Seek and ye shall find

At least once a month someone, on hearing my line of work, will have a go at me about how “money laundering” has got in the way of their opening a bank account, getting a loan, buying a house or some other financial activity without “having to give them loads of information”.  I just smile and nod and trot out the usual explanation that the law is actually quite reasonable but sometimes financial institutions blame it when they are collecting information for other purposes (to safeguard their investment, for instance, or to sell you more stuff).  But sometimes the AML legislation does have unintended consequences.  When the sale of marijuana for recreational purposes was legalised in several American states in 2014, for example, the businesses that set up to sell the stuff quickly found that they could not get bank accounts.  If a bank accepts money from the sale of an illegal substance it is laundering that money, and most banks did not have their head offices in the states where the sale of pot was now legal.  I am told that the cities where pot sales are highest (boom boom) – such as Denver – are now criss-crossed by armoured vans full of cash, collecting from licensed shops and paying authorised suppliers, as none of them can use the banking system.

And it appears that a similar situation is developing in western Europe, where AML requirements are making it difficult for a certain class of legal customer to get access to financial services – this time, it’s asylum seekers.  The situation is particularly acute in Sweden, now home to one of the highest number of migrants fleeing conflicts in Syria, Afghanistan and elsewhere in the Middle East.  In 2015, 163,000 migrants headed to Sweden, attracted by its generous asylum laws and well-functioning welfare system.  But so far, according to Swedish Financial Markets Minister Per Bolund in an interview in April 2016, fewer than 500 of them have so far found a job.  And the main reason?  If a bank cannot verify an applicant’s identity, it will not open an account for him.  Asylum seekers – in legal limbo as they are – often lack the standard identity documents that a bank would want.  And without a bank account, it is not easy to receive a salary in a sophisticated western country.  The irony is even greater as in Sweden there are jobs aplenty for the asylum seekers: the country is currently experiencing an economic boom, and the government has said that 700,000 new homes need to be built by 2025 to address a housing shortage created by population growth – which means that about 10,000 workers will need to be recruited each year in the construction industry alone.

Step forward the European Banking Authority, which on 12 April 2016 issued an Opinion on the application of CDD measures to asylum seekers, stating that asylum seekers’ access to financial products and services is “important and necessary”.  A well-written and helpful document, it offers a solution to ensure that asylum seekers can gain access to essential financial services: “In most cases, money laundering and terrorist financing risks – including those associated with weaker forms of customer identification – can be managed effectively by offering a more limited range of services or setting up stricter internal controls, which will facilitate early intervention in the event of suspicion.”  Perhaps we should get the EBA to say something about de-risking: they sound a sensible, practical and compassionate bunch.

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Slaves to the legislation

In recent weeks there has been a huge amount of soul-searching and hand-wringing about money.  Much of it has concerned the slippery distinctions between tax evasion, tax avoidance and aggressive tax avoidance, with phrases like “morally repugnant” being bandied about (followed swiftly by accusations of hypocrisy and elitism).  We all – barring perhaps a few hermits and maybe the Dalai Lama – have a vexed relationship with money, with our attitudes forged early in life as we either mirror or rebel against the attitudes of our parents.  My parents were both poor as children and made good later, but always retained a care with and great respect for money.  Brought up in an affluent household, I nonetheless imbibed their concern that it might all disappear one day, and as a result I am a saver of epic proportions and am rather sniffy about people who are profligate with money.  In her excellent “Point of View” a couple of Sundays ago, the author Sarah Dunant explained her own “conflicted” relationship with money.

But interesting though this all is – and personally I’m fascinated to see what anti-avoidance measures will look like (it’s a bit like trying do something about those big holes that some people create in their earlobes: most people don’t like them, and indeed they can make you feel a bit squeamish when you look at them, but as they’re not actually illegal, it’s live and let live) – we in the AML community must not lose sight of the simple definition at the heart of all that we do.  Money laundering is perpetrated on – and confined to – the proceeds of crime.  And proceeds of crime are generated by criminal acts.  So we might find the sale of fur coats or abortions or sexual favours to be morally repugnant, but that’s nothing to do with our job.  Our job is to look out for, prevent and react to money laundering – we are slaves to the legislation.  We can campaign and activate and vote for change as we wish, but our AML duties are (mercifully) clear.

