Data doom and delight

With writing a post once a week only (I’ve fallen into writing longer posts less frequently – hope that’s OK), there’s sometimes a bit of a delay until I get round to dealing with something that’s been in the news.  Personally, I think that’s no bad thing – we’re sometimes too quick to react, and a bit of mulling never hurt anyone.  All of which is a preamble to saying that today’s topic is a set of data that was published on the Politico website on 19 May 2020.  It’s titled “The world’s dirty money by the numbers”, but really it’s looking at the situation in the EU.

Whenever you look at crime stats, the numbers are huge – to the point of being unimaginable – so you can try dividing it until it does make sense.  Apparently money laundering worldwide could total $4.5 trillion in 2020 [I’m guessing these are pre-pandemic estimates for GDP].  So that’s $4,500,000,000,000 in a year, which is $12,328,767,123 a day, or – and this figure is actually possible to grasp – $142,694 a second.

Personally I have no gripe with the fact that only 10% of SARs made in the EU are further investigated immediately, while 90% sit on file in case they’re needed – surely that’s the nature of policing in any field.  But it is interesting to read that we in the UK are the most avid reporters of suspicion – you’re gonna miss us when we’re gone [or maybe not].

I was fascinated to read the reasons behind SARs; as I work so frequently in the Channel Islands, I’m used to “tax concerns” topping the list, but taken across the EU, “fraud and swindling” [great word] runs it a close second.  And who knew that 3% of SARs mentioned “counterfeiting and product piracy” as the suspected predicate offence?

And in these days of contactless payments and cyber-currencies, it seems that criminals are touchingly traditional.  The cops at Europol put it best: “While not all use of cash is criminal, almost all criminals use cash at some stage during the money laundering process.”  Part of the problem for the EU is its ongoing love affair with high-value banknotes, which are rarely seen by ordinary folk but are much hoarded and treasured by criminals.

Finally, it is a little depressing to read that two-thirds of managers with compliance-related responsibilities are hesitant to report suspicious activity externally as “it might sour our relationships”, while 73% say they focus on “box ticking” to be regulatory compliant, instead of actively trying to prevent issues.  And 72% (the same ones? could be…) are aware of financial crime taking place in their global operations in the last twelve months.  Here’s hoping that the Politico number-crunchers update this information regularly, to remind us both what we’ve achieved and how far there is to go.

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A sprinkling of SAR-dust

There is regularly – and quite rightly – a fair amount of soul-searching about the SARs regime.  Does it shift the burden of investigation from law enforcement to the financial sector?  Does it cost much more than it saves?  Are people doing it properly?  Does it work at all?  Many of those who know the most about the system suggest that there is significant room for improvement – including Tom Keatinge, director of the Centre for Financial Crime and Security Studies at RUSI, in a recent interview with KYC360.

Even the much-vaunted, world-beating, best-ever mutual evaluation of the UK by the FATF back in December 2018 had to admit that things were not ideal: “The UK has made a deliberate policy decision to limit the role of the UK Financial Intelligence Unit in undertaking operational and strategic analysis which calls into question whether SAR data is being fully exploited in a systematic and holistic way and providing adequate support to investigators.  Additionally, while reports of a high quality are being received, the SAR regime requires a significant overhaul to improve the quality of financial intelligence available to the competent authorities.”

But to balance this out, it is important to remind ourselves that the alternative to having a SARs regime is not to have one – which is patently not acceptable – and that the information supplied in SARs may not be a silver bullet but is frequently extremely useful.  To this end, FinCEN (the American FIU) runs an annual FinCEN Director’s Law Enforcement Awards Program to recognise law enforcement agencies that have used SARs (technically, filings under the Bank Secrecy Act) to successfully pursue and prosecute criminal investigations.  This year, agencies recognised are the FBI, Immigration and Customs Enforcement/Homeland Security, New York State Police, the Internal Revenue Service and the Drug Enforcement Administration.  And crimes investigated with the assistance of SAR data were significant fraud, cyber-threat, counterfeiting, mortgage fraud and more.  In one case involving a dodgy law firm, “task force officials analyzed approximately 100 BSA filings, often leading to new subjects and victims located throughout the United States”.  And in another, “Investigators identified [SARs] of multiple financial institutions involving the two individuals [and] followed a complex trail of cash transactions, personal loans, mortgage loans, lines of credit, construction loans, cashier’s checks, credit cards, and Automated Clearing House transactions in order to trace the origin of the funds used in a series of fraudulent real estate transactions”.  Thanks to current restrictions, the happy winners will have to wait until October to collect their awards from FinCEN, but luckily the baddies will suffer no such delay and have all gone straight to jail.

