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EU Fight against money laundering and terrorist financing

MD Staff

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The European Commission is today adopting a Communication and four reports that will support European and national authorities in better addressing money laundering and terrorist financing risks. The Juncker Commission put strong EU rules in place with thefourth and the fifth Anti-Money laundering directives and reinforced the supervisory role of the European Banking Authority. The reports stress the need for their full implementation while underlining that a number of structural shortcomings in the implementation of the Union’s anti-money laundering and counter terrorist financing rules still need to be addressed. Today’s package will serve as a basis for future policy choices on how to further strengthen the EU anti-money laundering framework.

Frans Timmermans, First Vice-President said: “We must close off all opportunities for criminals and terrorists to abuse our financial system and threaten the security of Europeans. There are some very concrete improvements which can be made quickly at operational level. The Commission will continue to support Member States in this, whilst also reflecting on how to address the remaining structural challenges.”

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “A credible framework for preventing and fighting money laundering and terrorist financing is essential to maintain the integrity of the European financial system and reduce risks to financial stability. Yet, today’s analysis gives more proof that our strong AML rules have not been equally applied in all banks and all EU countries. So we have a structural problem in the Union’s capacity to prevent that the financial system is used for illegitimate purposes. This problem has to be addressed and solved sooner rather than later.”

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “We have stringent anti-money laundering rules at EU level, but we need all Member States to implement these rules on the ground. We don’t want to see any weak link point in the EU that criminals could exploit. The recent scandals have shown that Member States should treat this as a matter of urgency.”

The Towards a better implementation of the EU’s anti-money laundering and countering the financing of terrorism framework Communication gives an overview of the four reports published today: the supranational risk assessment report provides an update of sectorial risks associated with money laundering and terrorist financing. The assessment of recent high-profile money laundering cases in the financial sector, the Financial Intelligence Units and the interconnection of central bank account registries’ reports analyse the shortcomings in current anti-money laundering supervision and cooperation, and identifies ways to address them.

Assessment of money laundering risks across the internal market

The supranational risk assessment report is a tool to help Member States identify and address money laundering and terrorist financing risks. It is adopted every two years by the Commission since 2017.

The report shows that most recommendations of the first supranational risk assessment have been implemented by the various actors. However, some horizontal vulnerabilities remain, particularly with regard to anonymous products, the identification of beneficial owners and new unregulated products such as virtual assets. Some of these will be addressed by the upcoming transposition of the fifth Anti-Money Laundering Directive. The report also recalls that Member States still have to fully transpose the fourth Anti-money laundering directive. The Commission calls upon Member States to implement the directive fully and follow the recommendations of this report. This would improve cooperation between supervisors, raise awareness among obliged entities and provide further guidance on beneficial ownership identification.

Assessment and lessons from recent money laundering cases

Following a number of exchanges with the European Parliament and a request from the Council in December 2018, the European Commission has analysed ten recent publicly known cases of money laundering in EU banks to provide an analysis of some of the current shortcomings and outline a possible way forward.

While not being exhaustive, the report shows that:

Banks, in a number of the cases analysed, did not respect effectively or sometimes did not comply at all with anti-money laundering requirements. They lacked the right internal mechanisms to prevent money laundering and did not align their anti-money laundering/counter terrorism financing policies when they had risky business models. The findings also highlighted a lack of coordination between such policies, either at the level of individual entities or at group level.

National authorities responded with significant differences in terms of the timeliness and effectiveness of their supervisory actions. There were major divergences in terms of prioritisation, resources, expertise and available tools. More particularly with respect to the supervision of a banking group, the supervisors had a tendency to rely excessively on the anti-money laundering framework of host Member States and this impinged on the effectiveness of supervisory actions in cross-border cases at EU level. In addition, the division of responsibilities led to ineffective cooperation between anti-money laundering authorities, prudential authorities, Financial Intelligence Units and law enforcement authorities.

These deficiencies point to outstanding structural issues in the implementation of EU rules, which have been addressed only in part. The regulatory and supervisory fragmentation, coupled with the diversity of tasks, powers and tools available to public authorities, create weaknesses in the implementation of EU rules. Shortcomings in anti-money laundering policies and supervision are more prominent in cross-border situations, both within the EU but also in relation to non-EU countries. While significant actions have been taken by banks and supervisors, more remains to be done. There is, for instance, a need for further harmonisation across Member States and strengthened supervision.

