I work regularly in five jurisdictions (Guernsey, Jersey, Isle of Man, Gibraltar and the UK) and occasionally in others (Cayman Islands, Luxembourg, Ireland), and for me an absolute prerequisite is a good understand of the local AML legislation. Thankfully, as most of the places I go are UK-ish, this is not such a mammoth task as it could be; to be frank, everyone’s legislation is much of a muchness. There are the standard five money laundering offences, and then the standard four AML requirements (CDD, record-keeping, internal reporting, and staff training). There are little local differences (length of time one remains a PEP, or whether simplified due diligence is ever permitted) but for the most part, it’s all very similar. Except for tipping off. (Some places call it “tipping off” and others “tipping-off”, but that’s not what I mean.)
Tipping off is on my mind because Jersey has just this week brought out new tipping off legislation which comes into force on 4 August 2014. The Proceeds of Crime and Terrorism (Tipping Off – Exceptions) (Jersey) Regulations 2014 set out the situations in which revealing information about a suspicion will not be considered tipping off – in short, when it is done within your firm/group and “in good faith for the purpose of preventing or detecting money laundering”. This new legislation codifies for Jersey the situation that already exists in Guernsey, in the form of guidance issued by HM Procureur in October 2011, which states that “no prosecutions will be brought against persons who disclose the fact that a SAR has been or will be made, if the disclosure is made by one member of an organisation to another for the purposes of discharging AML/CFT responsibilities and functions”.
This is all fine and dandy if your offence of tipping off concentrates – as it does in the sensible jurisdictions of Guernsey and Jersey – on the blabbing of information around SARs. In the UK, however, the Proceeds of Crime Act is much more mealy-mouthed. Section 333, the tipping off offence, says this: “A person commits an offence if—(a) he knows or suspects that a disclosure… has been made, and(b) he makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure referred to in paragraph (a).” That test of “likely to prejudice any investigation” was discarded in other jurisdictions many moons ago, and deserves to be binned here too. How is a member of staff expected to assess whether what he is saying is likely to prejudice an investigation? And – perhaps more importantly – how can such transgressions be prosecuted fairly? We have enough trouble with the objective test of suspicion elsewhere in the money laundering offences, with courts trying to judge what someone should have thought. When trying to communicate obligations to staff, it is much better to be able to make it simple: when you’ve made a SAR, zip your lip unless the MLRO says otherwise.
Posted in AML, Legislation, Money laundering
Tagged AML, due diligence, financial crime, Guernsey, Jersey, legislation, money laundering, proceeds of crime, tipping off, training
When I started working in AML – back when the world was in black and white – I didn’t have my own computer. Instead, I would go into the University Library in Cambridge, and use their computer to find and print anything that featured the words “money laundering”. That sounds mad now, but at the time, there really wasn’t that much – and 95% of it was put out by the Financial Action Task Force. And nearly twenty years later and with the FATF entering their 25th year of operation, they are still my first port of call for most matters money laundering and anti.
At the end of June, Australian Roger Wilkins took over as President of the FATF for the coming year, and announced his objectives – you can read them here. They are all laudable (given my own recent blog post on the subject, I was interested to note that they are concerned about virtual currencies), but I was particularly pleased to see that they are planning to raise the profile of the FATF – to “take stock of what the FATF has achieved and what now needs to be done”. As so often happens with things that have been around for some time, quietly and efficiently getting on with their work, I think we take the FATF for granted. And it seems to me that Mr Wilkins has identified some of the key points that could be addressed: emphasising the practical consequences of non-compliance with the FATF Recommendations (we all use FATF approval – or lack of – as a handy indicator, but they don’t shout enough about it); moving toward the international top table (e.g. by cosying up to the G20); and publicising the great improvement represented by the FATF’s “new focus on effectiveness”.