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A most tempting offer

The name of my company is the result of a family joke: my father observed one day that I was always thinking about crime.  I wasn’t sure I’d be allowed to have the name but I was, and it’s memorable and funny.  And I don’t get as many odd approaches as you might imagine…  But today I’ve had a doozy.  Here it is in full (coming from the email address buyout at ovmconsulting dot com):

Dear Susan Grossey,

We are writing to you to express an interest in acquiring either the whole or part of your business.

As a Dubai, UAE based Private Investment Fund,  we are actively looking for investment opportunities in the UK market to build a portfolio of medium sized businesses which may be business we buy out completely or take an active role in investing both capital and management expertise.

At the outset we would like to reassure you that we can:

  1. Complete any deal within 10 days subject to addressing all your concerns. To allay any concerns there are no fees involved from our side.
  2. Every business is different, we need to work with you to understand what your future plans are and how we can work in partnership to realize your ambitions and goals. Depending on your circumstances and choices you may or may not wish to stay involved in a role that has to be agreed as the knowledge of the business will sit with you and that knowledge is invaluable.
  3. We are not dependent on any external funding so any investments we make are from our funds so there are no lengthy contractual processes which create delays while a buyer or investor tries to secure funding.

In today’s uncertain environment surrounding the global impact of COVID-19 and how long this will last and what impact it will have on the economy only time will tell.  We can work together to manage both the current issues you may be facing and also prepare for the recovery. We do however believe that the following will occur and perhaps should have occurred many years ago:

  1. There will a move to localization of business and less reliance on complicated supply chains spanning the world – this may take many years to play out, but it will require investment in new ways of working including re introducing more emphasis on self-manufacturing and local sourcing. We are happy to partner in making these investments.
  2. It will become important to innovate both in terms of products and services rather than just compete on price and credit terms to your customers. This requires planning and investment.
  3. In these troubled times, cash will be the undisputed “King Maker” of the future, therefore we can work with you to optimize your cash position both by new investment and using our experience to preserve cash. Simply borrowing to meet costs could fraught with problems in the long term.
  4. Often in difficult times, we have worked and grown through 4 recessions, it is very hard for owners of businesses to deal with the supply chain and employees when they themselves look to you for faith and guidance and this can lead to high levels of stress. We can work with you to take this away from you but leaving you in control at the same time.

It would be good to set up a time to speak to understand whether there are any opportunities to work together either as complete buy out or working with you to manage the downturn and be ready to make the most of the recovery as the current pandemic passes.

Regards
Ravi Keshri

Managing Director

OVM Consulting Limited IC20130888
Suite 206
Swiss Tower
Jumeriah Lake Towers
Dubai 309073
United Arab Emirates

+91 9971877111

As you can imagine, I am delighted to hear that (a) we can move quickly, (b) they have funds ready to go, (c) they have plenty of cash to move through my business, and (d) they are willing to relieve me of the stress of making those pesky business decisions.

Of course, I am no fool and after consulting the latest Russell & Bromley catalogue (shoes to buy with my windfall!) and the Toast website (clothes to buy with my windfall!) I went straight to Companies House to check out OVM Consulting Limited.  Now I know that in the past I have been somewhat scathing of CH and the quality of the information that it provides, but this is because businesses can often sound more reliable and more solvent than they are.  Thankfully there are no such concerns with OVM Consulting.  I see that they are based in Birmingham rather than the UAE – much easier for meetings, once we’re able to move again – and sadly that they are over two years behind on their filings.  There’s a bit of jiggery pokery regarding their listing on the register.  And when it comes to their persons with significant control, it seems that my nice, friendly Mr Keshri is not the MD at all – he resigned as a director of any sort in October 2016.  Left holding the baby (appointed on the same day as Mr Kreshri’s resignation) is Mr Prasad Ram, in India.  I wonder if he even knows he’s on the CH register?

