Goldilocks and guidance

As regular readers will know, I am most active in five jurisdictions: UK, Guernsey, Jersey, the Isle of Man and Gibraltar.  I can – and do – work in other places, but I feel most comfortable when I know the local (AML) legislation almost by heart, and can talk with some confidence about the priorities and concerns of the local regulator and the local FIU.  You might think that my set of five jurisdictions is, in AML terms, all but indistinguishable one from the other.  Certainly they all have UK (and therefore EU) derived AML legislation and (for the most part) appetites, but there are significant differences despite that.  And one of the most individual things about each of them is their AML guidance.

One of the services I offer is the writing of AML policies and procedures.  I love doing it, because I enjoy crafting clear and helpful prose, and because I relish the puzzle of fitting a firm’s distinctive AML approach with the local legislative and regulatory demands.  And in my dizzier moments I dream of being asked to help with the drafting of a jurisdiction’s AML guidance.  I know it will never happen – as an independent, commercial provider, I do not represent any of the professional bodies that are traditionally asked to contribute.  But how I would love to get my red pen onto those A4 folders…

Surprisingly – to me, at least – there has been no model set of AML guidance produced.  No one jurisdiction has done it so well that all the others have closed their laptops, capped their pens and said, “We might as well just copy theirs and localise it” (with permission, of course).  And even across “my” little set of five quite closely connected jurisdictions, I see huge differences in their guidance.  Some are wordy beyond belief, while others are sparing to the point of uncertainty.  Some come in many flavours across the regulated sector, while others offer one set for all.  Some are regularly and carefully updated, while others simply tack new bits on the end and hope that people can navigate to them.  It’s like those three bears and their porridge.  I read them all, of course (sets of guidance, not bears), and always offer my opinion when they go out to consultation (some do, some don’t).  And in my training, I am not above saying, “Look, this isn’t your guidance at all, but I think they say it best here.”

Posted in AML, Due diligence | Tagged , , , , , , , | Leave a comment

Cash tales from the Raj

I am often asked whether what we are doing in the world of AML – namely due diligence, record-keeping, staff training and reporting of suspicions – is actually having a positive impact.  I’ve mulled on this before, and no doubt will again, but occasionally someone tries something completely out of left field (as they say in some sport or another – please don’t write in) to tackle the problem.  And on the evening of 8 November 2016, that someone was Narendra Modi, the PM of India.  Seemingly to the surprise of everyone else in the world, he announced that the largest denomination banknotes circulating in his country – worth 500 and 1,000 rupees [now about £5.80 and £11.60 respectively, as the rupee has plummeted in value] – would cease to be legal tender within four hours, and after that could be paid into banks and post offices only up until 30 December 2016.  The plan is to foil corruption and other crimes, by rendering worthless stashes of undeclared income and other criminal cash, before issuing newly-designed 500 and 2,000 rupee notes sometime soon (this is taking longer than anticipated, even with mints working at full stretch).

But the impact has been huge; according to India’s central bank in March 2016, over 86% of the value of all rupee notes in circulation in India was held in those 500 and 1,000 rupee notes.  The recall – if everyone comes forward with their notes – will bring in twenty billion banknotes, which will be quite a security destruction challenge.  In order not to tip off anyone who might take advantage by moving their cash around, even the banks weren’t warned in advance, and they have struggled to supply enough cash in other, smaller denominations, producing enormous queues at branches around the country.  There is a public education requirement: at the moment, 90% of India’s transactions are in cash, and many – most – Indians do not have a bank account.  Mr Modi has called on his people to embrace digital payments, but many doubt that the systems could cope – or that you can force people to trust something of which they know so little.

So the next time that someone suggests that insisting on asking questions about, for instance, source of funds is too intrusive and a step too far, I shall simply raise an eyebrow and ask whether the UK government should simply declare £10 and £20 notes no longer to be legal tender after lunch.

