Facing up to laundering

In my last post I sang the praises of a Twitter-bot (I still don’t know what that means) which sends out an alert every time a plane associated with an autocratic regime visits Geneva airport, which strikes me as a prime example of technology being used as a force for good.  And another example was highlighted on the BBC news website recently.  In short, a fellow called Mr Ao was wanted in Zhangshu in south-eastern China for “economic crimes”.  Perhaps enjoying the fruits of his labours, he and his wife travelled nearly sixty miles to Nanchang to go to a concert by Hong Kong pop star (and “God of Songs”) Jacky Cheung.  What Mr Ao did not realise is that some of China’s 170 million CCTV cameras were installed at the gates to the concert venue, and some nifty facial recognition software quickly alerted the local police that a wanted man was on their patch.  As Mr Ao took his seat, presumably loaded down with over-priced snacks and fizzy pop, he was apprehended by the boys in blue.  (I’ve checked: police uniforms in China are indeed blue.)

I am well aware of – and have some sympathy with – the privacy concerns about CCTV coverage.  But I take comfort from knowing that, with current understaffing in law enforcement, there is probably not someone sitting watching my every move as I traipse longingly from bookshop to Hotel Chocolat to Russell & Bromley before admitting defeat and buying boring old dinner in Sainsbury’s.  In other words, most CCTV recordings are never examined.  But if you can add reliable face recognition capability to the system, isn’t it the perfect tool for tracking criminals?  Imagine being able to identify a suspected money launderer and then gather video evidence as s/he attends meetings all over town – with the added benefit of being able to spot all the colluding enablers along the way.  If a system can pick up Mr Ao entering the venue and then locate him among the 60,000 seats before the God of Songs has even cleared his throat, following a launderer calling at plush offices all over London or New York or Singapore would surely be a doddle.

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Plane addictive

I sign up for all sorts of informational updates – sanctions alerts, Google search alerts, blog posts, RSS feeds – to make sure that I am reading widely about money laundering (and AML).  Some I try for a while and then abandon, either because they trickle out or because they’re not as useful or as relevant as I had hoped.  But one that I just love is the GVA Dictator Alert on Twitter.

Launched by Swiss investigative journalist François Pilet and his cousin and former Google engineer Julien Pilet, the automated Twitter-bot (whatever that may be…) tracks planes belonging to various autocratic regimes.  It checks movements every hour and tweets every time one lands at, or takes off from, Geneva airport.  As I write, the latest update tells me that “a dictator’s plane left Geneva airport: 9K-GGD used by the government of Kuwait (Gulfstream G650)”.  François Pilet came up with the idea while researching the Obiang family of Equatorial Guinea, and told a local newspaper, The Local: “A lot of corrupt and/or autocratic regimes have a strong presence in Geneva, sometimes for legitimate political and diplomatic reasons, but sometimes for much less legitimate purposes, like hiding and spending the proceeds of corruption.  These people’s dealings are protected by secrecy.  I like very much the idea that each time that a leader of an autocratic regime is landing in Geneva on his private jet, the information is made public instantly.  We should ask ourselves each time: why exactly are they coming here?”

Another technological development has given me an idea about physically tracking those who might be intent on laundering money, but you’ll have to wait for my next post to read about it.

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The sands of time

I know everyone laughs about jargon – business bingo, anyone? – but I think we’re all guilty of it to some extent.  I know I expect everyone to understand me when I talk about AML, MLROs and the regulated sector, and the other day my cycling-mad husband accused me of “half-wheeling” him – walking just in front of him, thus forcing him to accelerate.  But I came across something yesterday that I just could not decipher: the regulatory sandbox.

I was doing research on technological advances in AML (part of FinTech – more jargon) and came across the sandbox reference a couple of times.  Is it where new regulations are embedded to keep them upright and isolated prior to being set on fire, like we used to do in chemistry lessons?  Things became a bit clearer when I realised that “sandbox” is the American term for what we English kids would have called the sandpit – the place to play, build castles and dig up unmentionable items.  Perhaps “pit” has negative connotations, because even the very British, London-based, pinstripe-suited FCA is now referring to the sandbox.  In their recently-published “FCA Business Plan 2018/19”, they trumpet the regulatory sandbox which they created in 2016: “Our regulatory sandbox gives businesses of every size the opportunity to test the commercial and regulatory viability of their innovative concepts before they invest more heavily in them, while providing safeguards for consumers.  The sandbox also gives us an understanding of the opportunities and risks of harm that innovation can create.”

