I beg your pardon

Baron Black of Crossharbour is not my favourite person, as you may imagine, and it was a dark day in May 2019 when Donald Trump granted him a full pardon, citing Black’s “broad support from many high-profile individuals who have vigorously vouched for his exceptional character”.  (Exceptionally good or exceptionally bad, you might well ask.)  We should have guessed that this was only the start of Trump’s rehabilitation of white collar criminals.

On 18 February 2020 Trump announced seven pardons and four commutations of sentence for criminals convicted of federal crimes.  But rather that concentrating on ordinary people languishing behind bars or applying any deliberation to the process, his fickle favour fell on people he liked and whom he felt had (like him…) been victimised by a legal justice system that dared to question their entrepreneurial spirit, such as former junk bond king Michael Milken, former New York police commissioner (and tax fraudster) Bernie Kerik and former Illinois governor Rod Blagojevich, who was caught on tape trying to sell a seat in the US Senate.  He also pardoned Paul Pogue (convicted of evading half a million dollars in taxes and sentenced to three years’ probation) after Mr Pogue gave hundreds of thousands of dollars to the Trump Victory Committee.  (Yes, that’s really a thing.)

The message these pardons send is clear: white collar crime isn’t really that serious (Trump’s own life is certainly testament to that belief), and if you’re caught, sharing your takings with the man who can pardon you is probably a good idea.  It reminds me of Cardinal Wolsey seeking to stave off disaster by handing over Hampton Court Palace to Henry VIII – another capricious and moody despot.  And it does show some forward-planning.  After all, Trump’s first national security advisor Michael Flynn is currently awaiting sentencing for making false statements to the FBI.  Trump campaigner Roger Stone has been convicted of witness tampering and perjury.  Michael Cohen, Trump’s long-time lawyer, is in prison for tax fraud and bank fraud.  The president is doubtless laying the groundwork for their eventual pardons.  And the most cynical among us might say that his concerns are even more personal: he is downgrading white collar crime in the public mind so that if (surely, oh surely: when) he is himself found guilty of financial misdoings, he will be treated with leniency.

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Free for all

Just as Voldemort’s name cannot be used for fear of conjuring him up, so too we have declared a taboo in our house on the B word (the one to do with the EU) and on the name of the Prime Minister.  Nonetheless, we are going to be living with the consequences of both for many years, and regular readers will know that my heart breaks about immigration and fellowship, while my head worries about co-operation – in education, in science, and in law and justice.  I have stopped my ears to the endless bumptious pronouncements of the man in Number 10 and choose instead to judge him on his deeds.  And the measure of the man has become apparent even more quickly than I had feared: his minions have launched a consultation into the creation of ten freeports by the end of next year.

You can detect his touch in the introduction to the consultation paper, which tells us that “in the Ancient World, Greek and Roman ships – piled high with traders’ wines and olive oils – found safe harbour in the Free Port of Delos, a small Greek island in the waters of the Aegean”.  And now it is the turn of the UK (whatever bits of it remain at the time) to create freeports that will “serve as humming hubs of high-quality manufacturing, titans of trans-shipment and warehouses for wealth-creating goods and services”.  (I must admit I thought that consultation documents were meant to maintain studied neutrality in order to garner an objective response.  Apparently not.)  And to create these humming hubs, “we’re also looking at regulatory flexibilities, funding and challenges which will support innovators generating new ideas”.  And there it is: “regulatory flexibilities”.  Every time we hear a phrase like that, a compliance officer loses his wings.

Although the usual lip-service is paid to meeting the requirements of AML legislation, no mention is made of the EU’s “Supranational risk assessment of the money laundering and terrorist financing risks affecting the Union” which was published in July 2019 and named freeports as one of the new sectors posing greatest risks.  Nor of the handy document published by the European Parliament in October 2018 on “Money laundering and tax evasion risks in free ports”, which puts it rather bluntly: “Free ports are conducive to secrecy.  With their preferential treatment, they resemble offshore financial centres, offering both high security and discretion and allowing transactions to be made without attracting the attention of regulators or direct tax authorities.”  And others are as unconvinced as I am.  Shadow Chancellor John McDonnell said that “there is very little solid evidence that so-called freeports create jobs or boost economic growth [and] this plan represents a levelling-up only for the super-rich, who will use freeports to hoard assets and avoid taxes”.

