A common language – and a common crime

One of my top reads of the year is, no, not the “Robin Ellis as The One True Poldark Bumper Christmas Annual (with free stick-on dashing facial scar)”, but the “International Narcotics Control Strategy Report” from the US Department of State.  I admire the discipline of the operation – it is published every 1 March, come rain or shine – and its honesty.  For those of you who are unfamiliar with this tremendous publication, let me explain.  It comes in two (enormous) volumes: the first deals with drugs, and we can safely ignore that one, while the second focuses on money laundering and financial crimes – bingo!  Within this second volume is an extremely useful table of jurisdictions, which shows whether the US considers them to be of primary [money laundering] concern or of concern, or if they are being monitored.  (Incidentally, whenever I slightly mistype ‘monitor’, my spellcheck suggests ‘Minotaur’ – I should imagine being Minotaured would definitely being tears to your eyes and make you long for the halcyon days of being simply monitored.)  And featuring in the list of jurisdictions of primary money laundering concern is the US itself – hence my admiration for this report’s honesty.

If you are on the primary list (that means you, dear readers, if you’re in the UK, Guernsey, Jersey, Isle of Man or dozens of other jurisdictions), the report goes into much more detail about why you’re in the hot seat (all very handy info for the MLRO and his list of high-risk jurisdictions).  Turning to the exposé of the UK, we can read this: “The United Kingdom plays a leading role in European and world finance and remains attractive to money launderers because of the size, sophistication, and reputation of its financial markets.  Observers feel the UK’s current regulatory architecture and the high degree of financial secrecy afforded to directors of British firms also are attractive to global criminal syndicates.  Although narcotics are still a major source of illegal proceeds for money laundering, the proceeds of other offenses, such as financial fraud and the smuggling of people and goods, have become increasingly important.  The past few years have seen an increase in the movement of cash via the non-bank financial system as banks and mainstream financial institutions have tightened their controls and increased their vigilance.  Money exchanges; cash smugglers (into and out of the UK); and traditional gatekeepers, including lawyers and accountants, are used to move and launder criminal proceeds.  Also on the rise are credit/debit card fraud, internet fraud, and the purchase of high-value assets to disguise illicit proceeds.  Underground alternative remittance systems, such as hawala, are also common.”  Ouch.  It’s a bit like being Minotaured – but all true.

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The FCA’s to do list for this year

This week the UK’s Financial Conduct Authority has looked into its crystal ball and published its “Business Plan 2015/16”.  Whereas previous editions of this document were accompanied by a Risk Outlook, this time the two have been united into one plan which, according to the FCA, “will more clearly show how our analysis of risk is connected to our regulatory actions and how we seek to advance our objectives”.  Everything that the FCA does is deeply fascinating, of course, but my AML-obsessed eye is drawn magnetically to the section of the plan that tackles financial crime.

Forewarned is forearmed, they say, and UK MLROs would do well to take note of the FCA’s declaration that “during 2015/16 we will continue to focus on both anti-money laundering (including terrorist financing and sanctions) and anti-bribery and corruption measures, as these are the areas in which we consider we can deliver the most value”.  It’s a bit do-gooder-woolly, that word ‘value’, but I guess they mean it’s an area where they can have the most impact by challenging “the often poor anti-money laundering systems and controls we see in firms of all sizes”.  In particular, the FCA tells us that they are “implementing an enhanced anti-money laundering supervision strategy, which includes continuing our Systematic Anti-Money Laundering Programme to assess AML (including counter terrorist financing and sanctions) and ABC [anti-bribery and corruption] controls at major firms”.

The FCA is also doing some renovations down at Canary Wharf, and “will bring together all of our second line risk functions to form a single risk and compliance division [which] will provide a strong, independent oversight of our activities and approach”.  As we know, work is well underway on the senior managers’ regime, and the FCA says that its new rules “will make it easier for both firms and regulators to hold individuals to account, [because] increased individual accountability will improve behaviour, benefit consumers and markets, and can help restore public trust in banking”.  The rules will be finalised by summer 2015 and brought into force by March 2016.  And in case you’ve missed the significance of that, the FCA reminds us that “we will continue to focus our efforts on individual accountability in our enforcement work, and will continue to pursue appropriate cases against individuals”.  As for how they learn about dodgy individuals, the FCA says with some satisfaction that “after seeing an increase in the number of whistleblowers who contacted us in 2014/15, and in the quality of information they gave us, we will continue our work on whistleblowing and will embed better arrangements and support for whistleblowers in the coming year”.

