K2 Integrity’s Post

Last week, HM Treasury (HMT) published their 11th Annual Report of the UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) supervisory regime in 2022-2023. Key statistics include: 🔸 5k+ remote reviews/onsite visits were held (5% of AML/CTF regulated firms) 🔸 10% of firms were identified as high risk (versus 11% in 2021-2022) The Financial Conduct Authority (FCA) 🔹 Conducted 231 remote reviews and 7 on-site visits 🔹 Retail banking (including payments), wholesale banking, wealth management and crypto-asset firms remain highly vulnerable to Financial Crime (FC) 🔹 4% of firms reviewed remotely, and 14% reviewed on-site, were rated as “non-compliant” (full MI is unavailable as many reviews were on-going) 🔹 The FCA also opened 375 cases for FC/Sanctions concerns + 95 for crypto-assets. Key findings: 🔴 Inadequate client and/or firm-wide risk assessments and poor enhanced due diligence (EDD) processes 🔴 Insufficient compliance monitoring/testing programmes 🔴 Inadequate resources/training UK Gambling Commission 🔸 Assessed 25 firms remotely, rating 48% of firms as non-compliant 🔸 8 out of 9 firms (89%) visited were rated as non-compliant Key findings: 🔴 AML risks are sometimes outweighed by commercial and/or reputational concerns 🔴 Firms rely on monetary thresholds, instead of a risk-based approach HM Revenue & Customs (HMRC) 🔹 Conducted 1741 remote/onsite reviews 🔹 28% of firms were found as non-compliant overall Key findings: 🔴 Money Service Businesses (MSBs), Art Market Participants and the Trust and Company Service Provider sectors remain as high risk for AML 🔴 MSBs also have the highest inherent risk of CTF 🔴 HMRC noted a trend of supervised activity occurring before registration Office for Professional Body Anti-Money Laundering Supervision (OPBAS) 🔸 3,220 remote and onsite visits took place across the 22 legal and accountancy supervisory bodies within OPBAS 🔸 17% of accountancy firms assessed remotely were non-compliant, versus 20% of those reviewed onsite 🔸 16% of legal firms assessed remotely were non-compliant, versus 25% of those reviewed onsite Key findings: 🔴 OPBAS identified a limited awareness of the AML/CTF regime and a strong industry view that the regime is “disproportionate”. What’s Next? 🔹 The UK supervisory ecosystem remains somewhat fragmented and its restructure has been deemed a priority by HMT (2022 annual review) and was highlighted by the Financial Action Task Force (in their 2018 Mutual Evaluation of the UK), thereby forming part of the UK’s second Economic Crime Plan for 2023-2026. 🔸 In the meantime, firms should be mindful of their supervisors increasing outreach, ahead of FATF’s 5th round of Mutual Evaluation Reports in 2027. K2 Integrity can support firms subject to regulatory scrutiny, please reach out for a confidential discussion.

Australia has expanded its AML/CTF regime to include real estate agents, lawyers, accountants, and precious metals dealers. These reforms, part of the Tranche 2 legislation, aim to close loopholes exploited by criminals to launder illicit funds. The newly regulated sectors must now implement robust reporting and compliance measures and this extension aligns Australia with global AML standards.   The Australian Parliament passed AML & CTF Amendment Bill 2024 (Cth) (the Bill) on 29 November 2024. As well as simplifying the current AML/CTF regime, the Bill expands the regime’s application to services provided by certain high-risk businesses and professions (‘Tranche 2 entities’), including: real estate professionals and developers; professional services providers such as lawyers, accountants, insolvency and restructuring practitioners, consultants; and dealers in precious metals and stones. When the Tranche 2 entities’ provisions commence on 1 July 2026, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) will apply to approximately 70,000 additional businesses, bringing the total reporting entities to 90,000. The Tranche 2 entities amendments to the AML/CTF Act aim to close regulatory gaps and bring Australian law in line with international standards set by the Financial Action Task Force. Currently, the absence of AML/CTF requirements for Tranche 2 entities is seen as a weakness in Australia’s AML/CTF framework, leaving these industries vulnerable to money laundering and terrorism financing risks. Under the new Law, i)- Businesses offering a designed service will need to enrol with AUSTRAC. ii)-AML/CTF policies must be in place before a business can provide designated services, and the business must conduct a risk assessment of its ML/TF/PF risk. iii)-Businesses providing a designated service must appoint an AML/CTF compliance officer to oversee the operation of the entity’s AML/CTF policies and updates. iv)- Tranche 2 entities will need to conduct initial customer due diligence, which includes the collection and verification of a customer’s identity as well as customer risk rating. v)-Tranche 2 entities will need to collect, review and update ‘Know Your Customer’ (KYC) information, as well as monitor their customers for unusual transactions and behaviours that may give rise to a suspicious matter reporting obligation. They will also be required to conduct enhanced customer due diligence for high risk customers (such as politically exposed persons). vi)- Tranche 2 entities will be required to report certain matters to AUSTRAC, including suspicious matter reports, threshold transaction reports and international value transfer services. vii)-Tranche 2 entities will need to keep certain records of the designated services provided to customers.

