One laundering strike and you’re out

Continuing my theme from earlier in the week, I have been thinking further about financial forgiveness.  A few days ago, the Charity Commission’s chairman William Shawcross said that he thought that Islamic extremism is a deadly threat to charities in England and Wales, and also that it is “ludicrous” that people with convictions for terrorism or money laundering are not automatically disqualified from setting up charities or becoming trustees.  Moreover, he has written to David Cameron to ask for changes to the law.

As you may know, I am a magistrate.  And when we are sentencing someone, their list of “previous” (convictions) is always taken into account.  But not just as a simple number; the nature of the offence is also pertinent.  So someone who has a history of, say, shoplifting but has just pleaded guilty to their first assault will (all other things being equal) get a lighter sentence than someone with a history of shoplifting and assault offences.  In other words, as you would expect, if they’ve done something like it before and are just not learning their lesson, the punishment grows stronger.  And when we are talking about their “previous”, we categorise them into, for instance, offences of violence, or offences of dishonesty – so someone’s defence lawyer will often say something like this: “I cannot hide my client’s colourful past, Your Worships – but you will see that he has never before been convicted for an offence of a like nature.  He has a history of bad temper while in drink, but never before has he robbed a bank.  And he loves his mother very much.”

When someone has served their penalty for an offence, the general expectation is that – after a certain period – the record is wiped clean.  But there are already (perfectly sensible) exceptions to this: those with convictions for violence against or abuse of young people are barred from working in schools, for example.  Looking closer to home, an FCA fact-sheet on “Applications for approval – our approach to adverse disclosures” gives no hard and fast rules but says this:  “Occasionally we receive applications for approval to perform a controlled function [such as director, or MLRO] for an individual candidate who has a criminal conviction… We consider several factors when we assess the fitness and propriety of an individual candidate to perform a particular controlled function.  The most important considerations include the individual’s honesty, integrity and reputation and to help us assess this, we will look at any criminal convictions.  We take all criminal convictions seriously.  However, crimes where the individual has acted with dishonesty are of particular concern, even when the convictions are ‘spent’.  This is because we must assess whether to approve someone to perform a controlled function(s) relating to other people’s finances.  Parliament has recognised this by giving us a specific exemption to the Rehabilitation of Offenders Act 1974.”  So what do we think?  Should someone with a conviction for (let’s be specific here – and it’s my blog and my favourite subject, so there) money laundering be barred automatically from certain jobs?  Simply working in a casino, for instance, or only actually managing one?  Any job where he will be handling money – and actually physically handling, or overseeing/directing the handling of?  Any job at all with an element of trust?

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Fare’s fair

With one of the main themes of Easter being forgiveness (the other is chocolate, of course), I have been mulling over the topic of financial redemption.  The week before last we had the story of the unnamed train fare cheat – the hedge fund manager who commuted from Stonegate for five years and exploited a loophole in the Oyster system to evade fares totalling £42,550.  Multiple outrages: a wealthy man not paying his way, apparently always getting a seat on the train (this bit may be just my fevered and envious imagination) and then managing to “buy” his way out of prosecution and exposure by repaying the full amount to the rail company.  And what about the “Penalty Fare” that features so thrillingly on red-lettered posters throughout my own local station and rail network?  A Mr Roberts has even set up an e-petition to have the fare-dodger prosecuted – not much support so far…

I do appreciate the position of the rail company Southeastern in choosing not to prosecute (“In this case, this option has allowed us to recover the sum owed to us very quickly without incurring the additional costs or uncertainty associated with pursuing the matter through the courts”), but I wonder about their decision.  It seems to me that it would have been a straightforward prosecution and conviction (the perp coughed pretty quickly), and their costs would therefore have been met by the defendant, who would also have had some punitive consequence to his actions.  This outcome seems to suggest that the only thing that mattered was the money – but as the man could clearly afford the fares in the first place, that was not his motivation, and so any consequences for him should have addressed his true motivation.  Was that a desire to get one over on the system?  The thrill of the risk?  (Bit of a worry for his clients….)  Arrogance?  And simply repaying the exact sum does not do that.

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Best. Subject. Ever.

That Easter bunny had better be stocking up for a major delivery to me, as I am having the busiest week ever, and only the thought of all that chocolate is keeping me going.  I’ve just finished the four Jersey piggies (if that sounds cryptic to new readers, and there are plenty of you this week, you can read all about the piggies here and here) – they’ll be set loose on the world next week.  (No point mixing piggies and bunnies, of course.)  And I have been settling on my agenda for this year’s advanced MLRO workshops in Guernsey.

