It’s here, it’s here! No, not Sinterklaas in the Low Countries, but the annual Corruption Perceptions Index from Transparency International, published this morning. Featuring on the CPI 2013 are 177 countries – still no Guernsey, Jersey, Isle of Man, Gibraltar or Cayman Islands, I’m afraid. For an overview, I quote from the TI UK press release: “More than two thirds of the countries in the 2013 index score below 50, on a scale from 0 (perceived to be highly corrupt) to 100 (perceived to be very clean). The average country score this year is 43/100 – ask any school child what 43 out of 100 means on a test and you will get the same answer: failure. Denmark and New Zealand tie for first place with scores of 91. Afghanistan, North Korea and Somalia this year make up the worst performers, scoring just 8 points each.”
As for specifics, the UK has made a slight improvement – it is now ranked at position 14 with a score of 76 (compared to 17 and 74 last year). TI UK attributes this to “the continuing halo effect from the Bribery Act, and improved rhetoric from the UK government on tackling corruption”, but warns that “continued scandals related to politics and parliamentary ethics” may reverse this upwards trend.
The two big losers this year are Syria and Spain. Syria fell to position 168, dropping nine points along the way to score only 17 out of 100, which TI UK explains thus: “The civil war has stopped good governance in its tracks. For many years, state involvement in business through informal networks has contributed to an erratic economy. Families associated with the regime in one way or another came to dominate the private sector in addition to exercising considerable control over public economic assets.” As for Spain, its score is down 6 points to 59/100, almost certainly because “this year it suffered its largest ever corruption scandal over political party funding [and] both the Spanish Prime Minister and Royal family have been embroiled in corruption scandals.” It’s those pesky PEPs again.
Posted in Bribery and corruption, Money laundering
Tagged AML, asset forfeiture, Bribery Act 2010, corruption, due diligence, equivalence, financial crime, money laundering, organised crime, PEP, proceeds of crime, tax evasion, Transparency International, white collar crime
I think we can all agree that 2013 has been something of an anno expectatio for the Vatican. In May 2013 their FIU (the Autorità di Informazione Finanziaria, or AIF) published its first annual report - rather short on detail but long on hope. And in August 2013 Pope Francis issued a motu proprio concerning concerning “the prevention and countering of money laundering, the financing of terrorism, and the proliferation of weapons of mass destruction.”
Pope Francis certainly seems to be more worldly than his predecessors, and rather an innovator: he talks in simple vocabulary, often quoting the wise sayings of his late grandma Rosa; he lives in a suite in the Vatican’s Domus Sanctae Marthae guesthouse rather that in the more sumptuous papal apartments in the Apostolic Palace, and is driven around in a Ford Focus rather than the Popemobile; and he recently posed for a “selfie” with young visitors to the Vatican. But I fear that he may just have made a grave mis-step: yesterday he announced that his personal secretary will supervise the activities of the Vatican Bank.
According to the Beeb, “Monsignor Alfred Xuereb will oversee the activities of two commissions [the Pontifical Commission for Reference on the Institute for the Works of Religion, and the Pontifical Commission for Reference on the Organisation of the Economic-Administrative Structure of the Holy See] set up earlier this year following a series of financial scandals”. Now Monsignor Xuereb, a 55-year old priest from Malta, may well be an excellent and honest man – but the truth is that he is both too close to the organisation that he is required to supervise, and too close to the person to whom he is to make his reports. If he loves the Vatican Bank, can he be critical enough in his review? And if he loves Pope Francis, can he be brutal enough in delivering his assessment? Pope Francis seemed determined to root out the problems in the Vatican Bank, but with this appointment of the ultimate insider, are we seeing a case of the spirit being willing while the flesh is weak?
Posted in AML, Due diligence, Money laundering, Supervision
Tagged AML, corruption, due diligence, equivalence, FATF, Financial Action Task Force, financial crime, money laundering, organised crime, proceeds of crime, tax evasion, Vatican
As every MLRO can recite in his sleep, there are four elements to money laundering risk analysis: customer risk, product risk, delivery channel risk, and jurisdiction risk. Only by looking at all four of these can you come up with a realistic assessment of the money laundering risk of a particular relationship or transaction. And of the four, the one with which the MLRO gets most external help is the last, jurisdiction. For there is no shortage of lists of countries: good ones, bad ones, corrupt ones, reliable ones, ones with “critical deficiencies in their AML/CFT regimes”, ones that are improving, ones that are worsening… it’s dizzying. Once upon a time, when I was a naive and optimistic young AML practitioner, I bought a large map of the world and a box of coloured map pins, and started labelling up the countries, changing their colours as they scooted up and (more frequently) down the scale of AML respectability. Readers, it was like being in one of those war movies, in an airless bunker somewhere under London, trying to keep track of who’s on our side and who isn’t – but without the welcome distraction of handsome men in uniform and moustaches. I soon gave up.
