Calling a spade a spade

I am still catching up on all the ML/AML reading I missed while I was stuck up a Swiss mountain last month, so please forgive me for drawing your attention to an article that was the leader in the Spectator way back on 5 July 2014.  Entitled “It’s time for Britain to abolish slavery – again”, the article discusses the Modern Slavery Bill which is currently making its way through the UK legislative system – along the way making the point that I have made in several training sessions that all we managed to abolish last time round was the offence of slavery, not the commission of it.  (In other words, by claiming that slavery had been abolished and thus removing the offence of slave-trading from the statute books, we created a situation where slave-traders and slave-masters could no longer be prosecuted for their actions.  Big fail.)

However, what I wanted to concentrate on today – before I mounted that high horse – was a rather throwaway comment in the Speccie article: “Even calling modern slavery by its name is a huge step forward: Wilberforce would have made no progress [in the late eighteenth century] had he spent his time mumbling about ‘human trafficking’.”  Quite right.  And I sometimes wonder whether – through PC-ness or in a bid to find a phrase that works internationally – we often end up with a rather watered-down, more palatable version of something that should, by its nature, be unpalatable.  The very phrase “money laundering”, for instance.  Let’s not worry about how it started – whether laundrettes were involved or not – but here we are with the concept of washing money.  Other languages have gone down the same route: the Germans and Spanish call it money washing, the Dutch and French money whitening.  Although I support the general idea – making dirty money clean – I have two main issues with the phrase.

First, money laundering does not make money clean – it merely makes it appear clean.  The Elizabethans, believing that submerging your body in water was dangerous, would simply layer on more perfume and carry nosegays – they didn’t clean themselves, but simply disguised the dirt.  And second, laundering sounds a rather benign – indeed laudable – process.  Giving something a good clean is recommended.  None of this is right for what we call money laundering.  We need a phrase that suggests evil concealment, not gentle cleansing.  Any suggestions?

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Will that be cash, sir?

About three weeks ago Singapore announced that it is going to stop issuing its $10,000 notes because of “the risks associated with large value cash transactions and high-value notes”, according to the Monetary Authority of Singapore.  However, the notes already in circulation will remain legal tender indefinitely.  Now, ten thousand Sing dollars is worth about £4,750 – so that’s one stonkingly valuable note.  By comparison, the Bank of England issues banknotes into circulation worth £5, £10, £20 and £50.  (There is a “giant” banknote worth £1,000,000, and a “titan” worth £100,000,000, but you won’t find them in a cashpoint – they’re used to back banknotes issued by banks in Scotland and Northern Ireland.  For every Scottish or Irish pound issued, the issuing bank has to deposit the equivalent in sterling at the Bank of England – and the giants and titans are the shorthand for that.  I didn’t know that – isn’t it interesting?  I feel a financial crime novel coming on…)

Large value banknotes have always been popular with money launderers, because they are efficient: £1,000,000 in £20 notes weighs more than 50kg, while the same value in 500 euro notes weighs only 2kg.  And talking of 500 euro notes, in 2010 the Serious Organised Crime Agency estimated that 90% of 500 euro banknotes sold by bureaux de change ended up in the hands of organised criminals.  In May of that year, the UK government decided to withdraw the 500 euro note from sale in the UK – you can still sell them to bureaux de change, but you can no longer buy them.  We were not the first to regret a high-value note: in May 2000, the Canadians withdrew their $1,000 note – C$1,000 is now worth about £545.  Any C$1,000 note paid into a bank is shredded, but they are still legal tender – and nearly a million of them have yet to be turned in and destroyed.  According to money laundering expert Jeffrey Robinson: “They are used now to pay off IOUs, not as traditional cash.  [Criminals] keep paying with them, over and over, and it’s only the last guy in line who has to worry about cashing them.”  Leaving those existing Singapore $10,000 notes in circulation will no doubt create a similar situation in Asia.

