At a recent regulatory shindig in Washington (again, DC rather than Tyne and Wear), Citigroup chairman Michael O’Neill called for America’s banking regulators to merge into a single banking watchdog and referred to the current fragmented regulatory regime as a “spaghetti junction”. At the moment, US banks are overseen by a mixture of the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, as well as other smaller state-based regulators. Mr O’Neill knows whereof he speaks: this year alone, the Fed rejected Citigroup’s “stress-test” capital plan, saying that the bank didn’t have a grip on how to handle risk across its global operations, while an accounting fraud on Citigroup’s Mexico subsidiary Banamex has raised concerns at the Securities and Exchange Commission and the Justice Department. He told his audience – consisting mainly of regulators, so you can’t accuse him of cowardice – that he could not see the added value in multiple agencies bringing charges over a single violation, except perhaps to show that the government is not soft on banks: “To be fair, they do make efforts to coordinate, but each has its own interests – not to mention different terms and timetables.” He was of the view that a single bank regulator would benefit both banks and regulators by clarifying focus and conserving resources by eliminating “expensive and unnecessary duplication”. However, past efforts to consolidate US financial regulators have failed. A fellow speaker at the event, former Commodity Futures Trading Commission chairman Gary Gensler, suggested that it is good to have multiple regulatory agencies because they can keep obscure products from falling through the cracks.
Ordinarily events in America are of academic interest only, as I do not work there, but this is topical because I understand that there are those who think – indeed, recommend – that Guernsey and Jersey should share a single financial regulator. Working in both islands as I do, I struggle to see how this could work, as the two jurisdictions have very different approaches to and appetites for various areas of financial activity (such as online gambling, and Bitcoin). But many of this blog’s readers work in those two jurisdictions, so what do you think? Would a single CIFSC (I’m guessing Channel Islands Financial Services Commission) work? Would you welcome standardisation and clarification, or do you value differentiation and competition?
Recently I wrote about starting out in AML. One of the first websites I found (and let’s remember that my AML education started before websites…) was Billy’s Money Laundering Information Website, which is still there. I am not sure when it was last updated, but the copyright notice mentions 2006, so perhaps that was it. It is good at explaining the basics but – like everything to do with money laundering – it goes out of date. To be honest, this is one of things I like best about this subject: it is a constant challenge to keep up, and challenges are good for the brain. (I will stop short of using that hackneyed saw of reality TV shows – that I have been on a roller-coaster journey – but you get the picture.)
And to underline this constant development, there is a steady stream of websites and webpages that appear in order to explain money laundering to us – as it is at the moment of publication. Back in 1998, when Billy’s website was born, it was all about placement, layering and integration. And the examples given were of their time: travellers’ cheques and postal orders, bearer share companies, shell companies and “off the shelf” banks. Thankfully most of these opportunities have been closed down for the launderer. But – like that arcade game Whac-A-Mole – they simply pop up elsewhere. So in the latest of these “how to” websites that I have spotted – “A Beginner’s Guide to Laundering Money”, written earlier this month by the editor of the National Post – the suggested laundering methods include gambling in Macau (and then sending your winnings via “a US trust managed by a shell company in Grand Cayman, owned by another trust in Guernsey with an account in Luxembourg managed by a Swiss or Singaporean or Caribbean banker who doesn’t know who the owner is”), over- and under-invoicing (to be fair, Billy suggested this back in 1998), and investing in diamonds. Thankfully there is optimism too, as the author notes that “the hard reality for launderers is that ‘good’ banks are harder to find every day, and so are jurisdictions providing complete anonymity [and] as a result, some very big fish are starting to get caught in the dragnet”. I wonder what the “how to” sites will be recommending in 2015 and beyond.
Thanks to the miracle of modern technology, while you read this blog at your desk, looking out at the pouring rain and contemplating turning up the heating, I am sitting on a harbour-side balcony in Crete. And my husband is rolling his eyes because I have just suggested that we take a day trip to Zoniana. It’s a little village, population of a couple of thousand, in the middle of the island. I tried to sell it to him on the “typical Cretan village, nice lunch” basis but he’s on to me: Zoniana is actually the home base of the Parasyris family, one of Crete’s main criminal gangs. You can read about the “drug-dealing shepherds” in this Guardian article from 2008. And the reason I remembered about Zoniana is that the article was printed out and stored in my holiday folder…
Yes, I have form. We once went on holiday to Sicily specifically so that I could visit various mafia sites – the Grand Hotel et Des Palmes in Palermo (where the mafia bigwigs meet each October to decide how to carve up the world between them), the shops with their “Addiopizzo” stickers showing that they are saying goodbye to mafia protection rackets, and – rather gruesomely – the place where anti-mafia investigator Giovanni Falcone and his wife were killed in their car as they left the airport (now renamed after the brave Signor Falcone). And when we were passing through Miami, I insisted on seeing the outside of the Dade County Courthouse, where so many money launderers have appeared over the years. In London recently I saw a poster advertising “Ripper Tours”, so maybe an enterprising former NCIS/SOCA/NCA officer could put together a programme to visit the homes and hangouts of some of our own leading launderers. Sign me up!
