I have written before about the reliance dilemma – the fact that nearly everyone’s AML legislation and guidance says that although you can delegate some or all of your AML work, you cannot delegate the responsibility for that work being done to the correct standard. As our own dear JMLSG has it in paragraph 5.6.4 of Part I of their guidance, “the ML Regulations expressly permit a firm to rely on another [regulated] person to apply any or all of the CDD measures… the relying firm, however, retains responsibility for any failure to comply with a requirement of the Regulations, as this responsibility cannot be delegated”. But the reliance dilemma is actually turning into a much more vexatious issue: although current legislation (and this is not set to change, as the topic of reliance is not addressed for reform in the Fifth Money Laundering Directive) says clearly that you can rely on other regulated firms, more and more evidence suggests that being covered by AML obligations (“regulated”, in my shorthand) is no indicator of reliability.
I first raised this concern myself with regard to the HSBC situation, back in 2015, when I mused about the concept of “reputable banks”. And now Transparency International have expressed their own doubts about the reliability of CDD checks done by corporate service providers – even those regulated in the most reputable jurisdictions. Like mine. Yes, we’re talking about the tell-it-like-it-is Formations House, formerly of 29 Harley Street in London, which TI describes as a “company mill” and which has set up companies for “a Swedish Hells Angels boss, an Iranian state oil company, the Italian mob, and a fake Gambian bank”. You can read the full exposé on the TI website – it’s quite the story. And horrifyingly, Formations House is still in business (now at 22 Harley Place) – with a website offering a central London address for only £50, and a less than spectacular (albeit rather elderly) rating of 1½ out of 5 on Trustpilot. But the frightening thing is that to some poor MLRO in a distant land, trying his best to do his CDD checks, an assurance from something called Formations House (heavens, it almost sounds like a government agency) based in the famous Harley Street in London would sound rather good, wouldn’t it?
So before we spend too much time debating the nature of reliance, perhaps we should consider whether – in these days of dwindling trust and escalating scammery – the very concept of reliance (for CDD purposes) is now outmoded and, frankly, dangerous.
I shall now take a festive break from blogging, to regroup my gripes and augment my outrage. The usual AML-ish wrath and bile will commence once more on 8 January 2020. I wish you all a very merry Christmas (apart from money launderers – I hope you rot).