World Money Laundering Report Volume Five

The Bank that never was.

Another case study of banking services from a non-regulated company

Hunting the terrorist hunters.

The book "Terrorist Hunter" provides a backdrop to a disturbing trend.

Prime-ary colours.

The Not a Bank "Bank" that changed its logo. Following up on the Prime Bank Limited story from Vol. 4 No. 10. Things are not as they seem.

Responding to International Standards

Richard Pratt, DG, Jersey Financial Services Commission

White House: "Why we went to war"

The White House fails to make its case

Book Review: A practitioner's Guide to Money Laundering Law and Regulation. Reviewed by Vicky Wand of Schroders

Shorts: several stories including why Sun's Linux announcement is good for banks struggling with the cost of regulation.

Information sharing under the USA PATRIOT Act: a technology based approach.

The USA PATRIOT Act provides for financial services businesses to share information on suspicious accounts. A company has produced a centralised database. But are there problems in this approach?

Book Review: Modern Jihad. An assessment, from an economist, of how terrorist financing has moved into the mainstream economy.

FinCEN: Sloan Ranger rides into the sunset.

FinCEN Director James Sloan is saddling up and shipping out from the US FIU. It's been a tough three years for the charming Mr Sloan.

Reports to FinCEN: the stats behind the facts.

Suspicion based reports are an increasing part of FinCEN's workload. The numbers make fascinating reading and appear to debunk some money laundering myths.

The Parex Connection.

Latvian bank Parex comes up over and over again when researching some of the peripheral banking businesses that raise eyebrows.

Shorts: the most revolting asset recovery case ever, the dim witted robber that left a paper trail and the case of the man who assumed the wrong identity are amongst the slightly silly stories. But the one about sheep flatulence is the most bizarre.

Trust Meridian? No Thank You

There's nothing grand about Trust Meridian: it's another of those banks that are not banks we are so fond of finding. But this one is part of a network of fake financial services businesses which even uses photographs of senior financial services industry figures as a part of its fictional credibility.

And we find another fraudulent business that has copied an HBOS website and "borrowed" the name of one of HBOS' subsidiaries.

Financial Services Business hit by pump and dump scam.

The pump and dump e-mail scammers are a nuisance and, normally, they stay with fringe technology companies. But this time they have used a financial services business that is not at all happy about it.

Regulatory roundup

UK: The FSA has fined a company GBP250,000 for serious monitoring and record keeping inadequacies

USA: SEC goes on offensive about trading abuses, bringing actions in relation to a variety of market abuse allegations

USA: SEC settles kickback case relating to the life insurance industry

China: new regulator bares its teeth for the first time fining a foreign financial institution.

UK's FSA on the ropes in Committee hearing.

The FSA's top two have had a grilling at the hands of a Parliamentary Committee. Amongst the topics? Why are UK fines so small compared to those levied in the USA.

Pottering Around in Vansterdam

Vancouver's got a growing drugs problem - in both senses of the word. Marijuana farmers sell seeds by mail order and supply in small quantities is becoming commonplace and open in the City centre. We name one such supplier. Are you providing services to him - or his customers?

A Bank? Sure it is.

If you work at the branch of a well known UK bank at 26 Trinity Street, Cambridge, you will surprised by the fact that, according to a dodgy website, the address is shared by another bank. Except that this one isn't. In fact, it appears to be a true Nigerian scam.

Headgear and law: how a diverse set of issues comes together to cause risk of crime.

Nigel Morris-Cotterill examines how the difficult questions being raised over religious headgear are actually relevant in the study of trends in financial and other crime.

Jersey gives guidelines re certificates of introduction.

'twas the night before Christmas: on the 24th December 2003, the Jersey Financial Services Commission issued a notice to all regulated financial institutions. And it shows how the FSC intends to handle certificates of introduction.

Don't believe what you read in the papers.

Several newspaper articles in a wide variety of newspapers have demonstrated that many journalists, sub-editors and editors are clueless when it comes to writing about money laundering. But one example stands out as particularly bad. The Times is the UK's newspaper of record and has a reputation built over more than 100 years of fairness and accuracy in reporting. But of late, its standards have slipped and a recent article in its Accountancy section about the impending implementation of The Money Laundering Regulations 2003 is shabby, misleading, scare-mongering and plain wrong. We dissect the article and set the record straight.

"If you don't accept the conditions, you don't get the money."

It's a year since US AID implemented its requirement that a "Certificate Regarding Terrorist Financing" be signed as a pre-requisite to receiving AID from the US government. So, how's it going? And is it a potential model for anti corruption measures?

Another fraudulent Bank Website.

A graphic illustration of how a fake bank has ripped off the on-line identity of a real bank.

Hong Kong: Insurance Sector braces itself for AML compliance onslaught?

The insurance industry in Hong Kong is preparing for a radical overhaul of its AML compliance as regulators and legislators review the Financial Action Task Force's latest 40 Recommendations and consider changes to the local regime. That is what we should be writing. But we are not - at least not yet.

Operational Risk and Insurance: more questions than answers

The case of National Australia Bank has raised a number of significant questions.

