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6 money laundering reforms that experts say need to happen right now

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The biggest banks in the world are moving vast amounts of money for drug cartels, corrupt regimes, arms traffickers and other international criminals after having pledged repeatedly to do more to staunch the flow of dirty money.

The system-wide failures exposed by the FinCEN Files, a 16-month investigation by more than 400 journalists, have led to calls for reform from prominent politicians and government bodies. The reporting even prompted the Financial Crimes Enforcement Network, the U.S. agency known as FinCEN tasked with overseeing bank compliance with money laundering laws, to ask for ideas about how to “enhance the effectiveness” of its operations.

So what’s to be done? A more robust enforcement system is within reach, say finance, legal and offshore experts interviewed by the International Consortium of Investigative Journalists. Here’s where to begin.

End ‘too big to jail’ for U.S. banks and bankers

The deferred prosecution agreement, or DPA, has become the go-to tool in the U.S. government’s efforts to force banks to crack down on criminal payments moving through their accounts. A financial institution in the cross-hairs of law enforcement agrees to something like probation: criminal charges are tabled, and in return, the bank pays a fine and agrees to reforms overseen by a monitor.

But critics say overuse and underenforcement of the DPA has let banks off the hook for egregious violations of money-laundering statutes with few long-term consequences. “They’ve become in effect the cost of doing business rather than a real punishment,” Jed Rakoff, a senior federal judge in Manhattan, told ICIJ.

Over the last decade at least 18 financial institutions signed DPAs for anti-money laundering or sanctions violations, an analysis by BuzzFeed News found. Four were fined a second time for violating the law — twice, the U.S. government responded to the repeat offense by simply renewing the same agreement that failed the first time.

ICIJ’s examination found that five global banks — JPMorgan Chase, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon — kept profiting from powerful and dangerous players after paying fines as part of DPAs.

How to convince financial institutions to take money laundering more seriously? Go after culpable leaders, Rakoff said. “To my mind the single greatest objection is that the ultimately responsible executives never get prosecuted at all,” he said. “I was a criminal defense lawyer for 15 years doing mostly white collar defense and the only thing that ever scared my client was prison, and boy that scared them.”

 

Tighten suspicious transaction reporting requirements

Suspicious activity reports that banks are required to file with regulators often lack crucial information, including the most basic facts regarding who is actually behind suspect multi-million-dollar money flows. This reflects crippling ignorance on the part of compliance officers, who told ICIJ they cannot properly do their jobs without this information — and it also hobbles law enforcement and bank regulators who use these SARs to inform their own investigations.

Compliance staffers’ questions to colleagues in private banking and other client-facing divisions “are often ignored, not answered to satisfaction, not answered in a timely manner,” Ross Delston, a Washington-based attorney who specializes in anti-money laundering systems, said. “Compliance officers experience a great deal of frustration when it comes to requests for information within their own organization.”

Delston says that a full solution will likely require massive regulatory changes. The most effective fix: force banks to keep customer information in a centralized database that compliance staff could access automatically, ending the troubled request-for-information process. In other words, bankers would no longer be the gatekeepers to information about customers they profit from.

Empower bank compliance officers

Bank staff tasked with monitoring transactions and raising red flags when necessary are the front line in the global fight against money laundering. But compliance officers told ICIJ that they often felt powerless to compel their own institutions to close accounts that appeared to be connected to criminal activity. Former HSBC compliance officer Alexis Grullon said that the suspicious activity reports he spent his days completing did little to stop concerning activity.

“Why are we filing SARs?” Grullon recalls wondering. “The account is still open. Nothing is actually being done.”

Stories like this are not new to Rick McDonell, the executive director of the Association of Certified Anti-Money Laundering Specialists (ACAMS). McDonell says that banks must give compliance officers a meaningful voice within their institutions. Specifically, he said, there should be clear, unobstructed pathways for compliance officials to elevate concerns over financial crime to officials within the bank with the power to close accounts or take other action.

McDonell said that while many banks have made strides to better empower their compliance people, others have not. Government regulators must use their supervisory power to examine obstacles that keep bank compliance officers’ concerns from being acted upon, he said. “On a global scale, there is still a long way to go in terms of effective supervision and effective compliance,” McDonell said.

End tax haven U.S.A.

U.S. jurisdictions such as Delaware, Wyoming and South Dakota can be even easier to abuse than the Caribbean tax havens of popular imagination. Some states don’t require any information on a company’s owner or manager to open a new business — less paperwork than what is often needed to obtain a library card.