But it seems that a simple sandbox in Canary Wharf is not enough: we need to go global.  The FCA tells us that “[in February 2018] we invited stakeholders to share their views on what a global sandbox could look like”.  This is entirely in keeping with the EU view; in the “FinTech Action Plan” issued by the European Commission in March 2018, it says: “The Commission invites competent authorities at Member State and EU level to take initiatives to facilitate innovation on the basis of these best practices and invites the ESAs to facilitate supervisory cooperation, including coordination and dissemination of information regarding the innovative technologies, establishment and operation of innovation hubs and regulatory sandboxes, and consistency of supervisory practices.“  And there, that’s how you deal with jargon: you strangle it with even more jargon until no-one knows what anyone else is saying.

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Stick, or big, fat, juicy carrot?

I’ve been thinking quite a bit recently about personal accountability for AML failings, and whether or not it is a good idea.  This has been prompted in part by the FCA’s extension of its Senior Managers and Certification Regime, and in part by growing despair at the seeming ineffectiveness of financial penalties levied on firms for AML failings.  I was so exercised, in fact, that I wrote an article on this very theme for leading trade paper (you can thank me later, Timon) Money Laundering Bulletin, which in turn led to a well-mannered debate on LinkedIn.  Judging from the comments and feedback, quite a few people agree with the general idea of holding senior individuals personally responsible (and ultimately liable) for systemic AML failings within the organisations they control.  So when a story appeared in the news a few days ago about those senior heads starting to roll at Danske Bank, I read it with interest – could this be the start of the change?

Danske Bank has been the subject of media scrutiny in recent months, with allegations being made that poor AML controls in its Estonian branch have led to the laundering of the proceeds of crime from Azerbaijan, Moldova and Russia.  Danske has held up its hands to many of the allegations, admitting to “major deficiencies in control and governance” and has launched its own investigation.  And at the start of this month, it announced that Lars Morch, the director who has been responsible for Danske’s business banking since 2012 – including its international banking units and Baltic operations – had decided to resign.  He will leave immediately but – and this is what caught my eye – he will remain on the Danske payroll until October 2019.  That’s eighteen months’ gardening leave!  Now is it just me, or does that sound more like reward (and a pretty fantastic reward at that) than a punishment?  Make a complete Horlicks of your job, and go off on an eighteen month paid holiday.  It’s not quite the disincentive I had in mind, I will admit.

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Is evidence self-evident?

I’m in a lather of indecision, and I am hoping that you will be able to help.  As regular readers will know, I do love a consultation, and at the moment my very own government is running one that is close to home in all senses: on 29 March 2018 the Treasury Committee launched “a new inquiry into economic crime”.  At the launch of the inquiry (can’t get used to that: I spell it “enquiry”), committee chair Nicky Morgan MP said: “It has been claimed that the UK, particularly the London property market, is becoming a destination of choice to launder the proceeds of overseas crime and corruption – so-called ‘dirty money’.  One estimate suggests that up to £4.4 billion worth of UK properties may have been bought with suspicious wealth.  As part of our inquiry, the Treasury Committee will examine the UK’s role in international efforts to tackle money laundering and terrorist financing and implement sanctions.  We will also look at economic crime at the consumer level, including fraud and scams.”

So what do they want to know?  The relevant webpage explains it quite clearly: when it comes to the anti-money laundering, counter-terrorist financing and sanctions regimes, “the Committee would welcome evidence on: the scale of money laundering, terrorist financing and sanctions violations in the UK, and the means by which this activity is enabled; the current legislative and regulatory landscape, including any weaknesses in the rules and their enforcement; the effectiveness of the Treasury and its associated bodies in supporting and supervising the regimes; the impact of the implementation of the current regimes on individuals, firms and the wider economy, including unintended consequences, such as the removal/refusal of financial services from/to individuals or firms; the role of financial institutions and/or professional bodies in these regimes; the UK’s role in international efforts to tackle money laundering and terrorist financing and implement sanctions.”

They then invite us to submit “written evidence” by 8 May 2018.  But what is “evidence”?  Do they mean this in a scientific sense – i.e. hypotheses tested with scientific rigour and proved (or disproved) with numerical underpinning?  Or do they mean – and this is all I can offer – anecdotal experience?  I would love to submit shedloads of the latter (wind me up and watch me go when it comes to “unintended consequences”!), but I cannot provide any scientific evidence.  To be honest, I can’t imagine that many respondents can, other than, say, the National Crime Agency, LEAs and AML supervisory bodies.  On the other hand, if that’s what they do mean, I don’t want to spend time crafting a detailed response only to have it thrown out because it’s opinion rather than proven.  So, those of you with greater experience of the workings of government, what do you think?  What do they mean by “evidence”?  Ta muchly.