If you’d like to have your say, the consultation – open to anyone, anywhere in the world – will run until 20 April 2020 and you can respond online.  As for me, my say hasn’t counted for much recently, but I’ll carry on having it.

Posted in AML, Bribery and corruption, Money laundering, Organised crime, Supervision, Tax | Tagged , , , , , , , , , , , , | 4 Comments

Regrets, he’s had a few

Here in the UK – and I am sure that many countries will have something similar – we have an organisation called the Restorative Justice Council.  The purpose of restorative justice, as explained on the RJC’s website, is “[to bring] those harmed by crime or conflict and those responsible for the harm into communication, enabling everyone affected by a particular incident to play a part in repairing the harm and finding a positive way forward”.  Glancing through their case studies, I can see instances of assault, burglary, armed robbery, sexual abuse, racist hate crime, death by dangerous driving, and murder.  But apart from the financial loss that would accompany a crime such as burglary or robbery, I cannot see any specific examples of financial crime or money laundering.  And this has made me wonder whether the perpetrators of such crimes see their actions as truly criminal.

Early on in my AML career I was talking to a fraud squad detective – oh, the heady days of sitting in a dismal office in that grim tower block on Theobalds Road in Holborn – and he said that all the money launderers he had ever interviewed considered themselves rather clever: a cut above the criminal classes, they were simply outsmarting the banks and the lawyers [or were bankers or lawyers…] by keeping prying eyes away from their clients’ money.  I can tell you, dear readers, that that revelation stiffened my sinews and is probably in no small part responsible for my loathing of money launderers and my dedication to AML.

And so it brought a burst of joy to my cynical little heart to read a recent blog post on something called “Fraudster’s Diary”.  To be honest, I can’t remember when I signed up to receive his posts – and they’re certainly rare creatures.  But his latest one, published on 20 January 2020, is worth reading.  The author is, as you might guess, a fraudster.  And the blog post explains his feelings on discovering that his own elderly father had been scammed (which sounds such a jolly word, so let’s go with “cheated” instead) cheated out of £18,000 by another fraudster – indeed, someone known to the author.  And the realisation of the harm finally dawns on him: “I had carried out similar scams, without a second thought, to dozens of mums, dads, and grandparents.  My shame seemed boundless.  In that moment, I decided to stop.”  If only more financial criminals felt the same way.

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The sniff test

The relationship between jewellers and the AML regime is a complicated one.  For several years most jurisdictions have recognised the concept of the “high value dealer” – under UK legislation, that’s “a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods), when the trader makes or receives, in respect of any transaction, a payment or payments in cash of at least 10,000 euros in total, whether the transaction is executed in a single operation or in several operations which appear to be linked”.  But the Fifth Money Laundering Directive has extended the AML family (regardless of method of payment) only to bring in “art market participants” – and this does not, for the most part, encompass jewellers.  In short, jewellers are in only if they accept large amounts of cash.  And boy oh boy, do Trotters Jewellers of Bethnal Green accept large amounts of cash.

Did you see it?  Did you watch the Channel 4 documentary called “Diamond Dealers and Cockney Geezers”?  If not, you have a fortnight left to watch it on catch-up – go and feast your eyes.  If bling’s your thing, Judd, Kallum and Alex are the chaps for you.  You may even be tempted by “the chandelier” – a normal watch sent to Hong Kong to be plastered with 100 carats of diamonds and then priced at £100,000.  For my part, I was drawn in by the artfully angled shots of their cash-counting machine, and – with this visible evidence of their HVD status – I looked forward to a detailed explanation of their CDD procedures and source of funds enquiries.