Experts and regulators responded to the FinCEN Files investigation with calls to end the easy creation of “anonymous” companies – entities whose owners are not publicly recorded or shared with federal authorities – as a first step. “Anonymous shell companies … make it practically impossible to determine the identity of the perpetrators,” said Linda A. Lacewell, superintendent of the New York State Department of Financial Services, in an op-ed responding to the FinCEN Files investigation and its exposés of criminal activity.

Bills to require U.S. companies to disclose their owner or owners to FinCEN are before both chambers of Congress and have the support of President Donald Trump’s administration. The Senate bill would boost penalties for repeat offenders and require certain companies to disclose their true owners, including those with at least a 25% stake or who own a controlling interest. It would not create a public registry of owners, as some advocates and experts had hoped.

“The FinCEN Files series revealed longstanding problems [involving] willful violators of our nation’s laws,” said Ohio Sen. Sherrod Brown, the Democratic co-sponsor of the bill, in an interview with ICIJ. “We’re hopeful this new bill, that once it comes into law — and I think it will — it will be a lot harder for them to violate these laws and that they’ll pay a price when they do.”

Close the United Kingdom’s giant secrecy loophole

The U.K. is a money laundering hotbed. According to one estimate, more than 90 billion in dirty money is laundered each year through the City of London. A central problem has been the rise and misuse of anonymous companies known as LLPs and LPs incorporated through Companies House, the U.K.’s registrar of businesses, by people with ties to corruption, crime and even terrorism.

In 2016, the government moved to require most British companies to disclose individuals with more than 25% control. While the rules apply to all LLPs and to some LPs, the law contains no verification or enforcement mechanism, and many don’t provide ownership information.

An ICIJ analysis of LLP companies registered in England and Wales revealed an excess of $4.5 billion in funds, compared to the figures reported in a selection of LLP company accounts, filed with Companies House, casting doubts over the reliability and accuracy of their accounts data.

Days before the publication of the FinCEN Files, Companies House announced a litany of new reforms intended to clamp down on fraud and money laundering, including preventing company directors from being appointed until their identities are verified by Companies House.

Graham Barrow, an anti-money laundering expert, thinks that a few changes could radically alter the landscape of money laundering in the U.K. and stop the use of shell companies.

“First would be to introduce a requirement that at least one officer of any U.K. entity should be located here in the U.K. and accept accountability for the filings made by the company. Two would be to exclude from the register of Persons with Significant Control [i.e. the owners of the company] any entity that does not meet the current requirements.”

Europe has 27 different approaches to fighting financial crime. It’s time for the continent to work together.

The European Union’s 27 countries have primary responsibility for supervising and enforcing anti-money laundering laws. Persistent weaknesses led the European Commission to mandate stricter dirty money controls. Some countries, including Cyprus, Spain and the Netherlands, have been slow to introduce new rules, including overhauls that would make it easier to identify the owners of companies and trusts. Others, including Latvia and Malta, have long attracted criminals and billions of dollars in dirty money.

Responding to FinCEN Files, European politicians called for uniform regulations and for stronger supervision in the form of a new European agency or greater powers for the existing oversight body, the European Banking Authority.

“The existing Anti-Money Laundering (AML) system simply does not work,” said Eero Heinäluoma, a Finnish member of the European Parliament during a debate on the FinCEN Files. “It is a Swiss cheese, full of holes.”

The post 6 money laundering reforms that experts say need to happen right now appeared first on ICIJ.

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Election Integrity

Analyzing the Case for Election Fraud

Despite the overwhelming pressure, if you can’t help but feel that tingling sense of knowing that is telling you there’s more to the story, you are not alone. In fact, according to a new Rassmussen poll, nearly 50% of voters believe the election had issues. A quick look at the data blatantly shows that indeed, shenanigans abound (how can a state have 1+ million more mail-in ballots tallied than they sent out?). But was it fraud or masterful gamesmanship?

Adryenn Ashley

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The world, or at least the global media, has spoken: Biden won the 2020 Election.

UPDATED FREQUENTLY WITH NEW INFORMATION – Last update 12/21/2020

A quick Google search reveals pages upon pages of reports of why the Trump team’s assertions of vote fraud and election fraud and vote flipping are flat out fallacies. YouTube has announced a ban on any videos questioning the election results. And now on Monday all 538 electors have voted, formalizing Biden’s 306-232 win. And while there is still Congress to get through, and the inauguration, based on social media and television news and practically every other point of information bombarding society today, Biden is now the President-elect.

