Top tips for MLROs

And so here we are: my final weekly blog post.  I could think of no more fitting topic than my top five tips for MLROs, garnered over twenty-five years of working with you.

  1. Get people to care.  It’s all very well reminding staff about the legislation and penalties, about your policies and procedures, but we all know that no-one works to their highest standard unless they care about what they’re doing.  So tell them about people trafficking and drug overdoses and the sale of child pornography and the poaching of wild animals and the theft of state assets and how their tax bills are higher because so many people are evading their obligations.  And explain that money laundering is the crime that allows all other crimes to flourish – and that AML is our best weapon against it.
  2. Tell them stories.  Yes, I know your staff and directors are all grown-ups, but we all love a good story.  So research the latest money laundering convictions – particularly those that involve your sector and your type of clients (and you know there will be some) – and turn the bland details into an exciting tale of the triumph of AML (or at least, the triumph of money laundering investigation) over the forces of evil.
  3. Record everything.  We all agree that the risk-based approach is the most sensible, as it allows you to vary your AML according to the risk presented, but the price you pay for that is that someone in the future could question your decisions.  Did you assess the client correctly?  Did you put them into the right CDD category – and was that CDD applied without fear or favour?  To protect yourself, record it all: every client interaction, every search for corroboration, every deliberation, every decision.  Drum it into your staff that file notes are an essential part of it all – not just filling in the standard forms.
  4. Meet other MLROs.  You may be the only MLRO in your firm.  But even if you are lucky enough to have a compliance team around you, so that you can bounce ideas around and discuss tricky situations, you will only be seeing things from the perspective of your own firm and your own sector.  Join MLRO groups so that you can meet others and see the problems and solutions from a different angle.  They may well have already cracked the vexatious issue with which you have been wrestling.  Which leads me to my final tip…
  5. Be generous.  Give freely of your time and your expertise.  When I started out in AML – in the early days of the Industrial Revolution – I was quite guarded about “giving away” my information.  But then my natural blabbermouth emerged and I discovered – miraculously – that the more I shared, the more I was given in return.  I would email someone a relevant news story – and a month later they would send me a copy of an expensive industry report.  I would take a quick look at someone’s AML policy – and a year later they would commission me to rewrite their whole manual.  But don’t just do it for what you can get out of it: we’re an AML community, and it’s only by co-operating and sharing that we will succeed (and enjoy it while we do).

And one very last observation, if I may.  When people say to you (and they will) “but what’s the point of AML – as long as there’s money there will be crime and money laundering”, just remember this.  For everything in life you have only two options: do something or do nothing.  Doing nothing in the face of money laundering was never possible for me – nor, I assume, for you – and genuine effort is never wasted.  If you have made life awkward for even one criminal, if you have blocked even one penny of criminal proceeds from moving through the financial sector, you have done more than most people and that’s a triumph.  I salute you all.

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Regrets, I’ve had a few – well, OK, one

As I bring down the curtain on my AML life, I am reflecting in this penultimate post on what I have achieved, the direction my career has taken, and any opportunities missed.  To be honest – and this might come as a surprise to those who know me, and my ever-present Filofax, and my “dish of the day” list pinned onto the fridge every Sunday evening for the coming week – I didn’t have a career plan.  My main skill has always been communication – written and oral – and I stumbled across the subject of money laundering while engaged on another technical writing project.  And reader, it was love at first sight.  Once I knew what money laundering was, and how desperately so many people wanted help in explaining AML to their staff and clients, I was hooked.

Inexplicably, I have never grown bored with the subject – perhaps because it changes so frequently, with new laundering techniques, new legislation, new AML guidance and products and ideas.  And I have been honoured to have so many repeat clients – after all, the most honest positive feedback is another booking.  But there is one thing I did want to do that has eluded me.  It’s a confession of my vanity, but I longed to be part of a strategy-setting group.  I thought that with my experience of helping MLROs on a daily basis, I would provide an unusual – and essential – perspective when discussing, for instance, new AML guidance, or changes to legislation.  I would be the one saying, “Well, that’s an excellent idea, but could we use the word ‘must’ instead of ‘should’, so that the MLRO can demand, rather than request, an increased budget from the Board?”.  Or “That’s all very well in theory, but what is the Guernsey/Jersey MLRO meant to do to find PEPs who have been removed from all the UK/US-created commercial databases after twelve months, but are still PEPs under the local legislation?”.

