The individuals involved are alleged to have accepted bribes from an unspecified Gulf state in exchange for EU special treatment. Kaili’s conspicuous favoring of Qatar before the probe has prompted open speculation, but Qatar officials have strenuously denied any suggestions that their country was involved. Nevertheless, the European Parliament has suspended all “parliamentary work” involving Qatar to allow for a reevaluation. 

European Union Responds to Alleged Corruption

“Make no mistake,” said European Parliament President Roberta Metsola, “…our way of open, free, democratic societies are under attack…There will be no impunity. None. Those responsible will find this Parliament on the side of the law.” She pledged an internal investigation, along with reforms including a strengthening of whistleblower protections. 

Others, including the president of the European Commission, called for the establishment of an independent ethics committee. And on December 13, Metsola announced the suspension of Kaili as vice president, following a unanimous proposal from the Conference of Presidents.

The integrity of @Europarl_EN comes first and foremost.

Today at 1200hrs, @Europarl_EN will vote on the unanimous proposal of the Conference of Presidents to bring to an end the term of office of Vice-President Eva Kaili. pic.twitter.com/IknC0Zv6q3

— Roberta Metsola (@EP_President) December 13, 2022

In view of the ongoing investigations,@Europarl_EN has decided that Eva Kaili is no longer one of its Vice-Presidents.

This decision is effective immediately.

We will continue to fully cooperate with relevant national law enforcement and judicial authorities.

— Roberta Metsola (@EP_President) December 13, 2022

Qatar Visa Privileges Halted

A proposed visa waiver for Qatar nationals traveling to the Schengen zone was included in the work suspended by the European Parliament. The proposal would have exempted Qatari travelers from visa requirements if their stay did not exceed 90 days within a 180-day period. The proposed policy, which proponents hoped would improve Europe’s relations with Gulf nations, is currently halted out of concern that corrupt practices could have unduly influenced it. A proposed amendment will also seek to bar a profitable deal with Qatar Airways that would have allowed the airline broad entry into Europe’s transportation markets.

Key Takeaways

Politically exposed persons (PEPs) and their networks are uniquely vulnerable to bribery and corruption threats. This case is a timely reminder the risks associated with PEPs are high even in jurisdictions such as the European Union that are not typically associated with corruption. The situation is likely to evolve quickly, which could lead to the introduction of new rules in areas like whistleblowing at short notice. Firms should monitor announcements from the EU closely. Compliance teams may also consider auditing their existing PEP due diligence procedures, ensuring they are up-to-date and any exposure to markets like Qatar is fully understood. 

Effective processes should consider PEPs’ complex networks thoroughly, ensuring no gaps in analysis. For example, an orchestration approach uses technology like artificial intelligence and APIs to coordinate layered analytical methods and is generally more efficient than relying on only one or two methods at a time.

The story also comes as the EU looks set to introduce a comprehensive new AML/CFT framework in 2023. Following AML scandals, including the Russian Laundromat, Danske Bank, and Wirecard, the proposal establishes a new cross-bloc AML authority alongside a clear AML/CFT rulebook for firms operating in the EU.

A Guide to the European Union’s New AML/CFT Framework

Discover best practices in light of the EU’s recent framework

Access the guide

The post Five Arrested in €1.5 million EU Corruption Probe appeared first on ComplyAdvantage.

The move comes as Nicaragua inaugurates its new President and Vice President, following an election that President Joe Biden has described as a “pantomime” and “rigged”.

According to Nicaragua’s election authority, President Ortega won the vote with about 75% of the ballots cast. The election took place after eight presidential candidates were arrested on treason charges. 

One candidate was arrested for alleged money laundering based on the law “against money laundering, terrorist financing and proliferation of weapons of mass destruction adopted in July 2018”. A spokesperson for the United Nations High Commissioner for Human Rights, later said: “This broadly-worded law has raised general concerns that it may be used to silence dissent.” 

The Office of Foreign Assets Control’s (OFAC) sanctions, imposed in alignment with the EU – which in January sanctioned seven Nicaraguan individuals and three entities – are the latest example of globally-coordinated sanctions related to human rights and democracy. 

The six officials targeted include Nicaraguan Minister of Defense Rosa Adelina Barahona De Rivas, and members of the military, Bayardo De Jesus Pulido Ortiz and Bayardo Ramon Rodriguez Ruiz, who are all cited for state acts of violence. 

Telecom executives Celina Delgado Castellon and Nahima Janett Diaz Flores, from state-run Telco, were sanctioned for targeting the media in order to silence dissent. OFAC noted that Meta – formerly Facebook – shut down a troll farm containing more than 1,000 social-media accounts run by the Ortega government that supported the regime while slamming the opposition.

OFAC also sanctioned Ramon Humberto Calderon Vindell, president of the board of directors of state mining company ENIMINAS, for channeling gold mining profits to allies in the private sector.

All six will now be subject to measures including:

• All property and interests in property in the US or in the possession or control of US persons are blocked and must be reported to OFAC 
• Any entities that are owned, directly or indirectly, 50% or more in the aggregate by one or more of such persons, are also blocked 

OFAC said the sanctions were not intended to be permanent, but were issued to encourage a positive change of behavior and would be removed if “concrete and meaningful actions” were observed.