On 18 October 2013, the FATF updated its list of naughty countries, and then last week the CFATF announced that it is particularly upset about Belize and Guyana. The FATF list was echoed without change in the UK by HM Treasury, and then echoed with local flavouring in Guernsey. And now we hear that on 3 December 2013 Transparency International will issue the 2013 version of its Corruption Perceptions Index. (I swear they have a mole in my office; CPI updates are always announced the day after I have prepared about three thousand slides for various clients, covering the previous index in great detail.) For the MLRO who is trying to abide by guidance which requires him to “be aware of lists and warnings issued by domestic and international bodies” (or some such wording), it can mean days trawling through all these lists in a giant “compare and contrast” exercise, interspersed with nights waking in a cold sweat in case he has missed one. I understand why we can’t, I really do, but wouldn’t it be lovely if we could have a central list-making body?
Posted in AML, Money laundering
Tagged AML, communication, corruption, due diligence, equivalence, FATF, Financial Action Task Force, money laundering, PEP, proceeds of crime
I remember my first day at university very well, even though it was so long ago that the whole experience was in black and white. As I was leaving my college to walk into town for the first time, the porter beckoned me over and handed me a piece of paper. On it was a map of Cambridge, with a big red circle drawn around my college so that I could find my way back. ”We give this to everyone except the geographers,” he said with a wink. ”They get it as part of their final exam.” That was the sum total of my induction, and it came to mind recently when someone emailed me and asked for my suggestions for documents and sources of information to put into a “starter pack” for a new MLRO.
If you were a brand-new baby MLRO, what information would you want to hand? How about:
- Quick link to the FATF website, with particular links to that list of dodgy countries (sorry: jurisdictions with critical deficiencies to the AML/CFT regime) and the latest typologies reports
- Copies of the relevant legislation for your jurisdiction – so for the UK that would be PoCA and the Regs – in both online form (for quick searching) and paper (for highlighting and annotating)
- The telephone number of a friendly soul at the relevant FIU – obviously more achievable in some jurisdictions than others
- Lots of files, folders, stickies, highlighter pens and a fine-tooth comb to go through your predecessor’s AML policies, procedures and logs
- Chocolate – obv.
- Cyanide pill for when it all goes badly wrong…
Any other must-haves?
Posted in AML, Money laundering
Tagged AML, communication, due diligence, FATF, financial crime, legislation, MLRO, money laundering, Money Laundering Reporting Officer, organised crime, suspicion, training, white collar crime
Singers sing, dancers dance, plumbers plumb – and directors direct. But you cannot direct unless you know where you are going and (in overall terms) how to get there. And I think too many directors have forgotten that their primary role is to provide such direction and guidance to their firms. In the AML arena (and directors often don’t realise that they are in this particular arena, but of course they are) this means knowing the AML risks that are facing your firm, and deciding which ones are acceptable and what measures you will put in place to mitigate them. In other words, directors are responsible for overseeing their firm’s AML regime, for signing off on its appropriateness and proportionality, while the MLRO is responsible for implementing it. But how can the directors do this if they are ignorant of current money laundering and AML practices? (One answer: they can read my very helpful book on AML for Guernsey directors. Come on: if I don’t plug my own book, no-one else will.)
Directors are on my mind because of recent action taken by the Guernsey Financial Services Commission against a local director. On 15 November, the GFSC issued a notice concerning Christopher Hubbard, formerly a director of the Ross Gower Group – providers of motor, home and travel insurance. According to the notice, Mr Hubbard “allowed an individual, who had been charged with money laundering offences, to be a sole signatory on the bank account of a company controlled by Mr Hubbard, who was aware that the individual had been charged with the money laundering offences when he allowed the individual to become a signatory on the bank account”. Oo-er – rather poor judgement, that. Mr Hubbard has been fined £10,000 and banned from being a director or holding any compliance role (including that of MLRO…) for five years.
Far be it from me to crow, but this does rather make me wonder about Guernsey’s recent decision to remove general insurance from the AML regime (about which I blogged only last week – indeed on the very day of the GFSC notice *cue Twilight Zone music*). If allowing those charged with money laundering to have control of bank accounts is the best due diligence we can expect from insurance companies when they are still in the regime, what will happen now that they have been released?