I did try, oh, how I tried.  I responded to every consultation going, with detailed comments and hints at how I would be able to give oh-so-much-more detail in person.  I volunteered for every round table and discussion group and talking shop and breakout session.  I offered to review and edit documents for free.  I contacted every AML-ish gathering I could think of – such as JMLIT and all its predecessors in the UK – offering my time.  The only organisation ever to take me up was RUSI.  All the others said that, far from being an advantage, my “unique perspective” was the problem: I didn’t fit into any of the categories that they had decided to include.  I wasn’t a regulated entity, I wasn’t a trade body, I wasn’t a lawyer or a banker or a civil servant, and so no chair at the table would be right for me.  On reflection, I suspect I simply came across as an enthusiastic amateur.

But in all honesty, if I can look back at a career lasting a quarter of a century and have only one significant regret, isn’t that amazing?  And I know from the lovely emails and notes I have been receiving that my primary focus – “my” MLROs – have found my enthusiasm and championing of their cause to have been worthwhile.  I have loved it all.

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A welcome divorce

A significant change was made to my AML-ish life on 26 October 2005: on that date appeared the Third Money Laundering Directive, with the addition of “and terrorist financing” to its title, whereas First and Second had been pure money laundering.  I was not convinced at the time that AML and (what has come to be known as) CFT belong together.  The thinking, I suppose, was that they have some elements in common: they both involve those who wish to move their assets around the world without being subjected to too many questions, or without anyone wondering where the value has come from or what its ultimate destination and purpose might be.  And indeed, some of our AML skills – asking questions, looking at source of funds, monitoring relationships – can be adjusted, refocussed if you will, to address terrorist financing.  But it always seemed a bit lazy to me – a quick way for governments to say, there, we’ve covered TF as well as ML, and now it’s down to the regulated sector to get on with it.

From a personal perspective, it was an unfortunate development because I am much less interested in terrorist financing than I am in money laundering.  I’m not saying that TF is less important or less socially damaging than ML – just that I find it less intellectually engaging, as it tends to be more simplistic and repetitive in method.  It has taken longer than I thought it would for terrorist financiers to move to the more sophisticated end of the spectrum of financial services; as the most recent National Risk Assessment for the UK (published in December 2020) observes, “terrorist finance activity in the UK remains varied and typically low-level in scale [with] terrorists using tried and tested methods to move funds, including physically carrying cash out of the country, bank transfers and the use of money service businesses (MSBs)”.  In short, it’s boring – whereas money laundering is infinitely varied and fascinating.

And my belief that the two endeavours – AML and CFT – do not belong together is borne out by the fact that most regulators now make it clear to their regulated community that they must produce two separate (or at least, distinct) business risk assessments: one for money laundering and one for terrorist financing.  Some jurisdictions, such as Jersey, have gone even further and have produced entirely separate national risk assessments for the two.  Of course the two are related, but they are more like cousins than fraternal twins.  For the MLRO (and this soon-to-be-ex trainer) who has struggled to shoehorn the two disparate topics into one training session, this will be welcome confirmation that I Was Right All Along.

Well, that was exciting!  After a slow-ish start, the auctions for the MLRO mugs and cufflinks really took off, and all six items were snapped up by happy bidders.  In total, we raised an amazing £210 for Book Aid International, and I will be able to think of snappily-dressed MLROs sipping coffee in Guernsey and the UK.  Many thanks to all bidders – and if you’re ever running a charity auction yourself, I can highly recommend Jumblebee as the hosting service.

