Desperately seeking Regulations

* Alert!  This is a long, ranty post – you may need a Jaffa Cake or two to stay the course…*

I’m quite bright.  Not “University Challenge” winning team bright, but I have a couple of degrees, I can sometimes do a whole cryptic crossword and I’ve managed to keep myself fed and clothed for twenty-five years by running my own business, so I reckon I’m smart enough.  Added to that, I have become familiar with AML legislation: I know how it’s structured, I know what the various terms mean, I’m au fait (or is it au courant? neither of my degrees was in French) with the various burdens of proof.  So as the full horror of Brexit looms and new regulations come at us thick and fast, I thought that – even through my tears – I would be able to understand what the UK’s AML regime is going to look like on 1 January 2021.  It just goes to show that even in these tough times I can retain a naïve optimism.  Readers, I am floundering.

On 9 November 2020 the Chancellor declared this: “We are starting a new chapter in the history of financial services and renewing the UK’s position as the world’s pre-eminent financial centre.  By taking as many equivalence decisions as we can in the absence of clarity from the EU, we’re doing what’s right for the UK and providing firms with certainty and stability.”  (Please put to one side any uncharitable thoughts you may have about the phrases “pre-eminent financial centre” and “absence of clarity from the EU”, and roll your eyes back to the front of your head.)  Now, equivalence – there’s a word that disappeared from the UK AML lexicon a while ago, but I’m perfectly prepared to welcome it back again.  And I appreciate that equivalence in this context is more to do with (as Mr Sunak has it) “managing cross-border financial services activity with the EU and beyond” than with lists of dodgy or non-dodgy jurisdictions, but still, if a jurisdiction is considered equivalent for the purpose of cross-border financial services activity, surely we can take some comfort that its AML regime will be up to snuff…?  So, filled with girlish anticipation, I turned to the UK’s “package of equivalence decisions [granted] to the EU and EEA member states”.  Of which there are seventeen, and I gave up after three – I just don’t think they’re AML-ish at all.  To be fair, the government has also issued guidance on the UK’s “Equivalence Framework for Financial Services” – but all that says about AML is that one of the principles of the equivalence framework is that “equivalence decisions are compatible with the UK’s policy priorities, including those relating to the rule of law, international sanctions, human rights and efforts to combat money laundering”.  (Please put to one side any uncharitable thoughts you may have about the idea that this government might give a fig about the rule of law, and roll your eyes back to the front of your head.)

I returned rapidly and wretchedly to Rishi’s remarks (sorry – one of my degrees was in English and I can’t resist alliteration).  Ah, this might be it: “The Financial Services Bill, which will be debated in the House today, is an important step in the process of adapting the UK’s regulation to reflect its new position and boost the competitiveness of the sector, whilst demonstrating that the UK remains committed to the highest international standards of regulation.”  Surely the FSB will be packed to the gunwales with matters AML – after all, “highest international standards of regulation” and all that.  But no: mention is made of the application of money laundering regulations to overseas trustees, but that’s it.

So where is the document setting out clearly the AML position on 1 January 2021?  As I see things, we have the current Regs, and then various amendments – the most recent being the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020.  Most of this amendment serves to tidy up the earlier Regs with regard to section numbering and came into force on 14 September 2020.  (And it takes a great deal of patience to sit with the original Regs and all subsequent amendments in front of you and work out which sections remain and which are replaced – it’s not an exercise that every MLRO should have to do independently, when they can go to prison for getting it wrong.)  Other bits to do with reporting requirements around tax-relevant trusts will come into force on 6 April 2021, while the sections concerning the reporting of discrepancies in the beneficial ownership of trusts, and access to information on that register, will come into force on 10 March 2022.  The only bit that acknowledges the seismic change about to hit the UK’s AML regime is the redefining of “third country”, which comes into force on “IP completion day” – i.e. at 11pm on 31 December 2020.  You’ll know it from the black fabric draped over the mirrors and paintings in my house.

Of course we do have the Sanctions and Anti-Money Laundering Act 2018, but that simply provides the facility for the creation of future Regulations along the lines of the current ones – it contains no compulsion (“An appropriate Minister may by regulations make provision…”).  Even when you turn to Schedule 2, which contains the detail, the jaundiced-eyed among us will note that “[money laundering] regulations… may do any thing mentioned in paragraphs 2 to 17…”, suggesting a pick-and-mix approach in the future.  May, may, may – no must, or even should.

