A family business

I think I have written before about crime – including money laundering – often being a family business.  There are many advantages: for instance, there is absolute loyalty (twice over: blood and business), and there is nothing suspicious about the family getting together frequently (ostensibly for family gatherings, but also to discuss work), which can foil surveillance and infiltration efforts.  It could also be argued that – in the same way as sports champions breed more sports champions, and children of lawyers often go into the law – the offspring of criminals are more likely to go into their parents’ line of business.  They are exposed to the work from an early age, they make all the right (wrong?) connections, and – although you’d have to be careful making this point too strongly – they will share the same moral compass as their parents, which might be slightly skewed from the straight and narrow.  And now a fraudster has himself pleaded his criminal background as mitigation for his actions.

Jason Galanis was born into a wealthy family, led by a man whose main activity was fraud.  White collar crime, of course, pays well: the family lived in a mega-mansion in Connecticut, with a tennis court, an indoor swimming pool and a lake, and for recreation they had a ranch in Utah, a Rolls Royce, an eighty-foot yacht and a Lear jet.  But when Jason was only thirteen, John – daddy – was charged with bilking JP Morgan Chase & Co out of millions of dollars.  Even that didn’t curb the lifestyle: for his sixteenth birthday, Jason was given a US$100,000 Ferrari.  But after numerous other allegations and relentless investigations, it all fell apart: in 1988 John was found guilty of masterminding a tax-shelter scheme that didn’t really exist and thereby cheating 1,400 people including Eddie Murphy and Sammy Davis Jr., and sentenced to 27 years in prison.

Poor Jason.  The impact has been terrible, according to his defence.  Yes, his defence.  Jason – now pushing fifty himself – is currently serving eleven years for running a Ponzi scheme.  I wonder where he learned how to do that?  At the end of July 2017, he appeared before a judge in Manhattan to ask that his sentence not be extended for a separate $60 million fraud against one of the poorest American Indian tribes.  And why should he be granted this leniency, in his view?  Because when his father went to prison, Jason was left feeling “embarrassed and abandoned” by a man whose “wild extravagance” had led to chaos at home and given little Jason “a sense that he didn’t fit in with his private school peers”, exposing him to “his friends’ parents’ disdain”.  Interestingly, Jason didn’t orchestrate his Ponzi scheme alone: also serving time for it – six years each – are his father John and his younger brother Derek.  A third brother, Jared, pleaded guilty and awaits sentence.  A family business indeed.

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A tweet farewell

As you may have gathered, I have been away for the past month.  With only intermittent wifi access, and a long-overdue need for some downtime, I tried to take a complete break from work.  Of course, I was not completely successful in this aim: I did sneak peeks at my emails, and (when I thought no-one was looking) at my daily Google alerts on the topic of “money laundering”.  The one source I was never tempted to check was Twitter.  And – as is often the way on holiday – I started to reassess my working life, on the basis of “if you do what you’ve always done, you’ll get what you’ve always got”.

I start every day with a scan of my email – which usually contains a few links to relevant news stories, as I subscribe to several alerts – and then a search of the BBC News website using the term “money laundering”.  If I see anything that tickles my AML fancy, I consider how to share it: as a headline on the Newsroom page of my website, as a Tweet, or – occasionally – as a direct email to someone to whom I think it is particularly relevant.  When I thought about how I made that decision, I realised that I was using Twitter mainly to spread ML/AML “gossip” – stories saying “it is alleged that”, or someone “is suspected of involvement in”.  And when I came back from holiday I carefully read all the email alerts that I had received over the past month, but did not bother going back even one day on Twitter, as I knew it would all be – literally – old news.

