Article by Tom Wilson and Marc Jones

LONDON (Reuters) – China proposed a set of global rules for central bank digital currencies on Thursday, from how they can be used around the world to highly sensitive issues such as monitoring and information sharing.

Global central banks are looking at developing digital currencies to modernise their financial systems, ward off the threat from cryptocurrencies like bitcoin and speed up domestic and international payments. China is one of the most advanced in its effort.

Mu Changchun, the director-general of the PBOC’s digital currency institute, laid out the new proposals at a Bank for International Settlements seminar.

“Interoperability should be enabled between CBDC (central bank digital currency) systems of different jurisdictions and exchange,” Mu said. The PBOC had shared the proposals with other central banks and monetary authorities, he said.

“Information flow and fund flows should be synchronised so as to facilitate regulators to monitor the transactions for compliance”

“We also propose a scalable and overseen foreign exchange platform supported by DLT (distributed ledger technology like blockchain) or other technologies.”

As digital currencies such as bitcoin gain more traction with mainstream companies and investors, and as private efforts like the Facebook-backed Diem seek approval, the onus is on central banks to accelerate plans to issue digital cash to fend off threats to their control over money.

The PBOC is aiming to become the first major central bank to issue a CBDC, part of its push to internationalise the yuan and reduce dependence on the dollar-dominated global banking system.

The European Central Bank is also exploring the introduction of a digital euro, within the next five years. It’s running into opposition from Germany, though, where the Bundesbank worries that a digital euro could pose risks to banks.

A CBDC that gains wide acceptance in international trade and payments could ultimately erode the dollar’s status as the de facto currency of world trade and undermine U.S. influence, many analysts say.

The U.S. Federal Reserve head, Jerome Powell, has said it is more important for the Fed gets its approach to a digital dollar right rather than leading the pack. Nevertheless, he expects this year to be an important in getting the ball rolling.

China said separately on Thursday it would quicken pilot programmes to develop its digital yuan, as it seeks to boost consumption to shore up economic growth.

Mu added that a key global rule should be a “fair supply of digital currencies” by world central banks to continue supporting the healthy evolution and financial stability of the international monetary system.

A “digital currency supplied by one central bank should not impede another central bank’s ability to carry out its mandate for monetary and financial stability,” he said.

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By Tom Wilson, Marc Jones, MARCH 25, 2021, published on REUTERS

When I was about 10 years old, a neighbor of mine had a picture of an overweight woman on her fridge, cut out from a magazine. She told me it served as a reminder not to overeat.

Some 20 years later, I read about a study that found that people who put pictures of lean and strong bodies on their fridge are healthier than those who look at overweight bodies. The first group can see that there is still work to be done and the fridge stays closed. The second group feels like they are not “as bad” as what they see on the picture, so surely they can have another helping.

Similar studies have shown the negative effects of companies repeatedly sharing with employees the wrongdoing of other employees. When the company newsletter features other employees cheating, lying and stealing, month after month, it has the effect of normalizing the behavior. And if the monthly examples are of a serious nature, employees considering lessor offenses almost feel good that they are not “as bad” as these other employees.

Meanwhile, when companies share stories of employees doing the right thing, they are showing everyone else what the expected behavior is, which often leads to a healthier company.

There is probably room for both types of stories. But just like happily married people extend 5 kind gestures to their spouse for every unkind one, I would recommend a healthy dose of good stories for every bad one.

Article by Ilan Lochoff

The world of terrorist financing has always relied on diverse money transfers through various channels. The decision of which funding channel to choose depends on several considerations –

1. To what extent is the axis secret and threatened by the exposure.
2. How long does it take to transfer the money?
3. Is it possible to trust that the entity through which the funds will pass will not take advantage of the transfer of funds in a way that will harm the organization?
4. Is the sending party capable and interested in transferring the funds using the crypto arena?
5. Purchasing and transferring the virtual currency does not reveal their intentions.
6. Does success in transferring the currency, from the financing side to the recipient side, enable the recipient side to meet its needs – pay salaries, purchase weapons, etc.?
7. Is it possible to transfer donations from entities recognized as terrorist financiers to charities operating under the guise of terrorism?

