I work regularly in five jurisdictions: the UK, Guernsey, Jersey, the Isle of Man and Gibraltar. Now let’s get technical. The Bailiwick of Guernsey (actually five islands) and the Bailiwick of Jersey are jointly the Channel Islands. The Channel Islands and the Isle of Man are the three Crown Dependencies of the UK – which means that they are self-governing dependencies of the Crown, with their own directly elected legislative assemblies, their own administrative, fiscal and legal systems and their own courts of law. Gibraltar, on the other hand, is one of the fourteen British Overseas Territories – which have their own elected governments but retain the Queen as their head of state, and rely on the UK for foreign affairs and defence-related matters. I hope that’s all clear – there may be a quiz later. As for me, when asked, I call them “UK-related jurisdictions”. (In case you’re wondering why I don’t just talk about “the islands”, it’s because Gibraltar is actually an isthmus – and that’s a really hard word to say.) The term I definitely don’t use is “offshore”.
To be honest, I quite like the word “offshore” – it makes me think of sunshine and beach loungers, which is no bad thing. But sadly the word has become, if not actually pejorative, then certainly tainted. When you say that someone has their money offshore, you are hinting at the word “hidden” – when actually all it means is “not in their home jurisdiction”. All of this is on my mind because a blog reader commented to me that although journalists are quick to point the finger at “offshore tax havens”, they don’t talk about onshore ones, when we all know that London is no slouch when it comes to sneaky tax arrangements.
So although I tend to pussy-foot around the word when I am offshore myself, I might start to reclaim it – after all, it’s only a geographical observation, not a moral judgement.
For years, tax has been AML’s dirty little secret. Many’s the time an MLRO has taken me to one side just before a training session and asked, “Could you just mention, you know, just in passing, *whisper* tax to them – remind them to ask questions, but not to pry…”. And I’ve lost count of how often I have been asked – and not by junior staff, I hasten to add – whether tax evasion “counts” for money laundering. Apparently there are three main categories of activity in life: crime, non-crime, and tax matters.
But it seems that public opinion might be shifting – and where the public leads, our customers will follow, what with being part of that public. The HSBC fiasco has helped, of course: tales of the mega-rich squirrelling away their proceeds of tax evasion will always upset people. But it’s not just evasion now – it’s avoidance too that’s getting the cold shoulder. Last week a friend of a friend contacted me to say that she wanted to buy my two novels, but not from Amazon as she is boycotting them for not paying their tax as she feels they should. (I gave her links to other places – I never let a potential reader escape.) And then this story appeared on the BBC website, about rich people who are happy to pay their taxes – among them, author JK Rowling, comedians Frank Skinner and Ricky Gervais and retailer Mark Constantine (who set up niffy cosmetics chain Lush). They state variously that paying tax is a moral issue, that taking action to avoid tax is contemptible, and that tax exiles are unsavoury.
So are we reaching the point where asking customers about their tax situation will no longer be considered prying or prurient, but rather the mark of a socially-responsible organisation? Might we see one day, on client take-on forms, a requirement for applications to sign the declaration “I confirm that I have met my tax liabilities in full, in all applicable jurisdictions”? In short, in the same way as businesses now proudly flaunt their green credentials, with energy-efficient window blinds and cycle parking for staff, might they soon start to boast of their pro-tax stance?
Earlier this week, the head of the National Crime Agency, Keith Bristow, announced that his agency had entered into an information-sharing agreement with the ten largest British banks. I have tried without success to find an official press release on the NCA website, but taking as my source an article in the Evening Standard and another in the Guardian, it seems that:
- If the NCA receives a SAR from “another institution” (ES article), it will contact the ten banks concerned and they will pass on “account information” (ES article again) about the subject of the SAR – I’m not sure if the SAR-submitting institution has to be one of the ten banks party to the agreement or not
- The legal powers governing the new agreement are contained in Schedule 7 to the Crime and Courts Act 2013
- According to the ES, this Schedule gives banks (and other organisations) the legal right to disclose otherwise confidential information to the NCA to help it carry out its tasks (including the investigation of money laundering) – in other words, they can hand over the information without a court order
- This month heralds the start of a year-long pilot of the scheme.
As the ES article says, “both the NCA and the banks expect to face legal challenges as a result”. I should cocoa.