Those of you with legal training, can you help?  Have I missed something crucial?  Or is it that the government has run out of time/inclination to expend any more energy on AML and will simply let the current Regs run their course and get around to dismantling them at a later date?  As we know – thanks to terrific work by the team at RUSI – the government is already lagging behind on its own Economic Crime Plan, with 9% of actions overdue and 3% completely inactive.  My fear, of course, is that without the threat of EU sanctions for failure to implement their AML directives, the UK’s determination to be a “pre-eminent financial centre” and an “open and attractive market” will see AML obligations quietly (or perhaps openly gleefully) elbowed out of the way.

Posted in Uncategorized | Tagged , , , , , , , , , , , | 6 Comments

Video killed the KYC star

I have been very lucky during my career: thanks to my insatiable quest for information about money laundering and AML, I have learned so much from so many people.  The key, I think, is to listen carefully and to see every question as a gateway to learning something new.  This week, for instance, a client asked me about the FCA’s stance on video ID.  The debate around how to verify client identity remotely is not a new one, but it has been given a firm and accelerating kick up the backside by the pandemic restrictions under which so many of us are currently living.  Video ID is exactly what it sounds like: the client appears remotely on your screen and does whatever needs to be done to prove their identity, rather than coming in to your office to drink your coffee, eat your biscuits and show you their passport.  The reason this client was asking was simple: his firm is part of a Swiss group, and in Switzerland the regulator has issued very detailed guidance on when and how to use video ID, so his Swiss colleagues were asking whether that guidance tallied with the guidance in the UK.  Interesting question, thought I – and an opportunity to learn about video ID.

And this is what I have learned:

  • In Switzerland, video ID is nothing to do with COVID – firms regulated by FINMA have been required to amend their “due diligence requirements for client onboarding via digital channels to take account of technological developments” since 1 January 2020, with the idea first mooted in 2016
  • The FINMA guidance is wonderfully detailed, covering what documentation must be received prior to the video ID session, how that session must be set up, who must be there, what quality of connection is required and more
  • In the UK, government guidance has been issued on the use of video ID by conveyancers, by those checking DBS applications (to work/volunteer with vulnerable people), and by those making wills
  • Guidance on the use of video ID has been released by the Guernsey financial regulator
  • No guidance on the use of video ID by the financial sector has been issued by the FCA.

I am always surprised that financial regulators are not more magpie-like – surely if someone else has issued some shiny new guidance on a shiny new topic, it would make sense to pilfer that for your own use.  (And by “pilfer”, of course I mean read, inwardly digest, draft, put out for consultation, redraft, and then publish to great fanfare.)  And if a topic is obviously of general and immediate interest – this client is not the only one to mention video ID – then surely a short “we’re thinking about it” press release would calm the nerves.

Posted in Uncategorized | Tagged , , , , , , , , , , , | 14 Comments

Outside, looking in

Regular readers will know what a fan I am of Brexit.  I think it is the work of the devil, second only to “The One Show” for its ability to take something wonderful and then ruin it for everyone.  As an Australian friend asked me recently, “Why did the UK want to leave?  You already had a tailored membership – yes to the bits you liked (no more world wars and lots of French cheese) and no to the euro and Schengen.  What more did you want?”  Preaching to the converted – or rather, wailing with the inconsolable.  So it was salt in the wound to read that at the beginning of this month EU finance ministers agreed that they will soon be launching an EU body to fight money laundering.

Can I just explain the significance of that?  I first started working in AML in 1993 and set up Thinking about Crime Limited in 2003.  So that’s 27 years of AML-ing, woman and girl.  And mere months after I am dragged, kicking and screaming, from the EU, they are setting up what will be one of the most significant AML bodies in the world.  But hey, why would the UK want to be part of yet another centralised EU initiative?  It’s not as though money laundering is an international crime that demands an international solution.  It’s not as though sharing information and expertise will help every country that participates and produce something that is greater than the sum of its parts.  It’s not as though the new agency will benefit from economies of scale and will have international heft.  Except hold on: yes, it is.  And that’s not all: at the same meeting, the finance ministers also gave their backing for the Commission to harmonise EU AML rules and provide co-ordination and support for national FIUs of EU countries.