Answering these recent questions will fascinate and help the crypto currency world in understand the motivations of different terror organizations from the stage of coin mining, through the transfer of virtual coins from one electronic wallet to a another. I’m sure that The terrorist organizations are ready for the challenge. Are you?!

By Ilan Lochoff, March 15, 2021

While there are conflicting views on whether the FinCEN files should have been leaked, it has been a critical reminder about how much work still needs to be done by the financial services sector to combat financial crime. Within the 2,657 leaked files, 2,121 were suspicious activity reports (SARs) representing over $2 trillion worth of transactions, which in itself is only a small fraction of total SARs submitted during the same time period.

There are many lessons to take away from the leaked files, and yet the most visible is the lack of will or disconnect between the identification of suspicious activity and the ultimate action taken to address it. Banks are doing their duty in reporting suspicious activity, but many haven’t shown much interest or ability in going further than that, particularly with clients who bring in a steady stream of revenue. At the root of this problem is the prioritization of compliance or, in other words, an immediate pressure to do something about the suspicious activity in question, a resiliency in seeing the action through and a determination to achieve a confident conclusion.

To this point, one of the biggest obstacles cited for achieving compliance is its cost, when in fact the simplest and perhaps most essential solution is effectively free: that is, establishing a culture of compliance.

Having a culture of compliance states that everyone in the organization, not just those tasked with AML and financial crime prevention roles, should be vigilant and know the consequences of a lack of compliance. Unlike investments in AML technology or the headcount expense of hiring more compliance officers, this particular solution requires only an adjustment in mindset and a commitment by employees across the organization to exemplify that mindset in their daily work.

More articles about company culture from CCI’s archives

It sounds like a simple solution, and perhaps this seeming simplicity is why it is particularly difficult to achieve in reality. Many financial institutions have tried to instill a culture of compliance and have failed because there are so many other competing priorities, including balancing business growth objectives and meeting regulatory requirements. However, building the foundations for a strong culture of compliance has become ever more critical to the success of financial institutions in fighting financial crime, and there are a few cornerstones that can help to establish and maintain it. These are what I refer to as the 3 R’s.

Review

We’ve heard the term “tone from the top,” and whether it’s a culture of compliance or some other corporate cultural identity, the pillars of that culture must first be created at the top, often by the board or C-Suite executives. For most organizations, an established attitude toward compliance likely already exists, which is why it may be more important to review existing attitudes and policies and adjust them accordingly.

We live in a very different world today from when some of those policies were first created; financial crime has expanded, compliance regulation has changed, perpetrators have become more varied and they often have more resources at their disposal. It is therefore imperative that organizational leaders revisit and review the framework within which they approach compliance. That includes everything from official policy to internal and external messaging, informal behaviors and, most critically, assessing AML risks in today’s environment of accelerated adoption of technology. Only a consistent conversation at the top can help set the tone for the rest of the organization in terms of expectations and urgency on compliance.

Reinforce

Reinforcement is core to ensuring that the tone from the top actually becomes everyday behavior. It is one thing to see, read or hear something; it is another thing to do it. Reinforcement is usually what’s missing when it comes to that bridge between knowing and doing. No one wants to feel as if they’re the only individual doing something, and motivation comes much more easily from being part of a bigger movement than being alone. This part of culture-building rests heavily on the shoulders of managers and decision-makers at all levels of the organization, and it includes governance structures, employee engagement, open communications and consistent monitoring.

The best way to demonstrate how this works is through the eyes of a new employee: Not only should they see prioritization of compliance from the top, they should also immediately feel this prioritization through proper training and interactions with their colleagues. Their takeaway should be that when it comes to compliance, there is an implicit understanding of its importance and an explicit acceptance of the clear series of steps to take if there is an issue – and no question at all that those steps should be taken.

