In AML Surveillance, Political Corruption, Sanctions, Trending

GTO’s: Changing AML For The Better

Several months ago, Global RADAR reported on the extension of a testing period for the new federal regulations enacted in 2016 with the purpose of exposing those behind the growing flow of illicit money entering the U.S. real estate market. Prior to these initial regulations, this market had evolved into a hub for dirty money investments from foreign nationals and financial criminals – both of which were attempting to launder funds gained through the drug trade, corruption, and other suspicious means, while at the same time accruing valuable assets within the United States. The testing period utilized Geographic Targeting Orders (GTO’s), which at the time were “little-known, but powerful, anti-money laundering tools authorized by federal law which impose enhanced anti-money laundering reporting obligations on financial institutions that are short-term and limited to geographic regions of the United States that are perceived to be particularly vulnerable to money laundering” (Rothschild LLP, 2017). As a refresher, a GTO essentially requires all domestic financial institutions and all other non-financial businesses within a certain region to report on transactions greater than the set threshold value for said region. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) used GTO’s to investigate unknown buyers who were potentially using shell companies to hide their identities when making real estate purchases with illicit funds in high profile markets.

The results of the initial investigations provided a wealth of information on the beneficial ownership structure of the shell companies seen making real estate purchases, so much so that FinCEN decided not only extend the length of the program, but also its geographic reach to multiple cities synonymous with wealth across the U.S. The renewed GTO’s revolved around multiple locations throughout the United States including South Florida, New York City, Texas, and several counties in California, each of which were given a distinctive threshold value for reporting based on real estate market values within their general area. However, the scope of the investigations also include an area that continues to receive a fair amount of publicity from the U.S. media, one that is also of great concern to the President of the United States – the U.S. – Mexico border. The article “FinCEN Reveals That Geographic Targeting Orders Are Generating Meaningful Intelligence Leading To Money Laundering Prosecutions”, cited in BSA News Now on Friday, May 12th, 2017, discusses how information generated from GTO’s has assisted the Department of Homeland Security in recently uncovering a significant amount of money laundering activity.  

Intended to improve the transparency of cash moving across the border, the GTO targeting the California area bordering Mexico reportedly led “Homeland Security Investigations agents to uncover a money laundering scheme that moved $45 million from the U.S. to Mexico during a 15-month period” (Rothschild LLP, 2017). The GTO, which governed the San Ysidro and Otay Mesa ports of entry in California, required enhanced cash reporting from all financial institutions and local businesses in efforts to diminish the number of inaccurate reports filed by currency carriers. Both the inaccuracy and deficiencies in quality of reports that previously plagued this region hinder the ability of investigators to follow illicit money trails because they are not included in FinCEN’s database. Thus in order to assist in the identification of illegal currency transportation, “the GTOs’ enhanced reporting also required common carriers of currency to note additional information when completing the CMIR, including the name and address of the currency originator; the name and address of the currency recipient; and the name and address of all other parties involved in the movement of currency and monetary instruments” (Rothschild LLP, 2017). With this information, Homeland Security investigators were able to begin an investigation into a major money laundering organization.

According to a FinCEN announcement on the investigation, “the information that investigators discovered as a result of the GTO led them to focus on one particular armored car company that appeared to be facilitating a money laundering scheme outside southern California” (Rothschild LLP, 2017). It has been reported that this company was importing both American dollars and Mexican pesos from multiple exchange houses in Mexico, and then depositing these funds into the accounts of shell companies that were owned by the two owners of the armored car company. Upon further investigation, it was discovered that the shell companies were used to funnel millions of U.S. dollars into Mexico – $45 million to be exact. Given the amount of evidence against the pair, as well as the sheer amount of information gathered through the GTO, it was essentially an open and shut case. The individuals have since pled guilty to failure to maintain an effective AML program and have been forced to forfeit hundreds of thousands of dollars of laundered funds.

This case is just one example, granted a large-scale one, of just how potent a weapon Geographic Targeting Order’s can be in both the domestic and international fight against money laundering. It is safe to say that as GTO expansion plans continue to develop, trade-based money laundering in areas susceptible to illicit activity are likely to diminish significantly.

Weekly Roundup

U.S. Shuts Down Aid to Kenya

On Tuesday, May 10th, 2017, it was reported that the United States Embassy in Kenya had decided to suspend its scheduled financial aid to Kenya’s ministry of health due to corruption concerns. The ministry of health was set to receive approximately $21 million in funds from the United States. The stoppage in assistance is due to what U.S. representatives have described as weak accounting procedures within the ministry, as well as a long history of corruption allegations against the group, and the Kenyan government in general.

While the move has a negative impact on many Kenyan citizens who are in need of some form of healthcare aid, U.S. representatives “stressed that support for life-saving and essential health services would not be affected” (BBC News, 2017).  A joint statement from the U.S. also stated that ultimately “the move was intended to ensure that “health care spending reaches those in need, and to protect US taxpayer money” (BBC News, 2017). The U.S. is working alongside the Kenyan ministry of health to improve its accounting procedures and will likely restore the canceled funding once the appropriate changes are made.