I feel like the little orphan gazing mournfully in at the happy smiling family gathered around the dinner table.  I can only imagine how NCA staff are feeling – all those years of co-operation, and now it’s finally coming to fruition and we’re no longer part of the gang.  I’m off to comb my family tree for relevant ancestry: I’ll take an Irish great-grandma or a Spanish third cousin – just let me and my AML obsession back in!

Posted in Uncategorized | Tagged , , , , , , , , , | 6 Comments

Made for the job

As regular readers will know, I harbour a little fantasy about life as an academic – I imagine quiet afternoons of deep thought, preferably in an ancient room overlooking a college garden…  It’s very unlikely to come to pass, but it does mean that I am always interested to read other people’s criminological research.  At the start of this year the Australian Institute of Criminology published a paper titled “Recruitment into organised criminal groups: A systematic review”.  I believe that this is called metadata – a summary of various studies to understand the bigger picture.  And what a picture it is.

In short, the aim is to learn more about what predisposes someone to get involved with organised crime.  Back in the nineteenth century Italian criminologist Cesare Lombroso came up with his theory of anthropological criminology, which basically said that criminality was inherited and that you could tell whether someone was dodgy by looking for certain physical defects (such as a sloping forehead, big ears or long arms – you can see where he got his ideas…).  Thoroughly discredited now of course – but wouldn’t it make life easier if it were true?  That said, it seems that there is a grain of truth in the idea that criminality as a profession is indeed inherited – albeit through social rather than genetic links.

Anyway, some interesting findings from the metadata:

  • The most significant factors contributing to whether someone is recruited into organised crime are their social ties (including “parental, family, kinship, friendship and other ties”), and their criminal background and skills
  • Family ties are particularly important as they “favour the cultural transmission and learning processes required for recruitment into criminal organisations” (which will come as no surprise to fans of the “Godfather” films)
  • Friendship ties (“often reinforced by common ethnic, regional or neighbourhood origins”) confer the level of trust needed in organised crime groups
  • Organised crime groups are always on the lookout for people with an inclination for violence and criminal behaviour – and those who offer “competence in specific illegal business activities”
  • It seems that once you’ve stumbled from the path of righteousness, it just gets worse: “A more active criminal career often involves imprisonment, which can favour the establishment of contacts, social relations and opportunities for recruitment into organised criminal groups”
  • Very importantly, recruits must show “the capacity to avoid police detection” and “the capacity to maintain silence”.

With my AML hat on (when do I ever wear anything else?), I am also interested to read that “the education levels of Italian mafia members have increased over time, allowing them to exploit new opportunities arising from the growing market economy”, and that “individuals with higher socio-economic status may become involved in criminal organisations, either because they are attracted by the profit-making opportunities or because they face difficult personal and economic circumstances”.  What, like a global pandemic with its associated economic recession and high unemployment?  You have been warned.

Posted in Uncategorized | Tagged , , , , , , | 2 Comments

Save our SARs

I am a fan of the philosophy of SARs: I think it is correct that businesses handling client money should be obliged to report to the authorities if they suspect that that money is the proceeds of crime or connected to terrorism.  I’m not naïve – I know that any system could bear improvement, and the SARs regime is no exception – but on the whole, I’m pro-SARs.  Their main function, of course, is to facilitate the prevention and investigation of money laundering and terrorist financing, but in recent years they have been showing their softer, caring side, as in this case study from the NCA’s “SARs Annual Report 2018”: “The UKFIU fast-tracked a SAR to a local law enforcement agency after the reporter raised concerns that its octogenarian customer was a potential victim of fraud/theft.  Just short of £100,000 in total had left the account raising concerns that the customer was being exploited.  Officers visited the subject, a referral was made to the adult safeguarding unit, and the subject agreed to not send any further money.”

