A call to arms

I’ve been in two minds whether or not to do this blog post, as I don’t want to upset anyone, and I can’t think of a particularly clever way to disguise who I am talking about.  Let’s just say that recently I have visited a jurisdiction where changes are being contemplated to their domestic AML legislation.  This jurisdiction is not in the EU, so there’s no obligation for them to implement MLD4, but they do take AML very seriously and have always striven to meet the highest international standards in this arena.  In preparation for the update, the local regulator and legislators – as in all reputable places – put together a draft of the proposed new legislation, and its accompanying guidance in the form of a draft new handbook, and issued them for consultation.  I replied – but then that won’t surprise you.  And I was rather uneasy about doing so, as I really didn’t like many of the changes they were proposing.  It’s not that I expect everyone to agree with me: it’s more that I go to this jurisdiction regularly, and I had rather prided myself on having my finger on the regulatory pulse of the place and some of their proposals seemed to me to be out of step with local risk.  But – as with the Brexit vote – I had to consider that perhaps I had misjudged the mood.

I was therefore relieved (but perturbed for different reasons) to find, on my recent visit to this jurisdiction, that I had not got it wrong.  In fact, every single MLRO I met said how disappointed they were with the draft legislation and handbook, and how concerned they felt that the regulator had really not listened to MLROs’ views on how best to beef up local AML efforts.  Most of the changes the regulator has proposed will involve MLROs and their staff in huge amounts of work with – and this is the bit that irritates those involved – very little discernible benefit.  Their proposals seem to be addressing areas that have not been highlighted as weak, while ignoring those that everyone agrees could do with improvement.

MLROs are, for the most part, dedicated and determined people.  You do not go into compliance without a broad streak of idealism in your character, tempered with a recognition that doing the right thing does not always make you very popular.  If hard work needs to be done to make things better, then your MLRO is the chap to do it.  But change for its own sake?  Change that does not improve?  Change that is hard to justify in terms of reducing proven risk?  Change that make compliance look like it doesn’t really know what it’s doing, when AML is a hard enough sell anyway?  No thank you.

For the first time ever, I was present at a meeting where – after I had spoken – someone stood up and made an AML call to arms.  The MLROs are massing to make their representations to the regulator, and it was a stirring sight (albeit very polite, and with no songs).  I hope fervently that they will be heard, as this jurisdiction’s history of co-operation between the regulator and the regulated has always been enviable.  If they lose that, and along with it the goodwill of their defensive ranks of MLROs, their very reputation will be on the line.

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EU, FIUs, STRs and AML

Last week Europol – or, more fully, the European Union Agency for Law Enforcement Cooperation – published a report entitled “From Suspicion to Action – Converting financial intelligence into greater operational impact”.  The report examines the AML framework within the EU, and looks at the extent – and outcome – of suspicious transaction reporting in the EU.  The headline stats are sobering:

  • In 2014 – the most recent year for which full statistics are available for analysis – FIUs across the EU received a total of a million reports
  • Of those, 65% were received by the FIUs of the UK and the Netherlands
  • 10% of reports are investigated further – a proportion that has not changed since 2006
  • In 2013/14, reports on terrorist financing accounted for less than 1% of reports made
  • The sectors that make the most reports are banks and money service businesses; those that make the fewest are bureaux de change and high value dealers
  • “Between 0.7-1.28% of annual EU GDP is detected as being involved in suspect financial activity”, which is – as admitted in the report – “far short of [accepted] estimates around the amount of money laundered through the financial system”.

Europol Executive Director Rob Wainwright is aware that this final finding is the one that will concern people – why is such a small proportion of criminal proceeds being identified and therefore made available for possible confiscation?  And his explanation is a sensible one: “The anti-money laundering regime still operates at a domestic level, and has not yet fully adjusted to the reality of a problem that is defined by its international nature.  While structures exist to facilitate cross-border cooperation between national units, significant barriers in international cooperation and information exchange remain, revealing the urgent need for supranational overview in increasingly global markets.”

As ever, we are a step behind the criminals.  Unshackled by laws or morals, they are infinitely adaptable and will co-operate with anyone, anywhere in the world, for as long as it suits their purpose.  We need to learn to do the same: the risks of sharing information and expertise are far outweighed by the benefits, and we do, after all, now operate in a risk-based AML environment.

