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 de la Santísima Trinidad de Borbón y Grecia, Infanta of Spain).
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.
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.
Posted in AML, Money laundering
Tagged AML, banking, bribery, corruption, EFCC, financial crime, money laundering, National Crime Agency, Nigeria, proceeds of crime
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.
Posted in AML, Money laundering
Tagged AML, banking, disclosure, due diligence, financial crime, Latvia, legislation, money laundering, proceeds of crime, suspicion, white collar crime
So the FATF’s latest take on their list of naughty countries – or, more properly, those jurisdictions with strategic AML/CFT deficiencies – is out. Their latest plenary meeting, this time in Busan in Korea, ended on 24 June 2016, and the outcomes were issued immediately. North Korea is still so far back on the naughty step that it is practically in the understair cupboard, but the FATF has taken note of Iran’s high-level commitment to an AML action plan and as a reward “has suspended counter-measures for twelve months”. In practical terms for the MLRO this makes little difference: Iran is still on the list, albeit in a slightly different position, and therefore all business connected to it is still subject to enhanced due diligence.
As for the rest of the list, there are some changes. Two countries – Myanmar and Papua New Guinea – have done enough to work themselves off the list, which means that business connected with them does not have to be subject to EDD (although many MLROs will prefer to keep it that way for now – as always, you can go beyond the requirements of the list if you wish). There are no new entrants to the list, although that surprises me: I was certain that Panama, having only just worked its way off the list in February 2016, would make a star reappearance, but no. Papers notwithstanding, Panama is not on the FATF’s list. So who is? Here we go: Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Laos, Syria, Uganda, Vanuatu and Yemen. None of these seems to be in the last chance saloon – i.e. in danger of falling subject to counter-measures – but the FATF has been overtaken by events in that it admits that, owing to security concerns, it has been unable to do an onsite visit to verify progress in either Syria or Yemen. I don’t blame them: I’d do a lot for AML, but I’m not sure about tiptoeing through a war zone to ask about due diligence documents and record-keeping.
When I was a teenager, I had something of a crush on Tom Cruise. Come on, ladies of my age: you remember him dancing in his undies in 1983 hit movie “Risky Business”. What finally cured me of my infatuation was not his performance in “Cocktail” or his marital history (although both should have done it) but his conversion to – and speedy elevation through the ranks of – the Church of Scientology. Now I’m generally religiously very tolerant; an atheist myself, I’m happy for anyone to believe anything that, as they say, gets you through the night. (My own coping mechanism for dark nights of the soul? I go through the plots of favourite books and movies.) But Scientology is something altogether different, not least because in 1955 its founder, L Ron Hubbard, decided to target celebrities for conversion in order to “forward the expansion and popularisation of Scientology through the arts”. Gloria Swanson was an early celebrity trophy, and today they have little Tom, and John Travolta. And suspected money laundering.
Ah yes, did I mention that? About a week ago, the Federal Security Service of Russia raided fourteen Church of Scientology offices in Moscow and St Petersburg, seizing documents to assist its investigation into fraudulent financial gain by the church (by seeking donations as a religious organisation, while not recognised as one in Russia – it was awarded the status of a religious organisation in the US in 1993) and money laundering. The laundering is connected not just with the alleged fraud, but with ordinary crimes of its adherents. In April 2016, for instance, authorities detained Ekaterina Zaborskikh for allegedly stealing large sums from apartment buyers in St Petersburg; between 2012 and 2014 it is alleged that her construction company promised to build “affordable castles”, which never appeared. Financial records suggest that the money was instead donated to the Church of Scientology in Moscow. I’ve had a quick look at the church’s news website, but there’s no mention of the laundering allegations – although I am pleased to see that “advanced Scientologists” had a fab time kicking up their heels on their cruise ship, Freewinds, in Barbados. I wonder if Justin Welby has thought of asking parishioners to cough up for a ship – he could anchor it in Herne Bay.
The UK has voted to leave the EU. I am devastated, of course, but that is a personal sadness. From a professional point of view, my concern is what will happen to the AML legislation that we in the UK have already, and what will happen to the new legislation that is making its way towards us. Bearing in mind that I am not a lawyer, my understanding of the situation is quite simplistic – and if you are making big plans for change, you will certainly want to check with a lawyer before doing anything based on my overview.
But – as I understand it – the process of leaving the EU will not start until the UK PM (whoever he or she may be in the coming months) invokes Article 50 of the Lisbon Treaty, which contains the rules for exit. Once that happens, the requirement is for the exit process to be completed within two years.
Until exit is complete, the UK is still fully (politically, financially and legally, if not emotionally) part of the EU, and still covered by the requirements of EU legislation (e.g. the Third Money Laundering Directive, as reflected in the UK’s Money Laundering Regulations 2007).
The transposition of the Fourth Money Laundering Directive into UK legislation – with a transposition deadline of 26 June 2017 – is however in doubt, as the UK government has yet to say what it will do about EU legislation that is only partway through the transposition process. The UK is only the second nation ever to leave the EU, and so models of how it should work are thin on the ground. It may be that the UK – in line with other countries that are not EU anyway, such as Guernsey – will decide to keep the provisions of MLD4. Or it may be that it will decide to plough its own furrow (I should imagine that the beneficial ownership register – the PSC register – is looking a bit rocky at the moment). Or it may be (and I fear that this is the most likely) that the new government will be so overworked, confused and chaotic that AML will drop to such a low point on their agenda that we will not see it again for a decade. But I will keep you posted.