According to Fox News, “Kenya is ranked 145 out of 176 countries in Transparency International’s index of the world’s most corrupt countries” (AP, 2017).

Are Banks Endangering Lives?

A few weeks ago, Global RADAR featured a story on the trend of “de-risking” – where financial institutions (FI’s) terminate or restrict business relationships and accounts with certain categories of customer based on the risk involved in dealing with said individuals or groups. Due to the complexity of the regulatory landscape seen today, banks have been engaging in this activity rather frequently over the course of the last several years. However, an article published by The Independent on May 8th, 2017 discusses how closure of risky bank accounts has put lives of impoverished individuals directly at risk. With FI’s shutting down accounts at an alarming rate in order to avoid financial penalties associated with AML compliance, the accounts of many non-profit organizations and charities with links to high-risk, generally poverty-stricken countries are suffering from this trend.

Just recently, “HSBC suspended the accounts of a medical research institute, which aims to improve treatments in poor countries, threatening the charity’s future” (Chapman, 2017). By losing banking services, these organizations are no longer able to distribute funds to areas and people in need, which the Financial Conduct Authority (FCA) believes will potentially put lives at risk. The FCA believes that greater efforts should be made by FI’s such as HSBC to provide services to the not-for-profit sector, as well as search for legitimate reasoning before proceeding with de-risking.

2017 has seen a vast increase in financial institutions unfairly punishing innocent charity groups because of the high-risk areas in which they operate. The FCA described the dilemma perfectly when their report on the issue stated “we are not talking here about the freedom to give money directly to known terrorists, but the ability to distribute aid money using local systems which may inevitably pass through areas controlled by terrorists” (Chapman, 2017). It is clear that reforms are needed in this sphere, or individuals in dire need of assistance from non-profits will continue to struggle.

IRS Wins Prestigious FinCEN Award

The Financial Crimes Enforcement Network (FinCEN) honored the Internal Revenue Service’s Criminal Investigation unit on Wednesday, May 10th for its recent investigation into Cyber Threats. According to Forbes, “the multi-year, multi-agency investigation led by IRS-CI focused on several targets selling drugs on the dark web” (Erb, 2017). It has been reported that the investigation targeted individuals who were operating through “The Onion Router”, also known as “Tor”, which is designed to hide the IP addresses of the computer’s accessing the network. This offers privacy to criminals who can then operate with less fear of being apprehended by law enforcement. The IRS investigation discovered that their targets used “Tor to access several dark websites which they used to sell methamphetamine and marijuana” (Erb, 2017).

Although well-disguised, postal inspectors eventually were able to discover the drugs inside of packages sent through the U.S. Postal Service. From there, investigators armed with search warrants intercepted other suspicious packages that were found to be coming from the same place (although different return addresses and names were also used to disguise their actual location). Investigators were then “able to determine through Internet service provider (ISP) records that the username associated with several of the undercover purchases on the dark web belonged to the same individual sending the packages of drugs through the Postal Service” (Erb, 2017). It was then discovered that the criminals involved used Bitcoin – which does no require third party reporting – to further conceal the whereabouts of their transactions.

Writer Kelly Phillips Erb then proceeded to describe the laundering technique used by the criminals. In this case, “the Bitcoin was then sent through a Bitcoin ‘blender’ to conceal their source and was subsequently redistributed through a number of Bitcoin exchangers before being converted into dollars and deposited into numerous bank accounts” (Erb, 2017). Specializing in money laundering and the Bank Secrecy Act (BSA), the IRS team was able to lead law enforcement to arrest the individuals involved in the case – each of which have pleaded guilty to multiple drug and money laundering charges.

The awards handed down by FinCEN are intended to promote the value of the relationship between FI’s and law enforcement, and to recognize successful law enforcement agencies altogether.

 

 

Citations

Associated Press. “US Suspends Aid to Kenya’s Health Ministry over Corruption.” Fox News. FOX News Network, 9 May 2017. Web. 

Chapman, Ben. “Banks ‘put Lives at Risk’ as Charity Accounts Are Shut without Notice.” The Independent. 8 May 2017. Web. 

Erb, Kelly Phillips. “IRS Crime Team Nabs Award For Investigation Into The Dark Web, Drugs & Bitcoin.” Forbes. Forbes Magazine, 09 May 2017. Web.

Fox Rostchild, LLP. “FinCEN Reveals That Geographic Targeting Orders Are Generating Meaningful Intelligence Leading To Money Laundering Prosecutions.” JD Supra. N.p., 11 May 2017. Web.

“US Cuts Kenya Health Aid Money over Corruption Allegations.” BBC News. BBC, 09 May 2017. Web.

 

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