🌐 Enhancing Financial Integrity: Australia’s Commitment to AML/CTF Reforms 🖌 Australia is strengthening its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) framework to align with global standards and combat evolving financial threats. Before the AML/CTF Act 2006, gaps in regulation under the Financial Transactions Reports Act 1988 highlighted the need for reforms. These reforms expand oversight to include lawyers, accountants, real estate professionals, and precious metal dealers, previously unregulated but identified as high-risk for money laundering. 🖌 The reforms aim to simplify compliance with risk-based obligations, integrating biometric databases and digital identities into Customer Due Diligence (CDD). Consultation with industry stakeholders has emphasized the shift towards technology integration and international best practices. AUSTRAC supports entities in adapting to these changes. 🖌 For banks, these reforms mean heightened reporting obligations, especially for international funds transfers and digital currencies. Investment in technology and training for advanced analytics is crucial for identifying suspicious activities. Collaboration with newly regulated sectors will enhance monitoring capabilities. 🖌 As Australia prepares for its next FATF assessment, adherence to these reforms is essential to avoid economic and reputational risks. By expanding regulation, simplifying obligations, and leveraging modern technologies, Australia aims to lead in financial crime prevention. 🖌 This paper serves as a comprehensive exploration of the proposed reforms, aiming to provide clarity on their implications and gather essential feedback from stakeholders. Your insights will inform crucial decisions as Australia strengthens its defenses against illicit financing and enhances its ability to combat serious crime both domestically and internationally.

ARE PAYMENT PROCESSORS WITH INADEQUATE AML/CFT PROGRAMS NOW AT INCREASED RISK FOR REGULATORY AND LAW ENFORCEMENT ACTION IN 2024? The recent media reports, concerning an investigation into one of the world's leading payment processing firms, alleging major deficiencies in its AML/CFT program, with extremely damaging allegations from two whistleblowers, and an independent report claiming rampant OFAC sanctions violations, and terrorist financing transactions, should be a wake up call for the Payment industry to immediately audit their compliance programs. The fact that one of the reported investigations is being conducted by the U.S. Attorney's Office for the Southern District of New York, should be adequate cause for everyone in the sector to take a hard look at how it manages its Customer Identification Procedures, especially the management of sanctions risks. In the current strict enforcement environment, especially involving terrorist financing involving cybercurrency, senior company officers, board members and compliance directors are at risk of not only fines and penalties, but criminal indictments. While companies in the industry that commit systemic AML/CFT violations may end up with a Deferred Prosecution Agreement, officers and directors could end up deciding that a plea of guilty to a Federal criminal charge filed against them is their only viable solution, employing damage control under very personally painful circumstances. Therefore, it is humbly suggested that entities in the Payment sector immediately have an external audit conducted of their entire compliance program, by independent compliance firms with established credibility, and forthwith implement all the recommendations that they report, including the expansion of the program, to include additional experienced staff, and all the resources and assets that add up to what we call banking best practices, as part of a risk-based compliance program, with attention to the specific risks posed by industry products. Anything less will send the wrong message to inquiring regulatory and law enforcement agencies who come calling in the future.

