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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A matter of administration

Recently I watched the film “The Fifth Estate”, about WikiLeaks and Julian Assange – and, along the way, also about the nature of privacy, the meaning of security and the impact of hypocrisy.  The Panama Papers have raised similar issues, as have other leaks of confidential information from – among others – the financial sector.  And the film made me think about my own attitude to information – both giving my own, and encouraging/demanding clients to give theirs.

The hypocrisy comes in because I, in common no doubt with most of you and despite our commitment to AML, am irritated when I am asked to provide proof of my identity, income or whatever.  Sometimes I will mutter something ill-tempered about being in AML and knowing all about the requirements, thank you very much, and suggesting that surely the information they already have on file about me will be sufficient.  Sometimes it is and sometimes it isn’t – depending, as we know, not on the legislation but on the individual firm’s (and sometimes the individual employee’s) interpretation of the requirements.  But what I am railing against is not the supply of information – after all, I have nothing (or at least nothing financial!) to hide.  I am annoyed by having to find the documents to meet some (often confusing) list and then copy and scan them or (for some particularly risk-averse firms) send them the originals.

And I suspect that this is nearly always the case: when a client is unhelpful about supplying information, it may well be a simple matter of administrative exasperation rather than an effort to conceal the truth.  So we need to be as efficient as we can ourselves, and ask only for what we really need, and then store that information logically so that it can be accessed by everyone who needs it without having to ask the client to re-supply it.  I know that this is at the heart of recent developments in “CDD vaults” and the like, but I also mean internally and across groups of companies.  After all, we need to preserve the client’s AML goodwill – limited though it may be – for when we really need it.

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Bolting the stable door

When I was little I lived in Newmarket, and my mum was the secretary at a trainer’s yard, so I spent a lot of time in the yard “helping” the farrier and – my favourite bit – siting in the jockeys’ enclosure at the racecourse and listening to all the gossip about who was buying and riding which horse.  So I was very interested when it emerged that criminals are using horseflesh sales to launder their money – it makes sense really, as you can shift a lot of cash quite quickly, and, as with art, a horse has no fixed value but is worth simply what someone is willing to pay for it.

This laundering technique first came to light back in 2013, when three men working for the Mexican Los Zetas drug cartel were jailed in Texas for laundering drug money through buying, training, breeding and racing American quarter horses in the United States.  (For the non-horsey reader, American quarter horses are a distinct breed who are speedy over short distances, with – according to the UK chapter of the American Quarter Horse Association – a “short body and head… heavily muscled body, powerful shoulders and hindquarters, and strong, sturdy legs [and] a flat profile with a wide forehead”.  Heavens, it’s like looking in a mirror.]  One of the three men, Jose Trevino, would receive cash from the other two and then use it to buy horses.  The three also created straw purchasers and booked transactions worth millions of dollars in New Mexico, Oklahoma, California and Texas to disguise the source of the drug money and to make the proceeds from the sale of quarter horses or their race winnings appear legitimate.

It seems that the 20-year sentence that each man received did not deter others from backing the same horse.  In June 2016, authorities in Texas and Oklahoma arrested and charged fifteen people on suspicion of laundering drug money through the quarter horse business.  On six occasions in 2011, says the charge sheet, the defendants purchased horses from an auction house in Oklahoma using drug proceeds collected in San Antonio, paying just under US$10,000 each time in order to avoid currency transaction reporting requirements.  When the individuals were arrested, the authorities also seized more than thirty horses along with US$500,000 in farm equipment, twenty vehicles, sixty firearms and $50,000 in cash, and are seeking the forfeiture of twelve properties worth $15 million in total, as well as $30 million in cash.  That’s no hay feed.

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But would they report James Bond?

In recent months I have found myself working more and more frequently with the gambling sector – both e- and land-based casinos.  Therefore I have been tracking the activities and pronouncements of the Gambling Commission more closely than before.  And in May 2016 they published new requirements – in the form of an update to their existing licence conditions and codes of practice (LCCP) – around the prevention of crime association with gambling (including, of course, money laundering).

