As financial technology (FinTech), artificial intelligence (AI), and cryptocurrencies continue to embed themselves into mainstream finance, the scope of government regulation surrounding many of these potent platforms is still relatively uncertain. With today’s global financial landscape subject to constant change, a recent article from the Wall Street Journal provided insight into who may be leading the direction/progression of the greater FinTech industry moving forward, with all early indications pointing to the private sector. Both established financial technology companies as well as “start-ups” have turned their attention to onboarding former government officials to help spearhead their respective company’s move into the future while navigating this period of unknowns in terms of legislation surrounding cryptocurrencies and other digitized forms of finance.
To date, several former members of the United States Treasury Department’s Office of Terrorism and Financial Intelligence (TFI), an agency that marshals enforcement, regulatory and intelligence functions for the Treasury to reduce illicit financial activity by terrorist groups and financial criminals, have made for high-profile hires at several big-name FinTech organizations in recent months. Given their background operating within this specific unit of the U.S. government provides great exposure to the inner-workings of legislation pertaining to blockchain and other crypto-related financial technologies. This wealth of experience has proven lucrative to companies aiming to take the next step towards branching out further into innovative solution-development that complies with both current and future regulations, while also limiting potential exploitation for money laundering and other serious financial crimes. These signings signal large-scale changes on the horizon for an industry that analysts have stated is due for a period of exponential growth. By coercing former regulators to join the private sector, these companies are getting the very best and most current information available on the future of risk and compliance with regard to cryptocurrencies, which many believe may lead to this sector perhaps shaping regulatory standards themselves in the years to come.
One of the more notable recent hires was Juan Zarate, former Treasury first assistant secretary for terrorist financing and financial crimes. Zarate was appointed the chairman of the advisory firm Financial Integrity Network, while also serving as a regulatory advisor to prominent crypto-exchange Coinbase. Zarate stands firm in his belief that with more and more of his counterparts in Washington taking positions similar to his, rapid growth is bound to hit the FinTech realm sooner rather than later. Zarate states, “You have the ability, given the fact that there isn’t clarity on the regulatory rules of the road, to actually shape the market, the expectations and how not only you do business but how others in the marketplace that have to interact with you do business.”3
Another recent acquisition seen during this movement was that of Sigal Mandelker, former Treasury undersecretary for terrorism and financial intelligence under the Trump Administration until October of 2019. Mandelker recently took the position of general partner of the fast-growing, FinTech-focused venture-capital firm Ribbit Capital. Mandelker came to Ribbit with experience negotiating regulations with Switzerland on Facebook’s new Libra digital payment system, while also making efforts to remove anonymity from virtual currency services to increase overall transparency and cut down on criminals using these platforms to facilitate their money laundering efforts. Mandelker also had a significant role in recent U.S. foreign policy initiatives under President Trump, overseeing the use of aggressive sanctions as a formidable tool to uphold national security, specifically against Iranian oil exports following the U.S. decision to back out of the highly-contentious Iran Nuclear Deal. Arguably Mandelker’s most noteworthy role as it pertains to financial technology however was her oversight of global financial watchdog the Financial Action Task Force (FATF).
Mandelker’s thought process behind her move and this trend overall is in line with that of Zarate, as she believes that that she provides her firm a distinct competitive advantage over their competition by providing them a greater understanding of investment decisions and product development through a different lens than those historically operating within this industry. Mandelker claims that her objective at Ribbit is to “build additional bridges between these two worlds”,3 while creating new and long-lasting revenue streams for her firm. The amount of people who have this kind of insight are so few, it’s no wonder FinTech companies are lining up by the dozen to meet with these individuals – their information is that valuable. Although this strategy is still gaining steam in the U.S., this practice is truly something that even the broader financial industry (i.e. outside of the tech realm) can learn from. Hiring regulators and other government officials with relevant experience can provide organizations of varying sizes an invaluable window into not only what is currently required of them, but also into what developments the future may hold. While their benefits have yet to be truly be felt in the financial sphere, the advantages of this strategy are clear and may very well be worth much more than the price of the executive salary accompanying these hires.
