Posts Tagged ‘know your customer’

h1

Loans by text pay jihadists’ way to Syria

July 13, 2015

Swedish Islamists are taking out loans through text message services to join the battle in Syria.  They use the borrowed funds to buy plane tickets, cars and, presumably, other equipment when they arrive.  Sweden’s security agency says that a majority of fighters’ travels are debt-financed.  Thus the lenders are violating the first rule of lending:  character.  What kind of screening are these small lenders performing on their borrowers?  So much for knowing your customer.

From The Local on June 22 (h/t Moscow Ghost):

SMS loans fund Syria terror trips from Sweden

Sweden’s Security Service (Säpo) has warned that growing numbers of muslims are funding trips to Syria with money secured via text message loans secured in Sweden.

Investigators working for the security service told Sveriges Radio that there had been a rise in people taking trips to the Middle East to fight alongside terror organisations such as Isis (also known as IS) over the last year, with growing numbers of visits funded by loans taken out in Sweden.

Martin Frimansson, an expert on terrorist funding at Säpo, explained that while some Swedes had borrowed money from banks or using Swedish credit cards, others had paid for their travel using SMS loans (money borrowed via text message from private companies) or made their way to Syria and Iraq using cars rented in Sweden.

According to Frimansson, a “clear majority” of trips were made possible due to loans, although he did not give any specific figures.

He suggested that some Swedes were also taking out loans in order to raise their status within Isis or other terror groups.

“It could be that if you have a car and money…you automatically become a team leader. If you have no money when you arrive, no car or anything – then maybe you’ll be the ambulance driver,” he said.

By law, credit companies and banks are required to adhere to a range of measures designed to prevent the financing of terror activities, but according to Säpo the trend for Swedes borrowing money for suspect trips to the Middle East suggests that much more needs to be done.

The security service is calling on lenders to file reports on people who are failing to repay their loans more quickly and to be stricter about who they lend money to in the first place.

“They are the first hurdle to stopping terrorist financing. It is a big responsibility,” said Frimansson.

In April, Säpo told The Local there was “very little” it could do to stop people travelling to Syria to join al-Qaeda inspired groups, as EU officials estimated up to 6,000 people from across Europe have now fought in the war-torn nation.

It confirmed that at least 150 Swedish residents were known to have been to Syria or Iraq to fight for Isis or other extremist groups, with intelligence suggesting that at least 35 had died in the process.

Earlier this year, Syria’s President Bashar al-Assad also told Sweden’s tabloid newspaper Expressen that he believed some of “the most dangerous leaders of Daesh and Isis in our region are Scandinavian”…

h1

FinCEN pooh-poohs knowing your customer

December 15, 2014

A federal financial crime agency has issued a statement imploring banks to continue or resume doing business with money services businesses (MSB’s)—many of which are hawala companies—despite the risks of hawala financing domestic and international terrorism. FinCEN’s statement stems in large part from pressure brought to bear by Democratic politicians, Somali activists, and well-meaning but misguided international charities who believe that remittances are an effective channel for humanitarian relief to corruption-plagued hot zones abroad. These parties fail to understand that remittances are fuel to the fire in places like Somalia where remittances are siphoned off by al-Shabaab to perpetuate the cycle of violence and misery in that country.

In the statement, FinCEN even goes out of its way to instruct banks that they do “not need to know the MSB’s individual customers” to remain compliant with know-your-customer provisions of the Bank Secrecy Act. This instruction seems at odds with years of federal regulatory admonitions for banks to know their customers.

Financial crimes analyst Kenneth Rijock does a wonderful job picking apart FinCEN’s pronouncement, posing the following observations about MSBs:

  1. They are frequently used by both money launderers, and terrorist financiers. This is a sad fact of life; laundrymen know that many MSBs are storefront operations, poorly run, and who would consider  accepting dirty money, to earn a handsome profit.
  2. They exist in jurisdictions where regulatory agencies are either non-existent, or unable or unwilling to enforce AML/CFT laws. Therefore, the MSB has no reason to have an effective compliance program.
  3. They may be actually owned, or controlled by, criminal elements; Look at Mexico.
  4. They are not like licensed financial institutions, the licensing requirements are often minimal, and corrupt government agencies, once paid off, are usually eager to qualify individuals who are unacceptable as NBFI operators.
  5. If a client cannot go to a bank in his or her jurisdiction, to send larger amounts of funds, it is often because their dodgy business is not wanted at legitimate financial institutions.
  6. MSBs in many countries are known for dysfunctional AML programs. Can we really expect US banks, who are held to best practices standards, to risk accepting money from them ?

