Laundering and llamas

The last time I played a game on a screen was in about 1980, when my friend and I discovered the joys of Pong – that table-tennis-ish game with two bats (OK, white lines) that you moved up and down the court (OK, black screen) to hit the ball (OK, white square) between you.  And I do not have teenage children.  In all, I am therefore probably not best placed to talk about the intricacies of Fortnite, which Wikipedia tells me is an online game that comes in “three distinct game mode versions that share the same general gameplay and game engine: Fortnite: Save the World, a co-operative shooter-survival game for up to four players to fight off zombie-like creatures and defend objects with fortifications they can build; Fortnite Battle Royale, a free-to-play game where up to 100 players fight to be the last person standing; and Fortnite Creative, where players are given complete freedom to create worlds and battle arenas”.  Crucially, they use “V-bucks, in-game currency that can be purchased with real-world funds, but also earned through completing missions and other achievements in Save the World.  V-bucks in Save the World can be used to buy piñatas shaped like llamas to gain a random selection of items. In Battle Royale, V-bucks can be used to buy cosmetic items like character models, or can also be used to purchase the game’s Battle Pass, a tiered progression of customization rewards for gaining experience and completing certain objectives during the course of a Battle Royale season”.  Yes, that’s piñatas shaped like llamas.  Despite (or perhaps because of) this obvious lunacy, Fortnite is a huge success: free to play on a variety of gaming platforms, it has already drawn in over 200 million players.

But all is not well in the world of Fortnite and its V-bucks.  From news stories all over the world in recent weeks, we learned that criminals are using Fortnite for laundering: they use stolen credit cards (and stolen identity details) to purchase V-bucks from the Fortnite store and then resell them on the dark web.  An investigation conducted jointly by The Independent and cyber security firm Sixgill uncovered “discounted V-bucks being sold in bulk on the dark web as well as in smaller quantities on the open web by advertising them on social media platforms like Instagram and Twitter”.  The investigation came across “operations being conducted around the globe in Chinese, Russian, Spanish, Arabic and English”.  According to Benjamin Preminger, a senior intelligence analyst at Sixgill: “Criminals are executing carding fraud and getting money in and out of the Fortnite system with relative impunity… Epic Games [the developer of Fortnite] doesn’t seem to clamp down in any serious way on criminal activity surrounding Fortnite, money laundering or otherwise.  While completely stopping such criminal activity is extremely difficult, several steps could be taken to mitigate the phenomenon, including monitoring the transfer of high-value goods in the game, identifying players with large stockpiles of V-bucks, and sharing data with relevant law enforcement agencies.”  So he’s suggesting collecting client identity details, monitoring their transactions and reporting suspicious activity – where have we heard that before?

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Taking task forces to task

May I be honest with you?  I have worked alone for more than twenty years and I like it, I really do.  As an only child I became used to not having to compromise, and I also have a visceral loathing of meetings, so running a one-person business where I make all the decisions and don’t have to take anyone else’s opinions into account suits me well.  But in my little AML-ish heart I have an unfulfilled ambition: I long to be part of a strategic consultative body.  I dream (sometimes literally…) of someone from the Treasury phoning me up and saying, “You’ve been doing this AML stuff for a while now, and your perspective on how MLROs actually deal with it is just the angle we need to complete our task force – are you free on Wednesday?”.  Ah, let me just pause and imagine that for a moment….  OK, I’m back now.

It has, of course, never happened.  I once felt that I knew a chap from the Treasury well enough to ask him, without sounding pathetic and needy (well, perhaps just a bit), why I’m always left on my own in the playground when it comes to picking task force teams.  And he said that it’s my very independence that does for me.  Because I don’t represent any specific group of people – I’m not from the BBA or the ICAEW or the Law Society – there’s no place at the table reserved for me.  And frankly, it’s too late in the day for me to hitch my AML wagon to any particular trade body – I like dealing with everyone.  So here I stand, nose pressed against the window, watching the launch of yet another AML task force to which I was not invited *sob*.

