I like AML legislation as much as the next person – perhaps more, unless that person is an MLRO. If there’s updated AML legislation on the horizon I really look forward to it, and I’ve been on tenterhooks for about eighteen months ever since hearing about changes being proposed in Guernsey. Not just new legislation but also a whole new Handbook of guidance – riches indeed! But timing is all.
Twice a year I run a full-day MLRO workshop in Guernsey – and the second one of 2018 was last Thursday. Of course I have to prepare my material weeks ahead of time, to allow for print-outs to be duplicated, put into folders (that’s a fun morning chez Grossey) and then posted to Guernsey. Plus – perhaps more importantly – I have to know what I’m talking about at the workshop. So you can imagine my delight when the new legislation (in draft-but-fairly-final form) was released on the Friday before the workshop. Worse, it turned out to be only the opening salvo of the week from hell. Let me elaborate:
- Friday 9 November: Guernsey releases significant new AML legislation
- Monday 12 November: I fly to Guernsey and – while I am in the air – the Guernsey Financial Services Commission publishes its new (311-page) Handbook
- Monday 12 November: the Sixth Money Laundering Directive is published in the Official Journal, thereby setting its own transposition deadline
- Tuesday 13 November: the UK government publishes draft legislation outlining what will happen to our AML legislation on what is apparently being called “exit day” (spoiler: nothing, except the global removal of all preferences to the EU, because they will be Dead To Us)
- Thursday 15 November: the husk of a woman formerly known as me presents a workshop covering all of the above material, having had about six hours of sleep each night in order to make time for reading new legislation, etc.
But how kind people are: friends in Guernsey rallied to my aid and made sure that I had a printed copy of the Handbook and handouts containing the updated information. And now I need a lie-down in a darkened room.
Posted in AML, Legislation, Money laundering
Tagged AML, communication, financial crime, government, Guernsey, guidance, legislation, money laundering, publications, training
In a rather handy follow-on to my last blog post, which discussed my reasons for supporting the inclusion in the AML family of businesses that sell services for cash, Amsterdam’s administrative court has taken an interesting step. A team of experts from, among others, the city authorities, the Public Prosecution Service and the police has decided to reverse the burden of proof for restaurants, bars, pubs and cafés applying for licences to trade in Amsterdam. In short, applicants will now have to prove that their source of funds is non-criminal before a licence will be considered. Previously the burden of proof was on the municipality: the city licensing authorities could refuse or revoke a permit to trade only if it could prove that the establishment’s money was the proceeds of crime. Now, if the source of funds is not clearly legitimate, the permit application will not be processed. And the system is already taking effect: the municipality recently refused a permit for a restaurant on the banks of Sloterplas – an artificial lake in Amsterdam popular for water-sports – because the entrepreneur could not sufficiently demonstrate that the investment money was clean.
The aim is to ensure that dodgy money is not used to bankroll businesses in Amsterdam, particularly as such cash-intensive businesses – once established – are often used for future laundering. The city has tried other ways to tackle the problem. In June 2003 the BIBOB (Wet Bevordering Integriteitsbeoordelingen door het Openbaar Bestuur – or Public Administration Probity in Decision-Making Act) Law came into effect, giving Dutch administrative authorities the power to refuse contracts, subsidies or permits for organisations and companies if they have serious doubts about the integrity of the applicant. And in April 2009 the Amsterdam authorities withdrew the operating permits of the Delta Hotel, the Hotel De Korenaer, the Hotel Keizerhof and an Intalian restaurant called Silicio – all were in the touristy Damrak area, and all belonged to the controversial Barazani family. Asaf Barazani had made clear his opposition to plans to clean up the area; as Damrak is the street that runs from Central Station to Dam Square, it is usually the first street tourists see when they enter the city, and there were hopes to turn it into a “red carpet” entrance to the city. Referred to by locals as the “Kosher mafia”, the Israeli Barazani family owned some fifteen buildings along Damrak. In 2004 the family was investigated on suspicion of money laundering, and after those licences were withdrawn in 2009 some of their properties were sold to the municipality for forty million euros. Members of the Barazani family were later convicted of tax evasion.