Read Rijock’s full analysis here.

h1

India’s currency change combats counterfeiting, but backdoor still wide open for money laundering

February 28, 2014

An email from our old friend Puneet aprised us to a new initiative in India to replace old currency notes with new notes with enhanced security features.

The reason for the change is speculated by many, including the BBC, to reduce the flow of black money (including undeclared, untaxed, counterfeit, and laundered money) through India’s economy.

Indeed, counterfeiting is a national crisis in India, and the new security features on the bills should help reduce the ability of counterfeiters to replicate the notes.

But in terms of getting illegally acquired but genuine notes off the street, this program doesn’t do much to cleanse the economy from the scourage of black money.

Live Mint points out that anybody who wants to exchange their old bills for new ones will be able to do so, and they won’t have to divulge their identities:

…If one looks at the RBI announcement, it is clear that the old currency notes can be exchanged for new ones at any bank branch from April to June 2014 without any questions being asked as to the name of the person giving the notes, her Permanent Account Number (PAN), address, etc. One can exchange the notes even at branches where one does not have a bank account. It is only after 30 June that one would have to give the name and PAN to exchange high denomination currency notes. Therefore, any person having undisclosed cash in her possession can easily exchange the old currency notes till June 2014 without disclosing her identity…

Also, Money Jihad notes that there doesn’t seem to be any provision in the new currency roll-out for bank tellers to report unusual amounts of cash that are brought in for exchange, or for them to report exchanges that they suspect are being made on behalf of undisclosed third parties.  Officials should move to incorporate such safeguards.

h1

Illicit transfer news: recommended reading

February 20, 2014
  • Palestinian Islamic Jihad “receives between $100-$150 million dollars annually from Iran,” says an Iranian expert… more>>
  • FinCEN shuts down a Michigan-based hawala dealer who sent 8,000 wires to Yemen and never checked a single customer’s ID… more>>
  • We don’t know how much money is financing terrorism, and we don’t know how much it costs to combat its financing either, so how do we know if what we’re doing is working?  More>>
  • A New Jersey company illegally shipped $70,000 worth of protective gloves to Iranmore>>
h1

Money jihad news: recommended reading

June 6, 2013
  • Al Qaeda and kidnapping kingpin Mokhtar Belmokhtar part ways.  Like most divorces, it’s about money… more>>
  • Ever noticed while doing Internet searches that several dubious entities yield page after page of strictly positive search results, with no negative coverage?  This isn’t just misleading—it’s a threat to the banking systemmore>>
  • Nidal Hasan has been paid $278,000 of your tax dollars since he killed 13 soldiers… more>>
  • Don’t want to help fuel the conflict in Syria? Then don’t buy Roman and Byzantine artifacts stolen from Syrian cemeteries and churches… more>>

 

h1

Word of the week: third party

May 22, 2013

The person making financial transactions for illicit purposes isn’t necessarily the person pulling the strings.  If you work for a money services business, you should try to ascertain if your customer is operating under instructions from a third party.  This guidance comes from Canada’s FinTRAC, but it’s useful information for anybody with know-your-customer responsibilities:

Find out if there is a third party

As a money services business (MSB), you have to find out if your client is acting on behalf of a third party when you:

  • conduct a large cash transaction and you have to keep a record of it
  • have to keep a record about a service agreement

Who is a third party?

A third party is anyone else who gave instructions to your client to request MSB services from you. It is not about who “owns” the money, but rather about who gives the instructions to deal with the money.

How to find out if there is a third party

Ask the individual in front of you if they are acting on someone else’s instructions. If the answer is yes, that someone else is a third party.

