Justice Department Announces Agreement on Divestiture of Branches for Huntington Bancshares Acquisition of TCF Financial Corporation

Under the Hart-Scott-Rodino Act, both the U.S. Department of Justice and the Federal Trade Commission have authority not only to review most proposed mergers and acquisitions that take place in the United States for possible antitrust concerns, but to halt such a proposed transaction if they believe that the deal would “substantially lessen competition.”  Both agencies, however, may also approve a particular merger or acquisition on the condition that the acquiring or acquired entity divest itself of certain businesses or operations.

In the latest example of this conditional-approval authority, on May 25 the Justice Department announced that it had reached agreement with Huntington Bancshares Incorporated and TCF Financial Corporation to have the companies sell 13 branches in the state of Michigan (with approximately $872.3 million in deposits), to resolve antitrust concerns arising from Huntington’s planned acquisition of TCF Bank. The divested assets include all of the deposits and loans associated with the 13 divested branches, as well as the physical assets.

Key provisions of the financial institutions’ agreement with the Justice Department include:

  • Divestiture of the 13 branches in 9 counties and the City of Midland;
  • The companies’ agreement “to suspend existing, and not to enter into new, non-compete agreements with branch managers and loan officers located in the divestiture counties for a period of 180 days following the consummation of their merger”;
  • The companies’ agreement that any traditional branches that are located in any overlap market in Michigan and Ohio and that are closed within three years of the merger’s closing “will be sold or leased to an insured depository institution that offers deposit and credit services to small businesses.”

As a result of the acquisition, Huntington, which currently has approximately $120 billion in assets, will become the 25th largest bank holding company based on assets.

It should be noted that the 13 branches to be divested represent a vanishingly small percentage of the total number of branches that Huntington and TCF have.  Currently, Huntington has 839 full-service branches across seven Midwestern states, and TCF has 475 branches primarily located in Michigan, Illinois, and Minnesota.  The 13 branches therefore represent less than one percent of the total number of Huntington and TCF branches.

On its face, the divestiture of so small a number of bank branches would not seem to make much of a difference in avoiding the “substantia[l] lessen[ing of] competition.”  In this case, however, the Federal Reserve Board, noted – after analyzing such competitive factors as the number and strength of competitors that would remain in the relevant markets and the current and expected increased concentration levels of market deposits — that the divestitures that Huntington and TCF proposed in four banking markets are “significant” and “ensure that the proposed transaction will present no competitive concerns under the [Bank Holding Company] Act or Section 7 of the Clayton Act.”

While the transaction still requires final approval by the Board, the Justice Department has advised the Board that the Department

“will not challenge the merger provided that the parties divest branches in certain areas of overlap and agree that any traditional branches in Michigan and in the five overlapping counties in Ohio that are closed within three years following the merger, will be marketed to an institution with a demonstrated record of providing services and loans to the local community.”

Figure: Geographic Footprint of Huntington Bancshares Branches (As Of February 13, 2021) [Public Domain]

Bizarro Malware Expanding Reach to European and South American Banks

Over the last several years, Brazil has continued to maintain its reputation as a hotspot for cybercrime.  According to the APWG, there were 48,137 recorded phishing attacks in 2020 – a nearly 100 percent increase over 2019.

Recently, a leading cybersecurity firm, Kaspersky Labs, reported that a new banking malware that originated in Brazil, called “Bizarro”, is targeting 70 banks in Argentina, Chile, France, Germany, Italy, Portugal, and Spain.   In brief, Bizarro is a banking Trojan that is distributed when email users click on links in spam emails.

Among other features, Bizarro creates a backdoor (a secret portal allowing remote access to a computer) that Kaspersky reports “contains more than 100 commands and most of them are used to display fake pop-up messages to users. Some of them are even trying to mimic online banking systems.”  In addition, “Bizarro is using affiliates or recruiting money mules to operationalize their attacks, doing the cashout or simply helping with translations.”

Information-security and financial crime officers in financial institutions – and not just in Europe and South America — should take note of these details regarding Bizarro and incorporate them into internal briefings and training on cybercrime trends.  While the Kaspersky report highlighted Bizarro’s expansion into Europe and South America, it is more than conceivable that the group behind Bizarro will try to expand their reach to financial institutions in North America and Asia.  If it has the will and skill to find money mules and translators who can write in Spanish and other European languages, it may adopt the same approach to find accomplices sufficiently fluent in English or Asian languages.

(Note: Technical details regarding the operation of Bizarro are available on the Kaspersky and Securelist sites.)

Singapore Authorities Working to Unravel Massive Nickel Fraud Scheme

At a time when media reports are calling attention to large-scale cybercrime schemes such as the Colonial Pipeline attack, in which coordinated actions by multiple individuals result in vast financial losses, it is necessary to remember that lone actors can also carry out massive frauds.  Over the years, rogue traders such as Nick Leeson and Jérôme Kerviel and Ponzi masterminds such as Bernard Madoff have shown that individuals, with little or no help, can successfully conduct fraud schemes resulting in millions, even billions, of dollars in losses.

The latest example of such lone-actor fraud schemes may be Ng Yu Zhi, now former managing director at Envy Global Trading Pte Ltd and Envy Asset Management Pte Ltd in Singapore.  Since March 2021, Singapore prosecutors have been filing charges against Ng for alleged cheating and fraud in connection with a nickel-trading scheme that raised at least S$1 billion (US$746 million) from investors. 

According to prosecutors, Envy Asset Management had deceived investors into lending the firm money between January 2018 and March 2020 to purchase nickel from Australian-listed firm Poseidon Nickel. Although investors were reportedly promised varying returns, averaging 15 per cent over three months, no such commodity trades were made.  Prosecutors also said, in seeking bail of S$3 million and electronic tagging for Ng, told the Singapore district court “that the outstanding funds invested with the two firms amounted to at least S$1 billion for the purported financing of nickel trading activities.”

