No silver bullet

About once a month, I get an email or phone call from someone who has produced a software “solution” to help MLROs – often a CDD system, or a transaction monitoring gizmo.  And what they want is to show me their product (that’s what they say) so that I will recommend it to my clients (that’s what they mean).  And I always say no.  This is partly because I’m really not that interested in software – my love is for face-to-face training and advice, and for the written word.  But it is also because I feel that, in order to maintain my usefulness to MLROs, I need to remain free of any commercial bias; all I ever say to those MLROs is that there are software packages out there, and some like them and some people don’t, and the best thing is to ask other MLROs for their recommendations and warnings.

All of this is on my mind thanks to the recent(ish) BBC story about HSBC and World-Check.  Well, I suppose the headline story was about HSBC and de-risking, but inevitably it turned to the question of reliance on automated CDD systems.  Like Peter Oborne, the author of the article, I have not seen World-Check in action, but the lesson seems to be the familiar one that I have parroted in countless workshops and training sessions: these systems (World-Check and their competitors alike) are not a silver bullet.  They do not have access to special, secret information denied the rest of us.  As the BBC article quotes from World-Check itself: “World-Check uses only reliable and reputable public domain sources (such as official sanctions lists, law and regulatory enforcement lists, government sources and trustworthy media publications) for risk-based information or allegations about an individual or entity.”  World-Check and other similar services provide consolidation and standardisation of information – which is a pretty great service, of course, but not in any way a replacement for the MLRO’s own experience-based judgements.  As with so many aspects of AML, you can outsource the work, but not the legal responsibility for that work being done properly.

Posted in AML, Due diligence, Money laundering | Tagged , , , , , , , , , | 1 Comment

Measuring the MLRO

As some of you may know, I am a magistrate.  (For non-UK readers, magistrates are volunteers who hear cases in courts in their community; we deal with crimes like minor assaults, motoring offences and theft, are assisted by a legally-trained adviser in court, and hand out penalties including fines, unpaid work and prison sentences.)  In order to check that I have not lost my few remaining marbles and started acting like the Red Queen in “Alice in Wonderland” (“Sentence first – verdict afterwards”), I am regularly appraised by fellow magistrates.  And I wondered whether there is scope for something like this for MLROs.

Of course, things are simpler in court in that magistrates are not in commercial competition with each other, or bound by the strictures of client confidentiality, and so the work of one magistrate does not have to be kept secret from another.  But I have to say that I find my regular appraisals both helpful and comforting.  Other magistrates know exactly what I am trying to achieve, and are familiar with the problems that I face: changing guidelines, incoherent defendants and witnesses, overworked and harried solicitors, grandstanding barristers…  And they can offer suggestions on how to deal with such situations.  They can also appreciate when I do something well, and – again, with that lack of competition between us – can compliment me on it, reassuring me that I am doing what I should in the way that I should.

In my regular workshops for MLROs, I strive to provide something of the same mutually supportive and advisory environment.  We all agree that the confidentiality of the workshop will be respected, and I hope that the MLROs who attend find it a welcome device for both decompression and encouragement.  But if only we could find a way to, say, pair off MLROs who then go and observe each other at work and provide feedback afterwards – definitely not with a view to catching each other out and snitching to anyone, but simply to say, yes, I think that was a sensible decision in the circumstances, and no, I don’t think shooting the Director of Sales will help very much.  A pipe dream, I suspect, but if you do have a particularly friendly relationship with a fellow MLRO at another firm…

Posted in AML, Money laundering | Tagged , , , , | 8 Comments

Blame where blame is due

If I may mix my four-legged metaphors for a moment, regular readers will know that one of my hobby horses is the use of AML legislation as a scapegoat.  It makes my blood boil when people tell me that their bank or law firm or accountant has refused to do certain things for them “because of money laundering”.  Of course I don’t get annoyed when it turns out that what they hoped to do was, well, money laundering, but here’s an example of what I mean.

