The Week Of: June 23, 2020
This week’s news and stories of interest to the AML community. If you prefer a news roundup plus other AML/KYC content sent to you, subscribe to our weekly newsletter.
Bitcoin ATM growth: A boon for money launderers?
Bitcoin ATMs, machines that resemble traditional ATM kiosks and allow consumers to buy or sell Bitcoin and other cryptocurrencies, have seen explosive growth recently. A report published by blockchain and crypto analytics firm CipherTrace says they may also be facilitating criminal activity and money laundering.
More than 8,300 of the machines have been installed worldwide as of this writing, including over 1,000 installations since March. Approximately 75 percent are in the U.S., where they must register as a money service business with the Financial Crimes Enforcement Network.
CipherTrace’s study found that the percentage of funds sent to high-risk exchanges from U.S.-based Bitcoin ATMs has doubled every year since 2017; 88% of funds sent by U.S. Bitcoin ATMs to exchanges in 2019 were sent offshore.
BATM operators say they follow KYC protocols and alert authorities of suspicious transactions, but that is not always the case. Last year a California man pleaded guilty to illegally exchanging up to $25 million in cash and virtual currency, some with his Bitcoin ATM kiosk. And in Spain, a criminal network was busted for laundering cash through two Bitcoin ATMs, exposing holes in the European Union’s AML controls.
Did China really ban pangolin trafficking?
Mongabay, a nonprofit environmental science and conservation news organization, is questioning China’s recent announcement that it banned pangolin scales in traditional Chinese medicine (TCM).
Pangolins are the world’s most illegally trafficked animal and are linked to the COVID-19 pandemic. In addition to its desired scales, pangolin meat is considered a delicacy in China and Vietnam.
Earlier this month, it was reported that the Chinese government removed pangolin scales from an official list of TCM pharmacopoeia.
However, a team at the Environmental Investigation Agency obtained a copy of the 2020 pharmacopoeia and found that “while pangolin scales had been removed from the list of raw ingredients, pangolin scales were still listed as a key ingredient in various patent medicines.”
EIA identified eight medicines in the 2020 pharmacopoeia that contain pangolin scales, including Zaizao Wan, a pill said to aid blood circulation, and Awei Huapi Gao, a medicine used to treat abdominal pain. While patent medicines are processed, ready-made products, [senior pangolin campaigner at EIA Chris] Hamley said that licensed hospitals and pharmaceutical companies can legally obtain pangolin scales to produce and sell these medicines.
There are also 72 additional TCM products containing pangolin scales that aren’t listed in the 2020 pharmacopoeia, but that can still be legally sold within China, Hamley said.
The illegal trade in pangolin scales has not slowed since the announcement of their removal in early June, according to EIA.
Supreme Court limits SEC’s penalties on financial crimes
In a recent judgment, the U.S. Supreme Court ruled that the Securities and Exchange Commission cannot impose “arbitrary disgorgements” against firms it alleges have committed financial crimes.
The Court said that any fines should not exceed the profits made from the illegal activities, penalties must be for the benefits of the victims, and the regulator is barred from collecting money as punitive damages, while limiting enforcement actions to a five-year of statute limitation.
In Liu v. SEC, the petitioners solicited nearly $27 million from foreign nationals to invest in the construction of a cancer-treatment center. The SEC alleged they misappropriated millions of dollars in funds raised from investors, in violation of the terms of the investment offering.
“The Court reasoned that by limiting the amount of disgorgement to an individual wrongdoer’s net profits, the remedy does not become a punitive sanction,” according to the National Law Review.
Finance Magnates noted that the decision may affect crypto-related businesses as the SEC had been imposing heavy fines against those firms involved in scams.