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Wham, bam, no AML, ma’am

Some while ago I wrote about a draft of the Fourth Money Laundering Directive that had sneaked in a much-extended definition of “high value dealers”.  What this earlier draft said was that HVDs would be “other natural or legal persons trading in goods or services, only to the extent that payments are made or received in cash in an amount of €7,500 or more”, and the point I made was that although we were all familiar with art auction houses and fancy car showrooms, no-one had said much about those who trade in services for cash – which could include universities (selling education services), clinics (selling medical services) and brothels (you get the picture – but do try not to).

But perusing the now-all-but-final version of MLD4 – we’re waiting for the final signature, which I am given to understand is merely a formality, and all the horse-trading is over – I see that HVDs are back to their original (i.e. MLD3) form: “Natural and legal persons trading in goods should be covered by this Directive to the extent that they make or receive cash payments of €10,000 or more.”  So out go the universities, clinics and brothels – which is a shame from a theoretical perspective (as I was looking forward to seeing which regulator would be tasked with overseeing our houses of ill repute) and from the crime prevention perspective (as I am sure criminals do launder money through such unregulated and therefore naïve places) but I can understand why the legislators backed away from it.  They do allow individual governments to adopt, if you will, an alternative position: “Member States should be able to adopt lower thresholds, additional general limitations to the usage of cash and further stricter provisions.”  But I think we must accept that it is a rare parliamentarian who will vote for legislation requiring CDD checks to be done on their clients by the very establishments of which he and his colleagues might be enthusiastic patrons.  I mean clinics and universities, of course.

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You’ve got to pick a passport or two

There has been a lot in the news recently about passports, and I realised that although I of course understand the basics of the document, there are certain key things that I do not know – and knowing them would help be more efficient in my fight against money laundering.  And the most important of these is the concept of dual (or even multiple) nationality.

In the UK, we permit our citizens to have dual nationality – to hold a British passport alongside another one.  But it has to be agreed by both countries, and keeping track of who they are is quite the job of work.  Exactly half of the 28 EU member states restrict or forbid dual nationality; it’s an imperfect check, but the best quick source I have found is this Wikipedia page.  Issues of nationality are rarely simple, of course: nationality can be conferred by parental nationality or place of birth or marriage or religion, and that’s just for starters.  Multiply it up, and you get all sorts of interesting variants.  In Australia and Egypt, for instance, dual citizens are permitted, but then cannot be elected to parliament.  (I guess they figure that if you’re hedging your bets passport-wise, you might not be quite committed enough to serve full-heartedly.)  Spain has dual citizenship treaties with several South American countries, but when it comes to taking on dual citizenship with other countries, you automatically lose your Spanish citizenship after three years unless you say that you want to keep it.  South Korea permits dual citizenship to a limited number of people.  All very complicated, but much more common than I had realised – I feel quite left out with my one measly passport.

For the MLRO and his staff, I think it is useful to know when they are dealing with someone who might be offering only one of a pair (or even suite) of passports when asked for identification verification.  After all, the non-presented passport(s) might reveal much more pertinent information when it comes to risk assessment.  So when dealing with someone who could have more than one passport (including, we now know, all British citizens), it might be worth asking (especially in high risk situations) whether they have any others.

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Most wanted

I’m not allowed to watch “Crimewatch”; my husband says that what with the money laundering and the magistracy and the financial crime fiction, I’m too obsessed with crime as it is.  He has a point.  But when he’s away, I sneak in a quick episode, and I’m delighted to see that they still feature the ten most wanted criminals.  And this started me thinking about whether wanted lists should be consulted more often.

For instance, there are (as I check it today) 493 wanted people featuring on the Crimestoppers list in the UK.  If you want to narrow down to the money launderers (suspected and convicted), select “Fraud & forgery” in the Crime Type box; this gets you down to only twenty rapscallions, of whom three have money laundering as their headline offence.  Picking one at random (he may not be there when you check – fingers crossed he’s been caught), the website provides some good information: Jeffrey Gordon is wanted by the City of London Police in connection with boiler room frauds; an American with connections to Romania, he also uses the names Jeffrey Goodman and Michael Goodman.  His age, size and colour are given, along with the fact that he has a swirly tattoo on his left arm.  Now wouldn’t it be handy to circulate that information to your staff?

Looking further afield, the FBI in the US kindly lists for us their most wanted white collar criminals.  Accountant James Hammes, for instance, is wanted for fraud and money laundering, having bilked his employer of US$8.7 million.  An avid scuba diver and licensed pilot (multiple getaway routes…), he is known to like travelling to the Caribbean.  (Is it just me, or does this sound like a listing on a dating website?)  MLROs in the Caribbean in particular might want to consider circulating his details.