I was chatting to someone the other night in a social situation – astonishing, really, that I still get invited out, given my intolerance and obsessions, but there you go – and when I said what I do for a living her little eyes lit up.  Now, this is not the usual reaction when I give my spiel (which I have honed to this: “I am an anti-money laundering consultant, which means that I advise institutions like banks, accountants and casinos on how to avoid criminal money”), and so I knew she had an AML concern.  And indeed she did.  Her friend’s son, she said, had just come out of prison after serving “a well-deserved sentence for assault” (that’s her speaking now – not my spiel again).  And when he went to the bank where his parents had been blameless customers for years and asked to open an account so that he could look for work – the Jobcentre advises people to have an account lined up, as it’s all but essential nowadays for working people – he was told that he couldn’t have one “because of money laundering”.

Now, had he been sent down for fraud or burglary or drug dealing or any other acquisitive crime, I can see why they might have been nervous.  After all, he is a convicted criminal and presumably there were criminal proceeds; I would certainly be asking about confiscation proceedings.  But assault generates no proceeds.  When pressed further, the bank said that the AML legislation means that they cannot open accounts for people with criminal records.  When my enquirer said this, I danced a little jig of anger on the spot – what with this and my boiling blood, I was quite a sight.  How many times?  The AML legislation requires institutions to put in place procedures that are appropriate and proportionate to the money laundering risk presented.  It does not say that you CANNOT open accounts for anyone; it says that you may, after risk analysis, choose not to.  In this case, personally, I think the bank may have made the wrong choice.  And more than that, I hate hate hate the fact that the poor little Money Laundering Regulations once again get the blame.

(Moreover, with my social and magisterial hat on – it’s quite a grand affair, as you can imagine, with feathers and everything – I worry enormously about the problem that this creates with recidivism.  If a prisoner is released, having served his sentence, and is trying to go straight by getting a job, and the thing that foils him is that he cannot get a bank account, what then?  Of course, he returns to crime – how else is he to make a living?  Now you see what you’ve done: I’m jigging, with boiling blood, and wearing a silly hat.  No wonder I don’t get invited out much.)

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

The spoils of war

During AML training, I am often asked what happens to the money that is confiscated from criminals.  And occasionally – usually after a local conviction – a similar question will arise around institutional penalties.  When a regulator imposes a financial penalty on a firm for AML failings, where does that money go?  Recently Jersey announced that its regulator now has new powers to impose penalties of up to £4 million on naughty institutions, and in their press release they said that “the proceeds from the financial penalties will be used to reduce, or mitigate required increases in, the fees for regulated businesses; effectively ensuring that in the future, those companies that invest in compliance with Jersey’s regulatory standards will no longer have to carry the financial burden of dealing with those companies that fail to comply with regulatory standards”.

With larger settlements come other options.  Back in 2012, HSBC agreed to pay US$1.9 billion to the US government to settle allegations that the bank laundered money for Mexican drug cartels.  And the Department of the Treasury has now divvied up some of the money between twenty agencies that were involved in the investigation into HSBC.  The largest share of $116 million has been given to the district attorney’s office in Queens, New York, because one of its investigators – a former “beat cop” called Frankie D – was the first to notice the suspicious money flows in the bank’s accounts.  DA Richard Brown hopes to spend most of the money by converting into an office (if he gets planning permission) the Queens House of Detention, which sits next to the borough’s criminal courthouse; the jail is now largely empty and is often used as a movie set: “Every night when I go home from this office, pass by the Queens House and see seven or eight floors totally dark, I just say to myself, ‘What a perfect spot this is for our needs’.”  He has already splashed out on a cybercrime lab and a new telephone system.  Other recipients of the HSBC largesse include the Manhattan DA’s office ($76.9 million), the Port Authority of New York and New Jersey ($13.1 million) and the New York City police ($9.4 million).

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Robin Hood he ain’t

Last week I was listening to the “Today” programme on Radio 4, and an item came on about Joaquín “El Chapo” [Shorty] Guzmán – the Mexican drug lord who escaped from a maximum security jail in July by running through a mile-long tunnel equipped with lights and ventilation.  Guzmán is, to my mind at least, a nasty piece of work: head of the Sinaloa cartel, he is considered by the Americans to be the most powerful drug trafficker in the world, and personally admits to having killed about three thousand people.  (Although he recently threatened Donald Trump, which just goes to show that no-one is all bad.)  With regard to money laundering, in 2010 the US charged him during his first spell in prison with laundering US$14 billion of drug proceeds, but he escaped (in a laundry cart…) before he could be extradited to stand trial.