Whenever I am researching a new ML-related topic, the FATF is always my first port of call. Their reports into ML techniques and typologies are required reading, and their case studies are generous in the extreme. And if I am trying to get a grip on how a jurisdiction approaches AML, my starting point is its most recent FATF (or FATF-style) mutual evaluation report. They have given me immeasurable help, and so I raise a celebratory Jaffa Cake to them and wish them another successful quarter-century of AML leadership.
As I am currently hiding away in Switzerland, I thought a Swiss-themed blog was in order. This part of Switzerland – picture Lake Geneva (Lac Léman) like an upside-down banana, and I’m just off the far eastern tip of it, up a mountain overlooking the lake – has long been very popular with those who have the money to indulge their taste for the fine things in life. Charlie Chaplin settled here in 1953, after being accused in America of being a communist, and lived in a wonderful home near Vevey until his death in 1977. Audrey Hepburn went a little further west, buying a gorgeous farmhouse called La Paisible just outside Tolochenaz. And when the Uzbek president’s daughter Gulnara Karimova was appointed her country’s ambassador to the UN in 2008, she moved to Geneva. She wasn’t exactly scratching a living; in December 2009, Swiss magazine “Bilan” reported that she had assets in Switzerland of between US$570 million and $655 million.
The source of those assets came under scrutiny in July 2012, when the Swiss authorities launched a money laundering investigation into four Uzbek nationals with close ties to Karimova, stating that the suspected underlying illegal activities were linked to the Uzbek telecommunications market. Karimova was removed from her position as UN ambassador, and the resulting cessation of her diplomatic immunity paved the way for an investigation into her. In September 2013, Switzerland named her as an official suspect, and she swiftly left town. Three months later, a group of exiled Uzbek dissidents broke into Karimova’s deserted lakeside villa (which she had purchased in 2009 for CHF 18 million – about £12 million) and published images of items allegedly taken from the Uzbek national museum, including works of art, gold and silver trinkets, jewellery, and an 18th century jewel-encrusted Koran. In March 2014, Swiss prosecutors announced formally that they are investigating Karimova, and that they had already seized €660 million of suspect Uzbek assets.
Karimova had been seen as a possible successor to her authoritarian father Islam Karimov, and indeed for many years she managed to combine politics with a career as a pop star, fashion designer and the head of charitable funds. But now her Uzbek media empire, including several television channels, has been shut down and more than a dozen boutiques belonging to her or her business partners have been closed on allegations of tax evasion and other charges. Her Wikipedia entry says bleakly: “Current status: It has been reported that Karimova is currently imprisoned.” I should think a Tashkent prison is a far cry from the shores of Lac Léman.
Posted in Bribery and corruption, Money laundering
Tagged asset forfeiture, bribery, corruption, due diligence, financial crime, money laundering, PEP, proceeds of crime, tax evasion, white collar crime
On 19 June 2014 – and after plenty of rumours – the Guernsey Financial Services Commission issued a public statement about a local fiduciary firm, Willow Trust Limited. Although still not as detailed as the notices issued by, for instance, the Financial Conduct Authority in the UK, this public statement did give us a little more to chew over – after all, the issuing of such a statement not only serves to shame the subject but is definitely also intended “pour encourager les autres”. And les autres need to know details in order to be suitably encouraged in the right direction.
As seems to be the pattern recently (I’m thinking of Habib Bank, Coutts and Guaranty Trust Bank), Willow’s AML failings were around risk assessment and the reviewing thereof. In the case of Willow (and in the words of the GFSC): “Willow’s relationship risk assessments considered the identity of the customers, beneficial owners and underlying principals but insufficient consideration was given to the nature of the products or services provided to the customer, the purpose and intended nature of the business relationship or the type, volume and value of activity. [Moreover] Willow failed to review the risk assessments of its business relationships with sufficient regularity.” In this emphasis on review, I suspect the GFSC is hearing the approaching rumble of the evaluators from MONEYVAL, due on the island in October…
But as a provider of AML-related services myself, it was some of the other comments in the statement that caught my eye: “The Board was aware of the issue of the increasing backlog of file reviews and obtained the advice of external compliance consultants to advise on effecting improvements to its procedures to seek to ensure its compliance with its regulatory measures. However this failed to address the existing issues adequately. [And] in 2009 Willow appointed external compliance advisers who consistently reported to the Board that the Company continued to remain compliant with its regulatory obligations. Notwithstanding, the Board of Willow acknowledges that it remains responsible for the review of its compliance with the Regulations as required by Regulation 15.” Ay, there’s the rub with outsourcing. You can give away the task but not the responsibility. It’s a bit like trusting someone else to do up your seatbelt for you, when both you and he know that, if there is a crash, it will be you catapulting through the windscreen while he stands on the hard shoulder. Are there some functions that are just too risky, too impact-ful, to be entrusted to someone outside your firm? And is AML one of them?