But why now, after Government officials confirmed during Senate testimony that a foreign adversary, Russia, attempted to interfere in the 2016 United States Presidential Election via “a multi-faceted approach intended to undermine confidence in our democratic process.” According to U.S. intelligence official reports, Russia targeted voter registration databases in at least 21 states and sought to infiltrate the networks of voting equipment vendors, political parties, and at least one local election board. And if their purpose was not so much to “hack” the election but create chaos and sow seeds of uncertainty around our election process, I would say they have won. But what if this cycle, it was Russia who somehow manipulated extra ballots and placed the blame on the Democrats? What if…?

Russian Experience With Voter Fraud

The 2004 presidential election in Ukraine saw suspiciously high turnout rates that “even Stalinist North Korea would envy,” the State Department declared!

Back then, the U.S. government decried as corrupt an earlier election where special voting boxes were created to help citizens vote from home, election observers were expelled from vote counts, pre-election polls were wildly off, and voter turnout in certain communities exceeded 90%.

But the story of that Ukrainian election as recounted by then-Ambassador John Tefft to a Senate committee in December 2004 raises a tantalizing question for voters distrustful of the Nov. 3 elections results in our own 2020 Presidential Election: If tactics and outcomes in the Ukrainian election back then were enough to cry foul, why can’t Americans debate similar concerns here?

Tefft’s testimony raises an important question: Should America, the greatest democracy in the world, share any of the fraudulent attributes of a Ukrainian election? The answer for most Americans is hopefully resounding “No.”

And despite continued and repeated headlines that there was no fraud, according to the Harvard Kenney School report on Election Integrity this cycle, expert assessments indicate that compared with 2016, the performance of this contest displays several warning flags, namely worsening confidence in the integrity of American elections and falling public trust, challenges to legitimacy arising from threats of campaign violence,legal disputes about the process and results, and public protests about the outcome, as well as growing attempts at voter suppression. 

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Investigations

Advocates celebrate major US anti-money laundering victory

Landmark laws to thwart the use of U.S. shell companies by terrorists, human traffickers, arms dealers and kleptocrats are set to be enacted after more than a decade of lobbying and politicking with rare bipartisan support.

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Advocates celebrate major US anti-money laundering victory

The sweeping anti-money laundering reforms hitched a lift in the annual defense spending bill that passed the Senate 84-13 today, and was approved by the House 355-78 earlier this week.

The Corporate Transparency Act requires U.S. companies to report their true owners to the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN — largely ending anonymous shell companies in the country.

The International Consortium of Investigative Journalists has repeatedly documented how the rich, the powerful and the criminal have used anonymous entities to hide their wealth, including in the 2016 Panama Papers and the 2020 FinCEN Files investigations.

Welcoming the clampdown, Transparency International’s U.S. director Gary Kalman said, “It is rare for such a simple measure to promise such an enormous impact.” Kalman added that the long sought anti-corruption reforms would “move us into a new era of enforcement.”

The new legislation will allow law enforcement agencies and financial institutions to request company ownership information from FinCEN. The data will not be publicly available.

FinCEN Files was based on a trove of suspicious activity reports filed by banks and other financial institutions to FinCEN. BuzzFeed News obtained the secret documents and shared them with ICIJ and more than 100 other media organizations.

The global investigation exposed how a broken U.S.-led enforcement system allows banks to continue to profit from moving dirty money tied to drug cartels, trafficking rings fueling the opioid crisis, fraud, organized crime, sanctions evasion, ruinous real estate schemes, and terrorism.

“Too many times, people … think money laundering is a federal, victimless crime. It is certainly not that,” Sen. Sherrod Brown of Ohio, the top Democrat on the Senate banking committee, told reporters on a call organized by the advocacy group the FACT Coalition. “Sinaloa cartel actors, fentanyl traffickers have been destroying thousands of families in my state and across the country.”

Earlier this year, Brown credited FinCEN Files for revealing the lack of forceful enforcement against banks that repeatedly violate the law. Advocates said a number of proposed bipartisan bills, including one co-sponsored by Brown, were instrumental in generating the support needed to attach the reforms to the spending bill.

“This is a really big deal to get this passed,” Brown said Thursday. “No more hiding these abuses in anonymous shell companies. It also cracks down on bank officials who look the other way or actively aid money laundering.”