And finally, the UK’s National Crime Agency has its own selection of “Most Wanted”.  In top spot as I look at it today is money launderer Robert Dimmock, wanted for failing to pay a penny of the £4,929,334 confiscation order made against him in 2008.  He’s also known as “SAS Bob”, which I do not find at all comforting.  For MLROs looking for training material or newsletter updates, a regular reminder about people like Gordon, Hammes and Dimmock would fit the bill.

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Just a quickie today, as I wasn’t planning to post anything, but a story on the radio this morning made me prick up my little AML ears.  Apparently the Halifax bank here in the UK is trying out some new technology which uses your heartbeat to identify you.  You wear a special wifi wristband, and the system learns the unique pattern of your heartbeat and uses that to allow (or deny) you access to your bank account via your mobile phone.  All very exciting and Star Trek, but one little problem did spring to mind.

One of my favourite films is the whimsical French “Amelie”.  At the start of it, the heroine reveals that she had a very sheltered childhood because her father – a doctor – believed that she had a heart problem.  Why?  Because he was not a very demonstrative man, and the only time he would touch her was when he was giving her a medical check-up.  And the little girl found the unaccustomed cuddles from her papa so exciting that her heart-rate would shoot up.  Might something similar happen with Halifax customers?  Might the excitement of being due diligence pioneers prove so thrilling that the heartbeat that is recorded on their file at the outset of the initiative does not match their normal pattern which will reinstate itself further down the line, when their banking activity returns to its mundane reality of paying bills and looking in vain for interest?

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Due diligence diligence

As some readers may know, I am a magistrate in my home city of Cambridge.  (For non-UK readers, you can read about the magistracy here.)  Last week I did a day of training to make me a more effective magistrate, and our topic was “case management”.  In short, when someone comes before the court, they plead guilty or not guilty to the charge.  If they plead guilty, we try to sentence them as quickly as possible.  If they plead guilty, we try to move things towards a trial – again, as quickly as possible.  (The mantra: justice delayed is justice denied.)  The thing to avoid is having a case appear before us but not being able to progress things at all.  All of this is known as case management.

As I was listening and learning, it occurred to me that there might be scope for a similar approach to our AML efforts – client management, perhaps, or CDD management.  Might it be useful to have as a goal that every time there is contact with the client, the opportunity is taken to check, edit and/or augment some element of the CDD information on their file?  This would make the regular formal review of the client file – on a risk-based schedule – both less onerous (for both institution and client) and less artificial.  And of course it opens up the possibility that changes to a client’s CDD that could affect future decisions might be spotted sooner.  Due diligence delayed is due diligence disregarded, perhaps.

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Calling for consent

You know what a stickybeak I am – if anyone asks, even very quietly, for an opinion on anything to do with money laundering or AML, I’m in there.  At the moment the UK government is running a very low-key consultation on its SAR regime – you can see the “Call for Information” here, and you have until 25 March 2015 to stick your own beak in.  I have of course submitted the Thoughts of Grossey.

One of the things the “Call for Information” asks about is the consent timetable, which we have here in the UK.  This is probably best explained in the Home Office’s own words: “A reporter can avail themselves of a defence against committing a money-laundering offence if they seek the consent of the NCA, under section 335 of POCA, to conduct a transaction or activity about which they have suspicions.  There are two possibilities for eliminating this risk – actual consent under s.335(1) or ‘deemed’ consent under s.335(2).  The NCA has seven working days to provide a notice of refusal.  If such a notice is not provided, the reporter has deemed consent. If a notice is provided, the NCA has a further 31 days to take action in relation to the transaction.”  I understand that such a timetable is quite rare: other jurisdictions of course have the consent system, but they do not put time limits on it.  I vaguely remember it coming in, as a response to NCIS taking an age to respond to such requests.  (For younger readers, NCIS preceded SOCA and no, the staff did not wear stovepipe hats and bustles – at least not at the same time.)

Anyway, in the consultation, the Home Office wonders whether the timetable is right.  They ask several questions about it.  To start with: are consent decisions made quickly enough?  I couldn’t answer this one, as I don’t make SARs, but I should imagine that MLROs will say no – anything other than instantaneous is never going to be quick enough for someone hopping from foot to foot while waiting for consent.  They then ask: if consent is refused, is the moratorium period [i.e. 31 calendar days] long enough, or is it too long?  Now who is going to say no, make it longer – I want to have to keep my irate client sweet for at least six months?  Surely the only people who would call for a longer moratorium period are the NCA.  And finally, I suppose to gather information to support or refute the most common gripe of MLROs about the consent regime, they ask: if you have had to deal with delays in processing a transaction as the result of a consent SAR, could you provide real case examples where it is known that a transaction/deal has collapsed as a result of that delay.  I notice that they ask only about actual collapse – not about the situations where the client is hammering on the door and demanding progress or explanations.

