Free download of financial crime novel

Some of you may know that my obsession with financial crime spreads into my personal life, and that my hobby is writing historical financial crime novels.  My first series is narrated by a magistrates’ constable in London in the 1820s, and the first in this series is called “Fatal Forgery” – and it’s all about bank fraud.

As my little contribution to battling the corona boredom blues, from now until Thursday I am offering the e-book of “Fatal Forgery” as a free download on Amazon.  (That’s an international link, so it should take you to your relevant Amazon site, wherever you are.)  The plot is guaranteed free of plague, contagion, lurgy, virus or pox, so it’s perfect escapist reading – and with the financial element, it might even count as CPD!

And please: tell all your friends and family – the more the merrier.  It could be the ideal book for a virtual book-club, and everyone can get it for free!

Happy reading, everyone, and keep safe and well.

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I have my fingers in my ears and am chanting “la la la” to myself, as I refuse to listen to any more corona-chatter.  For today’s blog I am going to pretend that nothing untoward is happening and have a think instead about the UK government’s plans for an Economic Crime Levy.  This was announced – after plenty of rumours – in the Budget on 11 March 2020: “The government intends to introduce a levy to be paid by firms subject to the Money Laundering Regulations to help fund new government action to tackle money laundering and ensure delivery of the reforms committed to in the Economic Crime Plan.  These reforms will help safeguard the UK’s global reputation as a safe and transparent place to conduct business.  The levy will be additional to ongoing public sector funding.  The government will publish a consultation on the levy later this spring.”

Interesting word, levy.  It comes to us from levis (Latin for light) via lever (Old French for raise), and by the 13th century was already being used as a verb meaning to raise or collect.  As a noun, its most common usage in the UK today – until this latest development – was in the context of heavy goods vehicles: overseas HGVs wishing to drive into the UK have to pay a levy of £10 a day or £1,000 a year.  It’s certainly not a word we have seen very often in the financial services environment.

The government has issued a short Q&A document setting out its initial thoughts (I can’t find the original link but you can download the PDF via the Law Society website), with promises of a consultation “in the spring”.  Some thoughts to distract you:

  • Have we lost confidence in the truly consultative nature of government consultations? Avid respondent that I am (try and stop me!), I have yet to see the government position change from their initial position as a result of a consultation (in the area of finance and economic crime, anyway).
  • The levy will apply to firms subject to the Money Laundering Regs – i.e. to those businesses already spending time and resources on AML. Would it actually be fairer (and more lucrative) to apply the levy to those businesses not subject to the Money Laundering Regs, so that we’re all playing a part in the fight against economic crime and doing what we can – AML checks if that’s possible given our line of business, and supporting the cause financially if it’s not?
  • If the levy is intended to raise £100 million, and in order to do that we need (to quote from the HMT Q&A) a “collection infrastructure”, the creation of a “levy formula [that is] simple to calculate, predictable, applicable across all the types of businesses in the AML-regulated sector, and designed to avoid unintended consequences [and takes risk into account]” and possibly the setting up of “a single organisation to collect the levy”, will there be any money left over?
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Planes and pandemics

One of the challenges of AML work is keeping up with the endless adaptability and imagination of criminals.  Unshackled by moral considerations, or by the need to report to risk committees or by the requirement to comply with legislation (quite the opposite!) criminals can turn on a sixpence and take immediate advantage of any opportunity that presents itself.

The week before last, the airline Flybe went into administration.  I was in Guernsey at the time – an island previously served by Flybe – and within minutes (literally, minutes) of the collapse being announced, people were receiving texts purportedly from their banks asking them to “Click this link to submit your information so that we can promptly process your Flybe refunds”.  The savvy compliance people with whom I work simply rolled their eyes – who has ever heard of a bank tripping over itself to offer a refund? – but who knows how many ordinary people, panicked by the thought of losing money, followed the link and blithely submitted their bank account details?

And talking of panic, COVID-19 is proving a bonanza for criminals.  The snake-oil salesmen are out in force, offering a menu of products that can protect you from the virus, or treat it if you catch it – from teas to essential oils, and from tinctures to silver.  Such is the concern that social media companies have reacted quickly: if you do a Google search on “treat coronavirus” and click on the Shopping button, there are no results at all, as they have all been blocked.  Other frauds involve sellers of protective face masks or bulk quantities of “special” hand sanitiser that never arrive (and wouldn’t work if they did).  And in a phishing variant, fraudsters (pretending to be from research organisations affiliated with the Center for Disease Control and Prevention or the World Health Organisation) are contacting people and offering a list of the coronavirus-infected people in their neighbourhood.  The victim clicks on the link, and is either taken to a malicious website or asked to make a payment in Bitcoin.