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No escape for NY compliance officers

Ever since it burst onto the regulatory scene in 2011, the New York Department of Financial Services has specialised in ruffling feathers.  In August 2014 they stepped out of line with all other regulators (who were considering a united approach) and issued their own penalty of US$300 million against Standard Chartered for AML failings, while in June 2015 they lost patience with international foot-dragging on the matter and announced their BitLicense, “the first comprehensive framework for regulating digital currency firms”.

And now they’re at it again.  On 1 December 2015, they issued a proposed AML regulation that, inter alia, requires chief compliance officers of banks and money transmitters to annually certify that, “to the best of their knowledge”, their monitoring and filtering programs are in compliance and that they had reviewed, or caused to be reviewed, those programs.  These poor souls will then be held personally liable for the effectiveness of the AML transaction monitoring and sanctions screening regimes of their institutions.  And criminally liable: “All regulated institutions shall be subject to all applicable penalties provided for by the Banking Law and the Financial Services Law for failure to maintain a transaction monitoring program, or a watch list filtering program complying with the requirements of this [regulation] and for failure to file the certifications required…  A certifying senior officer who files an incorrect or false annual certification also may be subject to criminal penalties for such filing.”  This is not actually a surprise development: earlier this year, DFS then-supremo Benjamin Lawsky indicated that the regulator would start holding bank executives personally accountable for their institution’s AML and sanctions shortcomings.

The Rockefeller Center skating rink, Rizzoli’s bookstore and the Metropolitan Opera House may not be enough to make up for this.

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Taking money laundering to tusk

It never ceases to amaze me, the lengths that people will go to and the atrocities they will commit and tolerate in order to make money.  In recent training sessions I have been updating people on wildlife trafficking (you know how I bang on about making people care about money laundering by telling them about the crimes being committed), and usually I focus on the more obvious victims – the elephants, the rhinos, the big game hunting “trophies”.  But it seems that people will take the life of any animal if they can make money from it.

The narwhal is an almost mythical creature: it is a whale with a single very long spiral “tusk” (actually a canine tooth) that lives in Arctic waters.  Melville wrote quite a bit about them in “Moby Dick” while Verne suggested it could be the giant sea beast in “Twenty Thousand Leagues Under the Sea”, and in some legends the narwhal is believed to be related to the unicorn.  And it is this very tusk, horn, tooth thing that attracts the attention of poachers.  A few weeks ago, Gregory Logan, who retired from the Canadian Mounties in 2003 so should really be on the side of good, was extradited to the US to stand trial for laundering US$2 million made from smuggling narwhal ivory from Canada to the US.  Narwhal tusks grow up to ten feet long, and sell for as much as $30,000 in Canada, where the trade is legal.  But in the US, all but the most essential – generally scientific – trade in narwhal ivory is prohibited, and so Logan (who has already pleaded guilty to the smuggling) saw his opportunity and sold more than 250 tusks to American collectors over a decade.  Canada fined him C$600,000 for the smuggling – but American prosecutors hope to jail him for at least twenty years for the laundering.  The narwhal has a tough enough time – many suffocate under the Arctic ice, or starve to death – without ex-policemen inflating the demand for narwhal tusks.

For the MLRO, this case has a couple of interesting (for which, read awkward) elements.  First there are the jurisdictional differences – narwhal ivory trade is legal in Canada but (mostly) illegal in the US.  Then there’s the due diligence difficulties: a 58-year old ex-policeman probably wouldn’t trigger any high risk alerts, but he turns out to be a smuggler and (suspected) money launderer.