Examples of a third party:

  1. Tarek wants to send money to his son Roger in Lebanon. He gives his daughter Tara $13,000 in cash and asks her to go to the MSB to send the money. Tara gives the money to the MSB and requests that a money transfer be made to Roger in Lebanon. Tarek is the third party as he is the one who gave the instructions to Tara to request that a money transfer be made.
  2. Jacques, a financial officer and employee of Voyages Inc. in Canada, goes to the MSB every month to transfer money to their head office in France. Jacques’ employer, Voyages Inc., is the third party as Jacques is acting on his employer’s instructions.

Records to keep on a third party

You have to keep a record for five years after the day you created it, if you:

  • find out that there is a third party
  • suspect that there is a third party

You find out that there is a third party

If you find out that there is a third party involved, you have to keep a record with the following information about the third party:

  • name, address and job or main business
  • if it is an individual, their date of birth
  • if it is a corporation, their corporation number and place of incorporation
  • the nature of the relationship between the third party and:
    • the individual who gave you the cash if you are doing this because of a large cash transaction or
    • the organization entering into a service agreement.

Examples of how to describe the nature of the relationship include that the third party is your client’s accountant, agent, customer, employee, friend, legal counsel or relative.

You suspect that there is a third party

If you are not able to find out that there is a third party, but you suspect that there are instructions from a third party involved, you have to keep a record to indicate the following:

  • why you suspect the individual is acting on a third party’s instructions and in the case of a:
    • large cash transaction, whether or not the individual giving the cash indicated that the transaction was being conducted on behalf of a third party
    • service agreement, whether or not the client indicated that the agreement was being done on behalf of a third party
h1

Smuggling cash with foreign prepaid cards

April 15, 2013

ACAMS MoneyLaundering.com is reporting that while know-your-customer requirements and other safeguards are in place to prevent abuse of prepaid, reloadable cards obtained from American financial institutions, the freedom of foreign banks to issue such cards remains a potential area of terror finance vulnerability.

Here is an excerpt from MoneyLaundering.com’s featured article by Colby Adams on Apr. 9:

…Final rules issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in July 2011 imposed anti-money laundering (AML) program duties on American providers and sellers of certain prepaid products, including customer identification, suspicious activity reporting and transactional recordkeeping requirements.

But reloadable cards that can be acquired in person or over the Internet from foreign financial institutions remain an immediate threat to the United States, according to a senior compliance officer at a major U.S. financial institution linked to the prepaid industry.

“The rules are way too focused on what’s leaving the United States—on bulk cash smuggling on a card,” said the person, who spoke on condition of anonymity. “The giant elephant in the room is that the regulators aren’t checking what’s coming here, and that could mean trouble sooner rather than later.”

In such a scenario, a member of a terrorist organization living in a high-risk jurisdiction could purchase a network branded prepaid card from a non-U.S. bank with little trouble. Should the person travel to the United States, he or she could use the card to withdrawal money from any one of thousands of ATMs, or receive additional funds from another foreign-issued prepaid card holder

Why would Muhammad Atta need a SunTrust account if he could have just brought a preloaded payment card with him from Hamburg?  Especially when that card is branded with the familiar logo of Visa or Mastercard, such as this product being offered on the website of Cyprus-based Hellenic Bank:

https://www.hellenicbank.com/easyconsole.cfm/id/576#contentDisplay

Screenshot of foreign p-card promising anonymity and a Visa logo

So much for know-your-customer provisions when a bank in the EU is encouraging customer anonymity.  Moreover, Mr. Adams notes that “the Visa logo means that it can be used anywhere Visa is accepted – including ATMs.”

h1

HSBC flouted warnings, cozied up to IBBL

July 20, 2012

A report by the U.S. Senate has documented extensive ties between HSBC and Islami Bank Bangladesh Limited (IBBL), the biggest sharia bank in Bangladesh.  HSBC engaged in business activity with the Bangladeshi financial institution despite ample evidence of IBBL facilitating terrorist financing.