Reward

Finally, a culture of compliance should be rewarding for those who belong to it. There is an ongoing debate around whether reward or punishment is the right “incentive” when it comes to promoting compliance, but it should be understood and promulgated that whether or not punishment comes into play, rewards should always be a part of the equation.

Rewarding an employee is often much less complicated than punishing an employee, and it only increases the positive reputation of an organization. If we can ensure that rewards are visible, valuable and relevant for the employee, we increase the chances that a culture of compliance is welcomed and supported by everyone in the organization. Part of this is also ensuring that being rewarded for compliance is not in conflict with other incentives, such as sales targets or other metrics. By ensuring that employees across the organization are rewarded for their positive work toward a culture of compliance, cultivating and maintaining this culture will only become easier over time and ingrained in the very fabric of the organization.

In wrapping up, I am reminded of an analogy the chairman of the board of a pan-Asian financial institution shared with me back in 2010: He described a culture of compliance as equivalent to “preventive medicine.” Once you get sick, it takes a long time to recover; similarly, without the right culture of compliance, the financial institution will take a long time to recover from the resulting reputational, legal and financial risks.

The Financial Intelligence Unit’s portal goAML is the Curaçao government’s latest move to stamp out money laundering and terrorist financing. But many firms feel unprepared or untrained for the rigorous task ahead. We spoke to two of our experts in Curaçao – Roshni Ganpat, Compliance & Risk Director, and Yanilla Rivas Warrington, Relationship Manager – to learn more.

Chasing clients for personal or financially sensitive information is nothing new for supervised institutions in Curaçao. It’s part of the job. But the detail with which companies and institutions must now provide unusual transaction information to the island’s Financial Intelligence Unit (FIU) is increasingly important.

As of 1 January 2021, supervised institutions will be accountable for reporting through the FIU’s new transaction portal, goAML portal in an effort to stamp out money laundering and the funding of terrorism.

These businesses must prove that they can evaluate and integrate effective procedures into their practices, which means staff training and reporting. Such practices should be based on the latest recommendations or standards outlined by the Financial Action Task Force (FATF), a global inter-governmental watchdog on money laundering and terrorism financing.

It seems that goAML is creating new challenges for some companies. This is the case for reporting entities in Curaçao that have not yet registered, despite being required by law to (re)register on the new portal in the last quarter of 2020. The previous Corsys reporting portal is no longer accessible.

What are the risks of non-compliance in Curaçao?

If there is a suspicion of money laundering or terrorism financing (ML/TF) after any transaction, the Compliance Officer will have 10 working days – from the moment they receive the transaction report – to complete the relevant research with regards to a possible Money Laundering/Terrorism Financing (ML/TF) situation.

If after the research period (maximum 10 working days), there is a suspicion of ML/TF, the Compliance Officer must report the transaction within 48 hours to the FIU.

Failure to comply could put your company’s professional reputation and licence to operate (if relevant) at risk.

What are the cost benefits of AMLFC training?

The government of Curaçao has established two legal decrees: the National Ordinance Reporting Unusual Transactions or NORUT (Landsverordening Melding Ongebruikelijke Transacties, LvMOT in Dutch) and the National Ordinance Identification when Rendering Services or NOIS (Landsverordening Identificatie bij Dienstverlening, LID in Dutch).

Non-compliance could carry a cost even greater than fines. It could put you and your business at risk of criminal charges and incarceration. Relevant staff should therefore have at least one training per year on AML and financial crime, according to the latest ordinances. If no training takes place, your regulatory review will be affected negatively.

Regulatory and compliance specialists such as Intertrust (Curaçao) B.V. offer outsourcing and training services to help you assess gaps in your procedures, set up processes to keep on track and alleviate the burden of reporting responsibilities. We can also provide tips on how to explain compliance procedures to clients, helping to avoid client friction.

By also outsourcing non-core processes, such as compliance onboarding and audits, firms can create an extra layer of compliance, transparency and expediency. This does not lessen accountability in reporting client transactions in a timely fashion, but it can provide reassurances, especially for firms that see this process as non-core to their business or too risky to take on if staff are untrained or inexperienced.