“The United States and our partners are sending a clear message to President Ortega, Vice President Murillo, and their inner circle that we continue to stand with the Nicaraguan people in their calls for the immediate release of these political prisoners and a return to democracy,” said Under Secretary for Terrorism and Financial Intelligence Brian E. Nelson.

Coordinated US Government Action

Complimenting OFAC’s actions, the Department of State will also impose visa restrictions on 116 Nicaraguan individuals, including mayors, prosecutors, and university administrators; and police, prison, and military officials, who were all “complicit in undermining democracy in Nicaragua.”

These latest sanctions strengthen measures imposed on the US’ near neighbor by a Trump-era Executive Order. This was introduced following protests in Nicaragua in 2018, which Ortega’s government responded to with the “use of indiscriminate violence and repressive tactics against civilians” sparking international condemnation. Since 2018, more than 100,000 Nicaraguans have fled the country.

US firms should already class Nicaragua as a high-risk country due to historic Executive Orders, but this announcement reaffirms the importance of additional due diligence measures on persons/entities based in Nicaragua, and particularly those involved with state-owned companies.

Comprehensive politically exposed person (PEP) screening, real-time sanctions updates and adverse media checks are all critical – the latter particularly given widespread news and social media coverage of the events in Nicaragua. OFAC’s 50% rule also means that assets do not need to be wholly or directly owned by a sanctioned person to come under the scope of the sanctions regime. PEP and adverse media screening together can help with this, helping firms identify an individual who may serve as a nexus for multiple suspicious actors. 

While the US and EU are coordinating their response to Nicaragua, it should also not be assumed that sanctions imposed by both are going to target exactly the same people or entities. Firms should ensure they’re screening against all relevant sanctions lists.

To help firms navigate the complex sanctions landscape in Nicaragua, OFAC has developed comprehensive guidance. 

Find out more about the state of financial crime in 2022 by pre-registering for this year’s report.

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In October 2021 the International Consortium of Investigative Journalists (ICIJ) published the results of an explosive investigation known as the Pandora Papers

More than 600 journalists from across 117 countries including from the BBC, The Washington Post, and The Guardian, waded through the files for months, and we can now see the results of their investigation. Continue on to learn more about the Pandora Papers leak.

What are the Pandora Papers?

Consisting of almost 12 million documents, the Pandora Paper leak was the biggest data leak of all time and highlights how 35 world leaders and more than 100 billionaires, business executives, and celebrities have hidden several trillion dollars in more than 29,000 offshore companies spanning territories around the world.

The Pandora Papers surpasses the ICIJ’s 2016 Panama Papers release, which was made up of 11.5 million documents.

According to ICIJ estimates, the money held offshore ranges somewhere between $5.6 trillion to $32 trillion.

Pandora Papers Leak: What Has Been Revealed?

The ICIJ has established links between offshore assets and over 300 top executives and politicians who created almost 1,000 shell companies, many of which were registered in the British Virgin Islands.

Some of those implicated in the Pandora Papers leak include King Abdullah II of Jordan who created at least 30 offshore companies. Using these companies, he spent more than $106 million purchasing 14 luxury properties in the United Kingdom and the United States.

Former UK Prime Minister Tony Blair avoided paying £312,000 in stamp duty land tax, and the outgoing prime minister of the Czech Republic failed to declare an offshore investment company that he used to purchase two French villas for more than €14 million.

It was also revealed that the ruling family of Qatar avoided paying £15.8 million in tax (approximately $25 million) on a London ‘supermansion’ while prominent UK Conservative party donor, Mohamed Amersi, was involved in one of Europe’s biggest corruption scandals.

Why was the Pandora Paper Leak Significant?

While the Pandora Paper leak has exposed vast hidden fortunes tucked away by world leaders, politicians, and business executives, they have also shown how anti-money laundering (AML) regulations are being circumvented through shell companies.

For example, according to the ICIJ, at least 26 companies in Switzerland appear in the Pandora Papers, and these have provided services to clients who are connected to offshore companies who were or are currently being investigated for money laundering offenses. Legislators in Switzerland recently passed a major revision to AML laws, but they have been criticized for being too lax.

While setting up and operating an offshore company isn’t inherently illegal, the secrecy offered by offshore tax havens has provided opportunities for criminals. That’s because these offshore companies can be set up in a way that hides the ultimate beneficial owners, making it possible to channel and launder dirty money through them.

Members of the European Parliament (MEPs) have been vocal in expressing their disgust at the contents of the Pandora Papers and have accused governments of enabling money laundering and tax evasion by not properly reforming domestic tax laws. In response, the European Commission has agreed to present new legislative proposals to tackle tax evasion by the end of the year.

The Financial Action Task Force (FATF), the global AML/CFT standard setter, also issued a comment following its October 2021 Plenary Session: “Recent revelations in the Pandora Papers once again underscore the importance of ensuring transparency about the true beneficial ownership of companies to stop criminals from hiding their illicit activities and proceeds behind complex corporate structures.”

