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International Issues in AML

Victoria Meyer, CFE, FCCA

International Issues in AML VICTORIA MEYER

SWISS INTERNATIONAL BUSINESS ACADEMY

Introduction • A trip around the AML world, highlighting:

• Some key influences and developments in money laundering

• Factors that influence AML risks in different countries

• Considerations beyond simply controlling the flow of funds

• Spotlights are provided on:

• Higher risk countries

• Linguistic Influences

• Significant themes and cases

• Starting Off With

• Money Laundering 101

• Selected Themes

AML 101 DEFINITIONS

PREDICATE OFFENCES

BASIC PROCESSES

Money Laundering 101 • Money laundering: 1988 Vienna Convention >>> FATF

• the conversion or transfer

• the concealment or disguise, or

• the acquisition or possession of property,

knowing that that property derived from an offense

• Traditional Stages • Placement

• Layering

• Integration

• Terrorist Finance • Definition varies: FATF includes terrorists, terrorist organisations and terrorist acts

• Traditional definitions may not keep up with new methods and predicate offences

Predicate offences • Ever expanding

• Originally aimed at drug money

• Expanded to other serious organised crime

• Specific inclusion of terrorist finance

• Increasing inclusion of white collar crimes and tax evasion

• No safe harbour • No clear list of predicate offences

• Traditional banking hubs finding this difficult to adjust to

• Current policy focus • Maintained: Terrorist Finance, WMD Proliferation, Drug Trafficking, Organised Crime

• Increased Focus: Sanctions, Corruption

• Current: Human Trafficking, Market Abuse, Tax Evasion

Basic AML Activities

On

goin

g Sc

reen

ing,

Mo

nit

ori

ng

& R

evie

w Know Your Customer

Identification

Verification

Source of Funds

Source of Wealth

Activity Analysis

Risk Assessment

Enhanced

Due Diligence

Additional scrutiny based on Country Risk, PEPs,

Sensitive Industries, etc

Investigation Based on screening

monitoring & review

Current Themes RISK BASED APPROACH

TRANSPARENCY

REGULATION AND FINES

JOINED UP APPROACH

Risk Based Approach

.

• RBA has been radically re-defined

• Originally a cost-benefit analysis approach to financial crime compliance

• Now a full operational risk model

• Even lower risk areas have standards above the basic

• To treat an area as low risk detailed analysis and modelling is required

• Evidence required to grade risks and allocate controls

• Even in low risk areas, controls require layers of quality assurance and testing

• Morphed into a Rules-based minimum standard

• Hundreds of pages of guidance in key jurisdictions

• Much documentation and little discretion in allocation of resources

Transparency

• G20 Focus on Transparency as Public Policy Goal • Looking through Offshore Companies

• Focus on Beneficial Owner

• Future agenda • Dismantling banking secrecy / privacy legislation

• Increased requirements for cross-border data sharing

• At the same time:

• Data protection lobby leading backlash on data and information sharing

• EU keen not to allow any compromise to it’s data privacy standards

• But progress is being made

FATF Rec 9: FI secrecy laws - “Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations.”

EU new 4th ML Directive: “It is essential that …. revised FATF Recommendations is carried out in full compliance with Union law, in particular as regards Union data protection law and the protection of fundamental rights …. Certain aspects …. involve … sharing of data. Such … should be permitted, while fully respecting fundamental rights, only for the purposes laid down in this Directive...”

Basel Committee: “…no justifiable reason why local legislation should impede the transfer of customer information from a host bank branch …to its …parent … jurisdiction for risk management purposes…. If the law in the host jurisdiction restricts disclosure … to “third parties”, it is essential that the …parent bank and … bank supervisors are clearly excluded …. Jurisdictions that have legislation that impedes… such information-sharing … are urged to … provide specific gateways appropriate for this purpose.”

Progress – of sorts

Transparency Drivers Drivers for sharing

Combatting financial crime

AML requirements

Subpoena requests

Basel Committee on Banking Supervision

OFAC

FATCA

Regulator requests

Barriers to sharing

Data privacy laws

Banking secrecy laws and client confidentiality

Regulator requirements

Contractual restrictions

AML (tipping off)

Cross-border data protection

Reputational risks

Risks of non-compliance

Regulator sanctions

Fines

Civil liability

Commercial disadvantage

Reputation – PR risks

Pre 1990

1990 - 2000

2000 - 2005

2005 - 2010

2010 and beyond Timeline of Major AML Laws and Regulations

2001 – EU Second Money Laundering Directive

2001 – BIS – Basel Committee on Banking Supervision – CDD Paper for Banks

2001 – USA “PATRIOT” Act

2001 – FATF 8 Special Recommendations on Terrorism Finance (later to become 9 Special Recommendations in 2004)

2002 – Ordinance of Swiss Federal Banking Commission on Prevention of Money Laundering

2003 – FATF 40+8 Recommendations – 2nd Revision

2003 – UN Convention against Corruption (UNCAC)

2003 – The Trafficking in Persons Palermo Protocol (Protocol to the Convention against Transnational Organised Crime 2000)

2003 – BIS – Basel Committee on Banking Supervision issued a General Guide to account opening and customer identification

2001 – Convention against Transnational Organised Crime (the “Palermo Convention”)

2004 – BIS – Basel Committee on Banking Supervision issued its “Consolidated KYC Risk Management”

1990 – FATF 40 recommendations First Issue

1991 – EU First Money Laundering Directive

1996 – FATF 40 Recommendations – 1st Revision

1997 – Swiss Federal Act on the Prevention of Money Laundering in the Financial Sector

1998 – UN Political Declaration and Action Plain against Money Laundering

1998 – BIS – Basel Committee on Banking Supervision “Provision of criminal use of the banking system for the purpose of money laundering

1999 – OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions

1999 – International Convention for the Suppression of the Financing of Terrorism (“The Terrorism Financing Convention”)

2006 – US Executive Order Block Property and Prohibiting Transactions with the Government of Sudan

2005 – EU Third Money Laundering Directive

2005- UN SCR on Sudan

2006 – UN SCR on Iranian Nuclear Proliferation

2008 – Switzerland – CDB / VSB Revision KYC and due diligence rules

2008 – UN SCR on Iranian Banks, Ships and Aircraft

2009 – OECD Recommendations for Further Combating Bribery of Foreign Public Officials in International Business Transactions

2010 – USA – Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA)

2010 – UK Bribery Act

2005- EU Market Abuse Directive (“MAD”)

2011 – Revised Swiss AML Ordinance

2010 – Convention on Cluster Munitions (CCM)