On 14 January 2019 it was announced that the (UK) Home Secretary and Chancellor will jointly chair the Economic Crime Strategic Board, which will meet twice a year to “set priorities, direct resources and scrutinise performance against the economic crime threat… set out in the Serious and Organised Crime Strategy”.  There are some top people involved: “The board includes CEOs and chief executives from the banking institutions Barclays, Lloyds and Santander as well as senior representatives from UK Finance, the National Crime Agency and the Solicitors Regulation Authority, Accountants Affinity Group and National Association of Estate Agents.”  Their first two pieces of business will be to approve both an investment of £3.5 million “to support work to reform the SARs regime” and “additional investment in the multi-agency National Economic Crime Centre”.  As ever, I am disappointed to see that there is no-one at the table talking on behalf of the MLROs who have to implement whatever economic crime strategy trickles down to the front line (and be held responsible for its success or failure).  If only we knew someone who works with MLROs in all sectors and hears their practical difficulties and suggestions on a daily basis…

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The award no-one wants

As you know, we are deep in awards season.  (Is anyone else baffled by the all-conquering success of “The Favourite”?  I like Olivia Colman as much as anyone, and the film is certainly entertaining and lovely to look at, but the best film ever?  Perhaps it’s clever nominative determinism at work.)  But one award that the nominees probably hope they don’t carry off is “Corrupt Actor of the Year”, decided not by Tinseltown luvvies but by the Organized Crime and Corruption Reporting Project (OCCRP).  And on 29 December the OCCRP announced that its Corrupt Actor of the Year for 2018 is *pause for suspenseful opening of golden envelope* Danske Bank.

If you thought you had a tough time in 2018 (what with keeping Trump and Brexit while losing Aretha Franklin and Stephen Hawking), at least you weren’t in charge of Danske.  At the end of 2017 the bank was fined 12.5 million Danish krone [about £1.5 million] for AML failings.  And then things got serious.  In mid 2018 Danish and Estonian prosecutors launched criminal investigations into the bank on the back of allegations by Bill Browder.  In September 2018 the bank published a report put together by leading Danish law firm Bruun & Hjejle, which revealed that that payments – many of them suspicious – totalling 200 billion euros had flowed through Danske’s Estonian branch between 2007-2015.  Thomas Borgen – the chap in charge of Danske Bank’s international operations, including Estonia, between 2009 and 2012 – resigned.  On 4 October 2018 Danske confirmed that the US Department of Justice had launched a criminal investigation into its Estonian branch, where many non-resident accounts were held by entities or individuals in Russia which were subject to US sanctions.  The bank’s chosen successor CEO was rejected by their regulator as being too inexperienced – the search continues, if you’re interested.  And on 19 November 2018 Danske whistle-blower Howard Wilkinson (head of the bank’s Baltic trading unit, who warned his directors back in 2013 but was ignored) gave evidence to the Danish parliament.

As the OCCRP website explains, this award “spotlights the individual or institution that has done the most over the previous 12 months to advance organized criminal activity and corruption in the world”.  According to the judges, Danske beat out the other twenty-two contenders – who included nice guys Donald Trump and Saudi Arabian Crown Prince Mohammed bin Salman – because “in the past 20 years, they’ve globalized organized crime and autocracy and helped everyone from Mexican drug cartels to Russian President Vladimir Putin to terrorists, autocrats, and almost every global threat”.

The final words should perhaps go to South African anti-corruption activist Hennie van Vuuren, one of the judges: “It’s high time that we focus on the enablers and not just the low-hanging offensive political fruit.  Nothing shows up our glaring blind spots more than this bank.  It ran a money laundering enterprise on such a massive scale that it startled most of us.  And yes, it should shake the anti-corruption ‘community’ to its roots that the bank is based in Denmark – a country that Transparency International has consistently labelled as amongst the top three ‘least corrupt’ for more than two decades.”  No-one from Danske showed up to receive the award or to thank their parents – ungrateful bunch.

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The taxman triumphs

I’ve done a bit of HMRC-bashing in recent months (here and here) so it’s only fair that I now mention a laudable news story that they issued at the end of 2018: their list of top ten prosecutions of 2018, which demonstrate their “relentless pursuit of tax criminals”.  Some of these stories I picked up during the year, but some are new to me, and among my favourites we have:

