The dawning of reality

When I read this story, I had to check the date and make sure that it wasn’t April Fools’ Day, but no, it seems that it’s on the level.  A large Irish law firm called Matheson has launched a phone app for its clients, called “Dawn Raid”.  Now I own a steam-powered Windows phone that does not run many apps – although it does play the theme tune from “Upstairs, Downstairs” as my ringtone, so all is forgiven – and so I am not terribly au fait with how they work.  But apparently, according to the Irish Times, this app “advises companies how to prepare for a raid by the authorities and how to handle raids once they occur [and] includes contacts for a ‘rapid response team’ in Matheson in the event of a raid”.  The advice includes practising “mock raids”, appointing staff to “shadow” investigators as they search their offices to “seek to prevent disclosure of legally privileged records”, and setting up “clean rooms” where officers should be asked to wait.

A Matheson spokesman said that the app was being offered because the number of dawn raids in Ireland is increasing and “this trend may continue, as regulators’ resources increase and Brexit may mean that EU regulators will no longer dawn raid in the UK”.  (What worries me most about this Doomsday scenario is discovering that “to dawn raid” is now a verb.)  Non-Matheson lawyers are not convinced, with some suggesting that the very presence of the app on an accused’s phone could help the prosecution show that they expected to be raided, while others simply thought that it was an odd position for a law firm to take.  What it has done is tell a very wide audience (via the national press rather than an expensive publicity campaign) that (a) there is an Irish law firm called Matheson, and (b) they specialise in white collar crime matters.  A win for the marketing department, at any rate.

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Brains as well as brawn

Maybe it’s because it sounds like complaint, but I often encounter the assumption that people who work in compliance are dreary, dull fellows, nit-picking and carping for a living, finding fault in other people’s work and lives, and generally being something of a downer.  And then of course my particular area of compliance is called ANTI money laundering, and that’s a pretty negative stance to take right from the start.  But I have worked with compliance folk for decades now, and I can say that they are anything but dull.  You remember Henry, the mild-mannered janitor who – after hours – climbed into a filing cabinet and transformed into Hong Kong Phooey, scourge of the criminal class?  Well, I reckon he was something of a prototype for today’s MLROs, compliance officers and money laundering investigators.

And here’s proof that AML people are not, contrary to the jibes of the sales department, boring “business prevention officers”.  Dana Reizniece-Ozola is a 36-year old chess player of some standing; indeed, she holds the title of Woman Grandmaster and her current world ranking is 2,292.  She studied International Business in Finland and law in Latvia before gaining a master’s degree in translation and then an MBA from the International Space University in France.  A smart cookie, as they say.  Oh, and now she’s Latvia’s Minister of Finance – which makes her responsible for overseeing her country’s AML efforts.  This is no cushy number, as you can imagine.  Among the key findings in the most recent mutual evaluation of the country, published by MONEYVAL in July 2018, were the observations that “unusual transaction reports and suspicious transaction reports are not fully in line with Latvia’s risk profile and their quality appears modest” and “the appreciation of ML/FT risk in the financial sector is not commensurate with the factual exposure of financial institutions in general, and banks in particular, to the risk of being misused for ML and FT”.  Scandals involving local banks Trasta Komercbanka and ABLV have kept Latvia in the money laundering headlines.  However, it can be no coincidence that since Ms Reizniece-Ozola took office in February 2016, the situation has improved: “Until recently, the judicial system of Latvia did not appear to consider ML as a priority and to approach ML in line with its risk profile as a regional financial centre.  This appears to have changed lately to a certain extent, with some large-scale ML investigations underway, involving bank employees having actively facilitated the laundering of proceeds.”  It doesn’t take the brain of a chess grandmaster to realise that putting your brightest and best in the positions where they can use their wily intellect to fight crime will have excellent results.  Just ask Henry.

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The devil in the detail

I had an interesting phone call with a compliance officer the other day – she will recognise herself in this description.  We were talking about a possible suspicion, and I was impressed by both her attention to detail and her line of reasoning.  The client concerned had given his occupation as “project manager” and then – on his application form – he had made a spelling mistake on his own name.  Perhaps not conclusive evidence of evil but – as this compliance officer said – aren’t project managers meant to pay close attention to detail?  Aren’t they meant to be super-organised and to double-check things?  And this made me think about what we can deduce from the smallest pieces of information that clients share.

