Thrill-seekers and risk-takers

In a recent post I talked about the work of Keith Vaz as the chairman of the Home Affairs Select Committee, which has been responsible – among many other things – for a review into the UK’s proceeds of crime regime.  Everyone seems to agree that Vaz has been an excellent chairman, and his questions and pronouncements around proceeds of crime certainly seemed well-informed and balanced.  But, as you will all know by now, he has resigned because of a little local difficulty concerning allegations around rent boys.  Since then, my husband and I have been debating what it is that makes people with so much to lose take such (alleged) risks: is it that you have to be a risk-taker to reach prominence in the first place (shrinking violets get nowhere), and then your appetite for thrills and danger needs constant feeding?

It has rather put me in mind of KPMG’s regular report into “The Profile of a Fraudster”, in which they – through surveys of firms that have fallen victim to fraud – put together the main characteristics of white collar criminals.  In their latest version (published in May 2016 and summarised in this handy infographic), it seems that fraudsters are generally well-liked, co-operative (“fraudsters need to collude to circumvent controls”) and overwhelmingly male, and nearly half of them have “unlimited authority” (which is handy when circumventing those controls).  Interestingly, when you look at the full KPMG report and delve into the reasons fraudsters give for their actions, although greed is popular, over a quarter of them do it simply “because I can”.

I used to think that confidence tricksters were so-called because they gain your confidence, but maybe the name is cleverer than that: they do gain your confidence, but they also have confidence.  Confidence in their story, confidence in their abilities, confidence in the weakness of their victim – and this confidence prompts them to take risks.

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Box-tickers, and worse

I don’t often do this, as it feels a bit lazy (and I certainly don’t want to incur the wrath of Liam Fox), but a blog reader in the Isle of Man forwarded this other blog post to me (thanks, Tess), and frankly it’s so good that I think you all need to read it.  I won’t paraphrase – just read the original.  It’s by a chap called Geert Vermeulen, who runs a company called Ethics & Compliance Management & Consulting (ECMC).  All I will add is that this is surely the next step in the debate about “reliance” – placing your due diligence faith in checks done by others.

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Money laundering on the menu

I’m not a fan of sushi myself (it’s raw fish, guys – plus I have an uncle who breaks into singing “If you knew Sushi like I know Sushi” whenever he sees me), but plenty of people are.  And the Mizu Sushi Lounge in Puerta Vallarta in Mexico was very popular with the trendy set.  Until the US Office of Foreign Assets Control got involved, and on 17 September 2015 froze the assets of the restaurant, along with four other businesses in Mexico, on the basis that “these entities provide financial support to and are controlled by Mexico’s Cartel de Jalisco Nueva Generacion (CJNG), which OFAC designated earlier this year due to CJNG’s significant role in international narcotics trafficking”.

So how does it work, this laundering through restaurants?  Of course, even in these days of credit cards and contactless payments, they are still cash-intensive businesses – and it seems you can charge a lot for sushi (again, guys – raw fish).  And a successful restaurant is particularly useful (especially a high-profile one), as the bank will believe you when you bring in bumper takings every week.  After all, no-one is checking whether restaurants are full or empty – there’s no regular supervision, apart from the occasional food safety checks.  Indeed, the most efficient laundering businesses will have accounts at several banks so that they can pay in the same bumper takings many times over.  (So if you have a restaurant business as a customer and they keep moving money between your bank and other banks, you might want to consider this possibility.  Have you all been told the same story, each of you believing yourself to be their only bank?)

When it comes to this type of local knowledge, the local bank can really earn its keep.  Head office in Mexico City might have no idea about restaurants in Puerta Vallarta, but you can bet that the local bank staff know the popular spots and the places to avoid, the hot ticket restaurants and the ones that are empty even on Saturday night.  For those of you operating accounts for local restaurants and cafés, it might just be worth handing out the luncheon vouchers to get your staff to keep tabs on them.

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Making a money laundering ass of yourself

It will come as no surprise at all to you to learn that I am the Neighbourhood Watch co-ordinator for my little street in Cambridge – the Neighbourhood Witch, as my husband likes to call me.  (Don’t worry: he pays for it in small ways, like when I “forget” to record a crucial rugby match.)  Neighbourhood Watchery is not the curtain-twitching of years gone by; what we modern witches do is keep an eye on elderly neighbours, push protruding post through letterboxes so that absences are not advertised, and pass on warnings sent out by central NHW command.  Usually these are along the lines of “lock your shed” and “don’t leave valuables on display near open windows”, but recently we received one entitled “Don’t Be a Money Mule”.