One of the most pleasing features of SARs is their egalitarian nature.  Back in the mists of time, when reports were made in the UK to NCIS, there used to be something called (and I’m struggling here to remember the exact name – MLROs may have clearer memories) the limited value intelligence report.  But the distinction between those and “normal” SARs has disappeared, there is no de minimis for reporting, and the AML family of businesses required to make SARs has grown.  All of this means that the system is reassuringly fair and apolitical in intent: whether you are moving your dodgy money through a sophisticated network of trusts and multinational companies or simply paying it in through your local casino, you’re running the risk of being reported FOR SUSPECTED MONEY LAUNDERING OR TERRORIST FINANCING.

Forgive my Trumpian excursion into ALL CAPS, but I think this is a point worth reiterating.  The SARs regime has a specific legal purpose, and as most people think that money laundering and terrorist financing are to be discouraged, that purpose has general support.  However, at the end of September the Hong Kong Association of Banks updated its AML/CFT FAQs – which are developed “with input from the Hong Kong Monetary Authority” (that’s HK’s central bank) – to advise banks (in FAQs 64 and 65) that they are now also required to submit SARs for offences relating to the territory’s National Security Law: “The obligation for reporting under the NSL will be triggered when an Authorised Institution ‘knows’ or ‘suspects’ that any property is offence related property.  The threshold for reporting is the same as under existing arrangements under the Organised and Serious Crimes Ordinance, the Drug Trafficking (Recovery of Proceeds) Ordinance and the United Nations (Anti-Terrorism Measures) Ordinance (UNATMO).”  The NSL came into force on 30 June 2020 and outlaws acts of secession, subversion, terrorism and collusion with foreign forces; critics say that the NSL infringes on freedoms guaranteed under the Basic Law (Hong Kong’s mini constitution).

Regardless of your position on the rights of Hong Kong and its citizens, it is surely wrong – badly, badly wrong – that any SARs regime should be hijacked in this way.  It works because it has public (and regulated sector) support.  If it is used for anything other than its original stated purpose (the prevention and investigation of money laundering and terrorist financing), that support will quickly evaporate: mistrust will spread, reports will not be made, and the system will become unreliable and eventually useless (having transited through “dangerous” and “scary” along the way).  I hope that democratic governments around the world are making these points vigorously to the authorities in Hong Kong.  In our international, inter-connected world, the expropriation of the SARs regime for political ends (particularly in a jurisdiction of such importance to the financial community) will have disastrous consequences for us all.

Posted in Uncategorized | Tagged , , , , , , , , , , , | 2 Comments

Waiting on the outside

I have been doing some research into SCPOs.  No, not the gold chap from “Star Wars” – I mean Serious Crime Prevention Orders.  Once a convicted criminal has served his time in prison, it is often wise not only to keep an eye on him via the probation system, but also to put restrictions on his future activity in order to remind him of the foolishness of taking up where he left off.  To this end, the UK law enforcement has a programme of “lifetime management of serious and organised criminals”.  And part of that programme includes, when considered necessary, applying to the courts for offenders to be handed Serious Crime Prevention Orders, Financial Reporting Orders and Travel Restriction Orders – all examples of ancillary orders, as they are extra to the main sentence.  For those of you interested in criminology, the purpose of these three orders is purely preventive – they are not viewed as punitive (although those subject to them might disagree).

Those of you committed to the fight against financial crime – including the biggest baddie of all, money laundering (boo hiss!) – will be pleased to hear that SCPOs and FROs are targeted specifically at our enemies.  SCPOs can be applied to individuals and bodies corporate convicted of a “serious offence” (including drug trafficking, slavery, human trafficking, money laundering, fraud, tax offences, bribery, blackmail and organised crime) and can place prohibitions or restrictions on the subject’s financial, property or business dealings, working arrangements, association and communication with others, premises to be used, use of any item, and travel within UK and abroad.  An SCPO can last for up to five years.  FROs do exactly what you might imagine: those convicted of financial crimes (such as fraud, theft, money laundering, bribery and tax evasion) can be compelled to “make a report” of specified financial information for the duration of the order – perhaps a monthly report of all their financial activity.  In the most serious cases – for those sentenced to life imprisonment – a FRO can last for twenty years.  TROs are the most limited of the trio, in that they can be issued only following a conviction for a drug trafficking offence with a term of imprisonment of four years or more; the effect of a TRO is to restrict the travel of the offender for at least two years after release.