2011 – EU – 2nd Market Abuse Directive (MAD 2”) 2015

2011 – Iran Sanctions Act

2012 – FATF 40 Recommendations 4th Revision

2012 – EU 4th AML Directive – Proposed and Funds Transfer Regulations (2014)

2012 – HK – Revised AML and Counter - Terrorist Financing Ordinance (AMLO)

2012 – USA – Advance Notice of Proposed Rulemaking on CDD (2014)

2013 – Switzerland – Federal Act on War Materials

2013 – Switzerland – Money Laundering Act – Proposed implementation of (a) FATF recommendations and (b) Financial Market Strategy

2010 – USA – The Foreign Account Tax Compliance Act (FATCA) 2014

2013 – Singapore – Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act

2013 – BIS – Basel Committee on Banking Supervision “Sound management of risks to money laundering and financing of terrorism” consultative document

1912 – The Hague Convention

1933/4 – The US Securities Act / Securities Exchange Act

1970 – USA Bank Secrecy Act

1970 – USA Organised Crime Control Act

1977 – USA Foreign Corrupt Practices Act (FCPA)

1977 – Swiss CDB / VSB – KYC and due diligence rules

1986- USA Money Laundering Control Act

1988 – UN Vienna Convention on drugs / money laundering

Fines 1989 – 2014: $50Bn

24.6 49%

16 32%

4.33 9%

5.1 10%

Market AbuseSanctionsMLTax

Fines 1989 – 2014: $50Bio

31.36 64%

17.7 36%

1989 - 2013

2014

Significant Fines • The highest fines per category:

• BNP Paribas of US$8.9 bio for sanctions violations

• Credit Suisse of US$2.8 bio for tax violations

• JP Morgan Chase of US$2.05 bio for AML weaknesses

• SAC Capital of US$1.8 bio for market abuse (insider trading).

• Corporate criminal indictments becoming more common • SAC Capital, Credit Suisse, BNP Paribas

• Wegelin & Cie (tax evasion)

Joined-up Policy Approach • Wider impacts on communities of predicate offences and AML efforts

• Require coordinated policy approach

• Centre for Global Development: Report November 2015 • The Unintended Consequences of Rich Countries’

Anti–Money Laundering Policies on Poor Countries Working Group

• Consequences of stitching up loop-holes

• Divestment & De-banking

• Humanitarian Suffering

• Violence and Security Threats

• Leaves organisations with a moral dilemma

• Divestment and De-banking is cheap

• Humanitarian aid, development programs, ransom, extortion

• Legislation AND internal policies should set out exceptions clearly

• Procedures for exceptions should not be unduly onerous

Consequences old and new • Iraq Sanctions in the 1990’s

• Oil dependent economy had seen decline of any industry and agriculture

• Widespread malnutrition & collapse of healthcare system

• >>> Oil for Food from 1997

• Reported not to adequately mitigate the humanitarian impacts of sanctions

• Corruption scandal: kickbacks, contract misallocation – unintended beneficiaries

• Smuggling routes established at that time now support the business of ISIS

• Human Trafficking Crackdown

• US downgraded Thailand in 2014 Report

• Rohingya treated as stateless in Myanmar

• Traffickers often require additional ransom payments from family after the crossing

• Thailand's current crackdown may have left thousands of Rohingya (and Bangladeshi / others) at sea

• Dehydration, starvation and drownings

• Currently naval vessels involved in search and rescue missions

AML Themes VIRTUAL CURRENCIES

HAWALA & S IMILAR

IDENTITY SCREENING

Virtual Currencies • Unregulated, digital money, issued and usually controlled by developers

• Varied use and with cost advantages (though this may diminish with regulation)

• Not the same as Electronic Money Schemes • link between the electronic money and traditional money preserved / maintains unit of account

• virtual currency: the unit of account is converted into a virtual one (e.g. Linden Dollars, Bitcoins).

• Three types: Depending on their interaction with traditional, “real” money

Risks Associated with Virtual Currencies • How do crypto-currencies fit into existing frameworks?

• Anonymity > vulnerable for money laundering (esp. if decentralised)

• Theft: use of hacking techniques to attack personal computers

• Use of botnets to generate value – to manipulate supply & demand

• Difficult to detect illegal activity, identify users, obtain transaction records

• Use of unregulated third parties to convert into “real” currency

• Terrorist financing: small donations made anonymously

• Illegal activities: online gambling, human trafficking

• Avoidance of the regulated financial services system

• Potential tax evasion (income derived from trading, obfuscation of assets)

• No fixed abode: How to determine Jurisdiction?

• Absence of central servers: what would you close down?

21

Liberty Reserve • The largest online money-laundering case in history

• Costa Rica-based money transmitter and seven individuals charged in 2013

• Moved > $6 billion in illicit proceeds through Liberty Dollars

• Over 1m users worldwide, handled around 55m transactions

• Classified by as FI of primary money laundering concern

• Designed to avoid law enforcement scrutinity to enable criminals to conduct anonymous and untraceable financial transactions

• “Russia Hackers,” “Hacker Account,” “Joe Bogus”

• Privacy fee: users could also hide their LR account numbers when transferring funds

Hawala and Similar Service Providers

• Money transmitters with particular cultural / geographic ties • Hawala, Hundi, Safar: provide essential services to the unbanked • May keep detailed records • May use banking or trade-based settlement • Often have prolonged settlement time

• Three types for money laundering purposes: • Pure traditional, Hybrid (unwitting), Criminal • Often lack of supervisory will / resources to effectively oversee • Where regulated, often not required to only deal with regulated counterparts

• Typical criminal uses: • import / export Fraud, sanctions evasion, laundering drug money, terrorist finance

• Typical criminal structure has a controller at the centre

Network Cash Pool

Simple Example: Transfer from Migrant

Family

Adapted from: FATF The role of HOSSP in ML & TF

Borrows £1K equivalent

Down £1K equivalent Up £1K

Hundi Operator

Family

Instructions to deliver £1K equivalent

Wants to send £1K

Hundi Operator

Pay £1K plus fee Transfers £1K equivalent less fee

Transfer £1K

Hawala Network

Underground Banking Currency Traders

Criminal

Adapted from: FATF The role of HOSSP in ML & TF

Delivers EUR 1.1M

Arrange transaction at 1.1

Down EUR 1.1M Up £1M

Broker

Criminal

Cash Courier

< Official Rate

Instructions to deliver EUR 1.1M

> Official Rate

Wants to send £1M

Agree purchase £1M at 1.05

Broker

Deliver £1M Transfers EUR 1.05M

Pay £1M into Cash Pool

Identity Screening • Several processes

• Onboarding • Regular review • Transaction screening

• Screen customers and beneficiaries against • Sanctions lists • PEP Database • Negative News and other intelligence sources