A long time coming

ICIJ has shown how offshore shell companies have been used for dubious financial dealings and tax avoidance through a series of global exposés, including the Secrecy for Sale investigation, Panama Papers and Paradise Papers. U.S. lawmakers have repeatedly cited the investigations in proposing reforms over the years.

Countries like the United Kingdom, Indonesia and members of the European Union also took steps toward ending anonymous shell companies in response to ICIJ reporting.

“When the Panama Papers leaked, there was a huge flurry of interest because there’s all of a sudden this recognition that it was kleptocrats, money launderers, corrupt officials the world over, as well as criminals, were all using a very common structure to help evade law enforcement, which was setting up an anonymous company,” Lakshmi Kumar, policy director of Global Financial Integrity, said.

The phenomenon is not limited to the exotic offshore tax havens of popular imagination. U.S. jurisdictions like Delaware, Wyoming and Nevada are among the world’s top locations to set up anonymous companies. Legislation to require corporations to disclose their true owners was first proposed in the U.S. over a decade ago, co-sponsored by then-senator Barack Obama, and similar bills have been introduced over the years.

Advocates credit years of lobbying a broad coalition of stakeholders, including the U.S. Chamber of Commerce which had previously been a leading opponent, in getting the reforms across the finish line this year.

“What’s changed now is a growing understanding among various constituencies about the harms that anonymous companies pose, and the threats that they pose for our financial system, to our businesses,” Clark Gascoigne, senior policy advisor at FACT Coalition, said.

But it’s not a done deal quite yet.

Although the anti-money laundering proposals have had the support of the administration, President Donald Trump has repeatedly threatened to veto the National Defense Authorization Act over provisions unrelated to financial secrecy.

Both the House and the Senate votes surpassed the two-thirds margin that would be needed to override a veto, although some Republicans have indicated that they would not support what would be the first veto override of the Trump presidency.

But the NDAA has been reliably passed by Congress every year for six decades and advocates are confident that the time has come for the landmark financial transparency measure that’s included in the omnibus bill.

“It’s one of the few areas where the outgoing Trump administration agrees with the incoming Biden administration,” Gascoigne said. “It may be the first bill in the history of Congress that has the support of both Dow Chemical and Friends of the Earth. Heck, the state of Delaware even supports reform.”

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Investigations

Muslim Brotherhood suspect and Saudi billionaire linked to same offshore companies, Austrian report says

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One of 30 people in Austria suspected to be members of the Islamic fundamentalist group Muslim Brotherhood was the director of offshore companies linked to a Saudi billionaire, according to an investigation by Austrian media outlets profil and Ö1.

The man, described as a 37-year-old Viennese entrepreneur with Iraqi roots, is suspected of “participating in a terrorist, subversive and criminal organization” and was a target of the police investigation into the group and the Palestinian extremist organization Hamas, the report said

The inquiry, which led 930 officers to raid 60 apartments, shops and clubs in four federal states last month, had no connection to the Vienna terror attack that killed four and injured 23 on November 2, according to officials cited by Deutsche Welle.

The Austrian report ー based on police records ー does not name the suspect, nor the Saudi businessman, for fear of hampering the ongoing probe into possible terror financing.

The pair’s link to shell companies in the British Virgin Islands and other offshore financial centers was revealed for the first time after the reporters’ examination of Paradise Papers, a trove of leaked documents obtained by Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists in 2017.

The 13.4 million files include incorporation documents, emails, contracts and other records from two offshore service providers and the company registries of some of the world’s most secretive countries.

The Austrian man was listed as the director of several companies in the BVI, Malta and the Bahamas, the media report said. His address on the documents referred to an apartment in Vienna that belongs to the wife of one of the main suspects in the police investigation, according to a review of Austria’s land registry records.

By cross-checking the confidential files with property records, the reporters also found that the shell companies owned properties in the U.K., including two office buildings, a commercial property and a retail park, worth about $73 million in total.

The documents show that a Liechtenstein trust owned by the Saudi businessman was behind those companies. The man is also known as a philanthropist who has financed Islamic studies at various European universities in recent years, including in Austria, the report added.

The complex offshore structure identified by the journalists is legal, the report said, but “can be used to disguise the flow of money and the identity of the true economic beneficiaries.”

Profil and Ö1, two ICIJ media partners in Austria, asked the Viennese suspect about the purpose of the offshore company network and his link with the Saudi billionaire. A lawyer representing him declined to comment.

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