Deadlier than the male

A little while ago, I wrote a post about the benefits of promoting more women to the Board (in short, it seems that companies with more female influence at the top act more morally).  But in the spirit of equality, I really should reveal that other research I have done has shown that, in crime at least, women are, in the words of Rex Harrison, becoming more like men.  Two areas in particular see women taking on criminal roles traditionally assumed by men.

In the first, as in so many businesses, the greater freedoms afforded to women by more effective birth control and better access to education are now allowing women to scale the higher rungs of mafia organisations.  Of course, gender bias in these “firms” is still pretty strong, but with Concetta Scalisi now one of the highest-ranking members of the Sicilian Scalisi family, Maria Licciardi earning the nickname “La Madrina” (the godmother) and a place on Italy’s list of its thirty most wanted criminals, and Erminia Giuliano operating a syndicate from Naples (and demanding a beautician’s appointment before agreeing to be arrested), time are changing.  And the reason I’m telling you this?  Well, one of the areas of mafia activity that is being farmed out to the women is their money laundering.  As we all know, to be a successful money launderer you need to be a people person: likeable, educated, tactful and patient.  Not qualities generally associated with mobsters – but more discernible in their wives, mothers and sisters (developed over years of dealing with volatile menfolk, perhaps).  And indeed, research by Dr Michael Kilchling of the Max Planck Institute in Freiburg in Germany showed that between 1993 to 1997, women made up 35.7% of mafia money laundering convictions.

And in the second, again, criminals seem to be spotting the potential of using the gentler, softer skills of women to gain the trust of victims.  In its most recent “Global Report on Trafficking in Persons”, published in December 2014, the UN revealed that 28% of convicted people traffickers are women.  Averaging across all crimes, only 10-15% of convicted offenders are women – so people trafficking is obviously a boom business for female criminals.  Again, it is easy to see why: all other things being equal, potential victims are more likely to trust an approach from a woman than from a man (especially as 70% of trafficking victims are female).

I’m all for equality, of course, but crime is the one area that I would have been perfectly happy to leave to the male of the species.

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SARs in tiaras

I love FIUs, you know I do.  But they do vary enormously in how they interpret (or, perhaps more realistically, can persuade the holders of their government purse strings to interpret) FATF Recommendation 29 that (my emphasis) “Countries should establish a financial intelligence unit (FIU) that serves as a national centre for the receipt and analysis of: (a) suspicious transaction reports; and (b) other information relevant to money laundering, associated predicate offences and terrorist financing, and for the dissemination of the results of that analysis”.

When I talk to MLROs about what would most improve their life – apart from the instant vaporisation of all criminals, anti-AML directors and gung-ho relationship managers, not necessarily in that order – near the top of the list is “better information from the FIU”.  Better feedback would allow MLROs to demonstrate to staff (including the aforementioned directors and relationship managers) that AML is working and that SARs are worth submitting, which is turn would make it easier to secure AML buy-in in the future.  But I am sorry to say that many FIUs are very poor at providing such feedback.  Some – most – cite lack of resources, and I do have sympathy with that.  Others just like being all secret squirrel about the information, and hate sharing – big raspberries to them.  But this week FinCEN, the American FIU, has really upped the ante on SAR sharing.

On 12 May 2015, FinCEN held an awards ceremony (I’m thinking red carpet, tiaras and tantrums – can’t you just see it?) at the US Treasury “to recognise law enforcement agencies who made effective use of BSA data [i.e. SARs] to obtain a successful prosecution [and] to provide concrete evidence of the value of BSA data to the financial industry”.  You can read about the prize-winners here; doubtless they all thanked their parents and primary school teachers for giving them the “vision” to “complete this roller-coaster journey”.  But in all seriousness, what an excellent initiative – and six handy case studies to boot.

And just to amuse you: last week I went to have my eyes checked at a well-known high street opticians.  They asked my profession – I suppose to gauge how crucial my sight is, and what sort of distance accuracy I need – and I gave the usual spiel about “anti-money laundering consultant, which means that I advise people on how to spot criminal money”.  I later glanced down at my file, and under “Profession”, the optician had written “Criminal stuff”.  I’m expecting the police any day now.

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Leave it out

I’ve been mulling over this new register of persons with significant control, of which full details are given in Schedule 3 to the Small Business, Enterprise and Employment Act 2015.  With regard to the register, and to quote from the Act, “the Secretary of State may exempt a person (whether an individual or a legal entity) [from the register] [and] the Secretary of State must not grant an exemption under this section unless the Secretary of State is satisfied that, having regard to any undertaking given by the person to be exempted, there are special reasons why that person should be exempted”.