Baddies are also taking advantage of the pandemic in other ways.  American journalist Brian Krebs has written an interesting – horrifying but interesting – article about how criminals are using the suddenly increased at-home workforce to recruit more money mules.  As he explains in his article, they are quickly setting up “mule factories” to recruit the unwary (or the financially desperate) – you really need to read his exposé of the Vasty Health Care Foundation.

Criminals prey on our baser nature – our greed, our fear, our selfishness.  AML has always tried to focus outwards, encouraging us to protect ourselves, our clients, our institutions and the global financial system, and these latest crises are no different.  As the government advice has it: be prepared but not scared.

Posted in Fraud, Money laundering, Organised crime | Tagged , , , , , , , , , , , | 3 Comments

This time it’s personal

We’re fairly accustomed now to seeing firms of various stripe fined for AML failings, but for all the talk of personal accountability and statements of responsibility it is still rare for individuals to be held liable for poor AML behaviour. This is why my eye was caught last week by the FinCEN announcement of the US$450,000 “civil money penalty” that it had levied on Michael LaFontaine, former Chief Operational Risk Officer at US Bank National Association.  The fifth largest bank in the US, his employer is perhaps better known by the name of its parent company US Bancorp, which has held a banking licence since 1863 and now has 74,000 employees.  Like many banks, it relies on software to monitor transactions for unusual activity and then spit out alerts for further enquiry.  However, on Mr LaFontaine’s instruction, the bank’s IT elves capped the number of alerts that the system would generate.  A risky decision for a risk officer, you might think, and so did FinCEN: “Mr LaFontaine was warned by his subordinates and by regulators that capping the number of alerts was dangerous and ill-advised.  His actions prevented the proper filing of many, many SARs, which hindered law enforcement’s ability to fully combat crimes and protect people.  FinCEN encourages technological innovations to help fight money laundering, but technology must be used properly.”  As Ella Fitzgerald could have told Mr LaFontaine, t’ain’t what you do, it’s the way that you do it, and that’s what gets results.

Before you start to feel professional sympathy with Mr LaFontaine – there but for the grace of God, we’re doing our best here in the compliance department, etc. – let’s fill in the background.  In February 2018, US Bancorp was fined $185 million for “wilfully [wilfully!] violating the BSA’s requirements to implement and maintain an effective AML program and to file SARs in a timely manner”.  Moreover: “Mr LaFontaine was advised by two subordinates that they believed the existing automated system was inadequate because caps were set to limit the number of alerts.  The Office of the Comptroller of Currency warned the bank on several occasions that using numerical caps to limit the bank’s monitoring programs based on the size of its staff and available resources could result in a potential enforcement action, and FinCEN had taken previous public actions against banks for the same activity.  Mr LaFontaine received internal memos from staff claiming that significant increases in SAR volumes, law enforcement inquiries, and closure recommendations, created a situation where the AML staff ‘is stretched dangerously thin’.  Mr LaFontaine failed to take sufficient action when presented with significant AML program deficiencies in the bank’s SAR-monitoring system and the number of staff to fulfil the AML compliance role.  The Bank had maintained inappropriate alert caps for at least five years.”

Now I’ve done a bit of (very amateur) sleuthing to find out how much that $450,000 penalty might hurt Mr LaFontaine.  Bill Parker was the bank’s chief risk officer until autumn 2018, and his remuneration in 2016 was a salary of $625,000 as part of a total compensation package of $3.9 million – we know that because it was reported here.  Mr Parker was succeeded by Jodi Richard, and she moved into the role – and presumably the remuneration – from her previous job as the bank’s chief operational risk officer (reported here).  My logic is that people generally get a maximum 20% salary increase on promotion, so the CORO is probably on about $500,000 a year.  Which means that the penalty for at least five years’ poor work for Mr LaFontaine was a year’s salary.

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More Bloody Embezzlement?

