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.)

Posted in AML, Fraud, Money laundering | Tagged , , , , , , , , | 2 Comments

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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A bum note

It’s on its way out, that banknote of choice for the money laundering fraternity: on 4 May 2016 the European Central Bank announced that it will stop issuing the €500 note at the end of 2018, “taking into account concerns that this banknote could facilitate illicit activities”.  Of course you remember: I told you about it at the time.

To be honest, I’m not sure that I’ve ever been in possession of a €500 note; my European spends are usually far more modest.  (My greatest indulgence is stocking up on Ciobar hot chocolate powder in Italian supermercati.  It’s like no hot choc you have ever tasted – once you’ve had it, there’s no going back.)  But it seems that although the note will remain officially legal tender for the foreseeable, it’s getting harder and harder to use in normal life.  An article in the travel bit of the Sunday Times four days ago – prime holiday season – warned holidaymakers not to ‘get stuck with a Bin Laden’, as they are notoriously difficult to offload in shops, restaurants and even hotels.  The clue may be in the nickname: the note has long been associated with money laundering and terrorist financing.  As the French then-finance minister Machel Sapin said when the ECB withdrawal was announced in 2016, the €500 note is “used more for hiding things than for buying them”.  The advice is to refuse to take one at all and to insist on smaller denomination notes.  If you do end up with one, the recommendation of the ECB, no less, is to take it to a national central bank in the Eurozone.  Banks here in the UK are not keen – HSBC and Barclays are refusing to touch them – and the few foreign exchange bureaux that will take them are charging a premium to do so.  My advice?  Blow the lot on Ciobar: you’ll get about 850 sachets of chocolatey loveliness for just one Bin Laden.

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Made to measure

About once a year I will say in a dreamy voice, “Perhaps I should do a PhD in criminology…”.  I love the idea of spending months in the library as I craft my thesis, and then becoming the first-ever Dr Grossey.  But reality always kicks in when I remember that PhDs, and particularly those in subjects like criminology, have to be underpinned by numerical research.  And it’s not just that I’m a bit scared of maths – although I am.  It’s more that I know what a minefield it is to try to numericise (what? it’s a word… maybe) AML.

This was brought home to me recently as I worked with a client on their financial crime risk appetite statement.  All was going swimmingly: we knew which financial crimes we were concerned about (with me banging the drum loudest for money laundering – nothing changes); we knew what could be tolerated (some financial crime, reluctantly but realistically, but no sanctions breaches at all); we knew who would be responsible for reviewing the risk appetite; we had even chosen a lovely font for the finished statement.  And then we came to the dreaded metrics.  That’s consultant-speak for measurements.  How could we show in cold, hard numbers that we were keeping to our stated risk appetite?  Take a moment and think about it.  How do you measure that the amount of financial crime risk that you have taken on is within your tolerance?  We came up with a couple of ideas of things that could be measured – number of internal SARs received and converted, number of staff doing AML training – but it’s definitely the trickiest part of the whole process.  Any ideas, AML-ers so wise?

(And yes, I did a ton of Googling looking for suggestions.  There are dozens of papers out there explaining what a risk appetite is, and what the statement should include – marvellous.  But when it comes to metrics, they all say, in essence, “make sure that you include metrics”.  Thanks a bundle.)

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You say potato, I say prison

It’s becoming something of theme, isn’t it – professional enablers?  I’ve certainly blogged about it before, as in this post.  And just last month the Financial Action Task Force released their own report into the phenomenon, entitled “Professional Money Laundering”.  (Although the FATF eschews the term “professional enabler”, preferring to lump them in with full-time launderers: “While professional money launderers may act in a professional capacity (e.g. lawyer, accountant) and serve some legitimate clients, the report aims to identify those actors who serve criminal clients whether on a full-time or part-time basis”.)

I am assuming therefore that we will see more prosecutions of professional enablers, as the public becomes aware that they are “a thing”, and as the prosecutorial agencies become more adept at gathering evidence against them.  And I shall look forward to learning more weaselly phrases that such people will employ to justify their actions.  As you know, the slippery Paul Manafort (he of the ostrich-leather jacket) is currently on trial for – among other things – tax fraud, bank fraud and money laundering.  Various professionals who have had dealings with him have been called to give evidence, including one Cindy Laporta.  Once Mr Manafort’s accountant, and now promised immunity in exchange for testifying, Ms Laporta has told the court in Virginia that in 2015 she was pressured by Manafort’s former right-hand man Rick Gates into concocting a US$900,000 loan on Manafort’s tax return because he did not have enough money to pay the full tax bill.  Ms Laporta complied.  And now, instead of admitting what is plain for all to see – that this was illegal – she tells the court that what she did was “not appropriate – you can’t pick and choose what’s a loan and what’s income [really? colour me surprised – but then I’m not a trained accountant] and I very much regret it”.

So there’s our first handy phrase for the legally challenged professional, ladies and gentlemen: “not appropriate”.  How many more will we amass, I wonder?

