Snatching defeat from the jaws of victory

In my opinion, there are countless precious and all but irreplaceable things that the UK will lose if it leaves the EU, including access to many of the EU-wide initiatives, agencies and programmes that make the bloc such a success.  And so it rubs salt into the wound when, in the very month we are holding an election that, in effect, will determine whether we remain or leave, the Council of the European Union has made up its mind on an AML-ish debate that I have been following for years: should there be an overarching EU AML body?  (Spoiler alert: yes there should.)

At a meeting of the Economic and Financial Affairs Council of the EU on 5 December 2019, Mika Lintilä (Minister for finance of Finland) confirmed that “fighting money laundering and terrorist financing is a key priority for the European Union”.  Facing a seemingly unstoppable flow of AML failings at large European banks, the EFA Council acknowledged that there are “a range of shortcomings with respect to banks, AML authorities, prudential supervisors and intra-EU cooperation and… that there is fragmentation in both AML rules and supervision.”  They therefore recommend that the European Commission should consider “the possibilities, advantages and disadvantages of conferring certain supervisory responsibilities and powers to an EU body”.

I cannot tell you how much I would like to work at such a place.  Can you imagine working in either Brussels or Luxembourg (where they put most EU agencies) – both stuffed with gorgeous buildings and chocolatiers – and being able to spend all day working on promoting the very best in AML…  But of course, why on earth would the UK want to belong to such an agency – after all, we’ve made such a marvellous job of preventing money laundering through our own jurisdiction that we have no use whatsoever for any foreign expertise.  And now I am going to hide under the duvet until the election results are in the day after tomorrow.

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Vote early, vote often

Thank goodness it’s nearly over: I don’t think I can take much more politicking this year.  Regular readers will know that I loathe, detest and despair at the idea of our leaving the EU and I have voted (postally) accordingly.  But it is perhaps wise to look at the manifestos published by the three main parties here in the UK, as we rush towards a general election on 12 December, to see what they have said on AML issues.  (Actually, they have said nothing at all about AML – but they have said stuff about financial services and about law and order, so that will have to do to give us an idea of the direction of travel.)  I’ll present them in alphabetical order, in case you’re wondering.

With regard to financial services:

  • the Conservative Party manifesto does not mention financial services specifically, but they do say that “through our Red Tape Challenge, we will ensure that regulation is sensible and proportionate, and that we always consider the needs of small businesses when devising new rules, using our new freedom after Brexit to ensure that British rules work for British companies”
  • the Labour Party manifesto says that they will “create a National Investment Bank, backed up by a network of Regional Development Banks, to provide £250 billion of lending for enterprise, infrastructure and innovation over 10 years”
  • the manifesto for the Liberal Democrats promises that they will “take tough action against corporate tax evasion and avoidance especially by international tech giants and large monopolies” (by reforming “place of establishment rules” and ensuring tax bills are more closely related to the sales companies make in the UK), “work with the major banks to fund the creation of a local banking sector dedicated to meeting the needs of local small and medium-sized businesses”, and “expand the British Business Bank to perform a more central role in the economy, to ensure that viable small and medium-sized businesses have access to capital, even when the rest of the commercial banking system can’t provide it”.

And with regard to (AML-ish) law and order:

  • the Conservative manifesto promises “a new national cybercrime force [and] a world-class National Crime Laboratory”
  • the Labour manifesto promises “a fund of £20 million to support the survivors of modern slavery, people trafficking and domestic violence”
  • the LibDem manifesto promises “a new Online Crime Agency to effectively tackle illegal content and activity online”.

So that’s the runners and riders, with eight days to go – place your bets, ladies and gentlemen.

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Making AML count

One of the most common requests I hear when designing AML training for clients is for case studies (which I have blogged about recently) and for “lessons learned”.  Alongside this, we have regulators regularly reminding us that their final notices (or regulatory decisions or whatever they call their findings when someone has been punished for AML shortcomings) should serve as quasi-guidance: for instance, in the recent finding against Betfred by the UK’s Gambling Commission, the public statement is concluded with a section of “Good practice – we consider that this case provides valuable learning for remote (online) and non-remote gambling operators”.

