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Written by Jackie Whiting
on February 28, 2022

The shortest month of the year will surely go down as one of the busiest for kompany in recent memory. While we've been busy preparing to make another big announcement (check back tomorrow) and adding new jurisdictions to our global register network, we have also been RSVPing to a long list of industry events (also in person!) that are happening later this year. 

You’ll see us at the Business Information Industry Association’s Biennial Conference this May in Singapore. Our co-founder Russell E. Perry will be joining fellow panelists from World Bank Group and GBG to discuss the challenges of identifying customers in the world of e-payments. Other sessions will cover fraud prevention in a post pandemic world, compliance with regulatory requirements in the digital age and other topics relevant to regulators and financial institutions alike. Check out the agenda as it evolves and get your tickets to attend by clicking here.

But now let's get started with the February edition of our RegTech Roundup!

Of course, the world is gripped by what's currently happening in the Ukraine. There are many publications covering this breaking story as it unfolds and we'll let the likes of Reuters, The Guardian and the Financial Times keep you up-to-date on the situation. Instead, we'll shine a spotlight on some of the other stories you may have missed throughout February.

This month, we begin by highlighting some of the key takeaways from RiskScreen’s recent report on the Cayman Islands’ struggle to improve its anti-money laundering systems. Discover their observations on one of the world’s most infamous territories by reading below!

The Cayman Islands and AML - A Tale of Highs and Lows (RiskScreen)

The Cayman Islands is a British Overseas Territory that is a popular holiday destination for scuba diving, snorkelling and enjoying general beach bliss. However, it’s also internationally renowned for its regulatory flexibility which both institutions and private citizens take advantage of. RiskScreen describes the self-governing territory as a “potent cocktail of strict secrecy laws, scant regulation and tax exemptions”. 

Their precarious situation is also acknowledged by the Basel Institute of Governance who recently ranked the Cayman islands as fifth in the world for “high AML risk” as part of their annual Basel AML index - an independent ranking that assesses the risks of money laundering and terrorist financing around the world.  

RiskScreen reports that since the 1990s, the Cayman Islands have been at the center of ongoing AML prosecutions around the world.

Things came to a head in 2001 when the FATF placed the nation on its list of non-cooperative jurisdictions “after finding that it did not have any legal requirements for customer identification and record keeping, and it lacked a mandatory regime for reporting of suspicious transactions.”

By 2007, the Cayman Islands would eventually improve many of its AML weaknesses but with “shell banks and customer due diligence” persisting as major problem areas. A report from FATF in March of 2019 paired with mounting global pressure forced the Cayman Islands to commit to introducing “public registers of beneficial ownership information by 2023.”

Last year, the nation began backsliding on its AML policy progress which was marked by its placement on FATF’s grey list. Fast forward to January 2022 and the Cayman Islands has been added to the European Commission’s list of high-risk jurisdictions for money laundering. RiskScreen summarizes the repercussions of this designation in their reporting by stating the following, “This will prohibit EU financial institutions from using entities in the Cayman Islands for securitisation. It will also require EU financial institutions to conduct enhanced due diligence on business relationships and transactions involving entities in the Cayman Islands.”

So where does this leave things now? The Cayman Islands says they will double down on their commitment to address every AML issue highlighted by FATF. According to RiskScreen there are two main areas that need urgent attention. They are:

  • “imposing adequate sanctions for not filing accurate and up-to-date beneficial ownership information; 
  • successfully prosecuting all types of money laundering cases in line with the jurisdiction’s risk profile”

Whether the Cayman Islands is up to task will likely be reflected in the coming months. 

Credit Suisse Woes Reveal Gaps in Banks’ AML Defenses (PYMNTS)

By now most of us have become acquainted with the story of Credit Suisse, the first Swiss bank to face criminal charges on home soil for various alleged anti-money laundering offenses. Some of the reports of criminal activity attributed to Credit Suisse date back as far as the 1940s, feature Bulgarian drug gangs and involve money (allegedly) being stuffed into suitcases.

In this story from PYMNTS, Karen Webster speaks with the head of financial crime at Featurespace, Annegret Funke, about how the situation at this Swiss bank demonstrates a larger problem for banks around the world. 

According to Funke, too many notable institutions continue to suffer from AML blind spots, even when these means are quite “old school” in nature - like hiding money in bags. Funke attributes a lot of these challenges to the lack of transparency in many nation’s financial systems. She goes on to say that this is especially true in places “where numbered bank accounts are permitted under bank secrecy laws and relationship managers are proving fallible.”

Funke says that in her conversations with banks, she has come to understand that the overall effectiveness of their AML regimes is still impacted by what many may consider to be the basics: reducing false positives for operational efficiencies. As Funke goes on to explain, if teams are spending too much time dealing with false positives, they simply won’t have the time to allocate their resources to finding more innovations in their typical processes. Certain digital advancements also pose risks to already fragile AML regimes, “the rise in cryptocurrency-related crimes indicates that the bad actors are seeking safe haven in bitcoin and exchanges and other high-tech fund flows, and even gravitating toward gift cards to hide their tracks.”

But with all this in mind, where can banks start? According to Funke, we need to go back to the beginning by focusing on clearly identifying customers and the money they are holding at the start of the relationship. She also tells PYMNTS that the public and private sectors need to form partnerships because banks are currently limited by the amount of resources they can allocate to fraud management and struggle with access to data. 

“With data sharing initiatives and collaboration in place…FIs can piece together a better understanding of who their clients are and ways in which those clients are opening, closing and managing accounts and moving money.”

If only there was a global register network of company information out there…

The story concludes with Funke’s outlook for the future. She predicts that regardless of the outcome of the ongoing Credit Suisse trial, the secrecy that has kept Switzerland’s banking system shrouded in mystery will be forced to catch up with the AML and KYC standards that have been set in other parts of the world. 

US art trade vulnerable to money laundering but reform should wait, Treasury says (ICIJ)

Earlier this month, the International Consortium of Investigative Journalists reported on a study conducted by the US Treasury that suggested that “the world’s biggest art market is vulnerable to money laundering and other financial crime” and that a series of reforms were necessary to take meaningful action. 

According to the ICIJ, Congress requested the report last year as part of the country’s efforts to update its anti-money laundering regulations. The report also comes on the back of the US having added “antiquities dealers to the list of professionals required to vet their clients and report suspicious activity to authorities” though they did not apply the same rules to art dealers or auction houses in the past.

Reforms suggested in the 40-page report from the US Treasury department included new requirements that dealers better vet their clients, report suspicious activities and improve overall transparency. These suggested reforms are based on a variety of factors that range from the generally high-dollar value of many art transactions, the use of middlemen to complete transactions and perhaps, most problematically, the long-standing culture of privacy that makes “the market susceptible to abuse by illicit financial actors”.

While the report takes inspiration from the United Kingdom and Europe, it does not recommend specific approaches. Instead it concludes with the suggestion that the department focus on closing other “outstanding gaps” in the country’s AML system such as its weaknesses with company ownership information and the real estate sector. 

The story from ICIJ includes a quote from Scott Rembrandt, a senior Treasury official who oversaw the study. He says, “We have found that while certain aspects of the high-value art market are vulnerable to money laundering, it’s often the case that there are larger underlying issues at play, like the abuse of shell companies or the participation of complicit professionals, so we are tackling those first,”

It seems that tighter regulations for the US art market are inevitable. The winners and losers may be separated by those who choose to embrace digital solutions sooner than later. After all, with the right RegTech platform, decoding beneficial ownership doesn’t have to be difficult… 

That's it for this month! But before you go...

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