FATF 1, EU 0

The Fourth Money Laundering Directive brought us many delights, including Article 9: “Third-country jurisdictions which have strategic deficiencies in their national AML/CFT regimes that pose significant threats to the financial system of the Union (‘high-risk third countries’) shall be identified in order to protect the proper functioning of the internal market.”  The requirement is retained unchanged in the Fifth Money Laundering Directive.  Now I can see arguments on both sides.  Regulated businesses – particularly when it comes to dodgy jurisdictions – do like certainty, and an approved list of “high-risk third countries” might seem attractive.  But there are, it seems, more problems than benefits.  It’s looking outwards only, for a start: assessing only “third countries” (i.e. non-EU Member States) brings to mind planks and specks.  And as the European Commission – which adopts the list – is a political body, it is vulnerable to political pressure.

And so it has proved.  The first list was adopted by the European Commission on the advent of MLD4, and that first list was basically a carbon copy of the FATF’s list of jurisdictions with “strategic AML/CFT deficiencies”.  But then the Commission started to wonder whether it could do better than the FATF – yes, better than the agency that has devoted itself entirely to matters money laundering and AML for three decades.  Obviously that wondering should have led to the answer “no”, but it did not.  And in June 2018 the Commission published its own “Methodology for identifying high risk third countries”, which involves looking at the FATF list and then “taking into account strategic deficiencies… in relation to: (a) the legal and institutional AML/CFT framework of the third country, in particular: (i) the criminalisation of money laundering and terrorist financing; (ii) measures relating to customer due diligence; (iii) requirements relating to record-keeping; (iv) requirements to report suspicious transactions; (v) the availability of accurate and timely information of the beneficial ownership of legal persons and arrangements to competent authorities; (b) the powers and procedures of the third country’s competent authorities for the purposes of combating money laundering and terrorist financing including appropriately dissuasive, proportionate and effective sanctions, as well as the third country’s practice in cooperation and exchange of information with Member States’ competent authorities; (c) the effectiveness of the AML/CFT system in addressing money laundering or terrorist financing risks of the third country.”  If all of that sounds familiar, good: it’s because it covers the same ground as the FATF’s own modern methodology (compliance and effectiveness).  So far, so pointless.

But although the methodologies seem similar, the outcomes certainly are not.  And on 13 February 2019 the EC announced that it was adopting a new list of “high-risk third countries” – twenty-three in total.  Two in particular were rather annoyed at their inclusion: the US huffed that their four territories on the list (American Samoa, Guam, Puerto Rico and the US Virgin Islands) should not be there because “the same AML/CFT legal framework that applies to the continental United States also generally applies to US territories” [I’m saying nothing], while Saudi Arabia was quietly furious.  And quietly effective: King Salman sent letters to all EU leaders urging them to reconsider their decision, saying that his country’s inclusion “will damage its reputation on the one hand and will create difficulties in trade and investment flows between the Kingdom and the EU on the other”.  That did the trick: on 8 March 2019 the new list was unanimously rejected by the EU Member States and tossed back to the EC for them to have another think.

We now hear, courtesy of Reuters, that the commissioner in charge of the issue, Vera Jourova, has come up with a cunning plan: a revised process to list countries.  Instead of directly blacklisting those with shortfalls, the new process would be based on a “staged approach” under which risk countries would need to commit to changing their rules and practices by set deadlines, effectively producing a grey list of jurisdictions that would be blacklisted only if they failed to apply required reforms.  Again, if that sounds familiar, it should: IT’S HOW THE FATF DOES IT.  *throws hands in air in despair*

There will now be a two-week pause in blog posts while I hide away at the top of a mountain to finish my sixth Sam Plank novel.  You can keep track of my fiction-based progress on my writing blog, and indeed you can even have your say on what you think the title of the book should be.  And if you fancy having a look at the books, you can now download a free guide to the series, with the first chapter from each book and a glossary of Regency terms – you’d be bird-witted not to!  I’ll be posting here again from 7 August onward.

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Facecrook?

