RCBC Bank Heist Summary 111111111111 PDF

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RCBC AND THE BANGLADESH BANK HEIST OVERVIEW The Bangladesh Bank Heist The Bangladesh Bank Heist or also known as Bangladesh Bank robbery or Bangladesh Bank Cyber Heist, is considered as one of the famous and biggest heists happened in the history. It was an attempt to illegally transfer an amount of almost US$1 Billion from the account of the Bangladesh Bank, the central bank of Bangladesh, placed in the Federal Reserve Bank of New York happened on the month of February 2016. The robbery attempt was executed through the thirty-five fraudulent instructions in the SWIFT Network made by the unidentified hackers. Thirty out of thirty-five instructions were prevented, but the remaining five fraudulent orders were not blocked immediately resulting to a transfer of US$ 101 Million from the account of the Bangladesh Central Bank. The Federal Reserve Bank of New York are able to prevent the thirty transactions, which amounting to US$850 million, as instructions were misspelled which caused suspicions. US$ 20 Million of the illegal transfer took place in Sri Lanka and US$ 81 Million transpired in the Philippines. Fortunately, all the transfer that took place in Sri Lanka were recovered. However, only US$ 18 Million out of the US$81 Million are recovered in the illegal transfer that took place in the Philippines.

Philippines’ RCBC in the Bangladesh Bank Heist

The transfer that took place in the Philippines was deposited in five separate accounts, identities of which the accounts are under were later found out fictitious, in Rizal Commercial Bank Corporation (RCBC). The funds are then transferred to a foreign exchange broker, converted into Philippine pesos, returned to the RCBC, and merged with the account of a Chinese Filipino businessman. This conversion took place from 5 th to 13th of February, 2016. It was also discovered that the four U.S. dollar accounts involved had been opened in RCBC as early as on May 15, 2015, and remained unchanged until February 4, 2016, the date when the Federal Reserve Bank of New York made the transfer. On February 8, 2016, which happened to be Chinese New Year, the Bangladesh Bank notified RCBC via SWIFT to suspend the payment and return the funds. If the funds have been transferred, they are instructed to "freeze and hold the funds." However, Chinese New Year is a non-working holiday, resulting to a one-day delay of the RCBC in receipt of the message. By then, RCBC's Jupiter Street branch (located in Makati City) had processed already approximately $ 58.15 million in withdrawals. The said unrecovered money ended up in the Philippines' casino industry.

THE PROBLEM IN INTERNAL CONTROL Internal control failures involving not only Bangladesh Bank (BB), but also the New York Fed and the SWIFT messaging system are at the root of the problem. More than 11,000 financial institutions in more than 200 countries and territories use and trust the SWIFT messaging services. The case was initially identified as a cybercrime that compromised Bangladesh Bank's IT infrastructure by news outlets around the world. The incident will

undoubtedly tarnish Bangladesh Bank's reputation in the global payment system. SWIFT's reputation as a stable global payment system is now in jeopardy. The settlement of the first five payment advices by the New York Fed, but not the thirty others, is questionable. The central bank of the Philippines and one of its scheduled commercial banks are also undeniably liable. This cybercrime will almost certainly be unlikely if both central banks and the SWIFT environment had successful internal control systems [ CITATION DrM16 \l 1033 ]. The activities of the Carbanak hacking community, which allegedly stole more than $1 billion from financial institutions in 2015, are similar to the BCB incident. Attackers penetrated the target network in both cases and claimed the highest degree of insider access possible. Attackers will hide in plain sight while within a bank's networks, watching internal processes and procedures in order to carry out the next step of their operation with the least amount of chance of detection. In the case of Carbanak, this was accomplished through fraudulent ATM, currency, and money transfer transactions; in the case of BCB, it was accomplished through a series of transfer requests sent through the global banking system [ CITATION Mat \l 1033 ] Businesses are continually failing to deal with attackers who take advantage of both human error and network flaws to cause harm and profit. Although the attackers' mistake prevented the full impact of the BCB attack, depending on poor spelling should not be a security policy. It is clear that several privileged accounts were used in these attacks. They include both system administrator and application accounts that would enable an intruder to function inside the network, as well as the accounts of bank officials with the authority to initiate such largescale transfers. Attackers often search for credentials that will allow them to achieve their