• Break-Points • Intelligence databases vary in quality of both content and structure • Linguistics is key to identifying variations in names • Fuzzy Matching: non-linguistic search tools can’t balance recall with precision • Technology in use varies very widely

Fuzzy Matching: Traditional String Comparison

• String Comparison Algorithms • Edit Distance: Levenshtein / Damerau Levenshtein • N-gram Methods

• Edit Operations • Addition: Feldman / Feldmann • Omission: Tamworth / Tmworth • Transposition: Richards / Rihcards • Replacement: Calderone / Calverone

• But: • Wang <> Wong, Brown <> Crown • Leonie <> Elonil, Effie <> Essil • Amirh <> Smith

Old School Phonetic Matching • Soundex / Metaphone / Double Metaphone • Focused on US pronunciation / population

• Use to generate Similarity Key

• Soundex Key: Jelzin = J425 – same for Jalison / Jalkahni

• International examples: • Roger = Rodger (EN) but Roger (FR) = Roget (FR)

• Xabier (ES*) = Javier (ES)

• Baudaint (FR) = Bodins (FR) <> Bodine (FR)

• Spelling irrelevant • Emanuele (IT) <> Emanuel (EN)

• Stewart (EN) = Stuart (EN) <> Steart (EN)

• White (EN) = Wight (EN) <> Wigit (EN)

Soundex

• Leaving the first character replace remaining consonants: – B, F, P, V = 1 – C, G, J, K, Q, S, X, Z = 2 – D, T = 3 – L = 4 – M, N = 5 – R = 6

• Remove any duplicate digits

• Leaving the first character, remove the rest

• Match based on the first character and the first 3 digits of the resulting code (adding 0’s if the code is shorter)

?‎ / Kadhafi / Ghathafi / Qaddafiالقذافي

Qadhafi, Al-Gaddafi, Al-Qadhafi, Al-Qadhafi, Elkaddafi, El-Qaddafi, Gaddafi, Gadhafi, Ghadaffi, Ghathafi, Qaddafi

17 February 2011 – Libyan “Day of Rage”

25

Qadhafi Qadhafi Kadhafi Qadhafi

24 28 27 26 17

Transcription Variants • Transcription Standards have two “parts”

• Script being transcribed

• “Language” its transcribed into

• Different standards can lead to wide variances

• Ельцин > Yeltsin (EN), Jelzin (DE), Ieltsine (FR)...

• 張 > Zhang (Pinyin), Chang (WG), Cheong (HK) , Teo (SE Asia)

• …Abd al Rahman, Abderrahmane, Abdurakhman < عبدالرحمان

• Official standards not always most common

• Cross-Script Matching: Different to matching trascription variants

• Ельцин > Yel’cin (ISO) but not Yeltsin (EN), Jelzin (DE)…

• じゅんいち > Jun’ichi (Real Life), Zyun'iti (ISO)

International Variations: Derivatives • Initials & Abbreviations

Title confusion: Marie-France Du Pont = M. Du Pont

Legal Form: Ltd > Ltd and Limited…

Not forgetting: SpA, GmBH, Berhad…

• Translations

Bank, Banque, Banca, Banco…

• Hypocorisms

English: Lissie (Elisabeth), Jim (James), Ricky (Richard)

German: Sepp (Josef), Stef (Stefan)

Italian: Toni (Antonio), Ale (Alessandra)

Spanish: Isa (Isabel), Mariajo (María José)

Russian: Seriy (Sergei), Svetka (Svetlana), Vovka (Vladimir)

Non-Name International Variations • Places:

• inc Nationality and Citizenship (important for PEPs) • Language: Endonym vs Exonym –München / Munich / Monaco di Baviera • Shifting borders: Germany / Russia, Russia / Ukraine • Former Names: Yugoslavia > Bosnia / Croatia… • Recognition: Serbia / Kosovo • Alternative Names: Beijing / Peking

• Dates: • DD / MM / YY vs MM / DD / YY vs YYYYMMDD, etc

• Partial dates

• Multiple dates (even dates of birth / death)

• Gregorian vs Hijri: 15 06 (June) 2015 = 27 08 (Sha’ban) 1436

• Many other nuances

Country Risk Assessment BASEL INSTITUTE ON GOVERNANCE

TRANSPARENCY INTERNATIONAL

FATF

Basel AML Index 2014

• International Centre for Asset Recovery • Basel Institute: Non-Profit based in Switzerland • Annual Country Index • Risk of money laundering/terrorist financing

• Complex combination of 14 different Indices • Emphasis on AML / CTF Risk • Scientific approach to publicly available data • Public / Expert Edition

65% 10%

15%

5% 5%

ML / TF RiskCorruption RiskFinancial TransparencyAccountabilityPolitical & Legal Risk

Basel Index: Key Sources Source

Bertelsmann Stiftung Transformation Index 2014 - Rule of Law scores

FATF - Member countries Mutual Evaluation Reports

Freedom House – Freedom in the World & Press Freedom Index

International IDEA Political Finance Database - selected questions

International Budget Partnership - Open Budget Index

Tax Justice Network - Financial Secrecy Index

Transparency International - Corruption Perception Index (CPI)

US State Department - International Narcotics Control Strategy Report: Volume II Money Laundering and Financial Crimes

World Bank Doing Business Ranking – Business Extent of Disclosure Index

World Bank - IDA Resource Allocation Index – Selected categories

World Economic Forum - Global Competitiveness Report 2013 – 2014 - selected scores from the Executive Opinion Survey

Basel AML Index 2014

Source: Basel Institute of Governance

TI Corruption Perception Index 2014

Source: Transparency International

Region (countries assessed) Av. Score

North America (3) 63

Central & South America (28) 43

W. Europe & Scandinavia (22) 72

E. Europe & Central Asia (28) 39

East Asia (7) 50

South & South East Asia (17) 36

Middle East (14) 42

North Africa (5) 33

Sub-Saharan Africa (47) 33

Scale: 0 – 100 (100 = Very Clean)

FATF Public Statement 2015

Ecuador

DPRK

Myanmar

Iran Algeria • Made improvements:

AML/CFT amendments still being assessed

• The country needs to issue asset freezing regulations

• Made improvements: AML/CFT regulations still being assessed

• The country needs to continue enhancing AML/CFT supervision

• Significant deficiencies in AML/CFT regime

• Threat to the integrity of the international financial system

• Risk of terrorist financing • Threat to the integrity of

the international financial system

• No sufficient progress in addressing strategic AML/CFT deficiencies

Country Risk REGIONS AND THEMES

Western Europe and Scandinavia

• Some very significant economies and financial markets

• An attractive target for international money launderers and organised crime groups

• Presence of sensitive industries

• Oil and gas

• Pharmaceuticals

• Sport

• Some countries’ tradition of charitable giving

• Increased risk of terrorist financing in recent years due to threat from foreign terrorist organisations and domestic Islamic extremists

Country Spotlight: Austria • Jurisdiction of Primary Concern (INCSR)

• A good entry point to layer funds around the formal financial system

• Attractive to money launderers due to place in world economy and central geographical location

• OECD reported enforcement of foreign bribery legislation has historically been poor

• Significant migrant worker population > informal and unregulated remittance systems

• Sources of laundered funds: Fraud, smuggling, corruption, narcotics and human trafficking

• Regulation & supervision of financial sector needs improvement: long tradition of banking secrecy

• Austrian National Bank scandal: $18 million reported to be paid through offshore accounts to officials in Azerbaijan’s and Syrian’s central bank to win printing contracts

• increased the price of currency in order to use the surplus for bribes

• 2014 convictions though most senior officials acquitted.