I can report that this seems to consist mainly of asking customers, “What do you do, then?” as the customer hoicks great wads of cash from their holdall (or even from a McDonald’s bag, apparently).  One such customer, Radley, explained that he’s a brickie and was buying himself a £12,000 watch as a reward for “grafting my arse off”.  (And only, I am sure, after paying the required tax on his earnings.)  Of course, CDD does not make riveting viewing for most people and perhaps the trio were doing more behind the scenes, but as they boasted of their customers being “city boys, gangsters, travellers and local crackers” – as well as “local amateur horticulturist” (aka cannabis farmer) Grizz – perhaps not.  None of the lads admitted to being the MLRO.  And as for source of funds, they observed that “you can tell where the money’s from by smelling it – if it stinks of weed, well, that’s standard”.  I assume this documentary is required viewing at HMRC…

Posted in AML, Money laundering | Tagged , , , , , , , , , | 9 Comments

Taking money laundering to ‘art

“I don’t know much about art, but I know what I like.”  That (very common) attitude might be OK when you’re standing in a gallery trying to make sense of something you’ve seen, but it won’t pass muster if you’re trying to comply with the amended money laundering Regs here in the UK – or indeed with any MLD5-derived legislation.  (And you must: they came into force on 10 January 2020.)  Now you do need to know a bit about art, because the AML family (by which I mean, the group of businesses required to comply with the AML obligations) has been extended to include “art market participants”.  These are defined in the amended Regs as “a firm or sole practitioner who (i) by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more; or (ii) is the operator of a freeport when it, or any other firm or sole practitioner, by way of business stores works of art in the freeport and the value of the works of art so stored for a person, or a series of linked persons, amounts to 10,000 euros or more”.  So far so good, but think back to that first sentence and your bafflement in the gallery: just what is a “work of art”?  The Regs are not much for philosophical debate, and make it unromantically clear that “‘work of art’ means anything which, in accordance with section 21(6) to (6B) of the Value Added Tax Act 1994 (value of imported goods), is a work of art for the purposes of section 21(5)(a) of that Act”.

I can barely contain my excitement as I turn to the VAT Act 1994, which tells us that a work of art can be (in short):

  • a painting, drawing, collage, decorative plaque or similar picture
  • an original engraving, lithograph or other print
  • an original sculpture or statuary
  • a sculpture cast
  • a tapestry or other hanging
  • a ceramic
  • an enamel on copper, or
  • a photograph

but not

  • a technical drawing, map or plan
  • “any picture comprised in a manufactured article that has been hand-decorated”, or
  • scenery (including backcloths).

And the picture (hah!) is further enhanced (hah again!) by the addition to the Regs’ list of high-risk transactions of “transactions related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or other items of archaeological, historical, cultural or religious significance or of rare scientific value”.  If you hoped to escape the grubby world of money laundering by immersing yourself in beauty and culture, think again – we’re all one big happy family now.

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

Squid’s in

Something of a departure for this money laundering-obsessed blog (and an extra to my weekly post, which will appear as usual on Wednesday), but please indulge me.  I have been running a one-person AML consultancy for nearly a quarter of a century now and it occurred to me that I know a thing or two about working alone.  Many people these days are taking the (voluntary or reluctant) plunge into self-employment or consultancy and I thought they might appreciate some thoughts on how to enjoy the solo working lifestyle.  And thus was born “The Solo Squid: How to Run a Happy One-Person Business”.  As the back cover blurb explains, this is very much not a book on how to set up a one-person business: it is about how to enjoy working alone.

It’s out now on Amazon, as both a paperback and a Kindle book [the two listings should link soon], and I hope to get it into a few independent bookshops as well.  I have registered it with Nielsen (the UK’s book database) and once they have catalogued it, you will be able to order it from any bookshop in the land.  So if you run a one-person business or are thinking of doing so and wondering how to make the most of the experience, the Squid could be the book for you.