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In the penalty box

What is it about football and money laundering?  I don’t mean the obvious sort – buying football clubs and trading players as a front for moving criminal money around – but rather what makes footballers and manager so susceptible to money laundering?  The big story, of course, was Pele’s son Edson “Edinho” Cholbi do Nascimento: in 2014 he was found guilty of drug trafficking and money laundering and sentenced to 33 years in prison – with that term reduced to 13 years in February 2017.  But in the past week I have read about retired Bury and Macclesfield Town defender Efe Sodje and his two brothers – also footballers – going on trial for laundering the proceeds of frauds perpetrated on companies in Columbia, India, Italy and Abu Dhabi.  In April this year, Boreham Wood winger (and youth international player) Blair Turbott was charged with fraud and money laundering.  In December 2016 Southend United striker Nile Ranger (great name!) was charged with online banking fraud and money laundering; in May 2017 he was jailed for eight months.  Even retirement from the beautiful game is no protection: in September 2016 the Swiss authorities launched an investigation into suspected fraud and money laundering by German footballing legend Franz Beckenbauer.

Is it that these lads are taken away from normal family and school life too early, and put into the hothouse atmosphere of a football academy where what is right and what is wrong is less important than winning?  Or perhaps they are sheltered from financial realities and never learn to manage money, making them easy targets for more savvy launderers looking for accomplices.  Or perhaps, having been cheered by crowds wherever they go, they think they are above the law.  Or maybe – whisper it – their brains are in their boots.  Whatever the reason, it’s an interesting trend.

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I’ll tell you what I want, what I really, really want

Regular readers will know that when it comes to consultations, I am Pavlov’s respondent: tell me you want my opinion and I’m slavering to give it.  Indeed, so regular is my participation that I have a whole email folder entitled “Consultations”.  (I also have one called “Alliances” and another called “Confrontations”, which reveals pretty much how I categorise my interactions with other providers of AML training and advice.)  But my husband works in a very tangential fashion for the Department for Transport and – apart from commenting on an almost monthly basis that “Yes, Minister” was more documentary than comedy – his most frequent observation about the public sector is that consultations are issued in order to be seen asking questions rather than through any desire at all to receive answers.

Thus is my trusting nature abused.  Looking at that “Consultations” email folder, I can see that so far in 2017 I have responded to eight consultations: two for HM Treasury, three for the Joint Money Laundering Steering Group, one for the FCA, one for the Guernsey Financial Services Commission and one for the Gambling Commission.  Each takes time, of course – some of them a great deal of time – and I do try to be as open and helpful as I can.  To think that my responses are just going into a black hole, just a number to be counted rather than a view to be considered, is rather depressing.

But perhaps things are not that bleak.  I’ve been away for a month, and on my return I contacted a few people to catch up with the latest news in “my” jurisdictions.  In Guernsey, for instance, we are on tenterhooks waiting for updated AML legislation along the lines of MLD4.  (I’m off to Guernsey in a week’s time, and live in dread of them updating their legislation two minutes before I arrive, necessitating speedy adjustment of both training material and mindset.)  But never fear, said my Guernsey mole: the GFSC received so many responses to their consultation – over sixty, apparently – that they won’t be able to approve updated legislation and guidance any time soon, and perhaps not even before the end of the year.  This surely means that those responses are being read and considered, not merely counted.  I feel enthused and invigorated, so if you’ve been thinking of issuing an AML consultation of any sort, do it now while I’m all optimistic again.

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A family business

I think I have written before about crime – including money laundering – often being a family business.  There are many advantages: for instance, there is absolute loyalty (twice over: blood and business), and there is nothing suspicious about the family getting together frequently (ostensibly for family gatherings, but also to discuss work), which can foil surveillance and infiltration efforts.  It could also be argued that – in the same way as sports champions breed more sports champions, and children of lawyers often go into the law – the offspring of criminals are more likely to go into their parents’ line of business.  They are exposed to the work from an early age, they make all the right (wrong?) connections, and – although you’d have to be careful making this point too strongly – they will share the same moral compass as their parents, which might be slightly skewed from the straight and narrow.  And now a fraudster has himself pleaded his criminal background as mitigation for his actions.

Jason Galanis was born into a wealthy family, led by a man whose main activity was fraud.  White collar crime, of course, pays well: the family lived in a mega-mansion in Connecticut, with a tennis court, an indoor swimming pool and a lake, and for recreation they had a ranch in Utah, a Rolls Royce, an eighty-foot yacht and a Lear jet.  But when Jason was only thirteen, John – daddy – was charged with bilking JP Morgan Chase & Co out of millions of dollars.  Even that didn’t curb the lifestyle: for his sixteenth birthday, Jason was given a US$100,000 Ferrari.  But after numerous other allegations and relentless investigations, it all fell apart: in 1988 John was found guilty of masterminding a tax-shelter scheme that didn’t really exist and thereby cheating 1,400 people including Eddie Murphy and Sammy Davis Jr., and sentenced to 27 years in prison.

