nevis' Alternative Investment Program under the country's Citizenship by Investment (CBI) scheme, has published a Legal Notice of its intent to initiate civil litigation in the US, against several present and former Caribbean government officials, and others, for "potential violations of United States laws, including fraud, money laundering, tax evasion and corruption."

Speaking through its Producer, PHILIPPE MARTINEZ, the St. Kitts-based company has alleged that a massive program of organized fraud exists in a number of the CBI programs of the East Caribbean states, and that it has significant evidence to support that allegation. The scheme, which includes seriously discounting the price of CBI investments, while publicly claiming a share price of USD$200,000, has resulted in significant financial damage American investors, and MSR Media.

The company has indicated that its Washington D.C. counsel, MILLER CHEVALIER, has been instructed to file suit forthwith, and that the party defendants to be named include a number of individuals and companies authorized by the Kittitian government to sell CBI passport investments. Additionally, it has reportedly turned over a portion of its evidence of violations of American law to agencies of the United States Government.

FINCEN ISSUES NOTICE ON THE USE OF COUNTERFEIT U.S. PASSPORT CARDS TO PERPETRATE IDENTITY THEFT AND FRAUD SCHEMES AT FINANCIAL INSTITUTIONS

Immediate Release

April 15, 2024

WASHINGTON—Today, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), in close coordination with the Department of State’s Diplomatic Security Service (DSS), issued a Notice to financial institutions on fraud schemes related to the use of counterfeit U.S. passport cards. The Notice provides an overview of typologies associated with U.S. passport card fraud, highlights select red flags to assist financial institutions in identifying and reporting suspicious activity, and reminds financial institutions of their reporting requirements under the Bank Secrecy Act (BSA).

“FinCEN appreciates our partnership with DSS to highlight what is a concerning increase in the use of U.S. passport cards by illicit actors to impersonate and defraud individuals at financial institutions across the country,” said FinCEN Director Andrea Gacki. “We are issuing this Notice to help financial institutions and their customers from becoming victims to this crime, and to remind them to remain vigilant in identifying and reporting related suspicious activity.”

“The Diplomatic Security Service remains committed to protecting the American people and financial institutions from those seeking to perpetrate financial crimes by exploiting Department of State-issued identification documents,” said DSS Deputy Assistant Director for the Office of Investigations Greg Batman. “We hope this Notice will help financial institutions recognize fraudulent passport cards and their unlawful use.”

From 2018 to 2023, U.S. passport card fraud has resulted in $10 million in actual losses and $8 million in additional attempted losses with over 4,000 victims in the United States. However, DSS and other law enforcement agencies assess losses associated with U.S. passport card fraud and associated identity theft are likely significantly greater and seek increased reporting by financial institutions to identify additional illicit activity. Fraud, including financial crimes related to the use of counterfeit U.S. passport cards, is the largest source of illicit proceeds in the United States and represents one of the most significant money laundering threats to the United States, as highlighted in the U.S. Department of the Treasury’s National Money Laundering Risk Assessment, the National Strategy for Combatting Terrorist and Other Illicit Financing, and FinCEN’s Anti-Money Laundering and Countering the Financing of Terrorism National Priorities.

The full Notice is available online at FIN-2024-NTC1

HOW A REFORMED MONEY LAUNDERER FOUND OUT MOSSACK AND FONSECA'S DIRTY LITTLE SECRET MORE THAN A DECADE AGO

I was trying to learn who the beneficial owners of several shell corporations formed by Mossack & Fonseca were, many years ago, when I stumbled upon this clever method of operation. They formed front companies in a number of the English-speaking tax havens in the East Caribbean, rather than their native Panama, where they might be uncovered by an enhanced due diligence sleuth. They intentionally deleted the names of the specific jurisdictions from external correspondence with banks, leaving that information to be the subject of guesswork on my past. M & F staff were quite good at their jobs, I quickly realized.

Here's the best part; they used locally admitted lawyers in these tax haven island republics and British Overseas Territories, rather than their own Panama City people. When you tried to find office addresses for these locals though, there was no brisk-and-mortar law office to be found; they were working virtually, long before such a term was fashionable for attorneys, making further inquiries impossible. there was simply no physical office to visit, let alone subpoena if you could, no legal secretaries or paralegals to interrogate, and no bloody files.

