Week of Monday, November 15, 2021 | Issue 50
Jennifer Kelly, Tatiana Vasquez, Illicit Finance and Economic Threats Team
Tax books representing funds related to fraud and money laundering
Date: November 17, 2021
Location: United Arab Emirates (UAE)
Parties involved: Central Bank of the UAE (CBUAE); UAE licensed exchange houses; Financial Action Task Force (FATF); Organized crime groups; Terrorist groups
The event: The CBUAE issued new guidelines to UAE’s licensed exchange houses to combat money laundering and terrorist financing. The measures require all licensed exchange houses to possess adequate measures to combat money laundering and terrorist financing programs. The new guidelines require businesses to conduct regular risk assessments, and comply with national Targeted Financial Sanctions and Suspicious Transaction Reporting and FATF standards.
Organized crime groups who use licensed exchange houses in the UAE to transfer currency and fund their illicit activities will almost certainly be affected by the new guidelines. The new guidelines will very likely enable authorities to combat illicit financial flows, and identify organized crime groups and individuals who exploit licensed exchange houses in the UAE to conduct illicit activities. However, without enforcement mechanisms or the threat of fines, licensed exchange houses are unlikely to demonstrate full compliance with the new guidelines due to the time and cost needed to train the staff required.
By identifying money-laundering and terrorist-financing activities through licensed exchange houses, the UAE authorities can likely assist international law enforcement agencies in tracking illicit financial flows to other countries. Combating illicit financial flows through licensed exchange houses will almost certainly address the FATF’s concerns about the effectiveness of the UAE’s anti-money laundering system and its role in facilitating international money laundering.
Date: November 18, 2021
Parties involved: The Swiss Financial Market Supervisory Authority (FINMA); Banca Zarattini; Compagnie Bancaire Helvétique (CBH) Bank; Venezuelan clients; Financial Action Task Force (FATF); Switzerland government; Switzerland’s banks
The event: The Swiss Financial Market Supervisory Authority (FINMA) found that the Banca Zarattini bank and CBH Bank failed to comply with obligations to counter money-laundering and implement an appropriate risk management policy. According to FINMA, the banks did not sufficiently perform economic background clarifications into business relationships and transactions that are at high-risk for money-laundering. FINMA ruled that both banks can restore compliance with the law if they continue to implement measures to remove deficiencies in countering money laundering. FINMA has temporarily banned Banca Zarattini from accepting new Venezuelan clients and clients who are politically exposed persons.
Insufficient investigations by Switzerland’s banks in the economic backgrounds of clients will likely result in potential money laundering cases not being reported. The under-reporting of money laundering cases will almost certainly weaken the implementation of Switzerland’s revised Anti-Money Laundering Act and prevent the country from implementing FATF’s recommendations. FINMA's negotiation with Banca Zarattini and CBH Bank concerning legal compliance will likely encourage the rapid removal of deficiencies in countering money laundering.
The ban is unlikely to be sufficient in impeding future breaches of obligations by the bank as lax background checks are beneficial for them. More stringent background checks will likely discourage large clients from opening accounts with the bank and make existing clients insecure about their money affecting the bank’s profit. The temporary ban on Banca Zarattini from accepting new Venezuelan clients will likely discourage other international clients to open accounts in the bank due to the fear of future investigations in their activities.
Date: November 19, 2021
Parties involved: US Internal Revenue Service’s Criminal Investigations Unit (IRS-CI); US banks
The event: The US IRS-CI reported that 93 percent of the total funds it seized so far in 2021 relate to fraud and money-laundering cases involving cryptocurrency, amounting to $3.5 billion USD. As criminals adapt to the expanding cryptocurrency market, the IRS-CI stated they intend to increase their focus on cryptocurrency cases. Blockchain forensic analysis companies supply software tools to the IRS-CI and other law enforcement agencies, which enables these agencies to track financial flows across cryptocurrency networks.
The high percentage of cryptocurrency funds seized by the IRS-CI very likely indicates that criminals are moving away from using physical banks and cash towards digital currency to fund their illicit operations. Criminals have likely shifted to using cryptocurrency due to the lack of oversight over crypto transactions. The easy access to cryptocurrency in conjunction with the high volume of daily cryptocurrency transfers very likely enables criminals to conceal their illicit transactions. Due to the decentralized nature of cryptocurrency, banks and law enforcement are unlikely to identify and report suspicious crypto transactions for illicit financing.
Criminals will almost certainly develop secure cryptocurrencies to fund their illicit activities in response to the increasing efforts from IRS-CI to prevent suspicious crypto transactions. The IRS-CI and other law enforcement agencies will likely be unable to keep up with emerging cryptocurrencies and prevent all illicit cryptocurrency transactions due to the lack of regulations surrounding cryptocurrencies. Criminals will likely continue leveraging the borderless nature of cryptocurrency without collaboration between IRS-CI and international agencies to detect and prevent illicit international crypto transactions.
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 Central Bank of UAE issues new guidance on anti-money laundering measures, Gulf News, November 2021, https://gulfnews.com/business/banking/central-bank-of-uae-issues-new-guidance-on-anti-money-laundering-measures-1.83757498
 Money laundering: FINMA concludes final proceedings connected with Venezuela, FINMA, November 2021, https://www.finma.ch/en/news/2021/11/20211118-mm-zara
 IRS seized $3.5B in crypto-related fraud money this year as illicit activity multiplies, Yahoo Finance, November 2021, https://finance.yahoo.com/news/irs-seized-35-b-in-crypto-related-fraud-cases-this-year-as-illicit-activity-multiplies-150407019.html