Often it is not the single detail but rather the whole picture.  If someone says that they are a homeowner, aged twenty-nine, with no mortgage, does that sound odd to you?  What if I add that the average period for repayment of a (UK) mortgage is 25 years, and moreover that the number of first-time-buyers taking out a 31- to 35-year mortgage has doubled in the last ten years?  Now I hope you are considering some source of wealth enquiries.  What if you run an online gambling business and over a period of a year one of your customers bets £850,000 with you – after saying on his application that he is an accountant?  Do you know how much an accountant earns?  I’m guessing that the staff at Betfred didn’t…  (To get a ballpark figure for most standard jobs, you can try the Payscale website.)

But, as my compliance officer friend demonstrated, it’s not just matching earnings to assets.  Yes, a project manager should be good at details.  In the same vein, an English teacher should have perfect spelling, an accountant should be adept with numbers, and a doctor should have an illegible signature.  (Only kidding – my doctor has lovely penmanship.)  Does the work address fit with the home address?  (Ask them about their commute – that will soon tell you if they’re fibbing about one or the other.)  If they claim to have no landline, is that likely – yes if they’re a twenty-year old Youtube influencer, no if they’re a seventy-year old vicar.  In short, we need to remember that we’re not collecting random details just to fill spaces on a form: we’re gathering pieces of a jigsaw to assemble a coherent picture.

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The conviction that keeps on giving

It’s an old joke – “I’ve been married for twenty years; you get less for murder” – but in the UK, at least, that’s true.  According to reputable research, the average sentence for a murderer in the UK is sixteen years.  That’s only two years more than the maximum allowable sentence for money laundering, which tells us how seriously this particular crime is viewed.  And rightly so, in my humble (and perhaps rather biased) opinion, as money laundering is the enabling crime for all acquisitive crime: people wouldn’t pinch if they couldn’t launder.  But the prison sentence is only the start…

If you have a conviction for a serious financial crime on your record – and money laundering is up there at the top of the list, alongside stealing money from Grenfell victims in order to buy yourself a green dress and a ticket on the Thames Clipper – the fall-out will last for the rest of your life.  For a start, you will find yourself barred from various career options – and not just in the financial sector.  Linda Aldworth, a nurse in Rotorua in New Zealand, was found guilty in 2016 of laundering NZ$340,000 [about £173,000] for her prisoner husband, and last month the New Zealand Health Practitioners Disciplinary Tribunal decided that she cannot return to work – despite a forty-year unblemished professional record – because her offending had been “so serious and sustained” and “her misconduct goes to the heart of the practitioner’s integrity”.  Her nursing registration has been cancelled, her house has been sold to repay the victims of her husband’s crimes, and she is now living with her daughter and working in a hotel kitchen.

A money laundering conviction could also put a crimp in your travel plans.  For instance, if you “have ever been arrested, cautioned or convicted”, you cannot apply under the (quick and cheap) Visa Waiver Program to gain access to the US but instead have to apply for a visa – which entails a rather intense face-to-face interview at a US embassy and a substantial fee, and no guarantee at all of success.

Finally, there is a joy of having to declare your financial misdoings every time you apply for a financial service, such as a bank account, or a loan, or a mortgage.  And let’s be honest, many institutions are going to find it easier to say no than to think of reasons why they should take a chance on someone who has already shown their willingness to play fast and loose with other people’s money.  If you can’t get a job, a mortgage or a holiday, frankly, those fourteen years in prison will start to look rather attractive by comparison.

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The bank of äiti ja isä

I have written before about money laundering staying in the family but it is usually only the adults who are involved.  A recent Finnish case has trodden new ground, with the conviction of a young man – sixteen at the time of the offending – for fraud, and of his parents for laundering some of the proceeds of their son’s naughtiness.  I’m not a parent myself but am told that those who are will do anything for their children, and I suppose this demonstrates it.

In short, this lad was sitting in his bedroom in Forssa when he uncovered an IT glitch in the systems of an online casino in Malta.  He signed up using a false date of birth and took advantage of the fact that the casino gave its players the option of cancelling a previously-requested refund of their funds – meaning that the refund would appear twice (in the player’s online wallet at the casino, and in his bank account).  He did this neat wheeze 417 times between April and May 2017, until a casino employee noticed it in July 2017 – by which time the lad had diddled the place out of more than 100,000 euros.  He was found guilty of fraud as a minor and given a suspended prison sentence of one year and eight months.  At some point I assume his own bank started asking questions about his generous pocket money, and he turned – literally – to the bank of mum and dad (or, in Finland, äiti ja isä).  And dad obligingly paid 14,500 euros into his own account, while mum spent 5,000 euros on a motorbike – they both received suspended prison sentences.