Those of us seasoned by years in AML will be well aware of what a money mule is, but I thought it very interesting that public information is being promoted in this way – and from the tone of the email, it’s been sent out with more than half an eye to the bright-eyed young things about to start college or university courses and being, perhaps for the first time, in proud possession of their own bank account.  “Criminals advertise fake jobs in newspapers and on the internet in a number of ways, usually offering opportunities to make money quickly, in order to lure potential money mule recruits.  These include: social media posts; copying genuine company’s websites to create impression of legitimacy; sending mass emails offering employment; and targeting individuals that have posted their CVs on employment websites.  Students are particularly susceptible to adverts of this nature.  For someone in full-time education, the opportunity for making money quickly can understandably be an attractive one.  The mule will accept money into their bank account, before following further instructions on what to do with the funds.  Instructions could include transferring the money into a separate specified account or withdrawing the cash and forwarding it on via money transfer service companies like Western Union or MoneyGram.  The mule is generally paid a small percentage of the funds as they pass through their account.”

I’m sure I’ve mentioned this before, but I really do think that financial education – how to manage a bank account, what a mortgage is, the road to hell that is compound interest and so on – should be part of the standard school curriculum.  In the same way as we warn our children about stranger danger (and now, of course, online risks) we should also warn them about financial dangers, which can be devastating in a different way.  As the NHW email warns: “Money laundering is a criminal offence which can lead to prosecution and a custodial sentence.  Furthermore, it can lead to the mule being unable to obtain credit in the UK and prevented from holding a bank account.”

And for financial institutions providing accounts for all these new young customers, it is a timely warning to check that those accounts function in the expected way (arrival of a lump sum from government and/or parents, followed by speedy expenditure on beer and pizzas at the start of term, dwindling to porridge at the end).

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Going against the currency

A few posts ago I wrote about the Florida judge who did not consider bitcoin to be money in part because “it cannot be hidden under a mattress like cash and gold bars”.  Then I came across this BBC story about prisons in the US where the food is so unappetising that (cheap, tasty, calorific) ramen noodles have become the most valuable prison commodity.  And so my mind has turned to non-virtual alternative currencies: what do people use for trading (rather than investing) when money is unreliable or unobtainable?

In the days before money, of course, there were alternatives such as shells, blankets, beads, salt and peppercorns.  But sometimes communities find that legal tender is not of much use to them, while other items are much more coveted.  In UK prisons, for instance, the most desired items are spices (prison food is generally bland because pots of pepper and chilli powder could be used as weapons), tuna fish (good for healthy eating) and old favourite tobacco.  During the 1991 recession, the local authorities in Ithaca in New York state launched the Ithaca HOUR alternative currency.  HOURS, each now worth US$10 or an hour of work, are legal and taxable; they circulate within the community, moving from local shop to local artisan and back, rather than leaking out into the larger monetary system.  In the UK, we have several “complementary currencies” of our own: the Bristol Pound, the Brixton Pound, the Exeter Pound and the Lewes Pound.

Looking ahead, currency exchange Travelex has invented a currency that could be taken into space – the QUID, or Quasi Universal Intergalactic Denomination.  QUIDs are polymer discs inscribed with a map of our solar system so that aliens will know where the discs have come from, and are designed to survive the rigours of space flight (unlike, say, fragile money or plastic cards with mag strips).

With all of these options – not to mention the more immediate and real concern about virtual currencies – it might be time to consider a rebranding.  Perhaps “money laundering” is old hat, and we should be talking instead about “value laundering”.

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A welcome mat for money launderers

For some months, a Home Affairs Select Committee of the UK parliament, under the chairmanship of Keith Vaz MP, has been taking evidence about the effectiveness of the UK’s proceeds of crime regime.  It has not been a happy story, as you can imagine.  In short, it seems that the spirit is willing but the flesh is weak, as some of the key statistics reveal:

  • 640,000 offenders were convicted of a crime in the UK in 2014-15, over which period 5,924 confiscation orders were made – meaning that less than 1% of convictions led to a confiscation order
  • The overall enforcement rate of all confiscation orders was 45% – and this varied with the size of the confiscation order (e.g. 96% of orders up to £1,000, and 22% of orders above £1 million)
  • At September 2015, there was £1.61 billion total debt outstanding from confiscation orders (30% of which is interest)
  • It is estimated that at least £100 billion is laundered through the UK every year
  • By the end of October 2015, the National Crime Agency had closed 119 suspicious bank accounts in the UK.

