Stubborn as a…

For those who roll their eyes when I explain my job, and say that it’s all a load of government-sanctioned nonsense to appease the do-gooders (yes, I’ve heard all of that), Santander has done some handy research.  Big Red (other high street banks are available) mocked up a fake job ad and presented it to 2,000 British adults.  The job was for a Financial Transaction Control Analyst at a company called Money Spark, and apparently would involve “receiving and processing incoming cash funds” and “transferring funds to accounts indicated by our managers”.  You’re way ahead of me here…

But this is what Santander found:

  • 32% of the 2,000 people questioned said that they would definitely apply for the job if they were looking for work
  • 27% said they would leave their current job to join Money Spark
  • even after being told that it was a front for criminal activity, 7% said they would still accept the job
  • although other research has shown that 91% of Britons are familiar with the term “money laundering” (and I attribute most of that to “Breaking Bad” and – recently – “McMafia”), 71% of this group of 2,000 had not heard of the term “money mule”
  • when it was explained to them, 69% thought that the maximum prison sentence for doing it would be three years, and a further 25% thought that it would attract only a fine or a warning – so the fourteen years on offer is going to come as a nasty surprise.

This Santander study comes hot on the hooves of statistics published by Cifas – “an independent, not-for-profit organisation working to reduce fraud and related financial crime in the UK” – in November 2017, which showed a worrying increase in the number of young people acting as money mules.  Their research revealed a 75% increase in the misuse of bank accounts involving 18 to 24 year olds during the first nine months of 2017, compared to the same period in 2016.  In all, there were 8,652 young money mules in those nine months – that’s a sizeable span (yes, that’s the collective noun for mules).

So roll your eyes all you want: people may think they’re wise to it all, but it seems they are not.  I’ve always assumed that they are called money mules because they carry money for other people, but it’s a smarter analogy than I had realised: as well as taking the burden (and this risk) for other people, they are also stubborn (in refusing to believe that they are vulnerable) and easily lured by small temptations.

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

Tax is a feminist issue

I have written before about the interesting differences between the genders when it comes to financial crime.  And now there is a new study, published in the December 2017 issue of the Journal of Behavioural and Experimental Economics (surely you subscribe), which explains how recent research has revealed that men are significantly more likely than women to evade paying tax.

During the study (the full results of which you can buy here for US$31.50), nearly 1,500 people who submit self-reported tax returns were surveyed in the US, the UK and Sweden.  They were asked to perform a mock clerical task which entitled them to earn a small amount of money.  They were also told that they would be taxed and were asked to self-report their income.  They were warned that there was a 5% chance that their earnings would be audited, and that if they were caught evading tax, they would have to pay a financial penalty double to value of whatever tax they were meant to pay.  Different experiments were conducted with varying tax rates and structures.

According to John D’Attoma – from the University of Exeter Business School and part of the research team: “We have found robust evidence that tax compliance is greater for women than men.  But men are more responsive to the incentives attached to paying taxes.  We wanted to test both willingness to pay taxes, and willingness to contribute to public services.  Our results suggest overall women are more willing to pay taxes and men respond more to the fact that they will get something, such as a public good, in return for their tax money.  Women are compliant even when they do not expect anything in return, and we had this result in every country where we ran the experiment.  This shows that equal pay and measures to bring more women into the labour market could really have an impact in shrinking the tax gap.”

In other words, if governments want to collect more tax, they need to get more women into the workforce, and eliminate the gender pay gap.  And if men want to evade tax more discreetly, perhaps they need to assume a female persona, now that this research has been made public.

Posted in Legislation, Money laundering, Tax | Tagged , , | 1 Comment

A rap on the online knuckles

AML regulation of the gambling sector in the UK is complicated; even I (writing as an AML obsessive) am sometimes confused about who is in and who is out.  However, one sector that is most definitely in is online gambling, and last week the Gambling Commission – as AML supervisor for this industry – had hard words for providers of online gambling services.  In an open letter, the GC chastised them for “common themes in failings, practices and concerns” in the areas of AML and social responsibility.