Will cash-based sectors be under greater scrutiny?

Cash is the most popular form of payment in Curaçao, followed by debit card. In a 2020 survey carried out by Curaçao’s Central Bank, 38% of respondents said they still pay their taxes in cash, despite the government’s efforts to automate collection. Few respondents use a credit card.

Certain cash-based sectors will undoubtedly be placed on the FIU’s radar for tax evasion with the goAML platform up and running. For example, the Central Bank’s survey report stated that 83% of building materials are purchased with cash, raising concern. “This may stem from the construction sector, which often has a high level of cash use due to the presence of the shadow economy,” stated the report.

Will a move to a card-based society curb corruption?

Despite a general assumption that digital transactions will make it easier to spot unusual activity, those willing to commit fraud will find a way to create a labyrinth of cash and digital transactions to cover their tracks.

While cash is the payment tool of choice, a more digital Curaçao could be here sooner than we think. The government’s “At Home in Curaçao” programme, an extended-stay visa for digital nomads and remote workers, is attracting new non-residents from places such as the US and Europe.

These visitors are likely to drive demand for digital banking, card-based and touchless purchase options they have grown accustomed to using in their home countries. Sectors most likely to adopt digital services include mobile-based money transfer and exchange services, banking and real estate, such as Airbnb hosting.

If Curaçao wants to attract reputable international visitors and benefit from business opportunities, it must have a reliable, digital and compliant AML/CFT framework. Curaçao’s post-pandemic economy could depend on it.

Source: Centrale Bank van Curacao en Sint Maarten

Selectie van het nieuws met betrekking tot sancties.

Article by Stefano Siggia

In the past decade, a series of leaks from insider sources have shed light on the complex systems of money laundering, tax evasion, and fraud perpetrated by certain countries and wealthy individuals. The profound work carried out by international journalists in publishing the wrongdoings have shaken the foundations of the world of finance, AML, and tax regulation, leading to the disruption of old and corrupt structures.

Data leaks such as Panama Papers, Offshore Leaks, Swiss Leaks, or Paradise Papers have all had an impact on our perception of the world of finance and its seedy side. Their disclosures have exposed numerous financial misbehaviours from persons across the world – from politicians hiding exorbitant gains from their country’s taxation system, to celebrities masking their assets behind shell companies in far off lands, to the intrinsic web of offshore entities linked to individuals of power.

Transparency International estimates that tax evasion, theft, corruption, bribery, and other illicit activities costs developing nations $1.26 trillion each year, or roughly the equivalent of the economies of Switzerland, South Africa and Belgium combined. In the European Union, about $132 billion are lost to corruption on a yearly basis.

The tsunami of scandals and disbelief created by the various reports are helping to reshape the realm of finance, slowly chipping away the secretive systems that have been weakening global economies.

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How were the financial leaks exposed?

The leaks and reports could not have existed without the help of brave whistleblowers. In 2016, a person by the pseudonym of Joe Doe leaked to the German newspaper Süddeutsche Zeitung 11.5 million documents with a total of 2.6 terabytes of data belonging to the law firm Mossack Fonseca, exposing the massive financial injustice that would be known as Panama Papers. In a public statement titled The Revolution Will Be Digitized, Doe explained that they had disclosed the documents to highlight global financial corruption and growing income inequality.

While most whistleblowers had noble intentions, there were some exceptions. In 2008, former HSBC Private Bank software engineer Hervé Falciani stole data that exposed the tax evasion scheme of 100.000 clients and 20.000 offshore companies that had accounts with HSBC. Known as Swiss Leaks, it is considered the biggest leak in Swiss banking history.

Mr. Falciani initially fled to Lebanon with the data, looking to make money by selling it to local banks and start a new life. He was found and arrested, and upon being let go following an interrogation, Mr. Falciani fled to France where he handed the information over to French authorities prompting a worldwide investigation.

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How were the financial leaks published?