So sadly, everyone, it seems that there is no pot of gold in the UAE, waiting to buy out Thinking about Crime as a going concern.  But as a front for money laundering, well, it could just work – although I think they’d have to change the name.

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Webinar woes

Like many of you, I am trying to ensure that I keep my skills and knowledge as current as I can.  I don’t have CPD obligations, but it’s easy to get stale or set in our ways, and there is always something new to learn.  (Are you a Duolingo fan?  I’m now in my fourth month of learning Italian and can confidently tell anyone who asks that the elephant is wearing a pink shirt but does not drink lemonade.)

And stepping into the training breach is the webinar.  I have two main areas of interest these days – AML and writing/publishing – and in the past weeks I have signed up for about a half-dozen webinars on various aspects of these.  And although they are slick enough (most of us have wrestled Zoom/Webex/Teams into submission and worked out that we shouldn’t film ourselves against a bright background), they are really not an efficient way for me to learn.  It may be the ones I choose – i.e. the free ones – but everyone presenting is, to put it bluntly, trying to sell something, which is entirely understandable.  Unfortunately, this means that they spend a good five minutes introducing themselves and then, of course, give you only a bit of information.  And indeed, why should they give you everything for free?  But the upshot is that from an hour’s webinar I will probably get three bits of useful information – and that’s not a good return on my time.  It’s not possible to “skim-watch” a webinar in the way I will routinely skim-read documents to find the relevant bits.

This also partly explains another shortcoming of the webinar: I just can’t concentrate.  Unless the webinar is riveting and jam-packed with information that I want, my mind and my mouse wander, and before you know it, I’m on eBay looking for those handy labels that you stick on boxes in the freezer and a new pair of summer slippers for my husband [true story].  However, the real problem for me with webinars – and again, this is the ones I have seen – is that they seem to be too general, too fluffy.  They are opinion pieces rather than hard information.  So yes, I can guess for myself that the pandemic is going to lead to a rise in pandemic-related frauds: what I want is examples, and how to spot the signs, and what we can do about it.  Perhaps the format – demanding our total attention when there’s no-one to check that you are actually listening (or even in the room) – is better suited to more technical information.  In pre-pandemic times, I once attended a webinar on the significance of the Sixth Money Laundering Directive.  The trainer/presenter went through the directive article by article, explaining what it meant.  No opinions, no calls for greater co-operation, no deferring courteously and flatteringly to other experts – just hard facts that I wanted and needed to understand.  I was riveted.

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Leak technique

I’ve been doing some remote training recently for a new MLRO, which has been great fun: we’ve covered all the essential and then plenty of those fun, tangential topics that concern MLROs – including beneficial ownership and (our topic for today) the ICIJ’s Offshore Leaks Database.  Many people think that this database contains simply the information from the Panama Papers, but as the database’s own website explains: “The first instalment of the database was released on 14 June 2013 as part of ICIJ’s Offshore Leaks investigation.  More records were added on 23 January 2014 (from ICIJ’s China Leaks investigation), on 9 May 2016 (from ICIJ’s Panama Papers investigation) and on 21 September 2016 (from ICIJ’s Bahamas Leaks investigation).  Between November 2017 and February 2018 ICIJ released data from the Paradise investigation, including records from the offshore law firm Appleby and seven corporate registries: Aruba, Cook Islands, Bahamas, Barbados, Malta, Nevis and Samoa.  The Offshore Leaks database contains information on more than 785,000 offshore entities and covers nearly 80 years up to 2016.”  So the Panama Papers are only a part of the story, although it was a headline-grabbing boost to the database – and certainly the event that caught my eye when it happened.

