Welcome to the first edition of Chatterbox in 2022 and we hope that the revised form and presentation for this edition is helpful and supportive as we strive to continuously improve our performance. Your feedback on ‘what we say’ and ‘how we say it’ really is welcomed.
During 2022 we will be providing regular thematic reviews of news and enforcement activity that is intended to support financial crime compliance professionals to remain up to date.
In this edition, we have focussed on fraud because the underlying aims, objectives and methodologies of modern-day fraudsters underpin a range of crimes including money laundering, bribery, corruption, tax evasion and of course theft of data and assets.
During 2022 the key fraud trends that we expect to continue to see include:
1. Retrospective inspection and disclosures relating to COVID-related frauds, including the awarding of supply contracts (cronyism) and bounce-back loans (application fraud)
2. Cyber-related crimes leading to the theft of personal and corporate data and assets, and kidnap for ransom of commercial websites
3. A focus on consumer-based frauds, including investment scams associated with cryptoassets and authorised push payment scams that are conducted by brazen criminals who target the most vulnerable members of our friends and family.
We hope that by shining a light on just some of the issues and trends that we are monitoring, and which are included in our teaching and learning programmes, that we can help to raise awareness and deter and detect new crimes occurring.
Funeral Plan Fraud
SECTION 1 – CRIME AWARENESS
– Countries to Watch on the 2021 Corruption Perceptions Index
– Pandemic profiteering: how criminals exploit the COVID-19 crisis
– FinCEN Analysis Reveals Upward Trend of SARs Related to Wildlife Trafficking
SECTION 2 – REGULATORY RESPONSE
– SEC charges two in $124 Million Crypto Fraud Operation
– Multi-Agency action to stop fake COVID-19 cure claims
– Singapore measures on Non-Face-to-Face Customer Due Diligence
– Canadian government invoked emergency legislation to expand AML Rules
– Hong Kong Regulators take forward supervision of Virtual Asset Providers
SECTION 3 – ENFORCEMENT ACTION
– Convicted solicitors ordered to pay back £200,000
– Australian casino operator accused of 547 breaches of anti-money laundering laws
– Wealth Crypto FX added to FCA Warning List
– Two men involved in laundering £15 million sentenced to a total of 12 years in jail
During initial stages of the global pandemic, the UK Fraud Advisory Panel set up a COVID-19 fraud watch group who met to share information on emerging fraud threats and trends affecting business. The watch group subsequently identified fraudulent pre-paid funeral plans as an emerging threat1.
Funeral plan fraud targets people with aggressive marketing and exaggerated claims on actual funeral costs, placing pressure on people to invest funds in the belief that this will alleviate the obligation on family members. Direct marketing often prompts the victim to reach decisions promptly by offering time-limited discounts or bonuses. The victim invests money in a plan which becomes a fraudulent loss when family members later discover that the plan was meaningless.
The FCA is assessing authorisation applications from funeral plan providers ahead of the July 2022 implementation date and they will only authorise those firms that can meet these aims:
Raising awareness amongst consumers is a key element of counter-fraud, particularly for the older generation who are likely to be vulnerable to this type of fraud.
Encouraging consumers to only deal with firms that are FCA authorised as this offers access to the Financial Ombudsman Service and potentially Financial Services Compensation Scheme protection.
The European-wide police organisation EUROPOL has published a report Pandemic profiteering, how criminals exploit the COVID-19 crisis4. Which provides an overview of how criminals adapted their activity to exploit the COVID-19 pandemic. The report identifies the key factors for changes in criminal behaviour as being:
An important element of crime prevention is raising the awareness of potential victims, with EUROPOL continuing to inform the general public of scams during the pandemic through preventive social media campaigns and encouraging EU countries to adopt similar measures.
The US Financial Crimes Enforcement Network (FinCEN) publishes Financial Trend Analysis reports regularly on a variety of themes and a recent report is Illicit Financial Threat Involving Wildlife Trafficking and Related Trends in Bank Secrecy Act Data.5
Wildlife trafficking is a major transnational organised crime that threatens biodiversity, damages fragile ecosystems, and can significantly contribute to corruption. Illicit proceeds of wildlife trafficking are estimated to be between $7 and $23 billion per year and account for a quarter of all wildlife trade.
Trend analysis has shown that overall, wildlife trafficking-related SARs filed between January 2018 and October 2021 trended significantly up. While SAR filings have increased, the numbers still appear low in comparison to the estimates of the scale of wildlife trafficking. The assessment of FinCEN is that the SARs are likely capturing only a small percentage of all wildlife trafficking associated illicit financial activity.
The U.S. Securities and Exchange Commission (SEC) has charged two people with defrauding thousands of retail investors out of more than $124 million by using a digital token called Ormeus Coin.6
The SEC provides a framework for analysing whether a digital asset has the characteristics of an ‘investment contract’, whereby securities will be subject to the federal securities laws. In this case the SEC considers those involved were operating two unregistered fraudulent offerings of securities.
The defendants, John and Tina Barksdale, sold Ormeus Coin to investors on crypto trading platforms. Sales were promoted by misleading roadshows, YouTube videos and social media posts falsely exaggerating the nature of Ormeus Coin, claiming it to be supported by one of the largest crypto mining operations in the world.
The SEC has widely circulated warnings on digital asset and crypto investment scams, warning investors of the high risk and identifying red flags such as claims of little or even no risk, with high guaranteed returns.
A U.S. company, B4B Earth Tea LLC, has been marketing a product claiming that drinking the tea will cure COVID-19. The product was promoted on websites, social media posts with videos on Facebook, YouTube and other platforms.