Here’s what I have read about Facebook Libra:

  • According to the Financial Times, it is “a new global digital currency backed by assets and supported by more than two dozen companies ranging from Visa and Mastercard to Lyft and Spotify”. It has been planned for some time: “[the] social network quietly assembled a crypto team and courted partners for more than a year.”  And “banks were notably absent from [the] list of initial backers”.
  • Running the show will be a new Facebook subsidiary called Calibra and an independent consortium called Libra Association
  • You won’t need a Facebook account to use Libra
  • According to Dante Disparte, head of policy and communications for the Libra Association, “the central goal here really is financial inclusion”
  • While Calibra is targeting only basic fund transfers to begin with, the subsidiary plans to expand its services to allow customers to pay bills and purchase goods or services
  • There are enormous “Big Brother” concerns; as John Harris has it in the Guardian, “Facebook will know the people and companies with whom its users have financially interacted, and that is likely to only be the start”.  And “whatever the guarantees [about data protection], the most basic point is obvious enough: why should a company with such an appalling record on personal data be trusted to so massively extend its reach?”.

And here’s what I have not read about Facebook Libra:

  • What are its money laundering and terrorist financing vulnerabilities?
  • Who will supervise it?
  • Will it be covered by the same AML/CFT obligations as are being gradually introduced for cryptocurrencies?
  • If it all goes pear-shaped, who will be accountable?

Given that one of the tenets of AML is that you should always do your money laundering research before you launch anything new, it’s something of an oversight.

(Here’s the word from the FATF, in Recommendation 15: “Countries and financial institutions should identify and assess the money laundering or terrorist financing risks that may arise in relation to (a) the development of new products and new business practices, including new delivery mechanisms, and (b) the use of new or developing technologies for both new and pre-existing products.  To manage and mitigate the risks emerging from virtual assets, countries should ensure that virtual asset service providers are regulated for AML/CFT purposes, and licensed or registered and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations.”  Perhaps someone could mention it to Mr Zuckerberg or Mr Disparte.)

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On their own authority

Over a two-decade career in AML, one of the things I have noticed is the “normalisation” of the terms “money laundering” and “AML”.  When I first started out, I had to explain to everyone non-finance-y what money laundering was and what we were trying to do about it.  (One family friend wondered how I could hope to make a living telling people about one brand of car; she had mis-heard “fraud” as “Ford”.)  Nowadays you can’t watch a Hollywood film or Netflix drama or read a fast-paced thriller without stumbling across someone laundering dodgy money (usually wearing sunglasses and a sneer).  This makes me look good, of course: how prescient I was to choose a specialisation that would one day be so fashionable.  It was entirely by accident, I can assure you; I’m the contrary sort of person who prefers to be out of fashion.  But in many ways it is a good development, not least because money laundering awareness is spreading far and wide, with even organisations that are not [yet] required to do so by law putting in place their own AML procedures.

The latest to come to my attention is Aberdeen City Council.  Now, Aberdeen has had a few laundering headlines in its time.  In August 2014 Italian MEP Oreste Rossi announced that research done by the Transcrime Centre in Italy had shown that, in Scotland, “the Camorra stronghold is Aberdeen… where it controls the catering, public works, food retail and wholesale and property sectors” – although his view was later toned down in the November 2015 final report on “Organised Crime Infiltration of Legitimate Businesses in Europe”, which states simply that Aberdeen is one of the top three locations (along with Glasgow and Durham) mentioned in open-source material on organised crime groups.  That said, in August 2018 Scottish restaurateur Antonio La Torre was arrested in Italy on suspicion of mafia involvement – he was perhaps inevitably nicknamed “the Don of the Don”.  Those charges were dropped but he still faces firearms charges and must report daily to the police station in Mondragone, a seaside town just outside Naples.  In October 2018 Aberdeen solicitor Ian McDougall was struck off by the Law Society of Scotland after failing to answer for various AML failings in his firm and running off to (it is believed) Abu Dhabi.  And a month ago, Nigerian former professional footballer Jay-Jay Okocha was charged in Aberdeen Sheriff Court with money laundering allegedly relating to the proceeds of frauds perpetrated in Scotland in 2015.

Perhaps with these incidents in mind, on 30 June 2019 Aberdeen City Council’s audit committee approved a new “Anti-Money Laundering Policy”, which – although recognising that an MLRO is not a legal requirement for local authorities – nominates their Chief Officer-Governance as their, well, nominated officer.  They also supply a generous list of money laundering “flags”, including cash payments over £5,000, over-payments, and requests for overseas transfers to high-risk jurisdictions.  Is this perhaps a hint that our AML legislation, by not covering local authorities, is insufficient?  When an organisation voluntarily admits that it has a vulnerability to money laundering – albeit at a low level – and puts in place its own AML procedures, it certainly suggests that we could do more.