At that time, investigators believed that approximately S$700 million was paid to investors and S$300 million was transferred to Ng’s personal account, but that approximately S$200 million remained unaccounted for. Singapore police also seized assets valued at S$100 million from Ng. 

Subsequently, Singapore authorities brought two additional charges against Ng, for fraudulently making false electronic records.  One of the charges alleges that Ng made a false record of a US$60 million transfer from Envy Asset Management Trading’s Citibank account to another account in February 2021.  The other alleges that Ng made a false record of a combined balance of US$303 million in Envy Asset Management Trading’s Citibank accounts in March 2021.

Ng is now faced with a total of 18 criminal charges involving cheating, fraudulent trading, and forgery.   The most recent charges, filed May 17, allege that between September 2020 and January 2021, Ng deceived “seven individuals and companies into buying some receivables from Envy Global Trading’s purported sale of nickel to a firm called Raffemet, but there was no such transaction.”

While the case against Ng has yet to be proved, corporate compliance teams can use the information reported so far in reviewing the scope and coverage of their fraud monitoring and other internal controls.  Some internal fraud “red flags”, such as indications of an employee’s living above his or her means, may need to be recalibrated for high-level employees, who have high salaries and greater authority to authorize substantial expenditures and transactions.  And the broader that discretion, the greater the need for the company to watch for abuses of that discretion that could lead to substantial company and client losses.

Irish Police: Reported Money Laundering Crimes in Ireland More Than Doubled Since 2019

Over the past five years, Ireland has shown that it is dedicated to combating money laundering and terrorist financing.  On the Basel Institute of Governance’s AML Index, Ireland is ranked 106, which compares favorably with the United States (100) and the United Kingdom (116).  As a European Union Member State, it has transposed EU anti-money laundering (AML) directives into national law, most recently in the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021, which was just signed into law.  In addition, on April 19 the Irish Minister of Justice, Helen McEntee, issued a 22-point cross-government plan to address economic crime and corruption that would include capacity-building to combat money laundering and other economic crime.

A recent Irish Times article, however, contains several indications of the challenges that Ireland continues to face in rooting out money laundering.  According to information from An Garda Síochána (Garda), the Irish national police force:

  • The number of money laundering crimes recorded in Ireland in 2020 (524) more than doubled from 2019 (234), and increase more than 630 percent from 2018 (83).   Police believe that some of that increase “related to drug gangs being forced to pursue higher-risk money-laundering strategies because the cash businesses they usually run cash through were closed or operating with reduced cashflows due to the Covid-19 pandemic.”
  • In 2020, Irish banks filed with the Garda and Irish Revenue Commissioners 28,865 suspicious transaction reports (STRs), which often relate to money laundering — an increase of 13 percent over the total STR filed in 2019s.
  • These trends “reflect the changing face of crime in Ireland, more of which is taking place online, and a culture shift in policing with extra resources being dedicated to white-collar and cyber crime.”  The Garda also reported “a significant surge in cyber frauds, which are often based on scam emails and texts being sent to unsuspecting victims.”

In addition, Garda detectives said that “there was now a major focus on investigating money-laundering by drug dealers and organised crime gangs in addition to their more traditional activities.”

These developments strongly indicate that the Government’s 22-point plan needs to be implemented in ways that provide the Garda’s National Economic Crime Bureau and the Dutch Office of the Director of Public Prosecutions with appropriate resources and training dedicated to money laundering investigation and prosecutions, as well as effective information-exchange mechanisms to facilitate information sharing between Dutch law enforcement and regulatory agencies for money laundering enforcement.  As money laundering organizations have become increasingly sophisticated and complex in their techniques, including trade-based money laundering and greater use of technology to facilitate international funds transfers, Irish authorities will need to keep pace if they are to identify and pursue such organizations successfully.

London School of Economics Received £350,000 in Cash from Students in 2015-2019

Since 2019, a series of media reports have highlighted the fact that universities in Canada and the United Kingdom have been willing to accept cash payments from ostensible students for student fees, despite the risk that accepting such payments could implicate those universities in possible money laundering activity.  In the United Kingdom’s case, an investigation by The Times found that at least 49 British universities let students use banknotes to pay £52 million in fees.

A new report yesterday by The Times disclosed that a leading United Kingdom university, the London School of Economics (LSE), accepted £350,000 in cash from students between 2015 and 2019 despite the risks of association with money laundering.  Although other United Kingdom universities accepted larger amounts of cash from students between 2015 and 2019 – notably Queen Mary University of London, which took in £7 million, and Teesside University, which took in £1.2 million – LSE had been the target of substantial criticism in 2011 when it accepted a £1.5 million donation from a son of the late Libyan dictator Muammar Qaddafi for training “future leaders” of the Libyan government.

An LSE spokesperson stated that “LSE stopped accepting cash as a form of payment for tuition from summer 2019,” and “has a robust ethics code and process for all potential grants and donations, which is kept under regular review.”  Nonetheless, Members of Parliament on the Education Select Committee reportedly called “for a complete ban on higher education institutions taking cash.”

In view of these continuing revelations, there is no point in any university, whether in the United Kingdom or elsewhere, continuing to allow students to pay cash for tuition or, for that matter, any university service other than de minimis cash purchases of meals or incidentals.  No college or university needs to take the risk of becoming a conduit for criminal proceeds, and it can only ease the compliance obligations of universities to refrain from accepting any amounts of cash that could be reportable under anti-money laundering regulations.