This echoes the requirement in Article 29 of the finalised draft (dated 12 January 2015) of the Fourth Money Laundering Directive that “Member States may provide for an exemption to the access to all or part of the beneficial ownership information [as held in the required central register] on a case-by-case basis in exceptional circumstances, if this would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation or if the beneficial owner is a minor or otherwise incapable”.

But there is a difference.  With the exemption under the Act, you can be exempted from supplying your information to the register.  But with the exemption under the Directive (and I may need a lawyer’s eye on this), it seems to me that you always have to supply the information, but the exemption means that no-one can look at it.

And I do wonder just who is going to decide, on that much vaunted “case-by-case basis” while looking at the “special reasons”, what is quite special enough to warrant exemption (either of supply or to access).  After all, in these days of Internet trolls and Twitter bullying, isn’t anyone with the slightest sniff of publicity about them vulnerable to (at the very least) intimidation?  I write a weekly article for our local newspaper, on the most anodyne of subjects, and even that has attracted email stalking.  And surely everyone with either an email address or a telephone number has already been targeted a dozen times by attempted frauds – are these “vulnerabilities” really going to be exceptional enough for exemption?

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Taking the register

Last week I mentioned that the UK now has a new Small Business, Enterprise and Employment Act 2015, which is coming into force in stages.  It’s a little way off yet, but with all eyes firmly on the inevitable approach of a central register of beneficial ownership in the UK (and indeed all EU Member States), from January 2016 UK companies will need to keep a register of people with significant control (to be known as the “PSC register”), in readiness to file this information at Companies House from April 2016.  There is a lot of detail in the Act about who has “significant control” and what details must be put into the register and who must update it and how often and whether certain details can be excluded, but in short (and please remember that I am not a lawyer – I am reading the legislation as a layperson, so don’t rely on this as legal advice):

  • You have “significant control” if you hold more than 25% of the shares or voting rights in the company, or if you can appoint or remove a majority of its board of directors, or if you otherwise exercise significant influence or control over the company [bit of a catch-all, that last one, but apparently the Secretary of State is going to issue guidance]
  • There are “registrable” and “non-registrable” people, and for this I turn to the legislation itself: “they are ‘non-registrable’ if they do not hold any interest in the company except through one or more other legal entities over each of which they have significant control and each of which is a ‘relevant legal entity’ in relation to the company; otherwise, they are ‘registrable’”
  • The company itself has to prepare and maintain the register – it must find all registrable persons associated with it and ask them for their information to add to the register
  • That information must include: name; a service address; country of residence; nationality; date of birth; residential address; the date on which they became a registrable person in relation to the company in question; the nature of their control over that company; and any restrictions on disclosing their information
  • The company must keep its PSC register available for inspection at a specified location.

Those are simply the highlights; if you’re a UK company, you’ll need to go through the legislation very carefully.  And the accountancy body the ICAEW at least is of the view that LLPs will soon be affected too.

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Glad tidings of bearers

Rather lost in all the run-up to the election and the excitement around my holiday, the UK’s Small Business, Enterprise and Employment Act 2015 received Royal Assent on 26 March 2015.  It’s something of a ragbag of an Act, but a couple of its provisions have caught my eye.  I’ll deal with bearer shares today, and the register of “people with significant control” in a few days’ time.

I first saw a bearer share when I was three: I was about to take a crayon to one that my father had foolishly left on a low table when my mother whisked it out from under my nose.  I know: it’s a heart-warming tale of ordinary folk.  I’ve never seen one since, though, and find that most people are astonished to hear that they still exist – rather like premium bonds and those whirly gadgets that sliced green beans.  A bearer share is a security that is wholly owned by whoever holds the physical stock certificate; the issuing firm neither registers the owner of the stock nor tracks its ownership – so you can immediately see the potential for money laundering.  To collect dividends, you have to present a physical coupon to the company, which is pleasingly Dickensian.  In today’s modern financial environment, it is very hard to imagine an entirely lawful scenario in which bearer shares would be preferable to a more tracked alternative.