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Exceeding slow

You remember the summer of ’98.  The European Central Bank was founded in Brussels, Pete Sampras won the men’s singles title at Wimbledon, “Sex and the City” premiered on the telly – and Nigerian dictator Sani Abacha died at the age of 54.  In case you’re like me and keep losing decades when you work out how old you are, this was twenty-one years ago.  Abacha was not, for the AML community, a nice chap.  It is estimated that during his ascent up the greasy pole of Nigerian power (he served as Chief of Army Staff from 1985 then Chief of Defence Staff before becoming President in November 1993) he and his family accumulated US$5 billion of public funds, and in their 2004 “Global Corruption Report” Transparency International recognised him as the fourth most corrupt political leader in history.  In other words, we’ve known for a long time that any money squirrelled away around the world by Abacha or his rellies is dodgy and should be examined closely and almost certainly should be returned to the people of Nigeria.  But as we also know, the wheels of asset forfeiture grind exceeding slow – and most especially those of civil asset forfeiture.  It’s one of the enduring bugbears of we AML-ers: how can we convince people that AML initiatives work when it takes, like, forever to see the fruits of our labour?  And so we must rejoice whenever a thieving politician’s assets are found, seized and returned to their rightful owners – albeit decades later.

It’s a very complex exercise, of course, tracking down the Abacha billions, but he laundered some of his corrupt proceeds – $268 million – by moving it through the US and then popping it into accounts held in Jersey by a British Virgin Islands company called Doraville Properties Corporation.  As usual with such cases (and this explains in part the slowness of the system) there have been all sorts of legal debates.  In 2014 the US authorities asked for the money in Doraville’s accounts to be forfeit and a restraining order was granted in Jersey.  Doraville asked for the order to be discharged but their application was dismissed, as were their two appeals against the imposition of the order in the first place.  And on 4 June 2019 the Jersey authorities finally confirmed that – with all possible legal challenges exhausted by Doraville – the money had been moved from the bank accounts into the Civil Asset Recovery Fund under the control of the States of Jersey.  In other words, it is no longer Doraville’s money.  The next step is for Jersey, the US and Nigeria to work out an asset-sharing agreement to decide who gets what proportion of the money – and the word on the street (that’s Broad Street in St Helier) is that there is more money sitting in Doraville accounts that will go the same way.  So patience, grasshopper.  Perhaps we can see it as proof that ill-gotten gains are never washed clean but remain dirty forever, and will be pursued long after the crime has been committed and the criminal has died.

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Report from the frontline

It may surprise you to hear that when I was a teenager I wanted to be, no, not a model or an air hostess (as they were called in the dim and distant 1980s) or even an AML specialist, but a market researcher.  We had a family friend who did this and it seemed to me to be a good combination of talking/nosiness (my natural skills) and maths (my father’s area, and of course I wanted to please him).  On reflection I would have been hopeless at it – my love is finding one subject and then gnawing it to death – but I retain my juvenile fascination with surveys, studies and reports.  Recently LexisNexis (a “leading global provider of legal, regulatory and business information and analytics”) and the Economist Intelligence Unit announced the publication of their analysis into the thoughts of “more than 200 professionals charged with combatting money laundering, to gauge the mood in the trenches” – and I was powerless to resist.

On the Frontline: The UK’s Fight Against Money Laundering” is free to download and makes interesting – if occasionally disheartening – reading.  Looking to the near future, a quarter of respondents felt that the biggest risk to the UK in the fight against money laundering is “evolving criminal methodologies”, such as cryptocurrencies, while 18% cited “geopolitical events”, such as Brexit.  On that topic, the report (thankfully) chimes with my own thoughts: “Despite claims by some politicians and some sections of the media that the EU imposes unwanted rules on the UK, the UK has often steered the direction of AML regulation.  The UK has led pan-national regulatory developments and gold-plated the results for domestic use.  However, despite the UK’s relatively strong AML record, Brexit creates a challenge [including] the potential loss of access to European security databases following Brexit.”

