Hiding their light

A little while ago I had a moan (I know – hard to believe) about HMRC failing to publish information about its AML activities.  But it turns out that the fault is partly mine: I am just not looking hard enough.  Put on your deerstalker and follow me…

As part of my visceral need to know EVERYTHING that anyone is ever thinking about AML, I have set up a search on the website TheyWorkForYou – I have recommended this before.  Most of the alerts are fairly pedestrian, with some MP or other late to the party commenting in outrage that money laundering is a Bad Thing.  But on 17 May 2018 Mel Stride (Paymaster General – probably one of the best job titles in the country) was providing a written answer to a question about HMRC’s AML endeavours, and he mentioned this: “The action HMRC takes to discharge those [AML] supervisory responsibilities and its wider role in tackling financial crime, including support to government initiatives on targeting illicit finances, are described in a recent publication ‘Report on Tackling Financial Crime in the Supervised Sectors 2015-2017’.”  Eh?  I’d never even heard of this report, despite it being – as they say across the pond – right in my ballpark.

Over I clicked with alacrity, as you may wish to do as well – here it is.  And as I feverishly read, I came across all sorts of goodies, including a reference to this excellent story about a London couple who ran a money laundering business under the guise of three bureaux de change in central London and were subsequently stripped of assets worth more than a million pounds by HMRC’s Fraud Investigation Service.

So why did I have to dig so hard to find this story?  Why is HMRC not shouting its triumphs from the spectacular rooftop of 100 Parliament Street?  Or at least sending them out as press releases to those of us who – sadly – subscribe to their alerts?

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KISS

Those of us who do AML for a living can sometimes focus on the big stories – the laundering of billions by corrupt PEPs, the emptying of state coffers by oligarchs, the earning of untold wealth by drug barons.  But sometimes simple is best, requiring only determination and people with time on their hands (but sadly, in this case, not much brain in their heads).

Greater Manchester Police are celebrating a successful outcome to Operation Speedway, which targeted an organised crime gang committing robberies on cash delivery vans in Cheetham Hill and Broughton.  [I spotted the story because my mum was born in Broughton and I like to keep an eye on the place.]   Between August 2016 and June 2017 the gang robbed ten vans making cash deliveries to ATMs in banks and shops, often threatening staff with machetes before making off on stolen motorbikes with, as Harry Enfield would have it, loadsamoney.  And then they set about laundering it – and here they came unstuck.

As the cash had been dye-stained by security devices during the course of the robberies, the gang had to use machines rather than people and so they visited nearly fifty betting shops, depositing the dirty (in both senses) cash in fixed-odds betting machines and generating credit slips which they then exchanged for clean banknotes.  It worked for a while, but one day a cashier in a betting shop did not have enough cash to pay out against the credit slip and suggested that the player (aka robber) open an online account.  The player/robber started filling in an application form but then thought better of it – and left the part-completed form behind with his fingerprints and a phone number on it.

On 4 May 2018, the ringleader Dario Eastcroft was jailed for twelve years for robbery and money laundering, and sixteen other men received sentences totalling 112 years.  It’s worth remembering that laundering is done at all levels, from the most sophisticated to the least complicated – you can bet on it.

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Unsung heroes

My busiest jurisdiction – despite my post a few days ago – is Guernsey.  Working for Guernsey clients takes up about 60% of my time, and thanks to the approachability of their FIU (and in the past – but sadly no longer – their regulator) I feel that I have a deeper understanding of their AML regime, vulnerabilities and concerns than those of my own jurisdiction.  Of course my clients are self-selecting (in other words, I see only people who take AML seriously), but even allowing for this I would say that the Guernsey regulated sector is more determined than most to get it right.  And so it is particularly galling for them that when they have a mutual assessment, as they last did in October 2014, with the report published in September 2015, they read this sort of thing: “Although the number of money laundering investigations, prosecutions and convictions [has] increased… the overall level remains low and there is a discrepancy between the numbers of investigated money laundering cases and final convictions.”

I want to smite my forehead, roll my eyes and say (as I did when a teenager), “Well, duh!”.  Guernsey is a lovely place – great beaches, excellent food, wonderful flowers – but it is a small island.  It’s quite important in world financial terms, but still a junior player in volume and value of transactions.  It is extremely safe, with local crimes being mostly of the “someone hit my wing mirror and drove off without leaving a note” variety.  When money laundering does happen in Guernsey, it is almost exclusively of the proceeds from crimes committed overseas, with Guernsey simply one of the layers in the scheme.  The local regulated sector is good at picking up on – and reporting – that kind of suspicion.  The local FIU is good at sharing that information with their more directly concerned counterparts in overseas FIUs – who in turn are good at taking on responsibility for investigating and convicting.  All of this means that the conviction eventually ends up on someone else’s scorecard, with the result that Guernsey’s money laundering conviction rates look low compared to their level of financial activity.  It does not mean that there is lots of laundering that they are missing/permitting.