The FATF has also published proposals to amend the language for its ‘Recommendation 24’ to ensure greater transparency around the beneficial ownership of legal persons. For example, it is looking to change “Countries should take measures to prevent the misuse of legal persons for money laundering or terrorist financing” to “Countries should assess the risks of misuse of legal persons for money laundering or terrorist financing, and take measures to prevent their misuse.” Responses to the consultation are due by December 3rd 2021.

What the Pandora Paper Leak Revealed for Compliance Teams

While there are often legitimate reasons to establish offshore entities, the ICIJ’s investigation has illustrated that AML and know your customer (KYC) requirements are not always adhered to. This raises the prospect that these entities could be used to engage in tax evasion, money laundering, and other unlawful activities.

While the details of the Pandora Papers are shocking, compliance officers should focus on the bigger picture by considering the risks to their AML/KYC efforts that the Pandora Papers leak has highlighted.

Adverse media monitoring can help firms to conduct a comprehensive, risk-based approach. This is especially true now that so many leaked Pandora files are in the public domain. Client lists should also be scrutinized, with a particular focus on enhanced due diligence checks surrounding shell corporations, trusts, and corporate service providers. Firms might also find it valuable to explore their exposure to politically exposed persons (PEPs) and the risks that they pose given the revelations of the Pandora Paper leak.

And as the European Commission has committed to exploring new regulatory avenues, compliance teams should also expect to see new developments in anti-money laundering legislation, particularly in relation to working with offshore companies.

Pandora Paper Leak Compliance

Discover what the pandora paper leak means for AML/CFT compliance.

Learn More

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Making headlines across the globe, the Pandora Papers were leaked by the International Consortium of Investigative Journalists (ICIJ), working with more than 140 media organizations including The Guardian and BBC in the UK and L’Espresso in Italy. The scale of the Pandora Papers investigation is larger than previous leaks, such as ICIJ’s landmark Panama Papers investigation – which in 2016 led to police raids, the fall of prime ministers in Iceland and Pakistan, and helped drive new anti-money laundering laws (AML) in the European Union (EU). In 2017, the Paradise Papers highlighted countries where laws enable ultimate beneficial owners (UBOs) to be hidden, and how wealthy individuals are exploiting shell company structures. Finally, the FinCEN files leak exposed financial institutions that have been complicit in the movement of trillions in illicit funds. 

While the Pandora Papers have exposed the hidden fortunes of world leaders, billionaires, and politicians, they also cast a light on how anti-money laundering rules are being circumvented through a network of shell companies. 

European investigations

European personalities implicated in the leaked documents include former UK Prime Minister Tony Blair, Czech Prime Minister Andrej Babiš, and Dutch Finance Minister Wopke Hoekstra.

Fears of loopholes in Swiss AML laws are strengthened by the Pandora Papers. Between 2005 and 2016, at least 26 Swiss firms that appear in the papers provided services to clients whose offshore companies were later investigated for money laundering and other financial crimes. 

Russian nationals are also disproportionately represented in the Pandora Papers. The ICIJ’s analysis showed that Russians are behind 14% of the more than 27,000 companies whose ownership details were exposed by the leak. 

The Pandora Papers also revealed the high net worth owners of UK properties that were bought using offshore firms. Former PM Tony Blair and his wife purchased a £6.45m Victorian building by acquiring a British Virgin Islands company that held the property, saving more than £312,000 in stamp duty. And £7.5m in earnings from Unaoil – a business that paid bribes to secure oil and gas contracts – was funneled offshore and invested in UK property, including a cinema complex and business park. 

Purchasing and owning property via an offshore company is legal, but it is also a common way for criminals to move and hide illicit wealth. In 2018, the UK government published draft legislation that would require the ultimate owners of UK properties to be declared. However, it has not yet been presented to Parliament meaning it is unlikely to become law soon. 

Meanwhile, a 2019 parliamentary report said the UK’s financial system and property market attracts people “such as money launderers, who may wish to use property to conceal illicit funds”. It said criminal investigations are often “hindered” because police cannot see who ultimately owns properties. The UK government recently raised the risk of money laundering through the property from “medium” to “high”.

Following the leak, the European Commission agreed to present new legislative proposals to tackle tax avoidance and tax evasion by the end of the year. 

During a debate in plenary, MEPs unanimously expressed disgust at the Pandora Papers’ revelations and accused EU governments of enabling a decade of tax dodging through an inability to properly reform outdated tax laws. 

Days earlier, finance ministers were criticized for removing three countries (Anguilla, Dominica, and Seychelles) from its blacklist of global tax haven offenders.

Johan Langerock, political adviser for the European Greens said: “To combat tax evasion and money laundering, it is important to know who the beneficial owner of a company or other legal entity is. However, this criterion is still not considered in the EU’s blacklist, which renders this tool less effective.”

Key takeaways for compliance teams

For compliance teams, there is much to unpack in the Pandora Papers. An important first step is to understand the types of exposure being reported in the papers and to revisit any clients whose risk level may need to be reassessed based on this.  Adverse media screening can help surface links for investigators when they are assessing financial crime risks, particularly now that so many leaked files are in the public domain. 

Given the increasing frequency of investigative exposés, firms should consider setting aside resources and/or developing a contingency plan in the event that they need to respond quickly to new stories and handle any regulatory or law enforcement inquiries they generate.  