Country Spotlight: Germany

• Jurisdiction of Primary Concern (INCSR)

• Sources of laundered funds: organised crime and drug trafficking

• Major transit hub for illegal narcotics

• Large economy, sophisticated financial institutions and international connections

• Attractive to organised criminals, money launders and tax evaders

• Financing of terrorism is a key risk: Attacks carried out by German-based terrorists

• Significant immigrant and refugee population > large informal financial sector

• Informal systems such as hawala are being used by immigrant populations

• Criticism of the country’s banking system: reportedly more relaxed attitude to international sanctions in some parts of the financial community.

Germany: Inconsistent Attitude to Sanctions • Commerzbank fined $1.4 billion by the US DoJ: Largest enforcement

fine of 2015

• Team in Frankfurt office reviewing and amending payments to Iran and Sudan (payment stripping)

• Arranged to transfer funds for Iranian bank listing only account number and London branch address

• Arranged the use of SPV’s incorporated outside Iran – and switched SPV when the US filter was updated

• Deliberately kept details from their own US colleagues and delayed answering any requests for information

• Continued to work with Iranian bank after it had been designated by OFAC

• Staff in Frankfurt also obstructed their Singapore colleagues’ attempts to perform due diligence related to the accounting scandal at the Japanese company Olympus (violation of AML laws)

Country Spotlight: Switzerland • Jurisdiction of Primary Concern (INCSR)

• Heightening exposure to abuse for money laundering purposes

• Economic stability, central location, sophisticated financial markets, and strict banking secrecy

• The threat from foreign drug trafficking organisations

• Sensitive industry exposure: Pharmaceuticals and Sport

• Sources of laundered funds • Financial crimes, arms and narcotics trafficking, organised crime, terrorist financing

• Corruption, embezzlement, looting

• Significant criticism of the AML regime in relation to tax evasion - a number of agreements reached with the US and neighbouring countries in recent years.

International Sporting Bodies in Switzerland • Of 250 International Sports Federations, around 1/5 are established in Switzerland

• Tax-free status as “clubs”

• Limited redress for acts of bribery and corruption within the sporting sector

• Change in law Dec 2014 – leaders of international sports organizations are to be treated as PEPs – making corruption a criminal offence.

• Examples: • FIFA (Fédération Internationale de Football Association)

• IOC (International Olympic Committee)

• IIHF (International Ice Hockey Federation)

• FIBA (Fédération Internationale de Basketball)

• AIBA (Association Internationale de Boxe Amateur)

• IBAF (International Baseball Federation)

• UEFA (Union of European Football Associations)

• WTF (World Taekwondo Federation)

Switzerland: Private and Business Culture • Privacy deeply enshrined in culture - literally • Authorities very resistant to change, particularly if encouraged from outside • Legal status of sporting organisations and non-PEP status of executives • Separation of organisation and executives not made clear in the press • Behaviour goes back decades • Organisation powerless to influence the ExCo due to legal status and statutes

Eastern Europe and Central Asia • A large and diverse geographical area

• Suffered considerable insecurity in recent decades, from currency issues to political instability and a number of civil wars.

• Significant violent and organised crime activity

• Key source of laundered funds is the trafficking of drugs from Afghanistan through to Russia.

Country Spotlight: Kazakhstan • Jurisdiction of Concern (INCSR)

• Corruption, organised crime and the large informal economy is increasing the risks of money laundering and terrorism finance

• The largest economy in Central Asia owing to its natural resources • Significant part of this wealth held in offshore accounts and subject to little public scrutiny

• Major sources of laundered funds • Bribery of government officials, tax evasion and fraud

• Smuggling of contraband goods

• fraudulent invoicing for international trade

• Current Case: False accounting and bribery of PEPs by Compass

• Cross-border payments, avoiding taxes and custom duties • Bulk cash smuggling, unregulated alternative remittance systems and hawala-type systems

Country Spotlight: Russia • Russia is subject to financial sanctions from the US, the EU and a number of other jurisdictions re:

ongoing situation in Ukraine

• The nature of any future sanctions is difficult to predict – any extreme actions (such as excluding

Russia from the SWIFT network) may have unwanted consequences.


• Significant consumer and transit country for illicit narcotics

• Corruption is also a serious problem

• Significant capital flight relating to the drug trade, bribes to government officials and tax evasion

• Key laundering techniques:

• Informal remittance systems and investment in securities, real estate and luxury consumer goods

Basel Index TI Index

6.29 27

Tax Evasion in Russia • Estimated Russia loses up to £20bn a year in tax evasion

• Estimated illegal transfers abroad equivalent to aprox. 2.5%

of Russia's GDP

• Odnodnevniki (One Day) Companies

• 4m companies – only 2m are real. Most of those pay minimal tax

• Deputy Prime Minister Igor Shuvalov said the companies were

responsible for a severe drop in tax revenues. Bias?

• Lack of transparency: Tradition of complex holding structures

making it hard to identify the beneficial owner

• Cyprus is the traditional offshore destination and largest

foreign investor in Russia

Outgoing Central Bank Governor: "Our analysis shows that more than half of these shadowy operations are carried out by firms indirectly or directly linked with each other by payments. An impression is created that

they are all controlled by one very well organised group of individuals,"

Country Spotlight: Tajikistan • Monitored Jurisdiction (INCSR)

• Prime transit country for narcotics and arms trafficking

• Unable to control the 900 mile Tajik-Afghan border without international assistance.

• People from poor villages on the border are often recruited for smuggling

• For the poor this hard to resist but they often end up in prison

• Sources of laundered funds

• Foreign and domestic criminal activities,

• Particularly opium and heroin trafficked through from Afghanistan to Russia

• Some reports have suggested that corruption in key government agencies

• Facilitates the drug trade and associated money laundering

• Protects the leaders of the drug gangs

Languages and Identity Screening • A large number of different languages are spoken in this region,

• predominantly using the Latin or Cyrillic scripts.