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I really do hate money laundering

As I reach the final weeks of my career in AML, several people have asked me what I will miss the most.  My husband – used, I suppose, to hearing the unvarnished version of events – has also asked me what I will miss the least.  And this is it: explaining to people why money laundering is wrong.  I am perfectly happy to spend time – hours, if needed – explaining why AML is a good idea and why certain businesses are well-placed to spot dodgy money and all the rest.  But I do find it baffling/vexing to have to justify my view that money laundering is bad.  It just is, OK?  It’s the enabling crime that allows criminals to profit from all their other crimes – it’s the Donny of the Osmonds, it’s the Michael of the Jackson 5.  The others would be nothing without their headliner (sorry, Alan, Wayne, Merrill, Jay, Marie and little Jimmy, and Jackie, Jermaine, Tito and Marlon* – it’s the truth).

Only last week, someone asked me during training, “Why do we bother with prosecuting for money laundering as well as the underlying offence?  If someone is charged with fraud, why do we charge them with money laundering as well – isn’t that just overkill?”  I pride myself on accepting every question with equanimity, but internally my dander was rising.  The act of money laundering suggests pre-meditation and planning.  It’s a deliberate attempt to keep the proceeds of the predicate crime, to continue benefitting from them.  And if it works, it is an incentive to repeat the offence.  The opportunist thief who sees an unattended wallet, fillets it and then spends the cash on Jaffa Cakes (just saying…) is one thing, but someone who opens a second bank account or sets up a shell company or coerces the owner of an online casino in order to have a route for their proceeds, well, that’s different.  Agony aunts everywhere might advise you to forgive a partner who strays in a moment of lust- or alcohol-fuelled madness that they quickly regret and vow never to repeat – but who would pardon someone who plans their cheating, who builds alibis, creates alternative email addresses and gets a second phone?  In some ways, the forward-planning and the determination to conceal wrongdoing is as bad as the actual wrongdoing – hence the hefty sentences for money laundering.

So no, I won’t miss that – I won’t miss explaining what should be perfectly self-evident: that I hate money laundering!

A final reminder, please, to consider taking part in my auctions for MLRO mugs and MLRO cufflinks – the mugs are being particularly keenly fought over, and I’d love to be able to send a hefty donation to Book Aid International.  Here are the links to the mugs auction and the cufflinks auction.  To take part, follow the auction link and then click on the photo on the right of the auction description (the one showing the current auction value and number of days left to run).  Both auctions end on 12 December 2021 – with a fair wind, your bounty will be with you by Christmas!

* I knew those names and birth orders without even checking – I’m a child of the 1970s.

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Another disappointing report card

You know only too well my views (here and here, for instance) on the ridiculously over-crowded AML supervisory “space” in the UK: we have three statutory supervisors (the Financial Conduct Authority, HMRC and the Gambling Commission) and then 22 “professional body supervisors” for the accountancy and legal professions, which are themselves supervised by OPBAS.  It’s not that I’m opposed to admin – indeed, on a good day, with an episode of “Desert Island Discs” playing in the background, I quite like it – but that I think such a complicated and bureaucratic structure needs to be shown to be working better (much better) than something simpler, to justify its existence.  And so each year I wait, willing to give the benefit of the doubt, for the publication of HM Treasury’s review of the effectiveness of the UK’s AML/CFT supervision arrangements.  This year, 19 November was the big day.

The report is, of course, written in government-ese, so allow me to fillet it for you.  You may recall that the FATF published their mutual evaluation report of the UK in December 2018.  Great was the excitement throughout Whitehall as it was declared the BEST MER EVER!  But those of us who are picky about these things read the whole 252 pages, and it turns out that “the quality of supervision varies among the 25 AML/CFT supervisors which range from large public organisations to small professional bodies” and that “there are significant weaknesses in the risk-based approach to supervision among all supervisors, with the exception of the Gambling Commission”.  We’ve had three years to put these faults right, so I’m expecting a glowing review, with all 25 supervisors at the top of their game, and all supervised entities quaking in their boots, knowing that any infringement will be, well, stamped on by even bigger boots.