objectives, which change and develop over time as attackers move around the network [ CITATION Mat \l 1033 ]. Failure to protect and track these powerful credentials exposes a bank's network to a wide range of threats and eliminates any possibility of successful mitigation. The BCB could have easily detected the anomalous behavior if it had been tracking the activities of these accounts rather than relying on the Federal Reserve Bank of New York, Deutsche Bank, or some other third party to flag suspicious activity. Attacks against financial institutions are likely to become more disruptive, and cyber criminals in general are likely to become bolder and more audacious, pursuing larger targets for larger amounts. Financial institutions must take the requisite precautions to prevent attackers from using their own internal credentials against them in order to gain access to the network and carry out their malicious intentions. Multi-factor authentication, restricting and tracking the use of privileged accounts, detecting potentially malicious activity, and rapidly reacting to warnings should all be part of an organization's security strategy to combat such attacks.

Protocols, People and the Organization’s Role Organizations have internal control such as security procedures and instructions in place to prevent employees or people from failing to do what they are supposed to do. However, if they are not pursued or executed, they are useless. Organizations must ensure that their employees are adequately informed and trained on what to do, how to do it, and the repercussions of not following correct procedures.

However, the arising of risks is not delimited on that situation opportunity. It is a misconception that the accurate and precise application of protocols and internal control system does not eliminate entirely the possibility for occurrence risks. It is also important to ensure that the organization shall have the appropriate and adequate system of internal control and protocols that fits the organizations plans, objectives and goals to further eliminate possibility of risks. In the case of the Bangladesh Bank Heist, the New York Federal Reserve Bank did not have a realtime fraud monitoring system when the Bangladesh Central Bank was hacked. Requests were instead checked on a regular basis, and any unusual transactions were handled. This provided a window of opportunity for the hackers to launder the money.

RCBC’s Weakness in Internal Controls and Operations On Feb. 5, proceeds from what is now regarded as the world's largest bank heist were wired from Bangladesh Bank's account with the Federal Reserve Bank of New York to four bank accounts at RCBC's Jupiter Street branch. Torres works at RCBC's Jupiter branch as a senior customer relationship manager and is Deguito's deputy in this unit. For their suspected involvement in the money laundering case, RCBC fired Jupiter branch manager Maia Santos-Deguito and her deputy Angela Torres. The two women were accused of breaching bank policies and procedures, as well as falsifying commercial records, which led to their dismissal as branch officers. Deguito and Torres were accused of breaking the laws and facilitating the suspected laundering of $81 million in remittances, according to the bank.

According to an internal RCBC head office timeline sent to AMLC on March 14, Deguito appeared to be a rogue banker who had expected the large inflow and orchestrated its fast removal with the aid of her own branch. Torres was one of those accused of assisting Deguito in facilitating a $58 million withdrawal on February 9 despite the Bank of Bangladesh issuing a "stop payment" order. Just $68,000 of the $81 million in cash withdrawn from Bangladesh by a foreign syndicate had been frozen and returned to the central bank. The four US dollar accounts that received the suspicious remittance from Bangladesh were opened with Deguito's help. On May 15, 2015, Enrico Vasquez, Alfred Vergara, Michael Cruz, and Jessie Christoper Lagrosas opened US dollar bank accounts with an initial deposit of $500 each. Deguito claimed to have carried out the requisite due diligence or know-your-client checks, but the names and addresses she provided turned out to be false. These accounts remained unchanged until February 5th, when a large remittance from Bangladesh arrived. According to the internal RCBC report, Deguito vouched for the transaction and hastily processed the money withdrawal while informing other employees in the same branch that she feared for her life and that of her family. The internal RCBC report also backed up businessman William Go's claim that she falsified documents in order to open a new US dollar account in his name, Centurytex Trading, which was used to consolidate the bulk of the suspicious money from Bangladesh. The alleged accounts were ordered frozen by the Court of Appeals on March 1 after AMLC, the agency charged with enforcing the country's anti-money laundering law, filed a