Client lists should also be scrutinized. Where relevant, compliance teams should ask enhanced due diligence questions around trusts, shell corporations, corporate service providers, and known jurisdictions that are commonly mentioned in these leaks. 

In particular, firms should explore their exposure to Politically Exposed Persons (PEPs), the risks they pose, and how these can be mitigated. The lack of a consistent global approach to how PEPs are defined makes this harder for compliance teams, but revisiting relationships, particularly through adverse media checks, is key.

In addition to mitigating legal risks, firms should also act to counter reputational risks. Immoral but not illegal behavior such as tax avoidance won’t lead to regulatory action, but it could damage the trust of customers and prospective investors. Environmental, social, and corporate governance (ESG) risks are also a key threat to a firm’s reputation.  

As developments in the European Parliament so far have shown, FIs should also expect to see movement on new anti-money laundering and corruption legislation. In particular, firms should anticipate new registration requirements for offshore property owners. 

To explore the latest financial crime trends, challenges and hotspots, download our new report: State of Financial Crime 2021: Mid-Year Review. 

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ComplyAdvantage’s comprehensive data coverage means OakNorth Bank is now able to use one single platform to onboard and monitor customers against all relevant databases. The solution’s customizability has made it easy to configure search algorithms and select the databases most relevant to the bank’s customer base and business priorities.

The application’s easy-to-use interface means that inputting and managing data within the system is simple. Daily hits are easy to review and audit, and cases that require additional due diligence can be quickly escalated to senior members of the Financial Crime team. Maria Varley, Head of Client Onboarding (Lending), said: “ComplyAdvantage gives me a high degree of control via various reports and the case management system. It is easy to generate reports, which enable quick audit reviews and greater visibility into the data.”Thomas Szymanski, Senior Operations Manager (Deposits), continued: “Since we launched, all new applicants only have a 2.3% hit rate so far and the overall portfolio (which includes all existing customers we migrated over from our previous provider) has a 4.1% hit rate. This ultimately means the team can spend time less time reviewing false positives and more time on value-add activities.”

The exceptional support provided by ComplyAdvantage’s customer success team also played a central in OakNorth Bank’s decision. Maria said:

“One of the biggest positives about dealing with ComplyAdvantage was their customer service. From the very first engagement, the team was brilliant and extremely supportive. Any queries we have are answered in a matter of hours, if not minutes. It is great to have somebody providing you with this level of very personalized support.”

The Company

OakNorth Bank is a leading UK bank that provides fast, flexible, and accessible debt finance of £500k to £45m to what it calls the ‘Missing Middle’ – businesses that are the most significant contributors to economic and employment growth. OakNorth Bank was launched in September 2015 to address this funding gap in the UK.

OakNorth Bank’s lending is supported by its award-winning savings franchise, offering a range of Financial Services Compensation Scheme (FSCS)-protected products to savers at all stages of life and businesses at all stages of growth. Its convenient, competitive, and frictionless deposit offering, coupled with its exceptional customer service, has enabled it to attract over 170,000 savings customers and achieve a depositor Net Promoter Score of 77.

Industry: Commercial Lending and Banking
Product: AML Customer Screening and Ongoing Monitoring

The Challenges

For its lending operations, OakNorth Bank’s screening processes were fragmented: its compliance team used one provider for anti-money laundering checks and another for all other customer screening checks.

Meanwhile, for its savings operations, its screening and ongoing monitoring processes to identify whether customers are a Politically Exposed Person (PEP) or subject to sanctions, were time consuming and generated a high number of false positives.

The company therefore needed an API-driven solution that would integrate into its existing tech stack, streamline its compliance workflows, and consolidate the data into one unified view. As its lending operations are distinct from its deposit operations, it was also critical that the case management workflow could be kept separate.

The Solution

After a thorough selection process, OakNorth Bank chose ComplyAdvantage’s customer screening and ongoing monitoring solution because its high-quality, comprehensive data made consolidation of workflows possible. Its simple, two-way RESTful API would also facilitate quick data transfers between the application and OakNorth Bank’s systems.

ComplyAdvantage’s customer success team worked closely with OakNorth Bank’s compliance team to configure the search parameters and tailor the case management workflows to their needs in line with their risk appetite.

For deposit customers, the ComplyAdvantage team went through various rounds of in-depth testing of the PEP & sanctions screening process, with an emphasis on tailoring the approach to OakNorth Bank’s screening & monitoring needs and required lists. ComplyAdvantage’s PEP ranking is based on FATF’s categorization and the continuous PEP Enrichment Data Pipeline is a permanent feature of the PEP data collection process. Due to the focus of reducing false positives, a data test was run at 20%, 30%, 40% and 50% fuzziness levels and against all Sanctions, Watchlists and PEP classes. Utilising search profiles allowed OakNorth Bank to reduce the match rate even further.

The post OakNorth Bank appeared first on ComplyAdvantage.

For ComplyAdvantage, the United States 2020 elections followed a massive improvement in the scope and granularity of our coverage of politically exposed persons in the United States. Massive, all-at-once changes throughout a large multi-tiered public administration are notoriously difficult to capture in an accurate and timely manner using manual methods, but our automated detection systems allow us to follow the grain of leadership changes as it trickles through the layers. We take a close look below at the positions that changed hands starting with November 4. 