Posted in AML, Bribery and corruption, Money laundering | Tagged , , , , , , , , , | Leave a comment

It pays to check

Last week I watched a programme called “What Britain Earns with Mary Portas”.  Although the title suggests that this was a limited look at the earnings of people who are in business with Mary Portas, it was in fact a game attempt to get people to ‘fess up to their salaries.  Some were more forthcoming than others – Ms Portas herself was rather coy about her own remuneration – but from a CDD perspective, it did raise an interesting issue.

When a regulated business takes on a client – an individual client – one of the due diligence questions that will almost certainly arise is the client’s occupation and salary.  And the regulated business is expected to be able to assess whether the two match – and indeed whether they continue to match over, perhaps, years of a developing financial relationship.  But do we all know what is the average salary for, say, a primary school teacher, or a midwife, or a trainee accountant?  What should the manager of a large branch of Boots be earning, or a small branch of The Body Shop?  How about a senior pilot, or a mid-ranking policeman?  Added to that, it seems that the location where the job is done has a significant influence on the salary – and indeed, at the other end of things, on the cost of living.  The average London salary, for instance, is almost twice the national average.  And then there’s the gender gap.  And that’s before you start to think internationally.

In short, keeping up with all of this is probably an (averagely-remunerated) job for several people.  But for the regulated sector, it might be wise to do occasional checks on the avowed salaries declared by clients – just in case.

Posted in AML, Due diligence | Tagged , , , , , , | Leave a comment

Paying the piper

On 16 November 2016, the UK government’s Home Affairs Select Committee concluded its examination of the UK’s proceeds of crime regime by publishing the government response to the fifth report of the committee in the form of an appendix to that report.  (I know, I know, but as I read it, this is the end of the matter and contains the final word on which will be done with regard to proceeds of crime.)  There’s plenty of meat in the appendix, but one teeny little thing did catch my eye.

One of the issues raised, discussed, considered and then pronounced upon by the committee is that of SARs and – specifically – the suitability or otherwise of ELMER (the National Crime Agency’s SAR database, named after Elmer Irey, the IRS agent who led the successful tax evasion prosecution of Al Capone).  Evidence given to the committee confirmed that ELMER “is heavily overloaded and therefore rendered completely ineffective”.  The solution, naturally, is to “replace ELMER with a robust system for handling Suspicious Activity Reports”, and moreover to “involve those who actually use the SARs system to make reports – as well as those charged with investigating at the other end – in designing the replacement to ELMER”.  So far, so sensible.  But then this little comment is made: “The Government has committed to replacing the SARs IT system, and considers that those who will benefit from the new IT system should share the costs for developing it.”

Now, I am battling a rather nasty cold today and my head may be fuzzier than usual, but do they mean us?  The regulated sector?  Or do they mean the police forces?  Or the foreign FIUs?  Or the general public – as surely the reduction of instances of money laundering will be beneficial to all?  If anyone knows exactly what is meant by “those who will benefit from the new IT system”, please leave an explanatory comment, as my piggy bank and I are rather worried about it.

Posted in AML, Money laundering | Tagged , , , , , , | Leave a comment

Knowing when to know

After a recent training visit to Gibraltar, I was sitting in the departure lounge at the airport.  A woman sat down next to me and – seeing me not reading and assuming that I wanted to chat (actually, I was simply too tired to do much at all) – she asked why I had been in Gib.  Usually I am a bit more savvy and don’t mention the words “money laundering”, otherwise people bend my ear about how unfair it all is when the bank they have been with since Noah launched the ark has asked for a copy of their passport.  But this time – tired, as I say – I let it slip.  “Ah yes,” she said, nodding sagely, “I know all about that, because I used to be an accountant.  Retired now, but I know it’s all much tougher than it used to be.”  I smiled, relieved – I’d got away with it, I thought.  “I’m always having to changes euros into sterling when I visit Gib,” she continued, “but I use the same place every time and although the manager alters the due diligence threshold all the time, the staff know me and tip me the wink so that I can pay in just under it and don’t have to go through the identity rigmarole.”