British public schools have a lot to answer for – David Cameron, BoJo, Michael Gove, rugby – but to this list we can now add money laundering. I don’t want to claim any glory (well, maybe just a bit) but I’ve been banging on about this for a while. Our current definition of high value dealers – those who trade in goods for large amounts of cash – is missing a trick that money launderers do not miss: the laundering of cash through businesses that accept cash in exchange for services. Businesses such as clinics, sporting academies, universities and public schools. Imagine how simple it is. You send your child off to school with the year’s fees in cash in his satchel. Only when the bursar opens the envelope, why, there is ten times too much money! Apologies, say the parents on being contacted, we have muddled up the exchange rate – those pesky decimal places. But we don’t want little Egbert spending all that cash on comics and gobstoppers, so please could you just pay it into our bank account – here are the details. Et voilà, as they say: lots of lovely lolly laundered.
Personally I cannot understand why businesses that sell goods for cash should be expected to do all the AML stuff – due diligence, record-keeping, etc. – while those taking huge cash amounts for services do not. Surely the key thing is how you’re paying, not what you’re buying. If you pay by credit/debit card or bank transfer or (dinosaur alert) cheque, at least the money is going through a financial institution somewhere along the line, and there is an expectation (at least in reputable jurisdictions) that some AML checks will have been done by them.
In a recent interview with the Guardian, Ben Wallace (who is either the UK Minister of State for Security and Economic Crime or an American retired professional basketball player, depending on which Wikipedia entry you favour) finally got the idea: “We need to go after the people who have not played their part in hardening the environment and reporting. So the purveyors of luxury goods, the public schools, the sporting institutions, who don’t ask many questions if suspicious people come along with cash or other activities, we will come down on them.” In my opinion, such businesses have had enough chances to show that they are on the ball and looking out for dodgy transactions, and they have blown it – now is the time to amend the definition of high value dealer to include sellers of services.
Posted in AML, Legislation, Money laundering
Tagged AML, due diligence, financial crime, government, High Value Dealer, legislation, money laundering, proceeds of crime, suspicion, tax evasion
My father spent most of his working life abroad and when my mother and I were being awkward, he used to roll his eyes and say, “In a sensible country, I’d be able to trade you two in for a nice herd of camels or cattle – they don’t answer back”. And it seems that beastly herds have other uses too. A few days ago, livestock trader Syed Fazli Qayum filed an application with a court in Islamabad asking them to charge Pakistani former prime minister Nawaz Sharif with laundering billions of rupees through livestock gifts sent to the UAE, Kuwait and Saudi Arabia. Also named as respondents were Sharif’s former secretary Fawad Hassan Fawad, Deputy Chief of Protocol Naeem Iqbal Cheema, the Ministry of Commerce, the Ministry of National Food Security and Research (Livestock Wing), the Federal Board of Revenue and the Director of the Animal Quarantine Department. Mr Qayam’s application claims that proceeds of a fake bank account scam were used to buy livestock in Pakistan; the livestock were then exported to the Gulf states (in contravention of the Export Policy Orders of 2013 and 2016, which forbid the export of live animals because of a shortage of animals in the local market) and sold there, with the proceeds being paid into offshore accounts. The application estimates the loss to the Pakistani exchequer at about 6.1 billion rupees, or about £35.7 million.
Mr Qayam cites specific trades: he says that in September 2017 Mr Sharif sent 2,500 cattle (worth about £1.9 million) from Pakistan to a member of the royal family in Saudi Arabia, while 1,100 camels (worth £2.6 million) were sent to the UAE and Kuwait on different dates. More than 5,000 goats and sheep (valued at around £860,000) were sent to the UAE and Kuwait, while at least 700 cows and bulls and 50 buffaloes (worth £641,000) were sent to the royal family in the UAE. In his application to the court – asking them to declare the gifts illegal – Mr Qayam states: “Despite being a banned item, the livestock was exported by the previous government as a gift parcel for money laundering [and] huge amounts of ill-gotten wealth is laundered under these gift schemes every year.” And he asks the court to ensure that “all those found involved are proceeded against and the money laundered is recovered from them”.