And now, thank goodness, another jurisdiction has spotted the same trend.  On 30 April Hong Kong published its first-ever national risk assessment.  And at its launch, a spokesperson from the HK Police Force was quoted in the South China Morning Post as commenting that HK is often a “transition spot” for international cases: “We do not have enough evidence to arrest the culprits in Hong Kong.  They might not be physically here.  But we can share the information we have with our overseas counterparts to assist them in further investigations or possible prosecution.  Money laundering is a global matter, and intelligence matters.”  Indeed it does – for without intelligence there would be no convictions at all, on anyone’s scorecard.  Measuring AML success purely by raw conviction figures is too simplistic.  Perhaps every FIU that participates in a money laundering investigation by contributing intelligence should be awarded points to count towards local statistics, as the current system of mentioning that the FIU has “responded to x number of international requests for assistance” tends to get lost along the way, and its significance is never appreciated.

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Confession is good for the soul

Today’s question: in what way is an AML trainer like a Catholic priest?  Let me set the scene (which I shall keep deliberately vague, for reasons that shall become obvious).  Some time ago I was invited in to see a potential new client.  At the meeting were the rather harassed-looking compliance director and MLRO.  We haven’t given our staff AML training before, they said, apart from a quick online test thing.  From talking with our staff – particularly the client-facing people – we are very concerned about their lack of AML knowledge, and have come across several instances where we would have expected an internal SAR to have been made, but nothing has materialised.  In fact, we have never had a single SAR, despite being in business for several years.  We desperately need AML training.  Can you help?  Of course I can, said I, taking copious notes.  Looking back at those notes now, I see phrases like “money often returned to client no questions asked” and “staff think that small amounts cannot be laundering”.  We agreed that I would design face-to-face AML training for their staff.  Later in the process, I was trying to communicate with my contacts and had difficulty – no replies to emails or voicemails.  It transpired that all the people I had dealt with had left the company, and that the replacements had decided that this AML training was no longer a priority.  And that was that.

Of course, this is not the first time I have heard of – or imagined – poor AML compliance within a firm.  That’s my job, after all: to help MLROs do this AML stuff better.  And it’s not that I suspect actual money laundering, which would be simpler, as I would simply make a SAR myself to the appropriate FIU.  I just think their AML efforts are a bit pants.  I could give the nod to their regulator, I suppose, but then firms would – quite rightly – become chary of discussing their concerns with me.  And it could all be a cover story, which they have wheeled out in order to save the embarrassment of having to explain to me that they have chosen another training option after all.  And so, like the good priest, I simply nod and listen – and wish that I could prescribe a few recitations of the AML legislation as atonement.

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Turn and face the strange

I am in reflective mood.  Over a recent wet weekend my husband and I tidied out our loft.  (I know: not for us a glamorous mini-break in San Tropez.)  And amongst the usual broken suitcases, comically out-of-date clothes and half tea-sets inherited from elderly relatives, I found some interesting documents.  There were two wedding invitations from couples now long divorced.  There was a clutch of cheque books and other paperwork from not just accounts closed, but banks defunct.  And there were my very first school reports (“Susan expresses herself clearly in mature language, but struggles with her numbers” – almost literally the story of my life).

As I say, reflective mood.  For things are changing in my work life too.  This year, for the first time since 2006, I am not making my annual trip to Gibraltar.  For twelve years I visited that fine isthmus, providing public AML training under the banner of their local compliance association, and drawing crowds – crowds, I tell you – of hundreds of delegates.  But over the entire twelve years, this extravagant display of my wares did not lead to a single in-house booking for training, and so I have decided that it is a poor use of my time to keep up with Gibraltar AML developments and money laundering concerns simply to furnish ammo for three days of training a year.  I am mulling the same situation in Jersey: I have about four loyal clients there, whom I visit once a year, but is it enough to warrant keeping the jurisdiction in my armoury?

And so to Guernsey.  Guernsey has always been the mainstay of my AML training, with clients there regularly and reliably filling five weeks, and sometimes six, of my time each year with in-house training.  And the jewel in my Guernsey crown is my advanced workshops for Guernsey MLROs, which I run twice a year.  These are terrific days from my perspective, as it’s my highest-level training, exploring new topics and new ideas in great detail, and debating them with MLROs at the top of their game.  For several years, I have filled both workshops to capacity: twenty-four MLROs on each.  Until now.  I am running a workshop at the end of this month, and numbers are significantly reduced – only thirteen signed up, despite the usual marketing efforts.  And so I wonder: why?  Guernsey is awaiting new Regulations, apparently due out in June and to be implemented in September – although that’s only hearsay.  Are MLROs hanging fire for the new Regs (which would take up no more than an hour of an all-day workshop anyway), or is it something worse?  Has the regulated sector run out of money for training?  Or have I reached my sell-by date in Guernsey?  Am I the AML training equivalent of a bittersweet, once-cherished but now superseded wedding invitation?  Sob!

