Magazine article American Banker

Did Banks' KYC Controls Fail in Russian Efforts to Swing Election?

Magazine article American Banker

Did Banks' KYC Controls Fail in Russian Efforts to Swing Election?

Article excerpt

Byline: Rachel Witkowski

WASHINGTON -- The alleged use of fraudulent financial accounts by Russian internet trolls, who authorities say were trying to tip the 2016 election, reveals yet another fault line in banks' efforts to truly "know" their customers.

The indictments announced Friday in the Russia special counsel's investigation illustrate how banks can be exploited by bad actors, but once again the key questions are: What did banks know, and how could they have stopped it?

"If these individuals were doing activities that were disproportionate to an everyday checking account, then banks should have been more on top of that. But ... it is hard to tell from the press accounts," said John Byrne, vice chairman of AMLRightSource and special adviser to ACAMS Advisory Board.

Russian operatives through an entity called the Internet Research Agency and other affiliated companies used stolen identities to buy social media ads via PayPal, according to media reports and the indictments. A separate indictment named Richard Pinedo, a 28-year-old California computer science major who authorities say sold bank accounts opened in his name -- or purchased from people online -- for profit. According to reports, that included selling accounts to Russians trying to influence the election.

The case casts yet another light on "know-your-customer" regulations, which generally require banks to take steps to validate the true person behind an account in order to detect money-laundering or an account being used to fund illicit criminal activity.

The indictments present "a fundamental Know-Your-Customer-type issue," said Dan Stipano, a partner at Buckley Sandler, of the reports of Russian nationals purchasing U.S. bank accounts that were sometimes used to set up PayPal accounts.

"Banks are expected and required at the outset of any customer relationship to know the nature and purpose of the account they are opening and they are supposed to collect information so they know who they are doing business with and how the account is being used and I don't think this is any different."

However, Stipano also noted that there are still a lot of unknowns and added that some of the activity might have been outside of the normal banking system "so banks may not have had a role in it."

Still, the case has furthered attention on how financial institutions monitor account usage for potential wrongdoing.

"I am deeply troubled that the Putin-controlled Internet Research Agency was able to use false information to open accounts at U.S. financial institutions, and then use those accounts to carry out their illegal operations to interfere with the U.S. elections -- all without being caught by the U.S. financial institutions," said Rep. …

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