The FATF has been sniffy about bearer shares for years.  In its 2012 report to G20 leaders, it suggested strongly that “countries should do one of the following [with bearer shares]: prohibit them, convert them into registered shares, require them to be held with a regulated financial institution or professional intermediary, or require the bearer’s identity to be recorded by the issuing company”.  And the UK has finally caught up – not least, I suspect, because of the fall-out from the opening by HSBC in Miami of lots of bearer share accounts for what turned out to be (colour me surprised) shady customers.  On 26 May 2015, the section of the new Small Business, Enterprise and Employment Act 2015 will come into force that amends the Companies Act 2006 with regard to bearer shares, such that “no share warrant [to bearer] may be issued by a company (irrespective of whether its articles purport to authorise it to do so) on or after [26 May 2015]”.  In addition, Schedule 4 of the new Act “makes provision for arrangements by which share warrants issued before this section comes into force are to be converted into registered shares or cancelled, and makes amendments consequential on that provision”.  Please bear with us while we make our amendments.

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Does AML get your vote?

I am taking a holiday and hence a break from blogging for a fortnight from today, so I thought I would leave you with a topical post: what are the various UK parties proposing about money laundering (or even anti-money laundering) in their 2015 manifestos?  Realistically, of course, I wasn’t expecting a specific name check for the Best Subject Ever, so I went on the hunt for any mention at all of financial crime.

This handy BBC guide to the key policies for all main parties was my starting point.  Although all parties make proposals in the area of law and order (with, for instance, the Tories offering banning orders for extremist groups, Labour vowing to scrap police and crime commissioners, and the Lib Dems suggesting the abolition of prison sentences for possession of drugs for personal use), only one of them talks specifically about financial crime.  Everyone is very keen on dealing with extremism, with drug crime and with improving local policing – but then these are the issues that are going to be in voters’ faces every day.  Financial crime is, as ever, more subtle.

Of the three main parties, the Lib Dems come closest to dealing with our concerns (by which I don’t mean necessarily that we should agree with what they say – simply that they discuss it at all, whereas the other two main parties do not even approach our area of interest in their manifestos).  In their manifesto the yellow lot declare that they will “take tough action against corporate tax evasion and avoidance”, including by (among other measures) “implementing the planned new offence of corporate failure to prevent economic crime, including tax evasion, with penalties for directors up to and including custodial sentences”.  They also plan to “explore the case for transferring responsibility for more serious national crime to the National Crime Agency, enabling local police forces to focus on local crime and anti-social behaviour”.

Of course, the best crime-related policy of all has been suggested by the Eccentric Party of Great Britain, led by Lord Toby Jug, who – alongside proposing putting superglue in lip balm to reduce obesity and replacing sleeping policemen with members of the House of Lords – promises to nationalise crime “to make sure it doesn’t pay”.  He may be on to something here…

Toodle-pip for now – I’ll be blogging again from Friday 15 May.

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Lifelong learning

One of the benefits of the AML/CFT mutual evaluation regime is its reiterative nature – the fact that countries are visited, given a report with suggestions for improvement, and then revisited.  Between visits, governments submit progress reports to keep the FATF abreast of any changes they are making.  We should not make the mistake of thinking that the aim is perfection, not least because the standard against which the countries are measured are constantly evolving – either the FATF Recommendations themselves, or best international AML practice as expressed in other ways (such as the imminent EU Fourth Money Laundering Directive, or indeed criminal activity.

The latest country to have the results of their AML/CFT evaluation published is Australia, and this report is an excellent example of how the system works best: a country with (in the words of the FATF) “a mature regime for combating money laundering and terrorist financing” is praised for the progress it continues to make, but also warned that “certain key areas remain unaddressed”.  Summarising like a Trojan, what they have done right:

  • the Aussie authorities have a good understanding of their country’s money laundering and terrorist financing risks
  • they gather good financial intelligence and share it efficiently and well – both domestically and internationally
  • they are very good at sanctions.

And what they need to improve:

  • the number of money laundering prosecutions, as they tend to focus on the predicate crime at the expense of money laundering
  • the expansion of the AML/CFT requirements to cover high risk but currently uncovered sectors such as lawyers and estate agents
  • their understanding of the risks of money laundering and terrorist financing through charities.

It sounds like something that a rather earnest schoolteacher might say, but I genuinely believe that continuous learning is the best form of education – both for the country concerned and for the rest of us, who can read about what they have done right and what they still need to improve.

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The fairer sex

And in this context, “fairer” might just mean more honest and less corrupt.  In a recent index published by an American provider of, well, indices, it was revealed that companies with a higher-than-average proportion of women on the board are less prone to fraud, bribery and corruption.  The November 2014 results of the “2014 Survey into Women on Boards” (by which I assume they mean “… of directors”, rather than “surf-“ or “skate-“ or even “ironing”) tell us that although the proportion of women in board positions continues to creep up, “the vast majority of the gains are coming from markets that have instituted mandates and regulations to boost the ranks of women on boards”.  But when they do manage to reach the top tier – the C-room, I believe it’s called – women have a very positive effect on the behaviour of their companies.