petition. The money that had come in on Feb. 5 had already made its way to local casinos and other businesses. Deguito had identified businessman Kim Wong as the source of the suspicious accounts and a key figure in the scheme, but not before accusing RCBC president Lorenzo Tan of being aware of the situation. She also said that the president hand-picked her and instructed her on how to justify the transaction, which Tan dismissed as an "outright lie." This money laundering scandal has tarnished the Philippines internationally, prompting calls to abolish the bank secrecy law and grant the AMLC more authority to freeze and investigate suspicious bank accounts, as well as to include casinos among the organizations subject to anti-money laundering reporting obligations. Deguito's legal counsel, Ferdinand Topacio, had accused RCBC's head office of attempting to cover up for "certain" bank officials. He also challenged RCBC's capacity to conduct a "impartial investigation," claiming that top officials might remove emails, shred records, and manipulate or bully lower-ranking bank officials who may have knowledge of the alleged money-laundering transaction. Nevertheless, Rizal Commercial Banking Corp. vowed to fix any flaws in internal controls and operations that allowed $81 million in dirty money stolen from Bangladesh's central bank to enter the local financial system [ CITATION Dor16 \l 13321 ].

EFFECTS ON CLIENTELES, OTHER STAKEHOLDERS AND THE GENERAL ECONOMY

The Philippines risked being reinstated to the Financial Action Task Force on Money Laundering's blacklist of countries that have made inadequate efforts to combat money laundering as a result of the case. After lawmakers in 2012 managed to exclude casinos from the list of organizations needed to disclose suspicious transactions to the Anti-Money Laundering Council, attention was drawn to a possible weakness in the Philippine government's anti-money laundering efforts. Former Senator Serge Osmena has cautioned that if the Philippines is put on the Financial Action Task Force on Anti-Money Laundering's blacklist, Filipinos will suffer. This follows the discovery of $100 million in illegal funds in the Philippine banking sector by the country's financial regulators. International financial institutions, according to Osmea, will thoroughly check money entering and exiting the country. As a consequence, when dealing with foreign banks, Philippine banks will face higher transaction costs. This could have an effect on remittances sent home by Filipino workers in other countries, which could be subjected to expensive scrutiny. It could also make it more difficult for Filipinos to purchase imported goods online using their credit cards. Osmena also said, "It would make life more difficult for everyone. International banking institutions are unlikely to accept your credit cards ". The palace is open to amending the AMLA, such as including casinos in the scope of the investigation. In addition, Sonny Coloma, the Communications Secretary, said that The Anti-Money Laundering Council is required to take swift action in cases where the Anti-Money Laundering Act of 2001 (AMLA) has been violated in a way that is harmful to the government. It's critical to

protect the integrity of financial and banking transactions, as well as to prevent illicit activities from flowing through the country's financial system. If there are perceived flaws in the AMLA, the AMLC should reintroduce changes to it. According to Osmena, the law's omission of casinos acted as a backdoor for offenders [ CITATION Rex16 \l 13321 ]. Also, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), sanctioned a P1-billion fine against Rizal Commercial Banking Corp. (RCBC) in connection with the theft of $81 million from the Bangladesh Bank. In a separate statement, RCBC said that it would pay the central bank for "noncompliance with banking laws and regulations in connection with the $81 million Bangladesh Bank Cyber Heist" as per Monetary Board Resolution No. 1392. The BSP stated that the "supervisory compliance action" against RCBC demonstrates its commitment to ensuring the country's financial system's stability through strong and efficient BSFI regulation. "While the payment is important, RCBC assumes it is part of increased regulatory regulation and controls, and we will follow the MB Resolution," said RCBC President and CEO Gil A. Buenaventura [ CITATION GMA16 \l 13321 ]. The scandal exposed RCBC's lack of internal controls. Another that is affected on the heist is the bank’s stocks. The Senate started interviewing RCBC officials two weeks after the heist was revealed in late February. RCBC's stock has been on a downward trend since December 2011, reaching a low of 29.10 Philippine pesos per share on March 22. It was in April 2016, the stock managed to gained some value. [CITATION Ran16 \l 13321 ]...