Trump Again Targets Venezuelan Oil With New Sanctions
In an effort to create further economic turmoil in both Iran and Venezuela, the Trump administration and the Treasury’s Office of Foreign Assets Control (OFAC) have readied a new batch of sanctions against upwards of 50 Venezuelan oil tankers and the companies associated with them. With the presence of corrupt former leader Nicolás Maduro still looming large in the South American country, President Trump intends to continue blacklisting companies found to be working for/with the embattled diplomat, specifically those operating in the oil trade. In doing so, the President hopes to hinder the growing relationship between Iran and Venezuela, with the latter receiving much-needed fuel in a good-faith gesture from Iran in recent weeks. Both government’s are currently subjected to heavy U.S. sanctions that have hampered the returns on what is by far each of their largest sources of revenue: oil exports. The Wall Street Journal writes that the “U.S. efforts to blackball Iran’s shipping industry over the past two years helped cut the country’s crude exports from around 2.5 million barrels a day to an estimated 70,000 in April.”4 Venezuela’s exports have similarly dried up, falling to a 17-year low in recent months and fueling the country’s major economic crisis.
While the latest sanctions have yet to be formally announced, the threat of these measures has already steered away several tankers that were set to load large amounts of Venezuelan crude oil over the June 5th weekend as ship operators have grown wary of incurring potential repercussions. Altogether, the new U.S. approach of targeting the marine industry with sanctions is expected to further impede upon Venezuela’s economy, while “helping the Trump administration steer clear of a possible military confrontation stemming from other types of action at sea.4
More Regulatory Trouble for Danske Bank
Denmark’s financial watchdog, the Financial Supervisory Authority (FSA), has again cracked down on the ever-troubled Danske Bank, this time filing a criminal complaint against the country’s largest lender for violating market abuse regulations. Reports have indicated that the FSA found Danske to have “misinformed the financial market by facilitating so-called ‘wash trades’, in which the same person sells and buys securities, between August 12, 2016 and February 22, 2019.” These trades center on the sale of financial instruments without a formal change in ownership of the securities, which could “misleadingly prop up or devalue the price of securities.”2 The bank ultimately conceded that its processes to protect against market manipulation were inadequate relatively recently, with the bank moving to correct their insufficiencies in this regard in 2019.
The bank is one of four banks instructed by the FSA in December to improve its surveillance of market transactions late last year, with the regulatory body ultimately reporting Danske Bank to the police for “market abuse” after failing to properly monitor and report these transactions.2
Europol Launches New Financial Crime Enforcement Body
The European Union Agency for Law Enforcement Cooperation, better known as Europol, formally announced the launch of the European Financial and Economic Crime Center (EFECC) on June 5th. The novel body is expected to provide operational support to the 27 EU member states and other EU bodies operating in the financial and economic crime spheres in order to promote improved financial investigations and subsequent prosecutions on financial misconduct. With an estimated 98.9% of criminal profits from financial crimes failing to be confiscated by EU authorities, Europol believes that the creation of this new agency will help to limit the prevalence and overall success of money laundering efforts seen in the region, which in turn will limit the access to these ill-gotten funds by organized criminal groups. The exponential rise in COVID-19-related fraud cases seen in recent months is also believed to have been a major factor into the expedited launch of the EFECC.
Summing up the launch following a press conference at Europol headquarters, Ylva Johansson, EU Commissioner for Migration, Home Affairs and Citizenship, stated “the center we are launching today will help step up financial investigations across the EU. Financial and economic crime harms us all and doesn’t stop at national borders. And it’s often a key activity of organized crime groups that we can uncover if we follow the money. With our new center, we’ll be better equipped to fight economic crime together.”1
- “Europol Launches the European Financial and Economic Crime Centre.” Europol, 5 June 2020.
- Skydsgaard, Nikolaj. “FSA Reports Danske Bank to Police over Market Abuse.” Reuters, Thomson Reuters, 10 June 2020.
- Sun, Mengqi, and Ian Talley. “Former Treasury Officials Positioned to Shape Fintech From Private Sector.” The Wall Street Journal, Dow Jones & Company, 8 June 2020.
- Talley, Ian, and Bradley Hope. “WSJ News Exclusive | U.S. Sets Plan to Expand Sanctions on Tankers, in Bid to Pressure Venezuela.”The Wall Street Journal, Dow Jones & Company, 9 June 2020.