As previous Money Jihad coverage has shown, IBBL helped bankroll the dangerous spread of Wahhabi Islam in Bangladesh.  Last year, IBBL was also named by its own government for diverting zakat to fund militant jihad, and one of its sharia board advisers was arrested an interrogated for an attack against police officers.  And that was without even knowing the contents of this report, which are quite damning.

IBBL remains one of the world’s worst examples of the nexus between sharia finance and terror finance.  But HSBC didn’t seem to mind too much.

From Wednesday’s Daily Star:

Terror financed due to HSBC failure

US probe into British bank’s operation in Bangladesh exposes links of 2 local Islamic banks

Terror sharia bank worked closely with HSBC

Islami Bank Bangladesh Ltd and Social Islami Bank Ltd came into the spotlight yesterday for their alleged links to terrorist financing after a US Senate report exposed British banking giant HSBC’s internal governance failure to control flows of suspect funds.

Click here to read Full Text of US report

One of the banks was allegedly funding al-Qaeda, and Osama bin Laden’s brother-in-law held shares in a company that has shares in the bank.

In all these cases, profit motive rather than cautions from various levels within the bank and standard procedures ruled the game.

More thoughts were given to the bank’s making $47,000 in revenue that might go up to $75,000 a year later than to the terrorist links the banks allegedly had, or the US authorities’ view of the banks.

A report of the US Senate Permanent Subcommittee on Investigations, a congressional watchdog panel, has revealed these troubling information which show a “pervasively polluted” culture at HSBC Holdings Plc.

The bank acted as financier to clients seeking to route shadowy funds from the world’s most dangerous and secretive corners, including Mexico, Iran, Saudi Arabia and Syria, according to the report.

The US report also mentioned that Al Rajhi Bank, a Saudi bank, was involved in suspicious transactions.

HSBC apologised to the US Senate, saying it takes “compliance with the law, wherever it operates, very seriously”.

In one instance, when Islami Bank wanted to open a US dollar account with the HSBC US office, questions were raised about the Saudi bank Al Rajhi’s 37 percent ownership in Islami Bank. Ears of HSBC’s anti-money laundering unit were cocked.

But the then head of HSBC Global Banknotes, Chris Lok, felt that his interest in considering a new account depended upon whether there was enough potential revenue to make.

“Is this an account worth chasing….How much money can you expect to make from this name? It’s just that if the revenue is there then we are prepared for a good fight,” he wrote. “The money is there and we should go for this account.”

“Then Lok and others approved the account despite questions about its [Islami Bank] primary shareholder Al Rajhi Bank, whose past links to terrorist financing had received attention in the media …and troubling information about Islami Bank itself,” the senate report said.

HSBC’s own Financial Intelligence Group (FIG) unit had reported that Shaikh Abdur Rahman, chief of Bangladesh’s terrorist outfit JMB, had an account with Islami Bank. Bangladesh Bank found that two branches of Islami Bank had been engaged in “suspicious transactions” and urged the bank to take action against 20 bank employees for failing to report the suspicious transactions, according to the FIG report.

Six top militants including JMB chief Abdur Rahman and his deputy Siddiqul Islam alias Bangla Bhai were executed for killing two Jhalakathi judges in 2007.

HSBC’s Know Your Customer unit had reported that Islami Bank be classified as a highest risk client but HSBC rejected the suggestion. It meant HSBC did not subject the bank to any enhanced monitoring.

HSBC’s another internal report said a Saudi NGO, International Islamic Relief Organisation (IIRO), had been implicated in terrorist financing by the US government and included on the list of those prohibited to do business in the US. The IIRO had accounts with both Islami Bank and Social Islami Bank, and yet HSBC’s Compliance Department denied an internal request of due diligence on the bank.

“Today, although HSBC exited the US banknotes business in 2010, Islami Bank remains a customer of two dozen HSBC affiliates,” the report said.

Read the rest of this entry ?

h1

FinCEN overreaches on beneficial ownership

March 22, 2012

The Democrats in Congress weren’t making much progress with their silly attempt to force a federal mandate down the throats of state officials who register and regulate corporations.  Despite arm-twisting and getting the Obama administration on board with Sen. Levin’s “incorporation transparency” bill, and getting Time magazine to write a glowing piece about the proposed law, the bill’s sponsors are stuck.