  • Hussain Asad Chohan, formerly of Birmingham, went on the run during his 2006 trial for smuggling 2.25 tonnes of illegal hand-rolling tobacco, worth £750,000 in evaded duty – he was given a five year prison sentence. He was also involved in a £185 million VAT fraud, and in December 2006 a court found that his lifestyle was funded by crime and ordered him to repay £28.6 million within three months.  He did not, so seven years was added to his sentence.  However (and here’s the bit I really like) his debt, plus interest totalling more than £24 million, remains and increases by more than £6,000 a day until paid.  He was finally caught in Canada and extradited to the UK in June 2018 to serve his sentence and work out how to repay more than £53 million…
  • David Hughes worked for the Inland Revenue in the 1980s before setting up as a tax consultant in Kent – and using his knowledge of the tax system to steal £6.9 million in taxes paid by clients and deducted from workers’ wages, through fraudulent payroll schemes. Hughes cleverly settled in Northern Cyprus, which does not have an extradition treaty with the UK – but less cleverly flew into Heathrow where he was arrested in January 2018.  Hughes and his conspirators laundered the money through bank accounts belonging to companies they created in the UK, Belize and Gibraltar, and then onwards through the Channel Islands, the UAE, the USA, Turkey and various property transactions.  In August 2018 Hughes was jailed for 9½ years for conspiracy to cheat the public revenue, 3½ years for false accounting and six years for money laundering.
  • Laurel Goodman and her business partner Barry Solomons managed travelling male stripper troupe the Dream Idols. Between 2007 and 2013 the pair failed to declare income of more than £621,000, thereby evading £171,000 in income tax.  An investigation by the Department for Work and Pensions revealed that Goodman had pocketed almost £5,500 in benefits, but the day before her trial in September 2016 she wrote her lawyer, saying: “I am going somewhere where I am safe and cannot be found.”  This turned out to be Wells-next-the-Sea in Norfolk, where she was arrested in December 2017.  Goodman and Solomons had both been sentenced in September 2016 to 28 months in prison; Goodman is now behind bars with an additional four months for going on the run.

But the top ten is not the full picture: according to the HMRC press release, their “fraud investigations have led to 671 people being convicted over the last 12 months for their part in tax crimes [and they have] charged another 919 people and taken on 746 new criminal investigations”.  Go HMRC!

Posted in Money laundering, Tax, Uncategorized | Tagged , , , , , | 4 Comments

The ultimate in white collar crime

We’ll get back to serious stuff soon, I promise, but as we ease ourselves into the new working year I thought you might enjoy this irresistible offer I received over the festive break, from the Pope.  Yes, the man himself: Pope Francis PP.  I was uncertain about the PP and – being both a non-Catholic and a CDD-addict – I have checked.  And it is one of the fraudster’s many mistakes.  According to the National Catholic Reporter, Francis is a more free-wheeling pope and eschews the more formal trappings of his office, including the PP stuff: in the 2013 edition of the Vatican’s annual directory, the Annuario Pontificio, “the signature under Francis’s official portrait is given in Italian and not Latin: while [retired pope] Benedict previously signed his name in Latin as ‘Benedictus’  (and not the Italian ‘Benedetto’), Francis has signed his in the Italian ‘Francesco’ (and not the Latin ‘Franciscus’).  Additionally, Benedict’s signature appears with the initials PP following his name, standing for ‘pope’, while Francis’s does not.”  As they say in religious circles, busted.

But, to be honest, it wasn’t just the PP that gave it away.  See if you can spot any other hints that this missive is not actually from His Holiness:

Dear Dear susan@thinkingaboutcrime.com ,   in the lord,

I (Catholic pope francis) humble myself before God and you all to wish you happy season new year in 2018 .

It is my pleasure to plead with you all in also remembering the poor and homeless children to donating sum of USD,EUR ETC of your various country for the motherless children and also homeless and poor childrent .

If you are willing to help please kindly contact my below email of my department of charity and donation world wide.

EMAIL ID: world.catholic-charity@priest.com

WHATSAPP:+14197185097

May the peace of our Lord be with you, in the name of the father and of the son and of the holy spirity.. Amen

Thanks and regards

His Holiness, Pope Francis PP.

00120 Via del Pellegrino

Citta del Vaticano

Tricky, isn’t it – so convincing and tempting.  Part of me would like to believe that I could get a hotline to heaven via Whatsapp, but I fear that it is not so.  Despite this disappointment, I wish you a happy and healthy 2019, with plenty of AML spirity.

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Wimples and wagers

In recent AML training I have found myself talking more and more about the “CDD jigsaw”.  As with all jigsaws, the CDD version involves gathering lots of little bits of information – some of which might seem indecipherable or unrelated – and assembling them into a recognisable picture.  It has been on my mind partly because I have been working with casinos, and several penalties levied by the Gambling Commission (the AML supervisory body for the UK’s gambling sector) this year have pinpointed the absence of the assembly stage of the CDD jigsaw.

For instance, in the Regulatory Settlement that they published in February 2018 concerning William Hill, the GC found that: “A customer was allowed to deposit £654,000 over nine months without source of funds checks being carried out.  The customer lived in rented accommodation and was employed within the accounts department of a business earning around £30,000 per annum.”  In other words, William Hill staff were aware of their customer’s housing situation and of his salary and of his level of gambling, but did not assemble these pieces into a picture that would have shown a mismatch.