For the MLRO, there are certain things to know about the database.  First, as the database website itself says, front and centre, “there are legitimate uses for offshore companies and trusts – we do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly”.   In other words, just because someone features in the database, it does not mean that they are criminal: it means simply that they have used the services of one of the firms whose data forms the database.  They may well have done that in order to arrange their affairs as tax efficiently as possible – but that’s not criminal.  Second, there may well be duplications, contradictions and errors in the data – it is a database assembled from several sources, and not a verified registry.  Third, there are better and worse ways to search the database.  You can just noodle around, scurrying down rabbit-holes and chasing juicy leads – which is fun for a while.  Or you can approach it more efficiently, using the suggestions provided by the ICIJ itself – on searching by location, on exploring networks and entity metadata, and on investigating companies.

But perhaps the most important thing an MLRO needs to do is to be prepared.  If you search the database for a client, there are several possible outcomes:

  • They aren’t there – phew!
  • They are there, but what is revealed about them is what you knew anyway – phew!
  • They are there, and what is revealed about them is news to you but immaterial to your relationship with them – half-phew, as perhaps your CDD is lacking or the client was not completely open with you
  • They are there, what is revealed about them is news to you, and it does affect your relationship with them (it increases their risk rating, or gives away that they lied to you) – uh-oh!

So you need to be prepared for any of these outcomes and to know what you are going to do as a result – and, to demonstrate your top-notch CDD, you need to keep careful records of your reasons for searching (or not searching), the results of any searches, and your reaction to those results.  That’ll teach you to want more information.

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The new crimino-normal

Much as I try to ignore it – otherwise it absorbs our every waking moment, and some of our nightmares – I do occasionally find that there is an interesting nexus between the coronavirus and money laundering.  And this week there seems to be a money laundering pushmi-pullyu in action.  (For those of you unfamiliar with Hugh Lofting’s books about Doctor Doolittle, who could talk to the animals, the pushmi-pullyu is a gazelle/unicorn cross with two heads – one of each – at opposite ends of its body.)

On one hand – or perhaps, at one head – we read that criminals in London are taking advantage of the MSB sector (money transfer businesses and bureaux de change) to place their criminal earnings and thereby continue their criminal business.  According to a report on Politico, there are more than nine thousand MSBs registered in London and therefore covered by AML obligations, but the fear is that many of them are not doing the required checks (and that many more operate without a licence).  In February 2020 the NCA (the UK’s FIU) issued an “Amber Alert” to MSBs, reminding them of their AML obligations and alerting them to the dangers they face from “serious organised criminals who may try and access [MSB] services”.  Understandably perhaps, MSBs were declared essential businesses by the government and have been allowed to continue trading during the lock-down – but those who supervise and check them are not permitted to conduct onsite visits.

And at the other head, the American authorities are seizing more cash than ever from criminal gangs who are finding their usual laundering routes – including cash-intensive businesses on the high street (Main Street, I suppose) – closed thanks to the pandemic.  According to Bill Bodner of the DEA, the shuttering of non-essential businesses has had a “tremendous impact” on, for instance, the black market peso exchange.  Moreover (and this I am taking on face value – I’ve not done any research behind it) he points out that the actual flow of drugs has slowed because “most narcotics precursors from China are made in Wuhan [where factories are currently] operating at a reduced capacity”.  And if the pushmi-pullyu had a third head, it would tell us that the impact of this reduced supply is a rise in the price of drugs: “with supply chains in disarray, the wholesale price of methamphetamine has soared to about US$1,800 a pound, compared with about $900 a pound five months ago”.

In short, criminals are taking advantage of hobbled supervisors (and I assume – albeit to a lesser extent – investigators) and of rising prices for their products, but are foxed by the obstacles to their usual laundering routes.  Like all of us, they are having to find a new normal – and we must be ready to tackle it when they do.

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Calculators at the ready

Sometimes words enter your vocabulary and you can’t remember where or when you first heard them but suddenly they’re there and you’re hearing and using them all the time.  I’m not talking about “lock-down” or “social distancing” or “flattening the curve” – I’m talking about “cumulative risk”.  A great deal of work in the sphere of AML requires risk assessment.  At the start of a relationship with a client, you have to decide whether they fit your firm’s risk appetite, and if they do, you do an initial risk assessment to determine the level of take-on CDD that you will do.  And then you review their risk rating periodically – and the level of risk of everything they do during your relationship with them – to decide whether you need to alter the level and frequency of monitoring that you apply to them.  It’s very reiterative and very important.  And in the last year or so, regulators have been pointing out that cumulative risk must be taken into account at all stages.

