Made to measure

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

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

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

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You say potato, I say prison

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

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

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

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Glategny Court jester

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

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

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

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Nasty things indeed

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

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

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

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

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

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

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

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

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

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

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

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

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Operational concerns

It’s the silly season for news (although with Trump and Brexit, it’s hard to tell the difference) so here’s my contribution.  I was paging through the latest annual report from the National Crime Agency, released on 20 July, and I started reading about their success stories.  Investigations these days – particularly multi-agency, complex ones – are given code-names: Operation This, Operation That.  How do they pick these names, and what do they mean?  Is there a big book of operation names, or does someone just make one up?  And how do you make sure that you don’t choose a name that someone else has already used, perhaps in another police force?

This time round, the NCA report makes reference to Operation Stovewood, Operation Dragonroot, Operation Pallial, Operation Pumpless and Operation Jarra.  Last year, there was also Operation Captura (which makes some sense), and the year before that we had Operation Seventy, Operation Voicer, Operation Massive (modest…) and Operation Return (again, that one I understand).  And it’s not only the NCA that goes in for this: a very quick search of the Beeb news website reveals that the Met Police have been involved in Operations Grange, Sceptre, Falcon, Maxim and Big Wing, while their City of London colleagues enjoyed working on Operations Creative, Archway and Krypton.

If you’re an investigator, can you shed any light on it all?  I remember reading once that the Wombles were named by sticking a pin in a map (Great-Uncle Bulgaria, Orinoco, Tobermory, Madame Cholet – you get the picture).  And if you were going to head up a major money laundering investigation, what would you call it?  Operation Persil?  (Other detergents are available.)

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The cheque less travelled

One of the things that enticed me to write historical crime novels focusing on financial crime was the realisation – when I was doing some research into the history of a particular bank – that the specific tools may change but the mistakes are repeated.  Nowadays we are wrestling with the mechanics and implications of virtual currencies; in 1820s London (the setting for my novels) people were struggling to understand and trust new-fangled personalised cheques, and share certificates.  But while we snigger at the ignorance of Regency financiers and their clients, it is worth remembering that some financial instruments do hang around.  We’re not very cheque-based in the UK any more, but the Americans still love them.  And last week AUSTRAC – the Australian FIU – issued a report into the money laundering and terrorist financing vulnerabilities of the traveller’s cheque.

*wibbly, wobbly lines to suggest a fond memory*  For younger readers, before we all had credit cards and cashpoint cards that worked abroad, the prudent traveller would carry a bit a cash and the majority of his assets in the form of traveller’s cheques.  You would buy these at the bank or post office before you left the safe shores of home, and they came in fixed amounts – you had to sign them as you bought them.  Hotels and restaurants abroad would then accept them in place of cash, asking you to sign them and produce your passport to prove you hadn’t pinched them.  But you had to pay a commission all along the line: to buy them, to use them and to cash them in – another reason for their decline.

So what do the Aussies think of their vulnerability to money laundering and terrorist financing?  To be frank, I’m surprised this report was required: “The purchase of traveller’s cheques is likely to be vulnerable to ML ‘placement’ risk, as customers can buy traveller’s cheques using cash [but] there are now only two financial institutions that sell traveller’s cheques in Australia.  [These reduce the risk by]: only selling to known customers; limiting the total value of traveller’s cheques a person can buy in a single day; and adding physical features to traveller’s cheques to reduce the risk of counterfeiting.”  And traveller’s cheques really are on their way out: “Sales of traveller’s cheques in Australia have been declining rapidly… with 2016 sales figures representing a 90% decline on sales from 2012.”  No self-respecting launderer is going to use a financial instrument that will draw attention because it is so rare; as the report confirms, “while some individuals and businesses may suffer loss due to traveller’s cheque fraud, the criminal misuse of traveller’s cheques is unlikely to have consequences for the Australian economy as a whole, or national and international security”.

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Nostra culpa

I take no credit at all for spotting this – it’s all down to Timon Molloy, editor and super-sleuth at Money Laundering Bulletin.  But my new favourite financial institution is Danske Bank.  Now I know what you’re thinking: surely they’re baddies, having been hauled over the coals for facilitating money laundering through their Estonian branch.  And indeed the AML picture is not rosy.  Many of their clients – who are suspected of laundering up to US$8.3 billion through Danske Bank from about 2008 – were from jurisdictions with poor AML standards, such as Russia, Moldova and Azerbaijan.  Danske management thought something was a bit whiffy but only began closing accounts and looking into the allegations in 2013.  In October 2017 the French authorities placed the bank under formal investigation.  In December 2017 the bank was fined 12.5 million Danish krone (about £1.5 million) by its regulator for AML failings.  And in April 2018 Lars Mørch – the executive responsible for international banking since 2012 – resigned.