I am always more than happy to truffle out such lessons for clients to pass on to their staff, but a paper (titled “Deep Impact”) published in October 2019 by RUSI in London has made me pause for a moment.  This is a “big picture” paper, considering whether we need to refocus our AML approach and base it on evidence and outcomes rather than on (in essence) the FATF’s Forty Recommendations.  As the paper’s author Mathew Redhead explains, “despite substantial levels of private sector investment, doubts remain among practitioners and academics about whether the [FATF-based] model is effective, not only in terms of how well it is implemented, but in its impact on money-laundering metrics and wider costs and benefits”.  Moreover, as the FATF-based AML model is now well-established and almost universally adopted by regulators, it is quite straightforward for them to levy penalties on institutions that fail to meet the standards – regardless of whether their failing leads to any money laundering.  And the – perhaps inevitable – outcome is not favourable, if our stated aim is to create a hostile environment for money laundering and terrorist financing, as the RUSI paper continues: “Unfortunately, the potential punitive risk that goes with being ‘wrong’ continues to bias the private sector towards over-investment in preventative measures and over-reporting, despite regulatory advice to the contrary.  This makes ‘real-life’ effectiveness for financial institutions a matter of balancing the costs and risks of regulatory action against the size and efficiency of their compliance functions.  The ultimate focus is not therefore on the reduction of money laundering, but on protecting the institution and the bottom line.”

I suspect that the disconnect exists partly because it is so very difficult to measure money laundering while it is so very easy to measure money.  (As this paper reminds us, “the UK’s National Strategic Assessment of Serious and Organised Crime 2019 repeated the previous year’s estimate that the volume of money laundering in the UK was in the ‘hundreds of billions of pounds’” [how many hundreds – do we mean £200,000,000,000 or £999,000,000,000?].)  And if money laundering is hard to measure, then the effect of AML on that uncertain figure is all but impossible to gauge.

Conversely, expenditure, income and profit are all very easy to measure, alongside any other thing you can count.  Regulated firms can report how much they have spent on AML, how many compliance staff they have, how many SARs they have made – and the regulator demands this information in annual financial crime returns.  In their turn – and for the pleasing of their governments, who underwrite them – regulators tell us in their annual reports how many AML supervisory visits they have made, how many warnings they have issued, how many fines they have levied.  Until we find a way to measure the uncountable, people will continue to measure the countable – and to punish those whose numbers are not right.

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Lights, camera, action!

After my little rant about podcasts, I can report this week that conversely I am fully in favour of what I still call video clips.  In the olden days, when I used videos as part of my AML training, we would wheel in a telly and everyone would gather round (no, not cross-legged on the floor – that was primary school) and we’d watch a few minutes, stop and discuss, watch a few more minutes and so on.  In fact, one of my most treasured possessions is a video called “Money Laundering: The Soap” produced by the New Zealand Bankers’ Association in 1996.  The soap it has most in common with is “Crossroads”: the scenery shakes whenever anyone shuts a door, and the actors are plainly reading from cue cards or from prompts written on the backs of their own hands.  But the days of people being able to pay attention to one wobbly video for 27 minutes are long gone: modern staff need speedy soundbites and high production values.  And I can recommend three video clips that provide these in spades.

The first has been produced by Santander: “MC Grindah’s Deadliest Dupes: The Money Mule”, in which “our boys learn about the dangers of letting someone else use your bank account”.  It’s 3 minutes and 27 seconds long, looks more “EastEnders” than “Crossroads”, and makes me laugh.

The second – more serious but still tongue-in-cheek – also deals with money mules.  Put out by UK Finance [formerly the British Bankers’ Association and others] and Cifas, it’s called “Sponsor a Child Trafficker” and, in its 1 minute and 49 seconds, mimics those sad daytime telly ads imploring you to pony up some sponsorship money for a dilapidated donkey.

And the third deals with another crime of our times: modern slavery.  Produced by the Salvation Army, this 1 minute 20 second video reminds us to look around our local communities for the signs of modern slavery.  It’s short on laughs but packed with information – worth every second of your time, and that of your staff.