As the survey explains: “Boards with gender diversity above and beyond regulatory mandates or market norms had fewer instances of governance-related scandals such as bribery, corruption, fraud, and shareholder battles.”  And their positive influence carries on into future decisions, as “there is preliminary evidence that companies with more women on their boards tend to display overall stronger management of ESG-related risks”.  (To save you looking it up, because I had to, ESG stands for ‘environmental, social and governance’.)

Is it possible to speculate on why this might be without offending sensibilities at every turn?  All I can do is give my own view – that of a woman in her late-mid-forties – and apologise in advance for any sexism, ageism or any other -ism that I might inadvertently display.  In my experience, males (both boys and men) tend to be more risk-taking, more show-offy and less willing to back down than girls and women of the same age.  So an all-male board might be willing to take a more aggressive, more confrontational stance when faced with a potential risk (“What the heck – let’s go for it!”) than one tempered by a female influence.  Of course there are plenty of cautious men and reckless women serving on boards, but if the average female director has the effect of protecting her average company from all sorts of nasties, it’s an interesting finding.

Posted in Bribery and corruption, Due diligence | Tagged , , , , , , , | 6 Comments

And definitely do not collect £200

So now we have a date: the UK’s new Senior Managers’ Regime will come into force by 7 March 2016.  It is part of an attempt to strengthen accountability in banking (no need to explain why this might be necessary) and, as explained by the Financial Conduct Authority in their press release, “is designed to encourage individual accountability for decision-making in banks, building societies, credit unions and PRA-designated investment firms”.  The FCA’s plan is to publish final rules over the summer, but so that firms can get cracking on the changes needed, they have already published a paper containing what they call “a set of near-final rules on our new Senior Managers’ Regime”.  The near-final rules appear as an appendix to this consultation paper.

So let’s have a look.  To start with, “A firm must, at all times, have a comprehensive and up-to-date document (the management responsibilities map) that describes its management and governance arrangements, including: (1) details of the reporting lines and the lines of responsibility; and (2) reasonable details about: (a) the persons who are part of those arrangements; and (b) their responsibilities.”  Each approved person covered by the new rules must have a statement of responsibilities outlining their, well, responsibilities – and these must all tally with the management responsibilities map.  So management needs to decide who (specifically) is responsible for doing what, and anyone identified must know what is being assigned to them.

Crucially, the legislation which paves the way for the new rules – the Financial Services (Banking Reform) Act 2013 – also introduced the presumption of responsibility, explained thus in the FCA’s consultation paper: “When a Relevant Authorised Person contravenes a relevant requirement, the Senior Manager with responsibility for the management of any of the firm’s activities in relation to which the contravention occurred, is guilty of misconduct unless they satisfy the relevant regulator that they took such steps as a person in their position could reasonably be expected to take to avoid the contravention occurring (or continuing).”  So if you are handed a responsibility under this new regime, you need to make sure that you can actually do what is required of you, and that your compliance is documented.  Otherwise, you may be heading directly to jail without even passing Go.

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Dreadful uncertainty

I was lying in the bath with Rory Sutherland the other day – he’s a columnist for the Spectator, and I like a magazine while soaking – and something that he wrote has been playing on my mind ever since.  The piece concerned is here; it’s about how, as we find solutions for more and more problems, any future problems are going to need even weirder solutions.  As an example, he talks about how making cockpit doors impenetrable to terrorists has also made them impenetrable to cabin crew, and wonders whether a better solution might be to make half of cockpit doors impenetrable, so that no-one knows which are and which aren’t, “because uncertainty may be a better way to deter wrongdoing than unvarying rules (a lesson bank regulators have just begun to learn)”.  You see – fascinating.

Taking this idea into the world of AML, would it make more sense to subject random clients to enhanced due diligence, rather than applying it to all high risk ones?  Or would it be better to report for further enquiry (internally only, of course) all transactions for some random clients, rather than just the obviously unusual/suspicious ones?  And for those institutions that apply thresholds for various things, it would almost certainly be better to have those thresholds vary unpredictably rather than be fixed at a certain point (which is often well-known if not actually publicised).  After all, ever since I was showered head to foot in tonic water after opening one particularly explosive bottle last year, I have opened all subsequent bottles with great care – it’s the dreadful uncertainty that tempers my activity.

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