So what have they done?  Pres. Obama’s Treasury Department has established a rule that Congress could not get passed as a law.  Rather than getting the states to hunt down the “beneficial owners” (ie, the true owners of the corporation), the new rules established by FinCEN, an agency within Treasury, will require banks to discover the beneficial owners of all their commercial accounts.  This burden on the compliance division of banks will not be well-received by the business end of a still recovering financial sector.

Giving the states an unfunded mandate through a law would be bad enough, but imposing a costly regulation on the private sector through a backdoor rule is even worse.

This rule will not prevent terrorist financing or secret business activities by Iran.  The effect will be to increase tax revenues to the federal government by forcing banks to figure out what entities may be subject to additional American taxes.  If it is discovered that the customer is subject to a foreign tax, it may well be that the State Department will be lobbying the governments of those countries for a reciprocal law or rule to target Americans who off-shore their wealth.

The rule will also gum up the works at American financial institutions by creating new regulations that banks will have to pay for by increasing bank fees for ordinary customers.

From Complinet with a hat tip to Bachir El Nakib:

U.S. Treasury proposes due diligence and beneficial ownership clarifications for financial firms

Mar 01 2012 Brett Wolf

U.S. financial institutions’ obligations to know their customers have for years been implicit in anti-money laundering rules, but the time has come for an explicit rule to clarify and strengthen those requirements, especially with regard to accounts held by legal entities, the U.S. Treasury Department said on Wednesday.

Treasury’s Financial Crimes Enforcement Network (FinCEN), proposed such a rule and called for industry feedback. It cited concerns about “shell” companies that aid money laundering, terrorism financing, weapons proliferation and tax evasion by hiding the identities of participants from law enforcement authorities in the United States and abroad.

Ideally, financial institutions can mitigate such risks by conducting customer due diligence (CDD), which involves obtaining so-called “beneficial ownership” information necessary to reveal the people behind the legal documents.

Although AML regulations stemming from the USA Patriot Act clearly require CDD and more thorough enhanced due diligence measures in the relatively high-risk private banking and correspondent banking arenas, there is more ambiguity in other business lines, sources say.

Still, financial institutions are clearly required to know their customers well enough to develop a risk profile and spot transactions that are suspicious, which requires knowing who is behind accounts, FinCEN says.

“The explicit requirement that a financial institution know its customers, and the risks presented by its customers, is basic and fundamental to both serving those customers and implementing a program that protects a financial institution from abuse by illicit actors,” said FinCEN Director James Freis, Jr. “The comments we receive will help us balance the information needs of law enforcement with the responsibilities placed on the financial industry.

“Broad public input … will assist FinCEN in considering a CDD obligation that would bring consistency and uniformity both within and across financial institution sectors. With this consistency, FinCEN seeks to disrupt the ability of criminals to hide their assets behind the shroud of anonymity.”

Lack of “uniformity and consistency”

FinCEN expressed concern that its efforts over the past decade to highlight and clarify financial institutions’ obligations with regard to CDD and the collection of beneficial ownership information may have been insufficient. Specifically, it said it was “concerned that there is a lack of uniformity and consistency in the way financial institutions address these implicit CDD obligations and collect beneficial ownership information within and across industries.”

It cited a beneficial ownership survey it conducted in 2008 and industry reaction to guidance it issued a year later, both of which it said suggested that not all financial institutions understood their obligations. It also cited recent regulatory actions against several banks and broker-dealers, including the high-profile actions targeting HSBC Bank USA and Wachovia Bank (now part of Wells Fargo).

It added that it envisions a requirement obliging financial institutions to collect beneficial ownership information for all account holders, with possible “limited exceptions based upon lower risk.”

FinCEN’s proposal is primarily aimed at banks, brokers-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities. However, it said it is also considering extending a rule to money services businesses, insurance companies, casinos, non-bank mortgage lenders or originators and other entities with AML program rules.