So what is the AML lesson from all of this?  Keep an eye on your younger customers – they’re obviously just as devious and dodgy as the grown-ups.  (Seriously, did that bank not notice a teenager getting more than a hundred bank transfers from an online casino in Malta?)

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Is that wig made of wool or wolf?

A phrase I use quite often in training is, “You’d think so, wouldn’t you?”.  As in, “If the payment is coming to us from another regulated bank, won’t they have done all the checks?”  Or, “Given that CDD checks have been in place for decades now, shouldn’t clients be used to being asked to verify their identity?”  Or indeed, “If a lawyer suspected a client of wrongdoing, wouldn’t he want to protect himself and his firm by reporting that concern?”  And yet it seems that we are still battling the reticence of lawyers to – as I have been told they often see it – betray their clients’ confidence by making suspicious activity reports.

At the end of October last year, Donald Toon – who holds the marvellous title of “Director of Prosperity” at the National Crime Agency – spoke to over a thousand UK solicitors at a conference in Birmingham, and he was not happy with them.  He said that said solicitors were “absolutely at the front line of the detection mechanism for money laundering” but that “something is not working effectively”, with the net result that they are not making enough SARs.  In the 2017 annual report on the SARs regime, published on 11 October 2017, it was noted that “independent legal professionals contributed 0.77% (4,878) of the total number of SARs received over the 18 months [October 2015 to March 2017].  In comparison to the 2014-15 figure of 3,827, the sector saw a 9.93% drop.”  And this is against the background of an overall increase of 9.94% in the number of SARs.  To be fair to lawyers, decreases in reporting levels were also exhibited by building societies, money service businesses, accountants and TCSPs – but Mr Toon made the point to his audience of solicitors that lawyers have a particularly close relationship to their clients: “There is a question over whether everyone in the legal profession understands the value of what is being asked for.  You see high-value transactions in a way that no other part of the financial services sector can.  Those with the closest relationship in client terms are not reporting to us.”

Full disclosure: in twenty years of providing AML training to the regulated sector, I have been able to count my legal clients on the fingers of, well, two fingers.  It is generally accepted that lawyers preferred to be trained by other lawyers, and I am certainly not that – I am simply a nosy and doggedly determined layperson with an unhealthy interest in one specialised area of legislation.  But I do wonder whether, in isolating themselves like this, attending conferences and gatherings only with others from their profession, lawyers are missing out on learning from other parts of the regulated sector.  Banks, accountants, TCSPs, casinos and estate agents could open their eyes to the range of laundering that goes on, and to the multifarious (and convincing) disguises that launderers will assume.  Lawyers may well be the experts in legislation, but perhaps they are more trusting in the purported honesty of their clients than we had realised.

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Money launder-bling

Working in Guernsey this week, I was talking to a client about the concept of the High Value Dealer (under local legislation, those who “[trade] in goods where there is received… a payment or payments in cash of at least £7,500 in total”.  When the benefits (or otherwise) of including HVDs in the AML family are discussed, and in related debates about whether to extend this category to payments received in non-cash form, attention is always focused on the method of payment.  What is addressed less frequently (as I have commented before) is whether to include the sale of services as well as goods.

Services on which people spend significant amounts of cash include, for instance, treatments at clinics and spas, interior design consultancy, and fees at schools, colleges and universities.  And coincidentally, this very example was raised in the Financial Times last week, when it reported that “Donald Toon, head of the National Crime Agency’s economic crime unit, said only a handful of suspicious activity reports, or SARs, had been filed by British private schools and not enough was being done to check the source of funds’ legitimacy”.

Speaking to the same paper, Robert Barrington of Transparency International UK said: “School and university fees have for a long time been a glaring loophole in the UK’s anti-money laundering system – fees can amount to hundreds of thousands of pounds, there are few if any checks and an increasing number of the students come from high-risk countries.  Using the proceeds of corruption to buy a good education is not just about money laundering – it also launders the family’s reputation and gives the next generation an entry card into the global elite.”