(Quick aside: I would gladly run these workshops in other jurisdictions too, but the demand is not quite the same.  Guernsey MLROs and I have a special relationship – we don’t ride round in a golf buggy together, but it’s still special.)

I run this advanced workshop twice a year, and it’s new every year, building on its predecessors to give MLROs a really advanced AML education (as demanded by nearly everyone’s legislation these days – MLROs need their own tailored training).  And in the run-up to deciding what to include each year, I go into conniptions.  I am always worried that this year, that most dreaded thing will happen: I will run out of things to say about AML.  For the past few nights I have had my panic dreams.  (Some people have exciting dreams about falling off cliffs or weathering storms at sea, but for those of us who are noted primarily for our organisational skills, the dreams focus on lack of preparedness – last night I went to a wedding and couldn’t find my shoes or my hat or the confetti.)  All through the year I keep a list of “possible workshop topics” – anything that catches my eye is noted on the list, just in case.  And when the big day comes for settling on the workshop agenda, I pull out the list and get busy with the red pen.

Some topics have been superseded and are no longer new and exciting.  Some are not as interesting as I had thought.  And some are just plain weird (“money laundering through animals” – what was I thinking?).  But others still make the grade, and I start to select the eight that will make it into the workshop.  And you know what: there are always more than eight topics that I would love to dissect and deliberate in depth and detail.  I never run out.  In fact, I have to eliminate, and save them for next year.  Like I say: Best. Subject. Ever.

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That’s the way to do it

You, like me, are no doubt always on the lookout for handy real life laundering stories – to enliven training, to demonstrate to the sceptical that yes, your bank/company/firm/whatever is susceptible to money laundering, and to augment your own AML education.  And the National Crime Agency is proving a very tasty source of such stories – they are relentless in their pursuit, prosecution and publicising of criminals of all stripes, and are more than happy to slap on a well-deserved money laundering charge or two to boost the penalties.  One recent story caught my eye because it revealed the actual nuts and bolts of what criminals might do to conceal their (what we must call nefarious) activities.

Roger Budgen, from Rhyl in north Wales, was the ringleader of an international drug trafficking and money laundering group.  Over a decade, he and his wife Caroline Hartery deposited more than £300,000 into their bank accounts, despite not declaring any income for the whole period.  Budgen also co-ordinated a money laundering scheme, linking criminals across Europe so that dirty money could be illegally transferred between the continent and the UK.  For instance, criminal cash generated in the UK would be credited to top-up cards denominated in euros and then spent abroad – including in the Netherlands and Spain where Budgen and Hartery spent a considerable amount of time.  According to the NCA: “The [laundering] group used a number of tactics in an attempt to avoid law enforcement detection, including communicating via a number of mobile phones, using public telephone boxes for particularly sensitive conversations, and adopting code-words (such as ‘scratch’ for cash, ‘pollen’ for cannabis and ‘sweat’ for Scottish bank notes).  They used the serial numbers on banknotes as ‘pass-codes’ to validate their couriers’ identities and thus ensure cash was handed over to the right person.  The holder of a cash haul would be given the serial number on a £5 note via a text message [and] the collecting criminal would be in possession of the actual £5 note displaying that number.”

According to Simon Flowers, Branch Commander NCA Wales: “This was a professionally managed crime group who used a range of tactics to try and avoid law enforcement.  But we were able to follow their criminal activity across Europe and bring them to justice.  Budgen was well established within the international criminal community, and had built up a wide network of criminal associates throughout the UK and Europe.  He was clearly the controller of this group, not only overseeing the supply of cannabis and hiding criminal proceeds, but also connecting criminals across Europe to professional money launderers.”

The case against Budgen began in 2010 when investigations revealed the full extent of his criminal connections, and it has led to numerous separate operations being launched across Europe and the arrest of more than fifty people for a range of crimes including drug trafficking and money laundering.  Cash seizures have so far totalled more than £1 million, alongside the seizure of substantial criminal assets, several thousand kilos of cannabis and multiple kilos of cocaine, amphetamine and mephedrone.  Budgen was sentenced to eight-and-a-half years in prison, while Hartery was sentenced to eighteen months suspended for two years.  Budgen was also given a Serious Crime Prevention Order, which will restrict his ability to travel and to use communication media (including mobile phones, internet access and public telephone boxes) for five years after his release from prison.

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More front than Blackpool

There is a good reason why those who can form and manage companies (whether as a standalone service, or as part of a wider professional offering) should be included in the AML family: the “front company” is invaluable to criminals in general and money launderers in particular.  Such a company can be used in many ways, as recent news stories demonstrate.

