KYC360 Weekly Roundup

Published on Jan 06, 2023

New Compliance Regulations 2023

Welcome to this week’s AML Roundup.  As the new year gets underway, we lead with some of the key compliance regulations that are predicted to come into force in 2023 and will require increased due diligence across a wide range of areas. From the supply chain to forced labour; product sustainability to an increased focus on how to regulate the crypto industry; all will increase the compliance obligations for many hundreds of thousands of businesses across the world.

While the turmoil in the crypto sector that has sent a chill through markets is predicted to continue into 2023, many countries are still placing great faith in the development of digital currencies and CBDCs.

We complete this week’s Roundup with updates on international sanctions, deliver the latest reports & analyses, together with global news covering money laundering, corruption, and bribery.

RequirementsCompliance & Regulations

The European Supply Chain Act

2023 will see new acts aimed at increasing transparency regarding human rights violations and environmentally harmful practices. In December 2022, the European Council adopted a draft of the European Supply Chain Act, which will go before the European parliament in May of 2023. Once the Act is in place, it is widely expected that member states will have two years to bring it into law.

The German Supply Chain Due Diligence Act (SCDDA)

Germany has already introduced the German Supply Chain Due Diligence Act, which entered into force on January 1, 2023. This act requires that all German companies with 3,000 employees or more take “appropriate measures” to respect the environment and human rights in their supply chain. The goal of this act is to reduce or eliminate risks associated with human rights and the environment, while also ending the violation of duties related to these issues.

The EU Forced Labour Regulation

In the last quarter of 2022, the European Commission proposed a new regulation that will prohibit products made with forced labour from being imported into the EU, exported from the EU, or be made available in the EU market. It will apply to all levels of production and to all products and while it is not expected to come into full effect until 2025, organisations should start preparing this year.

The Ecodesign for Sustainable Products Regulation (ESPR)

In March 2022, the European Commission released a proposal for the Ecodesign for Sustainable Products Regulation (ESPR). This proposal builds on the Ecodesign Directive, which only covers energy-related products, and is part of the Sustainable Products Initiative (SPI), the cornerstone of EU environmental policy. Its requirements will apply to all products and across the entire supply chain value, and while the EU Parliament still needs to produce a draft decision, considering its broad requirements and reach, manufacturers need to be proactive in preparing for the ESPR.

Markets in Crypto Assets (MiCA) bill

The European Parliament will soon be voting on adopting the regulation on Markets in Crypto Assets bill (MiCA). The regulation would see the establishment of harmonised rules for crypto-assets at EU level, thereby providing legal certainty for crypto-assets not covered by existing legislation. The legislation would regulate the issuance and trading of crypto assets as well as the management of the underlying assets.

Lummis-Gillibrand Crypto Bill

When the Lummis-Gillibrand Crypto Bill was first proposed in June of last year, it was regarded as an important step in bringing regulatory clarity to bitcoin, stablecoins, and digital assets. While it still has some way to becoming law, if the bill is introduced in 2023 it will create clear legal definitions and regulatory lanes for all digital assets.

The Customs Trade Partnership Against Terrorism (CTPAT)

The Customs Trade Partnership Against Terrorism (CTPAT) aims to build cooperative relationships that help strengthen both the international supply chain and US border security. Participants must develop social compliance programs that ensure forced labour is not used in the production of goods that are imported into the US and businesses should be prepared to provide  evidence that these plans have been implemented by August 2023.

The Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) Regulation

In February 2023, the European Union will restrict perfluoroalkyl carboxylic acids (PFCAs) through REACH as part of the Annex XVII Restricted List. Companies will need to eliminate PFCAs from their supply chains, but since they are prevalent in so many products, identifying them and eliminating them will take time. This proposal is expected in January 2023, so businesses should begin identifying and eliminating substances immediately in order to maintain future market access.