So why should MLROs care about SCPOs, FROs and TROs?  In short, it is handy to know whether one of your clients is actually subject to one which seeks to curtail his financial life, so that you can be sure you’re not unwittingly helping him to evade those restrictions.  It sounds like a hassle, but – although I love these orders and the balance they restore to the world (if someone commits a financial crime, you make their financial life more awkward) – there are not that many in operation at any one time.  In fact, if you have an idle moment with your elevenses, why not take a look at the current list?  That’s right: it’s all public and very easy to understand: it tells you who has an order against them, when it started and when it finishes, and what sort of restrictions it places on them.  If it says “dormant” rather than “live”, that means the order is poised, ready to come into force once the subject is released from prison.  Do you think it turns up at the prison gate in a battered old Mercedes wearing a tatty fur coat and clutching a bottle of cheap champagne – or have I been watching too many episodes of “Minder”?

Posted in Uncategorized | Tagged , , , , , , , | Leave a comment

Free for all

If I were sitting in a mountain-top lair, twirling my moustaches and cackling evilly, I don’t think I could devise an environment more conducive to financial crime than the UK in late 2020.  Put to one side the spinelessness of our government as its leaders line their pockets, promote their friends and ennoble their backers.  Ignore if you will the incredulous reactions of other jurisdictions as we berate them for lack of transparency while we hobble our own beneficial ownership register.  No, the topic which has given me today’s leg-up onto my high horse is freeports.

It may surprise you to learn that I am a financial simpleton.  I work, I earn money, I fill in a tax return and I pay what I’m told to pay.  My most thrilling financial adventure of recent months was buying some premium bonds.  As a consequence, I tend to go back to basics when confronted with a financial innovation.  If someone suggests to me, for instance, carving off a bit of land from a country and giving it a different financial status so that people can move stuff through that bit of land without having to comply with the law of the land to which it is attached and belongs and is governed by for all other purposes, I wonder what’s up.  Sure, I can see the benefits for the importers and exporters – they’ll make more money.  And they’ll like the government of the country which has carved out this special bit of land for giving them that extra money for doing nothing at all.  There’ll be a few jobs in the carved-off bit, but how does it help the country beyond that?  Not at all. On the contrary, I think it makes it appear suspicious in the eyes of countries that have not carved off bits of themselves and pretended that they are somehow different and exempt.

But my opinion is neither here nor there.  What matters is the opinions and plans of those in charge.  And recently HMG has announced its plans to “turbo-charge post-Brexit trade” through the introduction of ten freeports, some of them to be open for business by the end of 2021.  This response marks the end of the consultation process, with the next step being the launch of the bidding process for potential freeports to apply for this status.  It’s full steam ahead, apparently, with “a package of tax reliefs on investment by businesses within Freeport tax sites [and] new measures to speed up planning processes to accelerate development in and around Freeports”.  As for concerns about “illicit activity”, apparently there was a mixed response in the consultation: “A majority of non-governmental organisations believed the risk of illicit activity in Freeports was high or very high.  However, some respondents, notably port operators, felt that the risk of illicit activity was low or very low.”  Well, colour me surprised.

And the government response?  “The government can confirm that: (a) Freeports will have to adhere to the OECD Code of Conduct for Clean Free Trade Zones, (b) They will maintain the current obligations set out in the January 2020 Amendment to the UK’s Money Laundering Regulations 2017, and (c) As part of the authorisation process, checks will be conducted on Freeport operators and businesses operating to ensure they do not present an undue risk and that Freeport operators have adequate policies in place to ensure control over the movement of goods.”

Marvellous, sings my little AML-ish heart: the Regs will apply. But always best to check the detail, and it turns out that the reference to freeports in the amended Regs applies only to the operator of a freeport when it “stores works of art in the freeport and the value of the works of art so stored for a person, or a series of linked persons, amounts to 10,000 euros or more”. And the plan is not to limit freeport activities to artworks: the consultation document mentions fuel, alcohol, tobacco – and, in the stirring introduction, wines and olive oil.  Reference is also made of “raw materials” and “hotbeds for innovation” – neither of which sounds very arty to me. In other words, there will be the lightest of light touch regulation – yet another item to be ticked on the money launderer’s shopping list when scouting for welcoming jurisdictions.