They can be used to cover up criminal activity.  In a recent success for the UK’s National Crime Agency, brothers Glen and Gary Wheatley from the north of England were jailed for lengthy terms for using their coach company to smuggle heroin from the Continent.  They built a secret compartment above one of the wheel arches of their coach (you can see it here), and stuffed it with 12kg of heroin – sitting above it were their oblivious passengers, coming home from a trip to the Christmas markets in Belgium.  The Wheatleys were certainly not the first to see the potential of a transport company as a front business for criminality: who can forget the terrible death of 58 Chinese would-be illegal immigrants in the lorry driven by Perry Wacker in June 2000?

And of course front companies can be used to launder the proceeds of all sorts of crime.  MLROs warn their staff to be aware of the potential for laundering through cash-intensive businesses – takeaway food outlets, pubs, hairdressers, tanning salons and the like.  And sometimes criminals combine the two very effectively, as in the notorious “Paddington black cab gang“, when launderers used the accounts of a taxi firm to launder vast amounts of drug money, and its vehicles to transport both drugs and cash.

Entrepreneurial friends in other countries tell me that they envy the ease with which companies can be incorporated here in the UK, but they are certainly not the only ones to spot that.  We cannot allow the irritation of legitimate business people put us off making thorough due diligence enquiries of every new company – and even more crucially, we must be super-vigilant about monitoring them and making sure that they operate as predicted and expected.

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A question of morality

A few days ago a journalist contacted me to ask if I could help with some research he was doing into anti-bribery and corruption.  I listened to his brief, and quickly realised that I wasn’t going to be of much use to him at all, as the slant of his piece was more the morality of the thing – is it right to condemn people for acts committed in other jurisdictions where such acts are considered acceptable, if not downright desirable?  The debate about “facilitation payments” rumbles on, it seems – although I did enjoy this take on it, having myself paid for speedier service on certain occasions.  But it made me wonder how history will judge bribery and corruption – will it be like slavery (with most people aghast that anyone in their right mind would have done such a thing), or will it be like smuggling?

Yes, smuggling.  Over the weekend, in order to make a mountain of ironing more palatable, I set up the board in front of one of my beloved videos of “Poldark”.  It was the episode where the brigantine Queen Charlotte comes to grief in Nampara Cove, and rogues from the nearby villages descend to claim “pickins’ for all” from the wrecked goods.  Some of those goods they consume immediately (the crew’s brandy rations don’t last long), but others they carry off for later sale.  At the time (1785), with England struggling to recover from defeat in the American war of independence and the poor starting to question their lot in life, Cornwall was a hotbed of smuggling - the illegal transportation of objects or people, often across international borders.  Through their actions, smugglers were depriving the “revenue man” of his due.  And yet, like all crimes against the taxman, smuggling has somehow acquired glamour.  A while ago I read a book about Zephaniah Job of Polperro, known as the “smuggler’s banker”, by Jeremy Rowett Johns – and the plot outline on Amazon is distinctly favourable: “The Cornishman who masterminded the flourishing contraband trade in Polperro during the Napoleonic wars.  Job’s flair for business, his association with the Trelawny family and links with those engaged in the smuggling trade brought lasting prosperity to the inhabitants of this remote Cornish fishing village at the end of the 18th century”.  Perhaps one day we will talk admiringly of Madoff’s “flair for business” and Curtis Warren bringing “lasting prosperity” to Liverpool.

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AML piggies invade the mainland

It’s something of a worry when I do an Amazon search on my own name, and a page full of pigs appears.  But, as fanfared the week before last, I am now firmly in the grip of piggy fever, as the next four editions of “Anti-Money Laundering: What You Need to Know” have hit the bookshelves.  (Well, the servers: these are print-on-demand paperbacks, so there aren’t any physical stocks anywhere – apart from the piles under my desk, of course.)  This is the UK quartet, covering banking, accountancy, insurance and investment, and I have sent press releases and announcements to everyone I can think of – please do let me know if you have any suggestions.

When I first started thinking about writing books, I had a traditional view of publishing: write a book, find a publisher, sell the thing.  It has not worked out like that at all, and – from my perspective – I think it has been a totally unmixed blessing.  For a start, self-publishing is so speedy – I can really react to current demand.  But the real beauty is the print-on-demand-ness of it all.  In short, I upload a text file to the publishing system, and when someone orders a copy of a piggy, it is printed especially for them (at a “brand-new facility” in the UK, apparently) and popped into the post to arrive the next day.  So if the legislation changes, or I decide there is a better way to explain something, or (as has already happened) a case study is updated by a naughty person being sent to prison, I can simply update the text and upload the file again, and then whoever orders from that moment onwards gets the very latest version.  So the piggies are always current – the very height of fashion, as you can doubtless tell from their shades.