Looking specifically at the AML comments, some of them have caused me to drop my head to the desk and reach for the Jaffa Cakes.  (Father Christmas brought me a triple pack – smart man.)  Here we go:

  • “It was of concern that some MLROs were unable to provide suitable explanations as to what constitutes money laundering and had no understanding of the main principles under POCA” – that’s MLROs, not ordinary staff!
  • “MLROs had neither made nor kept any note of specific cases or referrals [of SARs] and there were no documented risk assessments” – how can an MLRO sleep at night, given the weighty legal responsibility of the role, without reams (or e-reams) of documentation?
  • “There was also lack of understanding as to what would constitute ‘tipping off’ under section 333A of POCA” – so presumably staff are telling customers that things are delayed or refused because of money laundering concerns…

As the BBC explains in its coverage of the letter, a third of all gambling in the UK now takes place online, so this is no longer a niche, specialist, low-value market.  Physical casinos have an excellent record for spotting money laundering – not least because they have centuries of experience of spotting criminal activity of all sorts – but their online cousins (or at least, those regulated in the UK) seem to be much less aware of the risks they face.  Ironic, given that their whole business is the calculation of risk.

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

Christmas concord and concensus

Experienced MLROs and other professional AML-ers will be familiar with the pattern of EU AML Directives: in essence, you get a new one every decade.  But thanks to the attacks in Paris in November 2015, and the subsequent realisation that the – at the time – shiny, brand-new MLD4 would not have done anything to prevent the movement of the funds underpinning the attacks, this pattern has accelerated.  Almost immediately a draft MLD5 was issued and trilogue discussions started, between the European Council (the authors of the draft), the European Parliament and the EU Commission.  Still, I panicked not, reasoning that such discussions usually take years.  (In fact, I’m counting on it for Brexit.)

But then came 15 December 2017.  On this date – perhaps keen to beat the festive traffic and get home to the mince pies or the stollen or the panettone – the negotiators came to an unexpected agreement.  Quite what this agreement looks like, we do not yet know, although chances are it’s stained with sherry circles.  But – thanks to the usual crisp summary by the UK Law Society – we do know what were the initial bones of contention when the three parties took their seats at the table:

  • the European Council suggested applying less stringent CDD to EU PEPs (domestic PEPs) than to non-EU PEPs (third country PEPs) – this was strongly opposed by the European Parliament
  • the European Data Protection Supervisor expressed concern about the conflict between beneficial ownership registers and people’s rights to privacy and data protection
  • the European Parliament suggested lowering the definition of beneficial ownership of a corporate entity from 25% to 10% – this was opposed by the European Council
  • the European Parliament said that the European Commission should consider a wider range of factors than heretofore in determining whether a country is a ‘high risk third country’.

We now wait to see how these matters have been resolved.  Although if it’s anything like the spirited scoring arguments we had during our family Christmas charades tournament, it may be some time before anyone suggests another Directive…

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

The money laundering Sisters of Mercy

For my last blog post before Christmas (this blog will now go silent until 3 January 2018), I’d like to share with you a heart-warming tale of financial crime and fatal disease.  Honestly, it’s more cheerful than it sounds, as explained by Sister Angela Mary Doyle in her speech to TEDxBrisbane at the beginning of this month.

In the 1980s, Queensland in Australia – like much of the world – was in the grip of an AIDS epidemic.  Then-premier Joh Bjelke-Peterson refused to commit public money to curb the spread of the virus among indigenous Australians because he believed it was a (deserved) punishment from God.  Sister Angela and her fellow Sisters of Mercy felt that this presented a “serious and divisive community question” to Queensland, and – as she said to her audience – “we Sisters waited, as did many others, for the medical profession, the churches or anyone to speak out against this stance of the government – but nothing happened”.  In the face of state government inaction and a growing number of sick people desperate for resources, the Queensland AIDS Council put out a call for help.

At the time, Sister Angela was the administrator of Mater Hospital, and she offered to create a link between the Queensland AIDS Council, the Sisters of Mercy and her hospital.  The Mater Hospital provided the Queensland AIDS Council with office space and three houses in South Brisbane where AIDS sufferers could stay free of charge.  Sister Angela also arranged to funnel funding from the federal government through the Mater Hospital and on to the Queensland AIDS Council, to conceal the support from Bjelke-Peterson.  Sister Angela continued to work in this clandestine fashion with AIDS sufferers for seven years, until a change of government allowed them to deal directly with the government and community.  As a result of their secret funding arrangement, the federal health minister at the time, Dr Neal Blewett, later described the Sisters of Mercy as “the most altruistic of money launderers”.  Merry Christmas, one and all.