Posted in Uncategorized | Tagged , , , , , , , , | 11 Comments

The word from on high

Right, let’s get ready for a quick test of AML TLA [three-letter acronym]: what do the RBA, BRA, RAS and NRA all have in common?  Bravo for shouting out “the letter R” – standing, of course, for Risk.  As in: risk-based approach, business risk assessment, risk appetite statement and – the grand-daddy of them all – national risk assessment.  Those of you who are avid subscribers to Money Laundering Bulletin will already have spotted my take on the subject of the NRA a couple of months ago.  In short, the NRA is a government’s take on its own jurisdiction’s vulnerabilities to money laundering and terrorist financing, and on the effectiveness of the measures that have been put in place to guard against those vulnerabilities.

Interestingly, although many jurisdictions put into their AML legislation something along the lines of “businesses must put in place AML/CFT policies, procedures and controls that are appropriate and proportionate, taking into account the national risk assessment”, it is often the NRA that is the last thing to be completed.  Although we have had a risk-based approach to AML since the Third Money Laundering Directive (that’s 2005,when Charles married Camilla and Hurricane Katrina hit the US), NRAs have been very tardy: the first one in the UK appeared in 2015, Guernsey’s first one hit the news-stands in January 2020, and Jersey’s arrived on 30 September 2020 (and that was only the money laundering bit of it – the terrorist financing half is due next year).  The poor old FATF has been doing everything possible to prod governments into action: they issued an initial helpful strategy document in 2008, then new guidance in 2013, then an encouraging “here’s the benefits of an NRA” document in 2016, and have now published a webpage of links to NRAs, pour encourager les autres.

Despite this embarrassment of NRA guidance riches, the end products are remarkably dissimilar.  I know size shouldn’t matter, but why – when a jurisdiction the size and complexity of the UK can explain its money laundering and terrorist financing NRA in 91 pages, and Guernsey can manage with 111 – does it take Jersey 242 pages to cover just its money laundering concerns?  I’ll be blunt here: having done my best to read it, I think the Jersey NRA is designed not so much to enlighten as to beat into submission.  If the purpose is to provide the MLRO with a clear and digestible picture of the situation in his jurisdiction, then some NRAs are much more effective than others.

Meanwhile, we wait with bated breath for the latest UK NRA: we had one in October 2015 and then October 2017, but October 2019 came and went with no comment, then someone suggested it might put in an appearance in July 2020.  The latest buzz is from HMT, which said in August 2020 in its “AML/CFT: Supervision report 2018-19” that “the 2020 NRA, to be published later this year, will serve as a stocktake of our understanding of these risks, including how they have changed since the 2017 NRA”.  I’m hopeful; it’s not as if Treasury staff have much else to occupy them in the dying months of 2020.

Posted in Uncategorized | Tagged , , , , , , , , | 2 Comments

Ethics girls and boys

With the recent headlines concerning Mr Trump’s tax arrangements and Mr Johnson’s awarding of government contracts to chums, you can imagine that the issue of morality has been much on my mind.  I come from mixed stock: one half of my family was capitalist to the core while the other half spent most of their time on good works and community projects.  No, my parents’ marriage did not last long.  And now I find myself something of a moral mongrel: I make my living in the financial sector, but from telling them how to be law-abiding, altruistic citizens.  But again and again I wonder how we can make AML (and other issues, of course, but everything else is way less interesting) something that people want to do rather than something they have to do.

In an article earlier this month in the Economist, columnist Bartleby made some helpful observations about cheating, fraud and other morally suspect behaviour within organisations:

  • “Individuals are not very good at assessing the purity of their own motivations” – on the other hand, we are pretty expert at what are known in our household (thanks to an enduring obsession with the movie “The Big Chill”) as “juicy rationalisations”, whereby we are remarkably creative when presenting our own decisions and actions as morally defensible
  • Within companies, “a culture of cheating can spread quickly” – or, as we like to say in the worlds of corporate governance and AML, it’s all about “tone from the top”
  • “Individuals are more likely to lie, or commit fraud, when they are set excessively difficult and specific goals” – now, I have long railed against the bonus culture, where a proportion (sometimes a significant proportion) of people’s pay is based on performance. In the sales side of finance, this can (I believe) lead to people taking on business that they would otherwise reject, in order to “make the target”.  Moreover, as Bartleby puts it so well in reporting the findings of a 2015 study by academics at Columbia and Harvard business schools, “under pressure, people do not efficiently analyse information that could otherwise keep them on the straight and narrow”.