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Podcasting off

I am a creature of the written word: there is nothing I like better than reading, unless it’s writing.  I can spell almost anything (although I always have to think carefully about fuchsia – until I remember that it’s from the name of German botanist Leonhart Fuchs) and am a whizz at indices/indexes (both acceptable: the first is Latin, the second later English).  And – thanks in no small part to a ferocious teacher for O-level comprehension – I can pick the salient points out of any article, diatribe, commentary, essay, study, report or assessment in a matter of moments.  What I am not very good at is listening.  My hearing is perfectly fine, thank you, but I do drift off when I am expected to sit still and listen for long periods without doing something else.  I can manage an episode of “Desert Island Discs” while I am cooking, or a drama on Radio 4 while I am knitting, but something for work, while I am expected to just sit and listen without being distracted – that’s hard.

It’s particularly hard because the world – or at least the world of AML – has gone podcast-mad.  Just this week I have had three podcast-alerts drop into my email box, each linking me to something lasting an hour.  A whole hour!  I’m almost certainly not consuming podcasts in the right way: they’re meant for thrusting young things commuting by train into the City, listening via wireless earbuds (I may be making this up) to one of their three smartphones.  I work from home, and have a steam-driven smartphone and no earbuds, which means that I try to play podcasts on my laptop, speakers turned on – a bit like the radio.  And of course, after about ten minutes, I start to look around my desk for something else to do – with a podcast, unlike a written article, you can’t just flick forward to the bit that interests you.  And it’s not like face-to-face training, when you can gaze at the speaker and at other people: it’s just me alone in the office, watching the podcast time marker creeping along the bar to the hour.  And before I know it, I’m halfway through my tax return and I’ve missed almost all of the podcast.

Is it possible for this (fast-reading, slow-listening) dinosaur to make a little plea to podcasters?  I really do want the information that you are sharing – the topics sound fascinating, and I’d like to hear the latest thinking from experts.  But is it possible for you to make a written transcript of your podcast and send that instead…?

Posted in AML, General thoughts, Training | Tagged , , , , | 18 Comments

Copyright or copy wrong?

As an author, I am rather keen on the concept of copyright – the noun first being used in, we are told, 1729 to mean “the exclusive right to make and sell copies of an intellectual production”.  But I will admit that I had never thought about it in the context of due diligence – until, that is, a Guernsey client contacted me with this intriguing question: “We have been advised by one of our managers that to continue to print/save articles published about clients for AML/risk assessment purposes we should be paying for a NLA Media Access International Media Monitoring Agencies Licence as if we do not we would be falling foul of the Copyright, Designs and Patents Act 1998.  I disagree with them as we are not republishing the articles: we are using them for research, to verify information provided by clients or to monitor for AML/CFT purposes.  Which side of the fence do you think is the correct one?”

Now this is an interesting little legal conundrum *rubs hands with glee*.  To be honest I had never heard of that licence, so I had a look and I think what the NLA website is saying is that such a licence is intended for “UK and International media monitoring agencies which supply content in paper and digital format to clients”.  Now this is obviously not what my Guernsey client is seeking to do – they are simply performing the AML and risk assessment checks on their clients that the law requires of them.  But is there a copyright concern anyway, which could be addressed by the acquisition of a different licence/permission?  So off I toddled to the Copyright, Designs and Patents Act 1998.  Scanning it I came across section 29(A), which says this: “The making of a copy of a work by a person who has lawful access to the work does not infringe copyright in the work provided that—(a) the copy is made in order that a person who has lawful access to the work may carry out a computational analysis of anything recorded in the work for the sole purpose of research for a non-commercial purpose, and (b) the copy is accompanied by a sufficient acknowledgement (unless this would be impossible for reasons of practicality or otherwise).”  (B) is easy to achieve: you simply make sure that the author and source publication and/or URL are visible on the document.  But what about (a)?  Does AML checking and risk assessment count as “computational analysis” – or is that something more numerical (rather than the subjective view that AML checks tend to take)?  And am I looking at the right bit of the Act anyway?

Not much further forward, I sent my query to a greater power – a QC friend of mine who is Big in Financial Crime.  And he said this: “I should have thought there is a distinction to be drawn: collecting articles about clients is one thing, whereas using AML articles for commercial purposes to train clients is another.”  Indeed: but that was never the intention of my Guernsey client.  They are simply doing CDD checks and putting evidence on their files to show the source of their information.

So now I put it to the collective wisdom and experience of you, my lovely readers.  Have you ever worried that filling your client files with information found in publications is a potential infringement of copyright?  And if so, what have you done about it?