Posted in AML, Due diligence, Money laundering
Tagged AML, directors, disclosure, due diligence, financial crime, Guernsey, legislation, non-executive directors, proceeds of crime, suspicion, training, white collar crime
In its first AML prosecution of a high value dealer, the UK’s HMRC has fined Bedfordshire company director Grenville Eames £16,000 for failing to abide by the Money Laundering Regulations 2007. Eames’ company, JGE Commercials Limited, was also fined £16,000 and ordered to pay a confiscation order of £135,900 within three months. Eames had registered his company – a truck and plant hire company which buys and sells commercial and large plant vehicles – as a High Value Dealer with HMRC because he wanted to continue dealing in large amounts of cash, and thus became subject to the requirements of the Regs. And under the Regs, all HVDs who take €15,000 (in any currency) or more in cash must provide documentary evidence of checks made on the client’s identity and the source of the funds for the transaction. Eames was arrested after early morning raids at his home and business addresses in September 2012, and investigations showed that he had failed to keep the required records for large transactions totalling an estimated £170,000. According to Adrian Farley, the man from the HMRC: “The money laundering regulations are in place for a very good reason, to protect the public and to stop crooks benefiting from their criminal profits. Eames kept poor records and had numerous chances to correct the situation but failed to do so. As a result he was charged and prosecuted.”
I have always found the HVD aspect of the Regs intriguing. For a start, I have often wondered why the obligation to register falls only on those trading in goods for cash, and not services – it’s the cash that’s the issue, not the thing for which it is exchanged. And – given the number of times I am asked to explain during training just what the HVD category is, and who is covered, and what it involves, and this to an AML-educated audience – I am not at all convinced that the general public (and in particular the business-owning general public) has been told enough about it. So how many HVDs are there that don’t realise that they are HVDs and so have not registered? And of those that have registered, how many realise quite what that entails? Now that HMRC has drawn first blood, I rather suspect that we may see many more HVD prosecutions.
A little while ago, Guernsey followed the lead of various other countries and removed general insurance from its AML regime. As explained on the FAQ page of the Guernsey Financial Services Commission’s website: “Intelligence and information in the jurisdiction identified that there was a very low risk of general insurance products being used to launder the proceeds of crime or terrorism. As a result, amendments were made to the relevant legislation so that the AML/CFT requirements in the [AML] Regulations and the Handbook would no longer apply to general insurers.”
As someone who is always campaigning for the extension of the AML regime rather than its contraction, I find this disappointing. As I see it, this change will result in the creation of an unnecessary risk (that criminals will return in droves to using general insurance products for their laundering) in return for very little reduction in effort. For, as the GFSC FAQs further elaborate: “Despite the above amendments, general insurers must still comply with the requirements in other financial crime legislation [including] the disclosure requirements of the Disclosure (Bailiwick of Guernsey) Law, the Terrorism and Crime (Bailiwick of Guernsey) Law and the Drug Trafficking (Bailiwick of Guernsey) Law. General insurers must also continue to comply with the requirements, reporting and restrictions imposed by the UN, EU and other bodies concerning sanctions [and with] the Prevention of Corruption (Bailiwick of Guernsey) Law.” I might be being dense here, but if general insurers are required to report suspicions, check their client lists for sanctions matches and look out for corruption, won’t this mean that they will have to do the same CDD, record-keeping, reporting and staff training as with AML? It might be called something else but it’s pretty much the same process, so why not get a double win and use it for AML as well, thus reducing that risk of criminals returning to general insurance? Plus, of course, those providing general insurance would be able to continue doing what they could do until recently, and that everyone else in the regulated sector is still doing, and – when their customers complain about having to answer questions and supply documents – blame the whole lot on AML.
With the headlines full of Typhoon Haiyan, people’s minds turn inevitably – and rightly – to aid donations. But when a country like the Philippines is involved, AML people’s minds turn inevitably to questions about corruption: bluntly, is it safe to send money to such a regime? With its history of spectacularly corrupt politicians (Ferdinand and Imelda Marcos, Joseph Estrada and Gloria Arroyo spring to mind) who seem to have no compunction about dipping their paws into the public till and stealing money from their very poorest citizens, it is not surprising if even our own government is taking things carefully when it comes to handing over large donations.
Of course, this is not a new dilemma. The key elements that have made the impact of Typhoon Haiyan so terrible often go together: corrupt leaders abusing their positions for personal gain rather than public good, laissez-faire financial systems facilitating dodgy deals of all stripes, poor building controls, and chaotic and underfunded public and emergency services. The International Centre for Asset Recovery (part of the Basel Institute of Governance) published a paper on a similar problem in 2011; “Development Assistance, Asset Recovery and Money Laundering: Making the Connection” reminds us that “Official Development Assistance (ODA), a fundamental tool of development policy, is prone to corruption, embezzlement and abuse — to the extent that up to 30% of disbursements may be siphoned off by corrupt actors and criminal organisations”. This is an ongoing conundrum for all of us, as highlighted in a November 2011 report put out by the Independent Commission for Aid Impact, looking at how the UK’s Department for International Development responds to the challenge of providing aid (both development and emergency relief) in countries with high risk of corruption. As heartbreaking as the news stories may be, when donors – whether individual, corporate or state – are choosing where to spend their charity dollars, they will wisely be wary of jurisdictions where a third of the money will go to further line the already sumptuously fur-lined pockets of corrupt PEPs and others.
