A couple of days ago I received an interesting little update from the National Crime Agency, explaining their policy on publicising arrests. As regular readers may have gathered, I don’t spend a lot of time worrying about the sensibilities and hurt feelings of money launderers, but even I will agree that it is perhaps not quite cricket to name and shame someone simply because they have been arrested on suspicion of money laundering. (And yes, I do realise that the NCA does other things apart from investigate money laundering – but why they would bother, when ML is quite the most fascinating and important crime ever, is beyond me.) So it is both helpful to read the NCA policy, and intriguing to wonder why they have felt the need to publicise it just at this moment. (Come on: you’d be disappointed if I wasn’t always suspicious about these things.)
According to an NCA spokesman: “We consider publishing the details of arrests in every instance, and on a case by case basis, but it is not appropriate or practical to publicise every single one. Decisions involve multiple considerations, for example balancing transparency with the need to preserve operational integrity or protect vulnerable people. We also need to consider the right to a fair trial and the risk of jeopardising a prosecution in the event that charges are brought. An individual who has not been charged, and may still be released without charge, should reasonably expect to have their details made public only when law enforcement has the evidence to bring charges against them… We do have discretion to name on arrest but there must be a sound justification to do so, for example it is not uncommon for individuals to be named where there is a threat to life.”
It is something I have wrestled with myself – no mean physical feat, but when you are a one-person business, that will happen. On the Latest news page of my website (and on my @susangrossey Twitter feed) I try to put links to current money laundering stories. And I have had to decide my own cut-off point: do I links to stories about money laundering arrests, or only convictions, or only sentences? In the end, I decided on a compromise, and now I am happy to link to stories about people being charged with money laundering – on the “no smoke” premise. Also, I think that once someone has been charged, it is an accepted fact in the legal system – there is now a charge on record. Of course, if someone is later acquitted, I try to include that story as well, although it is rarer than you might imagine. I think that the prosecuting authorities – wary themselves of bad publicity – are particularly careful about having their evidential ducks in a row before even bringing a charge of money laundering.
Posted in Due diligence, Legislation, Money laundering
Tagged legislation, due diligence, money laundering, disclosure, financial crime, government, suspicion, research, National Crime Agency, NCA
There are many reports that come across my desk and are of the “read once and file” quality. Others seem to become more and more relevant and pertinent as time goes on, with each re-reading offers more material. One such (and this might surprise you) is the UK Home Office’s “Serious and Organised Crime Strategy“. Published in October 2013, this has been quoted in pretty much every training session I have done since then. And one of its warnings has been proven sadly prescient this week.
In its section on money laundering, the SOCS (that’s rather jazzy – I wonder if the Home Office people call it that, or perhaps the HOSOCS) warns that “complicit, negligent or unwitting professionals in the financial, accountancy and legal professions in the UK facilitate money laundering on behalf of organised criminals”. This sounds a bit pat – it’s a familiar warning, after all, and the reasoning behind drawing lawyers and accountants into the AML family – but a recent news story has shown that it is only too true. At the end of February, three men in Northern Ireland were jailed for their parts in a mortgage fraud and money laundering operation: a former banker, a former solicitor and a former estate agent. (It sounds like the start of a dull joke, or characters in a city-themed edition of Cluedo, but it’s true. And it is not made clear whether they were former professionals even before the investigation, or became former afterwards, if you follow.) In short, the three colluded to make false mortgage applications on eight properties, defrauding banks of more than £3 million, using false identities and front companies to carry out the fraud and launder the proceeds. Their position as professionals was key to their “success”; as Detective Chief Inspector Todd Clements of the Police Service of Northern Ireland’s Organised Crime Branch said, “Each defendant used their respective positions of trust to obtain loans to buy land or properties… These were sophisticated and well-planned frauds which involved serious breaches of trust.”
I talked in a recent post about the new UK sentencing guidelines for corporate offences of fraud, bribery and money laundering. One of the main aggravating features for financial crimes is “offence committed by someone in a position of trust” – this can include the supermarket cashier who steals from the till, or the home careworker who steals from her charge’s purse. And – quite rightly – this standard is applied even more fiercely to those who make a profession (the word is applied with care, to limited jobs) out of being trusted.