As for how to tackle money laundering, the most votes were cast for “using advanced analytics and emerging technologies” [clever computers], “better monitoring and reporting of enforcement outcomes” [naming and shaming], “more efficient knowledge transfer of existing and emerging money laundering typologies” [case studies] and “tougher penalties on firms and individuals” [big sticks].  Asked about which regulatory initiative would most improve the efficiency of AML compliance in the UK, the clear favourites were “increasing the clarity of communicated requirements between regulator and regulated businesses” and “more frequent communications between regulator and regulated businesses” – which demonstrates that UK MLROs (or at least, the ones surveyed for this report) would welcome a closer relationship with their regulator (something which few of the UK’s AML supervisory agencies – except perhaps the Law Society and the Gambling Commission – currently offer).  And as someone who has never made a secret of her motivation – I hate money laundering (look: there it is at the top of the screen, as clear as day) – I am delighted to read that a third of respondents think that companies can better tackle money laundering by “promoting company culture around AML to evolve from ‘preventing regulatory punishment’ to ‘stopping money laundering’”.  As I catch up with all the laundering naughtiness that has been going on in my absence, I am glad to be back to play my part.

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Los Pinos of Sherwood Forest

Robin Hood, Robin Hood, riding through the glen – I bet you’re all humming now.  And even though historians have suggested that our Robin was not quite the champion of the poor we choose to believe, the legend persists – even as far away as Mexico.  On 13 May 2019 Mexican President Andrés Manuel López Obrador (known as AMLO – which pleases me as it’s also the acronym for the FIUs of Croatia and Thailand) announced his intention to create a “Robin Hood” institute to return to the people the ill-gotten gains seized from corrupt politicians and gangsters.  “Let’s quickly return to the people everything that’s been stolen”, he said, adding that his vision is to create an independent institute that will put confiscated goods such as property, jewellery and cars into the public’s hands.  For example, he suggested, the institute could assign seized homes to municipalities to be used as schools, hospitals or old folk’s homes.

Veteran leftie AMLO certainly walks the walk: since taking office in December 2018 he has cut salaries for top civil servants and rolled out a clutch of welfare programmes for the poor and the elderly.  He has put his predecessor’s private plane up for sale, while he flies economy class or drives his white Volkswagen Jetta.  Two cars and an ambulance donated by the King of Jordan will be gifted on to the National Guard, a new security force.  And he has converted Los Pinos – the former presidential mansion in Mexico City – into a cultural centre.

AMLO is not letting the grass grow under his feet.  Indepuro (el Istituto para Devolver al Pueblo lo Robado – or the Institute to Return Stolen Goods to the People) is already up and running, under the leadership of Ricardo Rodríguez Vargas, and on 26 May it held an auction at Los Pinos to sell off 77 luxury cars (including Porsches, Corvettes, Mercedes-Benzes, a Ford Mustang convertible, a Mini Cooper, a Ford Shelby and a 2007 Lamborghini Murcielago) seized from criminals, with the proceeds going to two poor towns in the southern state of Oaxaca.  The Lamborghini was the hot ticket item, selling for 1.47 million pesos [about £60,500], while a 1951 Volkswagen Beetle (built in the Mexican city of Puebla) went for 253,000 pesos [about £10,420].  In total the auction raised about £1.2 million.  Coming under the hammer in future Indepuro auctions are three homes (one seized from a corrupt politician) worth at least US$7 million (proceeds to go to a youth drug rehabilitation programme) and jewellery seized from organised crime groups (proceeds to go to communities in the mountains of Guerrero state, where many impoverished families grow the only crop they can: opium poppies).  If this continues, AMLO certainly will be feared by the bad, loved by the good.

Just to let you know that I’m off on holiday for a bit – cycling from Hook of Holland to Basel, for some reason now forgotten and regretted – so I won’t be posting now until Wednesday 19 June, and then only if I can sit on a chair to type.