A multi-agency U.S. task force are taking action against B4B Earth Tea, stating that the company has no scientific evidence to back up their claims, either for treatment or prevention. The Department of Justice has filed the complaint on behalf of the FTC and court proceedings continue.
The Monetary Authority of Singapore (MAS) has issued a Circular8 that sets out industry good practices and supervisory guidance on the implementation of measures to mitigate risks associated with the use of non-face-to-face technologies for customer due diligence. For example, firms may be utilising videoconferencing as a means to onboard customers instead of physical meetings, which results in a risk of fraud and impersonation if not correctly managed.
Risk mitigation solutions have been greatly enhanced with the use of evolving technology, ‘RegTech’, and which may involve biometric checks such as facial recognition or document authenticity checks.
The Canadian federal government invoked the never-before-used Emergencies Act 1985 in response to ongoing blockades and occupations arising out of the ‘Freedom Convoy’ protests, by individuals demonstrating against the COVID-19 vaccine mandates and restrictions imposed by the government in Ottawa9. The action prohibits certain activities related to the blockades, impacting on crowdfunding platforms, payment service providers and other financial service providers that may be involved in the flow of funds to persons or entities involved in the blockades.
Individuals can be ‘designated’ if involved in the illegal protest activity and their actions amount to participating in a prohibited public assembly, travelling to participate in such activity or logistically supporting activity by, for example, using or providing property to facilitate or participate in any such assembly. With concerns that those involved were using crowdfunding platforms and payment service providers to support their protest activity, the government sought to use the scope of Canada’s AML rules to impact upon the illegal behaviour.
The regulation of virtual assets has been taken a step further by the Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) publishing a joint circular on10 intermediaries’ virtual asset-related activities which are identified as:
VA-related products are very likely to be considered “complex products” because the risks of investing in VAs are not reasonably likely to be understood by a retail investor.
A series of requirements include a ‘VA-knowledge test’ when intermediaries must assess whether their clients have sufficient knowledge of investing in VAs or VA-related products and the provision of clear and easily comprehensible information and warning statements for clients.
This action highlights ongoing efforts to regulate the VA sector, with Hong Kong looking particularly from the perspective of investor protection, in addition to AML/CFT risk. The impact on those firms affected will be significant changes to policies and procedures, along with systems and controls which is essential action to ensure compliance with the latest regulatory requirements and guidance.
Two solicitors working at a UK firm in Newcastle used a variety of fraudulent methods to transfer large amounts of money into a cash account they personally controlled outside the business. Ayaz Siddique and Deepankar Dixit were convicted of false accounting in December 2019 and sentenced to terms of imprisonment.
The UK legislation, Proceeds of Crime Act 2002, allows for the confiscation of assets in the control of convicted criminals and police officers continued to investigate the two offenders after conviction to establish their financial activity prior to the offending. Subsequently, confiscation orders granted by the judge amounted to a total of £205,000, which the two offenders were ordered to pay or face an additional prison sentence in default. It is interesting to note that serving the extra sentence does not satisfy the court order, which remains outstanding for the rest of their lives, and beyond as it can be taken from their estate upon death!
The Solicitors Regulation Authority (SRA), has decided to prosecute both Ayaz Siddique and Deepankar Dixit before the Solicitors Disciplinary Tribunal.
Crown Resorts Limited, Australia’s largest gaming and entertainment group, has been accused by the Australian Transaction Reports and Analysis Centre (AUSTRAC) of failing to carry out appropriate due diligence on high-risk customers12. From March 2016, 60 high-risk customers turned over $70bn at Crown’s casinos, with $1.1bn in losses that benefited the company.
AUSTRAC alleges the firm failed to carry out appropriate due diligence on high-risk customers alleging that:
“many engaged in large cash transactions and transacted with cash that appeared suspicious, including cash in plastic bags, shoeboxes or cardboard boxes, cash in rubber bands, small denominations of notes and counterfeit cash”.
AUSTRAC regulates more than 15,000 businesses for AML/CFT purposes, providing guidance and education to help firms protect themselves from being exploited by criminals. The agency has powers to ensure regulated entities comply with the law and can take legal action in cases of non-compliance
The UK Financial Conduct Authority (FCA) provides the FCA Warning List of firms that are not authorised or registered by the body but information suggests they are nonetheless engaged in financial services. The FCA believe Wealth Crypto FX may be providing financial services or products in the UK without authorisation as they advertise as13.
“We build wealth through the stock market, real estate, digital market, gold mining, investments in shares of company stock, Hard Currency exchanges, Crude oil, metals, Energy, Agriculture and turn these assets into cash. At Wealth FX Management our experts get into more details trading process in the open market for ready cash.”
Regulators across the world have warned against the risks of crypto trading. An example being the United States Securities and Exchange Commission (SEC) who published an alert warning investors to scrutinise investment opportunities through websites purporting to operate advisory and trading businesses related to digital assets.
Consumers can check and search the FCA’s Warning List of firms operating without permission or running scams.
Jonathan Porter and Peter Stanley were found guilty of money laundering after a ten-week trial at Southwark Crown Court, as the result of an investigation and prosecution by HM Revenue and Customs (HMRC)14. Porter was the director of alcohol broker ‘Europlus Trading Limited’ and claimed to be supplying wholesalers in Calais who paid him in Sterling. The money was collected by cash couriers, who were overseen by Stanley, and delivered to Porter’s base in London. Porter and Stanley were actually collecting millions of pounds from cash and carry wholesalers around London. Between April 2014 and June 2015, £15 million cash was deposited into bank accounts, derived from the sale of non-duty paid alcohol.
HMRC has launched confiscation proceedings to recoup the stolen money and is also seeking a Serious Crime Prevention Order against both men.
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