Back in November 2012, the campaigning organisation Action Fraud garnered some excellent headlines for its research by revealing that the people most likely to fall for investment scams are over-confident men aged between 36 and 55. Although there are still the heart-rending stories of ruthless criminals targeting vulnerable elderly people (as in this recent story, when police had to threaten to arrest a retired Yorkshire couple for money laundering in order to prevent them sending yet more money to fraudsters), it was salutary to learn that even those whom we imagine might be best equipped to assess risk can be misled.
And then we have today’s top news story: the crackdown leading to 110 arrests (including twenty in the UK) of those running boiler-room frauds in the UK and Spain. Apparently “there are 850 confirmed victims of the gangs in the UK, but the real figure is likely to be in the ‘multi-thousands’”. As is often the sad case, many of those victims will never come forward, too ashamed to admit to the police, their families or perhaps even themselves that they have been conned. Operation Rico, as it has been named, is already bearing fruit: the BBC report shows pictures of luxury cars being towed away from the homes of those arrested.
From our AML perspective, it is interesting (although not surprising) to read that “each boiler room network is believed to have an accountant, money launderer and lawyer” as well as legions of sales staff. We have seen some success in pursuing these corrupt enablers before: in April 2012 Michael McInerney was jailed for 4½ years for laundering the £28 million proceeds of a syndicate of boiler-rooms. (McInerney opened bank accounts for companies that were allegedly to be used for property management, and transferred criminal proceeds into those accounts. He also registered companies in the British Virgin Islands, Anguilla and Gibraltar, opened accounts for them in Jersey and Malta, moved money to those accounts, and then distributed it to accounts in Hong Kong, Dubai, Canada, Lithuania, Spain, Switzerland, Slovakia and Austria.) Here’s hoping that financial investigators get them this time too. And you middle-aged men out there: stay safe.
A client recently asked me to include in their training for front-office staff a comforting reminder about SARs. Comforting? Well, they wanted their staff to know that the subject of a SAR will never know who dobbed them in, and that consequently the staff did not need to be afraid of making a SAR. Moreover, they wanted to remind their staff that you should not allow yourself to be bullied by clients into not asking – or pursuing – due diligence questions, or into accepting sub-standard documents, or indeed to be bullied by colleagues into making or not making a SAR. I was very happy to do this, of course, and I hope that I have managed to give those staff the reassurance and encouragement they need to fulfil their contractual and legal obligations to undertake due diligence and to report suspicions.
But now I am thinking more about the vulnerability of staff – perhaps in particular the more junior, less experienced, less worldly-wise ones – who work under the AML regime. I know that customers can sometimes cut up a bit chippy when you ask for documents (“I’ve been a customer of this bank for years – how dare you….” and so on), but perhaps it sometimes goes further than that, and we need to make sure that staff are aware that they can be a target (and that they know where to go for help if it happens).
Just recently Larry Fuentes of Oregon was sent to prison for nearly six years for money laundering the proceeds of his drug trafficking. He used his girlfriend Janelle Fuston to help him launder the US$120,000: “Fuston, an employee with First Tech Federal Credit Union, would take the money from Fuentes and deposit it into multiple accounts under her name.” Fuston pleaded guilty to money laundering and was sentenced to five years of probation and 200 hours of community service. She was also fired from her job at First Tech, and her plea agreement provides that she is prohibited from working in the financial industry for ten years. So life is a bit tough for Janelle now. Reading around the story, it turns out that Fuston became involved only because of Fuentes’s “demands and influence”, and that he continued harassing her after they had been charged and were no longer an item, trying to persuade her not to co-operate with the authorities. I have always said that someone on the inside of a financial institution is worth their weight in gold to a money launderer, and we need to make sure that staff are aware that they might be seduced by someone who is interested not in their sparkling personality but in their day job.
Ah, you’ve got to love the Queen of Hearts and her unique grasp on judicial process. Some months ago I mentioned that I had responded to a consultation by the UK’s Sentencing Council on proposed guidelines for corporate offences of fraud, bribery and money laundering. In the manner of a caterpillar turning into a butterfly, those guidelines have now been published. It’s not quite “Off with their heads!” (more’s the pity, I hear you mutter) but let’s have a look anyway.