• Non-standardised transcription methods used to convert extended Latin characters and diacritics to the basic Latin character set

• a = a / ae

• The number of different languages and dialects that use the Cyrillic script

• Aleksandr / Oleksandr / Aliaksandr

• The challenges posed by transcription variants in identity data

• The technical standard for transliterating Cyrillic, described in ISO9, rarely used in practice.

Борис Николаевич Ельцин

Boris NikolayevichYeltsin

Boris Nikolajewitsch Jelzin

Boris Nikolaïevitch Eltsine

Boris Nikolaevič El'cin

Boris Nicoláievitch Iéltsin

Boris Nikołajewicz Jelcyn

http://upload.wikimedia.org/wikipedia/commons/9/9a/%D0%91%D0%BE%D1%80%D0%B8%D1%81_%D0%9D%D0%B8%D0%BA%D0%BE%D0%BB%D0%B0%D0%B5%D0%B2%D0%B8%D1%87_%D0%95%D0%BB%D1%8C%D1%86%D0%B8%D0%BD.jpg

East Asia

• Organised crime groups operate throughout East Asia, including Triad gangs and the Yakuza

• Dealing illicitly in fake goods, drugs, wildlife and human trafficking, and extortion

• Significant problems with corruption in China and gambling in Macao increase the money laundering risks in the region.

Country Spotlight: China • Jurisdiction of Primary Concern (INCSR).

• Sources of laundered funds include: corruption, narcotics and human trafficking, smuggling,

intellectual property theft, counterfeit goods, financial crimes and tax evasion

• Significant corruption issues

• A recent clampdown has seen high-profile arrests, including members of FI senior management

Zhou Yongkang: highest ranking official to fall in Xi Jinping's anti-corruption campaign - sentenced

to life in prison after a secret trial in May 2015

• Preferred means of money laundering

• Bulk cash smuggling, trade-based money laundering, invoice manipulation, investment in luxury

assets and commercial enterprises, gambling, and the use of informal payment systems

• Offshore Leaks: ICIJ Project - 2.5 million leaked records revealing offshore holdings of China’s rich

• Exposing owners of >100 000 companies in 10 offshore jurisdiction

Gambling in Macau • Macau is home to the world’s largest gaming market in terms of revenue

• The only place in China where casino gambling is legal

• Loosely-regulated promoters (junket operators)

• Supply wealthy gamblers from the mainland

• Money laundering risks for the territory

• The transaction anonymity afforded by junket gambling

• Funds loaned by operators, DD not strictly applied

• VIP rooms are not closely monitored for maximum cross border limits

• The absence of effective exchange controls

• Junkets accept Chinese Renminbi, which cannot be converted on international exchanges

• Casinos in Macau can pay out in dollars.

• Dollars are smuggled to Hong Kong and invested in real estate or transferred to offshore tax havens.

Country Spotlight: Japan • Jurisdiction of Primary Concern (INCSR)

• FATF has criticised Japan’s continued failure to remedy serious deficiencies in its AML regime

• Incomplete criminalisation of terrorist financing and mechanism for terrorist asset freezing

• Lack of effective due diligence requirements

• The failure to ratify and fully implement the Palermo Convention


• Organised crime, drug and human trafficking, money lending, gambling, payment fraud

• The most significant organised crime threat in Japan comes from the Yakuza

• Over 100,000 members

• Extortion, fraud, corruption, Illegal gambling, prostitution, smuggling of drugs and firearms

• Also operate legal businesses (real estate, construction, entertainment) with profits

Languages and Identity Screening

The most significant challenges faced in identity screening in this region include transcription issues:

Korean: Lee, Rhee, Yi and I, for the name 李 – or 이/리

Chinese: Chang, Zhang, Cheong, Cheung and Teoh for the name 张.

The use of Chinese Commercial Code to represent Chinese characters in international payment

messages has only partially helped in this regard but regulators are keen to see it used.

Variations in the ordering and presentation of names

Sum Waiman = Waiman Sum = Carla Sum Waiman = Sum Waiman, Carla

Challenges posed when using fuzzy matching on short strings of Chinese characters.

South and South East Asia • The world’s second poorest region after Sub

Saharan Africa

• The region has historically been plagued by violence, civil war and acts of terrorism.

• A disparate group of smaller countries, with Indonesia being its largest economy

• Golden Triangle – gangs and criminal groups, involvement in significant opium/heroin industry

• The most significant terrorist threat comes from Islamic terrorist groups seeking to establish an Islamic caliphate across the region.

Country Spotlight: Afghanistan


• A major narcotics trafficking country and the world’s largest opium producer

• Political stability remains low amid concerns about the re-emergence of the Taliban

• Significant sources of laundered funds = narcotics trade, corruption and contract fraud

• Terrorist financing remains a key issue

• Predominant money laundering methods include cash smuggling and the use of informal payment

systems.

• Official corruption and weaknesses in the banking sector promote the use of informal payment

systems and challenge growth of a transparent financial sector

• Poor technology and systems provide opportunities: EG Afghan national police payroll inoperative

meaning staff can be paid for days not worked and leaving the system open to corruption.

Country Spotlight: Pakistan • Jurisdiction of Primary Concern (INCSR)

• A significant black market economy and high rates of crime

• Significant sources of laundered funds

• Financial crimes such tax evasion, fraud, corruption, and trade in counterfeit goods

• Corruption, smuggling, drug and human trafficking, and terrorism

• Current case: diploma mill running hundreds of fake online education websites

• Unlicensed hawala/hundi operators are prevalent throughout Pakistan

• Preferred laundering methods

• Invoice fraud and bulk cash smuggling as well as the use of MSB’s

• Criminals often use front businesses or charities to carry out these activities.

Country Spotlight: Indonesia • FATF has reported that the country has not made sufficient progress in addressing key CTF

deficiencies.

• A number of domestic and foreign terrorist organisations


• History of smuggling of illicit goods and bulk cash shipments

• Significant corruption concerns

• Cash-based economy, weak rule of law, inadequate financial system regulation and

ineffective law enforcement

• Sources of laundered funds include:

• The proceeds of non-drug related crimes such as corruption, illegal logging, theft, fraud,

maritime piracy, trade in counterfeit goods, gambling and prostitution

Languages and Identity Screening The large Chinese diaspora in South East Asia means that the issues with screening Chinese

names are also evident in South East Asian identity data.