I am still deciding how I feel about this (not that it matters, of course, but these blog posts tend to contain my view on something or other). While I have a dither (I tend to support information-sharing in the battle against money laundering, but I’m wary of giving those who hate AML such good ammunition as seeing banks – not in great favour at the moment – being able to bypass the courts in deciding what information to share….), please do share your views, comments and observations. And if any of you is better at reading (well, deciphering) legislation than I am, I would be grateful if you could read that Schedule 7 and tell us how it works – I can’t seem to pinpoint quite where it says that the NCA can in effect reveal to ten banks that a SAR has been made, when SARs are supposed to be confidential.
Posted in AML, Legislation
Tagged disclosure, due diligence, financial crime, government, legislation, National Crime Agency, NCA, proceeds of crime, SARs, suspicion
For rather obvious reasons, there has been a lot of hand-wringing in the media recently over what to do with tax evaders. (I have my own rather Cromwellian ideas, but I shall keep them to myself.) There seem to be two main options: prosecute them through the criminal justice system, or penalise them as a civil matter. Those in favour of the former cite the deterrent and punitive effect, while those who support the latter point out that on average you get more money back in the end. (You may be a little confused as to why there is a choice at all, when according to UK legislation tax evasion is a criminal offence, but much as the Crown Prosecution Service can decide not to proceed with a prosecution that it deems not to be in the public interest, so HMRC can decide that a civil attack will bear more fruit than a criminal one.) As for current appetite, in a BBC story about the HSBC case, we learn that “Lin Homer, the chief executive of HMRC, has told MPs why there had been only one prosecution of someone whose hidden accounts in Switzerland had been revealed… Most of the information leaked in 2010, which involved about 3,600 UK individuals, was incomplete or ‘dirty’ data. 3,200 individuals had been traced and, of the 1,100 most serious cases – which HMRC had chosen to pursue – only 130 were now outstanding. From the rest of those cases, £135 million had been recovered. Two-thirds of the total group of UK-based HSBC account holders ‘were found to be compliant’ with UK tax rules, in some cases because they had non-dom status.”
What no-one seems to mention is the significance of the money laundering offence. Simply put, if you have an acquisitive criminal offence, you can slap a money laundering offence on top of it – partly (if convicted) to increase the penalty, but also to (a) indicate that money laundering has indeed taken place, and (b) enable financial investigators to get in there and find the money and those who have handled it. In other words, adding a money laundering offence is a Good and Worthy Thing. But you can’t add it to a civil investigation. So for all of those tax evaders with whom HMRC has made peace, there is no way for investigators to drill down into their assets to look for further criminality or for links with other dodgy people. Nor can the investigators find out which institutions were involved in the money laundering (for money laundering will certainly have taken place) – which means that crooked individuals in the regulated sector cannot be rooted out. And crucially, nor can the investigators gather evidence on regulated institutions that are failing to meet their AML obligations and allowing their clients to get up to all manner of fiscal naughtiness. The benefits of the criminal prosecution of tax evaders are indeed much more widespread than it might first appear.
Posted in AML, Money laundering
Tagged AML, asset forfeiture, due diligence, financial crime, government, HSBC, money laundering, proceeds of crime, tax evasion, white collar crime
I don’t usually post anything at the weekend, but this is just too exciting to wait – and anyway, it might all have changed by Monday. Today my laptop went into something of a meltdown with its bookmarks, so I had to go into my own Amazon listings like an outsider. I opened the front page of Amazon.co.uk, typed in “money laundering”, selected “in Books”, and then fell off my chair. One of my “All You Need to Know” piggies – the one for UK banking sector staff – is listed first. First! This is Big News, as it raises the piggy’s profile quite significantly: his snout is now definitely visible above the sty wall. And the listing also tells me that this little piggy went to market rather effectively: he is now the 27th best-selling title in the Amazon category of “Books > Business, Finance & Law > Professional Finance > Banking”. So many thanks to everyone who has given a home to one of these little piggies.
It would be remiss of me to let “the HSBC situation” go by without comment. I may well return to it in future, as I know some of the people involved and will try to get some MLRO-relevant details from them, but for now I wanted to use “the situation” to illustrate the dangers of reliance. Reliance, just to recap, is the use by one member of the regulated sector of the due diligence checks done by another such member – so, a bank relying on DD done by a solicitor, or an estate agents on those done by a bank (or indeed within the same profession – bank on bank). I am frequently asked about the extent to which this is (a) permissible, and (b) wise – and, as you can imagine, the answer is rarely straightforward. I think part of the difficulty comes from the schizoid nature of the regulated beast: compliance people are by nature more cautious, and would prefer to do their own checks just to be certain, but they come under pressure from the more gung-ho sales staff who want speed and accommodation. (I simplify terrifically, of course, but the basic split is there.)