These changes come after a series of failures in the gambling world.  In August 2014, a shop manager in a London branch of bookies Paddy Power became concerned that a customer was using gambling facilities to launder Scottish bank notes by placing them into gaming machines and then requesting a pay out on a debit card.  The manager told his boss, but no SAR was made to the MLRO, and the worrying behaviour continued for another six months until publicity from police about the laundering of Scottish notes in London prompted the company to report the matter to the NCA.  There were also concerns that Paddy Power had not made sufficient enquiries into the source of funds of another customer, who had been jailed for fraud, and in February 2016 Paddy Power was fined by the Gambling Commission.  At around the same time, Gala Coral Group was providing gambling services to an electrician who eventually paid in £850,000 – without checking his source of funds, they missed the fact that he was stealing from a vulnerable adult.  They too were fined by the GC.  And at the same time again, accountant Matthew Stevens was gambling with Betfred, who welcomed him as a VIP player and did not check the source of his £850,000 – stolen from his employers.  Again, a fine from the GC.

Well, the GC has had enough of finding out about things from third parties.  And in their new requirements, which will come into force later this year, gambling operators “must report to the Commission any criminal investigations involving them or their premises where it appears their measures to keep crime out of gambling have failed”.  Guidance of course will be needed, otherwise casinos will find themselves having to report every pilfered chip from the gambling table, and every phone taken from someone’s jacket pocket.

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No more honours, Your Honour

Financial crime is not only bad for your sense of honour – it is bad for your honours.  American financier Allen Stanford, you will recall, was sentenced to 110 years in prison for running a Ponzi scheme so massive and devastating for its victims that New York Times journalist Peter Henning called it “economic homicide”.  And I remember – so shoot me – feeling a distinct shiver of Schadenfreude when it was announced in October 2009 that the  National Honours Committee of Antigua and Barbuda had voted unanimously to strip Stanford of the knighthood that they had conferred on him only three years earlier for his service to their island nation (thus making him the second most famous “Srallen” in the world).  Perhaps fittingly, the gong was actually removed on 1 April 2010.

And sometimes the fall from grace – all too literally in our next example – comes before any conviction.  On 12 June 2015, fervently Royalist Hello! magazine confirmed that Spain’s King Felipe had issued a decree stripping his sister Infanta Cristina of her title as Duchess of Palma, thanks to her dragging the family’s name through the mud via an investigation into her tax affairs and those of her husband Iñaki Urdangarin, who is suspected of corruption.  The princess was already being edged out, as she did not attend her brother’s coronation in June 2014 – so doubtless this will make for some very awkward Christmas dinners.  And earlier this year, as investigations continued, Infanta Cristina was stripped by councillors in Barcelona of the city’s Gold Medal – its top honour, bestowed on her in 1997 when she lived there.  Deputy Mayor Gerado Pisarello expressed his surprise that the princess had not voluntarily returned the medal, saying that “no merit exists by which the princess could be deserving of this honour”.  She can no longer use the title “her most excellent lady”, which comes with the award.  Mind you, she’s still got plenty of names left: her official style and title is Su Alteza Real Doña Cristina Federica Victoria Antonia de la Santísima Trinidad de Borbón y Grecia, Infanta de España (Her Royal Highness Doña Cristina Federica Victoria Antonia of the Holy Trinity of Bourbon and Greece, Princess of Spain).

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Washing on a star

I will admit that when it comes to reality TV – whether it’s talent shows or making people eat bugs in the jungle or watching the banal lives of young adults in Essex or Chelsea – I’m a non-starter.  My only concession to the genre is “The Great British Bake-Off”, and that’s because of my sweet tooth rather than any fondness for reality.  So “Dance Moms” in America had completely passed me by.  I see from Wikipedia that the show is every bit as ghastly as the title suggests, and “follows the early training and careers of children in dance and show business under the tutelage of Abby Lee Miller, as well as the interactions of Miller and the dancers with their sometimes bickering mothers”.  Pass the remote.  But hold on a sec: apparently dance tutor Abby Lee Miller has something of a sideline – in money laundering.  On 27 June 2016, she pleaded guilty to bankruptcy fraud and money laundering.  Turns out that she set up bank accounts to conceal US$675,000 in income (that bickering’s well paid) from “Dance Moms” and various spin-offs (is that a dance term?) and merchandise in 2012 and 2013 – during which time her dance studio had filed for Chapter 11 bankruptcy.  She also admitted smuggling between $120,000 and $150,000 in Australian currency back into the US without declaring it.  She will be sentenced in October, and faces up to 30 months in prison.