But what I like – what I really, really like – is this.  It’s the page of the Danske Bank website which is devoted to explaining the progress of the money laundering investigation, complete with a timeline and links to official findings.  And I know that you are as jaded as I am, and fully expect the bank’s promo people to put the glossiest gloss and the spinniest spin on it all – but we’re wrong.  If you open up the FAQs, the answers are refreshingly honest.  Did Danske do it?  “We cannot draw any conclusions until the investigations have been completed, but unfortunately, there are indications that non-resident customers in Estonia took advantage of weaknesses in Danske Bank Estonia’s control setup and potentially used Danske Bank for money laundering purposes.”  What will you do with any money you earned from dodgy business?  “We are of the firm opinion that one krone laundered is one too many, and we certainly do not want to support or earn money from such activities.”  Why have you dithered about investigating?  “On the basis of the knowledge we have today about the extent of suspicious activities, it is clear than we should have acted faster and more forcefully.”

Now that’s the way to apologise.  We got it wrong, we should have done better, we will improve.

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All hail to the cheat

Continuing my theme of topical posts, today I thought I would spend a few minutes thinking about Donald Trump – the man an American friend refers to as the Cheeto-in-Chief (a wonderful pun on both his approach to things and his rather unusual colouring).  I am disappointed that the Queen didn’t use her regal privilege to run him through with a ceremonial sword, but I feel oddly certain that the law will one day trip him up – and it may well be the money laundering law.  After all, he’s made something of a career of sailing close to the wind.

The biggest laundering story involving the Donald is his connection with Paul Manafort.  Wikipedia describes Manafort as “an American lobbyist, political consultant and lawyer” and features his prison mugshot, which is perfectly fitting.  He worked for Ronald Reagan, George H W Bush and Bob Dole before finding himself heading up Trump’s election campaign.  Enter the Russians.  In August 2016, the US press started reporting that Manafort had allegedly received US$12.7 million in secret donations to the election campaign from the Ukrainian President Viktor Yanukovych’s pro-Russian Party of Regions.  And on 30 October 2017 Manafort surrendered to the FBI after being indicted by a federal grand jury as part of Robert Mueller’s investigation into the Trump campaign.  He and his business associate Rick Gates were charged with, among other things, engaging in a conspiracy against the US, acting as an unregistered agent of a foreign principal, and money laundering (in Manafort’s case, more than $18 million).  In February 2018 Manafort was further charged with tax avoidance and bank fraud, with the charge sheet alleging that between 2006 and 2015 Manafort laundered over $30 million through offshore bank accounts.  Although initially held on house arrest, Manafort was hauled into jail on 15 June 2018 after being indicted for obstruction of justice and witness tampering.  His trial will start on 25 July 2018.  The Donald says that all of this happened before Manafort joined his campaign, so that’s alright – every potential world leader should be happy to have such a man on his team.

However, the laundering allegations may hit a little closer to home.  This past weekend the Cheeto-in-Chief played golf at what he stated was his favourite course: Turnberry in South Ayrshire.  According to the Trump Turnberry Resort’s own website, “in 2014, The Trump Organization purchased the hotel and set to work making it the finest golf and spa resort in the world.  With an investment of £200m, the hotel was lovingly restored and the Ailsa course was transformed.”  And to mark the C-in-C’s visit, the New Yorker magazine asks an interesting question: where did Donald Trump get two hundred million dollars to buy his money-losing Scottish golf club?  I always support the idea of following the money, and indeed the article’s author Adam Davidson promises a weekly column – titled the Swamp Chronicles – in which he plans to “expose, explore, and analyze the financial activity of our President and his associates – including his family, his political appointees, and business partners – and make the case for greater transparency”.  I’ll leave you to read the article yourself – it’s fascinating.  A little taster: “All we know is that the money that went into Turnberry, for example, came from the Trump Organization in the US.  We – and the British authorities – have no way of knowing where the Trump Organization got that money…  Although we cannot say that Trump himself knowingly engaged in money laundering, we do know with certainty that much of his business in the past decade was in the industries most known for money laundering, in the locations most conducive to money laundering, and with people who bear the key hallmarks of money launderers.”  You remember what they said about that duck?  Quack quack!