First, inevitably, is to ask how a bank which boasts that its internal systems are as good as they can make them be proved so disastrously wrong? And, even at this early stage as ASIC and other Regulatory bodies start to rake over the cinders, are there lessons that can be learned? And what about the idea of insuring against operational risk - where are perimeters of that sort of risk as against compliance risk?

Jamaica: powers of search in a law firm / privilege

The Jamaican Supreme Court has been giving detailed consideration of issues relating to search of law firms, removal of documents and legal professional privilege.

Book reviews

Money Laundering Law (forfeiture, confiscation, civil recovery, criminal laundering and taxation of the proceeds of crime) - Aldridge, Peter: a flawed work.

The History of Money - Davies, Glyn: Buy it.

Buy books at the WMLR Bookshop

UK: FSA fines accountant's financial advisory arm GBP750,000 for compliance failings.

In what must rank as one of the most embarrassing examples of not just compliance failings but a worrying disregard for compliance culture, an investment company owned by one of the large accounting firms has been fined a substantial amount: yet the accounting firm promotes its consultancy services in precisely the areas in which is own subsidiary has been found seriously wanting. A detailed examination of the FSA's findings.

eBay: Regulatory, Fraud, Risk Management and other problems with rapid and international growth in electronic payment services.

eBay's filings with the SEC provide a wealth of information on the commercial, legal and regulatory issues that afflict businesses (including its payment transfer business PayPal) that develop at the frontier of existing regimes and where even in the short term the future is uncertain. This detailed examination of the most important issues in the filings point out mission critical issues that all financial services businesses have to consider when expanding.

Flip Side

We resurrect our ligh-hearted column for a visit to a fictional securities house for the induction meeting for new traders.

AU: NII corporate arrangement fails; ASIC intervenes

Henry Kaye danced between various regulatory regimes appearing to avoid coming under any of them. Then his companies fell apart. The Australian Securities and Investment Commission has been taking a long, hard look and it doesn't like what it sees. A full report.

UK: The Money Laundering Regulations 2003

The UK brings into force parts of its Money Laundering Regulations 2003 on 1 March 2004, nine months late under EU requirements. Some parts come into effect in stages on 1 April 2004, 31 October 2004 and 14 January 2005. The Regulations replace the MLR1993 and although there are some obvious changes, some of the more far reaching effects come from subtle changes in wording. Detailed comment.

Survey: Money Services Businesses in the UK and the Money Laundering Regulations 2003.

The word on the streets is that Muslim money services businesses are not making much effort to comply with the UK's Money Laundering Regulations 2003. So what's the truth? A survey reveals all.

This month: the tough issues -

Defining Terrorism.

Just what is terrorism, and what are acts preparatory to it?

Lateral Thinking

Is the Microsoft and the US response to the EU's decision a guide to the future of regulation?

Information security.

There's a possible way to secure the making of internal reports

What's a PEP?

The threatened prosecution of Israel's PM Sharon raises questions over defining PEP's

Cypriot Unification?

On 24th April, the citizens of both the Turkish and the Greek parts of Cyprus will hold referenda (one each) to decide whether the island should be unified ahead of the Greek part's accession to the EU on 1 May (yes - just one week later). If you want a recipe for disaster for the financial services compliance community, this is probably it.

FinTrac

Changes in FinTRAC's reporting systems

The Egmont Group

It's more than the sum of its parts

- Book Reviews:

Today, as the USA seems in grave danger of losing the peace in Iraq, Condaleeza Rice will give evidence to a congressional committee on what the Administration knew before the invasion last year. Terrifyingly, three books published ten years ago present a picture that was clearly still much the same before 11 September 2001. Will Rice's testimony match the publicly available information?

Flip Side: mushrooms.

No, not the way compliance officers are treated, actual live spores and the things people do with them. And a website we love because it satire so it's can make things up. But strangely a lot of what it says is based in truth.

Clearstream.

A French Court has found that the money laundering allegations made against Clearstream were false. What's happened in the meantime makes interesting reading.

Due Diligence: why you should do it.

The British Embassy in Mexico has come to a deal to borrow a car. We've done the some of the due diligence that needed to be done.

UK: Practice Direction on Proceeds of Crime Act

What financial institutions should be looking for when they are served with monitoring order or other order made under certain parts of the Act.

Compliance: Why compliance is like Custer's last stand.

Nigel Morris-Cotterill looks at the destruction of Custer's seventh Cavalery and concludes that there is great similarity between why he lost and why a) compliance failures occur and b) despite the best efforts of banks, etc., money still gets laundered.

India's state-owned banks.

Some arguments for and against state ownership of banks.

UK: FSA fines broker GBP500,000

It's been going wrong on several fronts for Investec. Now they are in trouble again and the UK's FSA's hit them with a large fine for material failings in systems and controls, amongst other things.

Hong Kong’s new Guidance: background.

The Hong Kong Monetary Authority published “supplemental” guidance for authorised institutions. Hong Kong is leading the world’s major financial centres in bringing into force measures to meet the FATF R40 Mk II - demonstrating Carrie Lo’s commitment to those Recommendations - after all, representing Hong Kong, Lo chaired the FATF whilst those Recommendations were finalised and published.

