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Written by Jackie Whiting
on June 30, 2021

This past June has been a busy month in the world of regulatory compliance. There have been global watch dogs announcing long awaited decisions and governments launching new initiatives with big goals in mind. In the middle of all these breaking stories, we’ve also been busy at kompany finalising new partnerships and organising webinars with our friends throughout the industry. 

In case you missed it, we recently announced a new partnership with German RegTech ClariLab in which we offer their KYCnow platform instant access to original company information from more than 200 jurisdictions around the world. You can learn more about the partnership and how our organisations are working together by reading the press release here.

And before we get to our news stories for June, we would also like to extend an invitation to join us at FinTech Innovation Network’s upcoming webinar next month. Our Regulatory Affairs and Business Development Manager James Penn will join Toby Fischer, Account Manager at ComplyAdvantage, alongside webinar host Matthew Neill, to break down the ways financial institutions can increase efficiencies throughout their client onboarding process. Register to attend the live webinar and join us on July 14th!

Now, onto the first story of our June 2021 RegTech Roundup where we take a look at China’s draft money laundering law and how the proposed new measures would intensify penalties and impact the international community. 

China ups fines and widens scope of draft money laundering law (Reuters)

Earlier this month China’s central bank, the People’s Bank of China, announced the issuing of a revised draft anti-money laundering law that would increase fines for certain offences to as much as 10 million yuan (USD $1.6 million). A group of non-financial institutions are also proposed to be brought into within the purpose law’s scope. 

This new law would serve as an update to proposals first made in 2006 and would include new entities such as “non-bank payment firms, online microlenders, financial asset management firms and financial leasing companies”. Fines for failing to conduct due diligence on clients and reporting large or suspicious transactions -- previously set at a maximum of 500,000 yuan - would be increased to 2 million yuan.

The People’s Bank of China said the goal of this new law is to prevent and restrain money laundering, terrorist financing and other illegal activities while also safeguarding national security and financial order throughout the country. The law is likely to be passed later this year by the Standing Committee of the National People’s Congress, China’s national legislative committee. 

Interesting to note is the proposal for international cooperation when it comes to anti-money laundering efforts. The draft law proposes that Chinese financial institutions would not be allowed to comply with foreign orders to hand over information or seize, freeze or transfer onshore assets. If such institutions believe it’s necessary to respond to the requests from foreign authorities, they need to ask for permission first from the Chinese government and then notify the authorities to negotiate with their Chinese counterparts. 

As Money Launderers Buy Dalís, U.S. Looks at Lifting the Veil on Art Sales (The New York Times)

The global art market is known for its opacity and mystique, qualities that have made art a “tool for money launderers” for many years, reports The New York Times earlier this month.

To paint a picture of the relationship between criminal activity and the art market, the article begins by recapping the story of federal agents who raided a drug dealer’s house in a Philadelphia neighbourhood several years ago and the discovery they made inside. Not only did they uncover a stash of illegal drugs and $2.5 million in cash, but they also found original paintings by Renior, Picasso and Salvador Dali. 

But how do the works of such prolific painters find themselves scattered between a home in an American suburb and nearby storage locker? According to The New York Times, “Billions of dollars of art changes hands every year with little or no public scrutiny. Buyers typically have no idea where the work they are purchasing is coming from. Sellers are similarly in the dark about where a work is going. And none of the purchasing requires the filing of paperwork that would allow regulators to easily track art sales or profits, a distinct difference from the way the government can review the transfer of other substantial assets, like stocks or real estate.”

Of course, this is different from the European Union, where the EU’s Fifth Anti-Money Laundering Directive added art traders to its list of obligated entities required to carry out the same anti-money laundering measures required by financial institutions, notaries and the like. But now the US federal government is considering adopting a similar solution to effectively regulate the art market in the country. 

“The law, the Bank Secrecy Act, requires banks to report cash transactions of more than $10,000, highlight suspicious activity and understand the identity of their customers and where their wealth comes from.”

This comes on the back of Congress having previously authorised Treasury officials to tailor the regulations to fit the antiquities market, meaning that antiquities dealers “will be treated like financial institutions, and federal regulators will study whether the restrictions should be extended to the broader art market.”

While no one has yet to exactly quantify the total amount of money laundered through art sales, experts agree that the high level of secrecy surrounding who owns what and the debatable value of individual pieces makes for an environment that naturally encourages such activity. 

Collectors, gallery owners, regulators and the government will need to continue working in consultation with one another to find a balance that allows the art market in the United States to remain competitive yet protected from money launderers and other criminals.

UK's financial watchdog goes real-time to catch online criminals (Reuters)

The Financial Conduct Authority, Britain’s financial regulator, has announced its intentions to announce reported scam warnings in real-time. “Britain’s financial regulator has to make daily sweeps of the internet to warn about online scams in real time and keep pace with fraudsters who are often based outside the country” said one of its officials recently. 

The amount of consumer warnings issued by the FCA doubled between 2019 and 2020, with fake offers from fake companies (that are not regulated by the watchdog) advertised on social media platforms continues to grow in popularity as the trick of choice for online scammers.

“Mark Steward, the Financial Conduct Authority's (FCA) director for enforcement, said the warnings have become a cornerstone of the watchdog's fight against a surge in financial scams after pandemic lockdowns sent more people online.” 

Steward goes on to say that the FCA is now issuing warnings straight away (within 24 hours) in order to limit the number of victims. He also mentions that banks should be checking who is on the list in case these fraudulent companies are actually their own clients. Such diligence would help prevent lenders from becoming an unwitting cog in the financial crime machine by preventing them from taking payments on behalf of criminals. 

The stakes are continuing to rise with victims of investment scams (who referred to a social media platform) losing more than 60 million pounds (nearly $89 million), according to the UK's Action Fraud organisation. 

In response to the rise in such scams, Britain has proposed an "online harms" law but it doesn’t require social media companies to check on the validity of the organisations advertising financial products on their platforms. However, the FCA wants such checks to be made obligatory under the new law.

Social media companies have a role to play in the fight against financial crime. How these companies collaborate with financial regulators to protect their users remains to be seen but their active cooperation will certainly be required to prevent further loss. 

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

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