Changes to the Restriction of Hazardous Substances (RoHS) Directive

In 2023, we could see changes to the EU’s Restriction of Hazardous Substances (RoHS) directive. In 2022, RoHS underwent a review and public consultation, which could result in a new version of RoHS (RoHS 3) being introduced. This could see RoHS becoming an EU-wide regulation, as opposed to its current status as a directive, which would present new challenges for companies, as a regulation would be consistent law for all member states.

 

Financial_ServicesMoney Laundering, Fraud & Corruption

Dutch banks introduce new fees to cover money laundering checks 

Banks in the Netherlands are asking companies, foundations, and churches to pay an additional monthly charge to cover the cost of screening for money laundering and terrorism funding. ABN Amro, ING, and SNS have already introduced the new fees, with Rabobank set to follow shortly. Last year, research by McKinsey for the Dutch payment association suggested checks are now costing banks more than €700 million a year. 

Malta government agency fines firm €227,000 over breaches of anti-money laundering rules

Triton Capital Markets Limited, an investment services company, has been fined nearly €227,000 by the Financial Intelligence Analysis Unit (FIAU) over non-observance of anti-money laundering rules. The FIAU said the firm failed to take appropriate steps to assess the risks of money laundering and terrorism financing arising from its operations and to adequately document such assessments.

Malta-based bank fined €310,000 for failings on anti-money laundering laws

The Financial Intelligence Analysis Unit (FIAU), Malta’s anti-money laundering unit, fined ECCM Bank stating that it did not have adequate business and customer risk assessment measures in place. Although the FIAU conceded that ECCM’s business model exposes it to fewer risks than other banks, it said the bank still has an obligation to carry out a comprehensive business risk assessment in a timely manner.

Luxembourg financial regulator orders foreign branches to report AML setup every year

The Commission de Surveillance du Secteur Financier (CSSF) has ordered that from this year, Luxembourg branches of investment firms and financial institutions headquartered elsewhere in the EU will have to ask their auditors to produce an independent report on measures taken to prevent money laundering and the financing of terrorism.

Fears grow that Albania will become a ‘money laundering paradise’ for UK-based drug gangs

Albania will become a ‘money laundering paradise’ for UK-based drug lords under laws which enable them to hide hundreds of millions of criminal proceeds in property empires. The fears stem from the country’s government introducing a ‘fiscal and criminal amnesty’, which will allow anyone to declare assets of up two million euros without having to reveal the origin of the money. 

Nepal risks being ‘greylisted’ for abetting money laundering

Nepal is at risk of being put on the Financial Action Task Force (FATF) ‘grey list’ as it struggles to address deficiencies in both its legislation and enforcement of laws related to money laundering and terror financing. At least 15 weak laws have been identified and there are fears that the potential ‘greylisting’ could damage Nepal’s struggling economy which is heavily reliant on foreign aid, remittances and imports. 

Austrac warns crypto is the mainstream money laundering avenue to send dirty money offshore 

The Australian Transaction Reports and Analysis Centre (Austrac) has declared that cryptocurrency is now the “standard part of the money-laundering tool kit” for organised crime groups. The financial intelligence agency also noted that criminals are making use of regulated crypto-ATMs that are growing in number, with “very vulnerable people putting large amounts of cash into these ATMs, which essentially immediately goes offshore”.

 

RequirementsCorruption & Bribery

EU to probe UAE involvement in corruption cases

The European Union Parliament has opened an official investigation into corruption cases and suspicions involving senior officials from the United Arab Emirates (UAE) to launch a smear campaign against Qatar coinciding with hosting the 2022 FIFA World Cup. Official investigations have revealed the major role played by the UAE in the corruption scandal that affected the European Parliament Vice-President Eva Kaili and three others. 

More MEPs could lose immunity in corruption probe

The EU says it will launch proceedings to remove parliamentary immunity from two MEPs implicated in an ongoing corruption scandal. The scandal erupted last month after one MEP and three others were arrested on charges of corruption and money-laundering, with numerous EU sources accusing Qatar of being behind the operation.