Federal Officials – PEP Class 1

The most prominent PEP changes after the US elections are typically changes in the US Congress and the US Presidency. 

For the US Senate alone, our PEP monitoring systems detected 8 departures and the 6 additions within a day; effective January 3. The House of Representatives saw 60 incoming members and 57 outgoing members on January 3, all of whom were picked up within a day. We quickly identified the out-of-ordinary changes, such as the Senate’s resignation of Kamala Harris and the departure of Kelly Loeffler, as well as the three late additions due to Georgia’s Senate runoff and Harris’s replacement. The House of Representatives recorded the resignation of Cedric Richmond, who was later selected by President Biden as Special Advisor. 

Changes to the US Presidency were captured in our database on Inauguration Day, on January 20. In addition to the President and the Vice President, this also includes the members of the cabinet appointed by the new president. Of particular note, President Biden structured a slightly larger Cabinet than the previous administration, with 25 incoming members replacing the 23 outgoing members. 

Beyond this point, the US system becomes muddled, with a complicated web of presidential and secretarial-level appointees requiring Senate confirmation heading the 15 departments and the hundreds of subordinated agencies. Our internal classifiers are designed to ensure all relevant types of institutions in the government apparatus are captured. 

Significant change has already taken place: the offices under the presidency have recorded 42 outgoing and 27 incoming members on a PEP-relevant level,  as these are the most immediate staff of the new President. 

Changes in the leadership of cabinet-level agencies reveal the challenges of the Senate confirmation system. The “rank and file” of presidential appointees is made up of Deputy Secretaries, Under Secretaries, Assistant Secretaries, Inspectors General, and so on, which garner less attention from both the media and the Senate. As such, from the 284 outgoing leaders, of which 14 were detected even before Inauguration Day, only 194  positions have been so far filled and uploaded to their official websites. The entities from this segment are generally responsible for sectoral policy-making and budgetary disbursement within their department’s line of work and are expected to remain dynamic even after the initial wave. 

A similar ongoing wave of change is still occurring in the agencies that report to the cabinet departments, where 160 outgoing members were so far replaced by 117 new appointees. These entities are a mix of political appointees and career civil servants heading their particular agencies’ policy implementation and use of funds. While this may not be seen as particularly proportional change, it still remains a dynamic segment requiring ongoing monitoring due to the sheer volume of institutions. 

The wave of change also appears to have affected the military segment, with 46 high-ranking military officers across all branches of the armed forces leaving their positions before the Inauguration Day on January 20, followed by a second wave of 32 outgoing members the following day. Under the outgoing president, 69 military leaders ascended to positions picked up by our system and were followed by an additional 21 under the new president. While most military leaders achieve their positions by rank, and therefore these changes would not be correlated to the 2020 election, certain subsets are subject to a direct presidential appointment or the appointment by a political appointee. Further changes are expected. 

Political parties took advantage of the election with a refresh in their national leadership, as the Democratic Party replaced 7 members of its national executive committee with 5 new additions on January 20, picked up within 5 days by our systems. The Republican party similarly replaced 2 of its national leaders with 5 new leadership members. 

International Representatives – PEP Class 2

Diplomats are generally reserved as a special mention in PEP screening requirements and ambassadors and charge d’affaires are nearly universally included by countries in the list of positions to be considered as PEPs. The US system uses a mix of career diplomats and political appointees to fill ambassadorships and lengthy Charge d’Affaires postings before an ambassador to a particular country is nominated and then confirmed by the Senate. 

Changes to top-level embassy postings were detected before inauguration day, as 15 positions were vacated. Out of these, 8 were ambassadorship posts, of which 5 were political appointees and 3 were career diplomats. In December, 5 Ambassador positions were vacated and only 1 was filled. One of the most high-profile position changes was that of the US Embassy in Beijing, which saw the departure of Terry Branstad, who resigned as Ambassador in order to work on the Trump Presidential Re-election Committee. Brandstad was replaced by a Charge d’Affaires, a career diplomat with more than 30 years of experience in the Foreign Service. Changes for this type of entity are generally frequent and not all detected changes would be correlated with the change in administration. 

Incoming embassy leaders were detected in lower numbers, with 8 positions being filled. Only 2 of those were ambassadorships, both career diplomats. This raises the total number of vacant ambassadorship posts which can be potentially filled by the Biden administration to 89. 

State-Level Officials – PEP Class 2

State-level elections add an additional layer of complexity and volume, making automated change detection critical. 

Elections were held for 86 of the 99 state legislative chambers, with nearly 6,000 state legislator seats being up for election. Our systems detected changes occurring in 90 state legislative chambers after Election day, with the difference explained by various other ad-hoc resignations. All in all, from the nearly 6,000 seats contested, around 1,300 changed hands. 

States employ different legislator terms and election cycles, from 2 or 4 years for both chambers, to a split of 2 years for the lower chamber and 4 years. Some elect all members at once, others use a staggered system similar to the US Senate. 15 states employ term limits on their legislators. Some hold legislative elections even in off years. This segment has a high degree of variability but remains important from a compliance perspective, as some jurisdictions (notably the United Kingdom) explicitly require financial institutions to treat state-level legislators as PEPs.  

