How trans-national money laundering affects the US financial industry

How trans-national money laundering affects the US financial industry

by Shawn Polonet, Assistant Special Agent in Charge, U.S. Department of Homeland Security, Homeland Security Investigations, New York

**Disclaimer: The opinions in this article are my own and not necessarily that of my agency
Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I have been in the law enforcement and investigation industry for the past 27 years at the local, state and federal levels.  Much of the last 15 years has been focused on combatting transnational financial crime through training and outreach to the global financial and law enforcement communities, and through leadership of complex financial criminal and civil investigations of money laundering, complex frauds and foreign public corruption.  Currently, I direct the Public Safety Division of Homeland Security Investigation’s New York Field Office.  In this capacity, I oversee several multi-agency task forces established to combat trans-national crime in the New York City area that pose serious threats to community safety, including gang violence, aggravated identity theft and document fraud, weapons and drug trafficking, and employer compliance with federal workforce and labor laws.

What, for you, are the benefits of attending a conference like the Fraud and Financial Crime USA Congress and what can attendees expect to learn from your session?

The benefits to me for attending conferences like the Fraud and Financial Crime USA Congress is the opportunity to share methodologies, trends and patterns of complex, trans-national money laundering activity, and lessons learned as a result of our investigation of this activity with the financial community.

Attendees will gain an insight into a complex and notorious fraud which utilized a combination of corporate identity theft, forged documents, public corruption, money laundering through shell companies and the purchase of real property assets to disguise the source of the illicit funds.  They will also learn red flag indicators of this activity as revealed by the investigative results.

How can trans-national money laundering affect the US financial industry?

Money laundering of any source or origin can affect the U.S. financial industry by destabilizing the integrity of the financial institution involved, as well as the financial community as a whole.  Trans-national money laundering is a particular concern because it has the potential of involving corrupt governments, their leadership, or other politically exposed persons, increasing the likelihood of negative global attention drawn to the affected institution(s), and eroding public confidence in the U.S. financial industry as a whole.  Financial institutions who allow illicit funds to transit through their accounts may face unwanted scrutiny from regulatory and law enforcement agencies and face administrative, civil or criminal proceedings.

Could you provide brief insights into foreign public corruption?

From an anti-money laundering perspective, foreign public corruption poses a serious risk to the integrity of a financial institution and a challenge to its anti-money laundering program.  Corrupt foreign officials and politically exposed persons frequently move illicitly obtained proceeds through shell companies and/or utilize family members or others to conceal the origin and nature of the funds.  Often, the funds are moved into the U.S. financial system to store and/or  purchase luxury goods not otherwise available in the home country of the corrupt official.  As noted above, this activity may lead to scrutiny of a financial institution’s AML program from regulatory or law enforcement agencies.

How is the Magnitsky Act affecting FIs?

The Magnitsky Act specifically identified individuals associated with the arrest, torture and death of Sergei Magnitsky, which resulted in the placement of those individuals on the OFAC sanctions list, and the freezing of assets subject to U.S. jurisdiction by the U.S. Treasury Department.  Any financial institution subject to U.S. jurisdiction must be careful to avoid banking with individuals on the list, or moving funds owned or controlled by those individuals.  Additionally, with the passage of the Global Magnitsky Act in December 2016, financial institutions must remain vigilant for any new individuals or entities subject to sanctions pursuant to the Magnitsky Act, including OFAC sanctions.

How do you see the impact of Fraud and Financial Crime evolving over the next 6-12 months?

Over the next 6-12 months, I believe the trend in fraud and financial crime will be driven by the widening use of cryptocurrency, in combination with the proliferation of the Dark Web.  The Dark Web is increasingly becoming a well-established medium for the sale and exchange of stolen identities, information, and financial data. The relative anonymity of Dark Web markets, and the use of cryptocurrency such as Bitcoin and others, pose a challenge to law enforcement to track criminal activity using traditional methods.  While the use of cryptocurrency and Dark Web channels do not provide absolute anonymity and immunity from detection, it does circumvent the use of traditional financial institutions and therefore avoids the scrutiny of AML and KYC policies and programs, making proactive detection particularly challenging.

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