This post is by way of a (very) temporary farewell. Some of you may remember that last summer I published my first novel, “Fatal Forgery”. (If by some fluke you have missed it, here it is on Amazon, with some lovely reviews.) The hero, a London police officer called Samuel Plank, now has quite a few fans, and I have decided that I would like to write more about him – not least because, in an amazing coincidence, he shares my fascination with financial crime. So for the next month – July being my really quiet training month – I am hiding away on a writing retreat, to take the eight chapters that I have already written and the plot that I have constructed and the endless notes that I have made, and turn them into what is known in my house as “Plank 2: He’s Back, Even Though You Suggested That One Book Would Get It Out Of Your System”. (Granted, I’m going to have to come up with something more catchy before publication.)
For you lovely blog readers, this means that I will go rather quiet. The place to which I am retreating has (a) no telephone, and (b) no Internet – because I know that I have (c) no discipline, and will otherwise while away hours tootling round history websites and cooing over pictures of Mr Darcy (well, it’s sort of the right period). However, I do not want to lose you, of course – there are now 374 of you, and you’re all lovely. So here’s the deal: every Friday from now until the end of July, I will be going to an Internet café to check emails and (more importantly) write you a blog post. So we’re dropping down from the two or three a week that you have come to expect, but it’s only for four weeks. Please stay!
As for the new novel, I don’t want to give too much away, but can I just mention that I think I have worked out how to get money laundering into it – a mere 161 years before it was first criminalised in the UK. You can see why I like Sam so much.
Most humans are the same: we claim to seek and foster change, but when it happens, we’re cautious (and often divided) about how to deal with it. Digital currencies, for instance. Last week, the Isle of Man government announced that it is going to take specific action to entice digital and virtual currencies to its (virtual) shores by (according to local politicians) “welcoming those who can meet the necessary standards while also preserving the island’s good reputation as a financial centre”. For those of you wearing your MLRO hats as you read, in the FAQs issued by the government, it is explained that the IOM “is intending to include crypto & digital currencies under the Proceeds of Crime Act 2008 and the Designated Business (Registration and Oversight) Bill 2014 to ensure that the activities undertaken are subject to the anti-money laundering legislation. The same registration and oversight regime that will be applicable to other designated businesses will then apply to digital currency businesses.” And the very next day, several Manx businesses jointly launched an “incubator” programme to entice digital currency businesses to the island.
Compare and contrast, if you will, to the decision made in December 2013 by Alderney, part of the Bailiwick of Guernsey. At the time, Alderney had been considering minting commemorative coins based on Bitcoins: the coins would have the Bitcoin logo on one side and the Alderney logo on the other (with royalties going to both Alderney and the Royal Mint), and would contain a set amount of gold, so that they could be melted down and sold if Bitcoin collapsed. Anyone arriving in Alderney with an “Alderney Bitcoin” would be able to exchange it for a Bitcoin, or its sterling value at the time. After deliberations, it was decided in May 2014 not to go ahead with the scheme – mainly because the financial authorities in Guernsey considered it potentially damaging to Guernsey’s reputation for financial probity. Robert MacDowall, chairman of the Alderney Finance Committee and champion of the Bitcoin commemorative coin scheme, was pretty snippy about the decision: “Guernsey have claimed it will damage their reputation if we go ahead with this [but] they are backwards thinking and need to move with the times. This is the future.” He plans to go ahead with the scheme, but with another jurisdiction and in a private capacity. The Isle of Man should probably expect his call soon.
