Month: March 2016

The cyber theft of $100 million from the Bangladesh Central Bank – by way of the New York Federal Reserve – is the largest bank theft to date.

On February 5, the New York Fed was allegedly “penetrated” when “hackers” (of supposed Chinese origin) stole $100 million from accounts belonging to the Bangladesh central bank.

The money was then channeled to the Philippines where it was sold on the black market and funneled to “local casinos” (to quote AFP). After the casino laundering, it was sent back to the same black market FX broker who promptly moved it to “overseas accounts within days.”

The whole situation was quite embarrassing for the NY Fed, because what happened is that someone in the Philippines requested $100 million through SWIFT from Bangladesh’s FX reserves, and the Fed complied, without any alarm bells going off at the NY Fed’s middle or back office.

“Some 250 central banks, governments, and other institutions have foreign accounts at the New York Fed, which is near the centre of the global financial system,” Reuters notes. “The accounts hold mostly U.S. Treasuries and agency debt, and requests for funds arrive and are authenticated by a so-called SWIFT network that connects banks.”

As it turns out there is much more to the story, and as Bloomberg reports today now that this incredible story is finally making the mainstream, there is everything from casinos, to money laundering and ultimately a scheme to steal $1 billion from the Bangladeshi central bank.

And yes, it does appear that hackers managed to bypass the Fed’s firewall:

“Even as banks continue to harden their defenses against such sabotage, hackers too have upped their game to breach servers by utilizing both technical skills and rogue elements within the financial institutions,” said Sameer Patil, an associate fellow at Gateway House in Mumbai who specializes in terrorism and national security.

A Bangladesh central bank official who is part of a panel investigating the disappearance of the funds said that a separate transfer of $870 million had been blocked by the Fed, something the Fed refused to comment on. It does not, however, explain why $100 million was released.

Essentially the dispute is about whether the Fed went through the right procedure when it received transfer orders.

Naturally, the Fed’s story is that it did nothing wrong. Bloomberg writes that according to a Fed spokeswoman, instructions to make the payments from the central bank’s account followed protocol and were authenticated by the SWIFT codes system. There were no signs the Fed’s systems were hacked, she said.

The problem is that the counterparty on the other side of the SWIFT order was not who the Fed thought, and what should have set off red lights is that the recipients was not the government of the Philippines but three casinos.

Bangladesh is quite understandably – furious: a local official said the Fed should’ve checked the payment orders with the central bank to ensure they were authentic, even if they used the correct SWIFT codes. The official also said there are plans to take legal action against the Fed to retrieve missing funds.

Four requests to transfer a total of about $81 million to the Philippines went through, but a fifth, for $20 million, to a Sri Lankan non-profit organization was held up because the hackers misspelled the name of the NGO, Shalika Foundation.

Hackers misspelled “foundation” in the NGO’s name as “fandation”, prompting a routing bank, Deutsche Bank, to seek clarification from the Bangladesh central bank, which stopped the transaction, one of the officials said.

Luckily, the Fed stopped some of the $1 billion in total requested funds. The unusually high number of payment instructions and the transfer requests to private entities – as opposed to other banks – raised suspicions at the Fed, which also alerted the Bangladeshis, the officials said. The details of how the hacking came to light and was stopped before it did more damage have not been previously reported.

The transactions that were stopped totaled $850-$870 million, one of the officials said. At least $80 million made it through without a glitch.

The funds were used to buy casino chips or pay for losses at venues including Bloomberry Resorts Corp.’s Solaire Resort & Casino and Melco Crown Philippines Resort Corp.’s City of Dreams Manila, according to the paper. There was no suggestion in the report the banks or casinos named were complicit with any improper movement of funds.

In other words, the Fed was funding gamblers, only these were located in Philippine casinos, not in the financial district. Ironically, that’s precisely what the Fed does, only it normally operates with gamblers operating out of Manhattan’s financial district.

From: http://www.bloomberg.com/news/articles/2016-03-16/printer-error-set-off-bangladesh-race-to-halt-illicit-transfers