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Bad little bywords

Thank heavens for alliteration, I say.  In today’s crowded, tweeting, 24-hour news world, we don’t have to say “the leak of eleven million documents from the offices of law firm Mossack Fonseca”, but instead can save valuable milliseconds by referring to “the Panama Papers”.  It’s the same with other financial snafus: not “the collapse of a centuries-old institution through the lack of oversight of a youthful employee in a distant yet seemingly profitable office”, but “Barings Bank”.  And not “the dangers of allowing a small coterie of arrogant individuals to use a sporting association as their own personal piggy-bank while covering up for each other”, but “FIFA”.

This last is the story that just keeps on giving, isn’t it?  It has even considerately linked up with the Panama Papers for us, with the revelation that the leak had turned up a contract for a television rights deal that the new – supposedly unblemished – head of FIFA, Gianni Infantino, co-signed in 2006, when he was general secretary of UEFA, with two businessmen who have since been accused by the FBI of bribery.  Oh what a tangled web, etc.  But FIFA was on my mind already, even pre-Panama, thanks to an “infographic” published by Sports Management Degree Hub, which seeks to provide information to students hoping to study in this field (boom boom).  And it’s a cracker, this infographic entitled “World Cup of Fraud” – ideal for a bit of staff training on fraud, money laundering, corruption or any one of a raft of financial crimes.  Because nowadays, if you say FIFA, people do not think of football or sporting glory or nations brought together by sporting endeavour: they think of grubby financial crime.  There’s nothing for it: they’ll have to rename it.  And Panama might like to give that some consideration too.

[I was looking at Panama’s Wikipedia page, trying – unsuccessfully – to find a witty alternative name to suggest, when I spotted that the country’s motto is Pro mundi beneficio – for the benefit of the world.  Make of that what you will.]

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Me first, no, me first

And so the battle to appear whiter than white begins – and not before time.  As British politicians fall over themselves to publish their tax returns, the UK government has announced the launch of a new taskforce to investigate the Panama Papers.  With set-up funding of £10 million and continued money promised, investigators from HMRC, the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority will get together to find out who hid what in Panama – with seven hundred leads already identified.  As the newspapers have (understandably) been concentrating on the well-known names among Mossack Fonseca’s clients, I am pleased that a more objective investigation will take place and hopefully root out non-sleb tax evaders.

But what is amusing me is the self-delusion on show.  Now I’m not naïve enough to think that politicians can tell the unvarnished truth, but I do worry that the varnish can become so thick that the true nature of what is underneath will be contorted and even obscured.  Announcing the new Panama Papers taskforce, for instance, PM David Cameron said “The UK has been at the forefront of international action to tackle the global scourge of aggressive tax avoidance and evasion, and international corruption more broadly.”  Certainly the UK has been at the forefront of discussion and suggestion, but action?  not so much.  On the “Today” programme on Monday, the Chief Minister of the Isle of Man Allan Bell spoke of his jurisdiction being at the forefront of transparency – it must be quite crowded out there in the forefront.  And again, the Isle of Man’s policy on sharing information on beneficial ownership is up to international standards, but at the forefront?  Not quite.

The truth is that everyone claims to be at the forefront, but no-one actually wants to be there.  The forefront is a dangerous place, politically and commercially.  Politically dangerous because you might make a decision that later turns out to be unachievable or unrealistic, opening you up to ridicule and charges of U-turns or of not keeping your promises.  And commercially dangerous because, in today’s global economy, if you make your jurisdiction that little bit tougher than everyone else’s (asking for more due diligence information, publishing more beneficial ownership details), then your clients will simply up sticks and go elsewhere.  I suspect that where jurisdictions should aim to be is at the front – not the forefront – with arms linked with everyone else.  Maybe a chorus line of jurisdictions, kicking out at crime.  There’s your Friday image – you’re welcome.

