Nostra culpa

I take no credit at all for spotting this – it’s all down to Timon Molloy, editor and super-sleuth at Money Laundering Bulletin.  But my new favourite financial institution is Danske Bank.  Now I know what you’re thinking: surely they’re baddies, having been hauled over the coals for facilitating money laundering through their Estonian branch.  And indeed the AML picture is not rosy.  Many of their clients – who are suspected of laundering up to US$8.3 billion through Danske Bank from about 2008 – were from jurisdictions with poor AML standards, such as Russia, Moldova and Azerbaijan.  Danske management thought something was a bit whiffy but only began closing accounts and looking into the allegations in 2013.  In October 2017 the French authorities placed the bank under formal investigation.  In December 2017 the bank was fined 12.5 million Danish krone (about £1.5 million) by its regulator for AML failings.  And in April 2018 Lars Mørch – the executive responsible for international banking since 2012 – resigned.

But what I like – what I really, really like – is this.  It’s the page of the Danske Bank website which is devoted to explaining the progress of the money laundering investigation, complete with a timeline and links to official findings.  And I know that you are as jaded as I am, and fully expect the bank’s promo people to put the glossiest gloss and the spinniest spin on it all – but we’re wrong.  If you open up the FAQs, the answers are refreshingly honest.  Did Danske do it?  “We cannot draw any conclusions until the investigations have been completed, but unfortunately, there are indications that non-resident customers in Estonia took advantage of weaknesses in Danske Bank Estonia’s control setup and potentially used Danske Bank for money laundering purposes.”  What will you do with any money you earned from dodgy business?  “We are of the firm opinion that one krone laundered is one too many, and we certainly do not want to support or earn money from such activities.”  Why have you dithered about investigating?  “On the basis of the knowledge we have today about the extent of suspicious activities, it is clear than we should have acted faster and more forcefully.”

Now that’s the way to apologise.  We got it wrong, we should have done better, we will improve.

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All hail to the cheat

Continuing my theme of topical posts, today I thought I would spend a few minutes thinking about Donald Trump – the man an American friend refers to as the Cheeto-in-Chief (a wonderful pun on both his approach to things and his rather unusual colouring).  I am disappointed that the Queen didn’t use her regal privilege to run him through with a ceremonial sword, but I feel oddly certain that the law will one day trip him up – and it may well be the money laundering law.  After all, he’s made something of a career of sailing close to the wind.

The biggest laundering story involving the Donald is his connection with Paul Manafort.  Wikipedia describes Manafort as “an American lobbyist, political consultant and lawyer” and features his prison mugshot, which is perfectly fitting.  He worked for Ronald Reagan, George H W Bush and Bob Dole before finding himself heading up Trump’s election campaign.  Enter the Russians.  In August 2016, the US press started reporting that Manafort had allegedly received US$12.7 million in secret donations to the election campaign from the Ukrainian President Viktor Yanukovych’s pro-Russian Party of Regions.  And on 30 October 2017 Manafort surrendered to the FBI after being indicted by a federal grand jury as part of Robert Mueller’s investigation into the Trump campaign.  He and his business associate Rick Gates were charged with, among other things, engaging in a conspiracy against the US, acting as an unregistered agent of a foreign principal, and money laundering (in Manafort’s case, more than $18 million).  In February 2018 Manafort was further charged with tax avoidance and bank fraud, with the charge sheet alleging that between 2006 and 2015 Manafort laundered over $30 million through offshore bank accounts.  Although initially held on house arrest, Manafort was hauled into jail on 15 June 2018 after being indicted for obstruction of justice and witness tampering.  His trial will start on 25 July 2018.  The Donald says that all of this happened before Manafort joined his campaign, so that’s alright – every potential world leader should be happy to have such a man on his team.