Names from other significant regional languages such as Malay, Thai, Burmese, and

Vietnamese pose their own individual challenges. For example:

In Vietnam, many people share a small number of family names

Transcriptions of Thai names are some of the most challenging to accurately screen

Thai: Pibulsonggram and Phibunsongkhram, for the name พบูิลสงคราม,

The transcription issues surrounding names from Indian languages, including Hindi, Bengali,

and Punjabi names, are also a significant challenge.

Bengali: Chowdhury, Chaudhuri and Choudhry, for the name চ ৌধুরী

Middle East • The Middle East has suffered numerous wars

and conflicts, and tensions within the region remain high.

• Terrorism is a constant threat

• ISIS activities, a significant number of smaller extremist organisations and increasing nuclear aspirations in a number of countries elevate the risks of terrorist financing and WMD proliferation in this region.

Country Spotlight: Iran

• FATF expressed concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.


• A large informal economy

• A major transit route for opiates

• Capital flight and smuggling are widespread

• Widespread corruption

• Evasion of international sanctions against Iran continues to stir controversy.

Cash Pool

Iran: Smurfing / Sanctions Evasion

Family Family

Controller

Wants to send £18K

Example from FATF: The role of HOSSP in ML & TF

Transfers 300M Rial

Pays 305M Rial

Collector

Criminal Group

Saraf

£6K £6K £6K

Criminal Group

Directs Directs

Country Spotlight: Lebanon • One of the more sophisticated banking sectors in the region

• Currency exchanges may be used to facilitate money laundering, along with offshore companies


• A financial hub for banking activities in the Middle East and eastern Mediterranean

• The country receives substantial remittances

• Informal financial systems and trade based money laundering systems

• Corruption is a significant issue

• Laundered proceeds come primarily from:

• Foreign criminal activity and organised crime.

• Dealing in conflict diamonds and other diamond-related frauds

• More than a million Syrian refugees in Lebanon

• Middle men in the distribution chain are demanding bribes from the refugees

Country Spotlight: UAE • Jurisdiction of Primary Concern (INCSR)

• Huge inflows of people, goods and capital.

• Predominantly immigrant population

• Money remittance a key feature of the economy

• High use of informal payment networks

• Some UAE-based laundering is of illegal narcotics produced in South West Asia.

• Terrorist finance activities includes both fund-raising and funds transfer

• Laundering activities

• Exchange houses, hawala and commercial trading companies.

• investment in real estate, and international trade in gold and diamonds

• Bulk cash smuggling is a significant problem.

• Extensive offshore financial centre and many free trade zones

Hawala Network

UAE: Trade-based use of Hawala

Equipment Manufacturer Manufacturing Company

General Trading Company

Orders £1m equipment

Example from FATF : The role of HOSSP in ML & TF

Delivered for£1m

Invoiced for £500K

Overt payment £500K

Covert payment £500K

Overt payment £1M

Up 500K Up 500K Down £1M

payment £500K

Reach of Yemeni Corruption • Ali Abdullah Saleh agreed to step down in 2012

• Allegations of abuse of power, extortion and embezzlement

• The deal granted him immunity from prosecution

• He was allowed to stay in the country

• Allegations he used his wealth to help oust his successor at the beginning of 2015

• It is reported that Saleh gained up to $2 billion a year from 1978 to 2012

• The assets are said to be hidden in 20 countries with the help of business associates and front companies

• Time bomb for banks?

ISIS: Terrorist Funding But Not As We Know It • One of the best funded terrorist organisations

• Supporting 8 million people living in territories under ISIS control as well as tens of thousands of militants

• Local activities alone generate revenue up to $6 million a day

• Most fundings come from production and sale of seized energy assets (about $800 million a year)

• Sales of stolen ancient archeological artifacts are the second largest source of funding

• Bank looting, kidnapping, smuggling, royal donations, fake humanitarian aid...

• Extortion of goods and cash transiting controlled territory

• FATF Report on ISIL Funding

• New methods are emerging – research required to design a coordinated approach.

Languages and Identity Screening

Names from this region principally display characteristics from:

Turkic, Arabic, Persian, and Hebrew languages.

Transcription issues pose the most significant screening challenges.

Arabic: Husain, Hossein and Husseyn, for the name حسین‎‎

Arabic: Abdalrahman, Abderrahmane or Abdurrachman, for the name الرحمن عبد

The differences in spelling are often compounded by variable word borders.

Abd al Rahman, Abdul Rahman, Abdurrahman, Abdorrahmane, Abd el Rahman….

Alternative Naming Conventions Arabic names typically follow a very different structure from the standard Western

“First Name, Middle Name, Last Name” format.

Incorrect treatment of the different component parts of Arabic names is often responsible for

both false positive and false negative screening results.

Abu Murad Faisal ibn Muhammad ibn Salim Abd al-Rahman al-Husseini

Kunya: Abu Murad (father of Murad)

Ism: Faisal (roughly equivalent to a Western given name)

Nasab: Ibn Muhammad Ibn Salim (son of Muhammad, grandson of Salim)

Laqab: Abd al-Rahman (Servant of God – almost like a formal nickname)

Nisba: al-Husseini (from the house of Hussein – the closest part to a family or tribal name)

UN Sanctions List Format Project • Multi-Party Cooperation

• UN lead, with EU / US / UK

• Wolfsberg Group, Swift

• With input from data vendors an search experts

• Purpose

• Remove ambiguity

• Facilitate searching

• Facilitate list management

• Minimise need for future revisions

• Dual Output

• Design of intelligence data model

• Design of XML format for list publication

• Data model now adopted and published by OFAC

• Ongoing cooperation to provide resources for wider adoption

North Africa

• Significant part of the Arab world, with a notable Islamic influence

• Northern parts of the Maghreb historically have strong commercial and cultural ties to the Mediterranean populations of Southern Europe and Western Asia

• The uprisings of the Arab Spring left fragile political systems vulnerable to the influence of local nationalist and terrorist organisations

Country Spotlight: Algeria • FATF reports there has not been sufficient progress in addressing strategic deficiencies

• Jurisdiction of Concern (INCSR)

• Unregulated alternative remittance and currency exchange systems

• Cash-based economy

• Corruption is also a significant concern


• Trafficking, kidnapping, theft and extortion as well as tax evasion and customs fraud

• Money laundering techniques

• Abuse of real estate transactions, commercial invoice fraud and other trade-based money laundering

• Current Sonatrach Case: top state oil company officials charged with embezzlement corruption and money laundering

Country Spotlight: Libya • Severe political instability and violence

• The internationally-recognised, elected government has limited control of the country

• Rival “governments” having been set up in a number of towns.

• The radical terrorist group ISIS has taken control of a number of key locations.