This ties in neatly with the views expressed by TI back in April 2017, in their report on “Tainted Treasures: Money Laundering Risks in Luxury Markets”.  In this, the point is made that “the behaviour of kleptocrats who amass millions in properties, sports cars, and art in a short period of time shows that the desire to own luxury can in fact be one of the drivers of corrupt behaviour”.

It seems that by allowing stolen money to be spent at a high level on luxury living – whether it is cash or not, and whether it is spent on goods or services – without being subjected to the AML checks that attend high-level spending in other arenas, we are not only allowing laundering to flourish, but also encouraging the criminality in the first place and giving the criminals the polish they need to burnish their own reputations.  Surely it is time to bring purveyors of luxury of all stripes into the AML family.

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White collar crime

I’m back from my hols and – as promised – I did not succumb to the flattering blandishments of Karen Pierce, UN Officer, but rather immersed myself in history and gelato in Naples and then on the island of Ischia.  You might reasonably be expecting me to write a blog post about the mafia, but instead my attention has been caught by the financial skulduggery in another bastion of Italian crime: the choir of the Sistine Chapel.  A quick check of Wikipedia reveals that the choir’s proper name is the Coro della Cappella Musicale Pontificia, and that it is one of the oldest choirs in the world, having been warbling in a properly organised fashion since 1471.  It is composed (you see what I did there?) of twenty men (tenors and basses) and thirty boys (sopranos and altos).  But all is not well among the misericords.

On Wednesday the Italian newspaper La Stampa reported that Vatican magistrates were investigating the choir’s manager Michelangelo Nardella (a layman) and its director Monsignor Massimo Palombella (a priest) on suspicion of embezzlement, fraud and money laundering.  On the same day the Vatican press office issued confirmation that “several months ago, Pope Francis authorised an investigation into the economic-administrative aspects of the Choir; the investigation is still in progress”.  According to the newspaper report, profits from concerts were allegedly transferred to an Italian bank account – accessible only to Nardella and Palombella – and used for personal expenses.  In May 2018 the choir performed at the gala opening of an exhibition at the Metropolitan Museum of Art in New York called “Heavenly Bodies: Fashion and the Catholic Imagination”, but in July its planned summer 2018 tour of the US was cancelled without official explanation.  Will Nardella and Palombella sing like canaries and confess to feathering their own nests?  Or will this be the swan song for the choir?  (Sorry.  I’ll do better next time.)

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UN me – together at last

It has been the summer of daft emails for Thinking about Crime – perhaps the very hot weather has kept all of the scammers indoors even more than usual, crafting their approaches.  Hoping to appeal to my vanity and to my (to be fair, not exactly secret) wish to become involved in AML at a strategic level, several fraudsters have approached me pretending to be from the UN.  And it seems that my professional expertise is much in demand – although I am not alone, when you read the email…

Dear Invitee, Nonprofit/NGO Colleague,

United Nations General Assembly is convening a four-day Global Summit of Economists, Educationists, Administrators, Manufacturers, International Finance, Corporate Finance, Researchers,, Religious Leaders, Organizations, lawyer and law firm,individuals,Ambassador , Permanent Representative from the public and Private Sector from 25 – 28 September, 2018 in London (UK) to assess the worst global economic down turn since the Great Depression. The aim is to identify emergency and long-term responses to mitigate the impact of the crisis, especially on vulnerable populations, and initiate a needed dialogue on the transformation of the international financial architecture, taking into account the needs and concerns of all countries of the world. You are invited to take part in the International Conference.

The United Nations summit coming up in September was mandated at the Follow-up International Conference on Financing for held in June 2009 in New-York. Member States requested the General Assembly to organize the meeting “at the highest level”.

Registration to this Conference is absolutely “free” As an invitee, you have received a registration code UN/11416/2018-UNA-UK with the invitation letter, which grants you access to the registration form.

The United Nations General Assembly will sponsor free travel costs and all-round flight tickets for all participant. Invited participants will only be responsible for their hotel accommodation and feeding cost at the Queen Gate Hotel London. The International Convention & Exhibition Centre (ICC) London, United Kingdom is the venue of this summit, while the Queen Gate Hotel London has been officially designated to accommodate all participant for this unique and prestigious global financial and economic crisis summit. If you require an entry visa to London (UK) to attend this meeting, United Nations General Assembly will help you to obtain a visa so easily once you confirm your registration.