The need for reinforced cooperation between Financial Intelligence Units (FIU)

Financial Intelligence Units play a key role in identifying money laundering risks in each country. The EU FIU’s Platform, which is an expert group of the Commission, has greatly improved the cooperation over the last years, but the Commission has identified remaining issues:

Access by FIUs to information: due to their different status, powers, and organisation, some FIUs are not able to access and share relevant information (financial, administrative and law enforcement).

Information sharing between FIUs remains insufficient and is often too slow.

IT tools: FIUs also sometimes lack the proper IT tools to efficiently import and export information to/from the FIU.net.

Limited scope of the EU FIUs’ Platform, which cannotproduce legally-binding templates, guidelines and standards.

The report suggests some concrete changes, such as a new support mechanism, that would further improve the cooperation between Financial Intelligence Units (FIU) across the EU.

Interconnection of central bank account registries

The report on the interconnection of central bank account registries sets out a number of elements to be considered for a possible interconnection of bank account registries and data retrieval systems. The Commission suggests that such a system could possibly be a decentralised system with a common platform at EU level. To achieve the interconnection, legislative action would be required, following consultation with Member States’ governments, Financial Intelligence Units, law enforcement authorities and Asset Recovery Offices.

Next steps

Today’s reports will inform the future debate on further action in this area, including with regard to the obligations of financial institutions and the powers and tools necessary for effective supervision. The current degree of integration of the banking market will also require further work on the cross-border aspects of the anti-money laundering/terrorist financing framework. The Commission will continue to monitor closely the implementation of EU anti-money laundering rules by the Member States.

Background

Under the Juncker Commission, the EU has strengthened the anti-money laundering/ counter terrorist financing framework by adopting the fourth Anti-Money Laundering Directive that had to be transposed by Member States by June 2017. The Commission is assessing the transposition of the fourth Anti-Money Laundering Directive, while also working to verify that the rules are correctly implemented by Member States. The Commission has launched infringement procedures against a majority of Member States as it assessed that the communications received from the Member States did not represent a complete transposition of this Directive.

The fifth Anti-Money Laundering Directive will improve the powers of Financial Intelligence Units, increase the transparency around beneficial ownership information, as well as regulate virtual currencies and pre-paid cards to better prevent terrorist financing. Member States are due to transpose the Directive into national law by January 2020.

Following the uncovering of several money laundering cases in 2018, the Commission set up in May 2018 a joint working group together with the European Supervisory Authorities and the European Central Bank. On the basis of the working group’s recommendations, the Commission issued in September 2018 a Communication on strengthening the AML and prudential frameworks and new rules to strengthen the role of the European Banking Authority. This led to the reinforcement of the anti-money laundering and terrorist financing dimension in prudential banking legislation through the adoption of the fifth Capital Requirements Directive in December 2018.

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Hacking of the Newswires connected with Trading: A refresher for the business community

Bob Budahl

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This case I am touching on is regarding Leonid Momotok in which he and other traders used insider trading information from not yet released press releases to amass windfalls in illegal trading. He pleaded guilty to conspiracy to commit wire fraud in his role to hack into three business newswires and obtain through theft the information related to finance that enabled illegal trading advantages. Their trades resulted in at least $30million in illegal profits. He pleaded guilty and faced up to 20 years in prison, restitution, a fine and criminal forfeiture.

The crux of the enabling operation to obtain an illegal advantage was gained through computer hackers in Ukraine who gained intrusion into Marketwired L.P, PR Newswire Association LLC (PRN) and Business Wire (Newswire Companies).Marketwired is owned by NASDAQ Inc., Business Wire is part of the billionaire Warren Buffet’s Berkshire Hathaway and PR Newswire is a Cision unit. The hackers used cyber-attack methods to obtain entry into the Newswire Companies’ networks. Once in, they stole upcoming press announcements about earnings, gross margins, confidential and material financial information and revenue information. They even sent messages regarding their activities. They went on to state they had gained access to the log-on to 15 wire business employees. While the traders made lists of what information they wanted, the hackers provided instructions on how to access and use the overseas server networks. And by having insider information before the public release the traders capitalized by placing trades prior to release date of the press releases. Caterpillar, Hewlett Packard, Panera Bread, Home Depot and others were some of those affected regarding nonpublic information. The hackers received a percentage of the profits and received it through shell corporations.       

