Has AML been ousted?

Last week, Barclays in the UK was fined £72,069,400 by the Financial Conduct Authority for “failing to minimise the risk that it may be used to facilitate financial crime” while processing a £1.88 billion “elephant deal” (i.e. stonking great deal) for “a number of ultra-high net worth clients [who] were politically exposed persons (PEPs) and should therefore have been subject to enhanced levels of due diligence and monitoring by Barclays”.  As you may have guessed, this the bank did not do; in fact, “Barclays applied a lower level of due diligence than its policies required for other business relationships of a lower risk profile [and] did not follow its standard procedures, preferring instead to take on the clients as quickly as possible and thereby generated £52.3 million in revenue”.  All rather disappointing, and I am sure we will all be reading the FCA Final Notice very closely.

However, what has given me pause for thought is the wording of it all.  In days gone by, surely this would have been headlined as a failure of anti-money laundering procedures?  Indeed, the Final Notice mentions money laundering and anti- several times.  “It is the responsibility of UK financial institutions to ensure that they minimise the risk of being used for criminal purposes and, in particular, of facilitating money laundering or terrorist financing.  Barclays failed to do so in connection with the Transaction.”  “The extension of credit to clients who use their own assets as collateral poses a money laundering risk.  In these circumstances, Barclays should have taken additional steps to satisfy itself that the origin and source of the funds for Transaction were legitimate.”  So the failure was patently in the AML arena.  And – most interesting of all – within the definitions section of the document, we have this: “’Financial crime risks’ means the risks of money laundering and terrorist financing”.  So why not use those terms?

The FCA started talking more fulsomely about “financial crime risk” in December 2011, when it published its policy statement “Financial crime: a guide for firms”.  But here the definition is much wider, which makes sense: “Financial crime is any crime involving money.  More formally, the Financial Services and Markets Act 2000 defines financial crime ‘to include any offence involving (a) fraud or dishonesty; (b) misconduct in, or misuse of information relating to, a financial market; or (c) handling the proceeds of crime’. The use of the term ‘to include’ means financial crime can be interpreted widely to include, for example, corruption or funding terrorism.”  I can understand the need for firms to be aware of all financial crime, and not just money laundering (although that is the most interesting by far and, as eny fule kno, Best Subject Ever) and terrorist financing.  But I can’t understand why an AML failing – which this Barclays situation patently is – would not use that specific term, just as the public is starting to understand what it is and why it matters.  MLROs unite, and reclaim AML!

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3 Responses to Has AML been ousted?

  1. Robert James Long says:

    I think their is a general movement to use the term “Financial crime” to cover Money laundering (As well as fraud etc) as it contains the word “crime”. There has been a perception problem with money laundering for example that it is not as bad as drug dealing for example (law enforcement are as guilty of that as anyone else. Very few exciting crime dramas show the tedious but incredibly vital work of tracking money flows, instead you have leery detectives jumping over cars after multi kilo drug busts.).

    A lot of the behaviors that make up laundering are the sort of thing it is easy to morally square with yourself. “I am just a professional providing a service”. Its even easier when your going to make millions for your employer and yourself via commission. People are so good at the mental acrobatics that allow them to reassign a moral compass and do things which seem, just mildly off…

    Classifying these activities as not just ML but as a Financial Crime may seem a bit blunt or unspecific but it reminds people they are committing a crime. Oddly enough evidence from Behavioral Economics and psychology shows people are less likely to cheat or break legal/moral codes if they regularly reminded of them or forced to confront the reality of what they are doing (to stop the above acrobatics I suppose), so this relabeling might actually be a good thing.

    The only other thing I would say is the new Enabling offence under SCA 2015 (which you mentioned before) could be taken as a indication that government is beginning to take a wider more problem orientated approach to money laundering and encouraging people to think about wider financial crimes is part of that.

  2. That’s a very valid point, Robert – perhaps people do take it more seriously if we insert the word “crime”. I hadn’t thought of that. I’d be sad to see AML go, as it’s how I’ve defined my work for twenty years, but for the greater good, I’d make the change. As it is, I always tell new acquaintances that I make my living from crime…
    Best wishes from Susan

  3. cdwos says:

    I suggested to the JFSC (tongue in cheek, at the time) that the MLRO title in Jersey should be changed to Fiancnial Crime and Reporting Officer….Was I , for once “on it” as my daughter would say!!??

    People most defintiely do seem to pay more attention when the word “Crime” is attached to something.

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