Don’t look – but must look

I’m going to state my position from the outset, so that if you don’t agree you can get your snarls over and done with now, rather than building up a head of steam and perhaps doing yourself a mischief.  I don’t think trade bodies should act as AML/CFT supervisory bodies for their members.  As you probably know, a couple of months ago the UK chapter of Transparency International put out a report entitled “Don’t Look, Won’t Find”, which looks at the supervision of the AML regime in the UK and takes the view that it is in need of a radical overhaul.  Their main beefs are three: that the supervisory bodies currently operating in the UK are not correctly identifying money laundering risks; that these supervisory bodies are not harsh enough in their punishment of AML failings; and (and this is the one I’m thinking about today) that there are serious conflicts of interest.  To quote from the TI press release: “The Government has identified that the majority of private sector supervisors actually lobby on behalf of the sectors they’re supposed to regulate, and accept funds from firms they are obliged to investigate.”  In my view, this is not good.

Now, I am not criticising those supervisory bodies in and of themselves – that would be biting the hand that feeds, as I frequently take advantage of AML information put out by several of them.  But it is surely plain to all that you should not have the same organisation both promoting a profession and policing it.  Or, as the TI reports puts it, creating “conflicts of interest between enforcement and promotional responsibilities”.  It is like allowing the AA – which seeks to increase the number of motorists in order to create a stronger lobby (and perhaps also to sell more car insurance) – to administer driving tests.  Some trade bodies have structured themselves to avoid this conflict – for instance, the Law Society of England and Wales represents and promotes the legal profession, but oversight and enforcement of the standards of that profession (including AML standards) is undertaken by the separate Solicitors Regulation Authority – but by no means all.  Indeed, of the twenty-two AML supervisors analysed by the TI report, only seven of them achieve this acceptable degree of separation.

As you know, I am a bear of very little brain when it comes to anything except AML.  And I am sure that in other areas of supervision, the intertwining of enforcement and promotion would be of less concern.  But in AML, well, we have to be whiter than white, don’t we?  How can we preach about high standards of probity and integrity, and about keeping out corruption, if our very system is open to accusations (as in the report) of not doing what it should because it is scared of damaging its membership?  If professional individuals and firms in the UK are not doing what they should in the AML arena, they must be named, shamed and punished, regardless of the damage it might do to the profession they represent.  The confused set-up we have at the moment calls to mind the warning of Roman poet Juvenal: “Quis custodiet ipsos custodies?” – who will guard the guards themselves?

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Plump and rumpled

I don’t know how many people rub their hands with glee when the FATF publishes a new report, but I’m one of them.  I find their “typologies” reports, as they used to be called – basically, money laundering and how she is done – fascinating reading, not least because they always shed light on industries about which I know very little.  Thanks to the FATF in 2015, for instance, I schooled myself in the activities of gold traders, diamond dealers, charity organisers and growers of opiates in Afghanistan – fine career options, all of them.  And just recently I have been reading all about cash smuggling.

I have reviewed the report in full for that august publication Money Laundering Bulletin, so I do not propose to repeat myself here, but something I did not include in the MLB article has been amusing me ever since.  This report, like all of its FATF bedfellows, offers a long bullet-pointed list of “red flags” – in short, giveaways to look for when trying to spot, in this case, rascally people trying to launder money by transporting cash.  Many of the red flags are common-sense, but there are some I would never have thought of.  For instance, the report warns to be cautious of people whose suitcases are sealed, e.g. by wrapping in cling-film.  This is offered as a security service at many airports, which gives travellers something of a dilemma: run the gamut of light-fingered baggage handlers, or risk being hauled out as a potential cash smuggler?  Or how about this red flag: “Passenger has an iron in his luggage; banknotes are sometimes ironed to make them easier to pack into small spaces.”  Those of you who are snappy dressers might want to reconsider the rumpled look.  Or this one: “Has refused to consume food and drinks offered on vessel, indicating that currency might be hidden in body”.  Mind you, anyone travelling Aeroflot would do this out of a sense of self-preservation.  And this one would have to be applied very sensitively: “Uneasy movement or unusual body shape due to bulk cash hidden on body.”  What if you’re just plump and clumsy?  I tell you, my next visit to Stansted is going to be quite the adventure.