Just like police officers, customs officers and passport officers, MLROs find themselves doing a certain amount of profiling when it comes to looking for high risk clients.  We know about certain high risk occupations and high risk nationalities and even – although few dare to codify it in their AML procedures, except perhaps in casinos – high risk personalities.  But these are only generalisations, and it is vital to remember that the most benign, the most inoffensive, the most well-respected client can turn out to be a complete and utter s**t.  And here – as ever – the monitoring of transactions and other behaviour within the relationship is going to be the key to uncovering that s**titude.

I am thinking this week of septuagenarian Patrick McLarry.  He was the chief executive of a charity called Yateley Industries for the Disabled, which was set up in 1963 and – quoting from its website – “works to sustain and increase the opportunities for people with disabilities in rewarding employment, both in its internal employment opportunities and mainstream work, with an occupation that enables a disabled person to contribute to society”.  He was described by many as a pillar of his local community in Devon and was awarded an MBE for his charitable services to disabled people.  Low risk, right?  But – and you know where I’m going with this – his activity was anything but.

He stole £256,000 from the charity’s pension scheme by setting up a new company to manage the pension fund, making himself one of only two directors and establishing himself as the director who authorised the decisions.  He used some of the money to buy a flat in Hampshire and to repay a debt related to the purchase of a pub lease in Portsmouth.  He then set up a company claiming to trade in antiques to explain the transfer of money to France, where he bought a house and a small warehouse.  By my calculation, we’re looking at multiple company formation agents in the UK and banks and estate agents in the UK and France, all of which should have asked questions (and I’m sure that’s where this investigation is headed next).  So no matter how twinkly and lovely and ennobled a client may be, keep your eye on them: Mr McLarry may be heading inside for five years, but the bankers and estate agents and perhaps lawyers who helped him might not be far behind.

Posted in Bribery and corruption, Money laundering, White collar crime | Tagged , , , , , , , , , | 4 Comments

I beg your pardon

Baron Black of Crossharbour is not my favourite person, as you may imagine, and it was a dark day in May 2019 when Donald Trump granted him a full pardon, citing Black’s “broad support from many high-profile individuals who have vigorously vouched for his exceptional character”.  (Exceptionally good or exceptionally bad, you might well ask.)  We should have guessed that this was only the start of Trump’s rehabilitation of white collar criminals.

On 18 February 2020 Trump announced seven pardons and four commutations of sentence for criminals convicted of federal crimes.  But rather that concentrating on ordinary people languishing behind bars or applying any deliberation to the process, his fickle favour fell on people he liked and whom he felt had (like him…) been victimised by a legal justice system that dared to question their entrepreneurial spirit, such as former junk bond king Michael Milken, former New York police commissioner (and tax fraudster) Bernie Kerik and former Illinois governor Rod Blagojevich, who was caught on tape trying to sell a seat in the US Senate.  He also pardoned Paul Pogue (convicted of evading half a million dollars in taxes and sentenced to three years’ probation) after Mr Pogue gave hundreds of thousands of dollars to the Trump Victory Committee.  (Yes, that’s really a thing.)

The message these pardons send is clear: white collar crime isn’t really that serious (Trump’s own life is certainly testament to that belief), and if you’re caught, sharing your takings with the man who can pardon you is probably a good idea.  It reminds me of Cardinal Wolsey seeking to stave off disaster by handing over Hampton Court Palace to Henry VIII – another capricious and moody despot.  And it does show some forward-planning.  After all, Trump’s first national security advisor Michael Flynn is currently awaiting sentencing for making false statements to the FBI.  Trump campaigner Roger Stone has been convicted of witness tampering and perjury.  Michael Cohen, Trump’s long-time lawyer, is in prison for tax fraud and bank fraud.  The president is doubtless laying the groundwork for their eventual pardons.  And the most cynical among us might say that his concerns are even more personal: he is downgrading white collar crime in the public mind so that if (surely, oh surely: when) he is himself found guilty of financial misdoings, he will be treated with leniency.