Poor Jason.  The impact has been terrible, according to his defence.  Yes, his defence.  Jason – now pushing fifty himself – is currently serving eleven years for running a Ponzi scheme.  I wonder where he learned how to do that?  At the end of July 2017, he appeared before a judge in Manhattan to ask that his sentence not be extended for a separate $60 million fraud against one of the poorest American Indian tribes.  And why should he be granted this leniency, in his view?  Because when his father went to prison, Jason was left feeling “embarrassed and abandoned” by a man whose “wild extravagance” had led to chaos at home and given little Jason “a sense that he didn’t fit in with his private school peers”, exposing him to “his friends’ parents’ disdain”.  Interestingly, Jason didn’t orchestrate his Ponzi scheme alone: also serving time for it – six years each – are his father John and his younger brother Derek.  A third brother, Jared, pleaded guilty and awaits sentence.  A family business indeed.

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A tweet farewell

As you may have gathered, I have been away for the past month.  With only intermittent wifi access, and a long-overdue need for some downtime, I tried to take a complete break from work.  Of course, I was not completely successful in this aim: I did sneak peeks at my emails, and (when I thought no-one was looking) at my daily Google alerts on the topic of “money laundering”.  The one source I was never tempted to check was Twitter.  And – as is often the way on holiday – I started to reassess my working life, on the basis of “if you do what you’ve always done, you’ll get what you’ve always got”.

I start every day with a scan of my email – which usually contains a few links to relevant news stories, as I subscribe to several alerts – and then a search of the BBC News website using the term “money laundering”.  If I see anything that tickles my AML fancy, I consider how to share it: as a headline on the Newsroom page of my website, as a Tweet, or – occasionally – as a direct email to someone to whom I think it is particularly relevant.  When I thought about how I made that decision, I realised that I was using Twitter mainly to spread ML/AML “gossip” – stories saying “it is alleged that”, or someone “is suspected of involvement in”.  And when I came back from holiday I carefully read all the email alerts that I had received over the past month, but did not bother going back even one day on Twitter, as I knew it would all be – literally – old news.

In all honesty, Twitter does not suit my character.  I am not a fast-moving creature: I prefer slow and steady.  Even in my spare time, when I give myself over to writing fiction, it’s fiction set in the past, where everything has already happened and I can take my time over considering its impact and implications.  When I was in Canada and occasionally turned the telly to Bloomberg, all of those fast-moving panels and scrolling ticker-tapes of information made me feel dizzy.  I initially started Tweeting in a professional capacity because “everyone is doing it”.  But it turns out that they aren’t: the majority of my clients work in offices where Twitter is not permitted, so anything I post in a hurry at 0915 is unlikely to be seen – if at all – until they get home that evening, when it will have been overtaken by a surfing dog and the latest fashion faux pas of some tweenie singer.  Indeed, on Twitter I have only 377 followers, compared with over a thousand subscribers to this blog.  So from now on I’ll leave the tweeting to singers Katy Perry (102,891,671 followers) and Justin Bieber (99,762,866), and ex-pres Barack Obama (94,125,360).  From today I will not be tweeting, apart from the automated tweets that appear whenever I post on this blog, which is confusingly circular.

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Something new to get your AML teeth into

People sometimes ask me how I can bear to stick with one subject for so long.  The answer, of course, is that it’s not really the same subject for very long.  True, the aim of money laundering is fairly predictable (trying to hide the criminal origins of assets so that they can be preserved and enjoyed) – but the crimes and methods change all the time, necessitating our defences to change as well.  It’s one of the most vibrant and fast-moving subjects in the world.

This was brought home to me recently when I read about horsemeat.  I have seen a connection between money laundering and horses before: the bloodstock market (sale of live horses, for racing and/or breeding) is traditionally quite cash-intensive, and those who conduct the trade are usually therefore considered to be high value dealers and to come under the AML umbrella.  (Someone once asked me whether stud activities were included, as hiring out your stallion to cover mares is a service, not a product.  The answer is that if you send the stallion to do his duty, then it’s a service and not included.  If, on the other hand, you – how to be delicate? – extract his stallion essence and sell this for mares to be artificially inseminated, then you are selling a product and if you do that for cash, you are included.  I bet you’re glad you asked.)

But what I read recently was about the trade in dead horses.  It seems that a Europe-wide criminal network under the control of a Dutchman living in Spain has been slaughtering horses in Portugal and Spain that had been deemed not fit for human consumption, and then fraudulently labelling the meat and selling it anyway.  The story initially broke in the UK in April 2013 (when edible horsemeat was found to have been fraudulently mixed with beef in burgers), but at that time the Dutch ringleader could not be found – and now he’s been arrested in Belgium.  What I find interesting – of course – is that he and his sixty-five co-accused have been charged with crimes including animal abuse, forgery, racketeering – and money laundering.  Even better, the authorities have already seized bank accounts, properties and luxury cars.  You see: a whole new crime to talk about.  I always try to find crimes that will strike a chord with trainees, outraging them at the dastardliness of criminals, and scoffing horses should fit the bill in England.