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Change the record, please

From time to time I have a rant about the bad rap that AML gets, and today’s another one of those.  Allow me to present two pieces of evidence.  A fortnight ago I found a wallet on a bench in Cambridge.  I looked inside, and there were a card to allow reduced price on the local buses, a £20 note, and a cashpoint card for a bank, with a PostIt note stuck on it with the PIN.  I know, I know.  A branch of the bank in question was just round the corner, so I took the wallet in.  “Could you just confirm,” I asked, “that you have a telephone number on file for this gentleman, so that you can return his wallet.”  “No,” said the girl on the front desk that all bank branches seem to have these days. “We can’t tell you whether he is a customer or not because of money laundering.”  Now, if she had said – in polite terms, of course – because you might steal from his account, that I could understand, although quite why I would go into the branch when I could simply go to an ATM with his card and PIN and strip his account, I can’t imagine.  But no: the reason she couldn’t tell me anything was “because of money laundering”.

And yesterday I found that somewhere along the line I had acquired a damaged £20 note – a small strip of it was torn off one edge.  I went into a branch of my own bank and asked to exchange it.  “We can’t just give you another £20 note,” said the man at the counter, “but we can pay it into your account.”  “Why’s that?” I asked.  You’re ahead of me here.  “Because of money laundering,” he said without hesitation.  I was in quite a good mood that day, so I didn’t challenge him to explain how exchanging one £20 note for another might be considered money laundering, when paying the £20 into my account wasn’t – did they consider it the proceeds of crime, or not?

But it does worry me that “because of money laundering” is used so glibly, as a catch-all explanation.  Firstly it is just plain wrong, and it upsets me that staff in large UK banks – these two are among the very largest – are still being given the wrong information.  And secondly, it makes people (I assume they’re giving the same explanation to other clients as well as to me) think that AML is just ludicrous – that it makes illogical demands of the financial sector, thereby stopping them doing perfectly acceptable things like swapping one £20 note for another.  Stamp, stamp, stamp go my little AML trotters!

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Handing over the report card

A couple of weeks ago a rather intriguing story hit the press, revealing that HSBC is trying to stop publication of a report on its AML effectiveness.  When the bank was hauled over the coals by the US authorities in 2012 over its laundering for Mexican drug cartels, it negotiated a deferred prosecution agreement.  As part of the DPA, HSBC agreed to install an independent monitor to provide quarterly updates on the bank’s AML efforts – a process that has not gone entirely swimmingly, with the monitor coming up against “combative” managers in HSBC.  Anyhoo, on 1 April 2015 the monitor’s first annual report was filed.  And now Hubert Moore, an HSBC customer, wants to have a look at it and has sent a request to Judge John Gleeson in New York to have it unsealed.

Putting aside the wisdom of wanting a read a thousand-page compliance document, should Mr Moore be given this access?  Both HSBC and the US Department of Justice think not, on the grounds that it would (a) make the monitor’s job more difficult, and (b) “provide criminals seeking to engage in activities such as money laundering or terrorist financing a road map for exploiting current weakness in the anti-money laundering and sanctions programme at HSBC and potentially other financial institutions”.

Tricky, isn’t it?  As a magistrate here in the UK, I work within the sentencing guidelines issued by the government.  These guidelines are entirely public, and frequently in court a solicitor – and sometimes even a defendant – will say, “According to your guidelines, your worships, you will see that this offence falls into category whatever and so attracts penalty whatever”.  On balance, is it right – and useful – for accused people to know exactly what is at stake when they plead?  The UK government obviously thinks so.