Now you know why I regarded that firm as highly effective in assisting corrupt PEPs, American tax evaders, and professional money launderers, and why it was a clear and present danger to the global banking community, as an opaque company, when using legitimate international financial institutions, increases the risk those banks may someday be held accountable by the law, or regulators, for facilitating money laundering.

IRANIAN SEIZURE OF PORTUGUESE SHIP IN THE STRAIT OF HORMUZ ADDS ONE MORE UNCERTAINTY FACTOR INTO SHIPPING AND RISK COSTS AND THEREBY FURTHER ASSISTS TBML LAUNDRYMEN

Compliance officers conducting transaction monitoring duties for international banks that have international trade clients should note that this week's illegal Iranian Navy seizure of a merchant vessel en route to India adds still more fuel to the difficulties they face daily in determining whether specific payments for shipping, including insurance and risk costs, or wholesale goods, is legitimate, or trade-based money laundering. the increased threat of a wider war in the Middle East specifically between Iran's proxy terrorist forces and the State of Israel, is now the highest it has been since the attacks on 7 October.

You should expect to find major increases in the direct and indirect costs of shipping goods to Europe, and such variable costs will fluctuate wildly, meaning there is no rhyme or reason to accurately calculate or estimate them. TBML laundrymen are having a field day placing criminal proceeds within such payments, and you will be hard-pressed to identify and interdict them. Nevertheless, by maintaining close ties on your information sources for insurance, risk management, shipping costs, and miscellaneous expenses that are now being routinely charged, you can cut through the confusion, and arrive at an accurate determination of what is legit and what is TBML. Press on in that manner to deal with any new challenges that may arise if a shooting war, or additional violence, occurs. It is your information resources that will serve you best in uncovering TBML.

WE NAME THE 27 CO-DEFENDANTS IN THE MOSSACK & FONSECA MONEY LAUNDERING TRIAL UNFOLDING IN PANAMA THIS WEEK

Longtime readers of my financial crime articles may recall that I named and shamed many of the M & F partners and staff attorneys, who left the firm when the scandal broke, to work elsewhere in Panama City, intentionally omitting their previous employment at the target of the "Panama Papers." We did so to insure that any potential future clients, and those American lawyers needing to retain local counsel there, had all the facts before associating with lawyers who might later be arrested. Now, as you can see, arrests did come to pass.

We note that there is a presumption of innocence with these individuals, and that a few of their names are fairly common in Latin America. if in doubt, demand the lawyer's full name, and complete work history. Then check social media for confirmation. That being said, here are the names, as they appeared in Panama media reporting on the trial:

DIRK BRAUER 

AXEL GAUSTER

 RAMSES OWENS

RUBEN HERNANDEZ

 HILDA SOTO 

EDISON TEANO

RIGOBERTO CORONADO

 RICARDO SAMANIEGO

YADIRA DE BOUTARD 

YACKELINE PEREZ 

YENNY MARTINEZ

 HERCIBELLE GONZALEZ 

ZACGARY LUNDGREN

 SABINA DE RAMOS 

ANN ATENCIO

 EGBERT WETHERBORNE

 ERNESTO GONZALEZ

EYRA PERDOMO 

VALENTIN URENA 

ITTEL FUENTES

JELICA DE MARTINEZ 

MARIA GONZALEZ 

REINA CHONG

 MARIA DIAZ 

AMAURI BATISTA

 SANDRA NARANJO 

HANS KOLSDORF

'MY SON IN MIAMI MAKES THE MONEY DISAPPEAR"

This statement, made by a Federal prosecutor at an ongoing money laundering and conspiracy trial of a former senior Ecuadorian government official accused of taking ten million in bribes and kickbacks, in the first American Odebrecht case, says it all about the systemic problems South Florida faces from laundrymen who clean dirty money through the area's banks and real estate agencies. Other American cities have similar problems, although not to the extent that we see it here.

Part of the problem, the facilitation of money laundering through real estate investments, it is hoped will be minimized by a recent court settlement that has resulted in a sea change in the way that real estate agents receive what many claim to be clearly excessive commissions, under circumstances that encourage ambitious agents to exercise "Don't Ask, Don't Tell" regarding dodgy or suspicious clients, due to the lucrative fees paid at closing.