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Heading for the exit

One of my great ambitions – which I achieved for a short while in one jurisdiction – is to facilitate communication and foster understanding between the three sides of the AML triangle: regulator, law enforcement and industry.  Now, that’s a big ask, and my particular method was to offer training to all of them and to take, as the focus of that training, what is actually achievable in the world of AML.  So I told the regulator and law enforcement, for example, what MLROs could actually do with regards to CDD (e.g. it’s all very well telling them that they have to verify beneficial ownership, but you must recognise that very few jurisdictions – yet – offer reliable registers).  And I reminded MLROs and law enforcement that regulators are charged with protecting the stability and reputation of their jurisdiction and that they will, if circumstances demand it, cut loose a rogue institution in order to preserve the rest.  And I helped MLROs and regulators to understand that law enforcement are often not financial experts and that they have to present a certain standard of evidence to the court in order to be allowed to proceed.  It was great fun – I loved it.  But there isn’t much call for that sort of training: most people just want to know the law and what they have to do to stay out of prison.

So when I see a regulator trying something new to fill this gap in understanding, I give a cheer of approval.  It’s the Guernsey Financial Services Commission, and a couple of weeks ago they announced a six-month pilot initiative of exit interviews for MLROs and/or MLCOs [that’s a Guernsey/Jersey thing, the Money Laundering Compliance Officer] who leave their role at a bank or fiduciary firm from January 2020 onward.  To quote from their website, “the aim of the individual meetings is for regulators to develop a deeper understanding of the MLRO/MLCO role(s), responsibilities and challenges faced”.  Now I know that there will be some who will say that it’s none of their business and it’s just meddling and it will encourage people to dish the dirt on unpopular colleagues, but I’m assuming that an MLRO thus summoned can simply say, “I’m leaving for personal reasons” or “I just didn’t like the work”.  And for an MLRO who is leaving because the workload is too great or because he is not receiving the support he needs from his Board or because he has lost the will to fight the tide of money laundering that is overwhelming his jurisdiction [not a likely scenario, but some might feel it], well, isn’t it right that the regulator should know that?  Oh what I’d give to be a fly on the wall at those interviews, and I very much hope that the regulator will (a) continue the initiative after the six month pilot, and (b) publish their (anonymised) findings from these interviews.  In the meantime, I salute the bravery and imagination of the GFSC.

Posted in AML, Money laundering, Regulation | Tagged , , , , , , , , , , , , | 4 Comments

The special joy of damage joy

I remember the first time I was told what schadenfreude means – pleasure derived from another’s misfortune.  I quickly realised what an essential component of life it is, and thought how odd it is that only the Germans have seen the need to coin a special term for it.  (Apparently it means literally “damage joy”, which just about does it.)  As an AML obsessive, schadenfreude is sadly all too rare – too often, the baddies triumph – but one reliable source for a regular top-up of this emotion is the National Crime Agency’s list of ancillary orders.

Ancillary orders are given alongside other sentencing options, and provide necessary support to those sentences – perhaps by redressing harm caused, or by preventing repeat offending or victimisation.  Here in the UK we have a pleasing array of ancillary orders, including compensation orders, driving disqualification orders, football banning orders and restraining orders.  But my very favourites are the ones designed to make life a right pain in the proverbial for financial criminals.  Yes, let us all give thanks for the financial reporting order (FRO), the travel restriction order (TRO) and the serious crime prevention order (SCPO – although wasn’t he that little gold fellow in the “Star Wars” movies?).

FROs, TROs and SCPOs are all administered and monitored by the NCA’s Lifetime Management team, and these marvellous people produce and regularly update a list (linked to from their web-page) of all the scoundrels whose freedom is currently being curtailed by an ancillary order.  It gladdens your little heart to read it, especially when you see a whole family not enjoying the fruits of their criminal labour.  At the moment, for instance, the Fitzgibbons of Manchester – I’m guessing it’s mum Christine and sons Ian and Jason – are living with a full set of FROs, TROs and SCPOs, requiring them to report all their financial transactions, accounts and assets, report if they move house, and hand in their passports.  They can be pleasingly specific, these orders: money launderer Yongheng Jin, for instance, is prohibited from possessing cash, coins or cash-counting machines, while money launderer Roger Budgen is forbidden to use telephone kiosks and internet cafés.  It’s not a long list, it’s fun to read, and it would be a handy check to make against your client list, just in case…

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A piggy new year to everyone

Welcome back, one and all.  Well, wasn’t that an exciting festive period?  Just as I was undoing the top button on my skirt, ready to launch into the yard of Jaffa Cakes that my husband (he knows me so well) had bought, HMG had a little unexpected present for me: the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.  Yes, this piece of legislation is the UK’s response to the European Fifth Money Laundering Directive, as it serves to amend the current 2017 Regs to bring them into line with MLD5.  Yes, it was published at about 4pm on Friday 20 December 2019.  And yes, the requirement is to meet the deadline for compliance with MLD5… which is 10 January 2020.  The day after tomorrow.