As a magistrate I am reasonably familiar with the structure of sentencing guidelines, and in recent years they have been going through a rolling programme of update and restructuring. In short, they are being organised as a series of steps that the sentencing bench works through in strict order – and in this case, there are ten steps to reaching the appropriate sentence for a corporate offence of fraud, bribery or money laundering:
- Compensation for “any personal injury, loss or damage resulting from the offence”
- Determining the offence category by weighing up the level of culpability and the level of harm – as these are all financial crimes, harm will be the “amount obtained or intended to be obtained (or loss avoided or intended to be avoided)“. For money laundering specifically, “the appropriate figure will normally be the amount laundered or, alternatively, the likely cost avoided by failing to put in place an effective anti-money laundering programme if this is higher”. For all offences, “in the absence of sufficient evidence of the amount that was likely to be obtained, 10-20% of the relevant revenue may be an appropriate measure“.
- Starting point and category range: “The harm figure at step three is multiplied by the relevant percentage figure representing culpability” and then adjusted within the category range for aggravating or mitigating factors – giving a result of anything between 20% and 400% of the original harm figure
- Adjustment of fine: at this point, “the court should ‘step back’ and consider the overall effect of its orders. The combination of orders made, compensation, confiscation and fine ought to achieve: the removal of all gain; appropriate additional punishment; and deterrence.”
- Consider factors that might reduce the sentence, e.g. assistance given to the prosecution
- Reduction for guilty pleas
- Any ancillary orders, e.g. costs
- Totality principle – if sentencing for more than one offence, is the total sentence “just and proportionate to the offending behaviour”
- Reasons – the court is required to “give reasons for, and explain the effect of, the sentence“
It will be fascinating to watch the first sentencing exercises under this new regime – it will certainly keep the forensic accountants busy, trying to prove/disprove the numbers suggested. And they should remember to curtsy while they’re thinking – it saves time, according to the Queen of Hearts.
Posted in AML, Bribery and corruption, Legislation, Money laundering
Tagged AML, bribery, financial crime, fraud, government, legislation, money laundering, non-executive directors, proceeds of crime
Sometimes I don’t know my own strength. There was that time I stamped on a box of After Eights in frustration at not being able to peel off the easy-peel cellophane. And now the US government has hupped-to at my command. It was a mere three weeks ago when I suggested that it might be a good idea to issue some guidelines for banks on dealing with customers who are, well, dealing in drugs in a totally legal sense – and lo! here they are. (Well, to be fair US Attorney General Eric Holder did announce on 23 January 2014 that his government would soon issue regulations – but even I am surprised by the speed of the response.)
So on 14 February 2014, FinCEN issued guidance clarifying CDD expectations and reporting requirements for financial institutions seeking to provide services to marijuana businesses. Entitled “BSA Expectations Regarding Marijuana-Related Businesses“, the guidelines (in the manner beloved of Sybil Fawlty) really state the bleedin’ obvious when it comes to CDD obligations: “In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct CDD that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business; (iii) requesting from state licensing and enforcement authorities available information about the business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.” All predictable – but time-consuming, and this alone might means that banks and others decide that marijuana businesses are just not worth the effort.
Things get really interesting when it comes to the reporting obligations: “The obligation to file a SAR is unaffected by any state law that legalizes marijuana-related activity…. Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, a financial institution is required to file a SAR on activity involving a marijuana-related business (including those duly licensed under state law), in accordance with this guidance and FinCEN’s suspicious activity reporting requirements and related thresholds.” Ah. But then: “A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, [is otherwise OK] should file a ‘Marijuana Limited’ SAR. The content of this SAR should be limited to the following information: (i) identifying information of the subject and related parties; (ii) addresses of the subject and related parties; (iii) the fact that the filing institution is filing the SAR solely because the subject is engaged in a marijuana-related business; and (iv) the fact that no additional suspicious activity has been identified. Financial institutions should use the term ‘MARIJUANA LIMITED’ in the narrative section.”