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Well, I know I’m working for you

My husband runs a children’s cycle training programme in tandem (tee hee!) with the Department for Transport, and so he likes to know whenever cycling is discussed in the corridors of power.  To this end, he subscribes to updates from a nifty little service called TheyWorkForYou.  According to their website: “TheyWorkForYou takes open data from the UK Parliament, and presents it in a way that’s easy to follow – for everyone.  So now you can check, with just a few clicks: are They Working For You?”  I have set up a daily search for the term “money laundering”, which means that I get a daily summary of all the instances in which money laundering was mentioned in Parliament – in the chambers or in committee or in written questions.

And I will confess that I have been pleasantly surprised by how often we crop up.  Last Wednesday, for instance (before everyone headed home to indulge in Easter eggs), money laundering was mentioned in two debates in the Commons, one debate in Westminster Hall and three written answers.  On the other hand, I have also been slightly alarmed by the lack of understanding of some of the issues; in one written question, an MP asked whether the government had plans to “requisition empty flats and houses that have been used for (i) speculation and (ii) money laundering purposes to help reduce street homelessness”.  Quite what legal route might be used to requisition an empty property bought with the proceeds of crime and then turn it over to the government, I am not certain.  But, as Oscar Wilde would have it, the only thing worse than being talked about is not being talked about, and the more people who think about and discuss money laundering, the better.

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Ring ring

Don’t you just hate cold calls?  It’s a rare day when the media does not report on some new fraud being hawked by cold callers, usually in a foreign country so you can’t block their calls without blocking all overseas calls – and it might be Great-Aunt Mildred in Spain, rather than a scuzzy fraudster.  Plus, they always call just as you’re sitting down to dinner or have reached a crucial plot moment in “Casualty” or “’Enders”.  Well, you will be glad to hear that help is at hand.  If you’re lucky, you will soon be receiving a call from a nice person who will explain that they are from the Telephone Preference Service, and that they have just introduced a new, premium service.  For a modest one-off fee, you can enrol with their new scheme to block calls from international call centres, thus protecting yourself from those nasty scammers.  Can you see where this is leading?

Of course there really is a Telephone Preference Service here in the UK – a real, genuine, government-approved agency running a central opt-out register.  If you sign up with them – and registration is entirely free, gratis and for nothing, for both individuals and corporate entities – it becomes an offence for anyone to make a direct marketing call to your registered number.  It says so in the Privacy and Electronic Communications (EC Directive) Regulations 2003.  The fly in the ointment is that it applies only to – or, more realistically, can only be enforced against – callers in the UK (and perhaps EU).  So if you’re tired of being offered marvellous investment opportunities or passionate lifelong commitment and romance by a lovely chap in Africa or Asia, there’s still little you can do about it except hang up on the blighter.

Sadly, the confusion is working to the advantage of the criminals.  Victims – often elderly – are giving out their bank details to pay the one-off fee, and then seeing monthly direct debits being sucked out of their accounts.  (This may well come back to bite the banks, as the victims to a man – and there were 493 reports of this fraud last year – have said that they did not receive written confirmation of any direct debit, as is required by law.)  And if they call the number they were originally contacted from, it’s out of service – oh, the irony.

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Pour encourager les autres

In the world of prosecution, it’s sometimes damned if you do and damned if you don’t.  Since the Bribery Act 2010 came into force on 1 July 2011, the UK authorities have had access to the corporate offence of failing to put in place adequate procedures to prevent bribery – often called the Section 7 offence.  The only statutory defence to this offence is to “have in place adequate procedures designed to prevent [those associated with your business] from [bribing another person]”.  Guidance on what those adequate procedures might look like was published by the Ministry of Justice in March 2011.  Of course, the phrase “adequate procedures” implies a value judgement: what I consider adequate might not be considered so by someone else.  But the guidance does make it clear that “organisations should adopt a risk-based approach to managing bribery risks… procedures should be proportionate to the risks faced by an organisation [because] a risk-based approach will serve to focus the effort where it is needed and will have most impact”.

Now we jump forward to 21 February 2018.  The jury at Southwark Crown Court is returning its verdict in the case of Skansen Interiors Limited, an office interiors contractor, which had self-reported to the National Crime Agency that its former managing director had paid a bribe to secure a £6 million refurbishment contract.  As a result of ‘fessing up, Skansen itself was charged with the Section 7 offence.  Not fair, cried some: Skansen put itself in the firing line and should be given credit for that.  A waste of time, cried others: Skansen is dormant and has no assets, so there can be no penalty anyway.  All true, but the Crown Prosecution Service took the view that it would be a useful reminder to other companies.