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Rock and roll lifestyle

I don’t often use this blog simply to repeat money laundering stories that are already in the press but some are just too good to ignore.  May I introduce you to Paul Bettie.  He’s sixty-five now, but back in the day (if that day was in August 1979) he was associated with English rock band Led Zeppelin.  Quite what he did for them is rather lost in the mists of time (or perhaps the mists of some other substance) but in Mark Blake’s book about Led Zep – “Bring It On Home” – we are told that Paul and his brother John Bettie were “two of Don Murfet’s security men” and that they were given bags of cash (presumably from ticket sales) to look after: according to Paul Bettie, “at Knebworth I remember being given two bags… with two hundred grand in one and a sawn-off shotgun in the other”.

Flash forward if you will, nearly four decades, to August 2017: Paul Bettie has spent the weekend in Guernsey and is heading home, driving out through the ferry terminal.  His car is stopped and searched – and in a bag the officers find £153,200 cash in heat-sealed bags, “like bricks”.  In police interviews, Bettie says that he had brought his £90,000 life-savings in cash to Guernsey and had won the rest over the weekend by playing poker.  In court, his defence lawyer said that the carrying of large amounts of cash was unconventional for most people but had become a habit for his client since his glory days with Led Zep – and quoted from the Blake book.  He also showed that his client had a history of gambling, giving weight to the poker explanation.  But the prosecution was unconvinced: more than half the cash seized had been in local currency (even though Bettie had no connection to Guernsey and had never been to the island before), and after Bettie’s arrest he had received a “huge number of phone calls” from people interested to learn his fate – and perhaps that of the money he was carrying.  On 21 March 2019 the Guernsey Jurats found by a majority of eight to one that Paul Bettie knew the money was the proceeds of crime and still tried to leave the island with it without making a declaration – in other words, money laundering.  And on 17 May 2019 he was jailed for two years.  Led Zep puns will be welcomed – I’m coming up with nothing.

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Launderer seeks splendour without diminishment

It cannot have escaped your notice that Canada is in a lather about its real estate sector being used for money laundering.  Stories are appearing seemingly every day about some new scheme or other that has been uncovered, thanks in part to the work of Peter German, a lawyer and ex-Mountie who advises the government on all manner of things, including money laundering.  (You may remember that it was he who wrote the report exposing the extent of money laundering through the casino sector in British Columbia back in June 2018.)  His new report – “Dirty Money – Part 2” – looks at laundering through the horse racing, luxury vehicle and real estate sectors.  And it’s scary stuff, particularly when you see that the cause is not just the deviousness and determination of criminals, but also the weakness of the Canadian AML regime: “Opaque ownership structures allow criminals to remain anonymous and provide a veil with which to conceal money laundering activity in real estate.  Of the legal entities that hold C$28 billion [about £16 billion] in residential property in British Columbia, the vast majority are privately owned with no information on who ultimately controls them.  There is no way to accurately identify nominee owners or properties held through unregistered trusts.”  As my Singaporean stepmother would say, aiya lah – why so stupid?

I’m no expert on the Canadian AML set-up – it’s not one of the jurisdictions in which I work – but even a cursory reading of the German report tells me that there are several really quite basic shortcomings that are surprising in a sophisticated jurisdiction:

  • “[There is] the continuing inability of the federal government to address the Supreme Court of Canada’s 2015 decision in the Federation of Law Societies case which essentially exempted the legal profession from financial reporting to FinTRAC [Canada’s FIU].”
  • “Very little attention is being paid to unregistered MSBs by law enforcement and regulators.”
  • “Large and small auction houses routinely transact business in cash. They are also not subject to financial reporting to FinTRAC.”
  • “FinTRAC acknowledges that it does not regulate certain sectors of the economy which are vulnerable to money laundering including motor vehicle dealers, auction houses and boat sellers.”

Against this background we must also put the attractiveness of life in Canada.  As a recent BBC article on the subject puts it: “Canada is a rule of law country that believes in due process and rehabilitation.  A criminal on trial in Canada will be treated much better than they would in the People’s Republic of China, for example.”  This yet another example of AML efforts trailing woefully behind.  In the same way as international organisations position themselves in jurisdictions where tax and regulation are less onerous, criminals perform their own AML arbitrage.  I should imagine they are reading the German report with glee and booking flights to Vancouver as we speak.

(And in case you’re wondering, the motto of British Columbia is Splendor Sine Occasu – Splendour Without Diminishment.)