(And in case MLROs in other jurisdictions are feeling left out, I should say that I have tried to run similar workshops in Gibraltar, the UK, Jersey, the Cayman Islands and the Isle of Man, but take-up was poor.)

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The world is your lobster, Terence my son

One of the main challenges I face in AML training – which I have been doing since Abraham was a lad, it seems – is making people care about it.  I am quite immune to the groans and slumps that greet the prospect of AML training, as I know that if I can find the examples and stories that hit home, it will all make sense.  I will admit that I am a bit of a fanatic when it comes to money laundering stories: I collect them obsessively, the more bizarre the better, and store them away for future use.  And so I was thrilled when Roy in Jersey sent me a link to a local story involving a crime of which I had not even dreamt, and the proceeds thereof.

Now be honest: have you ever heard of a lobster baron?  No, it’s not a particularly large crustacean, but a man who makes a substantial living from selling lobsters – and in this case, illegally fished lobsters from the seas off South Africa.  In 2004 Arnold Bengis was found guilty in the US of using his company Hout Bay Fishing Industries to criminally overfish tens of thousands of West Coast rock lobster – a species protected by quota – and smuggle them to the US in the 1980s and 1990s, selling them to fancy restaurants.  He made millions, that he hid in Jersey companies.  Bengis served 46 months in prison in the US and was ordered to pay US$5 million.  Compensation hearings commenced under the Lacey Act (which prohibits the trade of illegally-obtained wildlife, fish and plants), and in 2013 Bengis and his co-conspirators were ordered to repay US$22.5 million to South Africa – which is still feeling the effects of the overfishing.  But by 2017 Bengis had handed over only $1 million and left the rest in three Jersey companies.  In July 2017, he was re-sentenced to 57 months’ imprisonment and served a forfeiture order of $37,200,838.  By this time Bengis was living in Israel; an arrest warrant was issued, and Jersey’s Royal Court took control of his companies via a “saisie judiciaire” to ensure that their funds weren’t exhausted before any money was paid back.  In March 2018 a Liechtenstein company connected with Bengis tried to cancel the saisie, but the request was denied – and this is where we find ourselves today.  The lobster baron cannot get his claws on the money until he comes out of his shell and hands himself in.

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Facing up to laundering

In my last post I sang the praises of a Twitter-bot (I still don’t know what that means) which sends out an alert every time a plane associated with an autocratic regime visits Geneva airport, which strikes me as a prime example of technology being used as a force for good.  And another example was highlighted on the BBC news website recently.  In short, a fellow called Mr Ao was wanted in Zhangshu in south-eastern China for “economic crimes”.  Perhaps enjoying the fruits of his labours, he and his wife travelled nearly sixty miles to Nanchang to go to a concert by Hong Kong pop star (and “God of Songs”) Jacky Cheung.  What Mr Ao did not realise is that some of China’s 170 million CCTV cameras were installed at the gates to the concert venue, and some nifty facial recognition software quickly alerted the local police that a wanted man was on their patch.  As Mr Ao took his seat, presumably loaded down with over-priced snacks and fizzy pop, he was apprehended by the boys in blue.  (I’ve checked: police uniforms in China are indeed blue.)

I am well aware of – and have some sympathy with – the privacy concerns about CCTV coverage.  But I take comfort from knowing that, with current understaffing in law enforcement, there is probably not someone sitting watching my every move as I traipse longingly from bookshop to Hotel Chocolat to Russell & Bromley before admitting defeat and buying boring old dinner in Sainsbury’s.  In other words, most CCTV recordings are never examined.  But if you can add reliable face recognition capability to the system, isn’t it the perfect tool for tracking criminals?  Imagine being able to identify a suspected money launderer and then gather video evidence as s/he attends meetings all over town – with the added benefit of being able to spot all the colluding enablers along the way.  If a system can pick up Mr Ao entering the venue and then locate him among the 60,000 seats before the God of Songs has even cleared his throat, following a launderer calling at plush offices all over London or New York or Singapore would surely be a doddle.

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Plane addictive

I sign up for all sorts of informational updates – sanctions alerts, Google search alerts, blog posts, RSS feeds – to make sure that I am reading widely about money laundering (and AML).  Some I try for a while and then abandon, either because they trickle out or because they’re not as useful or as relevant as I had hoped.  But one that I just love is the GVA Dictator Alert on Twitter.