Opinion: Countering fraud and corruption in the projects financed by multilateral development banks 

According to Duncan Smith, Deputy Head of Fraud Investigations at the European Investment Bank (EIB), Multilateral Development Banks (MDBs) and other international organisations can minimise fraud, corruption, and other forms of misconduct that lead to the misuse of funds. This criminal misconduct may have a serious impact on the affected project and country, depriving them of desperately needed funding for development. 

Former China bank chief gets death sentence for bribery

Wu Hua, the former head of the Bank of Wenzhou, has received a suspended death sentence for illegally accepting property worth hundreds of millions of yuan. He was also given 12 years in prison for embezzlement, 10 years and a 200,000 yuan fine ($28,679) for illegally issuing loans and seven years for illegally distributing financial certificates.

Former Maldives president Abdulla Yameen found guilty of corruption 

The criminal court of Maldives has found former president Abdulla Yameen guilty on corruption and money laundering charges related to receiving kickbacks from a private company. Previously, Yameen was sentenced to five years in jail and fined $5m in 2019 for embezzling $1m in state funds, which prosecutors said was acquired through the lease of resort development rights. 

 

Crypto-1Crypto & Virtual Assets

New York regulator hits Coinbase with $50m fine following failures in its compliance programme

Coinbase will pay a $50 million penalty and invest another $50 million in its compliance programme to settle a New York State regulatory investigation into failures in its anti-money laundering practices. The investigation found that Coinbase’s know your customer/customer due diligence, transaction monitoring system, suspicious activity reporting, and sanctions compliance systems were all inadequate for a financial services provider of its size and complexity.

“This left the company’s platform vulnerable to serious criminal conduct, including, fraud, possible money laundering, suspected child sexual abuse material-related activity, and potential narcotics trafficking.”
New York State Department of Financial Services (DFS)

Crypto payment firm Wyre said to be close to shutdown

Wyre, a crypto payment firm that came close to being acquired for $1.5 billion last year, is rumoured to be on the brink of liquidation. According to reports, Wyre CEO Ioannis Giannaros emailed employees over the holiday session about a planned liquidation and dissolution of operations in January 2023.

US regulators warn banks of crypto exposure risks

US regulators have warned banks to be on their guard against the risks posed by exposure to the crypto asset sector in the wake of the collapse of FTX and heightened volatility in the market. The Federal Reserve, Federal Deposit Insurance Corp (FDIC) and the Office of the Comptroller of the Currency are now stepping up the oversight of banks with business interests in crypto assets and will scrutinise all future proposals.

UK enforces crypto tax break for foreigner investors using local brokers

The UK is enforcing a tax exemption for foreign investors who purchase crypto through local investment managers or brokers. The tax break, announced last December, is a part of Prime Minister Rishi Sunak’s plans to turn the UK into a crypto hub. 

“To build upon the U.K.’s position as an investment management hub, this exemption has been extended to include crypto assets, so that funds which include them aren’t put off from appointing U.K. managers.” 
HM Revenue and Customs

IRS looks to partner with crypto companies to combat financial crime

Amid moves to regulate the cryptocurrency industry in the wake of the collapse in value seen in 2022, the US Internal Revenue Service (IRS) is looking to ramp up its oversight by hiring hundreds of new agents and developing partnerships with crypto companies.

Over $3 billion stolen in crypto heists last year

According to Chainalysis over $3 billion was stolen in 125 hacks, above and beyond the billions of dollars lost from the collapse of the Terra stablecoin and the failures of crypto financial firms Celsius Network, Voyager Digital and FTX Trading.

NCA launches crypto unit to crack down on digital assets fraud

The crypto industry has long been criticised for enabling fraud, money laundering, and illicit transactions, but crime in the sector escalated to record levels last year. As a result, the UK’s National Crime Agency (NCA) is ramping up its efforts by launching a new ‘crypto cell’ to help tackle criminal activity.