Thankfully our flight was called at this point, and she trotted off to her priority boarding queue while I didn’t.  As you can imagine, my initial reaction was to rear back (mentally, I mean – too tired to move physically) in revulsion at this idea – that the staff of a bureau de change would warn favoured customers about changing CDD procedures so that they can avoid hassles around verification.  But then I thought about it a bit more, and I wondered whether – in pure crime prevention terms – it really matters.  The point is that the staff in this place know the retired accountant – and presumably would spot any unexplained changes in her pattern of transactions.  What they wouldn’t spot, of course, is any change in her identity information – but they still know her by sight, which is the main purpose of gathering clients’ photographic ID.  Bypassing of internal CDD procedures is not good practice for the firm, and they might come unstuck during a regulatory inspection – or indeed a criminal investigation – but (again, purely from the perspective of preventing money laundering) is it better for this customer to return to the same place every time, where she is known, than for her to be alienated by their procedures and go elsewhere where she is not known?

I have learned one thing, however: when sitting alone, always, but always, hold a book and look really engrossed in it.

Posted in AML, Due diligence | Tagged , , , | Leave a comment

Anna Karenina and the assault rifle

PEPs = high risk = EDD.  But why?  The short answer is corruption: anyone with access to public influence and/or public money will be a target for criminals who want to gain that access for themselves.  Of course, the majority of PEPs – perhaps, on a good day, the vast majority – are perfectly decent, honest, law-abiding people.  And one of the ways to get them to demonstrate this is to ask them to declare their assets, along with an explanation of how they acquired them.  After all, some PEPs come from wealthy families, and some have successful and lucrative careers before they turn to public service.  But others…

Ukraine decided to tackle this and, as part of an IMF-backed anti-corruption drive, required all of its senior public officials to make an online declaration (to a publicly searchable database) of their 2015 assets and income by 30 October 2016.  Eye-opening doesn’t begin to describe the results, in a country where the average salary is just over $200 per month.  Prime Minister Voldymyr Groysman revealed that he and his wife had a total of US$1.2 million and 460,000 euros in cash and a collection of luxury watches.  Brothers Bohdan and Yaroslav Dubnevych – close associates of President Petro Poroshenko – have over $26 million, also in cash only.  Justice Minister Pavlo Petrenko, who declared $1 million in a bank account and a further $500,000 in cash, said his colleagues’ preference for cash was due to a mistrust in banks: “Of course to EU countries it seems uncivilised that people hold cash.  But it is linked to the fact that the banking system could, let’s say, be doing better.  This is a problem for many Ukrainians who lost their savings in the bank.”

The people of Ukraine have been astonished by the lavish lifestyle of their leaders.  Vitaliy Shabunin, head of the non-governmental Anti-Corruption Action Centre (ACAC), said: “We did not expect that this would be such a widespread phenomenon among state officials.  I can’t imagine there is a European politician who invests money in a wine collection where one bottle costs over $10,000.”  He was referring to opposition lawmaker Mikhail Dobkin, who declared 1,780 bottles of wine and an antique edition of “Anna Karenina” worth at least $5,500.  Roman Nasirov, head of the State Fiscal Service, coughed to Swiss watches, diamond jewellery, fur coats, fine porcelain, crystal glassware, an assault rifle, and cash in euros and dollars worth $2.2 million.  Oleh Lyashko, the head of the populist Radical party who has styled himself as a representative of the common man, admitted to having over $1 million in cash.  The ACAC says it will now start verifying the declarations but, with over 100,000 forms submitted, and source of wealth enquiries being what they are, it may take some time.

Posted in AML, Bribery and corruption | Tagged , , , , , , , | 4 Comments

Don Donald?