In short, cumulative risk is the risk that results as a result of the presence of a combination of risks.  For instance, being a heavy drinker might increase your chance of death each year by 0.1%.  And being a reckless driver might also increase your chance of death each year by 0.1%.  If you’re both a heavy drinker and a reckless driver, your increased risk of death might be not 0.2% (the simple sum) but perhaps 0.5%, because your heavy drinking makes your driving even more reckless (and because you’re so relieved to survive your crazy drive to the pub that you down even more than usual).

In AML terms, we have this week seen the perfect example of cumulative risk at work.  On 8 May 2020, the former CEO of Garuda Indonesia, a gentleman called Emirsyah Satar, was jailed for eight years for bribery and money laundering.  In short, he accepted bribes over a decade for placing orders for Airbus planes and Rolls Royce engines.  Anyone doing CDD on Mr Satar might have spotted an accumulation of risks.  He was CEO of a company that is 60% owned by a government – making him a PEP.  That company is an airline, and the aviation industry has often been ranked high risk for corruption.  And the company and the PEP are in Indonesia – a jurisdiction considered high risk in many of the indices beloved of MLROs.  Like my daily intake of chocolate biscuits, it all adds up to something quite alarming.

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A pandemic of efficiency?

These are very odd times: on the one hand, my daily life has slowed considerably, with elements of “Groundhog Day” about it, while on the other it is all but impossible to keep up with the fast-changing advice and requirements about the pandemic.  I have resisted blogging about recommendations from regulators and the like about keeping up with CDD efforts, as it seems to alter by the day.  But I have been wondering whether there are actually benefits of doing our AML work remotely.

For instance, we humans are herd-like in more than our immunity.  We also tend to mimic the work patterns and methods of those around us: if your desk-neighbour always uses a particular website to check PEP background information, you might just copy him.  But if you’re left to your own devices, sitting alone at your dining table at home with only the cat to suggest how to do the best Google searches, might you come up with an alternative that is better, or more illuminating, or simply useful to have as corroboration?  If you’re not fitting in with the working patterns of those around you, perhaps you’ll come at something from a new angle.  And without the distraction of phone calls by desk-neighbours and invitations to the tea-room to celebrate someone’s birthday or the lure of the lunch-time wander through town, do we have more focused time to spend on AML enquiries and research?

One definite benefit I have found is that it is much easier to pin people down for phone calls or training.  An enormous challenge for MLROs trying to organise training is getting all the relevant people in one place at the same time – a challenge that is magnified if the organisation is international, or if the people are very senior.  But nowadays, it’s a doddle: everyone’s at home.  No-one’s on holiday, or attending a conference, or even stuck at the airport waiting for a delayed flight.  And as an added bonus, you get to see everyone’s taste in interior design: that scary CEO might seem less frightening once you’ve seen her treasured collection of knitted bunnies in the background.

(If you’re struggling with working alone at home for the first time, you can get regular tips on surviving – and perhaps even enjoying – the experience from the Facebook page that accompanies my book “The Solo Squid: How to Run a Happy One-Person Business”.)

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No, no, no to UWO, UWO, UWO

Most of us in the world of AML have welcomed the advent of the Unexplained Wealth Order – the court order introduced by the Criminal Finances Act 2017, which can be served to compel either a PEP or someone involved in serious criminality (or both…) to reveal the sources of their unexplained wealth.  We have tracked breathlessly the serving and processing of the first two UWOs, involving Zamira Hajiyeva (London-based wife of the former chairman of the International Bank of Azerbaijan, and known to the general public as “the £16 million Harrods woman”).  But on 8 April 2020 we were brought up short in our frenzy of prurient schadenfreude: the National Crime Agency confirmed that “the High Court ruled in favour of the respondents to three UWOs secured by the NCA in May 2019, and discharged the orders”.