The Dubovoy Group defendants tried to avoid detection by spreading their trading to more than 10 brokers firms in various names, etc. They helped each other with the activities as much as able. They stole over 100,000 unpublished press releases. Leonid Momotok owned 1% interest in two of Arkadiy Dubovoy’s companies.“He advised Arkadiy Dubovoy how to trade using the stolen information, and he had formal trading authority for brokerage accounts used in the scheme but held in the name of other members of the Dubovoy Group, …p 12.’

Involvement in the apprehension and prosecution of the perpetrators included many government agencies. The President’s Financial Fraud Enforcement Task Force had a leading hand in the pursuit and prosecution.

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9-11 Terrorist Attack: Defensive countermeasures of deter and detect

Bob Budahl

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On September 11, 2001 at 8:46 a.m. an airliner slammed into the North Tower of the World Trade Center in New York City. At 9:03 a.m. a 2nd airliner slammed into the South Tower. The planes carried thousands of gallons of jet-fuel aboard in effect making them lethal weapons. Tens of thousands of people worked in these buildings daily and both buildings fell to the ground within 90 minutes. More than 2,600 people died in the World Trade Center tower attacks. Then at 9:37 a.m. a 3rd airliner rammed into the western side of the Pentagon. 125 people died in the Pentagon attack. And a 4thairliner was intended for attack in either the U.S. Capitol or White House but the heroics of passengers crashed the plane, hence thwarting the attack. A total of 256 people died in the four planes. The death toll even surpassed the Pearl Harbor attacks of 1941.

Those responsible for the horrific attack were 19 Arabs carrying out Islamist extremists plans. Their headquarters were located in Afghanistan. They were resourceful and some had lived in the United States for some time and four of them had trained to be pilots. They were not well educated. They carried out the terrible attacks with knives, cutters, mace, etc. And they had tried to bring down the World Trade Center in 1993 but failed however in the result killed six people and wounded a thousand. It was an effort led by Ramzi Yousef. Others including Omar Abdel Rahman who had plans to blow up the Lincoln and Holland tunnels and other New York City landmarks, but they were arrested. Ramzi Yousef and others had various other terror plans of which some succeeded and some fortunately did not.

Bin Ladin was known and thought to be a financier but not thought of as a terrorist leader until later. In 1998 Bin Ladin and four others issued a fatwa in which it was publicly declaring it was God’s order that Muslims should try to kill any American they could. Bin Ladin was a wealthy Saudi and had conducted jihadist activities against the Soviet Union. But he also held grievances against the United States such as a U.S. troop presence in Saudi Arabia. He recruited and trained followers in Afghanistan and continued carrying out acts of terror, including on the United States. His people attacked embassies, hotels, and even attempted to sink the USS Cole Navy Ship by a terrorist attack. His rhetoric is derived from Islam, history and the economic and political disorder in the area. He formed an alliance between the al Qaeda group he led and the Taliban. The Clinton administration had tried cruise missile strikes against al Qaeda in Afghanistan and tried to get the Taliban to force Bin Ladin to leave Afghanistan. The U.S. unsuccessfully utilized CIA paid foreign agents to try to capture or kill Bin Ladin and his group.

As early as 1998 or 1999 Bin Ladin had been contacted by Khalid Sheikh Mohammed with an idea of using the planes as a method of attacking the World Trade Center and other targets. The original plans were for 10 planes to target both east and west coasts of the United States. The CIA did uncover some reports of Bin Ladin’s intent on attacks. The U.S. continued its disruption attempts globally and also utilized diplomacy with countries. The “predator drone” was eventually fitted with a missile should an attack on Bin Ladin provide an opportunity. Some of the reasons and connections to the actions of the perpetrators of the planned 9-11 terrorist attack became apparent after the attack. Unrest had come to the surface in the time before the attack as the Taliban leader opposed attacking the United States, in contrast to Bin Ladin’s wishes.