Analysis: Hong Kong Monetary Authority Supplemental Guidance June 2004

A subtle comment by the HKMA makes it clear that the HKMA sees elements of the Basle II accord as stronger than those in the FATF Recommendations, and that the provisions of the new Anti Terrorism legislation, not yet in force, should be prepared for.

The Guidelines are unusual in that they are far more prescriptive than is common - but there is a contrary view to the concept of prescription. That view says that prescription aids in identifying compliance boundaries and in facilitating simplistic checks as to compliance but also creates an inflexible system that can actually increase the risk of money laundering. See Morris-Cotterill, http://www.antimoneylaundering.net/papers/

UK: what happens to the FSA’s fines?

The FSA's fining spree attracted comment when it began to look as if fines might become a profit centre for the Treasury. But the FSA has now taken to making it plain in all its press releases relating to fines that fines are redistributed to the industry.

Sort of.

Riggs Ramifications Rumble aRound and aRound.

Riggs Bank's been rotting from the core. Yet there's a much wider issue: the USA has a habit of using the word "oversight" when it means "supervision." But in the case of Riggs, there was much more oversight, in its true sense, than supervision. And the case raises a major question: can any regulator effectively supervise a large number of closely held and managed financial institutions over a huge geographical areas.

How Lee Jeffrey Ross, US Presidential Adviser, restated the case - several times

Ross is Senior Advisor, Executive Office for Terrorist Financing & Financial Crimes and last December he addressed a Senate Sub Committee. Once the boring stuff has been cut away, Ross gets down to something worthy of consideration. But not until he had taken the chance to talk about BCCI - but his understanding of that is somewhat shaky: not only does he call it “The Bank of Commerce and Credit International” (it is "Credit and Commerce") but his view of the investigation seems a little different from the official version of events.

Disclosures: carrots for where sticks won’t work.

Terengganu : as the East-Malaysian state returns to the warm after four years being run by hard line PAS, salaries remain pitiably small and foreign businesses reluctant to go there. In some of the world's most beautiful places, one of only six locations on the planet where leatherback turtles come ashore to lay their eggs, we see the frontier of the battle between software counterfeiters, software companies and a population desperate to improve its lot.

Responsible officers “must act responsibly” - HK SFC

Ms Chan Sin Yu Millie, of Selina & Co Limited (S&C), was suspended by the Securities and Futures Commission, Hong Kong, for 10 months for acting as a responsible officer in name only and failing to fulfil her supervisory responsibilities. This case has some features in common with the case of Deloitte and Touche Wealth Management, which was subject to regulatory proceedings in the UK.

Not so free Willie

It’s a sort of done-deal. “I rob banks because it’s where the money is” is the quote of the century (the last one) relating to financial crime. But there’s one slight problem: William Sutton didn't say it. And nor was he called Willie.

ICJ: lessons from the Decision on the Wall in Occupied Palestinian Territory.

The decision creates a worldwide problem: if the wall is illegal, and the occupation and the production of crops in the illegally seized lands, then where does that leave those western supermarkets that buy (and retail) any product grown in those territories?

EU MLD3. Analysis Part One

The EU has published the first draft of the Third Money Laundering Directive. Should we get excited? Oh, yes. There are some serious issues with it, says Nigel Morris-Cotterill.

Book Review

Funny MoneyJory, StephenJohn Blake Publishing2002ISBN1 903402 57 3

Billed as “The True Story of the World’s Largest Ever Counterfeiting Ring,” Jory’s book is, inevitably, one that, from time to time, gets stuck in the reader’s built in BS filter. It’s hard to tell how much is fact and how much is either rosy recollection or fiction. But that doesn't matter much...

Cambodia: A Special Report

Cambodia sits between Thailand and Vietnam. As Thailand increases the scope of its counter-money laundering laws and Vietnam begins to prepare for its first dedicated counter-money laundering laws, we examine the country that will be caught in the middle.

Flip Side

We are constantly amazed at the scams that people address to us: here we have some that are, amazingly, specifically targetted to us not merely sent as a general spamming campaign. We especially liked being invited to dine with the Queen..

Yambo: a little bit more

Yambo Financials is back in the news - at least in our world. A new card clearing service operating out of Seattle is in fact a Yambo related business

Accounting privilege – will it undermine counter-money laundering laws?

As the UK undertakes consultation over whether accountants should be granted the right to give what amounts to legal professional privilege, we look at how the position has been considered in several jurisdictions around the world.

USA: Anti Counterfeiting Initiative to get under way

The USA is mounting a multi-agency, internatioal thrust to combat abuse of intellectual property. It's shaping up to be yet another blacklist but there are deeper issues such as where to draw the line for predicate crime in all crimes legislation and whether software patents will increase the "Know Your Customer's Business" burden on financial services businesses.

UK: FSA bans directors of IFA.

The UK's Financial Services Authority has raised the spectre of directors of businesses finding it impossible to close their businesses and retire.

Book Review: Solicitors and Money Laundering - a compliance handbook by Peter Camp.

A very disappointing work resulting in a missed opportunity relating to a profession that has so far stuck its head in the sand for ten years.