For further details about registration form,visa,flight ticket and other details, write an acceptance letter to be part of this event and send it directly email to United Nations Secretary-General – UK, Ms. Natalie Samarasinghe: un@sdc-un.org

We look forward to meeting you at the forthcoming Global Financial and Economic Crisis conference. UK action. Stronger UN. Better world.

Regards,
Mrs. Karen Pierce,
United Nations Officer.

42 St John’s Square,
London EC1M 4EA,
United Kingdom.

Tel: +44(0) 752 06 28673
Fax: +44(0) 872 75 10220

The point of it all, of course, is that email address: I am encouraged to send my professional information to Natalie (who really does exist) by email – thereby confirming that my email address is active, and no doubt earning myself a place on a suckers’ list for future approaches.  Therefore, tempted as I am to discuss the global economic downturn in such august company, and with my travel paid for by the UN (perhaps I should fly via New York rather than simply getting the train down to London…), I shall resist.

I’m off on my hols tomorrow, for a fortnight, and so this blog will go eerily silent – it’s not because I am speaking at a UN conference assessing the worst economic downturn since the Great Depression.  Normal service will resume on Friday 14 September 2018.

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Cloud cuckoo Brexit

Don’t worry: I’m not going to tell you again how I feel about Brexit.  This update is purely about the AML implications for those of us left behind in the cast-adrift, backwards-looking, isolationist UK.  As you know, the European Fifth Money Laundering Directive is now cast in stone – or listed in the Official Journal, which is pretty much the same thing.  This sets the date for implementation: EU Member States are now required to transpose MLD5 into their national legislation by, well, it’s a bit complicated, so I shall quote from the Directive itself: “The amendments to [MLD4] should be transposed by 10 January 2020.  Member States should set up beneficial ownership registers for corporate and other legal entities by 10 January 2020 and for trusts and similar legal arrangements by 10 March 2020.  Central registers should be interconnected via the European Central Platform by 10 March 2021.  Member States should set up centralised automated mechanisms allowing the identification of holders of bank and payment accounts and safe-deposit boxes by 10 September 2020.”  So the big date is 10 January 2020.

Which brings us to the UK’s transitional period for an orderly withdrawal from the EU.  The current plan – and we all know how terrifically well planned this all is – is for the transitional period to start on 29 March 2019 (Brexit Day, aka Black Friday) and finish on 31 December 2020.  In another triumph for UK politicians, they have negotiated a transitional period during which the UK will no longer participate in decision-making at EU level but will still be subject to all relevant EU legislation.  (Mind you, this seems like nirvana compared to a no-deal Brexit.)  All relevant existing and new EU legislation – including MLD5, which we will have to transpose by 10 January, 10 March and 10 September 2020.  (In case you don’t believe me, Lord Henley, a parliamentary undersecretary of state at the Department for Business, Energy and Industrial Strategy, confirmed it in a letter to Margaret Hodge MP on 16 July 2018: “You ask about the government’s plans in regard to complying with the requirements of the fifth anti-money laundering directive.  The deadline for the transposition of the directive falls within the implementation period and the UK will transpose this directive.”)

But let’s be realistic about this.  Don’t get me wrong – I’m generally in favour of MLD5 and, as with all EU-derived legislation, I believe in taking the rough with the smooth in pursuit of the greatest good.  But there are big things in there, not least “centralised automated mechanisms, such as central registries or central electronic data retrieval systems, which allow the identification, in a timely manner, of any natural or legal persons holding or controlling payment accounts and bank accounts identified by IBAN, and safe-deposit boxes held by a credit institution within their territory”, and the drawing of virtual currencies into the AML family.  I can’t imagine how many thousand hours of legislative effort just these two changes will take.  Are we really going to do it, only to dump it all a year later?  Or will the UK, having done it, decide that we might as well keep it?  And of course many of the best bits of MLD5 – its interconnected-ness across the EU – will be denied us anyway.

If this were only an academic discussion, it wouldn’t matter much – it would be diverting and puzzling, but not terribly important.  But it’s not.  MLROs are trying to plan ahead: they have to fight for AML budget and embed AML procedures and ensure that they have enough staff to fulfil their organisational AML duties.  Boards are trying to plan ahead: they have to know, for instance, whether they are going to be permitted to have access to beneficial ownership information held by other jurisdictions.  We’re not alone, I know: only this morning a local farmer was saying on the radio that he didn’t know where he would recruit his harvesting labour force next year.  But if a farmer doesn’t get it right, he loses business.  If an MLRO doesn’t get it right, he loses his liberty.

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