However, the laundering allegations may hit a little closer to home.  This past weekend the Cheeto-in-Chief played golf at what he stated was his favourite course: Turnberry in South Ayrshire.  According to the Trump Turnberry Resort’s own website, “in 2014, The Trump Organization purchased the hotel and set to work making it the finest golf and spa resort in the world.  With an investment of £200m, the hotel was lovingly restored and the Ailsa course was transformed.”  And to mark the C-in-C’s visit, the New Yorker magazine asks an interesting question: where did Donald Trump get two hundred million dollars to buy his money-losing Scottish golf club?  I always support the idea of following the money, and indeed the article’s author Adam Davidson promises a weekly column – titled the Swamp Chronicles – in which he plans to “expose, explore, and analyze the financial activity of our President and his associates – including his family, his political appointees, and business partners – and make the case for greater transparency”.  I’ll leave you to read the article yourself – it’s fascinating.  A little taster: “All we know is that the money that went into Turnberry, for example, came from the Trump Organization in the US.  We – and the British authorities – have no way of knowing where the Trump Organization got that money…  Although we cannot say that Trump himself knowingly engaged in money laundering, we do know with certainty that much of his business in the past decade was in the industries most known for money laundering, in the locations most conducive to money laundering, and with people who bear the key hallmarks of money launderers.”  You remember what they said about that duck?  Quack quack!

Posted in AML, Bribery and corruption, Money laundering | Tagged , , , , , , , , , , | 3 Comments

It’s coming home – if we pay its fare

No doubt you are all – well, my English and Croatian readers at least – dusting off your scarves and vocal cords for tonight’s match.  (Personally, I am speaking at a literary event in a local village – we’re not expecting a large turnout…)  I have blogged several times before about the corruption at the heart of FIFA (here and here, for example) and indeed about individual players falling prey to financial temptations of all sorts.  But – like my friend David in London, who brought this particular story to my attention yesterday – I have often wondered why those who are paying the bribes target the rich guys.  Surely the ones to approach are the match officials.  They are paid much, much, much less, and have the added bonus of being perceived as honest and incorruptible.  Remember my recent post about professional enablers?  A corrupt banker, lawyer or accountant is worth his weight in gold not least because the perception is that he will do the right thing, which makes it harder for his employer and the police and the public to be willing to believe the worst of him.  Ditto the football referee or linesman.

A professional, top-level referee can earn well (as explained in this article) but compared to the salary of the players he is controlling it is (as the article says) peanuts.  The best of the best, working his little black socks off, can go up to about £120,000 a year.  Linesmen, being further down the chain of command, earn much less: back in 2008, when English linesmen were in dispute with their employer Professional Game Match Officials Limited, they earned about £145 a week.  And so the bribe that could turn an official’s head must be much smaller than any that would be needed to influence a footballer’s behaviour.

How about a very affordable £450?  That’s the bribe that was paid to Kenyan linesman Marwa Range during the African Nations Championship in Morocco in January 2018; he has just been banned for life (before his arrest, he had been due to officiate in Russia).  The Confederation of African Football has banned ten other referees for between two and ten years for similar offences, and a further eleven have been suspended pending their hearings next month.

It seems obvious to me: if you want to control an organisation, you need to corrupt the ones who enforce its rules – be that client relationship managers, football referees or (perish the thought) MLROs.

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Minnows and whales

At the end of June 2018, the Attorney General of British Columbia held a press conference to launch a report into his province’s gambling industry and its possible facilitation of money laundering.  Any uncertainty on the matter was removed pretty sharpish when it was revealed that the report, written by Peter German QC, is called “Dirty Money: An Independent Review of Money Laundering in Lower Mainland Casinos”.  It’s a chunky beast of a document, running to 250 pages, and in it Mr German – a former Mountie – pulls no punches: “On July 22, 2015, a Royal Canadian Mounted Police officer advised a British Columbia Lottery Commission investigator that police officers had been looking for a ‘minnow’ and had found a ‘whale’…. Large-scale, transnational money laundering has been occurring in our casinos.”