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Piggy popularity

Yesterday I made an astonishing discovery: if you go to the Amazon UK website and just type “money laundering” (without inverted commas) in the Search box, one of my piggy books is the very first listed item!  (Amazon is the ultimate in fickleness so it probably won’t work today, but honestly, it was there.)  Some of you may remember the start of my piggy adventures – when I wrote my first book on anti-money laundering, decided to self-publish it (after being shown the door by various trade bodies, on the basis that “no-one wants to buy AML books”), and discovered the best cover designer in the world, who created the piggy for me.  He quickly became known as Ned (the piggy, that is, not the cover designer), as the first book was for non-exec directors (NEDs).  Taking advantage of the speed of self-publishing, and my own inexplicable love of adapting text to different circumstances and keeping track of what I’ve said where (it’s infuriating but deeply satisfying) I soon created a whole sty-full of piggies, for NEDs and staff, working in different sectors, and living in several jurisdictions.  And I did once promise you that I would update you on how the piggies are faring.

For that first title – “Anti-Money Laundering for the Non-Executive Director” – I created five versions: UK, Guernsey, Isle of Man, Jersey and International.  Since publication about four years ago (and across several updated editions – the beauty of print-on-demand self-publishing is that whenever the law or guidance changes, I can simply update the text and upload a new file and voilà! the latest edition is launched), by far the best-selling version is the Guernsey one, with 138 sold (more than twice as many as the next most popular).  The runt of the litter – understandably, as it is by necessity more vague than the others – is the International one, with only 14 sales.

The more extensive set of books is for staff, called “Anti-Money Laundering: What You Need to Know”, and here I did four jurisdictions (UK, Gibraltar, Guernsey and Jersey) and four sectors in each (choosing from accountancy, banking, fiduciary, insurance and investment), giving a total of sixteen different versions.  And again we have a runaway winner: over two years, the UK banking piggy has gone to an astonishing 489 different homes.  Coming second is the UK accountancy piggy at 43, then the Guernsey fiduciary piggy at 42 and the Guernsey banking piggy at 38.  (The four Gibraltar piggies had a catapulted start, as they were bought in their dozens by the local compliance association and given out to members, but since then they’ve been rather lazy, lying about in the sty and not bothering to sell themselves.)

Just as I enjoy keeping up with all these books – that’s twenty-one piggies to keep tabs on – I also methodically track their sales, as you can tell, but quite what to do with this information, I’m not sure.  Common sense suggests that it’s not worth keeping some of them going, and that they’d do better as bacon sarnies, but for now, they can stay.

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A personal perception of the Panama Papers

Well, what to say about this week’s big leak – except that I am loving the alliteration of the Panama Papers on “Panorama”.  I’m particularly enjoying the way the poor benighted Mossack Fonseca PR person is finding a thousand different ways to say “we didn’t do anything wrong”: “We believe there is an international conspiracy against secrecy”; “We have operated beyond reproach for forty years” [for all I know, Reproach is a district of Panama City]; “We have never been accused of or charged with criminal wrong-doing” [not: we have never committed criminal wrong-doing].

If I may, instead I will quote from an old friend of mine.  Many years ago I started communicating with the ex-wife of a money launderer.  He is still active – we think – in Monaco, but she made good her marital escape some time ago.  During their marriage he put her name on several documents, and to this day she does regular Google searches to see which companies still name her as a director.  Anyway, as soon as the Panama Papers story broke, my friend’s immediate thought was that her name would appear in them.  And here is what she told me yesterday:

“I don’t know how I feel about this.  When we were married, I did know he used my name.  I signed the papers and I really didn’t know the implications of what I was doing.  I was in that phase: I am married, I must trust the man who I am with.  He would never do me any harm.  I truly believed he was a honest man.  And my name still shows up.  I am sure he is linked to the Panama Papers.  When I spoke to the Federal Police 16 years ago (another fiscal fraud scandal he was involved in and even named in the papers), they thought he was a fictional person.  They certainly know how to do research!