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It’s coming home – if we pay its fare

No doubt you are all – well, my English and Croatian readers at least – dusting off your scarves and vocal cords for tonight’s match.  (Personally, I am speaking at a literary event in a local village – we’re not expecting a large turnout…)  I have blogged several times before about the corruption at the heart of FIFA (here and here, for example) and indeed about individual players falling prey to financial temptations of all sorts.  But – like my friend David in London, who brought this particular story to my attention yesterday – I have often wondered why those who are paying the bribes target the rich guys.  Surely the ones to approach are the match officials.  They are paid much, much, much less, and have the added bonus of being perceived as honest and incorruptible.  Remember my recent post about professional enablers?  A corrupt banker, lawyer or accountant is worth his weight in gold not least because the perception is that he will do the right thing, which makes it harder for his employer and the police and the public to be willing to believe the worst of him.  Ditto the football referee or linesman.

A professional, top-level referee can earn well (as explained in this article) but compared to the salary of the players he is controlling it is (as the article says) peanuts.  The best of the best, working his little black socks off, can go up to about £120,000 a year.  Linesmen, being further down the chain of command, earn much less: back in 2008, when English linesmen were in dispute with their employer Professional Game Match Officials Limited, they earned about £145 a week.  And so the bribe that could turn an official’s head must be much smaller than any that would be needed to influence a footballer’s behaviour.

How about a very affordable £450?  That’s the bribe that was paid to Kenyan linesman Marwa Range during the African Nations Championship in Morocco in January 2018; he has just been banned for life (before his arrest, he had been due to officiate in Russia).  The Confederation of African Football has banned ten other referees for between two and ten years for similar offences, and a further eleven have been suspended pending their hearings next month.

It seems obvious to me: if you want to control an organisation, you need to corrupt the ones who enforce its rules – be that client relationship managers, football referees or (perish the thought) MLROs.

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Minnows and whales

At the end of June 2018, the Attorney General of British Columbia held a press conference to launch a report into his province’s gambling industry and its possible facilitation of money laundering.  Any uncertainty on the matter was removed pretty sharpish when it was revealed that the report, written by Peter German QC, is called “Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos”.  It’s a chunky beast of a document, running to 250 pages, and in it Mr German – a former Mountie – pulls no punches: “On July 22, 2015, a Royal Canadian Mounted Police officer advised a British Columbia Lottery Commission investigator that police officers had been looking for a ‘minnow’ and had found a ‘whale’…. Large-scale, transnational money laundering has been occurring in our casinos.”

Among the topics discussed in the report is the so-called “Vancouver Model”.  This is (sorry, ladies) nothing to do with Ryan Reynolds in his undies, but rather a term coined by Professor John Langdale of Macquarie University in Australia to describe a situation in which organised crime gangs “clip the ticket both ways” – or double their share of the profits by providing services at both ends of the transaction and achieving two objectives.  As explained in the report: “In the Vancouver Model, Chinese citizens wish to relocate some of their wealth from China to Canada.  To do so they agree to accept cash in Canada from a lender.  At that point a settling of accounts occurs app to app between the person making the loan and an underground banker in China.  The catch is that the provenance of the cash loaned in Canada is unclear.  It generally come in the form of stacks of C$20 bills wrapped in a fashion that more closely resembles drug proceeds that it does cash originating at a financial institution.  The Chinese individual will then buy-in at a casino with the cash, gamble, and either receive higher denomination notes or a cheque upon leaving the casino.  The lender is servicing both a drug trafficking organisation by laundering its money, and the Chinese gambler by providing him or her with Canadian cash.”

And Mr German highlights once again that enormous, gaping, ridiculous hole in Canada’s AML regime – the fact that lawyers are not part of the AML family: “Without question, the absence of reporting by lawyers to FinTRAC [the Canadian FIU] is a gap in Canada’s AML regime and is a significant impediment to police investigations involving the movement of money through real estate and other financial sectors.  Canada is an outlier, as other common law jurisdictions, including the United Kingdom, have robust provisions in place which require financial reporting by lawyers….  The irony is that in British Columbia, most residential real estate transactions are handled by notaries, who do report to FinTRAC.  It is hard to rationalise why their handling of real estate funds should be treated differently than that of lawyers.”  Indeed.

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