Sadly, it seems that the supervisors are still not scary enough:

  • “The FCA reported that 33% of the firms subject to a desk-based review (DBR) and 47% of firms visited were classified as ‘generally compliant’. 6% of firms subject to a DBR were classed as non-compliant and 50% of firms visited were non-compliant with the regulations.”
  • “Of the 1,829 firms subject to supervisory activity by HMRC in 19-20, 24% were assessed as not compliant. However, 585 cases (32% of the total firms subject to either a DBR or onsite visit) did not result in a compliance rating being recorded in the figures returned to the Treasury.” [Eh? The supervisor forgot to keep records of 585 visits?]
  • “The Gambling Commission found that 53% of firms subject to DBRs and 56% of firms visited were assessed as non-compliant.”
  • “In the accountancy sector, PBSs reported that approximately 5% of the obliged entities were subject to a DBR and approximately 9% of these were classed as non-compliant with the MLRs [while] 5% of their population were subject to onsite visit, with 19% of those visited classified as non-compliant.”
  • “Legal sector supervisors reported that 6% of the obliged entities were subject to a DBR and 10% of these were non-compliant with the regulations [while] approximately 5% of the obliged entities were subject to an onsite visit, with 24% of those visited found to be non-compliant.”

Now, I fully appreciate that with a risk-based approach, supervisors should be skewing both DBRs and onsite visits to the riskier end of their supervised community, but don’t those figures still sound high to you?  Perhaps we need to go back to basics: instead of adding layer upon layer of supervision – the supervisor, then the supervisor of supervisors, then the government review of the supervisors and of the supervisor of supervisors, all bound about with Economic Crime Plans and Statements of Progress (again, doesn’t “20 of the 52 original actions have been delivered” – from a plan announced in July 2019 – sound a bit feeble to you?), perhaps we should ask one simple question.  How can we make the whole regulated sector take the Regulations seriously?  The current 25 options seem to be making a poor job of it so far.

And please do take part in my auctions for MLRO mugs and MLRO cufflinks – the mugs are being particularly keenly fought over, and I’d love to be able to send a hefty donation to Book Aid International.  Here are the links to the mugs auction and the cufflinks auction.  To take part, follow the auction link and then click on the photo on the right of the auction description (the one showing the current auction value and number of days left to run).  Both auctions end on 12 December 2021 – with a fair wind, your bounty will be with you by Christmas!

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Selling off the family silver (and ceramic)

As some of you may be aware, I am retiring from the world of AML at the end of this year.  In preparation for that I have been having a grand sort-out and have uncovered a couple of things that I commissioned as prizes for my MLRO workshops.  And I thought that it would be a good opportunity to raise some money for charity – specifically, Book Aid International (which “provides brand new, carefully selected books to thousands of libraries, schools, universities, hospitals, prisons and refugee camps around the world”).

Accordingly, I have set up two auctions – one for MLRO mugs, and the other for MLRO cufflinks.  Both auctions are running from today until the end of Sunday 12 December 2021.  There are four mugs up for grabs and two pairs of cufflinks – the four highest bidders in the mug auction will each get a mug, and the two highest in the cufflink auction will each get a pair of cufflinks.  The highest bidder in each auction will be invited automatically to pay via PayPal; I will then contact the other three mug winners and the other one cufflinks winner myself, to arrange PayPal payment.  You can bid wherever you are in the world – I’ll post anywhere.

The mugs are a hoot and highly coveted in MLRO circles – on one side they say “Money Laundering Reporting Officer”, and on the other “Manager of Laws, Rules and Obstacles”.  It’s then up to you which side of your nature you display.

The silver cufflinks are perhaps a more subtle display of your MLRO-ish allegiance – neat and stylish, they quietly proclaim your AML priorities to the world.  Ideal for wearing to those meetings with the regulator, I think.

So please do bid if you can – it would be lovely to see these going to good MLRO homes, and to be able to send a nice donation to Book Aid.  Here are the links to the mugs auction and the cufflinks auction.  To take part, follow the auction link and then click on the photo on the right of the auction description – the one showing the current auction value and number of days left to run.  This will open another window, where you can place your bid (you can put your maximum and the system will bid up to that for you if needed).  Happy bidding to you all!