Posted in Bribery and corruption, White collar crime | Tagged , , , , , , , , , , , | 5 Comments

Free for all

Just as Voldemort’s name cannot be used for fear of conjuring him up, so too we have declared a taboo in our house on the B word (the one to do with the EU) and on the name of the Prime Minister.  Nonetheless, we are going to be living with the consequences of both for many years, and regular readers will know that my heart breaks about immigration and fellowship, while my head worries about co-operation – in education, in science, and in law and justice.  I have stopped my ears to the endless bumptious pronouncements of the man in Number 10 and choose instead to judge him on his deeds.  And the measure of the man has become apparent even more quickly than I had feared: his minions have launched a consultation into the creation of ten freeports by the end of next year.

You can detect his touch in the introduction to the consultation paper, which tells us that “in the Ancient World, Greek and Roman ships – piled high with traders’ wines and olive oils – found safe harbour in the Free Port of Delos, a small Greek island in the waters of the Aegean”.  And now it is the turn of the UK (whatever bits of it remain at the time) to create freeports that will “serve as humming hubs of high-quality manufacturing, titans of trans-shipment and warehouses for wealth-creating goods and services”.  (I must admit I thought that consultation documents were meant to maintain studied neutrality in order to garner an objective response.  Apparently not.)  And to create these humming hubs, “we’re also looking at regulatory flexibilities, funding and challenges which will support innovators generating new ideas”.  And there it is: “regulatory flexibilities”.  Every time we hear a phrase like that, a compliance officer loses his wings.

Although the usual lip-service is paid to meeting the requirements of AML legislation, no mention is made of the EU’s “Supranational risk assessment of the money laundering and terrorist financing risks affecting the Union” which was published in July 2019 and named freeports as one of the new sectors posing greatest risks.  Nor of the handy document published by the European Parliament in October 2018 on “Money laundering and tax evasion risks in free ports”, which puts it rather bluntly: “Free ports are conducive to secrecy.  With their preferential treatment, they resemble offshore financial centres, offering both high security and discretion and allowing transactions to be made without attracting the attention of regulators or direct tax authorities.”  And others are as unconvinced as I am.  Shadow Chancellor John McDonnell said that “there is very little solid evidence that so-called freeports create jobs or boost economic growth [and] this plan represents a levelling-up only for the super-rich, who will use freeports to hoard assets and avoid taxes”.

If you’d like to have your say, the consultation – open to anyone, anywhere in the world – will run until 20 April 2020 and you can respond online.  As for me, my say hasn’t counted for much recently, but I’ll carry on having it.

Posted in AML, Bribery and corruption, Money laundering, Organised crime, Supervision, Tax | Tagged , , , , , , , , , , , , | 4 Comments

Regrets, he’s had a few

Here in the UK – and I am sure that many countries will have something similar – we have an organisation called the Restorative Justice Council.  The purpose of restorative justice, as explained on the RJC’s website, is “[to bring] those harmed by crime or conflict and those responsible for the harm into communication, enabling everyone affected by a particular incident to play a part in repairing the harm and finding a positive way forward”.  Glancing through their case studies, I can see instances of assault, burglary, armed robbery, sexual abuse, racist hate crime, death by dangerous driving, and murder.  But apart from the financial loss that would accompany a crime such as burglary or robbery, I cannot see any specific examples of financial crime or money laundering.  And this has made me wonder whether the perpetrators of such crimes see their actions as truly criminal.

Early on in my AML career I was talking to a fraud squad detective – oh, the heady days of sitting in a dismal office in that grim tower block on Theobalds Road in Holborn – and he said that all the money launderers he had ever interviewed considered themselves rather clever: a cut above the criminal classes, they were simply outsmarting the banks and the lawyers [or were bankers or lawyers…] by keeping prying eyes away from their clients’ money.  I can tell you, dear readers, that that revelation stiffened my sinews and is probably in no small part responsible for my loathing of money launderers and my dedication to AML.

And so it brought a burst of joy to my cynical little heart to read a recent blog post on something called “Fraudster’s Diary”.  To be honest, I can’t remember when I signed up to receive his posts – and they’re certainly rare creatures.  But his latest one, published on 20 January 2020, is worth reading.  The author is, as you might guess, a fraudster.  And the blog post explains his feelings on discovering that his own elderly father had been scammed (which sounds such a jolly word, so let’s go with “cheated” instead) cheated out of £18,000 by another fraudster – indeed, someone known to the author.  And the realisation of the harm finally dawns on him: “I had carried out similar scams, without a second thought, to dozens of mums, dads, and grandparents.  My shame seemed boundless.  In that moment, I decided to stop.”  If only more financial criminals felt the same way.