Among the topics discussed in the report is the so-called “Vancouver Model”.  This is (sorry, ladies) nothing to do with Ryan Reynolds in his undies, but rather a term coined by Professor John Langdale of Macquarie University in Australia to describe a situation in which organised crime gangs “clip the ticket both ways” – or double their share of the profits by providing services at both ends of the transaction and achieving two objectives.  As explained in the report: “In the Vancouver Model, Chinese citizens wish to relocate some of their wealth from China to Canada.  To do so they agree to accept cash in Canada from a lender.  At that point a settling of accounts occurs app to app between the person making the loan and an underground banker in China.  The catch is that the provenance of the cash loaned in Canada is unclear.  It generally come in the form of stacks of C$20 bills wrapped in a fashion that more closely resembles drug proceeds that it does cash originating at a financial institution.  The Chinese individual will then buy-in at a casino with the cash, gamble, and either receive higher denomination notes or a cheque upon leaving the casino.  The lender is servicing both a drug trafficking organisation by laundering its money, and the Chinese gambler by providing him or her with Canadian cash.”

And Mr German highlights once again that enormous, gaping, ridiculous hole in Canada’s AML regime – the fact that lawyers are not part of the AML family: “Without question, the absence of reporting by lawyers to FinTRAC [the Canadian FIU] is a gap in Canada’s AML regime and is a significant impediment to police investigations involving the movement of money through real estate and other financial sectors.  Canada is an outlier, as other common law jurisdictions, including the United Kingdom, have robust provisions in place which require financial reporting by lawyers….  The irony is that in British Columbia, most residential real estate transactions are handled by notaries, who do report to FinTRAC.  It is hard to rationalise why their handling of real estate funds should be treated differently than that of lawyers.”  Indeed.

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Blind faith

The term “professional enabler” has a menacing tone to it, I always think.  We started hearing it back in 2014, when the UK’s National Crime Agency, in its “High End Money Laundering Strategy and Action Plan”, observed this: “The ability of criminals to launder large sums of money themselves without attracting attention is limited.  Therefore, criminals need someone professional, capable and trustworthy to make the necessary arrangements.  Although there are many ways to launder money, it is often the professional enabler who holds the key to the kind of complex processes that can provide the necessary anonymity for the criminal.  Professionals such as lawyers, trust and company formation agents, investment bankers and accountants are among those at greatest risk of becoming involved, either wittingly or unwittingly.”  Wittingly, we all gasped – surely not!  And yet… an interesting story was forwarded to me last week by Roy in Jersey (thanks, Roy).

On 22 June 2018 Chester barrister Peter Moss was jailed for eighteen months for tax fraud: he earned more than £600,000 over an eight-year period but failed to submit twenty-six VAT returns, and the last self-assessment tax return he submitted was in 1999.  HMRC reckon that he defrauded them of about £138,500.  His defence was that, although he knew he should have submitted returns, he didn’t realise that it was an offence not to do so.  This was despite earlier warnings from HMRC.  Oh, and the fact that Mr Moss specialises in cases of serious fraud.  (Usually committed by other people but, as it turns out, not always.)

Staff in training sessions sometimes ask me why they have to do CDD checks when the client already has a bank account, or has been introduced by a reputable solicitor or accountant.  “They’ve already done the checks, surely, so why should we do them again?”  But if a barrister can come equipped with the blindest eye since Helen Keller, and with HMRC currently leading a research project into the risk posed by professional enablers, I think we have our answer.  Or, as Mr Moss might once have said, I rest my case, m’lud.

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Going to pot

There is much in the news at the moment about marijuana – legalisation, therapeutic benefits, different strains (Tom Cruise Purple, or Sour Diesel, anyone?).  I have never come within puff of any drug, as I grew up in Singapore where any drug-related conviction could lead to death or – worse – the deportation for life of one’s whole family, including apoplectic parents.  But I am very interested (colour you surprised) in the financial ramifications of the status of drugs.  In short, if trading in a drug is legalised, handling the money from that trade cannot be money laundering.  As has happened in, for instance, California.  But marijuana sellers have hit a snag.  They take their – now completely legally derived – proceeds to their bank to pay it in.  But because marijuana is classified by the federal government as a Schedule 1 drug, federally-insured financial institutions cannot process cannabis-related transactions without the risk of facing money laundering charges.  This is such an problem that California has actually seen an increase in cash transportation, with armoured trucks carrying sacks of cash from sellers to suppliers.  Convictions for dealing in marijuana have been eliminated, only to be replaced by convictions for armed robbery of cash trucks.