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Pass the popcorn

My telly viewing habits are rather old-fashioned: I like nothing better than watching a repeat of a beloved programme (original “Upstairs, Downstairs” and “Poldark”, I’m talking about you) and I steer clear of anything gory, violent, scary or – saints preserve us – cutting edge.  This means I am generally quite happy with free telly and my own extensive collection of elderly DVDs and videos – although whenever a new series of “The Crown” is released, I sign up for a month of Netflix, bulk-buy the Maltesers, and settle in for a binge.  But am I now going to have to do this for “The Laundromat”?

It’s a case of bad timing: this movie was showing in my local Cambridge cinemas during one of my Guernsey weeks – and then it disappeared.  I was irritated to miss it: how often do we get a film starring Meryl Streep and Antonio Banderas, with money laundering as a central theme?  Never, that’s how often.  Early reviews told me that it wasn’t the greatest epic ever filmed, but still – I was keen to see “my” subject on the big screen.  The trailer looks good (although, in the manner of trailers, it may be that it shows all the best bits: I’ve certainly never met any lawyers who dress quite like Messrs Mossack and Fonseca).

But now I am ABSOLUTELY DESPERATE to see it – because Mossack Fonseca is suing Netflix.  A lawsuit was filed in Connecticut on 13 October 2019 alleging that “in its movie… [Netflix] defames and portrays the plaintiffs (Mossack and Fonseca) as ruthless uncaring lawyers who are involved in money laundering, tax evasion, bribes and/or other criminal conduct”.  I should jolly well hope so.

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Staying the course

Brace yourselves: this is going to be one of those posts where I have a vision of how it is all going to tie together, but it will take time.  I was at an event recently where I was told – to my combined delight and horror – that “everyone in AML reads your blog”.  I was entirely unaware of this: the only stats I get are from WordPress, which informs me that I currently have 1,006 followers; I have no way of knowing how many people are reading my posts on LinkedIn (to which I copy them automatically) or because other people have forwarded them.  So “everyone in AML” – that’s unexpected.  I am hugely gratified, of course, and would like to claim particular brilliance, but as with most things in my life, I think my success can be put down to stickability.  I am a great sticker-at things: once I start a project, I will always finish it.  (I bought a car in 1985 and still drive it today; I met a man in 1984 and reader, I married him.)

I mention all of this not to boast, but because I think it’s the characteristic I have in common with compliance people in general and MLROs in particular: we’re like a dog with a bone.  Not for us the quick buzz of a sale and then move on: we like to dig and pick and revisit until we really understand a client or a transaction or a situation.  And yet, this tendency is rarely recognised with any admiration: financial institutions reserve their praise for those who bring in profit rather than for those who prevent it being lost (to dodgy clients, or in regulatory fines, or in reputational damage).  In an entirely unscientific survey of the current Big Four banks in the UK (please don’t write in), I find that all four are led by individuals who have risen through the sales side of their organisation – not one has a compliance background.  Jes Staley of Barclays was in corporate finance and private banking; Noel Quinn of HSBC came through equity finance and commercial banking; António Horta-Osório or Lloyds Banking Group through corporate finance; and Ross McEwan of the Royal Bank of Scotland Group through securities and retail banking (he’s to be replaced next month by Alison Rose, whose career has been in commercial and private banking).  Perhaps it’s simply a matter of personality – sales people are better at selling themselves, while compliance people are happier in the background – but it would be interesting to see how a regulated firm would operate with a compliance expert at the helm.

So stickability: that’s the identifying characteristic of my tribe (and therefore presumably many of the “everyone in AML” readers of this blog).  Welcome to you all, and thanks for sticking with me: this blog started in 2011 and has continued without a break since then.  Perhaps it will turn out to be the part of my AML career for which I am best remembered.  At least it’s solved the problem of what to put on my gravestone: Susan Grossey – she really hated money laundering.

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Dutch courage

One of the dearest ambitions of my little AML-ish heart has been to participate in a think-tank or colloquium or workshop or similar learned gathering, with the aim of influencing AML strategy.  I want to take part not for the splendid biscuits – although I believe that participants are usually well-rewarded in the baked goods department – but for the co-operative atmosphere.  I know that regular readers will be sick of this particular drum and my banging of it, but it is called “organised crime” for good reason: criminals co-operate to their mutual benefit, sharing expertise and laundering methods and the names of likely victims and professional accomplices.  We, on the side of the angels, make mealy-mouthed excuses about commercial confidentiality and sectoral differences.  I’ve ranted about it recently, in my plea for a repository of case studies for more lively training.

