In Anti-Money Laundering, Political Corruption

Mirror Trading – Facilitating Money Laundering

Mirror trading has made international headlines recently, as “Deutsche Bank (DB) AG was fined $629 million by U.K. and U.S. authorities for compliance failures that saw the bank help wealthy Russians move about $10 billion out of the country using transactions that were likely thinly veiled attempts to cover up financial crime” (Levine, 2017). The concept of mirror trading is not new to those in the financial services sector – having been around for over a decade. However, the process behind these transactions is relatively unknown. The mirror trading method “allows traders in financial markets to select a trading strategy and to automatically “mirror” the trades executed by the selected strategies in the trader’s brokerage account” (Mirror trading, 2016). In this example, Russian entities were purchasing large amounts of Russian shares from DB’s Moscow office for rubles (the monetary unit of Russia). Once this was completed, an affiliated entity “would sell the same shares to Deutsche Bank’s London office for U.S. dollars, with the result that the web of entities moved rubles offshore and converted them into dollars” (Levine, 2017). In Deutsche Bank’s case, it has been found that this method was used to covertly move money from Russia to other parts of the world. Experts believe these actions occurred as a way to launder money, with Deutsche Bank bypassing certain AML safeguards in the process.

Bloomberg writer Matt Levine’s article “Mirror Trades and Two-For-One Rules”, cited in BSA News Now on February 2nd, 2017, reported on one of the more unfortunate aspects of this case. It has been discovered that Deutsche Bank did have its doubts about the customers they engaged in business with, yet chose to proceed with their negotiations anyway. Reportedly, Deutsche Bank’s compliance department and AML team, respectively, took steps to investigate the mirror trading activity, as well as the respective customers involved. Deutsche Bank headquarters even went as far as to contact its affiliate in Moscow to request additional information about the trading activity and these individual customers. The Moscow branch responded, stating that they were “strongly convinced that these individuals are a part of one [money laundering] scheme as there is no economic sense behind these transaction and the whole flow is organized to facilitate cross-border transfers and in order for them to look legitimate” (Levine, 2017). Levine then gave a great example of the red flags that were raised, and ultimately ignored, by Deutsche Bank. Levine writes, “when a customer comes to you and asks to buy a billion rubles worth of stock, and he doesn’t care what stock, that is kind of a red flag that he is engaged in something other than legitimate financial-markets activity. If you are a big international bank, you are supposed to notice red flags like that” (Levine, 2017).

So although there were serious suspicions into the activity that Deutsche Bank was facilitating, DB’s operations team failed to provide proper documentation to the AML team simply because of the sheer amount of records that needed to be manually processed in order to do so. As a result of this laziness, DB has been issued severe fines, with more repercussions likely to come, as a U.S. Justice Department investigation is currently ongoing. It’s safe to say that both Deutsche Bank’ operations and AML team’s are kicking themselves for failing to do their respective jobs.

Global RADAR will provide updates on this case periodically through BSA News Now in the weeks to come.

New Justice in Town

Following the tragic death of Justice Teori Zavascki two weeks ago, the Brazilian Supreme Court has chosen a new member to take over the investigations into “politicians implicated in Brazil’s biggest-ever graft scandal” (Marcello, 2017). Justice Edson Fachin was chosen to take the seat of Zavascki, and has an uphill battle ahead in regards to this case. His primary task will be to act on new plea bargain testimonies by 77 executives of Brazilian engineering staple Odebrecht, which is at the heart of the scandal.

The testimony is said to include multiple politicians who were engaged in corruption over the past several years, including members of Brazilian President Michel Temer’s own party. The arrests of dozens of executives from prominent Brazilian companies, as well as numerous Brazilian politicians, suspected of corruption have been ordered recently, and this trend is expected to continue.

Romania Encouraging Money Laundering?

A new executive order adopted by the Romanian government had thousands of its citizens up in arms this past week. The measure reportedly “decriminalizes abuses of office if the financial damage involved is less than $48,000” – more than twice the average Romanian’s annual income of $22,300 (Odobescu, 2017). The new legislation, which has already taken effect, has been interpreted by critics around the world as a way of undermining the country’s anti-corruption efforts.

The Romanian Minister of Justice argues that “these changes were necessary to bring the law in line with decisions by the country’s Constitutional Court”, but this has done little to appease protestors who are skeptical of the move (Odobescu, 2017). Citizens believe that this order will lead to greater bribery and corruption activities in the impoverished nation by basically legalizing small-cash grafts. Protestors were also outraged that a double-digit number of Romanian politicians will benefit from the new order, while Romanian citizens continue to struggle financially. The protest held on Wednesday is reportedly the largest since the fall of communism in Romania in 1989.

Mexico’s Corruption Tour Bus

It seems that Mexico is in no hurry to try to rectify its reputation of being an international hub for corruption. Beginning on February 5th, Mexico City will begin offering free tours of ten locations that have been associated with high-profile corruption cases in the past. After dropping 28 places on the international

corruption scale in 2016, it is clear that Mexico is taking a new approach to handling the corruption epidemic that has plagued the country for decades. One of the tour’s organizers, Miguel Pulido, stated that this out-of-the-box idea is part of a “firm commitment of ours, so that fear is not spread to the point where we cannot even raise the issue of corruption and discuss it in society (Politico, 2017).

Dubbed the “Corruptour”, the bus will visit ten spots in Mexico City that are synonymous with corrupt activities including the “’White House’, the Pillar of Light (Estela de Luz), the Mexican Social Security Institute the monument for the 43 disappeared students of Ayotzinapa, the Interior Ministry, the Metro Balderas metro station, the Attorney General’s Office, Chapultepec Television, and the Senate” (Politico, 2017). The Corruptour will also provide historical information on the locations themselves, and is aimed at coming up with solutions to prevent and fight political and economic corruption altogether in Mexico.

 

Citations

Levine, Matt. “Mirror Trades and Two-For-One Rules.” Bloomberg –

Money Stuff. Bloomberg L.P., 31 Jan. 2017. Web.

Marcello, Maria Carolina. “Newest Member of Brazil’s Top Court to Head Corruption

Probes.” Reuters. Thomson Reuters, 02 Feb. 2017. Web.

“Mirror Trading.” Wikipedia. Wikimedia Foundation, 9 Oct. 2016. Web.

Odobescu, Vlad. “In Romania, What’s a Little Corruption?” Detroit Free Press. 01 Feb.

2017. Web.

Politico, Animal. “Tour Bus Offers Sightseeing of Emblematic Corruption Spots in Mexico City.” Insight Crime. 3 Feb. 2017. Web.

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Mr. Christopher J. Pelaez is a Staff Writer and Operations Specialist for Global RADAR. His background consists of experience as both a BSA and marketing consultant, with an education based in law. Always on top of all the latest in the world of AML/BSA, Mr. Pelaez also curates the well-known Global RADAR news service, BSA News Now.
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