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AML Roundup: Crypto Crisis Week 3 – Regulation, Legislation, & Policies – Terrorism Financing – Sanctions – ESG – Other News
02 Dec 2022

The catastrophic collapse of the crypto exchange FTX continues to reverberate throughout the sector. Distressed crypto firm BlockFi also filed for bankruptcy, crypto exchange Kraken laid off a third of its workforce, while Bitcoin, Ether, and Solana all suffered huge losses. As the sector battles to maintain its credibility, news emerged that this year has also seen a huge surge in crypto-related fraud.

With regulation and legislation in mind, not surprisingly the crypto sector has come under increased scrutiny. While calls for greater regulation have been growing, experts at the ECB have dismissed bitcoin as a marketing scam that should not be legitimised by regulatory intervention.

While money laundering and terrorist financing are often grouped together, many compliance processes concentrate almost exclusively on the former. The techniques used are similar, but with terrorism financing the source of funds is largely irrelevant; the greater concern is where the money goes and who it supports.

We complete this week’s Roundup with the latest news on sanctions, ESG, and other newsworthy items collected from around the world.

Crypto Crisis Week 3

Ex-FTX CEO Bankman-Fried: “I didn’t try to commit fraud”

Sam Bankman-Fried, the former CEO of FTX, has denied committing fraud. Making his first public appearance since the collapse, the man once hailed as the ‘King of Crypto’ said he had had a “bad month” and had almost no money left. 

Polyamory, penthouses and loans: inside the crazy world of FTX 

The financial black hole that emerged inside a company once valued at $32bn (£27bn), is reported to be the result of a ‘byzantine’ group structure with unclear lines of ownership, and a leadership with an unconventional approach to governance and interpersonal relations. 

FTX hires former SEC and CFTC enforcement officers to assist with bankruptcy 

Former enforcement directors at the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been hired to lead an internal investigation into the collapse of FTX. 

Video: Full impact of FTX Collapse yet to be seen 

In this video from Bloomberg Markets and Finance, industry leaders give their opinions on why we have yet to see the full effects of FTX’s meltdown, why the lack of US regulatory clarity for the crypto industry is problematic, and concerns that policymakers will overreact to the FTX crisis. 

BlockFi files for bankruptcy in wake of FTX collapse 

The troubled crypto firm BlockFi has filed for bankruptcy, as the collapse of FTX continues to reverberate across the crypto sector. The firm had already halted most activity on its platform, citing “significant exposure” to FTX and said it was seeking court protection to restructure, settle debts and recover investors’ money. 

Crypto exchange Kraken lays off a third of its workforce 

Crypto exchange Kraken is laying off 1100 people in a bid to weather the crypto winter. The layoffs at the world’s fourth largest crypto exchange represent a troubling turnaround for the firm, which recently said it was not planning any staff reductions and would move ahead with hiring.   

Crypto fraud surges 32% to £226m in 2022 

According to data from Action Fraud, the value of UK crypto fraud surged by 32% from £171m to £226m this year. In total, over 10,000 crypto fraud reports were made, a 16% rise on 2021, as thousands of people were scammed by fraudsters preying on inexperienced investors by promising huge returns.

Regulation, Legislation, & Policies

 

What the FTX implosion means for crypto regulation 

Initial investigations into Bankman-Fried, his trading firm Alameda Research, and FTX have only just begun. But what has already come out has reinvigorated calls for regulating an industry that has long marketed its lack of regulation as one of its key features. 

Will the FTX collapse lead to better cryptocurrency regulation?

Two things could emerge from the FTX crisis. Investors may be more wary of crypto investments, and the aggressive marketing and false promises that often accompany them. Furthermore, regulation of digital assets may finally become clearer and more stringent.

ECB payments experts sound death knell for bitcoin

Senior payments experts at the European Central Bank have dismissed bitcoin as a marketing scam that should not be legitimised by regulatory intervention. In a blog post they view the current turmoil in the crypto markets as bitcoin’s last stand.  

“For bitcoin proponents, the seeming stabilisation signals a breather on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance.” 

~ Ulrich Bindseil and Jürgen Schaaf, European Central Bank

UK lawmakers vote to widen authorities’ power to seize crypto-related property 

The Economic Crime and Corporate Transparency Bill already included rules to give authorities powers to seize cryptocurrencies tied to criminal activity. This week lawmakers voted to widen these powers and enable law enforcement powers to also seize “crypto asset-related items,” which are items that contain or give access to information that could help assist in the seizure of crypto assets. 

“What this bill is doing is making sure that those assets that are held in crypto can be seized like other assets.” 

~ Tom Tugendhat, the minister of state responsible for crime and terrorism regulation

FATF: China’s progress in strengthening measures to tackle money laundering and terrorist financing 

In its latest Mutual Evaluation report China has made progress in addressing some of the technical compliance deficiencies identified in its previous evaluation. However, the country remains non-compliant on four recommendations and will therefore remain in enhanced follow up and continue to inform the FATF of progress achieved.