But this is slightly different, I’m minded to think.  (Can you hear the magistrate-speak in that?)  After all, if a museum, say, has a security audit done, it would be unwise to publish the report highlighting its weaknesses before it has put them right.  Afterwards, maybe, but not before.  And perhaps the same principle should be applied here: the HSBC monitoring reports should be published, but only once they have put everything right.  And if the courts were to set a deadline for that publication, it might be a useful incentive to get a wriggle on.

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Hints from Holmes

One of the anticipated highlights of my Christmas telly viewing was the new episode of “Sherlock”.  As it turns out, it was a huge disappointment – with all the time-travelling, I had no idea what was going on and soon, quite literally, lost the plot – but it was a handy reminder for me of what I had so loved about the earlier episodes of the “new” Sherlock, with Cumberbatch and Freeman.  And no, it’s not Benedict, in case you’re wondering.  Rather, I love the way he highlights the power of simple observation.  People tend to think that he is supremely educated, but actually he is supremely observant: he sees things and interprets their meaning.  Here’s one example of how he knows that someone is left-handed.  And here’s how he gets the measure of Watson at their first meeting.  (If you’re at work, you may want to turn down the volume for the whipping scene…)

Welcome back – aren’t they terrific?  Anyway, they remind us of the importance of looking and of paying attention to what you see (and hear).  Too often when doing due diligence checks, or meeting clients, we go onto auto-pilot and stop paying close attention.  But the information to be gleaned from close observation is invaluable.  At a basic level, does your client’s appearance match his age as given in documentation?  Does her accent match her name?  Is her smartness or otherwise of dress what you would expect from what you know about her – her occupation, salary and so on?  Does he respond easily when you ask questions (think how easy it is for you to spell out your name for someone, or give your postcode – now try it for someone else’s, and you slow right down)?  If he gives you his date of birth, perhaps ask his age as confirmation – if he has to work it out, it might not be true.  Look at any forms she has filled in: does the signature flow easily, or is it more forced, and so perhaps copied?  Do numbers – other account numbers, passport numbers, phone numbers – seem credible, or are they rounded or consecutive?

None of this requires special training or skills, beyond opening the eyes and ears and paying attention.  And do wear a deerstalker if it helps.

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You say potato

As anyone who knows me will tell you, I am a big fan of “Poldark”.  No, not the ridiculous chest-baring modern remake, but the 1970s original with Robin Ellis (who did his scything fully clothed, as any gentleman of his era would have done – harrumph).  Watching it again recently, I found myself more interested than before in the story of a desperate Ross Poldark allowing local smugglers to land their boats in his cove.  Suggesting the arrangement to Ross, Mr Trencrom – smuggler-in-chief – is keen to emphasise that his business is not smuggling but rather “a protest against excessive taxation, which also happens to show a small profit”.

And a few days ago I was reminded of the transformative power of perception when I spotted this story on the BBC website.  In short, six former soldiers from the UK were among thirty-five people arrested in November 2013 while working on an anti-piracy ship sailing in Indian waters.  The Indian authorities said that the vessel was not licensed to carry weapons, and all thirty-five involved have been sentenced to five years in prison on firearms charges.  They say that if you lie down with dogs you get up with fleas, and it certainly seems ironic that men hired to guard merchant ships against pirates have themselves been imprisoned.  But from the point of view of the Indian authorities, we have a heavily-armed ship in their waters without permission.  I am sure the case is much more complicated than that, but it’s all perception again.  And, as ever, whether you are an anti-piracy guard, Mr Trencrom or an MLRO, much will hang on how well you document your justification for taking a certain course of action.

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More or less?

This morning’s post is going to wax rather philosophical, so you should either (a) stop reading now, if you’re not given to such ponderings, or (b) get an extra chocolate biscuit for your elevenses to prolong the ponderings.