The nub of the reliance dilemma is expressed perfectly in paragraph 5.6.4 of the UK’s JMLSG Guidance Notes for the UK Financial Sector Part I: “The ML Regulations expressly permit a firm to rely on another person to apply any or all of the CDD measures, provided that the other person is listed in Regulation 17(2) [i.e. is also covered by the Regs or equivalent], and that consent to being relied on has been given. The relying firm, however, retains responsibility for any failure to comply with a requirement of the Regulations, as this responsibility cannot be delegated.” My favourite analogy for reliance (and indeed for the outsourcing of any part of the AML requirements) is this. It is akin to relying on someone else to do up your seatbelt for you: if there is an accident and it turns out that they haven’t done it up properly, it will be you catapulting through the windscreen while they stand on the kerb.
So what has this to do with “the HSBC situation”? Well, at a recent training session I was asked why we can’t just rely on CDD checks done by “reputable banks” – particularly the largest ones, with presumably the biggest compliance departments and the most generous budgets to do the deepest and best checks? If they’re happy with a client and his source of funds, surely we can be too? Hmmmm…..
Last week I did lots and lots of training sessions in Guernsey, and it gave me an opportunity to consider an issue that I have noticed again and again. Why, when presented with a room of empty seats, do people gravitate to the back row? What happened to them in school – which is where I assume the habit was formed – that they are keen to put as much distance as possible between themselves and the teacher? It didn’t happen to me: I always sat in the front row, because no-one realised until I was eight that I needed glasses, so for the first four years of school I had to be within two feet of the blackboard to have a chance of reading anything, and after that I was used to it.
I have considered various possible explanations:
- They hate training, and the back row is the nearest they can get to not being in the room while actually being in the room
- They are frightened of being picked on by the teacher and forced to answer a question
- They want to check emails/play Candy Crush/text their friends/all three, and hiding behind other people makes this possible
- The teacher has ferocious BO or a Roy Hattersley-style spitting problem.
I’m still not sure which one (or which combination) it is, although I sincerely hope that it is not the last. However, I have noticed that the older the people, the less likely they are to head for the back row. So maybe they have learned that training is valuable, and that adult trainers rarely pick on you with difficult questions, and that Candy Crush is a habit to be broken. But more likely, their middle-aged eyesight dictates that they can’t see the slides from back there. So patience, grasshopper: eventually even the Back Row Boys will move forward.
One of the aspects of my work that I love – and there are plenty – is that the goal-posts are always moving. Criminals change what they do, launderers change how they work, and jurisdictions change their laws. (I tried to think of a good goal-posts analogy, as moving goal-posts are generally seen as bad, but I failed. To be fair, I am writing this at 0634, so my brain is not quite up to speed. So for my purposes today, moving goal-posts are good.)
For instance, the UK is currently considering a small but significant change to the Proceeds of Crime Act 2002 which will clarify things for institutions reporting suspicions of money laundering. Under PoCA (as in most other jurisdictions) there is an obligation on firms conducting certain types of business to report suspicions of money laundering via disclosures to the authorities (in the UK, the NCA). They can either report after the event (“We’ve seen this and we think it might involve the proceeds of crime”) or ahead of it, asking for consent (“We’ve been asked to do this and we’re concerned it might involve the proceeds of crime – do you think we can or not?”). In the latter situation, there will of necessity be a delay between asking for consent and receiving a response; this delay is usually short, but the legislation does allow (in total) up to about five weeks. And of course, clients can be impatient and even antsy, but you can’t tell them why you’re waiting (tipping off…).
In the past, some clients (notably Shah when dealing with HSBC) have claimed that the institution is responsible for any loss that the client has incurred as a result of this delay. Such claims have been unsuccessful, but they have highlighted a lack of clarity in the legislation. And this proposal seeks to remove that lack of clarity – thus making things clearer (unlike this sentence).
So on 8 January 2015, Karen Bradley MP (Minister for Modern Slavery and Organised Crime) tabled several new amendments to the Serious Crime Bill 2014, which is currently working its way through the system. And one of her proposed amendments is this: “In section 338 of the Proceeds of Crime Act 2002 (money laundering: authorised disclosures), after subsection (4) insert— ‘(4A) Where an authorised disclosure is made in good faith, no civil liability arises in respect of the disclosure on the part of the person by or on whose behalf it is made.’” Should it make it into the final legislation, this is good news for reporting institutions – although those whose legal teams might suggest (perish the thought) making a defensive disclosure just to secure this immunity should point out with a large and pointed stick the phrase “in good faith”. You can track the progress of the Serious Crime Bill 2014 here.