As regular readers will know, I am rather fond of a biscuit or two – and particularly the Jaffa Cake. (Yes, it’s a biscuit not a cake, despite the name. The way to tell is that cakes go hard when they’re stale, whereas biscuits go soft.) Jaffa Cakes come in boxes of twelve, and along with all other processed food items in the UK, a “traffic light” logo on that box indicating the product’s levels of sugars, fats, salts and so on: red is high, amber is medium and green is low. (Jaffa Cakes are obviously extremely good for you, with that orangey centre.) The reason for all of this biscuit-related flannel is that I have been wondering whether any MLROs have considered using – for internal, staff-directing purposes only, of course – a traffic light system for applicants and indeed clients.
My reasoning is that – the colour-blind aside – we are all very quick to respond to the red/amber/green signal. I believe that it is universal, which would take care of any translation difficulties. Of course it only works if you have three options – green for standard due diligence, amber for enhanced due diligence, and red for rejection, for instance. Although, thinking about it, you could use the system to track an application, or to monitor reviews – so green is “all done, we’re ready to continue”, amber is “we’re getting there, but work still to be done before we accept/maintain this client”, and red is “big obstacles – lots still to be done”. In fact, I think I like this application better: you could move the client file into different coloured folders – paper or virtual – as it progresses. I may patent it – although the estate of Garrett Morgan might have something to say about that.
Back in January 2016, the UK government launched an enquiry into “how effectively the measures introduced in the Proceeds of Crime Act 2002, to deprive criminals of any benefit from their crimes, are working [and in particular to] assess the operation of confiscation orders, which are the main mechanism through which this policy is implemented”. Written submissions were invited, and they are now being presented and considered; you can follow the progress of the enquiry via its dedicated webpage.
The intention of the enquiry – as stated by the Chair of the Committee, Keith Vaz MP, at the outset – is to address the finding that “around half of those given confiscation orders by the Serious Fraud Office in the last three years have failed to pay, and millions of pounds are still owed by dozens of criminals” and for a report to be published “by the summer”. The first evidence session was held on 8 March 2016, when legal experts and academics went before the Home Affairs Committee as “witnesses”. You can watch it here. Next up, on 3 May 2016, were representatives from the Serious Fraud Office, Transparency International and industry. You can watch that here. On 18 May 2016 we heard from the City of London Police, the Crown Prosecution Service and the National Crime Agency – here for the video, and here for the transcript.
Looking specifically at the evidence given by Donald Toon of the NCA, I felt a certain sympathy for the man. I am often asked – in gentle, cushioned terms, but the underlying question is clear – whether I’m wasting my time: whether AML is having any effect at all. And they asked Mr Toon the same: “When you get to work in the morning, do you think, ‘We’re making progress here’, or, ‘We’re being overwhelmed because there is so much we have to deal with’?” And Mr Toon replied: “I suppose I would characterise the vision as, ‘We are making some progress’.” I feel much the same. I always say that when it comes to battling money laundering we have two options: do something, or do nothing. I’m not prepared to do nothing, so I am doing something, which leads – as Mr Toon suggests – to some progress. This proceeds of crime enquiry may lead to more.
Earlier this month the Guernsey Financial Services Commission (one of my very favourite regulators – yes, I do have favourite regulators, and favourite FIUs too) published a thematic report on financial crime training. In it are the results of a review the Commission conducted in 2015, asking 62 firms in Guernsey (together employing 2,238 people) about their financial crime training. As you can imagine, I grabbed it with indecent haste. I do a lot of training in Guernsey, and I need to know if I’m getting it right. And – selfishness aside – this is one of the very few reports I have ever seen into the provision and effectiveness of AML training.
You can read the full report yourself, of course – it’s well-written, neatly formatted and with handy boxes showing good and poor practice. (By the by, I am always surprised by how honest people are in these reviews. One example of poor practice around MLRO reports to the Board says that “the Commission noted that the Board had taken seven months to reply to the MLRO on the action points arising from the report”. Now, would you have owned up to that? Me neither.) From my perspective, the interesting observations (i.e. the ones that are likely to make me change my ways) are these:
- In one example of good practice, we are told that: “The firm provides new employees with introductory AML/CFT training on their first morning with the firm. A one-to-one session is held with the MLRO providing an overview of Guernsey’s AML/CFT regulatory regime, together with details of an employee’s personal obligations and the consequences for failing to comply with these obligations. A ‘Day 1’ pack is also provided, including an AML/CFT training document, a reporting suspicion summary and details of the MLRO and compliance team.” I like the sound of that (particularly if the regulator’s keen): I might put together a ‘Day 1’ pack template for “my” MLROs.
- When it comes to the training of non-exec directors, the report notes that “a number of firms placed reliance upon the training received by the NEDs from other employment/appointments. Additionally in some cases no formal confirmation had been requested or received in respect of this training and no evidence held to meet the relevant record keeping requirements.” It might be time for a reminder to MLROs to ensure that they have (documented) confidence in the AML training being given to their NEDs and don’t just believe the NED when he says he’s done it elsewhere.
- And then this: “A common theme to emerge from this thematic was a disconnect between the principal financial crime risks which firms identified and the subsequent focus on these areas within the training provided to staff.” In other words, firms would identify, say, fraud and market manipulation as their biggest risks, but then not cover these in their financial crime training. Now, I’m not keen to start training on all financial crimes – no-one could do justice to them all – but I will start to ask MLROs whether they are covering off their identified risks in other training, for their own protection.