Posted in Money laundering | Tagged , , , | 1 Comment

Training across the Board

At the end of each year I do a review of what I have done during that year.  Each time I issue an invoice I categorise it by jurisdiction, by sector and by activity type, and this enables me to see where and how I spend my time.  And this year, for the fourth year in a row, I am doing more “senior training” (i.e. for compliance teams and Boards) than before.  This is pleasing, as I really enjoy this type of training; these audiences are generally more AML-aware and more demanding, and that keeps me on my toes.  (It also means that I don’t have to explain the objective test of suspicion.  I swear that even as my coffin is being lowered into the ground, you will hear me intoning “The prosecutor will not have to demonstrate that you did know or suspect it was the proceeds of crime, only that you should have done”.)

I was therefore delighted to read in the “Guernsey Press” last week (what? you don’t subscribe?) that the local regulator is highlighting corporate governance as a key area of concern.  Anything that the regulator underlines is grist to my training mill, and according to the chief chap William Mason they will be on the lookout for “lack of understanding about a firm’s risk appetite…; weak non-executive directors and a lack of independent challenge in the boardroom; [and] inappropriate direction from group boards towards Guernsey subsidiaries, including instructions counter to local law”.  Hurrah, say I, for here we have the mainstays of my Board-level AML training: understanding of, and adjusting, the risk appetite; standing your AML ground as a director, and demanding more information so that you can challenge with gusto; and making sure that all AML decisions are localised to your own jurisdiction and not visited upon you by head office.  The more regulators who point out that AML responsibility starts at the top, and the more Boards who heed that warning, the happier I am.

Posted in AML, Regulation, Training | Tagged , , , , , , , , | 4 Comments

Do unto others

The Guernsey Financial Services Commission has been rather busy recently, what with working away on revised AML/CFT legislation and guidance, and now putting out a pair of publications to explain why and how they regulate the Bailiwick’s financial services sector.  In reading one of these – the one entitled “Regulatory Framework: A guide to financial services regulation in the Bailiwick” – I was heartened to come across this paragraph, which I will quote in almost its entirety: “Financial services regulation in the liberal democracies does not seek to produce an outcome where no institutions ever fail.  This is because to do so would result in such intense regulation, both in terms of standards and supervision that the cost to the customer would be unacceptable both in direct cost terms and through reduction in choice and availability.  In consequence, market participants, including customers, must accept that there is some risk of failure.  They should exercise prudence accordingly.”

Now indulge me if you will, and let’s make a few word changes: “AML in the liberal democracies does not seek to produce an outcome where no money launderers are ever taken on as clients.  This is because to do so would result in such intense CDD and monitoring, both in terms of standards and supervision that the cost to the customer would be unacceptable both in direct cost terms and through reduction in choice and availability.  In consequence, market participants, including customers, regulated entities and regulators must accept that there is some risk of failure.”

You see what I did there?  Yes, we could eliminate money laundering from the financial system by doing super-über-ultra-enhanced due diligence on everything, but that would make the system unusable.  And so, if we admit that choices have to be made and compromises struck, then everyone – regulators included – has to accept that sometimes even the best-intentioned, most AML-committed firm will get it wrong.  I hope that regulators are as understanding of those whom they regulate as they ask us to be of them.

Posted in AML, Due diligence, Legislation, Money laundering | Tagged , , , , , , , , , | 2 Comments

Nipping crime in the (Jersey lily) bud

Following on from my post a few days ago about the LIBOR fines being used as a force for good, I have been interested to read about the allocations made over the past decade in Jersey.  In response to a Freedom of Information request, the States of Jersey has detailed the amounts received by their Criminal Offences Confiscation Fund, and what they have done with that money.  The COCF was created in 1999, and statistics are available from 2004.  From 2004 to date, the Jersey authorities confiscated £16,520,435, and received a further £46,350,104 through asset sharing arrangements – making a grand total of £62,870,539.  There seems to be no pattern to the figures; they go up and down randomly.