And so someone has suggested setting up what have inevitably become known as pot banks.  At the end of May 2018, the California Senate passed a bill to create a state charter for banks to serve California cannabis businesses.  The bill would establish banks and credit unions, regulated by the Department of Business Oversight, that could process deposits, withdrawals and other transactions by cannabis businesses.  Cannabis businesses would be issued with special-purpose cheques which could be used to pay rent and taxes (aye, there’s the rub – California is keen to maximise revenue from its lucrative new industry), and to make payments to California-based vendors, but not for much else.  Banks and credit unions licensed under the legislation would be able to form a network to facilitate the provision of cannabis banking services, but the legislation would bar them from engaging in banking activity with any other bank or credit union.  SB930 – as the bill is designated – now heads to the state Assembly for further deliberation. Although if the Assembly members sample the product, that could take some time.

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Tainted treasures indeed

I have always been a swot, living mainly in my head.  Physically I’ve never been much cop; I was always the one picked last – and even then, reluctantly – for sports teams, and my clumsiness is legendary.  But in the same way as other people marvel at a fiendish goal or a world-beating marathon time, I thrill to a nifty piece of deductive reasoning.  Let me give an example.

We all know that rich people like to buy nice stuff – whether they have come by their wealth honestly, or whether they have pinched it or otherwise acquired it dishonestly.  That’s a fairly simple deduction to make: rich = buying luxury goods.  And indeed that was the main reason behind the publication in April 2017 of Transparency International’s interesting report “Tainted treasures: Money laundering risks in luxury markets”.  In it, they argue for the adoption of sellers of luxury goods into the AML family, the adoption bringing with it regulation and supervision requiring those sellers to undertake the standard AML steps: due diligence, record-keeping, reporting of suspicion, and staff training.  But tucked away in the report’s conclusion was the deduction that I had never made, even though – in the words of Basil Fawlty – it’s bleeding obvious: “The desire to own luxury items can be a primary motivation for corrupt behaviour.  While the psychological motivation of individuals engaged in corruption is an under-researched field, the behaviour of kleptocrats who amass multiple luxury properties and items in a short period of time suggests owning these goods was one of the goals of the corrupt activity.  The same does not apply to other high-risk business sectors; few if any corrupt deals have, for example, the ultimate goal of paying accounting fees.”

Isn’t it obvious now you read it?  Many criminals launder money through the purchase of luxury goods, but some become criminals in the first place in order to own those luxury goods.  In recent weeks Malaysians have been “transfixed”, as the local press would have it, “by the sight of truckloads of orange boxes containing Hermès Birkin handbags and luggage filled with cash and jewellery being seized from flats linked the former Prime Minister Najib Razak”, who is being investigated for his part in setting up the 1MDB state investment fund (now suspected of being a vehicle for corruption and a front for money laundering).  The sensationalism of the event was maximised, as the police raid was live-streamed on social media.  And with Razak’s wife Rosmah Mansor being compared with Imelda Marcos – another insatiable consumer of luxury goods – it seems that Transparency International’s deduction is right on the money.  I shall tuck it away for future use.

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E for effort

Here I am, back from my holiday, refreshed and raring to go.  I will admit that I was feeling rather jaded before my break, and wondering whether AML – or more specifically, AML and I – had run its course.  As I mentioned in a previous post, one of my workshops was rather poorly attended.  And then there was the damnation with faint praise.  Someone contacted me, asking for information, and observed that they had been given my name by a colleague who found my services “mildly helpful”.  After a quarter-century of living and breathing AML, this rather rocked me back on my heels.  But I have decided to be amused by it, and have instructed my husband to put it on my gravestone: Here lies Susan Grossey – beloved wife and mildly helpful.

However, there is often a grain of truth in such comments, and while I was away I started to wonder whether I am indeed spending my AML energy where it can do the most good.  Some time ago I stopped tweeting in the AML community (I still tweet in my other persona, as an author of historical financial crime novels – @ConstablePlank).  Do you miss my AML tweets?  I stopped partly because I was told that in the regulated community very few people are allowed to access Twitter at work, so it seemed a bit pointless to target a market that was not allowed to read me.  But should I tweet again?

