What happened in AML compliance in 2021?

Fines running into the billions and jail terms totalling hundreds of years. AML enforcement has not taken a back seat during the pandemic, with fines, scandals, leaks and sweeping new regulations. The past year has been a blockbuster one for money laundering compliance. Here, we round up the biggest money laundering stories of 2021.

SEB Bank – fit for purpose?

The Swedish bank was fined $170m for AML failures back in 2020, relating to compliance deficiencies in its Baltic operations in the same scandal which ensnared Danske Bank. But this latest scandal doesn’t involve additional wrongdoing by SEB, but rather what their chief executive said about AML compliance programmes in general.

Johan Torgeby questioned if the regulations themselves were ‘fit for purpose,’ given SEB now employs thousands of people in compliance and asks its customers “a humongous amount of questions.” The CEO said that banks are only stopping about 1% of trillions of dollars of criminal cash entering the system, despite collectively spending over $20bn on compliance.

Torgeby praised cooperation between Swedish banks and the national police force however, calling their information sharing programme a much more effective method of stopping criminals than traditional regulatory compliance. 

An AML revolution in the USA

Long taking its own course in money laundering compliance, the 2021 National Defense Authorization Act included sweeping reforms to AML laws in the United States which catch it up to the EU. Among the changes coming into force include requirements for additional beneficial ownership information. This is aimed at eliminating shell companies entirely, requiring companies who do business in the US to disclose detailed information about ultimate beneficial owners.

AML whistleblowers will receive increased protections, and rewards, while companies and individuals will face stiffer penalties for violations of AML rules or the Bank Secrecy Act. Suspicious activity reports and currency transaction reports will become easier to submit, and can be more easily shared with foreign governments and regulators. 

Tackling the London Laundromat

Is London a haven for dirty money? The UK Parliament’s Intelligence and Security Committee seems to think so. The UK and its offshore dependencies such as Jersey or the Cayman Islands are being used as money laundering hubs, costing the UK economy over £100bn per year. Transparency International found nearly 1,000 UK shell companies involved in corruption and money laundering cases.

There’s been increasing calls for the UK government to act on its promise to introduce tougher AML rules, including more stringent beneficial ownership rules. In 2015, then prime minister David Cameron promised to introduce a register of beneficial owners of UK property, but this has still to be brought up in parliament. Secret property ownership in the UK came under significant scrutiny in 2021, with reports from the Pandora Papers showing that the Queen’s estate bought a £67m London property from the Azerbaijani dictator, and further properties sold to the monarch from an offshore company owned by President Aliyev’s 11-year-old son.

Opening Pandora’s filing cabinet

More than 11 million confidential secret documents were exposed in yet another leak of sensitive offshore company details, showing hidden wealth, tax avoidance and money laundering by the world’s rich and powerful. The extensive documents revealed a staggering amount of tax avoidance, particularly through shell companies registered offshore. While much of this is supposedly ‘legal,’ loopholes are being stretched and the public’s patience tested. 

From a money laundering perspective, plenty of jurisdictions take the proceeds of tax evasion as a predicate offence for money laundering. So if rules were broken, illegal cash can be injected into the system. More so, the Pandora Papers showed the soft edge of international finance. If kings and dictators can set up offshore companies to secretly sell and buy millions in property to each other, what’s to stop kingpins and drug lords from doing the same thing? The key lesson in the fight against money laundering is that offshore jurisdictions and shady shell companies absolutely present a red flag. 

Bin bags full of cash at NatWest

In the first criminal prosecution of a financial institution by the UK’s Financial Conduct Authority (FCA), Britain’s biggest bank NatWest was fined £264m for system-wide AML failures which allowed enabled black bin liners stuffed with cash to be deposited, literally bursting out of floor-to-ceiling branch safes.

The trial centred on a textbook case of money laundering by a supposed jeweller, Fowler Oldfield. Their predicted turnover was around £15m when the bank took them on as a client, but they ended up depositing over £365m over a five-year period, with the vast majority being in hard cash.

Many individual staff members did pick up on the activity, with one employee who’d been working for decades saying it was the most suspicious activity they’d seen in their career. Ultimately, the court found, the bank did not miss this. The criminality was spotted time and time again, but the systems and adequacy of the scrutiny failed. 

Turkey grey-listed by FATF

The Financial Action Task Force (FATF), listed Turkey, alongside Mali and Jordan, on the watchdog’s grey list. This comes on the back of a “large number of serious issues” identified in the countries’ mutual evaluations in 2019. The three countries join a 22-state list subject to special monitoring, including Albania, Morocco, Syria and Yemen. However the FATF removed Botswana and Mauritius from the grey list, citing increased improvements.  

Of particular concern to the FATF are Turkey’s banking and real estate sectors, as well as gold and precious stone dealers. Given Turkey’s proximity to Syria, Iraq and Lebanon, there are significant fears about terrorist financing crossing the relatively porous border and entering a large economy on the edge of Europe. The move could have significant implications for supply chains running through Turkey, who may need to undertake greatly enhanced due diligence for any businesses involved in the Turkish economy.

Enforcement steps up in Dubai

The United Arab Emirates moved a step forward in setting itself up as a financial centre of the Middle East. It launched a special court to combat money laundering and handed out over $12m in AML fines to banks in one month alone. The establishment of a specific court came in the same year as a new Executive Office to tackle AML, showing the country’s commitment to tackling financial crime.

Dubai is also investing heavily in the crypto space, while ensuring AML requirements for those businesses. The Emirates have been working closely with the FATF to ensure the nation’s legal, regulatory and operational standards meet international requirements. With political developments such as normalising relations with tech-hub Israel and reform of its strict Islamic social laws, Dubai could be set to join the international finance ranks of New York, London and Singapore within the very near future. 

Crypto continues to make headlines

The ECB called for global regulation of crypto currencies to reduce the loopholes money launderers can exploit, and according to a variety of regulators, these are many. The UK’s FCA reported that a significant number of crypto asset providers had not met the standards required under British AML rules. Many did not get licences as a result. The EU also proposed new changes to require companies that transfer crypto assets to collect details on recipients and senders. Meanwhile, the US authorities announced the establishment of a new team to tackle complex investigations and prosecute criminal misuse of crypto. 

Despite the regulatory pushback and noted environmental concerns of crypto mining, more and more asset providers are jumping into the space. 2021 saw new currencies launched and the rise of NFTs, digital artworks which can be sold for hundreds of thousands, presenting ever more challenges for AML compliance.