The majority of whistleblowers contacted journalists to hand over the data that they had obtained. The massive amount of information was impossible to go through by a handful of journalists and newspaper shared their evidence with the International Consortium of Investigative Journalists (ICIJ).

The ICIJ is a U.S.-based non-profit organization with a network of 267 investigative reporters from over 100 countries and territories. They also partner with over 100 media organizations including major companies such as the New York Times, the Guardian, and BBC, as well as smaller regional non-profit investigative organizations. The ICIJ not only analyses the data leaks but also publishes them on their website, making accessible to anyone the names of the individuals and companies exposed. The information is also available in screening feeds used by financial institutions.

To be able to sift through the gargantuan number of documents, ICIJ journalists employ various encrypted technological tools to aid them. The first of these is a secure forum, similar to a common social media app, which allows the journalists to post their discoveries. The second is Blacklight, a database used to search for names, countries, and sources, followed by the third tool known as Graph, an app that visualises the links between individuals and companies.

Recently, the ICIJ also began to employ an AI machine-learning model that is capable of finding similar documents amongst piles of records, such as tax filings or business forms of the same company.

In 2021, the ICIJ, together with the Global Alliance for Tax Justice, was nominated for the Nobel Peace Prize for exposing illicit flows and fighting against the circulation of dark money.

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The complete list of data leaks

Below you will find a comparative chart on the various leaks that have been disclosed thus far:

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Who was exposed in the data leaks?

Politicians, heads of state, actors, musicians, television celebrities, members of royal families, entrepreneurs, and other individuals of power were exposed in the various leaks. Below is a short list of some of the most curious or well-known names and in which leak they appeared in:

• Formula One pilot Lewis Hamilton shielded millions of dollars in taxes on his luxury jet – Paradise Papers
• Belgian-Israeli diamond tycoon Erez Dayelot who is connected to blood diamonds, bribery, and arms trafficking – Swiss Leaks
• The king of Saudi Arabia Salman of Saudi Arabia – Panama Papers
• Bono, vocalist of famed rock band U2, owned a Lithuanian shopping mall as a tax shelter – Paradise Papers
• The estate of Queen Elisabeth II invested millions in an offshore portfolio which included companies accused of predatory lending – Paradise Papers
• The Walt Disney Company, Skype, and Koch Industries held accounts in Luxembourg to receive massive tax deductions – LuxLeaks

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What was the impact of the financial leaks?

The leaks and reports had beneficial impacts on national and international legislation, prompting state governments and international unions to take action to improve the state of the financial world. Below is a selection of some of the most important changes enacted after the scandals:

• EU Special Committee on Tax Rulings – following LuxLeaks in 2015, the European Parliament set up a special committee on tax rulings. After an inquiry on several Member States and companies, the committee re-introduced the idea of the Common Consolidated Corporate Tax Base in Europe which would create a European common tax scheme. The same year, the European Commission also introduced the notion of a system of automatic exchange of information on tax rulings in the EU known as the Tax Transparency Package. The special committee was reactivated in 2016.
• The EU Whistleblower Directive – the dangers that the many whistleblowers faced when exposing the various financial injustices prompted the EU to issue a whistleblower protection directive in 2019. The directive offers harmonization across EU Member States and brings about greater legal certainties and stronger rights and obligations towards whistleblowers in the private and public sectors.
• Incorporation Transparency and Law Enforcement Assistance Act – Following Panama Papers, members of the U.S Treasury Department, House of Representatives of the state of New York, and others introduced a bill that would “ensure that persons who form corporations or limited liability companies in the United States disclose the beneficial owners of those corporations or limited liability companies.” The bill is yet to be approved.
• BVI Public Register of Company Owners – The British Virgin Islands’ secrecy rules have played a prominent role in scandals such as Panama Papers, Paradise Papers, and Offshore Leaks. In 2020, the BVI’s premier and minister of finance, Andrew Fahie, announced at the House of Assembly that the government is currently working on “a publicly accessible register of beneficial ownership for companies.” The register will be adopted by 2023.

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By Stefano Siggia,March 2021, published on pideeco.be