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Please release me

The principle of mitigation is an important one in the justice system.  Once someone has pleaded guilty to an offence – or been found guilty of it after a trial – the attention of the court turns to sentencing, and this is when mitigation comes in (and will certainly be more generous in the former situation than in the latter).  The defence uses all of its skill to urge the judge (or magistrates) to move downwards from the “starting point” sentence, which is – at least in the UK – specified in the publicly-available sentencing guidelines.  And the prosecution usually rebuts these blandishments, seeking a more robust sentence.  What amuses me is how criminals who have been shown to be utterly professional and ruthless throughout the court process are keen to emphasise their vulnerability when it comes to sentencing.  I’m not saying that mercy should not be shown – I’m simply observing that it’s fun to watch the screeching U-turns.  Two recent money laundering cases comes to mind.

In the first, Bruce Bagley – a former University of Miami professor whose area of research was (*irony alert*) Latin American drug trafficking and organised crime – pleaded guilty in June 2020 to receiving US$2.5 million in deposits from bank accounts in Switzerland and the UAE that was embezzled from Venezuela, and then retaining a commission.  He has been held on remand since his arrest in November 2019, and as his sentencing hearing approaches his attorneys have filed a request that he be sentenced to time already served and released immediately, citing his age (75) and ill health, and saying that “it is altogether reasonable to predict that he will never be a repeat offender”.  (Personally, I would have gone for the more convincing “he has assured us that…”, but then I am a picky-pants.)  Prosecutors have said that Bagley has shown no remorse, and are asking for a sentence in the range 46-57 months (that’s 3.8 to 4.75 years – you’re welcome).  And this very morning he has been jailed for… six months.

And in the second, we have the case of Graham “The Wig” Whelan, in Ireland.  (No, I don’t whether he wears a wig, or is good at disguise, or listens in on private conversations – another mystery.)  Now, Mr Whelan is not a nice man: in March 2000, when he was only 17, he was caught with €1.5 million worth of cocaine and ecstasy in the Holiday Inn in Dublin, and jailed for six years.  This drugs bust was the start of a notorious feud between crime families (Whelan was part of the Kinehan family) in which sixteen people died.  And Whelan matured as a criminal: he racked up 33 convictions, including violent disorder, criminal damage, assault and grievous bodily harm.  In January 2019, Whelan was arrested at the Intercontinental Hotel in Dublin, in possession of €1,275 cash (when he was asked where it was from, he told officers he had got from “up his Swiss roll” and that they could keep it – ewww) and wearing an Audemars Piguet Royal Oak watch worth €28,000.  He pleaded guilty to money laundering – including paying his hotel bill of €2,140 with the proceeds of crime.  On 15 November 2021 he was sentenced to eighteen months in prison – and then asked the judge to delay sending him to prison until January, so that he could spend Christmas with his kids.  The judge declined this interesting offer – I am assuming on the basis of that other sound legal principle “you should have thought of that earlier”.

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Dull as dishwater

One of the most common requests I have from people commissioning my training is for case studies – stories about money launderers.  And I am more than happy to oblige, as researching these creatures is one of the guilty pleasures of my life.  Take yesterday, for instance, when this headline flashed across my screen: “Mexico’s anti-money laundering chief resigns amid scandal”.  Well, who could resist?  Turns out it might not be anything to do with money laundering – the head of Mexico’s FIU got married and on the private plane he hired to take “influential guests” to his wedding in Guatemala there was also a bag containing US$35,000 in cash, which was apparently correctly declared and intended to be spent on medical treatment in the US.  (But I have questions: how can the head of an FIU afford private planes, why does he have “influential guests”, and do doctors in the US really accept bags of cash?)