Posted in AML, Due diligence, Money laundering
Tagged AML, Bitcoin, due diligence, financial crime, government, legislation, money laundering, proceeds of crime, white collar crime
We all have words that we hate. I have one friend who is unable to say the word “pamphlet” without grimacing, and another who loathes “gusset”. Personally I have two lexicographical pet peeves (yes, that’s me: always spoilt and demanding more). The first is *steadies nerve and prepares to type with eyes closed* “moist”. I can’t bear it. If we have a particularly good piece of cake, for instance, my husband knows to comment only on it being “rather m and tasty”. And the second is “networking”.
I’m not against the concept, you understand – just the word. In fact, I’m against the word because it is so unnecessary: it takes an activity that already exists, and makes it sound difficult and (even worse) calculating. “Networking” is simply being nice to people and sharing your thoughts and ideas generously with them, on the (instinctive) principle that what goes around comes around – if you are kind to others and magnanimous with your expertise and time, they will be kind and magnanimous to you. “Networking” makes it all sound like a ghastly trap into which we lure the unwary with our faux friendship.
I was reminded the other day of the true beauty and usefulness of genuine, natural and unforced sharing. It was the day of my workshop for experienced MLROs in Guernsey – one of the absolute highlights of my year – and during a break three people from different insurance companies were discussing the difficulties they are having with the AML requirements for general as opposed to other insurance (a bit tricky under the Guernsey regime). And in ten minutes, over a rather m slice of carrot cake, they had decided to (a) have a proper meeting with some other colleagues to decide on their ideal way forward, and (b) take that proposal to the GFSC. Each had been struggling alone with the complexities of the situation for months, and a ten-minute chat led naturally to the realisation that co-operation would pay dividends. Chatting, sharing, and cake – that’s all it takes.
Following on from my post last week about common sense, I was interested to read about professional snooker player Stephen Lee pleading guilty to fraud on 9 June. It was a simple enough case (he sold one of his cues on eBay to Marco Fai Pak Shek, a fan in Hong Kong, and then didn’t send it and in fact carried on using it – he was ordered to repay Mr Shek’s £1,600 payment and fined £110) but what caught my eye was what is known in court as his “previous”. For this was not Mr Lee’s first brush with the law: last year he was found guilty of match-fixing in 2008 and 2009 and given a 12-year ban and ordered to pay £40,000 costs (which have now been increased to £75,000 thanks to a failed appeal). The World Professional Billiards and Snooker Association called it “the worst case of snooker corruption we’ve seen”.
Now, I am not a snooker fan, so I had never heard of Mr Lee or his match-fixing conviction – but presumably Mr Shek was familiar with Mr Lee, given that he was willing to pay quite bit of money for that cue. So did he not consider that a man who is prepared to commit “the worst case of snooker corruption” in his professional life might not be the most trustworthy of eBay sellers, and that it might not be a good idea to send money across the world to a person with a demonstrable history of dishonesty?
I once had an MLRO tell me that, during a review of a client’s file, they had uncovered a lie that he had told on opening his account. “But it’s all OK,” said the MLRO proudly. “It shows that our systems are working, and we contacted him and he’s sent the correct information now.” I was less comforted, as I tend to think that a client who lies to you once is likely to do it again. If you have experience of someone’s dishonesty, surely it colours everything they do and say from then on? And in many cases, I should imagine, it must make you reluctant to continue the relationship at all. Plus, don’t forget that pesky objective test: if a client is one day embroiled in a money laundering investigation, and enquiries come to your door, can you imagine yourself saying, “Well, yes, we knew he was a liar, but no, it didn’t rouse our suspicion about other things that he did.” If you must turn the other cheek, make sure that it is an armour-plated cheek with enhanced due diligence.