So where will criminals turn now if they want to carry their cash proceeds in a slim briefcase rather than a bulky holdall?  There are various commemorative notes issued with large values, such as the 500,000 baht note (worth about £9,190) issued in 2000 to celebrate the 50th wedding anniversary of King Bhumipol Adulyadej and Queen Sirikit – but criminals would not be interested in such memorable notes, which would draw unwanted attention to them.  But in general circulation Singapore still has a $1,000 note (worth about £475).  Switzerland has a CHF 1,000 note (about £650).  And Brunei has a $10,000 note (about £4,650).  Of course it does.

Posted in AML, Money laundering | Tagged , , , , , , , , , | 6 Comments

Dedicated followers of fashion

As regular readers will know, I have been working in AML for several hundred years.  I wish I could claim oracular levels of prescience in my selection of career, but the truth is that I chose to devote myself to AML because (a) it’s fascinating, and (b) it’s really, really wrong that criminals profit from crime.  But fate has smiled on me, and money laundering is now more popular (you know what I mean) than ever.

In fact, I would go even further: I think money laundering is currently in fashion.  We’ve had stiff competition from bribery and corruption, and sanctions came into favour for a little while (rather like flowery wellies during festival season), but it seems that money laundering is still the hot ticket.  We can tell this from how often – and where – it appears in headlines.  Last week, for instance, this story appeared on the BBC.  It concerned former UKIP MEP Nikki Sinclaire, who was charged with “making false and dishonest submissions for travelling expenses and transferring the proceeds of fraud through a bank account”.  The sub-editors had an embarrassment of riches: UKIP, expulsion from UKIP, political snout in the trough, etc.  But what was the headline they devised?  “Ex-MEP Nikki Sinclaire charged with money laundering and misconduct”.  Even more interesting, the article does not go on to define or explain money laundering – the assumption is that everyone (or at least, everyone who reads the BBC website) knows what it is.  MLROs, we’ve gone mainstream – we’re a wardrobe staple: we’re the the crisp, white, tailored shirt of crimes.

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Getting away with it – but no longer

I am just coming to the end of my month-long writing retreat, working on the sequel to last year’s historical financial crime novel “Fatal Forgery” – first draft completed, so big hurrah!  (BTW, I’m still dithering about the title for the new novel – I’m running a little poll on my writing blog, so if you’ve a mind to, please take a look and cast your vote.)  I don’t want to give anything away about the plot, but one element of it is the forfeiture of criminal assets – or rather, the lack of it – in 1825.  And, like hot water and triple packs of Jaffa Cakes, I think we today are so used to forfeiture (both criminal and its younger cousin civil) that we overlook quite how fantastic it is.

Imagine, if you will, life without forfeiture *swirly dissolving of background*.  After years of painstaking investigation, the police finally arrest a big-time criminal, Mr Smug.  He has spent years involved in all sorts of criminality, from drug trafficking to pimping, from extortion to murder.  During this time he has amassed quite a fortune – and quite a reputation for ruthlessness.  Despite the best efforts of the police, they cannot find a single person who will testify against Mr Smug, who has put out the word that any such testimony would be seriously detrimental to one’s health.  However, the evidence is strong, and Mr Smug is eventually convicted on a couple of charges and sentenced to five years.  While inside, his connections and his ability to bribe people ensure that life is bearable (think Grouty in “Porridge”).  Two years later Mr Smug is out – and there’s his money, sitting waiting for him.  Like, bummer.  So *unswirl* thank heavens for forfeiture.  As I say, they didn’t have it in 1825, so I have had to think of something else (fiendish cackle), but it is wonderfully gratifying to know that in 2014, Curtis Warren is spending a decade in prison because he refused to hand over his ill-gotten gains and (even more fiendish cackle – I’m getting good at this) he still owes the court £198 million.

Posted in Money laundering, Organised crime | Tagged , , , , , , , , | 7 Comments

Tipping point for tipping off?

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.

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Fanfare for the FATF

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.

Posted in AML, Money laundering | Tagged , , , , , , | 2 Comments

Charlie, Audrey – and Gulnara

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 , , , , , , , , , | 2 Comments

Calling time out on AML outsourcing?

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?

Posted in AML, Due diligence, Money laundering | Tagged , , , , , | 4 Comments

Beating a (short) retreat

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.

Posted in Money laundering, Publications | Tagged , , , , , | 5 Comments

Baby Bitcoin steps

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 , , , , , , , , | 2 Comments