There is a great deal of meat in the committee’s final report (and it is well worth reading – at least the “Conclusions and recommendations” section), but focusing on the money laundering elements of it, they reserve much of their ire for the UK property sector: “It is astonishing that just 335 out of some 1.2 million property transactions last year were deemed to be suspicious.  This suggests to us that supervision of the property market is totally inadequate, and that poor enforcement has laid out a welcome mat for money launderers.  The recent policies announced by the Government must include enhanced supervision of the property market and both sides of the transaction – buyers and sellers – must be included.”  The report also recommends the extension of the AML regime to the property letting sector: “At the moment it is far too easy for someone intent on laundering money to buy a property with their ill-gotten gains, and rent it out in a very buoyant and robust letting market, and take in clean money in perpetuity.  We recommend that, as with estate agents and other professional services, letting agents must use the Suspicious Activity Reporting regime (SARs) system and undertake appropriate due diligence when taking on new clients.”

I have long campaigned (in that inimitable, nagging, pleading way of mine) for estate agents to take their AML obligations more seriously – you’d be amazed at the enquiries I sometimes receive from them, looking for ways to interpret the legislation so that the particular relationship they want to foster is excluded.  And it has also seemed daft that letting agents are not in the AML family: they provide a professional, money-based service to clients, so how are they so very different from accountants and TCSPs?  Of course, the committee’s recommendations will have to go to the back of the post-Brexit line – despite their frequent references to “returning to this issue next spring” – but we can only hope that the flesh is invigorated by their findings.

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Potential publication: your views, please

This is not like my usual blog posts, which is why it is appearing at the weekend.  I have had an idea for another AML project – you know how I love a juicy AML project – and I want your views.  I am wondering about writing a book about money laundering and AML, but this time for the general public.  The topic of money laundering appears more and more in the press and the news, just mentioned in passing, and I thought there might be scope for a slim volume (along the line of the piggies) explaining what money laundering is, why it is so damaging and what happens if criminals manage to infiltrate (and perhaps ultimately control) financial and related institutions (including wider concerns, like the reduction of money available for essential public services, and the general loss of trust in the financial system).  I would then talk about AML measures, in a bid to explain why banks and other are so demanding these days in their due diligence enquiries, and what is actually required by law rather than by the procedures of individual institutions.  (For this last bit, I would have to avoid mention of specific legislation – not least because that would make for dull reading – but talk instead of AML principles, which would also internationalise the book.)

Now I would enjoy writing such a book, of course – I enjoy writing anything about AML.  And the readers of this blog might enjoy reading it.  But do you think that there would be general public appetite for something like this?  I could try to persuade, for instance, financial regulators and banking bodies to promote it, as part of a public education remit, but I know from other endeavours that such organisations are usually reluctant to endorse commercial products.

Any comments, suggestions, warnings and/or encouragement will be gratefully received!

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The forgotten victims

Sometimes, what with all the law and policies and procedures, it is easy to forget that every money laundering or white collar crime case is about people.  Whether they are the perpetrators or the victims, the laundering or other crime is going to have a lasting impact on their lives.  And this goes, perhaps even more so, for those around them: their families.  As regular readers of this blog will know, I have now become friends – I am very proud to say – with the ex-wife of a money launderer, who herself has spent years trying to disentangle herself from her husband’s financial “arrangements” and to protect her children from his influence.  At more of a remove, I am also aware of the trials (literally) and tribulations endured by a woman who blogs as “Otto’s Mummy” and whose husband was send to prison for theft from his employer.  (It all started in March 2011, so you’ll probably want to read her blog backwards.)  Now not for one second am I minimising or dismissing the crimes committed by these two men, nor indeed am I saying – given the minimal information I have about both situations – that they have much in common.  Apart, that is, from families dealing with the fall-out.

And that’s why I was fascinated to read about Progressive Prison Ministries, an organisation in Connecticut dedicated to helping “individuals, families and organizations with white-collar and other nonviolent incarceration issues”.  It was set up by Jeff Grant, a former corporate lawyer who served nearly 14 months in prison after pleading guilty in 2006 to wire fraud and money laundering, and his wife to provide guidance and help to those caught up in white collar crime, which often plunges them into dilemmas very foreign to them.  For instance, one wife found that after her husband had been charged with white collar offences, the regulator froze her bank account and so she could no longer buy food; the Grants told her how to apply for food stamps and heating subsidies.

