What’s In Your (Virtual) Wallet?

 In Anti-Money Laundering, Bitcoin, Trending

The global rise of the cryptocurrency market has been well noted in recent years, and has evolved into more than simply a topic of amusing discussion amongst those operating in the financial services sector. A gradual shift in societal ideologies over this same time period has seen a greater reliance placed on new technologies, products, and services aimed at simplifying and enhancing the daily activities of users of all ages. The move to the incorporation of financial technology and automated solutions for compliance purposes is a prime example of this development, as these products generally act to increase the operational efficiency of the financial institutions by which they are employed immensely. It seems that the growth of these two distinct areas have complemented each other more than was originally anticipated, as technology has already made a significant impression on the financial sector, even in its earliest stages. The potential for future growth and expansion is promising, especially when considering the power and profound capabilities held by millenials and the developing younger generations who have grown up immersed in such a technological culture. The learning curve that was seen as more and more high-tech products and solutions were unveiled following the turn of the new millennium is progressively going by the wayside. Many can recall the exciting rumors of flying cars and advanced robotics being offered to the public as the year 2000 approached, which in hindsight turned out to be empty promises. However, the “less-appealing” technologies and products that we now have at our disposal, as well as those that continue to be introduced today, have the potential to impact the world on a much larger scale than the material items we dreamed of nearly twenty years ago.

Many believe that one such area with huge, way-of-life altering potential lies in the aforementioned growth of cryptocurrency. Digital currencies such as bitcoin and ethereum have garnered undeniable excitement from both top and bottom-tier investors of late, with initial coin offerings this year alone raising $1.27 billion. New articles and podcasts about the emergence of “revolutionary” new coins continue to be published on a consistent basis, and social media outlets are littered with talks of the digital boom. This potential has also garnered negativity and criticism from high-end executives of investment firms across the U.S. who have been skeptical of the “fad”, perhaps the biggest indication of the budding technology’s true arrival on the global stage. Others, including former Paypal COO David Sacks, have regarded cryptos as “the best candidate we’ve had for the next big thing in Silicon Valley” – high praise from an early investor in notable enterprises such as Airbnb, Facebook, SpaceX, and Uber (Jackson, 2017). It seems everyone has an opinion on digital currencies, but the fact remains that the growing popularity surrounding the topic has led to the launches of countless new coins, a trend that does not seem to be slowing down.

The Bloomberg article “You’re Gonna Need a Bigger Virtual Wallet”, cited in BSA News Now on Thursday, August 10th, discusses the explosion of new options available on the cryptocurrency market today, a trend which esteemed writer Tyler Cowen doubts will see any consolidation in the near future. The topic of coin consolidation has been quite prevalent of late, as many have struggled to comprehend how nations that have functioned with one main form of currency for hundreds of years can possibly manage hundreds at a time. It has been approximated that more than 900 cryptocurrency assets exist on the market today. While these are not actual coins, they are actually entries into a ledger system based on new information technologies, otherwise known as “blockchain.” Many believe that of these 900, many will likely eliminate themselves from the equation simply due to the sheer lack of experience or knowledge of the intricacies of the virtual currency by the start-up companies that have created the new apparatus. However, for every disappearing company there will more than likely be a new ill-conceived one arising, leading to a seemingly endless cycle of additions and subtractions.

The writer sees value in “alt coins” as hedges dependent on how the rules for the coin are written. Under well-written regulations, he writes that cryptocurrenies can primarily be “stores of value rather than a media of exchange” and that “the very large number of financial assets in the world shows that thousands of stores of value can coexist and compete” without the need for much consolidation or exchange to a dominant currency (Cowen, 2017). He also notes that alt coins can be used for money laundering, which he initially does not describe in the negative light that we have grown accustomed to seeing. He writes that in many cases laundering can protect wealth from political tyranny, and that greater authoritarianism in different regions of the world could draw the value of alt coins to rise due to their potential to act as a makeshift insurance plan against such developments. He then states however that the dark side of money laundering could see alt coins being purchased with the proceeds of financial crimes such as fraud and hacking or drug sales. Criminals could make purchases on less regulated coin exchanges and in turn sell that coin back for a major currency, washing the illicit funds in the process. This and the potential for illegal claims of lost funds through “investments” into coin companies will also drive up the market and give cryptocoins a true financial value, and will be difficult for authorities to enforce given the plethora of exchanges arriving on the market today, and the anonymity that such services provide.

Cowen concludes the article by noting that as long as money laundering is possible, a percentage of the market will not want to consolidate into the more popular, more highly-scrutinized coins. This leaves the door open for new coins to continue to pop up and to flourish as they cater to specific markets. Albeit the downside of the growth of the cryptocurrency market (i.e. regulators struggling to keep up with the technology), the proliferation of cryptocurrencies is inevitable, especially as investors continue to search for havens where they will have greater control over their assets.