But in his home town of Badiraguato in Sinaloa in the north-west of Mexico, El Chapo is something of a folk hero.  Many compare him to Robin Hood, taking money from rich drug addicts to give it to poor local farmers.  They also take pride in a local boy who has become a world leader – albeit in crime.  The local mayor sums up the contradiction his people face: “[El Chapo] is a person who, in his line of business, is very intelligent.  It’s complicated but at the end of the day it generates jobs in the country, it moves money – and a lot of it.  We don’t want to face up to the fact that our economies to a large extent depend on that.  Sadly that’s how it is.”

Indulgence around criminals is nothing new: look at the recent misty-eyed reminiscing about Arthur Daley, and the undimmed popularity of Del Boy Trotter.  If such tolerance were limited to fictional criminals, it wouldn’t matter a jot, but look at the elevation of the Great Train Robbers, and Bonnie and Clyde, and Howard “Mr Nice” Marks.  If a criminal were genuinely motivated by a desire to help the poor that might be something, but despite what those from his home town might think, El Chapo has made sure that plenty of the wealth stays close to home: the authorities have already uncovered sixteen houses, four ranches and 43 vehicles that he owns, and his sons regularly update their Twitter feeds with photos of their luxury cars, designer pets (lion cubs being a favourite), palatial homes and supermodel girlfriends – along with plenty of images of stacks and stacks of money, and gruesome pictures of victims of the war between the cartels.  But even that seems not to put people off.  Adrian Cabrera, a blogger in Culiacán, the city closest to Guzman’s home village, recently posted this: “Why do people admire him?  Because he’s a living legend.  He’s like Al Capone.  He’s like Lucky Luciano.  Like Tony Soprano.  Like Scarface.  He’s like a character on a TV show, except that he’s real, he’s alive.”  Unlike his victims.

Posted in Organised crime, Money laundering | Tagged , , , , , , | 2 Comments

The sins of the father

This is a slightly unusual blog post, because I want your advice.  Well, it’s on behalf of someone else.  I have a friend who used to be married to a money launderer.  He – the ex – is still engaged in that line of work.  They have two children, aged 18 and 20, who are unaware of their father’s work because (as my friend puts it) responsible divorced people “never tell bad things about the other parent, and so the kids have an image of a hard-working, money-earning dad living in Monaco and a lazy mum”.  Galling enough, but now the ex is trying to lure his 20-year old son to Monaco to work as a carabinieri (palace guard).  The lad was planning to study to be a teacher, but of course the sunny and glamorous alternative sounds tempting – although mum is not thrilled: “It’s not exactly my idea of a great career, to defend the prince of a tax paradise”.

So what my friend would like to know is this: how do you tell young people that a relative is involved in money laundering?  Do you explain why it’s wrong?  Or do you not tell them?  What we’re talking about here is people who have not been charged with anything, let alone convicted and sentenced – but others in the family know what they’re up to.  (Once law enforcement authorities are involved, the decision is pretty much made: the children of the family will find out anyway.)  Is it just like any other crime – should we tell little Jimmy that his uncle is a cat burglar – or is it different because of the nature of the crime?  After all, money laundering is rarely violent, and many feel that it is not a “real” crime – just a bit of cleverness with money.  But is the tide of public opinion turning against financial criminals, with the recent crackdowns on corruption, the headlines about money laundering through property, and the 14-year sentence for Libor fraudster Tom Hayes?

I’m probably not best placed to give advice, as (a) I have no children, and (b) I am rather at the harsh end of the spectrum when it comes to how best to punish money launderers (and to me, losing the respect of his children sounds like a good starting point).  And so I turn to you: any thoughts?

Posted in AML, Money laundering | Tagged , , , , , , | 10 Comments

The laundrette on the high street?

