The proof is in the penalty

Sitting in court (I’m a magistrate) a little while ago, I listened to an “ex-alc” (someone charged with driving with excess alcohol in their system – drink-driving, in other words) explain how she came to be behind the wheel that night.  She had a 19-year old daughter who had gone to a party and become rather overly-refreshed.  The father of the party boy called our woman and asked her to come and get her daughter, who was being very sick in his garden.  No taxi company would take her in that state, and the last trains and buses had gone.  The only option, said the woman, was for her to collect her wayward child.  But, having expected her daughter to get home under her own steam, the woman had tucked into the wine and was definitely over the limit.  Backed into a corner, and very reluctantly she said, she drove anyway and collected upchucking child.  Why were you so reluctant, asked her lawyer in court, doing his best to demonstrate his client’s remorse.  “I knew I could lose my licence!” she wailed.  Not “I knew I could kill someone because of my drink-impaired driving”, but “I knew I could lose my licence”.

This is what happens when we focus on the what of the legislation rather than the why.  Yes, you lose your licence for drink-driving, but why?  Because you are a danger to yourself and others when you drive a large metal weapon with impaired perception and reflexes.  Yes, you go to prison for money laundering, but why?  Because your actions allow criminals to flourish.  And this distinction goes to the very heart of my attitude to AML training.  Much as I support heavy (if not heavier) penalties for driving under the influence and for money laundering, I would much prefer people to want to comply than to fear not complying.  I have always thought that the way to make staff (and directors, and MLROs for that matter) care deeply enough about AML to want to do it properly is not by making them scared of the possible penalties if they don’t, but rather by making them outraged at the possible social consequences if they don’t.  I want them to think not, “I could go to prison for fourteen years”, but rather “I could enable people traffickers to flourish” or “If these tax evaders continue to cheat, that’s hospitals and schools that aren’t being built”.  I suppose it’s all about taking personal responsibility for doing the right thing, as opposed to doing it because you’re forced to.  (And that’s why I don’t have weighing scales in the house: I’ll cut down on the Jaffa Cakes when it’s the right thing to do, and not when a silly number suggests it.)

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14 Responses to The proof is in the penalty

  1. Fiona says:

    What a great post!

  2. Lorraine says:

    I totally agree – well said!

  3. Andy Mayo says:

    Your post is right on target. I’ve often wondered why America’s so-called ‘War on Drugs’ focused on street peddlers rather than money launderers, made me think that a lot of politicians and people in law enforcement were profiting from that dirty money, not to mention for-profit prisons. It would be great to see the anti-human trafficking organizations take up your point of view.

    • Welcome to the blog, Andy, and thank you for your comment. You’re certainly preaching to the converted here: I think AML is the way to tackle nearly every crime (and certainly every acquisitive crime). I suppose law enforcement goes after the small fry because they are easier to catch with traditional policing skills; for the Mr Bigs, we need real financial expertise, which (surprise surprise!) takes me right back to AML. We must all stand firm and say that we will guard our firms, banks, partnerships, whatever against dirty money. After all, we’re the experts on money – when the money launderers come to us, they’re stepping on our patch.
      Best wishes from Susan

  4. Roy McCarthy says:

    Totally agree Susan. People are much more likely to adhere to a law or regulation if they understand the reasons behind it. And it’s why silly, unenforceable laws are ignored.

  5. You’re so right, Roy – I was doing some training today, and it was good to be able to say to the audience that AML is all about protecting our firms from infiltration by criminal money. After all, none of us worked hard to become professionals in order to help criminals – how dare they contaminate our working environment with their filth!
    Best wishes from Susan

  6. Claire says:

    My 19 year old son left with his car for Leuven (30 min drive, university city) with school friends to celebrate “Chrysostomos” – the last 100 days of school. Because there are no late trains or buses back. I told him if he was driving, he is not allowed to drink (he hardly ever drinks to start with). I offered to drive him. No, it’s ok, he said. Still, tonight I am not touching one drop of alcohol. I never do until my kids are home. Just in case I have to go fetch one. You never know… I tell my son: when you drive, you are responsible for the people sitting in your car, but also for the people around you. So act accordingly. I try and teach them this in every aspect of their life: be responsible, think of people around you. It’s really not that hard.
    On the other hand, I stopped buying Jaffa Cakes, because I am totally irresponsible around them. I always must finish the box in one go … (well, there are not that many in a box!)