On 9/11 the terrorists were successful in hijacking the four planes. The planes were being used as terrorist weapons and confusion was present with air control. But eventually the FAA and NORAD who controlled airspace did receive a “shoot down order” but it was after the plane in Pennsylvania had been forced down by passengers in the only way to stop the plane from being used as a weapon.      

The enactment of the United States “Patriot Act” removed barriers that had impeded terrorism investigations in their outlay, scope and means. And in effect sped up the investigation and prosecution of the defendants. The FBI was point on the investigation that followed the attack and the operation was named Operation PENTTBOM. At one time more than half of the FBI’s personnel worked on the case. They followed through on more than one-half million leads. It was the largest crime scene in the FBI’s history.  Also in the time period following the 9/11 attack the Department of Homeland Security was created in March 2003, which brought together 22 separate agencies and offices into a Cabinet level department. The 9/11 Commission had made several recommendations and in this report some details are brought forward. These would be included under the defensive counterintelligence support mode of operation and include the principles of deter and detect within the countermeasures. It included recognizing 72 fusion centers throughout the country which acts as a focal point for receipt, analysis and sharing of threat related information. Also establishing related training and informational programs to deal with threats. One such example is the National Terrorism Advisory System. And the DHS developed and implemented a risk-based transportation security strategy. An action taken such as strengthening airline passenger’s pre-screening and targeting terrorist travel will deter terrorists as they become aware of increased security measures and thwart terrorists from attempting to board airlines for terrorist activities. The airliner’s cabin cockpit doors have been hardened post-911 and Air Marshalls are used appropriately as well as some flight crew being eligible to carry firearms. The TSA behavior detection officers use non-intrusive behavior observation to identify people who may be high risk. The TSA also utilizes detection methods such as canine teams to sniff for explosives on passengers and in luggage. Post 9/11 all cargo on U.S. planes is screened commensurate with their checked luggage. The flights coming into the U.S. from foreign countries are required to provide information prior to departure and checks all passengers against watch lists the government utilizes such as the Secure Flight Program. It also increases efficiency by allowing those cross-checked with biometrics to have expedited travel.

Today a significant defensive countermeasure post-911 is that airlines now screen all checked and carry-on baggage for explosives. The U.S. has increased security of U.S. borders and identification documents. Certain areas are closely watched and critical security improvements along the Northern and maritime are emplaced. The Dept. Of Homeland Security has taken aggressive action to enhance the security of the nation’s infrastructure and also cyber infrastructure and networks. There in a federal government system cyber intrusion detection system which includes EINSTEIN and the National Cybersecurity and communications integration center is the nation’s hub for organizing cyber response efforts. DHS and DOD are working together to protect against threats to military and civilian computer systems and networks. This is another example of defensive countermeasures. DNDO is affiliated with nuclear detection and back in 2003 only 68% of arriving trucks and passenger vehicles were scanned along the northern border with no system on the southwest border. But today the systems scan 100% of all containerized cargo and personal vehicles arriving in the U.S. through land port of entries and up to 99% of sea containers. Counter-proliferation of nuclear and biological threats is a high priority of the DHS. The tragic occurrence of 9-11 has brought about real focus on the danger of leaving vulnerabilities open to exploitation. The DHS also has importantly increased efforts to track and disrupt terrorist financing through programs such as ECTF or Electronic Crimes Task Force.

Another action taken post-9/11 was the creation of the National Counterterrorism Center or NCTC which was to serve 5 functions which were; Threat Analysis, Identity Management, Information sharing, Strategic Operational Planning and National Intelligence Management.

The U.S. Department of Justice charged ZACARIAS MOUSSAOUI with numerous terrorism charges and indicates others involved in the terrorist acts. The United States Department of Defense obtained a video tape of Bin Ladin basically accepting responsibility of the 9-11 attacks and the DOD has a transcript of the video and a portion I will quote is as follows. UBL refers to Osama Bin Ladin: “UBL: The brothers, who conducted the operation, all they knew was that they have a martyrdom operation and we asked each of them to go to America but they didn’t know anything about the operation, not even one letter.  But they were trained and we did not reveal the operation to them until they are there and just before they boarded the planes.UBL: (…inaudible…) then he said: Those who were trained to fly didn’t know the others.”