But what if you think that the marijuana business is in fact doing something wrong? Well, then: “[You] should file a ‘Marijuana Priority’ SAR. The content of this SAR should include comprehensive detail in accordance with existing regulations and guidance. Details particularly relevant to law enforcement in this context include: (i) identifying information of the subject and related parties; (ii) addresses of the subject and related parties; (iii) details regarding the enforcement priorities the financial institution believes have been implicated; and (iv) dates, amounts, and other relevant details of financial transactions involved in the suspicious activity. Financial institutions should use the term ‘MARIJUANA PRIORITY’ in the narrative section to help law enforcement distinguish these SARs.”
The guidelines also offer several red flags to help US financial institutions distinguish between good and bad marijuana business activity – which should make for some very entertaining AML training updates. They may even provide product samples – I bet that would get people signing up. But the guidelines have yet to take root (boom boom!) and US banks are still wary, as reported here by the BBC.
This year marks the 75th birthday of a concept that is central to those of us engaged in AML endeavours: white collar crime. On 27 December 1939, American sociologist Edwin Sutherland gave a speech to the American Sociological Association, of which he had just been elected president, and he called it “The White Collar Criminal”. It was published as a paper in 1940, and you can read the full text here. (I recommend it; you’ve got to like a man who quotes railroad president A B Stickney’s comment to sixteen other railroad presidents that “I have the utmost respect for you gentlemen individually, but as railroad presidents I wouldn’t trust you with my watch out of my sight.”)
In essence, Sutherland scorned traditional theories of crime which blamed poverty, broken homes and disturbed personalities. He noted that many of the law breakers in business were wealthy, from happy family backgrounds, and all too mentally sound. And he defined white collar crime as “a crime committed by a person of respectability and high social status in the course of his occupation”. After ten years of further research, Sutherland published his elaborated theory in a book entitled “White Collar Crime”, in which he documented in detail the crimes perpetrated by America’s seventy largest private companies and fifteen public utility corporations. However, his publisher insisted that all references to the companies by name be deleted for fear of libel suits, and it was not until 1983 (1983!) that the uncensored version of the book was published.
So let us raise a glass to the man who dared to speak out, and to the radical concept that he popularised: that the most successful financial criminals are usually armed with briefcases and charm rather than swag bags and cudgels.
You know how I like to mark all the major festivals (Administrative Professionals’ Day and International Mother Language Day are obvious highlights), so it would be remiss of me to let today pass without talking about lurve. And specifically, of course, lurve and laundering. There are no depths to which fraudsters will not stoop to part the innocent from their money, and they are joined down there in the mire by launderers who dupe people into helping them. Yes, “romance fraud” is on the increase.
A typical victim is Jill, who tells her story on the worryingly entertaining website Hoax-Slayer (“Debunking email hoaxes and exposing Internet scams since 2003!”): “In April of 2013, I received a message on Facebook from a man named Giovanni. I hesitated to reply because I had never responded to a man online before [but] he just swept me off my feet. He was just so charming and said the most beautiful things, actually everything a woman loves to hear. We talked every day, and he told me that his wife had died of breast cancer and that he had a daughter, Jennifer, who was 13 years old [and who] was all he had and all he lived for until he met me. He told me that his daughter needed a mother figure in her life, and I was so excited because I wasn’t able to ever have children. Our conversations went on for about two months and then I got a phone call from him one day telling me that him and his daughter were stuck in China because they had gotten beat up and robbed the night before and he needed some money to pay for the hospital bills because Jennifer was hurt badly. I told him I didn’t have any money to send, and I wouldn’t send it if I did. I do not give men money especially a man I have never met in person. That didn’t stop him from sending me emails and messages online, so like a fool, I thought he really cared for me. He would tell me how much in love he was with me and that when he returned to the US he wanted us to be together forever. This went on for six months. He now said he was in Malaysia and that he would have women send me money to send to him so he could come back home to the States. The last straw for me was when he had someone send me a fraudulent cheque for $5,890 and told me to deposit it into my account and withdraw the money and send it to him by Western Union. I wasn’t about to deposit it into my account so I took it to the same bank the cheque was written on, and they told me it was fraudulent so I told them to keep it and send it to their fraud department, which they did.”