“So today I sit here with mixed feelings.  I remember when I got threatened because I was asking too many questions.  I remember when his former business partner got threatened because he was going to witness in a court case (against the client).  I remember weird fatal accidents of bankers involved.  I remember how long it took to believe I was not going insane.  That this was true.  Not something imaginary.  I remember how hurt and cheated I felt.  And stupid for not having (or wanting to have?) seen what was happening.  How when you live in an unreal world (a fiscal paradise), you lose your sense of reality and proportion and you can no longer tell what is normal and what is bizarre.  I was young when I moved there, with very little adult life experience.  I wrote to my two children with links to the google results on my name and his name.  To please do something better with their life.  Make a honest living.  Contribute to society.  That there is an ugly side to luxury and lots of money: child labour, slave labour, illegal activities, …

“The Panama Papers… I wonder how the story will continue.  Most likely it will be covered up, like the other financial crime scandals.  I apologise, I just want to go on with my humble, simple life but I eventually will find a way to give this a louder voice.  For now, I talk about my experience.  Give my view.  I still meet lots of indifference.  Fiscal paradises are often sunny places for shady people.  I am still looking for that sunny place for sunny people!”

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Top-level training

First of all, I hope you enjoyed my little April Fool’s joke on Friday…

I wrote a little while ago about the refreshing honesty of the UK’s first national money laundering risk assessment, and now it’s the turn of the Isle of Man.  I particularly like their pithy justification for undertaking an NRA, in its introduction: “The NRA is intended to inform Government policy making and to directly influence the efficient allocation of resources.  Its findings will also help industry, providing a national context within which businesses can carry out their own risk based reviews.”  I couldn’t have put it better myself.

There is plenty of meat in the Manx NRA, and you can read it for yourself, but it has been followed admirably sharply by an AML strategy – that government policy they talked about.  In fact, the NRA and the strategy were released on the very same day.  The strategy is neatly structured, with ten goals identified.  Some are both predictable and wide – such as “Refine national anti-money laundering and combating the financing of terrorism policy making and legislative process” – but it’s the last one that caught my eye.

Goal ten is “Promote training and awareness of anti-money laundering and combating the financing of terrorism within Government”.  Yes: within government.  I’ve always beaten the drum for senior management training, and honestly not just to fill the Thinking about Crime coffers: I genuinely think that staff will consider all the talk about AML rather hollow if those at the top can’t even be bothered to update their own understanding of it.  And the Manx ambition goes even higher than that: “At a strategic level, as an international finance centre it is highly relevant that Ministers and senior officers in particular have an understanding of the [money laundering and terrorist financing] issues so that they are informed when assessing risks to the Isle of Man.”  I’m very impressed, and may just send in my CV.

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An uncommon event

I recently celebrated a landmark birthday, and over the past year I have been reflecting on, and considering the future direction of, my career.  Don’t panic: I am still obsessed with, dedicated to and fascinated by money laundering, but I have been trying to think of ways to develop my own understanding of it, and more particularly to extend my usefulness to the AML community.  To this end, last year I had some interesting conversations with friends in the law enforcement and regulatory world, as I did not want to take this next step without their input and support.

Whenever I speak at a conference and am introduced as the “money laundering expert” (rather than anti-), I make a joke of it and say that those talks actually cost much more.  Well, my levity has come back to bite me, as last summer I was approached by people high up in the UK AML community and asked if I could indeed offer such training as bait.  A select group of us spent several weeks in the autumn designing materials outlining money laundering techniques that could work in the current international regulatory framework.  Once they were ready, we used some “underworld contacts” (as the law enforcement representatives in our group so vividly phrased it) to put out the word and encourage interested parties to sign up.  And they did.  Obviously such a gathering could not happen here in the UK, as our strict border controls are unwelcoming to many who would want to attend, but a wealthy man who owed HMRC a favour agreed to allow his remote country home in an eastern European jurisdiction to be used for the event.

As you can imagine, I was a little nervous, but I was assured that my personal security would be of the utmost priority – and it was certainly the first time that I have delivered training flanked by (discreetly but comprehensively) armed men.  It wasn’t quite “Spooks” or “The Night Manager”, but it was a deal closer to the action than I had ever imagined I would have the chance to be.  You can appreciate that I can’t divulge any specific details, but I am promised that, once all relevant information has been sucked dry of investigative value, I will be able to write about it – now there’s a plan for my retirement!

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