Isle of Man remains on ‘enhanced follow-up’ as MONEYVAL report finds continued deficiencies 

THE Council of Europe’s committee of AML (MONEYVAL) has again called for internal control requirements to be extended in the Isle of Man. The Island was placed in MONEYVAL’s enhanced follow-up’ procedure as a result of the 2016 report, where it will remain until it is expected to report back in three years’ time. 

MONEYVAL on Georgia: improvements in powers to disseminate information to law enforcement

The Council of Europe’s anti-money laundering body MONEYVAL follow-up report, states that Georgia has improved measures to combat money laundering and terrorist financing. The nation has demonstrated good progress and has been upgraded from “partially compliant” to “largely compliant” with the FATF Recommendation 29, related to Financial Intelligence Units.

Big names back new Canadian fintech association 

Mastercard, Square and Wise are among the members of a new group pushing for a whole-of-government approach to supporting Canada’s fintech ecosystem. Fintechs Canada says it will work with policymakers to push for competition and innovation in a country dominated by a handful of giant banks.

Malta government agency unveils three-year strategy to target financial crime

Only 20% of foreign-owned companies in Malta hold a local bank account, making it harder for the authorities to investigate these entities. This was used to highlight the need for the Financial Intelligence Analysis Unit (FIAU) to adopt a new three-year strategy.

Terrorism Financing

Similarities and differences between money laundering and terrorism financing 

This article from the Financial Crime academy takes a deeper look into the ways that money laundering and terrorism financing operate and the similarities and differences that these two areas of financial crime display. 

EU parliament declares Russia a state sponsor of terrorism 

The European Parliament has designated Russia a state sponsor of terrorism, arguing that its military strikes on Ukrainian civilian targets such as energy infrastructure, hospitals, schools and shelters violated international law. The move is largely symbolic, as the EU does not have a legal framework in place to back it up but adds another layer to the unprecedented sanctions it has imposed on Russia since its invasion of Ukraine in February 2022. 

RAFT22: Reassessing the Financing of Terrorism 2022 

RAFT22 brought together leading voices in tech, finance and security alongside high-profile representatives of the European counter-terrorism effort to discuss the past and present of counter terrorism financing in Europe, and to chart the way forward. Click here to see the outcomes of this important gathering. 

The EU’s focus on terrorist financing has faded, but the threat hasn’t 

It is seven years since a wave of terrorist attacks were unleashed on European cities, as supporters of Islamic State (ISIS) responded to the call from jihadist leaders, asking them to mount attacks. Yet today, many observers believe that the focus on combating terrorist financing in Europe has declined, becoming a technical matter pursued to meet the FATF’s requirements rather than a core element of the bloc’s counterterrorism defenses. 

India hosts global anti-terror funding conference: No Money for Terror 

This year’s ‘No Money for Terror’ Ministerial Conference on Counter-Terrorism Financing, deliberated on ‘Global Trends in Terrorism and Terrorist Financing’, ‘Use of Formal and Informal Channels of Funds for Terrorism’, ‘Emerging Technologies and Terrorist Financing’ and ‘International Co-operation to Address Challenges in Combating Terrorist Financing’. 

ISIS funding terror through Tinder love scams 

The con artists behind a new wave of “Tinder terror” that is snaring lonely hearts on South Africa’s version of the dating app are not your typical fraudsters. This article reveals that they are agents of the jihadist group ISIS, which is using the proceeds to fund its atrocities and insurgency campaigns across Africa.  

Somalia’s Al-Shabab militants widening revenue base 

United Nations experts have reported that the Somali Islamist militant group al-Shabab has widened its revenue stream beyond traditional activities to include charging tolls at checkpoints, illegally taxing properties, and construction. The revelations come as the terrorist group is seeking more funds to pay about $1 million per month in salaries to its fighters. 

Lafarge: US prosecution raises alarm bells for terrorist financing compliance 

According to the US Department of Justice (DoJ), Lafarge is the first corporation to be charged with providing support and resources to foreign terrorist organisations. But it is unlikely to be the last. This blog explores why this prosecution should be a wake-up call for any organisation with a complacent attitude toward counter terrorist financing (CTF). 

Sanctions

Circumventing sanctions to become an EU crime 

This week EU countries unanimously adopted a decision to add the violation of restrictive measures to the list of crimes included in the Treaty on the Functioning of the EU. The aim is to come up with the same legal definitions across the EU as to what constitutes a violation of sanctions and agree to common minimum penalties, as they currently vary from member state to member state, potentially creating loopholes.

US sanctions compliance needs global perspective 

Panellists at the Global Investigations Review (GIR) recent sanctions and anti-money laundering conference delved into the challenges presented by various sanctions regimes. In addition, they discussed how and why companies seem more willing to do business in Ukraine since Russia’s invasion. 