• Monitored Jurisdiction (INCSR)

• Attractive transit point for narcotics, particularly cannabis and heroin

• A destination and transit point for smuggled goods

• Markets are primarily cash-based

• Informal value transfer networks operate within the country

• Corruption is a serious concern

• Criminal activity for profit, including theft, weapons trafficking and extortion are all common

Libya’s People Smugglers • Route to Libya through Sahara is dangerous: many do not

survive it

• Mostly fish boats are used for smuggling

• The crew of the ship are usually not smugglers

themselves

• Some migrants held in warehouses or forced into slave

labour if they cannot pay off their debt to smugglers

• Nationality-based fee

• It is reported that profits can be around $37K per trip

• In busy week of 20 trips up to $775K

• Reports are conflicting

Country Spotlight: Mauritania


• A transit point for cocaine heading from South America to the European market

• A largely informal and under-developed economy, which is vulnerable to exploitation

• Weak government oversight and auditing standards

• Sources of illicit funds

• provision of logistical support for organised international drug traffickers

• Terrorist finance activities

• Corruption both in government and the private sector

• 2010 Liaison officer to Interpol jailed for role in trying to build a dessert runway to import cocaine. The plan would allegedly have sent large quantities of cocaine to Europe disguised as fish.

Country Spotlight: Morocco • Jurisdiction of Concern (INCSR)

• Large informal economy

• Most businesses are cash-based with little invoicing or paper trails

• High level of remittances

• High level of corruption

• Foreign exchange controls and unregulated money exchanges are vulnerable to abuse


• International narcotics trade and human trafficking

• Money laundering methods

• Most proceeds are thought to be laundered in Europe

• Bulk cash smuggling

• Some trade-based money laundering, including invoice fraud and purchase of smuggled goods

Sub-Saharan Africa • Some of the poorest countries in the world as well as

some strong religious cultures

• Common issues

• Endemic corruption

• Weak law enforcement and high crime rates

• Cash-based economies with irregular access to

the formal financial system

• Alternative remittance systems

• Many countries also have significant problems

with extremist organisations

• Unique factors can be seen in mineral-rich countries

Conflict Resources in Africa

Libya: oil

CAR: timber, gold and diamonds

South Sudan: oil

Uganda: oil, mines

DCR: forests, diamonds, gold and other mineral resources

Zimbabwe: diamonds

Nigeria: oil

Ghana: forests

Liberia: oil, mines, forests, palm oil

Cameroon: forests, oil plantations, hydroelectric dams, precious metal mines

Equatorial Guinea: oil

Angola: oil and diamonds

The Kimberly Process • Certification scheme: aim is to clean up the diamond trade

• Import and export control system for rough diamonds

• Launched in 2003

• 75 producing, trading and manufacturing countries participate

• Criticisms

• Narrow definition of conflict diamonds

• Refusing to broaden this definition

• Applies only to rough diamonds

• Loopholes

• Failure to effectively adapt to address a broader range of human rights concerns

• Need for wider and more effective program on all conflict resources

Country Spotlight: Guinea Bissau • FATF (GIABA) concluded there has been no real progress in addressing strategic deficiencies in

the AML/CTF regime.


• Predominantly informal economy

• Difficult to regulate

• A transit point for drug trafficking

• Vulnerable to exploitation by money launderers

• Political stability in hampered by flow of narcotics and drug money

• The main sources of illicit money

• drug trafficking, corruption, tax evasion, smuggling and human trafficking

• Corruption and impunity are significant problems

• Suspected that the military are widely involved in the drug trade

• 2014 Former navy chief plead guilty to conspiracy to import narcotics to the US

Country Spotlight: Mali • FATF-GIABA reports the country is vulnerable to use as a support ground for terrorist finance

and organised crime in neighbouring countries


• Largely cash-based economy


• Human trafficking and smuggling of everyday commodities, small arms and narcotics

• Corruption

• Al-Qaida in the Islamic Maghreb and related groups known to operate in the northern Mali also generate funds through kidnapping and smuggling.

• Collusion between smugglers and other criminal organisations present in the North

• 2014 Corruption scandal: purchase of presidential jet and military equipment. Foreign aid was suspended, with a significant impact on the countries economy.

• Hardship boosts support for terrorist organisations

Country Spotlight: Nigeria • State control of the country’s oil wealth supports widespread corruption in the public sector


• Transit point for drug trafficking

• Significant centre for organised criminal activity in West Africa

• Severely unequal class structure

• Boko Haram’s funding techniques

• Local looting, extortion and kidnapping for ransom

• Oil theft, human trafficking, smuggling of arms, fraudulent activities

• Preferred laundering techniques

• Real estate investments, use of offshore bank accounts, political and charitable donations,

trade based money laundering and bulk cash smuggling

Stolen Nigerian Crude Oil

• Africa’s biggest oil producer

• Believed a minimum of 100K barrels are stolen every day

• Estimated losses for Nigerian government are $3.4bn per year

• Proceeds are laundered through world financial centers and foreign banks

• The proceeds used to buy assets in and outside Nigeria

Country Spotlight: Somalia


• Largely informal financial system

• Significant black market and alternative remittance systems

• Long, unguarded coastline, poor border controls and proximity to the Arabian Peninsula

• Smuggling of currency and goods into and out of the country

• Al-Shabaab’s funding

• Donations from sympathisers, extortion of locals, kidnapping for ransom

• The illicit export of charcoal

• Piracy ransoms

• Corruption

Remittances in Somalia • Over 40% of Somalia’s population depends on

money sent by their family members living abroad

• Due to high terrorism risks, many banks do not want

to be included in these transactions

• Number of remittance companies has declined and

the price of their services increased

• Some money transfer agents decided to carry cash

themselves by plane

• Potential problems:

• Underground channels might flourish

• Less transparency and security

• Possibilitiy of thefts

Country Spotlight: South Sudan

• Country came into existence in 2011

• By 2013 was already experiencing political instability

• Violence descended into civil war


• Cash-based economy, oil rich state

• Vulnerable to exploitation by criminals and cash smugglers

• No appropriate laws, regulations or enforcement capacity to address financial crimes

• Corruption is widespread

• President accused former officials of misappropriating $4bn in public money

• Claimed that most of this funds were deposited in foreign bank accounts

Smuggling Gold - Sudan • Separation of South Sudan in 2011

• Sudan lost most of its oil production

• people are encouraged to dig for gold

• Gold makes up 60% of all Sudan’s exports

• It is alleged that Sudan’s central bank pays miners up

to 20% above market price to secure foreign currency

• The central bank denies these implications

• Reported that around a quarter of Sudan’s annual gold

output is smuggled abroad

• If true, this would would lead to government losing

up to $700 million a year

North America • Complex economies / broad income differentials

• US / Mexico border: significant flow of criminal activity and smuggled cash

• Relatively open US-Canada border

• Increasing organised crime. Significant markets for trafficked narcotics

• Similar scores on Basel Index but not TI.