I’m not going to hide it from you: I’m devastated by the Trump win.  Devastated and not a little scared.  I’m no fan of career politicians – I’d rather people did a proper job before turning to public service – but far worse is someone who lands the top political role in the world with absolutely no political experience.  Even Ronnie “Dutch” Reagan had been governor of California for eight years before he landed in the White House.  President Trump’s views on almost everything are well known – I wonder if the man ever had a view without expressing it – and so I have tried to uncover what we can expect from the Donald when it comes to financial crime (preventing rather than committing, I should make clear).  Although…

In March 2015, the Trump Taj Mahal Casino Resort in Las Vegas was fined US$10 million by FinCEN (the American FIU) for “wilful and repeated violations of the Bank Secrecy Act”, including failings around suspicion reporting and record-keeping.  It wasn’t the first time: “In 1998, FinCEN assessed a $477,700 civil money penalty against Trump Taj Mahal for currency transaction reporting violations.”

On 19 October 2016, the Financial Times revealed that their investigation “has found evidence that one Trump venture has multiple ties to an alleged international money laundering network.  Title deeds, bank records and correspondence show that a Kazakh family accused of laundering hundreds of millions of stolen dollars bought luxury apartments in a Manhattan tower part-owned by Mr Trump and embarked on major business ventures with one of the tycoon’s partners.”

So what does a man with a less than blameless financial past plan to do about financial crime and money laundering?  On 5 April 2016, he sent a two-page memo to the Washington Post explaining that he would amend section 326 (KYC provisions) of the USA Patriot Act in order to force Mexico to pay for a border wall by threatening to cut off billions of dollars in money transfers that Mexicans who are living in the US send home.  The memo explains: “[Mexico] receives $24 billion in remittances from Mexican nationals working the United States.”  His cunning plan is to cut off some of the money Mexico receives through wire transfers by amending the Patriot Act so that a transfer cannot be made until “the alien first provides a document establishing his lawful presence in the United States”.  But if Mexico agrees to make a one-time payment of up to $10 billion for the border wall, the amendment won’t be made.  The memo even has a brief timeline: on day one, announce the proposed rule change to the Patriot Act; on day two, Mexico “will immediately protest”; and on day three, say that if they pay for the wall, the change won’t be made.  It can’t fail, according to Mr Trump, because “we have the moral high ground here, and all the leverage”.

Wake me up in January 2021.

Posted in AML, Bribery and corruption, Money laundering | Tagged , , , , , , , , , , | Leave a comment

Diamond geezers

I have been working in AML now for, well, let’s just say more than two decades.  People often ask whether I find it boring, and I can perfectly honestly say that I don’t.  And for that, I have to thank the criminals – endlessly imaginative and devious as they are.  They are always thinking of new ways to launder their money, and last week a particularly sparkling example of their inventiveness was highlighted, when two London diamond dealers were jailed.

Dutchman Danny Koort and his English girlfriend Jeanette Rosen ran a legitimate diamond-trading business from their home in East Finchley (north London), but spent most of their time laundering an estimated £53 million for criminal gangs.  Rosen would meet couriers in the street – including one called Andrew Russell – to collect large sums of cash.  The scheme fell apart in July 2014 when police, after watching Russell at a meeting in an Essex hotel and then at a rendezvous with Rosen, arrested him with almost £200,000 in a large holdall.  Later that year they arrested Rosen on a street in central London, carrying a bag containing almost £170,000 – searches of her office and car turned up €235,000 and £17,000 in cash, and ten pay-as-you-go mobile phones with code names written on them.  A closer look at their financial records showed that Koort and Rosen kept careful records of their laundering, using code names such as Fiat, Honda, Champagne, Cristal and Caviar to refer to customers, while at their home police found a piece of paper headed “My big friend” showing calculations for amounts in sterling and euros, with an outstanding amount of £60,100, along with a bag of counterfeit banknotes.  Koort has been jailed for eleven years, Rosen for ten and Russell for four.

I’m not terribly familiar with the diamond trade myself – one engagement ring does not a Kardashian make – but I do know that it has changed beyond recognition in recent years.  It used to be almost the definition of a closed shop, with mining, cutting and polishing, setting and then retail selling all done by a very small community, well known to each other and relatively easy to police.  But that has all changed, and if you’re not up to speed, I can highly recommend the October 2013 FATF report on this industry – it’s a real eye-opener.  Anyone buying diamonds these days must be aware of the five Cs: cut, colour, clarity, carat – and criminality.