We all value the little bolt-hole we call home – be it ever so humble, etc. Well, for the hard-working Second Vice President of Equatorial Guinea, it’s this modest dwelling. Overlooking the Malibu coastline in California, this mansion has six bedrooms, eight bathrooms, a swimming pool, a tennis court and a four-hole golf course. Teodorin Obiang bought it in March 2008, when he was a mere Minister of Agriculture and Fishery on an annual salary of £32,400. As they say in those gruesome American teen comedies, you do the math.
At the start of this month, however, events finally caught up with the SVP of EG. After a three-year battle with the US authorities trying unsuccessfully to explain the math to them, Teodorin has agreed to hand over many of his assets, including the Malibu mansion (now valued at £19 million), a Ferrari, and a collection of Michael Jackson memorabilia (including a crystal-encrusted glove). (I know, I know: I feel every bit as ridiculous writing this stuff as you do reading it.) The Americans have stated that US$20 million of the seized assets will be given to a charitable organisation to be used to benefit the people of Equatorial Guinea (colour me cynical, but they’d better keep a very close eye on who’s administering that payout…) while another $10.3 million will be forfeited to the US government, which will use the money to benefit the African country’s people.
This case is legally significant, as explained by Ken Hurwitz, a senior legal officer with the Open Society Justice Initiative: “It is an extraordinary case in that this is the first case where [it is] a living person whose assets are being seized. And it is the first case in the United States… [in which] the attempt is to seize assets that are owned by the current rulers, people who still maintain power in their countries.” Other civil forfeiture cases have been brought against corrupt rulers – but only years after they have died or left power, often making it difficult to track down and define the assets allegedly stolen by them. Perhaps Teodorin’s new homelessness will mark the card of other dodgy PEPs still in power.
Back in the dark ages, when I first fell in love with money laundering (and its anti cousin), I was lucky enough to meet two or three people who knew a lot about the subject and were so generous with their time and expertise – in fact, I often refer to it as my apprenticeship (thankfully without the nasty shouty man who bullies people who dare to suggest that he might be a bully). So now that I am World Famous and Terrifically Important in Money Laundering*, the time has come for me to pay it forward by sharing my time and expertise with those who are starting out in the exciting world of AML.
Because I have a website that I update daily, and a blog to which I try to post two or three times a week, and a rather bizarre surname, I tend to do quite well in Google searches when people are looking up “money laundering” or “AML” or “AML training”. And this means that when students or young graduates are considering a career in AML, they will often come across my name. So at the moment I am receiving about three emails a week, asking for help with which AML qualifications I would recommend, or a review of their research proposal, or pointers as to which are the best sources of information about money laundering. Ever mindful of the hours and hours that others were willing to devote to my education, I am always happy to help – although I do take the precaution, always, of telephoning the educational establishment quoted to make sure that I am dealing with a genuine student and not simply someone wishing to learn the dark arts for nefarious purposes. And about once a month I get a request from someone who would like an internship with Thinking about Crime Limited. Much as I like the idea of having an intern – well, I’ve seen “The Devil Wears Prada”, so I know how internships work – I’m not sure where I would put one. In my office there is my chair and the cat’s chair, and that’s it. And we’re miles from the nearest Starbucks.
* I am simply quoting here from an email I received last week from someone seeking my help – I think the capitals are a nice touch
From yesterday customers of Groupe BPCE, France’s second-largest bank, have been able to transfer money via tweets. Nicolas Chatillon, chief executive of S-Money, BPCE’s mobile payments unit, explained that they are offering simple person-to-person money transfers via Twitter to French consumers, regardless of what bank they use, and without requiring the sender to know the recipient’s banking details. Tweet payments will be managed via the bank’s S-Money service, which links to BPCE’s existing money transfer service. Becoming a little more excited about the whole project, Monsieur Chatillon continued: “The service is instantaneous. [Having approached Twitter over the summer] we are pioneers – we’re trying to make life easier for Twitter users.”
To send money, users (who must have a French bank account and French mobile phone number) post on Twitter with S-Money’s username, the Twitter handle of the person who will receive the money, the amount that will be sent and the hashtag ‘‘envoyer,’’ (or “send” in French). The Twitter message then automatically directs users to BPCE’s money transfer system to complete the transaction. All of the Twitter messages will remain open to the public, allowing anyone to see who has sent money to others on the social network.
Monsieur Chatillon reassured journalists that “we take issues about fraud very seriously” and confirmed that transactions will be sent securely over the bank’s encrypted online systems. To address fears of money laundering, limits have been set: people will only be able to send a maximum of €250 per transaction to others using their Twitter usernames and €500 to charities or crowd-funding campaigns. The service will be free for money transfers between individuals, but the bank will charge companies and charities between 1% and 2% of the transaction value.
Industry experts tell us that this is only the start: Twitter is racing other tech giants Apple and Facebook to get a foothold in new payment services for mobile phones or apps, and in September 2014, Twitter started trials of its own new service – Twitter Buy – to allow people to buy products on its social network. The service embeds a Twitter Buy button inside tweets posted by sellers; early adopters include Burberry, Home Depot and the musicians Pharrell and Megadeth. The question is: will the prospect of Twitter payments (instantaneous payments with minimal CDD…) make MLROs “Happy”, or is it the overture to a “Symphony of Destruction”?