  7. But Claire, surely eating all the Jaffa Cakes IS thinking of the people around you – after all, you are saving them from temptation!
    Best wishes from Susan

  8. Robert Long says:

    Hello again,

    I only partial agree, in the interest of conversation I’ll play Devil’s advocate. Because all stick and no carrot will make Donkey fat.

    For me, form a law enforcement perspective the problem is that there is no real long lasting personal incentive for organisations or people to follow AML regulations. The benefit to them is distant and in personal, they themselves do not directly reap the rewards of preventing Money laundering (it’s all a bit abstract). But the burden of following the regulations is immediate and personal. They have to take time out to follow the rules which can be a bit of a drain on time or take extra effort. With people generally optimising their lives toward actions that benefit them personally or minimise their discomfort and time being limited I would expect that it is all too easy to disregard “extra” burdens such as AML. Add in the profit motive and its even easier to over look any distant long term consequences for short term gains*.

    It gets worse when I consider institutions as a whole. Then the profit motive and burden of compliance interact to produce a likelihood of non-compliance**.

    Now I grant there is a lot of fun evidence in fields such as behavioural economics (I am thinking specifically of Dan Arley’s experiments) and social psychology that suggests that reminding someone of the reasons or showing them ethical guide lines reinforces good behaviour. So there is a place for the carrot. The problem is the effect fades over time and eventually we find ourselves back with the burden outweighing any perceived gain.

    Until we add the stick. By making the stick so seemingly disproportionate*** it overcomes the burden of compliance as people (and institutions) are now incentivised to go out of their way to follow the rules in a way that mere indirect benefit can’t do.

    * For the record I don’t really believe people are so simple in their motivations, certainly not enough for it to be a reliable predictor.

    ** Here I am being less devil’s advocate I will confess. It seems to me that if your organisation is big enough and the time taken to detect the offense is long enough, the fine will in no way make up for the potential profit.

    *** I am not sure the punishment is that disproportionate to be honest. Except maybe regarding SAR regime which in my mind doesn’t work because it’s much better for institutions to just SAR EVERTHING drowning us in information.

    • Hello Robert
      Welcome to the blog, and thank you for your very well-considered comments – I’m delighted to see such debate being stirred!
      I won’t respond to everything, as hopefully that will tempt other readers to jump in, but I will disagree with your last observation about institutions SAR-ing everything. The danger of them doing this is quite extensive, as by making defensive or malicious or frivolous reports, they are forfeiting the protection from breach of client confidentiality, and this is a matter of great concern for them. Maybe I am lucky – and it is likely that I deal only with “good” MLROs who want to do it right – but in my experience MLROs do work hard to make sure that only good, suspicion-based SARs are sent out for investigation.
      Please do keep commenting – it’s great to have a law enforcement perspective.
      Best wishes from Susan

      • guernseyrose says:

        I have to agree that some people just seem to not care about the consequences of their actions. A law firm I used to work at were constantly spending weeks on the taking on of a single matter, all due to the lawyer not wanting to (or taking the time to) get correct CDD in the first place. This would inevitably end up with the company spending more money on client take-on than it would collect in fees! And these are people who know the laws, and indeed the penalties, better than Average Joe.

        A lot of companies I have worked for do however have AML compliance deep-rooted in their day-to-day working practices, not for fear of penalty, but because they can market this good practice to their clients. They know that any penalties come with very large reputational issues!

  9. I know we’re preaching to the converted, Guernseyrose, but you’re so right: good due diligence is part of good practice and good customer service. After all, the better you know your clients, the better you can serve them and the more you can sell them!

    As for those responsible for clients (be it lawyers in a law firm, account managers in a bank, etc.) who refuse to do the checking behind those clients, well, it makes my blood boil. And they’re taking quite a risk, as, should the regulators/investigators suspect that CDD is not being done properly, it is the lawyer/account manager/etc. who is deemed responsible – not the MLRO and his team. Not to mention, as you say, the poor economics of it all. Pah!

    Best wishes from Susan

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