States also have their own directly-elected executives, with 11 of the 50 governorships up for election in 2020. Our systems are able to pick up changes to not only the governors but also other cabinet-level appointed or elected officials, totaling 120 departures from office and 110 additions. This category is expected to remain fluid since not all positions included are elected. 

State-level elections also included members of state supreme courts, which saw 27 outgoing state justices replaced by 24 newly elected ones in the supreme courts of 16 states. 

Local-Level Officials – PEP Class 4

Finally, a host of cities and counties across the United States elected their new local executive and legislative leaders. Out of the largest cities and counties in the country, our system detected changes in 25 executive bodies and 4 councils, totaling 73 entities leaving office and 60 new officeholders. 

Due to the decentralized nature of the US system and the general wealth and size of its local administration units, these entities can hold influence over significant public funds or impactful public policies. 

Profile Consolidation

Our automated systems collect information from official sources to detect individual position changes. Due to the nature of political positions, not all of the 2,200 new individual positions filled since the US elections represent new PEPs. Some entities have switched from previous, unrelated positions, while others ended up holding several postings at the same time. 

From a risk perspective, financial institutions need to be able to use all relevant data when making their determinations. A new PEP and a more experienced PEP could result in different risk levels, based on the institution’s assessment. In order to reduce noise, additional systems detect the different positions of the same entity and consolidate the information in a single profile. 

What Businesses Need to Know

The United States does not require its financial institutions to screen against domestic PEPs, take additional due diligence measures for domestic PEPs or automatically classify them as high risk (not to be confused with the defined requirement for the PEP subset of Senior Foreign Political Figures) as has been made clear in the latest statement issued by the Federal Banking Regulators. The regulators do not interpret the term “politically exposed persons” to include US public officials. 

US financial institutions are still required to conduct customer due diligence and create a risk profile for all their customers. Having the most up-to-date and accurate information on the political exposure, including relatives and close associates, of their customers can help financial institutions have a clear picture of the risks they are exposed to and take the necessary steps to mitigate them. 

The requirements become clearer and stricter for foreign financial institutions dealing with US customers. Canada, the largest export market for the United States, differentiates between domestic and foreign PEPs and requires, among others, that financial institutions determine if a customer is a foreign PEP on onboarding, reassess that classification periodically or when a fact is detected, apply automatic high-risk status for foreign PEPs and apply the principle of “once a PEP, always a PEP”. 

As the United States remains the world’s largest trading nation and most countries have clear requirements for foreign PEP screening, having access to a PEP database that can quickly detect all-at-once changes is crucial for compliance. 

The post A Chronicle of PEPs: 134 Days After the US Election appeared first on ComplyAdvantage.

IPT Africa is a regulated payment provider providing clients with the ability to manage and deliver payments from a single interface throughout the African continent. Covering all African currencies,in real time with full transparency on pricing and multiple delivery channels IPT offer a unique proposition for Corporate entities with African payment requirements.

Industry: Payments
Product: Customer Screening & Monitoring (CSOM)

The Challenge

IPT Africa, a Mauritius-based firm, partners with and provides services to companies located around the globe. They must comply with the regulations of several jurisdictions — and their compliance processes must be flexible and robust enough to adapt to regulatory changes as they happen. IPT Africa’s compliance team also handles a significant amount of data and found themselves hindered by a high number of false positives, which meant their team needed to expend a lot of manual effort when checking for risk.

IPT Africa benchmarked different AML vendors and took on board recommendations from clients and liquidity providers to ensure that their chosen provider would perfectly match their requirements. They selected ComplyAdvantage as their AML provider because their solutions offered real-time, automated insights and had a clear advantage over the market incumbents, whose solutions had become static and could not deal with ever-changing global regulations.

The Solution

IPT Africa’s use of the ComplyAdvantage platform enables them to efficiently screen and monitor prospective customers and current ones for risk against sanctions and watchlists, PEPs, and adverse media data. In partnering with ComplyAdvantage, IPT Africa has been able to move away from delayed flat file uploads and instead has configured automated monitoring. Their team can screen and monitor against real-time data so that they can be the first to know about critical changes in risk status. ComplyAdvantage’s solution also allows IPT Africa to ensure full regulatory compliance across all jurisdictions.

The Outcome

IPT Africa’s compliance team can now make informed decisions about client risk, escalate potential high-risk cases and take actions in real time, which ultimately shortens the time it takes to onboard new customers. False positives have also been reduced by 60%, dramatically reducing manual efforts and, therefore, freeing up time for their team to focus on other aspects of the business to scale the company.

The post IPT Africa’s false positives have been reduced by 60% appeared first on ComplyAdvantage.

The potential threat that cryptocurrencies pose to the financial system is significant: in the first five months of 2020 alone, research suggests that cryptocurrency thefts, hacks, and fraud amounted to around $1.36 billion – one of the highest levels on record. To manage that disruptive effect, regulators around the world have imposed new compliance rules to ensure that cryptocurrency service providers, or any institution that deals with crypto, are able to detect and prevent threats and ensure that the authorities are made aware of emergent criminal methodologies.