Posted in Money laundering, Organised crime | Tagged , , , , , , | Leave a comment

Cat food, trains and money laundering

It’s amazing what public opinion can do – let’s just say George Galloway and cats, and leave it at that.  Today I was browsing a motley assortment of websites, buying cat food and train tickets, and something caught my eye: two of the sites I visited had a prominent link to their policies on modern slavery.  Here’s the one for Pets at Home, and this is Greater Anglia’s.  You can probably guess what I’m thinking: why don’t they give similar prominence to any AML policy they might have?

Now I do see that there is a difference: both of these companies are required, as they state, to abide by the obligations of the Modern Slavery Act 2015, while neither of them is (I should imagine) covered by the Money Laundering Regulations 2007.  But their staff are – along with every other adult in the UK – eligible to be prosecuted under the main money laundering offences of the Proceeds of Crime Act 2002, and moreover many of those staff will be handling money on a daily basis (either dealing with customers, or processing company accounts) and so arguably it would be wise for them to have at least considered the matter.

But perhaps it comes back to our old problem, that secretly some people rather admire financial criminals – tax evaders in particular, but also those who dream up clever investment scams and rip off rich people, and those who find a way to diddle large corporations like insurance companies.  On the other hand, I doubt there is much admiration for modern slave-traders.  No-one is going to refuse to buy cat biscuits from Pets at Home because they “have undertaken a group wide risk assessment to highlight any areas where [they] may be vulnerable to the risk of modern slavery and, where necessary, will strengthen [their] processes in the areas highlighted”.  And no-one is going to drive rather than take a Greater Anglia train because they “do not use any forced labour [and] in order to ensure the prevention of modern slavery in the supply chain, [they] review each supplier on a risk basis”.  But if a shop were to declare that “we will take immediate and merciless action against any customer who appears to be a tax evader, fraudster, shyster, trickster or scam artist of any kind”, it might be a different story.

Posted in AML, Money laundering | Tagged , , , , , , , | Leave a comment

Please hold – for six months

The Criminal Finances Bill is out, described in the Home Office press release as “legislation to tackle money laundering and corruption, recover the proceeds of crime and counter terrorist financing”.  When it was at the consultation stage, I responded – of course! – and voiced my concern at the proposed changes to the UK’s consent regime.  (Quick reminder: under UK legislation, you can submit a consent SAR to the NCA.  This triggers a period of 7 working days, during which the NCA can say yes, no or nothing.  If they say no or nothing, a further moratorium period of 31 calendar days is triggered, during which they can say yes, no or nothing – which is a tacit yes.)  And I am sorry to say that – at this bill stage anyway – my worst fears have been realised.

Under the proposed new provisions in section nine of the bill, the NCA can apply for a court order to extend the moratorium period, and they can apply for further extensions, as long as the total extensions would not “extend the period by more than 186 days (in total) beginning with the day after the end of the 31 day period”.  186 days is 26.54 weeks, or about six months.  Of course there are safeguards proposed: the court, before granting the order, must be satisfied that “an investigation is being carried out in relation to a relevant disclosure (but has not been completed), (b) the investigation is being conducted diligently and expeditiously, (c) further time is needed for conducting the investigation, and (d) it is reasonable in all the circumstances for the moratorium period to be extended”.

But still, pity the MLRO who might have to keep a customer sweet, dancing around very valid concerns about tipping off, for up to six months!  And what about the customer, who may be trying to buy a house or close a deal or make a timely investment and finds his transaction put on hold for half a year.  Surely we should be encouraging more speedy responses, not enabling such impractical delays – or perhaps it’s simply an admission that the NCA, as currently staffed and funded, cannot cope with the number of consent SARs it receives.

Posted in AML, Legislation, Money laundering | Tagged , , , , , , , , | 5 Comments