Skansen’s lawyers argued that the firm had had adequate procedures in place at the time of the admitted bribery by its MD (although the words “proof” and “pudding” do inevitably come to mind).  It said that it employed only thirty people, who all sat together in an open-plan office in London, and so it didn’t need detailed or elaborate ABC (anti-bribery and corruption procedures) on top of its policies concerning transparency and integrity, and its financial controls requiring multiple approvals for transactions.  But the CPS argued that the company did not have a policy specifically directed to preventing bribery – relying instead on vague statements about ethical behaviour – and that it did not have a dedicated compliance officer.  Moreover, there was no evidence that Skansen had trained its staff in ABC procedures, or that employees had read or been reminded of the company’s existing policies or had agreed to comply with them.  The jury returned a guilty verdict, and it was only through having no assets that the company avoided a financial penalty.

The CPS is right when it says that cases like this are useful for other companies, but more as a clarification than as a warning.  The Skansen outcome gives us a clearer idea of what will be considered “adequate”.  Procedures must be based on specific risk judgements – not vague guesses – and must be clearly documented and communicated.  This is even more important now that we have another corporate offence, under the Criminal Finances Act 2017: the offence of failing to prevent the facilitation of tax evasion offers as a defence that your firm had in place (you’re ahead of me here) adequate procedures.

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Even better than Willy Wonka’s Golden Tickets

I’m off on hols to Sri Lanka on Wednesday.  Go on, check out the weather forecast for Galle, and then weep with envy – we’re talking 30˚ and wall-to-wall sunshine.  To secure my week in the sun, I had to apply for a visa.  It was all very simple, just an online application and the handing over of about £25, because it is a standard 30-day tourist visa.  It is not – drum roll, please – a Golden Visa.

This is apparently the new name for what I used to call “citizenship for sale” or “passports for purchase”.  The Organised Crime and Corruption Reporting Project defines them thus: “For a sizeable investment, wealthy people can zip to the front of the immigration line for a growing list of attractive countries”.  And a couple of weeks ago they published a series of stories detailing the availability of Golden Visas in seven EU Member States – Austria, Cyprus, Hungary, Latvia, Lithuania, Malta and Portugal – as well as looking at Golden Visa schemes that are proposed in Armenia and Montenegro.  Transparency International is – unsurprisingly – concerned about the migration of Golden Visa schemes from standalone palm-fringed islands to the EU, as it fears that “European countries are selling access to the Schengen visa-free travel area, and even EU citizenship, to foreign investors with little scrutiny, transparency or due diligence”.  The European Parliament warned about the risks of Golden Visa programmes back in January 2014, and the European Commission is due to publish a report on the impact of Golden Visa schemes later this year.

From an MLRO perspective, when looking at a client’s shiny new passport, it is as well to be aware of the countries that operate these schemes, and perhaps to ask how (and why) he managed to obtain his new nationality.  Mind you, with Brexit looming, I might just consider communing with my own inner Austrian or Hungarian… if only I could afford it.

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The fine art of future planning

Thanks to my capacious TV recording device – known in my house as the magic box – I rarely watch anything live any more, except the news and weather.  And so this weekend I finally got around to viewing a documentary called “Stealing Van Gogh”.  Narrated by excitable but unkempt art historian Andrew Graham-Dixon, it told the story of the December 2002 theft of two paintings from the Van Gogh Museum in Amsterdam, and the subsequent investigation to recover them.

Thanks to my day job interest in money laundering and my hobby research for one of my novels (“Portraits of Pretence”, which concerned art fraud in the post-Napoleonic years), I know a little – a very little – about art crime.  And I have blogged before (here and here, for instance) about how criminals can put their money into and through the art markets for various laundering purposes.  But this documentary taught me something new (spoiler alert!).

The two pieces were stolen – perhaps to order – by a prolific burglar who climbed the wall of the museum, smashed a window and then abseiled away.  He sold them almost immediately – for a paltry 100,000 euros – to one of Italy’s most successful drug dealers.  But this fellow did not want them for laundering, or even for selfish viewing in an underground or mountain-top lair, Bond-villain-like.  No, he simply wrapped them in tea-towels and hid them under a false floor in his dad’s kitchen near Naples.  For he knew his Italian law.  And when he was eventually caught, he offered up the two “Van Gogh artworks of inestimable value” (as he described them on his own statement of assets) in exchange for a reduction in his sentence.  He bought them, in other words, as bargaining chips.  This explains why he wasn’t bothered about which paintings they were; the burglar simply snatched the two nearest the window in the museum.  As all the art experts interviewed in the documentary explained rather tearfully, the thieves and the master criminals do not see art as art: to them, it is simply another currency.  When used as payment, its value is calculated at 10% of its open market price.  And when push comes to shove, the criminals hope that its importance to the art world will work in their favour.  The fiends.

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