Posted in Bribery and corruption, Money laundering, Organised crime
Tagged AML, asset forfeiture, bribery, corruption, equivalence, financial crime, government, money laundering, organised crime, PEP, proceeds of crime, white collar crime
Stuck in traffic on the M11 yesterday afternoon, my husband and I – having divided up the last of the emergency wine gums – embarked on a philosophical discussion prompted in part by my blog post last week about Kier Starmer’s recommendation for mandatory reporting of suspected child abuse. Also in our minds was a story we had been told over the weekend by a lawyer friend who said that his firm had been dealing with a partner who had been found fiddling his expenses. Is it worse, husband and I wondered, for a lawyer to break the law than for an ordinary person to do so? After all, a lawyer has devoted his life to upholding a body of legislation, because – one would suppose – he believes that there should be such a body of legislation, and that (for the most part) the particular one he represents is fit for purpose (i.e. fair and just and practical). But perhaps when it comes to fiddling expenses (or indeed any financial fraud), we mused as we sucked wine gum bits from our back teeth, it is actually worse for an accountant to do it than for a lawyer? An accountant exists to ensure that finances are correctly represented – so wilfully misrepresenting them goes to the very heart of his professional being.
It was a long traffic jam, so we dived down into more gritty situations. If you take a specific non-financial crime, let’s say domestic violence, are certain professions more culpable than others? If a man hits his wife, is it worse if he is a doctor (who knows more than most the physical damage that such a blow can inflict), or a psychiatrist (who knows about mental trauma), or a policeman (who sees the fallout on families), or a bus driver (our neutral category)? And if you do think that (to put it bluntly) some people should know better, would it make sense for punishments to be scaled accordingly? In the magistrates’ court, for instance, we always base fines on the defendant’s means – poorer people pay less than richer ones (although the proportion of their income should be constant).
Bringing it all closer to home, we already have separate offences of failure to report (suspicions of money laundering) for general staff and for MLROs; although the penalties are the same, the objective test of suspicion will bite more harshly on the latter. Should our other money laundering offences – concealing, assisting/arrangements, etc. – be likewise varied, so that someone who abuses their position working in the regulated sector to launder money is given a rougher ride than that money laundering bus driver? Should an MLRO who launders money be given the stiffest penalty of all? We’re talking here not about introducing the objective test of suspicion, but about recognising the additional breach of trust or abuse of position. At this point, the traffic cleared (overturned vehicle near Duxford) and we went on our way.
I’m not normally a vindictive person, but when it comes to money launderers, my bile knows no bounds. I’m not quite calling for the death penalty, but I’m a bit sad that the birch has gone, and many long years in prison are very much to my taste, particularly when the pension pot is confiscated at the same time. So you can imagine my glee this week when the Royal Court of Jersey saw through the protestations of Curtis “Cocky” Warren that he had made his fortune through selling fruit and veg, and ordered him to repay £198 million of proceeds from his drug dealing. He was told that the money is due within 28 days, or he faces an extra decade in prison. I’m almost hoping he can’t scrape it together…
I am often asked during AML training what happens to assets and money obtained through confiscation orders – where does it go? The first step is to try to return it to the victims of the crime. This works for the proceeds of fraud or theft, for instance, and even for embezzlement from the public purse – but not for drug crimes or bribery. After all, you wouldn’t want a drug buyer or someone who has paid a bribe to have their money refunded. And sometimes the victim cannot be traced. So often there is money that cannot be returned, and something else has to be done with it.
It varies from jurisdiction to jurisdiction, but as I understand it, the general pattern is this: about a half goes into the public purse, then a quarter goes to the investigating agencies involved in the conviction and confiscation (almost certainly police, then perhaps trading standards or immigration, for instance) in order to incentivise them to take on such work (which is time-consuming and complicated), and finally a quarter is spent on crime-prevention initiatives within the community affected (perhaps after-school clubs to keep teenagers off the streets, or an education programme warning of the dangers of online fraud). I do hope that gives Mr Warren some comfort; after all, as a campaigner against drugs himself, he should be proud to contribute about £66 million to anti-crime work. Heavens, that must make him almost a philanthropist.