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You can lead a horse to water

As you know, at the end of June we were gifted with new AML legislation here in the UK.  One of its main features was an absolute clarification about the AML status of estate agents: “In these Regulations, ‘estate agent’ means a firm or a sole practitioner, who, or whose employees, carry out estate agency work, when the work is being carried out”, and “for the purposes of these Regulations, an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller), at the point when the purchaser’s offer is accepted by the seller.”  Until June, there was some (perhaps disingenuous) confusion among estate agents about whether we could really, possibly, actually mean them – but now it’s clear that we do.

I do already have a small number of estate agency clients, and a couple of them had previously asked me to write a piggy edition for them.  I had demurred, on the grounds that I wouldn’t sell enough to cover my costs.  Ignoring the time I spend writing a piggy book – not that the time’s not worth anything, but it is my choice to do it – there are still actual costs involved.  The books are self-published, and I have to pay a cover designer to (you’re ahead of me here) design the cover.  For the piggies, that comes in at £99 a cover.  When I sell a (staff, rather than NED) piggy through Amazon, Amazon charges the buyer £5.99, and I eventually get £2.03 of that.  So to pay for the cover, I need to sell forty-nine copies of the book.

When the Regs were updated so crisply, I re-thought my position on the estate agency piggy.  Surely, I reasoned, with all the publicity about the new Regs, and all those estate agents who thought they were excused suddenly realising they are not, and all the negative press about the UK property sector being abused by money launderers, and the medium risk rating for the sector in the National Risk Assessment, well, they’ll be biting my hand off to get some accessible and digestible information for their staff.  And so I wrote like a demon and got the estate agency piggy out within a week of the Regs appearing.  I alerted the various estate agency trade bodies, I tweeted, I emailed every estate agent I knew, I contacted the estate agency press.  And the response has been: pffffff.  In July I sold five copies.  I guess we’re waiting for a high profile regulatory fine to focus the mind – for which all hopes are pinned on HMRC.  Those piggies may be waiting quite some time to be rehoused.

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Some are more equal than others

The connection between PEPs [politically exposed persons] and money laundering is recognised: with access to public influence and public money, these individuals in positions of high public service can fall prey to their baser desires and start feathering their private nests with public, well, feathers.  The accepted definition of PEPs has recently been updated in EU Member States to include homegrown domestic PEPs as well as foreigners, and “grand corruption” is (quite rightly) under fire from all sides.

What is interesting, however, is seeing what happens to PEPs who are accused of (some combination of) illegal enrichment, corruption and money laundering.  Of course, their very PEP status does mean that they will be a target for political enemies who wish to blacken their name, and an accusation of corruption is a good place to start – so an accusation is by no means always well-founded.  But still, the differences can be stark.

On 14 July 2017 it was announced that the former president of Peru, Ollanta Humala, and his wife Nadine Heredia had been placed into pre-trial detention to await the preparation of a money laundering case against them – which will take about eighteen months.  They deny all charges and have handed over their passports, but the courts have deemed them a flight risk.  Humala is now being held in Barbadillo prison, whose only other inmate is his political rival Alberto Fujimori (serving a 25-year sentence for human rights abuses).  It is unlikely that the two will socialise.

In the same week, Brazil’s former president Luiz Inacio Lula da Silva was sentenced to nine-and-a-half years in prison for corruption and money laundering.  However, it was not “go straight to jail, do not pass Go” for Lula: Judge Sergio Moro was minded to feel sympathy for him.  He said that said he would not order Lula to be arrested and imprisoned because the conviction of a president is such a serious matter that an appeal should be heard first.  Perhaps Judge Moro also has an eye to his future career: Lula, who was president between 2003 and 2010, is currently leading the polls for next year’s presidential election in Brazil…

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Ladies first

In an era when we have the first female Doctor Who, female heads of the Met, the London Fire Brigade and the London Ambulance Service, and a female sort-of-Prime Minister, it is perhaps only right that women should be in the money laundering ascendency as well.  We have had plenty of instances of men being the instigators and their female significant others allowing their accounts to be abused, or paying in money, or otherwise playing a subsidiary role.  But a recent case from Shropshire reversed the roles, when a female finance director pinched £660,000 from her employer and used her husband’s personal and business accounts to launder it.

Personally I am an equal opportunities loather: I hate all money launderers, regardless of gender, sexual orientation, religion, appearance, colour, nationality, age or state of physical/mental health.  But professional criminals know that courts often think differently – particularly when more traditional individuals are on the bench or in the jury box.  Moreover, there has been – quite rightly – concern that sentencing courts do not take enough account of the damaging impact that custodial sentences can have on the children of imprisoned primary carers (usually, mothers) and there has been a call for courts to “be more lenient to women criminals”.  Again, professional criminals know how to work the system, and for decades the mafia, for instance, have entrusted their female family members with the money laundering.  It’s not the sort of equality that women usually seek, but perhaps it is a real sign of the times that female criminals are now doing the same.

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