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Inside the tent but still p***ing in

In my guise as a magistrate I have become familiar with a thrilling document called the “Magistrates’ Court Sentencing Guidelines”.  It’s an entirely public, well, publication, as justice is meant to be transparent and accessible to all.  And if you search for “theft” in the guidelines, you will find a variety of flavours, including “theft of a pedal bicycle” (an offence we try quite often here in Cambridge) and “theft in breach of trust”.  It has its own offence because the idea of someone doing something wrong while operating in a position of trust or responsibility is seen as particularly serious.  And in recent months we have seen something of a rash of people engaging in money laundering while working in a job which is supposed to involve a measure of anti-money laundering activity.  On 7 May 2019, for instance, the National Crime Agency announced the jailing of three men – two bankers and an accountant – who had colluded to steal money from the bankers’ customers and launder it through accounts set up by the accountant.  In total they stole £390,000, mainly from elderly customers – and were jailed for fraud by abuse of position and money laundering.

This is a particularly difficult risk for the MLRO to manage.  Of course we try to ensure, through pre-employment screening, that only honest and capable people are employed within the regulated sector; we do criminal records checks and we take up references.  For the most part this makes it harder for those who are dodgy from the outset – those who want a job in the regulated sector simply so that they can launder money – to get in.  But what of those who start out with good intentions and end up going astray?  People fall from the path of righteousness for all sorts of reasons, from genuine need to simple greed (now there’s a title for a novel – © Susan Grossey 2019).  And to guard against these situations, the MLRO’s best defence is a long nose and at least one big ear.

The long nose is for snooping around, in the most benign fashion.  Does an employee start turning up for work in a car that is out of his price range (given his salary), or talking about holidays that are beyond her financial reach?  (There may be another source of wealth… but there may not.)  Conversely, does a member of staff seem more agitated or stressed than usual, or more unkempt?  Displaying behaviour that could suggest mental anguish or money worries?  The big ear is for listening to concerns before the employee takes matters into their own hands and decides that the only way to get the money to pay off a debt or escape an abusive relationship or live the dream lifestyle is to turn to crime.  Organised crime gangs have long noses and big ears of their own, to sniff out weaknesses and listen to gossip, in order to get their hooks into those on the inside who can do the dirty laundering for them.  They know that money laundering is a people business, and the smart MLRO remembers that too.

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Asking for trouble

When Brexit is simply too, too depressing, I remind myself that in my own little world at least nothing much is changing.  Cambridge – where I live – is as cosmopolitan and outward-looking as ever, and the Fifth Money Laundering Directive trundles inexorably towards us.  Yes: even though the People Have Spoken (clarification: but not in my house or indeed hearing) and said they want no more of this EU nonsense, we still have to absorb MLD5 as its transposition deadline of 10 January 2020 will fall within the UK’s Brexit implementation period.  And HMG wants our thoughts on how to do this.  (Well, if we’re honest, they probably don’t, but modern democracy being what it is, they have to ask.)  The consultation on the transposition of MLD5 into our domestic legislation was launched on 15 April and runs until 10 June 2019, so you have a bit of time to gather your thoughts.  I will of course be making my usual fulsome representations – I can imagine the epidemic of eye-rolling that grips the Treasury when my multi-megabyte email arrives – but I have allowed myself a sneak preview, and it’s going to be fun.

For instance, as we know MLD5 requires the inclusion of “art intermediaries” in the AML family – at the moment, art dealers may be included if they accept large cash payments and thereby qualify as high value dealers, but in the new regime, they will be in regardless of how they take payment.  Of course, anyone in the AML family must be overseen by a supervisory body to check that they are doing their AML work properly.  And regular readers will know that we in the UK have the most crazy and inefficient AML supervisory regime (about which I have opined before).  So I can quite understand that creating yet another AML supervisor for art intermediaries is not a good idea.  But neither is the suggested solution: “The Treasury considers HMRC as a supervisor suited to the role of regulating art intermediaries, given their current supervision of high value dealers.”  You mean their current ineffective, light-touch and generally rubbish supervision of HVDs?  And given that in June 2018 their boss Jon Thompson told the House of Commons Treasury Committee that he wasn’t sure HMRC should be doing AML supervision at all?   Why yes: that sounds like the perfect agency to take it on.

My, I’m looking forward to crafting my response to this consultation.  I think I will set aside a whole day and a box of Jaffa Cakes to do it justice.

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