And in case you’re now wondering the same thing that I am (i.e. how much were my mum and I worth back then), this means that a camel costs £2,364, a cow £760, and a goat or sheep £172.
Posted in AML, Bribery and corruption, Money laundering
Tagged AML, camel, cattle, corruption, financial crime, fraud, government, money laundering, Pakistan, PEP, proceeds of crime, tax evasion
Every few months I indulge myself in a little daydream of doing a PhD in criminology. Like all good daydreams, it’s rich in lovely feelings – imagine sitting in the library all day, thinking deep thoughts about money laundering, breaking off occasionally to have a cheese scone in the tea-room – and poor in detail. I have no idea which aspect of money laundering would actually bear close examination for three years and – more importantly – I know that I would both hate and be useless at the statistical side of things. Maths and I have learned to tolerate each other, but we are not natural playmates. In this spirit, I bring you some money laundering-y numbers, recently published by the UK’s Solicitor-General in response to a question from an MP.
- In 2017, there were 878 prosecutions in England and Wales under s327 of the Proceeds of Crime Act – concealing, etc. Of these, 537 led to convictions – or 61.2%. [For comparison, the overall conviction rate in 2017 across all crimes and all courts in England and Wales was 86%.]
- In the same year, there were 288 prosecutions under s328 – arrangements – leading to 225 convictions (78.1%).
- In the same year, there were 737 prosecutions under s329 – acquisition, use and possession – leading to 581 convictions (78.8%).
- And in the same year, there was one prosecution under s330 – failure to disclose: regulated sector – leading to one conviction (go on – you can do this one in your head).
The Solicitor-General gives a bit of background explanation: “The figures given relate to defendants for whom these offences were the principal offences for which they were dealt with. When a defendant has been found guilty of two or more offences it is the offence for which the heaviest penalty is imposed. Where the same disposal is imposed for two or more offences, the offence selected is the offence for which the statutory maximum penalty is the most severe.” In most cases the money laundering conviction is going to attract the stiffest penalty, so these numbers are pretty much representative of action taken in the criminal courts against money laundering. As for what to read into them, well, you’ll need to ask a PhD student.
Posted in AML, Money laundering
Tagged AML, due diligence, financial crime, government, legislation, money laundering, proceeds of crime, Proceeds of Crime Act, research, Solicitor-General
One* of the best things about writing this blog is that lots of lovely readers send me great stories. David in London (I’m using only his first name out of deference to his security background, but with that security training he will know immediately who I mean) spotted a great piece in the Evening Standard a fortnight ago and emailed it to me. I did consider paraphrasing it, but on reflection it’s so well-written that I shall simply quote it in full:
It has emerged that up to 150 celebrities have been barred from receiving honours after the Government has taken to vetting people’s tax affairs before doling out the gongs. Apparently they use a traffic-light system: red is for those under criminal investigation, serial tax dodgers or those who keep their dough offshore; amber is for those under non-criminal investigation or known to participate in one or more avoidance schemes; green is for the good children.
Much as we can all agree that tax avoidance is to be deplored, and that it should indeed debar you from an honour, there’s a problem here. Up till now, any person of great eminence who remained plain Mr or Ms was assumed to have modestly, and privately, declined an honour. Great kudos attached to this. Now, though, people who have turned down honours will be widely suspected of being on the fiddle.
This seems a bit unfair. Wouldn’t it be in the interests of openness and transparency — as well as more amusing for all the rest of us — if each year the palace published a nonhonours list, naming all those who would have got a K but didn’t because they are tax-dodging cads?