It all started last week when a university friend of my husband’s came to dinner.  I had not seen the man since 1988, and did my usual potted history of what I do, how I got here, and why I carry on with it.  “Isn’t it odd,” he mused, “but twenty years ago I [he’s an engineer] would have had no idea what money laundering was, but now it’s just an accepted phrase and concept.”  And he’s right: I used to have to go into quite some detail to explain my line of work, but now “I help people to tackle money laundering” just about does it.  But does this mean that there is more money laundering than ever before – and might I (along with everyone else in the AML industry) actually be causing its growth?  Are we, through our desire to educate the public about what money laundering is and how it works, helping criminals to get better at it?

Personally, I put money laundering into the same category – for the purpose of this blog only, I should add – as child sexual abuse.  A Martian landing on Earth and looking at newspapers for the past few decades would think that something dreadful happened in the 1980s to create child sexual abuse, and indeed money laundering, as they made very rare appearances in the press before then.  But of course what actually happened was the criminalisation, and subsequent publicity around the prosecution of, child sexual abuse, and money laundering.  Indeed, many people argue that there is less child sexual abuse nowadays than ever before in history because we warn children about it, we provide mechanisms via which they can report it and obtain help, and we punish those involved.  We also – in order to warn and protect – publicise all of these responses, and this is what makes it seem as though it’s more prevalent than it used to be.  And I think exactly the same is true of money laundering.

Many people tell me – usually with folded arms and an air of triumph – that AML is not working.  They say that there is more money laundering now than ever before, and we’re not catching it.  I cannot – sadly, as I would love to – offer a statistical rebuttal, but everyone I talk to on the inside (and I mean investigators and regulators, rather than criminals) believes that the system is working.  We only think that there is more money laundering because more of it is spotted and publicised – and although we are not catching enough of it, we are catching more and more of it (and immeasurably more than in the days when no-one cared about it, and no-one put pressure on the authorities to make it a priority).

So I am thrilled when I see money laundering in a headline: that’s more publicity, putting criminals on notice that we know how they’re doing it and we’re not going to tolerate it.  Onwards and upwards, fellow AML-ers!

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Dear Launderer?

Last week saw the 33rd birthday of Kim Jung-un, Dear Leader of North Korea.  (I’m not sure whether anyone else in North Korea was allowed to celebrate a birthday on 8 January; I mention it only because in December 2014 the North Korean authorities ordered everyone else called Kim Jong-un to change their name, so it seems he’s not great on sharing.)  From an AML perspective, North Korea is both easy and difficult.  Easy because most institutions (financial and otherwise) simply steer clear of anything obviously North Korean.  And difficult because that deals only with the obvious situations, and with modern finance being as complicated as it is, it can be remarkably tricky to be absolutely certain that there’s nothing North Korean lurking at the root of something.  And getting specifics on the effectiveness (or even existence) of the North Korean AML regime is not for the faint-hearted.

North Korea has been on the naughty step at the FATF for so long now that it must have worn a groove in it, but in July 2014, the authorities in Pyongyang announced that North Korea (more properly, in FATF-speak, the Democratic People’s Republic of Korea, or DPRK) had joined the Asia/Pacific Group on Monday Laundering as an observer.  According to the APG’s website, observer nations are “jurisdictions which are considering APG membership and are prepared to meet the first three membership requirements”.

Ah, I hear you say, and what might those three requirements be?  Wonder no longer, for here they are: recognise the need for action to be taken to combat money laundering and the financing of terrorism and proliferation; recognise the benefits to be obtained by sharing knowledge and experience; and have taken or be actively taking steps to develop, pass and implement combating money laundering and the financing of terrorism and proliferation legislation and other measures based on accepted international standards.  So the APG is obviously convinced that North Korea is doing these things.  But this is only half the story – literally.