 

Weekly Roundup

Australia’s Largest Bank Breaches AML Law

On August 2nd, the Australian Transaction Reports and Analysis Centre (Austrac) accused the nation’s largest bank of committing compliance errors that potentially opened the door for financial crime. A civil suit was filed last week against the Commonwealth Bank of Australia Ltd. By the Australian financial intelligence agency which alleges that the financial institution breached Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Act an astonishing “53,700 times–each carrying a maximum penalty of 18 million Australian dollars (US$14.3 million)” (Stewart, 2017). These failures were in large part a result of failures by Commonwealth Bank in filing reports on transactions that were above the $10,000 threshold mark to Austrac as Australian law requires.

Austrac claims “the bank rolled out ‘intelligent deposit machines,’ a type of ATM that accepts deposits of cash and checks, in 2012 but didn’t assess the money-laundering and terrorism-financing risk until mid-2015” (Stewart, 2017). It has also been reported that the bank machines accepted cash deposits of up to $20,000 Australian dollars and set no limit on the number of transactions that could be made by a respective customer over the course of 24 hours. Commonwealth Bank is also said to have failed in the monitoring of its customers and their transactions, even after becoming aware of the illicit activity. In total, approximately $5.81 billion was deposited into the numerous Commonwealth Bank machines over the first half of 2016. Austrac believes that a significant portion of this sum was used for money laundering, with many of these deposits being followed by both domestic and international transfers that were broken up so as to not deploy any red flags.

Global RADAR will provide an update on the proceedings of the civil suit in its end of the year installment of Trending Topic Updates.

New Sanctions Set for Filipino Money Launderers

The Philippines unveiled new rules this week that pertain to the repercussions for individuals and organizations that have engaged in money laundering activities. The Anti-Money Laundering Council (AMLC) – the Filipino government agency responsible for protecting the integrity and confidentiality of bank accounts and financial information and combatting money laundering and terrorism financing– stated that the new rules will reportedly “ensure that covered persons comply with and deter commission of money laundering and other violations of the Anti-Money Laundering Act of 2001, its implementing rules and regulations and all issuances of the AMLC” (Inquirer, 2017). The sanctions for breaches of the AML Act will range from a reprimand to a fine of up to $500,000 Philippine pesos per violation, and can also include other measures to ensure the future prevention of illicit financial activity.

Many view the new rules as being too lenient on financial criminals, as the rules state, “in no case shall the aggregate fine exceed 5 percent of the asset size of the respondent” (Inquirer, 2017). However, the new legislation is a step in the right direction for a country that has a history of turning its back on illicit financial activity, and one that continues to be marred in corruption as well. Transparency International has warned that rampant corruption seen throughout Southeast Asia threatens to derail plans for future economic integration. The Philippines currently ranks 101st out of 176th countries on Transparency International’s latest corruption perceptions index, which scores how corrupt public sectors are seen to be in various countries around the world.

Fraudster Busted for Money Laundering

Earlier this week, an English con artist was convicted on several charges after admitting to duping unsuspecting real estate purchasers out of £600,000+. The man, Barry Leigh, was the founder of Dream Coastal and Country Homes real estate firm, which operated out of the small town of Gosport in Southern England. Leigh reportedly “admitted to fraudulent trading between August 2013 and July 2014, two charges of fraud by false representation, forgery of a bank statement, use of a false instrument and money laundering” (BBC News, 2017). Leigh also was found to have showed estate agents a forged bank statement, showing he had funds of more than £980,000 as he tried to secure deals. During the short operational period of the company, Leigh laundered an estimated £626,000 through the sales of plots of land that were not his own to sell, or land that he owned but was not able to develop himself.

Taking advantage of his victims in this despicable manner, Leigh cashed in on considerable amounts of money that multiple individuals hesitantly parted with. Several victims lost all of their savings, leaving devastating effects on them and their families. One family in particular was forced into a life residing on the streets of England after selling their original home to finance the payments to Leigh for the “dream home” he offered them. Leigh has pled guilty to six of the fourteen charges up against him, and now faces a lengthy prison sentence.

Citations

Cowen, Tyler. “You’re Gonna Need a Bigger Virtual Wallet.” Bloomberg.com. Bloomberg, 09 Aug. 2017. Web. 

“Gosport Conman Jailed for Swindling Land Sales.” BBC News. BBC, 01 Aug. 2017. Web. 

Jackson, Eric. “Cryptocurrency Skeptics Warn of Another Dot-com Bubble, but That’s Where Amazon and Google Started.” CNBC. CNBC, 07 Aug. 2017. Web.

Philippine Daily Inquirer. “Sanctions vs Money Launderers Set.” Inquirer Business Sanctions vs Money Launderers Set Comments. 9 Aug. 2017. Web.

Stewart, Robb. “Australia’s Largest Bank Breached Money-Laundering Law,

Regulator Says.” Fox Business. Fox Business, 03 Aug. 2017. Web.

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