Country Basel Index TI Index

Canada 5.29 81

USA 5.20 74

Mexico 5.35 35

Country Spotlight: Mexico

• Transit point for narcotics traffickers


• Significant producer and consumer of counterfeit and pirated products

• Significant part of informal economy

• Other sources of laundered funds

• Corruption, kidnapping, extortion, human trafficking and trafficking in firearms

• Money laundering

• Use of Casas de Cambio, bulk smuggling of USD across US border

• Large flow of legitimate remittances from Mexican diaspora provides cover

• Much criticism of local branches of international banks

Basel Index TI Index

5.35 35

Mexico: Public Sector / Criminal World

• Local police apparently gave them to the Guerreros Unidos drug cartel on the orders of Iguala’s mayor.

• Conflicting theories for initial round up: Political activism, refusal to pay extortion monies. Probably to stop them disrupting a rally.

• A gang member admitted ordering the murders believing the group included operatives of rival gang Los Rojos.

• Many arrests, including police, Iguala’s mayor & his wife.

• Nobody did any of this for free. • President plans new powers to tackle corruption at a local level: critics say the

national level is being ignored.

• 43 trainee teachers were abducted from Iguala and killed in September 2014.

Human Trafficking in Canada

• Human trafficking has become a significant issue in Canada. Often vulnerable people are trafficked domestically.

• April 2015 6 people arrested in relation to a large scale prostitution ring.

• Up to 500 women trafficked in, mainly from China and Korea by Asian-based organised crime gang. They were kept in poor conditions and moved to locations all over Canada to be exploited.

• A number of initiatives have been set up to try to prevent domestic and international trafficking.

Canada: April 2015

USA: Urban areas become laundering hubs

• “Chicago is a hub for narcotics money laundering”

• Sophisticated trade-based schemes being used.

• Over 30 people charged in February 2015 after a multi-year investigation into the laundering of > $100M in drug money.

• Typical repatriation scheme.

• US-based operatives used drug money to purchase gold from local businesses

• Gold sold to refineries in Florida / California

• The refineries sent the cash value back to Mexico.

Languages & Identity Screening

• The predominant languages are English, Spanish, and French. • Significant immigrant communities mean multiple linguistic screening issues

• Lack of linguistic flexibility in market leading technology

• There is no market standard

• Many popular systems struggle with basic international features • Names that don’t follow the “First Name, Middle Name, Last Name” format

• Characters from beyond the basic Latin character set, including those that are common in Western European names

Central and South America

• Very diverse region • Some significant economies and many smaller, less well-

developed territories

• Some major drug producers in the region • Organised crimes and key terrorist elements

• Particularly in Tri-Border Region of Argentina, Brazil, Paraguay

• Considerable political upheaval over the last two decades

• Several jurisdictions are blighted by endemic corruption

Country Spotlight: Argentina

• Significant informal economy

• Argentinians thought to hold billions of US dollars outside the formal financial system

• Primary sources of funds laundered • Narcotics trafficking, corruption, smuggling, capital flight and tax evasion


• Source for precursor chemicals for the narcotics trade and an export route

• OECD: “seriously non-compliant” with key articles of the Anti-Bribery Convention

• No appropriate legislation against foreign corrupt practices

Argentina: Corruption in Enforcement Agencies

• Endemic Corruption • Scored just 34 on TI Index

• Former anti-drug chief of the Cordoba province police

• Arrested in 2013

• Charges: protecting and colluding with drug traffickers

• Refused bail due to risk he will interfere with the investigation.

• Appeal court noted it would be “more difficult” to get witnesses to change testimony” – he would “need someone else to do that for him.

Country Spotlight: Brazil • Sources of money laundering mostly domestic crime

• particularly drug trafficking, corruption, organised crime, gambling, and trade in smuggled goods

• Sao Paulo and the Tri-Border Area with Argentina and Paraguay particularly high risk

• Funds embezzled by the former Mayor of Sao Paulo allegedly laundered through Citi Bank / UBS


• One of the world’s largest consumers of illegal narcotics as well as a major transit country

• Laundering channels

• the formal banking sector, real estate and financial investments, trade in luxury goods,

• informal financial networks, and trade-based money laundering

• FATF noted Strategic deficiencies in AML / CTF

• recommended many improvements to AML legislation.

Brazil – Fallout from Petrobras Scandal

• Investigation surrounds $1.6bn potential kickbacks

• Petrobas executives accused of paying politicians for

contracts, using money skimmed from company’s profits.

• Charges: corruption, money laundering and a formation of a

criminal organisation

• The country’s most senior politicians are implicated.

• Loss to company’s value estimated $10-$15bn

• Could have significant effect on the economy

Following the Petrobras contract awards scandal of 2014, the federal prosecutor and President have called for new laws to be introduced to combat corruption.

• Despite her anti-graft stance, the scandal undermines president who was has a

small margin and was Chair of the Petrobras board until 2010.

Country Spotlight: Paraguay • Sources of laundered funds include: arms and narcotics trafficking, smuggling, and counterfeiting

• Borders with Argentina and Brazil are particularly high risk areas

• Groups from Colombia reportedly smuggling cigarettes from Paraguay via Aruba and Curacao

• Reportedly includes cigarettes made by Tabesa: owned by Paraguayan President


• Major drug transit country

• Centre for money laundering: via formal financial sector and non-bank financial sector

• Endemic corruption, including in customs and police departments

• Increased concerns about money laundering outside the financial sector

• High use of bearer shares, casinos and unregulated exchange houses

• Weak border controls and law enforcement

Languages and Identity Screening • The predominant languages in the region are Spanish and Portuguese, though other

European languages are also spoken as a result of historic influences.

• Challenge for AML screening of identity data • Compound given names

• The multi-part family naming structure

• The subsequently large number of partial matches that must be accounted for

• Software providers’ lack of recognition of differences between Hispanic and Portuguese naming structures

• To match names from this region with any kind of precision, screening systems must: • Consider the order of name parts

• Take account of non-matching name parts

Selected Sources and Further Reading Hawala:

Role of Hawala & Other Similar Service Providers in Money Laundering and Terrorist Financing (FATF Report)

Virtual Currencies

Virtual Currencies (FATF Report)

Country Risks:

International Narcotics Control Strategy Report Vol II (US State Dept)

Basel AML Index 2014: Basel Institute on Governance

Identity Screening:

Sanctions Data Model (UN-led project team)

Linguistic Identity Matching (Lisbach & Meyer)

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