As a foundation of effective AML, the transaction monitoring process requires firms to scrutinize their customers’ transactional behavior in order to spot attempts to commit crimes such as money laundering. Since criminals may be able to exploit the anonymity and speed of cryptocurrency services to conceal their identities and move funds quickly between accounts, crypto transaction monitoring becomes both more important and more challenging. 

To address that challenge, firms should understand how to adapt and shape their AML transaction monitoring process to deal with the emergent risks of cryptocurrency services and ensure that they are able to achieve ongoing compliance in a changing regulatory landscape.

Cryptocurrency Transaction Monitoring Challenges

Cryptocurrency money laundering methodologies are similar to other types of cybercrime in the sense that they pose a new set of AML risks that complicate the transaction monitoring process. The specific challenges of cryptocurrency transaction monitoring include:

• Customer anonymity: Cryptocurrency transactions may be carried out anonymously, allowing high-risk customers to evade standard monitoring measures in order to transfer illegal funds. 
• Transaction speed: Cryptocurrency transactions can take place in a matter of seconds, allowing money launderers to move large volumes of illegal funds around quickly and stay ahead of crypto transaction monitoring measures. 
• Structuring potential: Money launderers may easily structure multiple cryptocurrency transactions, transforming illegal funds in a manner that does not trigger reporting thresholds or AML monitoring alerts.  
• Use of money mules: An extension of the anonymity benefits associated with crypto transactions, criminals may engage third-party individuals to act as money mules that conduct transactions on their behalf and so avoid attracting the attention of transaction monitoring measures. 

Adding to the complexity of crypto transaction monitoring is the unfamiliarity of legislators, regulators, banks, and financial institutions, with the crypto-financial space. Cryptocurrency technologies are relatively new and are evolving constantly: that pace of changes means that national authorities have to work hard to adapt to a new risk landscape while at an international level there is broad regulatory divergence.

Red Flags for Cryptocurrency Money Laundering

In 2020, the Financial Action Task Force (FATF) released guidance on the characteristics of cryptocurrency money laundering schemes, drawing on internal investigations and from case studies of member-states. The publication, Virtual Assets Red Flag Indicators of Money Laundering and Terrorist Financing, set out a series of red flag indicators intended to help firms calibrate their cryptocurrency transaction monitoring measures and better respond to the new risk landscape.  The red flag indicators of cryptocurrency money laundering include:

• Transactional behavior: Unusual cryptocurrency transaction types such as high frequencies of transaction in a short period of time or the rapid deposit and withdrawal of funds into a recently opened account. 
• Geographical risks: Transactions that move cryptocurrency into or out of high-risk countries or jurisdictions or that send currency to exchange in a country other than the one in which the customer is resident. 
• Structured transactions: Multiple cryptocurrency transactions that are deliberately structured in amounts that do not trigger reporting thresholds. 
• Anonymous transactions: Criminals seeking to exploit the anonymity of cryptocurrencies may use privacy coins, trade on unlicensed exchanged sites, or use proxies to make trades. Criminals may also seek to anonymously control multiple cryptocurrency wallets from the same IP address. 
• Inadequate CDD: Cryptocurrency transactions involving accounts that have inadequate customer due diligence or involving customers that have denied or evaded requests to provide identifying information. 

Money-muling: Elderly and financially vulnerable customers or customers that seem unfamiliar with cryptocurrency technology may be being used as money mules to carry out transactions on behalf of money launderers.

AML Compliant Cryptocurrency Transaction Monitoring

After revisions to the FATF Recommendations between 2018 and 2019, new guidance was issued on cryptocurrency service providers, bringing them under the scope of existing AML/CFT compliance regulations. Under their new obligations, firms are required to deploy risk-based cryptocurrency transaction monitoring measures that capture the money laundering risk that their customers present. 

In practice, that means firms should perform risk assessments of their customers and put ongoing Know Your Customer (KYC) measures in place to ensure that assessment remains accurate. KYC is another foundation of conventional AML transaction monitoring and holds the same importance in a crypto context, helping firms understand who a customer is, their financial history, and their risk profile. 

With that in mind, key compliance considerations for crypto transaction monitoring include:

Customer due diligence: Crypto service providers should build their risk profiles and cryptocurrency transaction monitoring measures on accurate CDD. In practice, this means acquiring verifiable digital credentials from customers including official documentation such as passports or driving licenses or even biometric identifiers such as fingerprint or face recognition.

Screening and monitoring: Cryptocurrency service providers should inform their transaction monitoring process by screening and monitoring for a variety of crucial risk data including their customers’ PEP status, involvement in adverse media stories, and presence on relevant international sanctions or watch lists. 

Smart technology: Transaction monitoring in the crypto space involves the collection and analysis of vast amounts of data that would be impossible to process manually. In order to manage that requirement, firms should integrate a range of automated smart AML tools to add speed to the crypto transaction monitoring process, enhance accuracy, and ensure that suspicious activity is detected and reported to the authorities in a timely manner.

The post Cryptocurrency Transaction Monitoring: What You Need To Know appeared first on ComplyAdvantage.