An unnamed bank in California must be reaching the same conclusion right about now.  Among its customers were two nuns, Sister Mary Kreuper and Sister Lana Chang – respectively principal and teacher at St James’ Catholic School in the city of Torrance, near Los Angeles.  Into their account they paid cheques made out to their school for tuition and other fees.  Over a decade, they siphoned off about half a million dollars and – I kid you not – used it to gamble in Las Vegas.  On 10 December 2018 their order – the Sisters of St Joseph of Carondelet – confirmed what had happened and said that the sisters would be facing criminal charges.  Apart from delivering a welcome crop of puns (gambling habit, put it all on black, hail Mary full of ace…) this story reminds us that (a) source of funds questions are crucial, and (b) listening to (and understanding the implications of) the answers to those questions is twice as crucial.

On that note I shall head off on my festive break.  I wish you all a very merry Christmas and a happy new year, and this blog will leap back into life again on Tuesday 2 January 2019.

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Just do the math

I am currently reading “How Not to Be Wrong” by American mathematician Jordan Ellenberg.  Not that I am wrong very often, of course, but it pays to protect one’s elevated position.  In truth, I scraped by in my maths A-level, which I took simply to please my mathematician father, and have since taken the precaution of marrying an engineer (who is therefore very numerate) so that never again will I have to work out the tip on a restaurant bill in my head.  As my grandma used to say, why keep a dog and bark yourself?

And yet – here’s irony for you – I find myself working, albeit tangentially, in the financial sector.  With numbers.  And risk calculations.  And – my personal bête noir – probability.  To be honest, I like AML in part because I can take an extreme position: if it seems too good to be true it probably is and you should STEER CLEAR – sound the klaxons and back away from that dodgy deal!  My cowardice and financial timidity protect me but every day people who are smarter than I am fall for frauds and scams.  I had always assumed that it was their vanity or inattention or overweening greed that was their undoing, but my new pal Jordan has shed some light for me on what might be happening, with his parable of the Baltimore stockbroker.  Forgive me if I am late to the party with this one, but it’s been a revelation to my mathematically-challenged brain.

Imagine you get an unsolicited email from a stockbroker in Baltimore.  (I daresay he could be anywhere, but maybe his Baltimore-ishness is important.)  You scan the email out of idle curiosity and it predicts that a certain share will rise in value this week – and you happen to hear that it does indeed gain quite a bit.  The next week another email arrives from our Baltimore friend, this time predicting that another share will tank – and again it does.  This goes on for ten weeks, and you have now amassed ten accurate share tips.  In week eleven, the stockbroker offers you the chance to invest via his service – for a generous fee, of course, and with all the usual warnings about shares going down as well as up, but reminding you about his unbroken run of ten top tips.  You do the maths to be sure: each week he could have been right or wrong with his tip, and the chances of being randomly right for ten weeks in a row are ½ x ½ x ½ x ½ x ½ x ½ x ½ x ½ x ½ x ½ = 1/1,024.  That’s just so unlikely – he must have a system – and so you’re hooked.

But, counsels Jordan, it can all be explained.   In week one, the stockbroker – who knows his maths, the fiend – sends out 10,240 emails: half predict a share price increase and the other half a share price fall.  The 5,120 people whose emails turn out to be wrong never hear from Baltimore again.  The 5,120 with the correct predictions are contacted in week two – again, half are told of a price rise and half of a price fall.  The stockbroker checks what happens and in week three contacts only the 2,560 people whose second week emails were correct.  And so on.  By the end of week ten, he will have whittled it down to ten people who have had ten correct emails – and the chances of them signing up in week eleven are very good indeed.

Now my brain hurts and I am going to have a biscuit break.

Posted in Due diligence, Fraud, Money laundering, Organised crime | Tagged , , , , , , , , | 2 Comments

New Guernsey piggies in the sty

A very quick post specifically for my Guernsey readers.  Just for you, I have:

  • Read the new Schedule 3 and Handbook cover to cover
  • Updated all five of my piggy books – for NEDs, and for the accountancy, banking, fiduciary and insurance sectors – to reflect the new legislation and guidance
  • Listened in – yes, honestly – via BBC Radio Guernsey to the States meeting yesterday, when aforesaid legislation was put forward for approval
  • Tweeted the States just to make sure that I had heard correctly that it had been approved
  • Stayed up late last night and risen early this morning to get the five piggies released from their Amazon stable.