Historical challenge has new implications

Determining beneficial ownership of certain corporate accounts has long been a challenge for U.S. financial institutions, primarily because some states do not collect the information during the incorporation process. Some financial institutions have argued that the government is in a better position to determine beneficial ownership and therefore should shoulder the burden.

FinCEN’s proposal notes that Treasury’s “strategy” to address “ongoing abuse of legal entities” will also depend on Congress enacting a law requiring that the states collect beneficial ownership information…

h1

The risks of banking on the Arab Spring

December 13, 2011

This blog has a fair number of readers from the anti-money laundering and/or compliance sector.  Such readers may be interested in this friendly warning from self-proclaimed “former money launderer” Kenneth Rijock.  And he’s probably even more right in warning the banks than he realizes.  The risk isn’t just in taking on a politically exposed person (PEP) as a customer who may have received his wealth from the corruption characteristic of the Arab world, but that the new rising tide of Islamist governments that replaced them will wage an all out legal jihad against Western banks to shake them down for any wealth they feel they are “owed.”  Brace yourselves, banks.  From Mr. Rijock’s blog on Dec. 8:

Is Your New High Net Worth Client Really a Fugitive from the Arab Spring?

You are performing due diligence on a wealthy individual who wishes to open an account relationship with your bank. He plans on moving his substantial accounts over to you, but first, have you ruled out that he may just be a clever PEP, who is in reality fleeing a North African country that just became part of the Arab Spring?

I hear you say that his passport is not from a Middle East country. Have you:

  1. Checked to see what’s in the passport he is showing you? I know that you have already verified its authenticity, using Passport-Check, or some other resource, but are there sufficient visa stamps in it to indicate international travel during the last five years? Is it basically clean? Perhaps he holds dual nationality. Is this passport new?
  2. Where does it say is his place of birth? Is it in a Middle East country, even though his proffered passport is from outside that region.
  3. What about his accent? Does it agree with his professed nationality? Is he comfortable speaking the language that you would expect, given the jurisdiction he says he is coming from?

I am making these points to alert you to the possibility that a new client might just be in flight from one of the newly-emerging democracies in the Middle East, and that his wealth was stolen, obtained through bribes or kickbacks, or through some preferential business operated as a virtual monopoly in his home country. The new government in his country may soon be wanting that money back, leaving you with reputation damage you could have avoided.

The lesson: ensure, through effective due diligence such as is detailed above, that you are not taking in some corrupt PEP, human rights violator, or an enemy of the state. Rule out any chance that he is a PEP on the run from North Africa, before accepting his money, please.

Note:  Money Jihad made some very minor edits to the punctuation & capitalization in Mr. Rijock’s text above for readability.

h1

E*Trade’s unknown Dubai customers

May 9, 2011

The online stock trading company E*Trade owes Dubai at least $200,000 and up to $300,000 in fines for its failures to comply with anti-money laundering requirements including know-your-customer provisions.

What’s disturbing about the news is the faint suggestion that nefarious characters could be investing and trading with E*Trade’s Dubai unit.  E*Trade is closing 1,200 customer accounts in the wake of this news.  That means E*Trade may have had 1,200 customers for whom they could not document the source of their wealth or for whom they lacked current customer information.

Hat tip to Bachir El-Nakib from Compliance Alert for the following:

E*TRADE acknowledges these deficiencies which include failing to:

  • Obtain sufficient documentary evidence of its clients’ origin of funds and/or sources of wealth;
  • Obtain, for some of its clients, sufficient documentary evidence of address or appropriately certified copy documents;
  • Have adequate polices in place to ensure that documentation concerning a client’s identity remains accurate and up-to-date, resulting in E*TRADE’s failure to request and obtain updated Know Your Customer documents;
  • Have policies, procedures, systems and controls to adequately address the need to assess the money laundering risk of its clients; and
  • Ensure that its compliance resources were sufficient given the nature and scale of its business activities.

Now if Dubai could just apply the same standards to real estate corporations, zakat charities, and hawaladars in the U.A.E., we’d be on the right track.