My husband is away for three weeks on a course in the Netherlands, and we had a bit of a dither about how he should take his money.  As it costs a lot to get cash out of a foreign ATM, we thought one big stack of cash would be wise, but then he’s staying in student digs, so that might be a bit risky.  And then he read about Ukash.  In short, you buy a Ukash code, which (according to their website) can be “used to pay at thousands of websites that accept Ukash [and to] load prepaid cards and eWallets”.  It’s not a new concept, the prepaid card, but I’ve always been a little uneasy about them because of the rather minimal due diligence done on applicants.  After all, if you have a fistful of prepaid cards and not very robust checks, you can load them with dirty cash, take them somewhere else – perhaps overseas – and use them to take out a different currency or pay for items as you might with a credit or debit card.  Laundering, in fact – low-level, but still handy.  But perhaps that’s just me, being paranoid, and of course you would expect nothing less of me when it comes to laundering.

And then today he read about a fab new extension to their service.  He can now top up his card with Ukash not just online – via a debit card with a bank, which is how he first loaded the card (and which entails some sort of relationship with a regulated financial institution) – but also on the high street.  A quick check of possible top-up locations within five miles of our home shows that he can go into our local branches of the Co-op, Spar and WH Smith as well as numerous one-off corner shops *faints dead away*.  So what are the checks done in these locations on the fistfuls of cash being handed over?  Well, according to the Ukash T&Cs: “By acquiring a Ukash voucher code, you give your consent that Ukash has the right to perform such CDD (Customer Due Diligence) checks deemed necessary to comply with Anti Money Laundering regulations, or if Ukash, in its sole opinion, suspect fraudulent use and/or misuse of the payment scheme.  You further undertake to co-operate fully to ensure the CDD information required is provided to Ukash within the time parameters to be specified by Ukash.”  Does this mean that they send you away to return with your passport before they sell you a Ukash code?

As I say, it’s fairly low-level stuff – but not inconsequential.  Again, consulting the Ukash T&Cs: “You may obtain, subject to the processes deployed by Ukash to detect and prevent fraud, up to 5 Ukash voucher codes of up to 180GBP each in the United Kingdom (250EUR or the equivalent of 250EUR in another currency outside of the United Kingdom unless otherwise restricted to a lower amount) on any one day.  You may not hold in excess of 900GBP in the United Kingdom (1250EUR or the equivalent of 1250EUR in another currency outside of the United Kingdom unless otherwise restricted to a lower amount) of Ukash voucher codes at any time.”  So you can only pay in £900 per day – but that’s enough to clear the takings of a couple of street dealers.

Posted in Due diligence, Money laundering | Tagged , , , , , | 6 Comments

Always take legal advice

With the intensifying of focus here in the UK on “professional enablers” – not least with the introduction of the new offence of participating in activities of organised crime group – it is salutary to read of a case involving senior lawyers in Papua New Guinea who have been advising clients on how to avoid detection when laundering money through Australia.  A private investigator, working in May 2014 on behalf of anti-corruption campaigning organisation Global Witness, posed as a fund manager looking to invest in PNG, and approached the Port Moresby law firm Young & Williams, which is owned by Australian Greg Sheppard, who has lived in PNG for more than twenty-five years, and his local business partner Harvey Maladina.  What has drawn the eye of Global Witness is the fact that several Young and Williams clients have faced charges of corruption.  Enter the PI, complete with hidden bodycam.

Mr Sheppard – a lawyer, remember – is generous with his advice when the PI expresses concerns about politicians looking for bribes to facilitate land sales: “All those sorts of mobilisation fees really ought to originate from offshore.  It’s something that needs to be handled very, very carefully; you’ve got to make sure it’s not going to be attacked as money laundering.  If you were to pay seven figures to anybody, the world would fall in on top of you.  Small dribs and drabs is the only way to go.  Anyone who says seven figures, they are inviting prosecution.”  Just to clarify, he adds: “I’m approaching it from a lawyer’s point of view – I don’t want to advise you to do anything illegal.  It would have to be something that didn’t raise suspicions, something that was ostensibly commercial.”