When it comes to disbursements, however, there is a discernible shift in emphasis.  If you look at the grants paid from the COCF in the early years, nearly everything went back into the legal side of things, in the form of money paid to law officers, courts and the like.  In recent years, however, they have received much less, and instead grants are made to government departments for projects concerned with crime prevention – such as producing a guide for parents about drugs, and investing in bodycams for the police.  I find this fascinating, not least because it supports my position that crime prevention is the way to go – after all, that’s what AML is all about.  Of course we can to catch money launderers when we can, but the real aim is to make it such an unattractive option that they don’t even bother to try.

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

House of horrors?

With the acres of newsprint devoted in recent months to the topic of registration of beneficial ownership, it is interesting to consider the role of the registrars.  Companies – and other structures – are required to submit returns, and to update them regularly, and to make changes promptly to their details, but is any of that information being verified, or even checked?  Before the advent of the PSC register here in the UK, Companies House was a simple register of companies – in essence, a giant filing cabinet.  I send in my annual return to them, along with the appropriate fee, and anyone looking up my company on the CH system will find the information that I have submitted.  My suspicion has always been that you can send in whatever details you want, as long as you don’t mind signing a false declaration.

And it seems that I am not alone in thinking that.  In February 2016, an S Prichard made a Freedom of Information request to CH, containing several questions, including “Is it illegal to knowingly provide wrong information for registration to Companies House (i.e. false names, variations of names, false address, false DOB)?” and “What safeguarding measures do Companies House take to ensure the public are safeguarded from criminal activity such as fraud when viewing or obtaining information about a company on the Companies House website?”.  In response to the first question, CH explained that “it is an offence under the Companies Act to submit a false filing” – so that’s clear.  It’s the second question that really interests me, as the CH answer is this: “Companies House acts primarily as a registry of company information.  We must accept all documents sent to us in ‘good faith’, we do not have any powers to verify or validate the information contained on them.  We can only act within the parameters of the Companies Act as we have no investigatory powers.”

Now that CH is the home of the PSC register as well, I wonder whether things have changed?  And some Italian journalists wondered the same thing…  A fortnight ago, Italian newspaper Il Sole 24 Ore reported that some of its staff had gone through the motions to set up a company in the name of Matteo Messina Denaro (a notorious mafia boss currently on the run) and giving 10 Downing Street as the company address.  According to the Italians, their aim was to show that the UK company formation regime is too liberal and that “there is nothing easier than creating ghost companies that can hide illegal activities or recycle money”.  They stopped short of actually paying the £12 to form the company – so as not to break the law – and CH said that “had the application been submitted our systems would have picked up the false information and the incorporation would have been denied”.  To be fair, I can imagine that their systems might have spotted the address…  But perhaps a more subtle attempt might have succeeded, if the CH powers are indeed still the same – i.e. no power to verify or validate.

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Turned out fine again

The UK Chancellor’s budget is rarely a cause for much celebration, while the obligatory leaks in the days beforehand suck every element of surprise out of his announcements, but one little gem might have passed you by on 22 November (as it appears in the documents only and not in the speech).  In the old days, the Financial Services Authority kept all income from penalties levied on banks and used that income to subsidise the cost of its fees to banks.  But in 2012, the then-Chancellor George Osborne announced that “the multi-million pound fines paid by banks and others who break the rules will go to the benefit of the public and not to other banks”.  And so, under the Financial Services Act 2012, the Financial Conduct Authority committed to returning all income from “penalty receipts” (i.e. banking fines) above its enforcement costs to the Exchequer.

In the same year – 2012 – HM Treasury announced that the proceeds from LIBOR fines specifically would be used to support armed forces and emergency services charities, and “other related good causes that represent those that demonstrate the very best of values”.  (You see the point being made, that the LIBOR lot did not demonstrate these…)  And as part of his Autumn Budget 2017, current Chancellor Philip Hammond committed the final £36 million gathered in such fines to be paid over the next three years to eighty-two charities, including the Royal British Legion (to receive £1,500,000), Help for Heroes (£1,441,370) and the Army Benevolent Fund (£1,225,444).  This brings the total LIBOR lolly committed to charities since 2012 to £773 million.  And a further £200 million collected in LIBOR fines has been given to the Department for Education to spend on 50,000 apprenticeships.  Hurrah!

Posted in AML, Supervision | Tagged , , , , , | 3 Comments