“Leave well alone,” counselled my husband, laying a trail of Jaffa Cakes from my office, across the garden and into the festively-decorated house.  “No-one will notice anything until the new year.”  But I am constitutionally incapable of leaving anything well alone, and particularly not anything to do with my AML-ish endeavours.  And so I spent the evening of that Friday and the whole of the pre-Christmas weekend on three tasks:

  • Taking the new amendment Regs and cutting and pasting them into the 2017 Regs to create a Frankenstein-ish tracked changes version
  • Going through the changes very slowly to create my own crib sheet of what had altered
  • [This was the biggie] Removing all the UK piggy books (that’s five staff versions and one version for NEDs) from sale on Amazon and updating them all to reflect the changes and reformatting them all and republishing them.

The result, dear readers, is that as you return to your desks this week, refreshed of mind and enlarged of tum, the UK piggies are waiting for you, fully updated and ready to lead your staff through the thrills and spills of the amended Regs.  You can find purchase links to the staff versions here, and the NEDs version here.  Happy new year to everyone (except money launderers – I hope you rot).

Posted in AML, Legislation, Money laundering, Publications | Tagged , , , , , , , , , | 6 Comments

Take my word for it

I have written before about the reliance dilemma – the fact that nearly everyone’s AML legislation and guidance says that although you can delegate some or all of your AML work, you cannot delegate the responsibility for that work being done to the correct standard.  As our own dear JMLSG has it in paragraph 5.6.4 of Part I of their guidance, “the ML Regulations expressly permit a firm to rely on another [regulated] person to apply any or all of the CDD measures… the relying firm, however, retains responsibility for any failure to comply with a requirement of the Regulations, as this responsibility cannot be delegated”.  But the reliance dilemma is actually turning into a much more vexatious issue: although current legislation (and this is not set to change, as the topic of reliance is not addressed for reform in the Fifth Money Laundering Directive) says clearly that you can rely on other regulated firms, more and more evidence suggests that being covered by AML obligations (“regulated”, in my shorthand) is no indicator of reliability.

I first raised this concern myself with regard to the HSBC situation, back in 2015, when I mused about the concept of “reputable banks”.  And now Transparency International have expressed their own doubts about the reliability of CDD checks done by corporate service providers – even those regulated in the most reputable jurisdictions.  Like mine.  Yes, we’re talking about the tell-it-like-it-is Formations House, formerly of 29 Harley Street in London, which TI describes as a “company mill” and which has set up companies for “a Swedish Hells Angels boss, an Iranian state oil company, the Italian mob, and a fake Gambian bank”.  You can read the full exposé on the TI website – it’s quite the story.  And horrifyingly, Formations House is still in business (now at 22 Harley Place) – with a website offering a central London address for only £50, and a less than spectacular (albeit rather elderly) rating of 1½ out of 5 on Trustpilot.  But the frightening thing is that to some poor MLRO in a distant land, trying his best to do his CDD checks, an assurance from something called Formations House (heavens, it almost sounds like a government agency) based in the famous Harley Street in London would sound rather good, wouldn’t it?

So before we spend too much time debating the nature of reliance, perhaps we should consider whether – in these days of dwindling trust and escalating scammery – the very concept of reliance (for CDD purposes) is now outmoded and, frankly, dangerous.

I shall now take a festive break from blogging, to regroup my gripes and augment my outrage.  The usual AML-ish wrath and bile will commence once more on 8 January 2020.  I wish you all a very merry Christmas (apart from money launderers – I hope you rot).

Posted in AML, Due diligence, Money laundering | Tagged , , , , , , , , , , , , , | 1 Comment