When police forces announce their “policing priorities” for the coming year, they always preface them by saying that these are the crimes about which the public is most concerned – and it’s overwhelmingly car crime (in the UK at least). So relying on the public to tell you which crimes are most serious is something of a gamble – but a gamble that political parties are constantly taking. If you don’t say that your party is going to criminalise (or more harshly criminalise) the crimes that the voters are worried about, you won’t get the chance to criminalise anything. And so we often end up with strange crimes left on the statute books, and – perhaps more worryingly – important ones left off it.
Thankfully we are in the throes of righting one terrible wrong by working on a Modern Slavery Bill. According to the UK government website: “This Bill has now been committed to a Public Bill Committee. The Public Bill Committee is expected to meet on Tuesday 14 October 2014 [and] will scrutinise the Bill line by line.” This should address the crazy situation in which we find ourselves at the moment, whereby slavery is happening, people are acting as slave-masters and slave-traders, and yet we cannot penalise them for these offences because slavery has been abolished. All we abolished, it turns out, was the offence of slavery – not the fact of it.
It’s actually not dissimilar to money laundering. Money laundering – i.e. disguising the criminal origins of your assets – has been going on since time began. I bet there was a caveman who pinched a leg from someone else’s woolly mammoth, swapped it for a new spear, and when questioned about the spear, said, “This old thing? I inherited it from my dad.” But we didn’t get around to criminalising it until the end of the last century – hence Al Capone’s incarceration for tax evasion rather than his much more extensive laundering activities. So the law is a sluggish old beast, not quick on the uptake when it comes to what criminals are really doing. And that’s without mentioning Bitcoin, or aggressive tax avoidance.
As you read this, Guernsey is playing host to an evaluation team from MONEYVAL. This is one of the first fourth-round evaluations being carried out under the new evaluation methodology, whereby jurisdictions will be rated not only on their AML/CFT regimes as they appear on paper, but also on their effectiveness. You can read more about it here. Guernsey has been in something of a (justifiable) fizz about this visit; an evaluation visit is stressful at the best of times, let alone one being conducted under new rules. So Guernsey readers: my thoughts are with you.
That said, I am rather disappointed not to be there myself: being an AML groupie of distressingly large proportions, I would love to meet a team of evaluators. And I am not alone in this. When I was in Guernsey a fortnight ago, I spoke to at least three MLROs who were sad that their institutions had not been selected for MONEYVAL interviews. They are proud of their AML efforts, and wanted (a) to showcase them, and (b) to hear any reactions to them straight from the horse’s mouth, rather than filtered through regulators and reports. I remember feeling exactly the same way when I was a new teacher and the head-teacher would come and sit at the back of the class to check how I was getting on – although as my head-teacher was a nun, I did have to moderate myself somewhat. And now that the Vatican City’s FIU is a member of the Egmont Group, I suppose it is always possible that MONEYVAL’s cadre of evaluators could include nuns…
Regular readers of this blog may know that I am a magistrate here in England. (For overseas readers, here is the general explanation from the government website: “Magistrates are volunteers who hear cases in courts in their community. Each case is usually heard by three magistrates. A legal adviser in the court gives advice on the law and makes sure the magistrates follow the right procedures.”) It is fascinating work, not least because of what you learn about human nature. For instance, I am now much more compassionate than I was, as I see that the majority of people who break the law do so through inadequacy and poor decision-making rather than because they are inherently bad. (All bets are off for money launderers, of course…) And you also learn to decipher what people are saying. So when someone prefaces their answer with, “To be perfectly honest…”, they are usually fibbing. They are over-stressing their honesty, rather than assuming – as their listeners assume also – that the default is for them to tell the truth.
So it amused me highly to read this earlier this week in “The Daily Mash” (a satirical website parodying current news stories – many of them containing comments from experts at the Institute of Studies…): “Anything described as ‘totally legal’ is always the wrong thing to do, it has emerged. Researchers highlighted tax avoidance schemes, sex with 16-year-olds and killing a Scotsman with a bow and arrow in York as examples of legal yet highly dubious behaviour. Professor Henry Brubaker of the Institute for Studies said: ‘There is this weird category of things which the law reckons are fine but on consideration you have to say, [stuff] the law, you shouldn’t be doing that. In each case the person suggesting the wrong action will casually emphasise how it is totally legal. That is your trigger phrase, where you know you are being presented with a clear choice between good or evil.’ 26-year-old Tom Booker said: ‘We were going on holiday to America so we had the cat put down to save paying for a boarding kennel. Totally legal. I know it is wrong, but that is not the point. You don’t go to prison just for doing something wrong.’”
It could be a handy training tool. Advise your staff that if they are conducting due diligence and the client stresses repeatedly that their structure/transaction/unusual request is “totally legal”, this could suggest that it is teetering delicately on the line and therefore worthy of a closer look.