But lo! what is this I read in the Dutch press?  A month ago the Dutch banking association (Nederlandse Vereniging van Banken, or NVB) announced that five Dutch banks – ABN AMRO, ING, Rabobank, Triodos Bank and de Volksbank – have agreed to set up an organisation that will monitor payment transactions: Transaction Monitoring Netherlands (TMNL).  The five banks and the NVB will spend the next six months checking the technical and legal challenges, but the aim is to monitor their combined transactions – all 27 million transactions a day, across the five banks – to spot money laundering.  If it goes well, other banks will be invited to join.  As we know, money launderers do like to share their money around, so each bank looking at its own transactions in isolation is really not the best approach.  As the NVB puts it: “The combining of transactions effected by the various banks is expected to make it easier to spot flows of criminal funds.”  It won’t be easy, we know that, but then good, effective changes rarely are.  Of course, TMNL will not be the very first example of competitor banks co-operating on an IT project: that is probably the SWIFT system, set up in 1973.  Here’s hoping that TMNL becomes as much of an industry standard – and that we don’t have to wait another forty-six years for the next co-operative initiative.

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The stink of money laundering

Have you ever fibbed slightly about what you do for a living (that you work in AML) in order to avoid yet another tedious story about someone’s grandma who was with her bank for 312 years and STILL had to prove her identity when she wanted to pay in a cheque for £3 million when she sold her council house?  I know I have: I just say I work in finance, which gets rid of most people pretty sharpish.  And of course the more rabid end of the press is full of tales of woe from people who have been asked to take in their passport to their local bank branch or give an explanation for source of funds and really don’t think they should have to.  Which is what made me sit up and take notice – and cheer rather loudly, which startled the office cat – when I read this on one of my news alerts at the weekend.

On the This is Money website, financial journalist Tony Hetherington responded to a question from “Ms J W”, which was this: “I have had my Barclays accounts since 2014, when I was a student, before moving to Gibraltar.  My balances of almost £25,000 have been wiped clean by the bank, without notice.  All my transactions are normal, but now I am left with no money.”  I sighed, expecting the usual “poor you, you’ve been caught in the fiendish web of over-zealous AML checks, I will take up the cudgel on your behalf and here’s hoping the ill-informed and overly-pedantic bank staff learn their lesson” – but no!  Mr Hetherington’s response is entirely unexpected.

“I receive letters like yours quite often.”  (I bet he does.)  “If a bank suspects a customer of money laundering, it must freeze the account.  This does not mean the money is lost, but it is temporarily blocked.”  (Excellent explanation.)  “That’s what I thought had happened, but your own experience is more serious.  The National Crime Agency uncovered evidence that you and other current or former overseas students at British universities were laundering criminal cash from China.  NCA investigators won a court order to freeze 95 bank accounts holding about £3.6 million – rather more than you might expect to be held by students or recent graduates.  More than a dozen pages of evidence about your own accounts” (a dozen pages – I’m now wondering why on earth Ms J W wrote in in the first place) “highlight three deposits at a bank in Wood Green in London: £4,000, another £4,000, and then £3,560.  These separate deposits were made in cash over the space of seven minutes.  Four days later, there were three separate cash deposits in less than 30 minutes at a bank in Knightsbridge, totalling £8,000.  And two days after that, more than £3,000 in cash was deposited at a bank in Canary Wharf.  On the day those deposits were made in Wood Green, your debit card was used repeatedly in Gibraltar and you have confirmed to me that you were there.  You have told me that the cash deposits in London were made by a currency exchange firm that turned Chinese funds into sterling, though why the firm would make multiple cash deposits just minutes apart is unexplained.  It has the stink of money laundering and the NCA was completely right to take action.”

Mr Hetherington, you have restored my faith in financial journalism – and I may have your final sentence printed onto a t-shirt to wear under my work clothes (no-one will see it, but I’ll know it’s there and will take succour from it at difficult moments).

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