Posted in AML, Bribery and corruption, Due diligence
Tagged AML, corruption, due diligence, financial crime, fraud, money laundering, proceeds of crime, suspicion, white collar crime
Stories about Phuket always get a snigger, but one caught my eye this week because it illustrates so well a basic AML skill that we all have (well, should all have): common sense. The Phuket News (enough sniggering now, thank you) reported that police are looking into the assets of over a hundred “unusually rich” taxi drivers in the town. Apparently these drivers have accounts containing “hundreds of millions of baht” [100 baht is worth about £1.80], and police believe that much of it was obtained dishonestly. And why do they think this? As I used to say when I was a teenager, and therefore knew, like, everything: well, duh! They’re taxi drivers, and in a small provincial town in Thailand – we’re not talking Zurich limos here. So the Phuket police (seriously: sniggering all done now) are applying simple reasoning: such volumes of money cannot be generated by the stated employment, so questions must be asked.
In the UK, we have a really weird relationship with money. If anyone asks how much we earn, we turn a very peculiar colour, harrumph a bit and comment on how it’s a bit warm for the time a year. In Singapore, where I grew up, it is an entirely normal question, asked on a daily basis, with the answer exclaimed or commiserated over as necessary. And yet we in the UK are acutely aware of the price of things: estate agents advise clients selling properties to borrow an expensive car to leave in the drive, to make the entire house look more desirable – apparently BMWs and Mercs are the ones to choose. “Property porn” shows are taking over the telly schedules, as we watch people buy a wreck and then make a killing/gut-wrenching loss as amateur “developers”.
Why then are we in the AML community so reluctant to advise our staff to use their nous when it comes to people’s money – and particularly their income/savings? If a client or applicant is a hairdresser or a teacher or a doctor or an airline pilot, it’s pretty easy to find out the average salaries for such jobs. And then it’s a short step to checking that their income/savings fit with that. After all, why else do we even ask about people’s employment? Sure, it’s probably a bit rude to ask about someone’s money over the dinner table, but the rules are entirely different in the professional environment: if someone wants your firm to help them with their money, they have to tell you about it first. And having staff apply their common sense – the sniff test – to the answers to those questions is such a quick win.
At the end of May, and following a consultation process in which I participated with much pleasure and about which I blogged here, the UK’s Sentencing Council issued its definitive guideline on sentencing for offences of fraud, bribery and money laundering. You can see the guideline here (scroll down a bit to get to it) – and it comes into effect on 1 October 2014.
When the guideline was launched, there was quite a bit of press coverage – and most of it picked up on the fact that this guideline (particularly the fraud bit) places much more emphasis on the impact of the offending on the victim. As the Sentencing Council press release notes: “This new guideline places victim impact at the centre of considerations of what sentence the offender should get. This may mean higher sentences for some offenders compared to the current guideline, particularly where the financial loss is relatively small but the impact on the victim is high. It also aims to ensure that the victim’s vulnerability is given due weight.”
This has started me thinking about whether – when it comes to money laundering – we do enough to remember (and remind our staff about) the victims of laundering. It can be complicated (for instance, if money is confiscated from a drug trafficker, I doubt many people would campaign for it to be returned to the drug buyers), but with money laundering by its very nature placing distance between the crime and the eventual location/form of the money, it can be all too easy to forget that people are being harmed all along the way. There are the victims of the original crime, and those whose accounts are compromised, and those who have to pay more for financial services because the providers have to fund AML requirements, and those who have to supply more information in order to meet those AML requirements, and those who live in countries where public services are under-funded thanks to the pilfering activities of their corrupt leaders – the list goes on.
So to those who claim that money laundering is a victimless crime, just a bit of clever financial jiggery-pokery, I say that nothing could be further from the truth. And the new guideline seems to support this view. Although “harm is initially assessed by the value of the money laundered”, sentencing benches are told that “to complete the assessment of harm, the court should take into account the level of harm associated with the underlying offence”. Moreover, the resulting sentence must then be adjusted for various mitigating and aggravating factors, and among the latter we find “established evidence of community/wider impact”. M’lud, if I may address the court…