Remember the days of “cash is king”? It may still be handy for getting a good deal on a second-hand car, but otherwise, for those of us in the AML community, cash is a pain in the proverbial. The Fourth Money Laundering Directive has done its bit to help drive it out of the system by lowering the threshold at which high value dealers must conduct AML checks from €15,000 to €10,000 – which will almost certainly have the effect of “persuading” more businesses to refuse to accept cash rather than registering as HVDs. From an AML perspective, this a generally a Good Thing; if payments go through a regulated firm, such as a bank, there is a fighting chance that some due diligence will have been done.
The other side of the coin is how those regulated firms deal with cash-intensive clients. There are plenty of these still around – taxi firms, hairdressers, nail bars, pubs and so on (my hotel in Crete recently offered me an 8% discount on the bill if I paid cash rather than by credit card – apparently this is normal in Greece) – and they mostly need bank accounts and accountants, and will have occasional dealings with solicitors and estate agents. For those regulated businesses, the cash-intensive client (and I’m talking here about the non-HVD cash-intensive client) can be a nightmare.
CDD is based on knowing your client and knowing his patterns of activity and transactions. But how much can a bank realistically (rather than idealistically) be expected to know about, say, the business rhythms of the local hairdresser? My own hairdresser, for instance, tells me that she has peak periods in December (Christmas parties), July (weddings) and early June (May Balls for the university students). The first two are predictable for all hairdressers, I should imagine, but the early June one is very specific. Things were simpler when the local bank served the local community, but now that the hairdresser is banking online, how are the nuances spotted and then queried?
That said, this is perhaps a poor example, because the big banks tend to have very sophisticated transaction monitoring systems that can be minutely calibrated to spot variations. It is more of an issue for the accountant who does an annual return for a cash-intensive business. One year the business reports a 17% increase in turnover – all of it in the form of extra cash rather than card payments or bank transfers. How odd is this? Is a 17% increase acceptable? How about 27%? Doubtless the business will have the paperwork to back up its claims, but can the accountant trust that? As I am asked so frequently in training, now I ask you: how far should your due diligence questioning go? How expert is your knowledge of your client’s business expected to be?