Sanctioned Croatian businessman secretly bankrolled tourist developer 

New documents have confirmed that Mihajlo Perenčević, a Croatian businessman sanctioned due to his important strategic business in Russia, has extensive financial ties to a major Croatian tourism developer. The developer in question has a portfolio of property and assets worth some 200 million euros (US$207.95 million). 

UK updates guidance on Russia and Belarus transport sanctions 

The UK Department for Transport has updated transport sanctions guidance in order to add guidance on Belarus ship sanctions and expand the guidance on Belarus aircraft sanctions; and update the guidance on Russia ship and aircraft sanctions. 

Russia asks India for parts to keep key industries running 

Moscow is reported to have sent India a 13-page list of more than 500 products it needs to keep key industries running. The request for parts for cars, aircraft and trains was seen as unusually broad and has worried the government because of the risk of falling foul of sanctions imposed by the West. 

ESG

Sustainability taking a back seat as businesses face mounting economic pressures 

Despite increasing warnings about the climate crisis, recent figures show that business leaders are re-evaluating their ESG efforts. While executives recognise the need to tackle the climate crisis, sustainability budgets are coming under increasing pressure as the focus turns to more immediate economic challenges. 

Event: Is sustainable finance sustainable?

Sustainable Finance Live took place this week with leaders discussing the problem statements and solutions that are defining the sustainable finance industry today. The event was comprised of three tiers. A conference in which leaders defined sustainable finance. An unconference which brought experts together around the problem statement to discuss new technologies and data science innovations that can change the industry. Lastly, a hackathon to tackle common challenges in the sustainable fintech industry. 

Goldman Sachs to pay $4m penalty over ESG fund failures

The US Securities and Exchange Commission (SEC) has charged Goldman Sachs Asset Management with “policies and procedures failings” in its ESG research team, in addition to document storage errors that delayed the regulator’s investigation. Without admitting or denying the regulator’s findings, Goldman Sachs Asset Management has agreed to pay a $4 million penalty. 

The Namibia-Botswana oil project being called a sin 

The descendants of Southern Africa’s first inhabitants have raised concerns about an oil and gas exploration project in the Okavango Delta. This oasis in the heart of the Kalahari Desert is so precious that it has been designated a World Heritage Site. Religious leaders have also spoken out, with one saying the project is a sin, and called on COP27 delegates to curtail the activities of fossil fuel companies.

Landmark judicial decision blocks Australian coal mine development on human rights grounds 

The Land Court of Queensland has blocked an $8.4bn coal mine development on human rights grounds. In the judicial decision, the court affirmed that the issue raised by the proposed mine “lie at the heart of both environmental and human rights objections”.  

The eyes of Amazon: a hidden workforce driving a vast surveillance system 

In an Amazon warehouse in California, it’s not just the managers who are watching. An AI camera system also monitors the workers’ movements, and should it fail, a video is sent to someone thousands of miles away whose input helps to improve Amazon’s machine learning tools.

Other News

Over 100 people arrested in the UK’s biggest ever fraud investigation 

It is estimated that more than 200,000 potential victims were targeted via the iSpoof fraud website, described as a “one-stop spoofing shop” employed by scammers to steal tens of millions of pounds from Britons via fake bank phone calls. In the UK’s biggest ever fraud operation, the site was taken down by Scotland Yard’s cybercrime unit with the help of the authorities in the US and Ukraine and over 100 people have been arrested. 

Europol take down massive cocaine ‘super cartel’ 

A drug cartel that controlled about a third of Europe’s cocaine supply has been dismantled by Europol. Operation Desert Light saw authorities in Spain, France, Belgium, the Netherlands and the United Arab Emirates (UAE) work together, leading to the arrest of 49 people across six European countries and the seizure of over 30 tonnes (30,000kg) of drugs. 

Credit Suisse facing liquidity crisis following multiple scandals

The many scandals that have dogged the Credit Suisses over the years have caught up with the Swiss banking giant. Its stock plummeted 5% to a record low of $3.41 after its warning that it’s facing up to a $1.6 billion loss this quarter, fuelling investor fears that Switzerland’s second-largest bank by assets, long embroiled in worrisome scandals, could face a troubling liquidity crisis. 

Iraq recovers portion of $2.5 billion embezzled from tax authority 

In what amounted to one of the largest thefts in the country’s history, the Iraqi government has recovered some of the US$2.5 billion embezzled from its tax authority last month, Prime Minister Mohammed Shia al-Sudani said that roughly $125 million of the stolen funds will be recovered by the government within two weeks, the investigation’s first success to recover the country’s lost assets since the theft was first discovered. 

RiskScreen AML spotlight report 

AML Vulnerabilities in the Crypto Sector 

The turmoil surrounding the crypto sector following the bankruptcies of FTX and BlockFi will undoubtedly lead to regulators taking an even greater interest in the crypto sector. 

To ensure your firm doesn’t fall foul of any new national and international legislation and regulatory requirements, this industry report will help you to identify any weaknesses in your existing compliance framework. 

Download this valuable compliance analysis here. 

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