On Tuesday, Members of the European Parliament adopted a resolution rejecting the proposal by the European Commission to remove the UAE, Gibraltar, Panama, Barbados, and Uganda from the list of third countries at high risk with strategic deficiencies in anti-money laundering and countering the financing of terrorism (AML/CFT). Earlier in March 2024, the European Commission had considered the proposal to remove the UAE, Gibraltar, Panama, Barbados, and Uganda from this list (following measures previously taken by FATF, which removed the UAE, Gibraltar, Barbados, and Uganda from the "grey list" in February 2024; and Panama in October 2023). However, on April 23, Members of the European Parliament overwhelmingly voted to reject the Commission's stance on all these countries: 490 voted against the proposal, 64 in favor, and 56 abstained. It is expected that these countries will remain on the EU list at least until September 2024. The Commission is unlikely to challenge the decision of the European Parliament, dealing a blow to the Commission's stated goal of aligning this EU list with the FATF watchlist. A special EU observer is currently visiting the UAE this week. New AML provisions: On April 24, the European Parliament adopted a new AML package, including the 6th AML Directive (AMLD 6), the common European AML regulations (AMLR), and the regulatory body for AML issues (AMLAR). The provision on fund transfers, which was part of the initial package, was separated from the rest and already adopted in June 2023. Once the legislative instruments are formally adopted by the Council and published in the Official Journal of the EU, the CSSF will provide more detailed information on the changes resulting from the new AML package. The new provisions ensure that individuals with a legitimate interest, including journalists, media professionals, civil society organizations, competent authorities, and supervisory bodies, will have immediate, direct, and free access to information on beneficial ownership held in national registers and interconnected at the EU level. In addition to current information, the registers will also include data for a period of at least five years. The laws also grant financial intelligence units (FIUs) more powers to analyze and identify cases of money laundering and terrorist financing, as well as to suspend suspicious transactions. Details can be found by this link: https://lnkd.in/gpTnHZcQ Our team are always ready to provide high-quality consultation and help you solve your tasks. Follow our page for further notification and articles or write to us on Email/WhatsApp/Viber/Telegram +380 98 363 6493, or call us. #EuropeanParliament #AML #CFT #FATF #Compliance #Regulation #FinancialIntelligence #FinancialCrime #CorporateServices #FinancialRegulation #AMLCompliance #FinancialSecurity #CorporateCompliance #FinancialTransparency

Compliance Anti-money laundering/ Countering of Terrorist Financing AML/CTF/KYC ➡️WHY ARE Countries & Governments Concerned? * Consequences of Money Laundering and Terror financing can impact and paralyse the entire country. -Unrest, crisis and civil wars forcing populations to migrate and seek refuge, also many without and identities seeking refuge at the borders. - Terror groups are no more limited to domestic violence they have complex international networks and capable of carrying out deadly attacks on innocent people. - Drug dealers, Terror groups, human traffickers and criminals constantly finding loop holes to abuse the financial system. ➡️ THE Economic and Social Consequences of Money Laundering - Money Laundering and terrorism financing can have potentially devastating economic, security and social consequences. While these crimes can occur in any country, they have particularly significant economic and social consequences for developing countries, emerging markets and countries with fragile financial systems. - The negative impacts of money laundering tend to be magnified in these markets because they tend to have less stable financial systems, a lack of banking regulations and effective law enforcement, and, therefore, are more susceptible to disruption from criminal or terrorism influences. - Undermining the Legitimate Private Sector: One of the most serious microeconomic effects of money laundering is felt in the private sector. Money launderers are known to use front compagnies, or business that appear legitimate and engage in legitimate business, but are in fact controlled by criminals who commingle the proceeds of illicit activity with legitimate funds to hide the ill-gotten gains. These front comapagnies have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates. Thus, front compagnies have a competitive advantage over legitmate firms that draw capital funds from financial markets. This makes it difficult for legitimate business to compete against front companies. Clearly, the management principles of these criminal entreprises are not consistent with traditional free market principles of legitimate business, thus resulting in further negative macroeconomic effects. Terrorist Financing 🙂