I don’t want to sound sniping – I think it is absolutely right that the SARs regime (and indeed every other aspect of the AML effort) should be reviewed periodically for effectiveness, proportionality and practicality.  I simply look forward to reading the report detailing the (no doubt tear-stained) responses from MLROs.

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Money laundering and perversion

(There: I bet that title caught your attention.)  My husband (silver-tongued devil that he is) says that when it comes to money laundering, I am like a truffling pig: I root around everywhere for it.  And I must confess that he is probably right.  Over recent days the news has been full of the story of the murder of Bristol schoolgirl Becky Watts, and I took very little interest until they started talking about her stepbrother’s girlfriend being charged with perverting the course of justice.  Now, I wondered, is that another tack we could use against money launderers?  People are often (rightly) outraged that those who work in the regulated sector and turn a blind eye to the laundering activities of their clients are rarely brought to justice, so maybe this is another route.

I’m no lawyer, so I did what any rational person would do to investigate the legislation, and I Googled it.  Turns out that “perverting the course of justice” is quite serious here in the UK – in theory, you can get up to life in prison for serious witness intimidation, although the standard sentence seems to be about two to ten years.  Enough to put a crimp in things, anyway.  There are three ways you can pervert the course of justice: intimidating or threatening a witness or juror; intimidating or threatening a judge; or disposing of or fabricating evidence.  It’s an active thing, in that a positive act is required: inaction is not sufficient to commit the offence.  So turning to a money laundering scenario…  If a client is laundering his little heart out and his account manager does nothing, that’s not PTCOJ.  (It’s all sorts of other things, but it’s not PTCOJ.)  But if the account manager turns his growly stare on a junior who is concerned enough to start asking questions about the dodgy client, and so intimidates that junior into saying nothing when the investigators come calling, well, perhaps that is.  Or let’s say that the MLRO asks the account manager to beef up the due diligence on the client’s file, and the account manager doesn’t want to bother the client and so fills in some of the details himself, again, if it comes to an investigation, that could be considered fabricating evidence.  Or – perhaps more likely – if the account manager deletes emails in which the client suggests that his real line of work is not helping widows and orphans, there we might have the disposal of evidence.

I wouldn’t muddy the waters by mentioning this in ordinary training, but I do wonder whether the very title of the offence – perversion is rarely a good thing – makes it more repulsive to people.  An account manager considering his next move for a questionable client might be more reluctant to bend the rules if he were encouraged to think of it in these terms.

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Once upon a time

Suffering with a cold this week, I rugged up on the sofa with a hot Ribena and the cat and listened to a recording I had made of a Radio 4 production of “The African Queen”, starring Toby Jones and Samantha Bond.  I can’t remember how long it had been since I listened to a story, but what a pleasure it was.  Stories are an essential part of our humanity; they give shared pleasure to a community, and – particularly before widespread printing and literacy – were how lessons and warnings and information were passed on.

We still use them today, of course, not least in AML training.  We don’t call them stories, but rather we talk of “case studies” and “worked examples”.  And they are on my mind this week because the Egmont Group – the association for the world’s FIUs – has just published a new set of them.  “The Best Egmont Case Award (BECA) Publication” contains 22 stories from FIUs as disparate as the FIS in Guernsey, the AMLU in Bahrain and the RAP in Finland, all packed with indicators, details and outcomes.  You see: right there we have the essential beginning, middle and end of any story.

So what makes a good story for AML training purposes?  I am constantly researching them, and the things I look out for are:

  • a possible, perhaps even probable, scenario – the more extreme stories (e.g. the theft of gazillions of dollars by ultra-corrupt PEPs) are fun, but more for light relief, as they seem almost incredible to most people
  • the involvement of the sector I am addressing – so if I’m training bank staff, we need some bank-based laundering, and for casino staff, laundering at the tables, etc.
  • a few comic details – for instance, corrupt PEP Frederick Chiluba wore stacked shoes, and Guernsey money launderer Paul Ludden spent lots of money on dancing girls, and
  • just desserts – a conviction for money laundering, or for AML failings.

When I first started out as an AML trainer, such stories were so rare that I printed them out and clutched them protectively to my bosom.  Now my story library is increased on a daily basis.  Are you sitting comfortably?  Then we’ll begin.

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