But she’s not the first reality TV “star” to fall prey to the temptations of money laundering.  On 3 March 2016, one of our own home-grown stars, former “X Factor” contestant Nathan Fagan-Gayle was found guilty of laundering £20,000 proceeds from a fraud on an elderly woman – one of many charged in connection with the same fraud perpetrated on several pensioners and uncovered by the Met Police.  “Starboy Nathan”, as he was known on the singing talent show, carefully transferred £5,000 to his mum and girlfriend to give it the appearance of “fresh money” and then withdrew the remaining £15,000 in cash, blowing the lot on designer clothes and shoes and (more oddly) car hire.  He was jailed for 20 months.

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Biting the hand that steals?

Please note that as I fade slightly from view for my summer writing retreat (the fourth Sam Plank novel is nearing completion), for the next month I will blog once a week only, instead of the usual twice.  Back to normal in the second half of August.

On 25 June 2016, Nigerian media group Vanguard published an interview that it had held with Ibrahim Magu, chairman of the country’s famed Economic and Financial Crimes Commission.  In this interview, Magu fired a shot across the bows of naughty officials (“I don’t care whether you’re black or white or you come from party A or party B… even [if you’re] right here in the EFCC”), saying “there is no sacred cow as far as this fight against corruption is concerned – we will go after anybody who has committed an offence”.  He then turned his fire on private banking, claiming that this is a popular sector for top politicians looking to launder stolen public money: “We had a discussion with the governor of the Central Bank of Nigeria and I insisted that this so-called private banking should be stopped.  It is illegal.  It is wrong.”  And then it got personal: “Now we are going to go after the banks and the personnel used to perpetrate the fraud.  It takes two to tango.  In fact, very soon you will see us going after the Managing Directors of the banks… These people have given a lot of room for the money laundering activities to thrive.”

The last time bankers in Nigeria were given such a hard time was under the regime of former Central Bank of Nigeria governor Sanusi Lamido Sanusi (now the Emir of Kano and known as Emir Muhammadu Sanusi II), who sent several bank MDs to court on charges of fraud and dismissed a couple of bank boards.  Unfortunately Sanusi was fired from the CBN by then president Goodluck Jonathan after he – Sanusi – went public with allegations that $20 billion had gone missing from the Nigerian National Petroleum Corporation (NNPC) on the watch of (now former) Petroleum Minister Diezani Alison-Madueke.  On 2 October 2015, Ms Alison-Madueke was arrested by the National Crime Agency in London on suspicion of bribery and corruption.  I’m just saying.  Magu had better hope that he has friends in higher places than the bankers he is targeting.

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Sweaty palms in Latvia

Thanks to the Panama Papers, a great deal of focus recently has been on the International Consortium of Investigative Journalists.  However, working in a similar field we have the Organized Crime and Corruption Reporting Project which, according to their website, is “a consortium of 25 non-profit investigative centers, scores of journalists and several major regional news organizations [which] teamed up in 2006 to do transnational investigative reporting [and generates] up to 60 cross-border investigations per year”.  Their most recent high profile scoop has been into Latvian banks, as documents leaked to the OCCRP suggest that these banks are handing out to their customers instructions on how to use fake offshore companies to evade taxes, launder money, mislead regulators and avoid red flags.

According to the OCCRP, the leaked documents from at least three Riga-based banks “include emails between Latvian-based Ukrainian banks and government officials as well as banking transfers, contracts and other communications”.  The handy hints given by the banks to their customers include: “lots of advice on how to fool correspondent banks”; “ways to set up business transactions that look convincing to banking regulators”; and “how to fabricate convincing invoices”.  Some of the allegations are very specific: for instance, the OCCRP suggests that an employee of PrivatBank Latvia created a Belize shell company called Bormilla Solutions, which “specializes in fake operations in the areas of construction materials, industrial equipment, and instrumentation”.

The OCCRP has passed on its information to Latvia’s banking supervisor, the Financial and Capital Market Commission, which confirms that it “has requested the banks to submit information about the companies indicated in the documents provided”.  Some of these banks’ employees may be feeling rather nervous, given that on 2 June 2016 Latvia adopted amendments to its Credit Institution Law to increase penalties for banks and their employees who breach AML requirements.  Under the amendments, the maximum institutional fine for such violations is 10% of the bank’s total annual turnover, with a minimum of 5 million euros.  Fines of up to 5 million euros can also be imposed on individual bank employees if they are found to be responsible for the breaches.

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