While most American are focused upon the removal of the six per cent commission rate, that fact that agents on both sides have benefitted from high commissions. which encourage them to ignore any Source of Funds or Source of Wealth questions, even when they are staring them in the face. America's powerful real estate lobby, having now been taken down a peg in the multi-million dollar settlement, should now start advising their agents to being looking under the mattress when dealing with affluent clients, especially now that AML will eventually become a part of the real estate sales world.

WHEN CRIMINALS IGNORE THEIR MONEY LAUNDERERS, THEIR MISTAKES END UP ASSISTING COMPLIANCE OFFICERS AND LAW ENFORCEMENT AGENCIES

One of the biggest problems that money launderers face, regarding their criminal clients, is failure to follow their instructions. Wealthy criminal clients often become extremely arrogant, due to their newfound assets, and often question their laundryman's decisions, even if they have little or no background in finance or the dark realities of working in opaque tax havens, where the players often choose to take advantage of criminals, because they cannot go to the authorities.

In my personal case, one group of drug smuggling clients having made many millions in illicit profits, ignored my advice to steer clear of lawyers and banks in Switzerland, because I judged the risks of loss to be too high, even back in the freewheeling 1980s. They quietly move a significant portion of their criminal profits there, only to later find that unethical lawyers diverted some of their money to their own pockets. When clients think they know more than their laundryman, because they are full of themselves due to success, they often make major errors, which is an opportunity for law enforcement, as well as compliance officers, to discover their activities, and seize or freeze their funds.

My clients, whose leaders chose to inform on yours truly and the organization's accountant, to reduce their ultimate sentences, found later to their dismay that I revealed to law enforcement, in response after my arrest, sufficient evidence about their operations, to afford the Swiss authorities, in coordination with the US, to seize and forfeit millions of illicit profits held in Swiss banks. Never cross your money launderer because he or she literally knows where the bodies are buried, financial or otherwise.

MY LECTURE TOPIC AT NEXT WEEK'S CX24 IN SAN ANTONIO ON ON 17 APRIL

If you are attending the event, I hope to see you there. I will be covering the advanced money laundering techniques that community bankers can expect to face in 2024.

TO CATCH TRADE-BASED MONEY LAUNDERERS IN THE ACT, LEARN EVERYTHING ABOUT WHAT TBML LAUNDRYMEN KNOW ABOUT THEIR INDISTRY

We are in the middle of a TBML crisis; the perfect storm of choke point transportation issues with the Suez/Red Sea/Gulf of Aden, Panama Canal, Black Sea and Baltimore bridge accident have rendered the generally reliable red flags through which compliance officers working in transaction monitoring identify TBML in progress useless. So long as the global situation remains in constant transition, legacy compliance procedures are ineffective.

So, what to do? It is humbly suggested that compliance officers broaden their knowledge base in the shipping, insurance and transportation sectors, so that they possess the same information as the laundrymen are using to push the proceeds of crime right under their noses. Are you tapped into the daily status of transportation pricing, supply and demand regarding consumer goods coming from Asia to Western markets, insurance and risk management resources, meaning the shill sets that TBML laundrymen already have, by virtue of their experience in the industry. In short, learn what they already know, and access the relevant insider resources for anything that you cannot acquire.

Compliance officers,establish go-to people in the above fields, whom you can plumb for what passes for internal industry information in those sectors. Take some courses, even online in your precious spare time, or get your superiors to sponsor them, and allow you to devote a portion of your work week to education. If you really want to be able to spot TBML during this chaotic period, immerse yourself in the industry where laundrymen already have the training and experience, and are embedded in it. Emulate your opponents' background and knowledge, to beat them at their game.

A REFORMED LAUNDRYMAN EXPLAINS THE SPECIAL MONEY LAUNDERING CHALLENGES FACING COMMUNITY BANKS

If you are attending CX24 this month, in San Antonio, I will be presenting a lecture detailing the unique money laundering problems that community banks in the United States face. My lecture, which is sponsored by CSI, will be given on April 17, 2024. If you are scheduled to be at CX24 this year, you are cordially invited to attend.

All attendees at my presentation who have not read my autobiography, The Laundry Man ( Penguin Random House UK), will have the opportunity to receive it in the electronic version, with my compliments, courtesy CSI.