I was lying in the bath with Rory Sutherland the other day – he’s a columnist for the Spectator, and I like a magazine while soaking – and something that he wrote has been playing on my mind ever since. The piece concerned is here; it’s about how, as we find solutions for more and more problems, any future problems are going to need even weirder solutions. As an example, he talks about how making cockpit doors impenetrable to terrorists has also made them impenetrable to cabin crew, and wonders whether a better solution might be to make half of cockpit doors impenetrable, so that no-one knows which are and which aren’t, “because uncertainty may be a better way to deter wrongdoing than unvarying rules (a lesson bank regulators have just begun to learn)”. You see – fascinating.
Taking this idea into the world of AML, would it make more sense to subject random clients to enhanced due diligence, rather than applying it to all high risk ones? Or would it be better to report for further enquiry (internally only, of course) all transactions for some random clients, rather than just the obviously unusual/suspicious ones? And for those institutions that apply thresholds for various things, it would almost certainly be better to have those thresholds vary unpredictably rather than be fixed at a certain point (which is often well-known if not actually publicised). After all, ever since I was showered head to foot in tonic water after opening one particularly explosive bottle last year, I have opened all subsequent bottles with great care – it’s the dreadful uncertainty that tempers my activity.
I hate money laundering 
I think the problem there is how it is decided who gets asked for EDD. An MLRO/CO/etc could make biased decisions if they had summary information about the client. For example, they might decide to randomly ask for EDD from helpful and open PEP clients in well regulated jurisdictions while the Russian oligarchs and Nigerian princes aren’t asked.
And the regulator (in my case the GFSC, I assume others would take a similar stance) would never take that responsibility because when something goes wrong with a client who wasn’t asked for EDD, they are open to criticism or being sued.
Ah, these are very valid concerns, Alex. You’re right: human nature would make us want to “randomly” select the easy/palatable targets for EDD. And it might indeed be an uphill struggle to persuade regulators that random is acceptable. But I think it is interesting to consider all possible alternatives, so that when clients (and indeed staff, and sometimes the public) ask why the AML regime looks and works the way it does, we can say with honesty that we have thought long and hard about how best to do it.
Best wishes from Susan