The UWOs in question related to three properties in London (mansions in Hampstead and Highgate and an apartment in Chelsea, worth a total of £80 million and lived in by relatives of former Kazakh president Nursultan Nazarbayev but owned by offshore companies).  The NCA applied for – and were granted – the UWOs on the basis of their belief that the properties were linked to a PEP involved in serious crime.  But Dr Dariga Nazarbayeva and Nurali Aliyev (daughter and grandson of the former president, and beneficial owners of the properties) appealed to the High Court to have the orders overturned.  And Mrs Justice Lang agreed to discharge the UWOs, holding that the pair had filed sufficient “cogent evidence” of the legitimate source of the funds and that the NCA’s assumptions regarding the source of the money used to purchase the properties were “unreliable”.  (The NCA thinks that the properties were bought with money embezzled by the late Rakhat Aliyev – husband of Dr Nazarbayeva and father of Nurali – who styled himself “Godfather-in-law” and died in prison in Austria in 2015 while awaiting trial for kidnapping and murder.)  And they’re not going to give up, according to Graeme Biggar, Director General of the National Economic Crime Centre: “We disagree with this decision to discharge the UWOs and will be filing an appeal.  These hearings will establish the case law on which future judgments will be based, so it is vital that we get this right.  The NCA is tenacious.  We have been very clear that we will use all the legislation at our disposal to pursue suspected illicit finance and we will continue to do so.”

Personally (and indeed professionally), I think this latest knock-back is a good thing.  I know little about the specific case except what I read in the public domain, but I do know that there has been some unease about UWOs.  I have heard rumblings about them being used inappropriately to settle political scores, or being granted without sufficient scrutiny.  So to have three examined closely, overturned, adjusted and (I have no doubt about this) granted again at a later date shows that the system is both robust and fair.  And this setback has not dented enthusiasm for the UWO in theory, with plans afoot to make them available in Northern Ireland later this year.

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Keep washing that money

This blog – much like its author – veers wildly between buoyancy and doom, and this week it’s the latter.  Sorry about that.  And it’s about the pestilence.  Sorry about that too.  But there’s no lock-down for criminality and I assume that the MLROs among you are still keeping your staff posted with information about developing risks.  With that in mind, here are four warnings you can pass on (from a safe distance, of course).

Much as I try my hardest to ignore any news coming across the pond from the US, I think this source is reliable.  At the beginning of April, the FBI issued an official warning about criminals using the pandemic uncertainty and fear to recruit money mules.  They are promoting work-from-home schemes, and asking for donations in order to get access to US bank accounts.  Neither of these approaches is new, but people’s minds are so full of panic that they are not spotting the usual signs.

Police in Scotland have noticed that local organised crime groups have had to reduce their usual drug activities as travel restrictions have damaged their supply chains.  Instead they are stockpiling personal protective equipment and coronavirus testing kits, sometimes by posing as buyers for NHS trusts and care homes.  It might not be (quite) so bad if the stuff they were selling (at vast profit) was genuine, but much of it is counterfeit, out of date, mis-labelled or otherwise non-compliant.

Roberto Saviano – author of “Gomorrah” – knows a thing or three about the mafia, and he is warning that organised crime groups are planning ahead, waiting in the wings to take over businesses that are driven to the wall by the economic collapse.  His contacts tell him that mafia groups are also stocking up – on favours: moneylenders are cancelling interest on debts, while mafiosi organise food deliveries to poor Italians, and you can be sure that those favours will be called in one day.  And as rotten luck would have it, for decades the mafia has been investing in particular sectors, whose day seems to have come: cleaning, waste recycling, transportation, food distribution and funeral homes.

And in a final piece of dark humour, word reaches me that fraudsters are trying their latest spin on the advance fee fraud: people are receiving emails purportedly from MONEYVAL, saying that they have won a lottery, or received an inheritance, or are eligible for a cut of some money confiscated from criminals.  Unsurprisingly, all they have to do to receive their bounty is supply their full bank account details and pay a small administrative fee.  I guess to the non-AML-ish, MONEYVAL does sound like the sort of place that would dish out the dough.

Posted in AML, Due diligence, Fraud, Money laundering, Organised crime | Tagged , , , , , , , , , , | 3 Comments