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Losing their amateur ML status

As someone whose entire lifetime expenditure on sports spectating totals just under £40 (that’s two Olympics tickets – for the athletics, at which I saw Usain Bolt in the far, far distance, and for the Greco-Roman wrestling, at which I saw men in leotards doing things to each other that haunt me still), I am perhaps not best placed to pass balanced judgement on the relationship between sport and money.  However, the announcement this week that the new England replica football shirt will cost a whopping £90 did catch my eye – as did the Daily Mash take on the story (warning: it’s a bit rude).

Of perhaps more relevance to those of us obsessed with AML was this recent article in an Indian money magazine about money laundering in sport.  Coming hot on the heels of the conviction of Birmingham City FC former president Carson Yeung for money laundering, the article points out that the big money sports (cricket, boxing, and of course football) are particularly fertile for laundering, with the huge amounts of money involved, combined with poor financial management, the naïvety of (often very young) players, and the corruption of officials.  (A more fulsome explanation of the football sector’s vulnerabilities is given in a 2009 report from the FATF.)  The recent confirmation of jail sentences for eight Romanian football officials, for tax evasion and money laundering, is the latest in a long line.  My only consolation is that in those leotards, frankly, there was nowhere to hide any money.

Posted in AML, Bribery and corruption, Money laundering | Tagged , , , , , , | 4 Comments

Passing the AML parcel

We’re not quite as bad as America, but in the UK we do have a fairly fragmented approach to AML supervision – as soon as I feel a flowchart coming on, as I do when people ask me just who oversees whom, I know it’s too complicated.  But today things are being simplified a little bit.

As of 1 April 2014, regulation of the UK’s 50,000 consumer credit firms – including supervision of them for AML purposes – shifts from the now-defunct Office of Fair Trading to the FCA.  AML supervision of estate agents – once also taken care of by the OFT – moves to HMRC.  (And – in a move that I still slightly fear might be an April Fools’ joke –  the regulation of estate agents is now apparently the responsibility of Powys County Council.  Do you think the man from Powys was on hols when they were looking for a “volunteer”?)

It certainly simplifies matters to reduce the number of AML supervisors (after all, the FCA and HMRC are already doing it for others), but I do wonder whether they will in fact be able to make a better fist of it than the OFT.  Despite a last-minute flurry of fines for naughty estate agents last Friday, the OFT was notable by its silence on AML matters – not least, I suspect, because of an understandable lack of expertise/interest in the subject.  After all, if you’re a hotshot young AML zealot, you’re not going to apply to the OFT when the FCA and HMRC are on offer, are you?  The FCA is already talking the talk (“We won’t shy away from taking tough, decisive action to make sure that the people who rely on these products are treated fairly.  There will be some firms that don’t get the message, or won’t play ball, those firms should know that we won’t let them carry on.“) but there is no escaping the fact that 50,000 is an enormous number of new supervision subjects to acquire.  And colour me cynical, but I’m guessing that AML has not been a huge priority for the 50,000 so far.  Here’s hoping that the FCA tiger has not bitten off more than it can chew.

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Bless me father, for I have laundered

I went out to dinner last night; I figured that after knocking out the first draft of another AML book (I did mention the other day that I’m working on my UK piggy editions now, didn’t I?), I deserved a plate of spaghetti cooked by someone else.  There was a large group of us – some I knew, and some were partners of the people I knew.  And one of these unknown partners was fascinated to hear about my line of work.

Now, contrary to what you might think, this is not a good sign.  Don’t get me wrong: I am thrilled beyond measure when I find someone “in the business” (i.e. the AML regulated community) who is as bewitched by AML as I am.  We can dissect the finer points of record-keeping, consider the ramifications of a wider PEP definition and a public register of beneficial ownership, debate the merits of the objective test, and generally have a high old time.  But when it’s a civilian, I am not so pleased.  Because I know what is coming.

First I will hear about how some ignorant, unfeeling, pettifogging and probably impotent bank/building society employee prevented them from doing something perfectly innocent by (the cad, the bounder) asking about the source of their money.  And then – seemingly unable to stop themselves – they will hint to me about that source.  Sometimes, all is well: their squeaky-clean maiden aunt (perhaps a nun) really did die and leave them a fortune.  But more often, there will be something just the slightest bit whiffy about it, and this is suggested by the words they use.  “Strictly speaking”, or “in some circumstances”, or – my particular favourite – “none of their damn business”.  So I listen and smile, craven creature that I am, and store the information away.  I think they think that I’m offering a sort of money laundering confessional service – that once they have told me, and I have smiled, they have received financial absolution.  It’s a theological matter that they can raise with the prison chaplain; after all, fourteen years should be long enough for that discussion.

Posted in AML, Money laundering, Tax | 7 Comments