What a marvellous initiative that would be – although perhaps a “dishonours list” would be a better name. The trouble is, how would we keep it down to manageable levels? Once you start listing everyone who shouldn’t get a gong because of dodgy behaviour of some sort or other, well, that’s one giant can of worms. Literally.
* Another of the best things is that I can write a post and then schedule it to appear at a later date. This freaks people out, if I am in front of them during a training session and a blog post from me suddenly appears on their phone…
Money laundering through the property sector in the UK is not a new story – goodness, if you live in London and you don’t have at least three dodgy foreign PEPs in your local Neighbourhood Watch scheme, you’ll be feeling slighted. But it seems that London estate agents are finally waking up to the dangers and starting to ask awkward questions (like “where’s your money from?”) – and criminals are having to look to the provinces. And their beady eyes have landed on university towns, including my own.
According to Mark Hayward, chief exec of NAEA Propertymark, in an interview with the Guardian, university towns are being targeted for several reasons: “First, agents there are used to dealing with non-face-to-face customers, investors and companies from overseas because people buy accommodation for relatives or investment, so they may or may not be so alert to AML. Second, those that wish to launder money want to see their investment is secure and university towns have a very good track record for bucking any downwards trend in property prices. They normally see good house price inflation and any property in those towns is eminently lettable, so it ticks all those boxes.”
In Cambridge in recent years we have seen phenomenal property development, particularly in the area optimistically called CB1 – the developers say that it’s “the new city quarter” while the local press has dubbed it “a piece of Croydon in Cambridge”. In reality, it’s a crowd of apartment blocks right next to the railway station. (Some of the balconies look directly out onto the platforms, which is ideal for anyone who likes their evening cocktails with a side-order of train announcements: “The train now standing at platform three is the 1927 service for London Liverpool Street, calling at about a thousand stations of which you have never heard and arriving at London Liverpool Street sometime next Thursday.”) If you cycle through CB1 at night, only about a quarter of the apartments show any sign of life, and yet they are all sold – I have long wondered who is buying them and for what purpose. Let’s hope that local estate agents have learned the AML lessons from their big city cousins, to keep our ivory towers whiter than white.
When I read this story, I had to check the date and make sure that it wasn’t April Fools’ Day, but no, it seems that it’s on the level. A large Irish law firm called Matheson has launched a phone app for its clients, called “Dawn Raid”. Now I own a steam-powered Windows phone that does not run many apps – although it does play the theme tune from “Upstairs, Downstairs” as my ringtone, so all is forgiven – and so I am not terribly au fait with how they work. But apparently, according to the Irish Times, this app “advises companies how to prepare for a raid by the authorities and how to handle raids once they occur [and] includes contacts for a ‘rapid response team’ in Matheson in the event of a raid”. The advice includes practising “mock raids”, appointing staff to “shadow” investigators as they search their offices to “seek to prevent disclosure of legally privileged records”, and setting up “clean rooms” where officers should be asked to wait.
A Matheson spokesman said that the app was being offered because the number of dawn raids in Ireland is increasing and “this trend may continue, as regulators’ resources increase and Brexit may mean that EU regulators will no longer dawn raid in the UK”. (What worries me most about this Doomsday scenario is discovering that “to dawn raid” is now a verb.) Non-Matheson lawyers are not convinced, with some suggesting that the very presence of the app on an accused’s phone could help the prosecution show that they expected to be raided, while others simply thought that it was an odd position for a law firm to take. What it has done is tell a very wide audience (via the national press rather than an expensive publicity campaign) that (a) there is an Irish law firm called Matheson, and (b) they specialise in white collar crime matters. A win for the marketing department, at any rate.
Posted in AML, Money laundering, White collar crime
Tagged AML, communication, due diligence, financial crime, Ireland, Matheson, money laundering, organised crime, proceeds of crime, suspicion, white collar crime
Maybe it’s because it sounds like complaint, but I often encounter the assumption that people who work in compliance are dreary, dull fellows, nit-picking and carping for a living, finding fault in other people’s work and lives, and generally being something of a downer. And then of course my particular area of compliance is called ANTI money laundering, and that’s a pretty negative stance to take right from the start. But I have worked with compliance folk for decades now, and I can say that they are anything but dull. You remember Henry, the mild-mannered janitor who – after hours – climbed into a filing cabinet and transformed into Hong Kong Phooey, scourge of the criminal class? Well, I reckon he was something of a prototype for today’s MLROs, compliance officers and money laundering investigators.