Happy to announce that the new book "Global Anti-Money Laundering Regulation: Developing Countries Compliance Challenges" Edited By Nkechikwu Valerie Azinge-Egbiri, Nicholas Ryder and Ehi Eric Esoimeme Esq. is now available on Amazon and other designated book stores world wide. The book will be officially released on November 25, 2024, by Routledge. Here is a comprehensive list of the book chapters and contributors: Chapter 1: The Challenges of the Global Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Regime for Developing Countries Nkechikwu Valerie Azinge-Egbiri, Ehi Eric Esoimeme, Nicholas Ryder Chapter 2: Uncovering Conflicts and Ambiguities In the International Anti-Money Laundering Regime Vis A Vis African Countries Constance Gikonyo Chapter 3: GIABA: Combatting Money Laundering/Terrorism Financing in West Africa Edefe Ojomo Chapter 4: Do Things Fall Apart? (Black)listing and Its Implications for Developing Countries Nkechikwu Valerie Azinge-Egbiri, Joy Malala, Donato Masciandaro Chapter 5: The mis-implementation of anti-money laundering laws and regulations: A high-level review with specific focus on the unilateral termination of customers’ bank accounts in South Africa Zakhele Hlophe Chapter 6: Implications of Botswana’s Legal Culture in the Implementation of the AML/CFT Regime and Prosecution of Money Laundering/ Financial Crimes Gosego Rockfall Lekgowe Chapter 7: Barriers To Implementing New Technologies For AML/CFT Functions: The Case of Nigeria Ehi Eric Esoimeme Esq Chapter 8: Challenges to AML Compliance within Nigerian Financial Institutions Emmanuel Oluwasina Sotande Chapter 9: The Challenge of Money Laundering by Nigeria PEPs: Beyond the Transplantation of FATF Standards Chinelo Bob-Osamor Chapter 10: The Vulnerability Of Politically Exposed Persons (PEPS) In Africa: Towards Transparency In Beneficial Ownership John Hatchard Chapter 11: Can FATF’s Focus on Beneficial Ownership Aid Anti-Corruption Efforts in a ‘Low-Capacity’ Country? Challenges from the Front Line in Nigeria Jackie Harvey, Peter Sproat, Sue Turner, Tony Ward Chapter 12: Suspect Wealth and the Compliance Willingness of Small States Dominic Thomas-James Chapter 13: Combatting Terrorist Financing: A War Developing Countries Cannot Win? Simeon Igbinedion Chapter 14: Asset recovery in developing countries: Assessing successes and failures and overcoming challenges Jean Pierre Brun, Anastasia Sotiropoulou Chapter 15: Strategic Tools for Amplified AML/CFT Compliance in Developing Countries Nkechikwu Azinge-Egbiri and Egbiri Egbiri Here is the Link to order this amazing book: Link: https://lnkd.in/dv-mV5Y2 Thank you

ALM/CTF reforms for Professional Service Providers are important and here. Australia is about to adopt reforms in ALM/CTF for PSP’s (Professional Service Providers), there was a timely reminder why they are important in stopping organised crime and trans-national syndicates laundering funds. A group of criminals operated a syndicate in Singapore utilising 500 shell companies and over 4000 bank accounts. The group operated the shell companies in Singapore, Japan and the Philippines, these funneled into a plethora of other entities. It has been established that they had laundered over $628.7 million in funds through their network from illegal gambling, cyber scams and trafficking. This is a perfect example as to why the upcoming reforms by the AG’s Department will be critical in fighting organised crime. The group bought shell companies from lawyers in Singapore and then appointed a foreign national with residency in Singapore as the Director of a software company that was one of the main vehicles for the operation as well as multiple consultancy entities. PSPs who will be subject to the reform are Legal practitioners, accountants, consultants, trust company service providers, financial service providers, real estate companies and business brokers. The above PSPs are vulnerable to exploitation of organised crime who want to; ·        Conceal proceeds of crime.                                     ·        Place assets out of reach of future liabilities. ·        Obscure ownership through complex layers of entity structures. ·        Evade regulatory controls. ·        Provide a mask of legitimacy to criminal activity. ·        Obfuscate links between the proceeds of crime and the perpetrators via entities such as trusts. ·        Retain control over criminally derived assets. ·        Avoid confiscation of assets. ·        Evade tax. ·        Hinder law enforcement investigations. If you are a PSP and you are not across the changes, it’s urgent you take steps to ensure you are up to date with the new reforms. There are three important areas you will need to comply with ·        Enrolling with AUSTRAC. ·        Develop and maintain an AML/CTF program applicable to your business. ·        Conduct initial and ongoing CDD (Customer Due Diligence). Below is a link to the AG’s paper “Reforming Australia’s AML/CTF regime (paper 2 further information for professional service providers) if you would like more information https://lnkd.in/ggzGtfMS

Thank you very much, Nick Maxwell, for your critical and very thought-provoking comments as validation of the AML/CFT regime will become even more crucial in the FATF fifth round of mutual evaluations, but as you have pointed out, it is highly likely that neither supervisors nor private sectors fully understand how validation should be carried out. Competent authorities and private FIs likely need to know how to validate thoroughly. For example, what are the specific methods for identifying and assessing risk, what KPIs should be used to evaluate effectiveness, should supervisors use more sanctions, to what extent should law enforcement agencies strip criminal proceeds or recover assets, and where should the line be drawn between information sharing and personal data protection, and like the "three-body problem," there are many variables and no easily derived association. We need to start by carefully reading the "core issues" of the Immediate Outcomes in the FATF methodology once again, increasing dialogue between the public and private sectors, and getting supervisors, law enforcement authorities, private FIs, and DNFBPs on the same page and facing the same direction. Time is running out, indeed.