Posted in Legislation, Money laundering
Tagged AML, disclosure, financial crime, government, legislation, money laundering, National Crime Agency, proceeds of crime, SARs, suspicion
The concept of “joint enterprise” has been in the news again recently, this time because in December 2014 the Justice Committee (which examines the expenditure, administration and policy of the UK’s Ministry of Justice and its associated public bodies) announced that, in its view, the Law Commission should review the common law doctrine of joint enterprise in murder cases as a matter of urgency. (The reasoning is that joint enterprise is leading to overcharging. Under the doctrine of joint enterprise – or common purpose – a person may be found guilty for another person’s crime if he is shown to knowingly assist or encourage the crime and agree to act together with the primary offender for a common purpose. So the driver of a getaway vehicle can be charged with robbery under joint enterprise even if he did not even enter the victim premises.)
Joint enterprise can be applied to any crime, including the money laundering offences under the Proceeds of Crime Act. And indeed, there is case law linking the two: in the case of Lambert and Walding, the two men were found guilty of producing cannabis and laundering the proceeds. The judge found that it was a joint enterprise between the pair and that they stood to benefit jointly by £107,860 in total. He then made confiscation orders against each of the men individually in the sum of £107,860. The men appealed, and lost: it was held that it is a legitimate and proportionate statutory aim that the entire realisable assets of a person who embarks on a joint enterprise drug dealing venture should be put at risk, up to the sum of the joint benefit obtained.
I’m no lawyer, and I may be barking up entirely the wrong tree (in which case, I hope a lawyerly reader will put us right), but it has made me wonder how joint enterprise could be applied to section 328 of PoCA – the concealing offence: “A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person”. Let’s say that we have an accountancy firm with four partners. One of them colludes with a criminal and enables that criminal to launder a million pounds through the firm’s client account. The other three partners are unable to show- through poor record-keeping and/or a general reluctance to engage with the AML requirements – that they were unaware of what their colleague was up to. Given their senior status and professional longstanding as a quartet, the CPS does not accept that they really didn’t know what was going on, and takes the view that they tacitly approved of the laundering. Could they all four be charged with arrangements, under joint enterprise? And, if convicted, could they all become individually liable for the million pounds?
Posted in AML, Legislation
Tagged arrangements, asset forfeiture, due diligence, financial crime, joint enterprise, legislation, money laundering, proceeds of crime, Proceeds of Crime Act, white collar crime
Sitting in court (I’m a magistrate) a little while ago, I listened to an “ex-alc” (someone charged with driving with excess alcohol in their system – drink-driving, in other words) explain how she came to be behind the wheel that night. She had a 19-year old daughter who had gone to a party and become rather overly-refreshed. The father of the party boy called our woman and asked her to come and get her daughter, who was being very sick in his garden. No taxi company would take her in that state, and the last trains and buses had gone. The only option, said the woman, was for her to collect her wayward child. But, having expected her daughter to get home under her own steam, the woman had tucked into the wine and was definitely over the limit. Backed into a corner, and very reluctantly she said, she drove anyway and collected upchucking child. Why were you so reluctant, asked her lawyer in court, doing his best to demonstrate his client’s remorse. “I knew I could lose my licence!” she wailed. Not “I knew I could kill someone because of my drink-impaired driving”, but “I knew I could lose my licence”.
This is what happens when we focus on the what of the legislation rather than the why. Yes, you lose your licence for drink-driving, but why? Because you are a danger to yourself and others when you drive a large metal weapon with impaired perception and reflexes. Yes, you go to prison for money laundering, but why? Because your actions allow criminals to flourish. And this distinction goes to the very heart of my attitude to AML training. Much as I support heavy (if not heavier) penalties for driving under the influence and for money laundering, I would much prefer people to want to comply than to fear not complying. I have always thought that the way to make staff (and directors, and MLROs for that matter) care deeply enough about AML to want to do it properly is not by making them scared of the possible penalties if they don’t, but rather by making them outraged at the possible social consequences if they don’t. I want them to think not, “I could go to prison for fourteen years”, but rather “I could enable people traffickers to flourish” or “If these tax evaders continue to cheat, that’s hospitals and schools that aren’t being built”. I suppose it’s all about taking personal responsibility for doing the right thing, as opposed to doing it because you’re forced to. (And that’s why I don’t have weighing scales in the house: I’ll cut down on the Jaffa Cakes when it’s the right thing to do, and not when a silly number suggests it.)