However, I think it is important to get the message across to staff – who are, after all, your front-line defence – that money laundering is not always, indeed not usually, as fun and glamorous as this.  Most money laundering is dull, pedestrian and unambitious.  As an example, I often tell the story of Ian Woodall, who worked for Westminster Council as an interim chief investment officer.  Between January 2009 and December 2012 he stole £924,841 from the council by tricking colleagues – who trusted his advice – into signing off on payments from their billion-pound pension fund by telling them that he was making investments.  And in a way he was: he was investing in his own house and car and – morally interesting, this – he paid off his tax bill at HMRC.  The laundering came about because Woodall transferred the money from his UK bank account to accounts he had opened for this purpose in Switzerland.  The theft was uncovered in September 2013 when an audit into the council discovered almost £1 million had been “unlawfully removed”, and in January 2019 Woodall was jailed for seven years.  No private jets, no glamorous birthday parties stuffed with influencers, no fleet of diamond-encrusted sports cars – but all the more missable for it.

If we feed staff a constant diet of high-level, high-octane, high-glam stories about top level criminals and corrupt PEPs, we risk them getting the idea that all money laundering is like that.  In reality, it’s mostly quiet, modest and sneaky – it happens every day, in most financial institutions, and we need to remind them of that.  So for every Obiang in your training, make sure you include a Woodall as well.

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Underfunded, under-supervised and over here

I know, I know: who thought I would spend my last few months as an AML-er shaking my fist impotently at the madness that is freeports?  But here we are.  I’ve written before (here and here) about why they’re such a bad idea from the point of view of money laundering, and how they will further damage our international reputation (such as it is…) for financial uprightness.  But recently I’ve spotted a few stories that address something more basic, more concrete, more old-fashioned if you will: the physical security of freeports (and customs warehouses and bonded warehouses).  (Quick and shameless plug, if I may: my fourth Sam Plank novel, “Portraits of Pretence”, includes a murder in a Thames-side bonded warehouse in 1827 – exciting stuff!)

You will remember, I am sure, HMG’s reassuring confirmation that “the government does not want the introduction of UK Freeports to lead to an increase in illicit activity”, and that “as part of the authorisation process, checks will be conducted on Freeport operators and businesses operating to ensure they do not present and undue risk and that Freeport operators have adequate policies in place to ensure control over the movement of goods”.  All very well in theory, but – as this article from the Guardian way back in November 2002 shows – we were already hampered by “the slow-motion disaster inside an underfunded and under-supervised customs”.  The culture was already “more business friendly [as] red tape was cut and the emphasis shifted to facilitating trade”, while “customs officers were pulled back from the ports and warehouses and staff cut”.  I appreciate that this is a report from nearly twenty years ago, but can we believe that HMRC has bucked the trend of every other government agency and in the past two decades has received more funding and better supervision?  And with our standard ports already under-supervised, how will we cope with the new freeports as well?

With an underfunded and under-supervised (and presumably demoralised) workforce, can we really be sure that people working in the freeports, or with access to them, will be screened and monitored robustly enough?  In August 2020 a man pleaded guilty to stealing nearly 300 iPhones from a customs warehouse in New Jersey in the US; he worked for a maintenance contractor to the Treasury Executive Office for Asset Forfeiture, which gave him access to the warehouse for a three-week period, and each day at work he stuffed a few phones down his trousers and boots.  (Actually, if he worked there for fifteen days, that’s twenty phones a day down his britches.  I assume they were Oxford bags.)  And just to pull us back to money laundering again, on 8 October 2021 three men were jailed in London for laundering £25 million from the sale of alcohol where duty was not paid, through their cash-and-carry warehouses.  I know it’s a different sort of warehouse, but the men – presumably identified by banks and solicitors as running a cash-and-carry operation and subjected to relevant CDD checks – moved millions through a network of shell companies.  The money laundering was exposed when investigators discovered that the shell companies – claiming to be legitimate alcohol sales businesses – had no storage facilities for the bottles and were fronted by people with no experience of the trade.  With such basic schemes still working so well, I fear for the future – and take little to no comfort from HMG’s desire that the new freeports should not lead to an increase in crime and requirement for them to have (sadly unambitious) “adequate” procedures.

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