Launched by Swiss investigative journalist François Pilet and his cousin and former Google engineer Julien Pilet, the automated Twitter-bot (whatever that may be…) tracks planes belonging to various autocratic regimes.  It checks movements every hour and tweets every time one lands at, or takes off from, Geneva airport.  As I write, the latest update tells me that “a dictator’s plane left Geneva airport: 9K-GGD used by the government of Kuwait (Gulfstream G650)”.  François Pilet came up with the idea while researching the Obiang family of Equatorial Guinea, and told a local newspaper, The Local: “A lot of corrupt and/or autocratic regimes have a strong presence in Geneva, sometimes for legitimate political and diplomatic reasons, but sometimes for much less legitimate purposes, like hiding and spending the proceeds of corruption.  These people’s dealings are protected by secrecy.  I like very much the idea that each time that a leader of an autocratic regime is landing in Geneva on his private jet, the information is made public instantly.  We should ask ourselves each time: why exactly are they coming here?”

Another technological development has given me an idea about physically tracking those who might be intent on laundering money, but you’ll have to wait for my next post to read about it.

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The sands of time

I know everyone laughs about jargon – business bingo, anyone? – but I think we’re all guilty of it to some extent.  I know I expect everyone to understand me when I talk about AML, MLROs and the regulated sector, and the other day my cycling-mad husband accused me of “half-wheeling” him – walking just in front of him, thus forcing him to accelerate.  But I came across something yesterday that I just could not decipher: the regulatory sandbox.

I was doing research on technological advances in AML (part of FinTech – more jargon) and came across the sandbox reference a couple of times.  Is it where new regulations are embedded to keep them upright and isolated prior to being set on fire, like we used to do in chemistry lessons?  Things became a bit clearer when I realised that “sandbox” is the American term for what we English kids would have called the sandpit – the place to play, build castles and dig up unmentionable items.  Perhaps “pit” has negative connotations, because even the very British, London-based, pinstripe-suited FCA is now referring to the sandbox.  In their recently-published “FCA Business Plan 2018/19”, they trumpet the regulatory sandbox which they created in 2016: “Our regulatory sandbox gives businesses of every size the opportunity to test the commercial and regulatory viability of their innovative concepts before they invest more heavily in them, while providing safeguards for consumers.  The sandbox also gives us an understanding of the opportunities and risks of harm that innovation can create.”

But it seems that a simple sandbox in Canary Wharf is not enough: we need to go global.  The FCA tells us that “[in February 2018] we invited stakeholders to share their views on what a global sandbox could look like”.  This is entirely in keeping with the EU view; in the “FinTech Action Plan” issued by the European Commission in March 2018, it says: “The Commission invites competent authorities at Member State and EU level to take initiatives to facilitate innovation on the basis of these best practices and invites the ESAs to facilitate supervisory cooperation, including coordination and dissemination of information regarding the innovative technologies, establishment and operation of innovation hubs and regulatory sandboxes, and consistency of supervisory practices.“  And there, that’s how you deal with jargon: you strangle it with even more jargon until no-one knows what anyone else is saying.

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Stick, or big, fat, juicy carrot?

I’ve been thinking quite a bit recently about personal accountability for AML failings, and whether or not it is a good idea.  This has been prompted in part by the FCA’s extension of its Senior Managers and Certification Regime, and in part by growing despair at the seeming ineffectiveness of financial penalties levied on firms for AML failings.  I was so exercised, in fact, that I wrote an article on this very theme for leading trade paper (you can thank me later, Timon) Money Laundering Bulletin, which in turn led to a well-mannered debate on LinkedIn.  Judging from the comments and feedback, quite a few people agree with the general idea of holding senior individuals personally responsible (and ultimately liable) for systemic AML failings within the organisations they control.  So when a story appeared in the news a few days ago about those senior heads starting to roll at Danske Bank, I read it with interest – could this be the start of the change?

Danske Bank has been the subject of media scrutiny in recent months, with allegations being made that poor AML controls in its Estonian branch have led to the laundering of the proceeds of crime from Azerbaijan, Moldova and Russia.  Danske has held up its hands to many of the allegations, admitting to “major deficiencies in control and governance” and has launched its own investigation.  And at the start of this month, it announced that Lars Morch, the director who has been responsible for Danske’s business banking since 2012 – including its international banking units and Baltic operations – had decided to resign.  He will leave immediately but – and this is what caught my eye – he will remain on the Danske payroll until October 2019.  That’s eighteen months’ gardening leave!  Now is it just me, or does that sound more like reward (and a pretty fantastic reward at that) than a punishment?  Make a complete Horlicks of your job, and go off on an eighteen month paid holiday.  It’s not quite the disincentive I had in mind, I will admit.

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