This is a typical problem, according to Lisa Lawler on her “White Collar Wives Club” blog.  The ex-wife of a convicted white collar criminal herself, she writes: “White collar wives are mostly seen as entitled, spoiled and undeserving of pity and in most cases, are not considered victims at all… The truth is that wives and children are the FIRST victims of many white collar crimes as a result of the acute breach of trust and ensuing financial ruin that is brought upon them by a man whose primary obligation is to protect his family.”

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When is money laundering not money laundering?

When it’s not money, of course.  In a recent case, a judge in Florida declared that bitcoin is not money, and therefore that the man who was accused of selling it to an undercover detective who said that he wanted to use it to buy stolen credit card details could not be charged with money laundering.  The status of bitcoin – other virtual currencies are available – has been under debate almost since it was first mined, and the fact that different countries, and indeed different judges within those countries, are coming to different decisions is not going to help.

As a magistrate I have great respect for judges (that sounds sarky, but it’s really not – I can imagine how difficult it is to make decisions in isolation rather than in discussion with two colleagues), but I do wonder about the reasoning of that judge in Florida, Teresa Pooler, who said that “bitcoin may have some attributes in common with what we commonly refer to as money, but differ in many important aspects – they are certainly not tangible wealth and cannot be hidden under a mattress like cash and gold bars”.  Indeed, but the laundering legislation does not apply only to tangible wealth – it applies to assets and value.  I am also slightly baffled by the reasoning of the defence lawyer, that his client did not launder money but simply “sold his own personal property”… to a man who said that he was going to give it to Russians in exchange for stolen credit card details.  Now I’m a novice at Florida legislation, but if I, for instance, sell my house in Miami to someone who tells me clearly that he is going to turn it into a crack den and brothel, isn’t that a crime of some sort – if not money laundering?

The Florida decision is simply the latest in a long line of contradictory findings.  What is certain is that those who do seek to use bitcoin to move criminal assets will now flock to the Sunshine State, both virtually and in reality.

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The luxury of dithering

So here I am, back from my summer writing retreat, and normal blogging has resumed.  It was quite a relief to be out of the country – in Switzerland, to be precise – and get away from all the Brexit debate.  I find it very unsettling not knowing even when a decision will be made about what might happen – and it was not terribly comforting to hear that the Swiss, who had a similar referendum with a similar result (i.e. we don’t want immigration) three years ago but have done nothing about it because it would be too damaging to their economy, are now waiting to see how the UK squares this circle.

One thing I do know is that not knowing is something of a luxury that the regulated sector will not be able to afford for long.  Bear with me while I try to explain my concern.  MLD4 must be transposed into the national legislation of EU member states by 26 June 2017; the UK is partway through this process, with (I believe) a draft new set of ML Regulations all but ready to release when the referendum upset the apple-cart.  One of the (simpler) requirements of MLD4 is that the definition of PEPs be extended to include domestic PEPs.  Let’s assume that the UK does not get round to implementing MLD4 by 26 June 2017.  (I’m assuming this because AML and MLD4 will have slipped way down the agenda now that UK politicians and civil servants are dealing with more fundamental issues.)  On 27 June 2017, it will be expected that the UK – still being a member state of the EU at the point – has implemented all relevant legislation, including MLD4.  If, say, a German bank contacts its UK branch, can/should/will it expect that that UK branch will have done a higher level of due diligence on, say, Nigel Farage (from 26 June 2017, a domestic PEP)?  Should the UK branch of the German bank be putting in place systems to do this, even though the UK obligation will probably not be in force by then?  Can the UK be fined by the EU if we miss the MLD4 deadline?  (I think the answer to this last one is yes.)  And would we pay such a fine, if we’re on our way out anyway?

I know it’s a rather silly example, but my concern is genuine: changes to in-house AML procedures take time, and the sensible MLRO will want to introduce, test and train on them before they are actually required by legal deadline – so should UK MLROs be anticipating MLD4’s requirements anyway?  Or will the UK abandon the implementation of MLD4, and bring in its own version, which may differ?  I know we’re not the only directive caught in the middle like this, but for practical purposes, for the sake of those whose (personal, legal) duty is to get AML right, we need clarification as soon as possible.

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