ECB to decide on whether to proceed with the digital euro this year 

The European Central Bank says it will finalise the overall design of a digital euro in the second half of 2023. The ECB’s Governing Council will review the outcome of the investigation phase in autumn of this year and decide whether to proceed to a realisation phase. Should the project be approved, it is unlikely that the digital euro will be released until 2026 at the earliest.

Many central banks looking to issue a CBDC within a decade

According to a report by the Official Monetary and Financial Institutions Forum (OMFIF), a survey of 18 central banks found 35% were more inclined to issue a CBDC, despite recent events in crypto, while none were less inclined to issue one.

Turkish Central Bank completes first CBDC pilot transactions 

The Central Bank of the Republic of Türkiye (CBRT) has carried out its first test transactions on the digital Turkish Lira CBDC network and will run limited, closed-circuit pilot tests with technology stakeholders in the first quarter of 2023. Following the evaluation of the pilot, the central bank intends to extend the network to banks and technology companies and run architectural tests on the use of distributed ledger technologies and their integration with instant payment systems. 

 

Sanctions-1Sanctions

 

UK sanctions loophole leads to accusations that its Russia assets regime is weaker than EU or US

Experts have warned that the UK’s different approach to share ownership by sanctioned individuals and entities has created a loophole in the global system of enforcing sanctions. While this policy means that the UK regime may be weaker than in the EU and US, defenders say it provides more flexibility to go after hidden assets.

New sanctions starting to bite Russia’s economy as Moscow admits deficit impact

Russia’s Finance Minister Anton Siluanov is reported to have told journalists that the oil price cap imposed by the G-7, the EU, and Australia is squeezing Russian export income and will potentially push Moscow’s budget deficit higher than the expected 2% of GDP in 2023. Price caps on Russia’s crude and refined oil exports could force the Kremlin to cut output by between 5% and 7% this year.

“It’s still too early to fully assess the impact of the G7 oil price cap and the EU’s ban on Russian crude imports which came into effect on 5th December, but initial signs suggest that Russia’s economy is starting to feel the pinch.”
Nicholas Farr, emerging Europe economist at Capital Economics

Sanctions targets allowed up to £1 million of frozen funds to pay Jersey legal bills

Sanctioned individuals can now access up to £1 million of their Jersey-based funds to pay outstanding bills to local lawyers. The island’s External Relations Minister has issued a new ‘general licence’, which allows legal firms who have represented clients facing international sanctions to be paid more easily.

Opinion: Enforcing sanctions against Russian kleptocrats just got harder

The Court of Justice of the European Union (CJEU) ruling that the public can no longer access data regarding companies’ real owners has made the overwhelming task of uncovering hidden assets even more difficult. This article argues that the EU must act quickly to protect corporate transparency in the fight against dirty money.

Haiti has been added to the UK’s Sanctions list

The Haiti (Sanctions) Regulations 2022 came into force on 28 December 2022. These sanctions are being put in place to ensure the UK continues to meet its obligations under the United Nations sanctions regime relating to Haiti, which forms a part of it’s response to the ongoing political and security challenges in the country.

 

RequirementsReports & Analysis

Financial institutions will need to redefine their risk-based strategies in 2023

2022 experienced an ever-expanding list of new financial crime typologies worldwide. In 2023, financial services organisations must emphasise and redefine an enhanced risk-based approach to fighting financial crime as they look for more robust methods to overcome these complex and intertwined challenges while being pressured to reduce costs in the face of an uncertain economy.

Finextra’s top research reports of 2022

Finextra has published a list of the most downloaded whitepapers, sentiment papers and surveys of 2022. The list includes: Will banks use digital security as a post-pandemic differentiator; Seeking approval – acquirers vs. transaction fraud; Payments modernisation: The big survey 2022; Payments transformation: Emerging stronger; and Open Banking Europe 2022 – What’s next for Open Banking?

UK think tanks and campaigns rated for funding transparency

The Who Funds You? project initially ran from 2012 – 2019. Now openDemocracy has relaunched it with a new 2022 audit. The think tanks are rated on a scale from A to E, with A being the most transparent, while an E grade depicts the least transparency about their funding.

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