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The sniff test

The relationship between jewellers and the AML regime is a complicated one.  For several years most jurisdictions have recognised the concept of the “high value dealer” – under UK legislation, that’s “a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods), when the trader makes or receives, in respect of any transaction, a payment or payments in cash of at least 10,000 euros in total, whether the transaction is executed in a single operation or in several operations which appear to be linked”.  But the Fifth Money Laundering Directive has extended the AML family (regardless of method of payment) only to bring in “art market participants” – and this does not, for the most part, encompass jewellers.  In short, jewellers are in only if they accept large amounts of cash.  And boy oh boy, do Trotters Jewellers of Bethnal Green accept large amounts of cash.

Did you see it?  Did you watch the Channel 4 documentary called “Diamond Dealers and Cockney Geezers”?  If not, you have a fortnight left to watch it on catch-up – go and feast your eyes.  If bling’s your thing, Judd, Kallum and Alex are the chaps for you.  You may even be tempted by “the chandelier” – a normal watch sent to Hong Kong to be plastered with 100 carats of diamonds and then priced at £100,000.  For my part, I was drawn in by the artfully angled shots of their cash-counting machine, and – with this visible evidence of their HVD status – I looked forward to a detailed explanation of their CDD procedures and source of funds enquiries.

I can report that this seems to consist mainly of asking customers, “What do you do, then?” as the customer hoicks great wads of cash from their holdall (or even from a McDonald’s bag, apparently).  One such customer, Radley, explained that he’s a brickie and was buying himself a £12,000 watch as a reward for “grafting my arse off”.  (And only, I am sure, after paying the required tax on his earnings.)  Of course, CDD does not make riveting viewing for most people and perhaps the trio were doing more behind the scenes, but as they boasted of their customers being “city boys, gangsters, travellers and local crackers” – as well as “local amateur horticulturist” (aka cannabis farmer) Grizz – perhaps not.  None of the lads admitted to being the MLRO.  And as for source of funds, they observed that “you can tell where the money’s from by smelling it – if it stinks of weed, well, that’s standard”.  I assume this documentary is required viewing at HMRC…

Posted in Money laundering, AML | Tagged , , , , , , , , , | 9 Comments

Taking money laundering to ‘art

“I don’t know much about art, but I know what I like.”  That (very common) attitude might be OK when you’re standing in a gallery trying to make sense of something you’ve seen, but it won’t pass muster if you’re trying to comply with the amended money laundering Regs here in the UK – or indeed with any MLD5-derived legislation.  (And you must: they came into force on 10 January 2020.)  Now you do need to know a bit about art, because the AML family (by which I mean, the group of businesses required to comply with the AML obligations) has been extended to include “art market participants”.  These are defined in the amended Regs as “a firm or sole practitioner who (i) by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more; or (ii) is the operator of a freeport when it, or any other firm or sole practitioner, by way of business stores works of art in the freeport and the value of the works of art so stored for a person, or a series of linked persons, amounts to 10,000 euros or more”.  So far so good, but think back to that first sentence and your bafflement in the gallery: just what is a “work of art”?  The Regs are not much for philosophical debate, and make it unromantically clear that “‘work of art’ means anything which, in accordance with section 21(6) to (6B) of the Value Added Tax Act 1994 (value of imported goods), is a work of art for the purposes of section 21(5)(a) of that Act”.

I can barely contain my excitement as I turn to the VAT Act 1994, which tells us that a work of art can be (in short):

  • a painting, drawing, collage, decorative plaque or similar picture
  • an original engraving, lithograph or other print
  • an original sculpture or statuary
  • a sculpture cast
  • a tapestry or other hanging
  • a ceramic
  • an enamel on copper, or
  • a photograph

but not

  • a technical drawing, map or plan
  • “any picture comprised in a manufactured article that has been hand-decorated”, or
  • scenery (including backcloths).

And the picture (hah!) is further enhanced (hah again!) by the addition to the Regs’ list of high-risk transactions of “transactions related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or other items of archaeological, historical, cultural or religious significance or of rare scientific value”.  If you hoped to escape the grubby world of money laundering by immersing yourself in beauty and culture, think again – we’re all one big happy family now.

Posted in AML, Legislation, Money laundering | Tagged , , , , , , , , , , , , , , | 2 Comments