Now I don’t often resort to capital letters to make a point but today I shall: we need to GIVE PEOPLE TIME AND SPACE TO BE ETHICAL.  One tactic suggested by those academics would work well in the AML environment: if you signal clearly that ethical issues may arise, people are more likely to take them into account when making decisions.  So perhaps a little reminder about your corporate ethics code of conduct at the top of your take-on/onboarding paperwork will pay dividends – apparently even just mentioning the word “ethics” has a positive effect.  Ethics!  (Has it worked?)

Posted in AML, Uncategorized, White collar crime | Tagged , , , , , , , , , , | 4 Comments

Latest leak lessons

This is a tricky time to write a blog post, as everywhere is swirling with stories from the “FinCEN Files”.  I have explored the leaks on the ICIJ website, read the reputable (and disreputable) press sources and watched the “Panorama” programme on the BBC (“Banking Secrets of the Rich and Powerful”).  I shall leave the dissection of the details to them, but a few things have struck me.

First, I am disappointed at how the SAR process is being, well, misrepresented.  I am always delighted when money laundering hits the headlines (if a little embarrassed that the UK is always, but always, involved) because it tells the general public about what we AMLers do, and why we ask for identity documents, and why we might be concerned about that large payment they are making to a lovely chap they have been chatting with in Afghanistan or Nigeria or China.  But sometimes the educational opportunity is squandered with inaccurate or incomplete information.  For instance, the BBC newsreader, breaking the story on the late-night news on Sunday, said: “SARs are how banks can report their wealthiest clients if they do anything suspicious.”  This makes it sound as though SARs are for PEP/rich people only – not for all clients.  And it seemingly restricts the system to banks.

Then on Monday morning I opened my Economist Espresso update [I can’t stomach full news first thing in the day – this little digest is all I can tolerate] and read this: “SARs are to be filed to the American government when a bank suspects a client’s assets have been acquired nefariously.  They also indemnify the banks from taking further action – thus allowing them to move trillions of dollars in suspicious transactions, which facilitates money-laundering.”  For now, I shall put to one side my ongoing battle with the Economist about the hyphen that they insist on putting in “money-laundering”.  But SARs do not indemnify anyone – unless this is an American flavour of the system…?  (I don’t work in the US so have only a passing acquaintance with the niceties of their AML legislation, such as it is.)  In the UK, making a SAR is far from a “get out of jail free, well done for spotting that and now you can launder to your heart’s content” card: it may provide you with a defence to a charge of failing to disclose, but as for indemnifying the reporting institution so that it can carry on without doing anything else about that dodgy money, well, that’s not my view of how it works.  I’d be grateful for any clarification re US or UK “indemnification”.  And none of the sources so far has mentioned that SARs must also be submitted by lawyers, accountants, TCSPs, etc. – they make it sound as though all the responsibility lies with the banking sector.

The “Panorama” programme contains the usual mix of “can you believe it?” and “we told you so” stories.  Diligent MLROs will already be well aware of the dangers of using “box-ticking, lawyer-ish reasons why they haven’t done anything wrong” (Edward Lucas of the Center for European Policy Analysis).  But one lesson they could take from the programme is that of Christopher Harborne aka Chakrit Sakunkrit.  Mr Harborne holds a British passport in that name, and a Thai one as Mr Sakunkrit.  (Which means that any financial institution he uses which is unaware of his dual identity cannot be certain that they have the full picture when it comes to exposure to their client.)  In recent years, thanks to the explosion in golden visas and passports for investment, I have been advising MLROs to ensure that their CDD procedures include the question: “Is this your only nationality?”  It seems that we should then ask a follow-up/variant question: “Do you hold a nationality in any other name?”  Or perhaps just go for it, Senator McCarthy-style: “Are you now, or have you ever been, a money launderer?”

Posted in AML, Money laundering, White collar crime | Tagged , , , , , , , , , , , , , , , , , , | 4 Comments