Jill was lucky in that she didn’t actually send any money to Giovanni Il Rospo (that’s Italian for toad), or indeed help him to launder the proceeds of who knows what criminality. But she was emotionally abused and led a merry dance; as she says: “He ended up truly breaking my heart, so much so that I am leery of any relationship now – I am so very embarrassed that a woman of my age was so easily duped.” And many, many other people (many more I suspect than will ever report their experience) do send money or launder funds for other Giovannis. So as you tuck into your oysters and chocolates tonight, watch out for those rospos – the slimy little devils are everywhere. Baci!
Posted in AML, Fraud, Money laundering, Organised crime
Tagged AML, due diligence, financial crime, fraud, money laundering, organised crime, proceeds of crime, suspicion, white collar crime
Some years ago, I designed a money laundering simulation game called WhiteWash. It was a card-based game for use in training sessions. In essence, I divided people into groups, gave them a set of cards (featuring jurisdictions, institutions and people) and a theoretical million pounds, and pitted them against each other to assemble the most successful money laundering scheme (i.e. the one in which they spent the least and retained the most). In the innocent days before Angry Birds and Grand Theft Auto, it was well-received and, frankly, a lot of fun both to play and to oversee. I took it to a leading bank, to see if they were interested in sponsoring its conversion into a commercial game, and I contacted various games companies myself, but no dice (or counters or cards, for that matter). With the great help of a chap in Guernsey with a technical compliance background I managed to put it online, but not many places subscribed – apparently the fun comes from working in a group, not alone at your desk.
So I was very interested when someone on Twitter directed me to the Keno Laundromat. This seems to take a similar idea of giving people a set of components to organise into a laundering scheme. The components are randomly generated by the computer of the Criminal Genius (the person behind the thing) and he then has fifteen minutes to research them and assemble them into a laundering set-up, which he shares with his readers. And you can play along too: discipline yourself just to read the components, then set your stopwatch and off you go. You can then read his scheme and see how it compares to yours. He says it’s going to be a weekly feature, but there’s been nothing since the end of January, so maybe he’s lost interest (or perhaps stumbled on a scheme that pays much, much more than being a Criminal Genius). But it’s quite a good fun idea, and something that the MLRO could replicate as a little quiz feature in a newsletter. (And in case you’re now Outraged of Milton Keynes, remember that the whole point is to put yourself in the shoes of a criminal, with a view to understanding his tricksy thought processes, so that you can be better at spotting him in the future.)
I wrote about the underestimated dangers of counterfeiting just before Christmas, and the topic has once again been under discussion in Grossey Mansions. On a recent episode of “Fake or Fortune?” (which I watch avidly, as Fiona Bruce has my life, not to mention my height and my cheekbones), a painting believed to be by Marc Chagall was declared a fake, and the Chagall Foundation in Paris announced that, as permitted (or, as they have it, as required) under French law, they will be destroying it. The owner, who paid £100,000 for the painting when its provenance was uncertain, has appealed to have it returned to him as he likes it anyway, and says that they can stamp “Fake” on the back if they wish, to prevent it ever being passed on as genuine. (Personally I would advise “Shamgall”, but no-one has suggested it, not even Fiona.)
I’m in two minds about this. Counterfeiting is of course a crime – and a bad one, as I have argued many times in the past. And if there were any chance of this painting re-entering the art market as a genuine Chagall, then I would support its destruction. But it’s been all over the news; London’s leading art experts have made enquiries about it everywhere and presumably put the world’s art dealers on alert; and with that stamp on the back (come on, Shamgall’s got to work) then it’s never going to be believed again, is it? And the owner has had it for two decades, he paid a lot of money for it, there’s an empty space on the wall in his hall, and he’d like the nude lady back.
But what really worries me about it is the message this sends out about voicing your concerns. If art owners fear that questioning the legitimacy of their purchases could lead to the destruction of those artworks (with no compensation), then – to be frank – they would be mad to make any enquiries at all. The smart owner will just squash his own suspicions, keep quiet and hope for the best. And this is precisely what criminals hope we will all do when that little note of unease creeps into our minds.
Posted in AML, Money laundering
Tagged AML, counterfeit, counterfeiting, due diligence, financial crime, ML Regulations, money laundering, organised crime, research, suspicion, white collar crime