Mr Maladina – also a lawyer, and the son and brother of local PEPs – is even more open, and suggests that one way to disguise the bribes might be through the inflation of legal bills: “If you engage us, we engage him.  We do our bills, then you pay us, and we send his money off to Australia, to his Australian account.  Normally if it’s through the [Australian] law firms, they don’t ask questions.”  The time of no questions may be over: on 22 July, Peter Kuman, president of the PNG Law Society, confirmed that the society had appointed an independent inspector to analyse the trust account of Young & Williams over the past five years, and that the society’s statutory committee is looking into possible breaches of rules of conduct by the two men.

Both lawyers have strenuously denied all allegations, but the footage is there for all to see – it’s fifteen minutes long if you fancy a coffee break.  Mr Sheppard, meanwhile, has said that filming another person without their permission is illegal.  Yes, indeed, that’s the crime to focus on here.

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They’re not going on a summer holiday

As you pack your bucket and spade, I thought you might like to spare a thought for those poor people not having a summer holiday this year.  I mean, of course, those put-upon convicted UK drug traffickers who have been made subject to Travel Restriction Orders.  These were introduced as part of the Criminal Justice and Police Act 2001, and empower the courts to restrict the movements of those who commit “trigger” offences (nothing to do with guns – it’s drug offences with an overseas link) and are sentenced to four or more years in prison, by taking away their passports for a specified period after they are released from prison.  It applies only to those with British passports – i.e. passports issued by the Government of the United Kingdom, the Channel Islands, the Isle of Man or a British Overseas Territory – and the actual physical passport must be surrendered to the court.  (We can’t snaffle other passports because the passports of foreign nationals remain the property of the issuing government – so we’d deport them instead.)  A TRO must last for at least two years and – deliciously – there is no maximum length.  The expectation is that the period of the travel ban should escalate based on the level of sentence, and a TRO of any length can be reviewed (and perhaps revoked or suspended) after the minimum two year period.  Penalties for breaches of TROs include fines and up to five years in prison.

So as you slip a third pair of flip-flops into your suitcase and imagine your first sip of that poolside cocktail, do shed a few salty tears for Merseyside drug dealer Jason Fitzgibbon, who won’t be seeing the Mediterranean sun for quite some time: when he gets out of prison in about a decade, he’ll be subject to a five-year TRO.  And his near-neighbour Mark “Mr Big” Brown will serve a similar term, and then have to wait seven more years before he can paddle in any warm Caribbean waters.  Shame, isn’t it?

Posted in Legislation, Organised crime | Tagged , , , , , | 4 Comments

Begone, bad MLRO

In what the headline writers are calling a “landmark case”, an MLRO and the firm she worked for in Jersey have been acquitted of failing to make suspicious activity reports when they should have done.  (“Landmark” because it was the first prosecution – rather than civil action – and not because of the acquittal.)  You can read something of the case here, although I have yet to find the court transcript – please do share if you have the link.

However, I was more interested to read that, a week after her acquittal, MLRO Michelle Jardine had been banned from working in the regulated sector by the Jersey Financial Services Commission.  In that cold-blooded way I have, I leapt on this information because it all helps to define the expectations (or at least the JFSC’s expectations) of the role of the MLRO.  For those of you unfamiliar with this particular Channel Island, let me explain that under Jersey legislation there are two separate roles: Money Laundering Compliance Officer (responsible for monitoring compliance with AML legislation) and Money Laundering Reporting Officer (responsible for receiving and considering SARs – suspicious activity reports).  Both roles can be held by the same person, as indeed they were by Mrs Jardine when she worked for wealth management firm STM Fiduciare Limited.  So what went wrong?

Looking at the JFSC’s Public Statement, we find that in her role as MLRO, Mrs Jardine failed to process fifteen SARs – some of them nearly two years old.  And in her role as MLCO, she failed to pass on to the Board full information about the status of internal and external reporting of suspicions (perhaps unsurprising in the circumstances).  So she failed at the very core of the job: listening to what your staff tell you of their concerns about money laundering, and passing on information to the authorities for investigation.  Quite what she thought she was signing up to when she agreed to be MLRO and MLCO, I cannot imagine, but this case (both the criminal acquittal and the regulatory withdrawal of approval) underlines the importance of making sure that MLROs are fully aware of the duties for which they are legally responsible.

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