Bin Ladin, America’s most wanted terrorist was killed by United States Special Forces in a compound in Pakistan on May 2, 2011. The CIA had been involved in investigating Bin Ladin for years.      

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Counterintelligence Threat Brief for Turkey

Bob Budahl

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I will provide a Counterintelligence threat brief on traditional and non-traditional Counterintelligence threats to non-security cleared individuals who are traveling to Turkey as business travelers or for personal reasons. MIT, the official Turkey intelligence agency is active. And non-traditional threats also exist as Turkey includes diverse elements of persons from different Muslim nations. Some of which include terrorist groups with their main base of operation located in a different country but also operating within Turkey. As seen in EurAsia Review, conflicts that were usually based on national interests today are based typically on non-national interests such as ethnicity, religion and culture. Asymmetric warfare rather than having a clear issue now has several. And a weaker enemy will use it strengths against a superior adversaries weaknesses.

Using OSINT (Open Source Intelligence) to conduct my research I uncovered motive for Turkey seeking intelligence from the United States. Turkey is a NATO ally and an American ally. However, that is the crux of their relationship. It has never encompassed social and economic theology. They are predominately a Muslim country and have disagreements about many aspects of wars and conflicts that the US had interests in such as Iraq and Syria. Turkey targets Kurd fighters in Syria while we support them. And they opposed the action President Trump put in place of recognizing Jerusalem as Israel’s Capitol. There is a great amount of suspicion and mistrust regarding the failed coup of President Erdoğan. And Fethullah Gülen, the suspected leader of the attempted coup resides in the United States and refuses to extradite him. They believe Gulen is responsible for the assassination of Russian ambassador Andrey Karlov. They have typically bought US military products and technology but have made a deal with Russia to purchase an advanced missile defense system. Andrew Brunson who is an American Pastor is being held and faces spying charges and thus far efforts to release him are unsuccessful. They are suspicious of everyone. They will not hesitate to leverage information acquired through their intelligence services from the United States or any source. Turkey has long been thought of as torn between the East and West. In Turkey if you access the internet via a local ISP they can install spyware on your computer that can control it. Charter Schools are being targeted by Turkey since Gulen was instrumental in them and that tie is enough for Erdogan to lash out. MIT-Turkey’s intelligence agency places agents in journalist positions as cover which often leads to someone divulging information that is considered private.

If Turkey has decided to spy on you it probably originates from passport screening. Some things that a US visitor should be aware of are to self-assess if you could be thought of as a terrorist, narcotics trafficker or criminal. Black market activity. Do not be caught with suspicious or incriminating luggage. Do not identify known associations that Turkey may find incriminating. They may utilize any of these ways to recruit you as an asset of theirs. Usually direct and indirect activities used in conducting their intelligence operations are non-threatening and unobtrusive. Beware of local laws and customs as one example is in Turkey derogatory comments regarding government and its leaders are prohibited. It may be illegal to use insulting language.

Information Turkey may covet and target from a target such as a defense contractor non-intelligence employee may include customer data, employee data, vendor information, pricing strategies, propriety information, technical plans, corporate strategies, financials, computer access protocols, acquisition strategies, investment date, business directories of phone and emails. They may be subtle and use elicitation to gain information slowly and by gaining your trust. Be alert for tips. Throw them off their own game by asking why they ask. Refer them to public sources if specifically targeted questions are posed. Or say you cannot discuss it or just do not know. Examples of things I would consider for combating their intelligence collection efforts are to use rental electronic devices. Disable the Wi-Fi. And on the flight travel with the device as carry-on luggage. Do not use foreign storage devices in your devices. Do not leave documents and information in your hotel room. Do not use the hotel safe. Select your own cab.

But sometimes harassment incidents are utilized and obviously are meant to intimidate or test a US citizen’s reactions. If harassment is selected to be used on a prospective recruit it can be used in a variety of means.

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