For full membership of the APG, North Korea will have to meet not just those first three requirements, but also a second set of three, namely: commit to implementing the decisions made by the APG; commit to participation in the mutual evaluation programme; and contribute to the APG budget.  I’m guessing that the middle one is going to be something of a sticking point.  Given the trouble the IAEA has had trying – and failing – to get a look at North Korea’s nuclear arrangements (IAEA inspectors left in 2009 and haven’t been allowed back in since then), I don’t hold out much hope for mild-mannered AML types securing much co-operation from Mr Kim, aka First Chairman of the National Defence Commission, First Secretary of the Workers’ Party of Korea, Supreme Commander of the Korean People’s Army, Chairman of the Central Military Commission of the Workers’ Party of Korea and, of course, Dear Leader.  And with all those names, that’s a due diligence nightmare right there.

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The art of money laundering

“More money than sense” is how my grandma would have described Jocelyn Wildenstein, the ex-wife of the late Alec Wildenstein who is described by Wikipedia as “a billionaire French businessman, art dealer, racehorse owner and breeder”.  Jocelyn is most famous for her obsession with facial plastic surgery: she has spent a rumoured US$4 million on procedures to make her look like a cat.  She loves the look, apparently, although the press quickly dubbed her “the Bride of Wildenstein”.

What has this to do with money laundering, I hear you ask?  Very little, I will admit, except that the Wildenstein family’s source of wealth is now being called into question, as Alec’s younger brother Guy, Alec’s son and Alec’s widow Liouba Stouapkova have just gone on trial in France for tax evasion and money laundering.  The allegation is that they inherited vast sums from Alec and Guy’s father Daniel and in turn from Alec, and then hid it away from the taxman.  According to the Guardian, “a notary, two lawyers and two managers of secret trusts held in Guernsey and the Bahamas are also in the dock”.

The Wildensteins are so well known in the French art world that they are referred to simply as “les W”.  Guy is chums with Nicolas Sarkozy, and current boss of the Wildenstein Institute in Paris, which publishes catalogues raisonnés and scholarly inventories of artists such as Monet and Gauguin.  With this pedigree, you can imagine that financial institutions are falling over themselves to get Wildensteins on the books.  But this latest trial is not Guy’s first dance along the edges of the law: in 2011 he was charged with concealing art that had been reported missing or stolen – an investigation that remains ongoing.  It’s not a new message, I know, but for MLROs the message is simple: take nothing for granted, friends in high places prove nothing, and the most glittering surface can hide the murkiest depths.

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Prevention is better than cure

Like many people, I used the “Crimbo limbo” (period between Christmas and new year) to do a bit of sorting, tidying, sifting and chucking.  And as I went through the thousands of photos that I took in 2015, I came across one that I had meant to share with the readers of this blog.  Those of you who’ve been with me for a while will remember that in September 2015 I went on holiday to eastern Europe, and I blogged about it – and the ruminations on corruption that it generated – here and here.  But I quite forgot one of the corruption-related highlights of the trip.

We were nearing the end of our holiday, and our penultimate port of call was Brașov (pronounced “brashov”) in the Transylvania region of Romania.  (It’s the nearest city to Bran Castle, home of the toothy Count D.)  It’s a very pretty place, with a mediaeval heart and mountains all around.  And as we checked into our historic coaching inn, I spotted this on the noticeboard behind the desk:

Brasov hotel noticeboard Sept 2015

No, not the check-in times, but the “green corruption hotline” number.  I asked the owner about it, and he said, with a sigh and a rueful shake of the head, that corruption is still part of everyday life in Romania.  Indeed, the recent resignation of prime minister Victor Ponta and the continuing investigations into high-level corruption (as detailed in this November 2015 article from the Guardian) show this to be true.  But this hotline is specifically for businesses, and it is intended mainly as a deterrent.  “I have never called it,” he said, “but I display it prominently and I see people noticing it, and since it has been there I have not been offered any bribes.”  I must have looked surprised – bribing a hotel manager had not occurred to me.  “To inflate a bill, so that an employee can claim more on expenses, or to choose one supplier over another, or to give a free room to a local dignitary for an afternoon of relaxation with a lady,” he suggested.  “But since I point out the hotline – nothing.”  He smiled.

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