And on my company website, I have a Newsroom.  Every day I check numerous news sources and put links to relevant stories on this page.  I have quite specific requirements – it can’t be rumour/gossip, and I prefer to report convictions rather than charges, although I will make an exception for well-known names – and it does take about thirty minutes a day to check all relevant stories and select the ones to link.  Do you even know about the Newsroom?  Is it worth doing?

With your feedback, who knows?  By this time next year, I might have bumped up my rating to a dizzying “rather helpful”.

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Source for the goose

I am about to shut down for a fortnight’s holiday – my next blog post will be on Monday 18 June – but I thought I would like to leave you with a clever idea to mull.  No, it’s not my clever idea: it’s one from a recently-published book called “Radical Markets: Uprooting Capitalism and Democracy for a Just Society” by Eric Posner (a law professor at the University of Chicago) and Glen Weyl (an economist at Microsoft).  I’d like to claim that I picked it up for holiday reading but honesty demands that I admit to reading a review of it in The Economist.

As the MLROs among you will know, one of the most vexed aspect of AML is “source of funds” and its even more complicated and opaque cousin “source of wealth”.  (The former is the money used for one particular transaction; the latter is a client’s wealth in general.)  Most AML legislation requires that, for high risk clients at least, firms “take adequate measures” or “make reasonable efforts” to ascertain source of funds for each transaction, and source of wealth in general – with the aim being to ensure that they are not accepting the proceeds of crime (often, money stolen from the public purse by corrupt leaders).  As you can imagine, getting clients to tell the whole story is tricky enough – after all, can you remember the original source of all of your assets?  And getting them to prove the entire story with documentary evidence is nigh on impossible.  But Posner and Weyl have come up with a suggestion – albeit conceived with a different purpose in mind – which could be interesting…

In their book, the pair look at the difficulty of getting people – particularly wealthy people – to declare all of their assets, as a precursor to being able to tax them efficiently.  And this is their suggestion (as explained in the book review in The Economist – I shall now admit that I have read only the review, not the book itself…): “Every individual would put a value on each item she owned, down to the last pencil (potentially a laborious exercise), and would be taxed on her total declared wealth.  The twist: she must stand ready to sell any item at its declared value, should a buyer emerge.  To see off interested purchasers, she would have to set the value high, and thus incur a hefty tax that would compensate society.  If she set the price low, to minimise her tax burden, her assets would be bought up.”

Might such an approach work during source of wealth enquiries?  I’ll leave you with that (slightly mischievous) thought as I disappear from view for a fortnight.

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The back of beyond

When delivering AML training I like to include what clients often call “case studies”, but which are really just stories about how money laundering can happen.  The temptation is to focus on the big stories – the corrupt PEPs and the kleptocrats squirrelling away billions – but the stories that tend to have the greatest impact are those that are closer to home.  If I can show, for instance, the staff of a regional accountancy firm a money laundering story set in their home town and involving an industry with which they are familiar – rather than another Russian squillionaire parking another enormous yacht in Monaco – then they take away the most important AML lesson of all: there but for the grace of God…

And so I was thrilled recently to read about some local people traffickers being caught.  I live in East Anglia – the bulge sticking out of the eastern side of England – and it’s a fairly agricultural and rural area.  We have lots of farming: fruit, vegetables, chickens and pigs for the most part, all of which is labour-intensive.  And so East Anglia is a big user of seasonal migrant workers (we daren’t even think what might happen post-Brexit), and we have had quite a few people trafficking incidents.  But this one caught my eye because it involved Southwold.  Southwold.

To imagine Southwold, think of every Enid Blyton story you have ever read.  Imagine a sandy-ish beach with colourful beach huts and a pier with a penny arcade.  Imagine tea-shops, a hardware emporium selling buckets and spades, and a 70-seat independent cinema.  Imagine no railway station.  And into this 1950s environment three Ukrainian men sailed a yacht, the Flamingo, carrying nineteen illegal migrants.  By the time the Border Force vessel moved in on them, ten migrants were already in lorries on their way to Ipswich.  The three perpetrators have been jailed for trafficking offences and will be deported at the end of their sentences.  The next time someone suggests that I may be over-dramatising the risk from organised crime, I shall mention Southwold.

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