FCA fine for financial crime failings
The FCA has fined Bastion Capital London Limited (in liquidation) £2,452,700 for serious financial crime control failings in relation to cum-ex trading, the trading of shares on or just before the last cum-dividend date. They failed to manage the risk of being used to facilitate fraudulent trading and money laundering.
Between January 2014 and September 2015 Bastion breached Principles 2 and 3 as they executed trading to the value of approximately £49bn in Danish equities and £22.5bn in Belgian equities on behalf of Solo Group clients. The purported trades were carried out in a way that was highly suggestive of financial crime. The trading appears to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium. Bastion received commission of £1.55m, a significant proportion of the firm’s revenue in the period.
Steve Smart, Joint Executive Director of Enforcement and Market Oversight, said:
“Bastion earned significant fees from executing trades on behalf of Solo Group which were ultimately for the purpose of making illegitimate tax reclaims from the Danish and Belgian exchequers. They failed to spot clear red flags which should have alerted them to the risk of being used for financial crime. Firms need to properly manage these risks.”
SFC and AFRC join forces to combat misconduct by listed issuers
The Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) in Hong Kong have issued their first joint statement to enhance their collaboration in regulating the securities and futures markets. The statement addresses the growing trend of listed companies channeling funds to third parties under the guise of loans, often without proper justification, documentation, risk assessments, due diligence, or internal controls. These dubious loans have resulted in significant losses for listed issuers when they were not repaid.
The joint statement provides observations from the SFC and AFRC regarding the granting of suspicious loans by listed issuers. It also outlines the expected conduct standards and practices that listed issuers, their directors, audit committees, and auditors should follow concerning loans and similar arrangements.
New FinCEN director appointed
Andrea Gacki has been appointed as the Director of the Financial Crimes Enforcement Network (FinCEN) by Secretary of the Treasury Janet Yellen. Gacki currently serves as the Director of the Office of Foreign Assets Control (OFAC) at the Treasury Department and has played a significant role in implementing and enforcing economic sanctions during national security challenges. She has also held the functions of the Treasury Department’s Under Secretary for Terrorism and Financial Intelligence (TFI), giving her expertise in combatting illicit finance threats.
Gacki has held various senior leadership positions at OFAC, including Deputy Director, Associate Director for Compliance and Enforcement, and Assistant Director for Licensing. She also worked as a trial attorney at the US Department of Justice and began her career as an associate at an international law firm after a clerkship at the US District Court for the Eastern District of Michigan. Gacki earned her undergraduate and law degrees from the University of Michigan.
EBA opinion on ML threat
The European Banking Authority (EBA) has released its fourth biennial Opinion on the risks of money laundering and terrorist financing (ML/TF) in the European Union’s financial sector. The lengthy report highlights the changing risk landscape, including events like Russia’s invasion of Ukraine and legislative developments such as the AML Package and the Markets in Crypto-Assets Regulation (MiCAR). It also mentions emerging risks like corruption, environmental crime, and cybercrime.
Some of the ML/TF risks mentioned in the Opinion, such as those associated with crypto assets, innovative financial services, beneficial owners’ identification, and terrorist financing, have been previously identified and remain relevant. Other risks mentioned in the previous year, like those related to Covid-19 and de-risking, are decreasing.
Awareness of ML/TF risks is growing across all sectors within the EBA’s AML/CFT remit, with slight improvements in credit institutions and investment firms. However, the systems and controls in place by institutions are not always effective, with significant challenges in transaction monitoring and reporting suspicious transactions.
Overall, AML/CFT supervision is improving, with more supervisors conducting formal ML/TF risk assessments in line with EBA Guidelines. Supervisory engagement is increasing, leading to a tangible impact on inherent and residual risk levels. However, the EBA reports highlight that AML/CFT supervision does not always match perceived levels of risk or effectiveness.
Cooperation between AML/CFT supervisors and other authorities has improved, thanks to initiatives like AML/CFT Colleges, Supervisory Colleges, and guidelines on cooperation and information exchange. Further improvement in cooperation with tax authorities for tax-related crimes is desired.
CFTC charge against digital asset platform
The Commodity Futures Trading Commission (CFTC) has acted against Alexander Mashinsky and Celsius Network, LLC, filing a complaint which accuses the defendants of fraud and misrepresentation in relation to the operation of their digital asset-based finance platform. Celsius Network allegedly made false claims about high profits and security to entice customers to deposit their digital asset commodities on the platform.
The CFTC further alleges that Celsius Network acted as an unregistered commodity pool operator (CPO), and that Mashinsky operated as an unregistered associated person (AP) of a CPO. In an agreement between the CFTC and Celsius Network, the complaint against the company will be resolved by imposing a permanent injunction that prohibits future violations of the Commodity Exchange Act (CEA).
Allegedly Mashinsky and Celsius engaged in fraudulent activities from 2018 to June 2022 by misrepresenting the safety and profitability of their digital asset-based finance platform. Customers were promised the safety of their digital assets and high yield interest payments. However, instead of making safe investments, Celsius pooled customers’ digital asset commodities for loans and other revenue-generating activities, including futures contract trading. Mashinsky solicited public contributions to the Celsius Pool without registering as an AP of a CPO.
Customers deposited approximately $20 billion with Celsius based on false promises, but when the company was unable to meet interest payments, it engaged in increasingly risky trading strategies. Celsius froze customer withdrawals in June 2022 and filed for bankruptcy in July 2022, revealing liabilities exceeding assets by over one billion dollars.
A selected summary of key developments for regulated financial institutions
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