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Glategny Court jester

“Please God don’t let it be money laundering” and “Heavens above, why can’t they get the concept of source of wealth?” may well be familiar phrases in the lexicon of the MLRO.  But although a greater power – greater even than the Director General of the local FIU – may be invoked on occasion, I think it is rare for a financial regulator to have an in-house fast-track to the Almighty.  Except, that is, in Guernsey.

Last week it was announced in the local newspaper that a former employee of the Guernsey Financial Services Commission – a woman with decades of experience in the financial sector – has forsaken mammon for God and is returning to the GFSC as its chaplain.  The idea is for the chaplain to provide a friendly ear into which Commission staff can unburden themselves, through monthly meditations and reflective lunchtime services.  Interestingly – and I’m still working on this one – the Bishop of Dover is of the view that “a chaplain is rather like a court jester – they are trusted and they can say something no-one else is able or willing to say”.  I’m not sure that employing an in-house jester strikes quite the dignified note to which a financial regulator might aspire…  And I’d be interested to know whether regulators in other jurisdictions offer something similar.  In the meantime, as my husband used to say when enduring long church services as a small boy, thanks Peter God.

(For non-Guernsey readers, the GFSC’s address is Glategny Court in St Peter Port.)

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Nasty things indeed

Today I received a fabulous email.  It came to my work email address – no surprise there, as this is plastered all over this blog and my website and so is easily harvested – and makes reference to a password that I used a few years ago but have discarded as being too simple to hack (as this demonstrates).  MLROs and other AML-ers know that sextortion emails are now a “thing”, but how many of you have received one?  Now that I have, I thought I would share it with you in its entirety, so that you can appreciate its (a) unpleasantness, (b) lucidity and (c) level of demand.  Knowing just what such an email looks like might help inform the red flag transactions that you could describe for your monitoring systems.  So grab an elevenses biccie, put your feet up and enjoy my email from Quinton Migliassi (not his real name, I suspect…):

I will directly come to the point. I’m aware **** is your password. More to the point, I know your secret and I’ve proof of your secret. You do not know me and no one hired me to look into you.

It is just your bad luck that I discovered your misadventures. Actually, I setup a malware on the adult vids (sex sites) and you visited this website to experience fun (you know what I mean). While you were busy watching videos, your internet browser started out functioning as a Rdp (Remote control desktop) that has a key logger which provided me accessibility to your display and also webcam. Immediately after that, my software collected your complete contacts from your Facebook, and email.

I then gave in much more hours than I should’ve digging into your life and made a double-screen video. First part shows the video you were viewing and second part shows the capture from your webcam (it’s you doing nasty things).

Honestly, I am ready to forget about you and allow you to get on with your regular life. And I am going to give you two options that can achieve that. The two choices with the idea to ignore this letter, or just pay me $ 2750. Let us examine these two options in more detail.

Option One is to ignore this e-mail. Let me tell you what will happen if you pick this path. I will definitely send your video recording to all of your contacts including members of your family, co-workers, and so on. It does not protect you from the humiliation your household will ought to face when friends discover your unpleasant details from me.

Second Option is to make the payment of $ 2750. We’ll call this my “privacy fee”. Now let’s see what happens if you opt this option. Your secret remains your secret. I’ll destroy the recording immediately. You move on with your daily life as if nothing like this ever happened.

Now you must be thinking, “I should go to the cops”. Without a doubt, I’ve taken steps in order that this e mail can’t be linked to me plus it won’t steer clear of the evidence from destroying your health. I’m not trying to break your bank. I just want to be paid for my efforts I placed into investigating you. Let’s hope you have decided to make all this vanish entirely and pay me the confidentiality fee. You’ll make the payment via Bitcoins (if you don’t know this, type “how to buy bitcoins” in search engine)

Transfer Amount: $ 2750
Receiving Bitcoin Address: 1H*VZD6xfCNt7WPKKnxfbRp1yPS5UiHJ4Ft (You need to Remove * from it and copy and paste it)

Tell no-one what you will be sending the Bitcoins for or they might not sell it to you. The task to acquire bitcoins usually takes a short time so do not put it off.

I’ve a unique pixel in this email message, and now I know that you have read this email. You now have two days in order to make the payment. If I do not get the Bitcoin, I definitely will send out your video to your contacts including relatives, co-workers, etc. You better come up with an excuse for friends and family before they find out. However, if I do get paid, I’ll destroy the recording immediately. It is a non-negotiable offer, thus kindly don’t ruin my time and yours. Your time has started. You should know that my malware is going to be tracking what action you’re taking after you’re done reading this message. Swear to god, If I see any suspicious activity from your search history I will send out your videotape to your close relatives, co-workers even before time ends.

Of course I would be laughing on the other side of my face if I had been watching “adult vids”, but I know full well that my idle browsing time is spent watching animals doing daft things, Tracey Ullman impersonating Angela Merkel, and clips of old episodes of “Poldark” so that I can huff about how the new Ross is not a patch on the old one.  Oh hang on, maybe that’s what our friend Quinton has seen: me drooling over Robin Ellis in a tricorne hat.

Posted in AML, Bribery and corruption, Money laundering | Tagged , , , , , , , , | 5 Comments