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Feedback over suspicious transactions: Leaks, bad press and transaction monitoring

Leaks, bad press and transaction monitoring

By: Joris Rozemeijer (AMLC) and Sonja Corstanje Maaskant (FIU-Nederland), December 2021

In this article, under the scope of transaction monitoring in reference to publications in the press and together with the FIU-Nederland (FIU), the AMLC reflects on transactions that were declared suspicious in the third quarter of 2021.

Transaction monitoring
The Organized Crime & Corruption Reporting Project (OCCRP)[1] publications concerning the Russian and Azerbaijani Laundromats date from 2017 and related to activities during the period from 2010 to 2015. Why is it then that these publications are still playing a large role in the reporting behaviour of banks? The answer to that question starts with the legislation. It is stated namely in the Dutch Money Laundering and Terrorist Financing (Prevention) Act that an institution must report an unusual transaction without delay after the unusual nature of the transaction has become known.[2] Therefore, it may also be years after a transaction that a duty to report arises when an institution is faced with negative publications.[3] This is often referred to as ‘bad press’ and may, for example, concern publications following on from the Panama Papers or the Pandora Papers by parties such as the OCCRP, but it may also concern a newspaper article. One example of this is a judgment from The Hague District Court, which ruled that a newspaper article in the Dutch newspaper the Financieel Dagblad about large-scale fraudulent practises during bankruptcies should have provided reason for a civil-law notary to make a report.[4] The transfer of shares whereby this civil-law notary was involved took place a year before the newspaper article was published.

The AMLC makes several analysis products, including a quarterly report about suspicious transactions. What is striking in the AMLC quarterly report (Q3 ’21) is that, of all the suspicious transactions, it is evident that Latvia is number 1 on the list as country of origin. In the report texts, a significant majority of the suspicious transactions contain the words OCCRP, laundromat, Russian and Azerbaijani. However, Latvia is less prominent as country of destination. This fits in with image provided by the Laundromats that money flows away via Latvia. Most suspicious transactions relate to the years 2015, 2016 and 2017. The oldest reported transactions date from 2010. This fits in with the active period of the Russian and Azerbaijani Laundromats, which ran from 2010 to 2015, and subsequent transactions during the years following. Why is it that the ‘bad press’ dating from 2017 is still leading to a wide range of reports?

One of the banks comments on this in the report text accompanying the suspicious transactions. That bank identified seven high-risk banks in light of the publications from the OCCRP concerning the Russian Laundromat and Azerbaijani Laundromat. Subsequently, that bank investigated transactions of its clients with ‘non-resident accounts’ of those seven banks. At an earlier stage, this first phase led to a large number of reports to the FIU-Nederland. The reports made by this bank in the third quarter in question, however, relate to a second phase. Transactions with banks other than the seven initially identified have now been investigated. Non-resident accounts at other banks, which fulfilled one or more of the four criteria, were scrutinised. Or five criteria, if you count the fact that this concerns a non-resident account.

The first criterion involved looking at whether the other party, whose name had cropped up after the first phase of analysis of the Russian and Azerbaijani Laundromats as account holder by one of the seven identified banks, also has an account with another bank. The second criterion also involved looking at the other party and its address according to the commercial register. Investigations are carried out to see whether, on grounds of public sources, this address is associated with the Russian and Azerbaijani Laundromats or other crimes. Criterion three answers the question whether the other party is incorporated by companies, whether or not offshore, which, on grounds of public sources, are associated with the Laundromats. Criterion four involves looking at all the other legal forms (Ltd., AG, CORP, INC, LCC) and whether this other party is established in one of the 33 countries that appear in Russian and Azerbaijani Laundromats, such as Panama, Belize and Cyprus. The four criteria are listed with a ‘yes’ or ‘no’ at the end of each separate report text.

All these reports provide an image of money flows and parties involved. This financial intelligence following the different ‘leaks’, such as currently the Pandora-Papers or other ‘bad press’, is important to the Dutch detection services. It is not always a simple matter to start criminal investigations[5] in response to ‘leaks’. This is partly because, when a journalistic article is published, little or none of the underlying data is released. The government may acquire that underlying data, but only much later. Information such as the data from the suspicious transactions, originating from gatekeepers, is then very welcome for detection investigations.

International cooperation
The OCCRP has issued various publications in which Latvian banks played a role, such as the articles about the Russian Laundromat and the Azerbaijani Laundromat.

More than 99% of the suspicious transactions with Latvia as country of origin are reported by banks. That is in itself logical because banks underpin these financial transactions, yet the question still hangs in the air as to why there are not greater numbers of suspicious transactions, for example from trust offices and other service providers. Certainly now, when more than half of the businesses involved in these transactions are not Dutch businesses, but businesses based in the United Kingdom, Cyprus and the Virgin Islands. On top of that, there is regular mention in the OCCRP publications about shell companies and the manner in which reporting criteria are formulated, such as the example given in this article; you might then quite reasonably suppose that other gatekeepers must also be able to detect transactions associated with the Laundromats.

International cooperation and raising suspicious transactions to the level of a criminal suspicion have attracted the attention of the FIU and the Dutch detection services. A good example is the International Financial Intelligence Taskforce (IFIT) concerning the Latvian ABLV bank: a bank which publicly admitted in 2018 to be involved in money laundering.

This appeared to involve professional money laundering on a scale which could not possibly be handled by one country alone. To date, it is known to involve 25 jurisdictions and it seems that possibly billions have been money laundered.[6] This is the reason why, in July 2019 during the Egmont Group Plenary in the Netherlands, a taskforce was set up under the leadership of the Latvian FIU. This taskforce, in which the FIU-Nederland also participates, is extraordinary in view of the highly specific, operational nature concerning transactions of a single financial institution. Participation in this taskforce has led in the Netherlands to several files with a large number of suspicious transactions which could be shared with the detection services. In addition, on the basis of these files, a collaboration was started with the AMLC, the purpose of which is to investigate how the results and insights arising from this taskforce can be used to the best advantage[7].

Peculiarities in the suspicious transaction quarterly report (Q3 ’21) have provided feedback which hopefully will inspire other gatekeepers when it comes to looking at and analysing transactions arising from ‘bad press’ with retroactive effect and to report these to the FIU, should they appear to be unusual. We have also described in this article how the government cooperates internationally on the themes in question. This endorses the fact that the government is taking an interest in these suspicious transactions and is actively looking for opportunities to look further into such suspicious transactions and, if they exist, to follow up on those. 

[1] OCCRP.org.

[2] Section 16 of the Money Laundering and Terrorist Financing (Prevention) Act

[3] New publications are not the only reason for making a report after all, sometimes years later. A new insight into a link with the dark web, new knowledge concerning the working methods of criminals, may all provide reasons which lead to a transaction only then being designated as unusual. As described in chapter 3 of the annual review of FIU-Nederland, such reports can prove to be highly valuable, even when the transactions are not recent.

[4] ECLI:NL:RBDHA:2013:13969

[5] Brabants Dagblad; Veghel resident exposed by Panama Papers found guilty of tax fraud. 10 December 2020

[6] Reuters us-ablvbank-sanctions.

[7] Annual review FIU-Nederland 2020.

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