And here’s proof that AML people are not, contrary to the jibes of the sales department, boring “business prevention officers”. Dana Reizniece-Ozola is a 36-year old chess player of some standing; indeed, she holds the title of Woman Grandmaster and her current world ranking is 2,292. She studied International Business in Finland and law in Latvia before gaining a master’s degree in translation and then an MBA from the International Space University in France. A smart cookie, as they say. Oh, and now she’s Latvia’s Minister of Finance – which makes her responsible for overseeing her country’s AML efforts. This is no cushy number, as you can imagine. Among the key findings in the most recent mutual evaluation of the country, published by MONEYVAL in July 2018, were the observations that “unusual transaction reports and suspicious transaction reports are not fully in line with Latvia’s risk profile and their quality appears modest” and “the appreciation of ML/FT risk in the financial sector is not commensurate with the factual exposure of financial institutions in general, and banks in particular, to the risk of being misused for ML and FT”. Scandals involving local banks Trasta Komercbanka and ABLV have kept Latvia in the money laundering headlines. However, it can be no coincidence that since Ms Reizniece-Ozola took office in February 2016, the situation has improved: “Until recently, the judicial system of Latvia did not appear to consider ML as a priority and to approach ML in line with its risk profile as a regional financial centre. This appears to have changed lately to a certain extent, with some large-scale ML investigations underway, involving bank employees having actively facilitated the laundering of proceeds.” It doesn’t take the brain of a chess grandmaster to realise that putting your brightest and best in the positions where they can use their wily intellect to fight crime will have excellent results. Just ask Henry.
Posted in AML, Money laundering
Tagged AML, due diligence, financial crime, government, Latvia, money laundering, MONEYVAL, organised crime, proceeds of crime, publications
I had an interesting phone call with a compliance officer the other day – she will recognise herself in this description. We were talking about a possible suspicion, and I was impressed by both her attention to detail and her line of reasoning. The client concerned had given his occupation as “project manager” and then – on his application form – he had made a spelling mistake on his own name. Perhaps not conclusive evidence of evil but – as this compliance officer said – aren’t project managers meant to pay close attention to detail? Aren’t they meant to be super-organised and to double-check things? And this made me think about what we can deduce from the smallest pieces of information that clients share.
Often it is not the single detail but rather the whole picture. If someone says that they are a homeowner, aged twenty-nine, with no mortgage, does that sound odd to you? What if I add that the average period for repayment of a (UK) mortgage is 25 years, and moreover that the number of first-time-buyers taking out a 31- to 35-year mortgage has doubled in the last ten years? Now I hope you are considering some source of wealth enquiries. What if you run an online gambling business and over a period of a year one of your customers bets £850,000 with you – after saying on his application that he is an accountant? Do you know how much an accountant earns? I’m guessing that the staff at Betfred didn’t… (To get a ballpark figure for most standard jobs, you can try the Payscale website.)
But, as my compliance officer friend demonstrated, it’s not just matching earnings to assets. Yes, a project manager should be good at details. In the same vein, an English teacher should have perfect spelling, an accountant should be adept with numbers, and a doctor should have an illegible signature. (Only kidding – my doctor has lovely penmanship.) Does the work address fit with the home address? (Ask them about their commute – that will soon tell you if they’re fibbing about one or the other.) If they claim to have no landline, is that likely – yes if they’re a twenty-year old Youtube influencer, no if they’re a seventy-year old vicar. In short, we need to remember that we’re not collecting random details just to fill spaces on a form: we’re gathering pieces of a jigsaw to assemble a coherent picture.