In short, the Guernsey piggies are now all completely up to date and reflect Schedule 3 and the new Handbook – including enhanced measures, the MLCO and the new PEP categories.  Jaffa Cakes were eaten, I can assure you.

Search “susan grossey guernsey” on Amazon, or go to the Publications page of my website for the direct links.

Posted in AML, Money laundering, Publications | Tagged , , , , , , | 3 Comments

The concept of anonymous publication

We all have a talent, and mine is words.  I love reading and writing them, my spelling is pretty crash-hot, and if I am trying to remember something, I tend to see it as a word, e.g. “I’ve forgotten his name, but it’s seven letters long with a double letter in the middle and a y at the end”.  So when I see a phrase like “anonymous publication”, my antennae twitch.  Because it’s contradictory nonsense.  But apparently not if you’re HMRC.

I have written before about how different AML supervisors are when it comes to sharing information about their AML activities.  Some – take a bow, please, FCA, Gambling Commission and Guernsey Financial Services Commission – are excellent at putting out detailed information whenever they levy an AML penalty.  The GC even adds a little section of “good practice” to each notice, drawing the attention of MLROs to the lessons that must be learned.  Sadly, HMRC – which is the AML supervisor for estate agents, high value dealers and various other businesses and professions that are not supervised elsewhere – is rather more parsimonious with its information.  I was therefore pleased to see in the recent update to the UK’s AML Regs that “where the Commissioners [of HMRC] give a notice under regulation 83 [disciplinary measures], they must, without undue delay, publish on their official website information on the type and nature of the breach and the identity of the person on whom the sanction or measure is imposed” (it’s section 85, to save you hunting).

Breath bated, I waited.  (Sheer poetry.)  And patience was rewarded on 4 October 2018 with this cheese-paring revelation:

  • Between 26 June 2017 and 31 July 2018, HMRC levied penalties totalling £13.396.39 on four named businesses
  • It also levied two “minor penalties” totalling £466.50.

And then there is this gnomic paragraph, under the heading “Anonymous publication”: “HMRC has decided that publishing the full identity of the business or individual would be disproportionate and is publishing anonymously.  There are no details published for this period.”  Does this mean that there are details but HMRC has decided not to publish them?  Or that there are no anonymous details that would not have been published had they arisen?  Sir Humphrey would be proud.

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Keeping up with the Joneses, les Dubois and die Schmidts

I mentioned in my previous post that Guernsey is on the cusp, nay, the very brink of getting new AML legislation.  This represents the conclusion of their exercise to fall into line with the Fourth Money Laundering Directive (or as in line with it as Guernsey wants to be), as we did in the UK when we created the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.  History shows us that after the grand effort of transposing a money laundering directive into national legislation, the domestic AML supervisors should be able to relax for about a decade.  But this is no longer the case.

The first Money Laundering Directive was adopted in June 1991, MLD2 in December 2001, MLD3 in October 2005 (this was rather quick, in order to bring terrorist financing into the mix) and then MLD4 in June 2015.  But then someone found the accelerator pedal: MLD5 was published in draft form in July 2016 and adopted in July 2018, with a transposition deadline for EU Member States of 10 January 2020.  This is only 2½ years after the MLD4 transposition deadline of 26 June 2017.  And now we have MLD6 – which, admittedly, is more of a companion piece to MLD5 as it deals specifically with the criminalisation of money laundering rather than with the practice of anti-money laundering, but nonetheless it too has a transposition deadline that is worryingly close, at 3 December 2020.

I’m not saying for one moment that MLDs 5 and 6 don’t contain interesting developments and initiatives – there are some crackers in there (centralised register of bank accounts, anyone?) – but I am concerned about the speed at which things are changing.  With the best will in the world, is any Member State going to be able to write new AML legislation for the second time in three years and put it out to industry for comment and get any meaningful response, given that industry has only just dealt with the last lot?  Are sectoral AML supervisors going to be able to put out guidance in time, given that they’ve only just dealt with the last lot?  Are MLROs going to be able to convince their Boards and staff to implement yet another updated set of AML procedures, given that they’ve only just dealt with the last lot?  And is anyone going to believe that those tasked with writing these AML directives actually know what they’re doing, given that the shine seems to wear off a new directive with alarming haste?  If we keep changing our minds about the best way to tackle money laundering, we create nothing but confusion, disillusionment and exhaustion – and criminals can take full advantage.

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