Holvi’s mission is to help entrepreneurs by providing a seamless user experience in online banking and business management. As they experienced fast growth, Holvi wanted to streamline their operations to ensure they could continue to provide top-of-the-line product development and user experience for their end customers. When providing superior quality is the number one priority, Holvi knows it makes sense to source some back-office operations to a reliable partner.

ComplyAdvantage was selected to help make Holvi’s AML processes more robust and handle more cases. Implementing the EU’s 4th Money Laundering Directive (4MLD) would have required a lot of internal resources to manage, and ComplyAdvantage ensures Holvi can continue to meet global requirements in a changing regulatory environment. With ComplyAdvantage, Holvi can now concentrate on their core business: keeping entrepreneurs happy.

Industry: Payments

Product: Screening and Ongoing Monitoring

The Challenge

Outdated data & new regulatory requirements

Faced with a rapid growth trajectory, Holvi’s current system was not fit to scale. With an ever-increasing volume of risk indicators and limited resources internally to monitor for changes, Holvi was struggling to keep the risk data up to date. The deadline for 4MLD was also quickly approaching, which increased the scope of screening required to include the coverage of domestic politically exposed persons (PEPs).

Manual monitoring of clients

In addition to challenges with maintaining accurate risk data and screening clients at onboarding, Holvi found it difficult to monitor the changing risk profiles of their customers efficiently and regularly, in accordance with expectations laid out in 4MLD. Their existing manual monitoring process would not be sustainable to meet the demands of their fast growth. They were also receiving a large volume of false positives, and risk decisions made at onboarding needed to be manually remediated again. They wanted a system that could not only automate ongoing monitoring and proactively alert the compliance team when relevant risks change, but one that could safely and effectively whitelist entities once checked to help reduce time-consuming false alarms.

Fragmented workflow causing delays

Offering a fast and reliable service to their clients is what sets Holvi apart from other digital banking providers. However, due to the company’s rapid growth, they knew their existing approach to screening for AML risk at onboarding and their ongoing monitoring processes, as well as transaction screening, would cause delays and friction in the customer experience and payment process. Therefore, they needed a solution to enable fast and safe onboarding and payment screening within their existing banking platform. They wanted a seamless solution delivered via an API that could offer the reliability and flexibility required.

Challenges:

• Multi-jurisdictional regulatory environment
• High volumes of transactions
• Multiple business models with unique risk profiles

Solution:

• Flexible transaction monitoring solution
• Easy-to-configure risk scenarios
• Partnership approach to implementation and support

Benefits:

• Tailored solution to meet complex regulatory requirements
• Ability to implement a proper risk-based approach
• Reduced false positives
• Improved reporting and audit trail

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Curve is a banking platform that consolidates multiple cards and accounts into one smart card and app. Curve was founded in 2015 with a mission to simplify and unify the way people spend, send, see and save money, and the company has an ambitious goal to create a connected world of money that is tailored individually to each customer.

Industry: Payments FinTech
Products: AML Screening and Ongoing Monitoring — Sanctions and PEPs

The Challenge

Curve was conducting manual checks for sanctions and PEPs, which were slow and time-consuming, impacting their onboarding efficiency and customer experience. Curve was, therefore, looking for a more scalable AML solution that could help them reduce the pain of onboarding new customers and ensure they fulfill their regulatory requirements.

Objectives

Curve was initially looking to automate the screening process for new customers and reduce the volume of alerts to speed up onboarding time. The company wanted a solution that balanced protecting the business from financial crime with fulfilling their customers’ expectation that the onboarding process would be quick, easy and able to be done via their smartphone.

Since Curve started working with ComplyAdvantage in 2017, the company has experienced rapid growth, which, given the large volume of customer applications, has made this objective even more important to the business. In just two years, Curve’s customer base has grown to over a million customers, which means that having a tool that is highly configurable, flexible and scalable is paramount.

The Solution

Curve was rapidly increasing its global operations, so what differentiated ComplyAdvantage from competing providers was the ability to deliver real-time alerts across different jurisdictions through the use of a two-way API for straight-through processing.

The customer success team at ComplyAdvantage visited Curve in August 2019 to look into reducing Curve’s hit rates and false positives. The team started by diving deep into possible causes and invested time in training Curve’s personnel so they could get the most use out of the tool. ComplyAdvantage started sending through an extra parameter country code for PEPs, which allowed Curve to be more targeted in their screening approach, and cleaned up legacy data, which had been causing a higher volume of false positives. ComplyAdvantage then came up with suggestions around how to reduce Curve’s hit rate, allowing them to only focus on the lists that mattered to their business.

These proactive insights, combined with guidance around how to configure their risk-based approach, allowed ComplyAdvantage and Curve to establish a strong partnership based on trust in the team and the data provided.

The Outcome

Curve was able to automate their operations and reduce their team’s manual efforts by reducing hit rates from 3.5% in January 2019 to 0.91% by January 2020. This allowed Curve to speed up the onboarding process while also ensuring full compliance to AML/CFT regulations. To support their growth, Curve has recently decided to upgrade the entity screening capacity by several million entities, allowing their team to remain the same size despite the increasing volumes.

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