In all honesty, Twitter does not suit my character.  I am not a fast-moving creature: I prefer slow and steady.  Even in my spare time, when I give myself over to writing fiction, it’s fiction set in the past, where everything has already happened and I can take my time over considering its impact and implications.  When I was in Canada and occasionally turned the telly to Bloomberg, all of those fast-moving panels and scrolling ticker-tapes of information made me feel dizzy.  I initially started Tweeting in a professional capacity because “everyone is doing it”.  But it turns out that they aren’t: the majority of my clients work in offices where Twitter is not permitted, so anything I post in a hurry at 0915 is unlikely to be seen – if at all – until they get home that evening, when it will have been overtaken by a surfing dog and the latest fashion faux pas of some tweenie singer.  Indeed, on Twitter I have only 377 followers, compared with over a thousand subscribers to this blog.  So from now on I’ll leave the tweeting to singers Katy Perry (102,891,671 followers) and Justin Bieber (99,762,866), and ex-pres Barack Obama (94,125,360).  From today I will not be tweeting, apart from the automated tweets that appear whenever I post on this blog, which is confusingly circular.

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Something new to get your AML teeth into

People sometimes ask me how I can bear to stick with one subject for so long.  The answer, of course, is that it’s not really the same subject for very long.  True, the aim of money laundering is fairly predictable (trying to hide the criminal origins of assets so that they can be preserved and enjoyed) – but the crimes and methods change all the time, necessitating our defences to change as well.  It’s one of the most vibrant and fast-moving subjects in the world.

This was brought home to me recently when I read about horsemeat.  I have seen a connection between money laundering and horses before: the bloodstock market (sale of live horses, for racing and/or breeding) is traditionally quite cash-intensive, and those who conduct the trade are usually therefore considered to be high value dealers and to come under the AML umbrella.  (Someone once asked me whether stud activities were included, as hiring out your stallion to cover mares is a service, not a product.  The answer is that if you send the stallion to do his duty, then it’s a service and not included.  If, on the other hand, you – how to be delicate? – extract his stallion essence and sell this for mares to be artificially inseminated, then you are selling a product and if you do that for cash, you are included.  I bet you’re glad you asked.)

But what I read recently was about the trade in dead horses.  It seems that a Europe-wide criminal network under the control of a Dutchman living in Spain has been slaughtering horses in Portugal and Spain that had been deemed not fit for human consumption, and then fraudulently labelling the meat and selling it anyway.  The story initially broke in the UK in April 2013 (when edible horsemeat was found to have been fraudulently mixed with beef in burgers), but at that time the Dutch ringleader could not be found – and now he’s been arrested in Belgium.  What I find interesting – of course – is that he and his sixty-five co-accused have been charged with crimes including animal abuse, forgery, racketeering – and money laundering.  Even better, the authorities have already seized bank accounts, properties and luxury cars.  You see: a whole new crime to talk about.  I always try to find crimes that will strike a chord with trainees, outraging them at the dastardliness of criminals, and scoffing horses should fit the bill in England.

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You can lead a horse to water

As you know, at the end of June we were gifted with new AML legislation here in the UK.  One of its main features was an absolute clarification about the AML status of estate agents: “In these Regulations, ‘estate agent’ means a firm or a sole practitioner, who, or whose employees, carry out estate agency work, when the work is being carried out”, and “for the purposes of these Regulations, an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller), at the point when the purchaser’s offer is accepted by the seller.”  Until June, there was some (perhaps disingenuous) confusion among estate agents about whether we could really, possibly, actually mean them – but now it’s clear that we do.

I do already have a small number of estate agency clients, and a couple of them had previously asked me to write a piggy edition for them.  I had demurred, on the grounds that I wouldn’t sell enough to cover my costs.  Ignoring the time I spend writing a piggy book – not that the time’s not worth anything, but it is my choice to do it – there are still actual costs involved.  The books are self-published, and I have to pay a cover designer to (you’re ahead of me here) design the cover.  For the piggies, that comes in at £99 a cover.  When I sell a (staff, rather than NED) piggy through Amazon, Amazon charges the buyer £5.99, and I eventually get £2.03 of that.  So to pay for the cover, I need to sell forty-nine copies of the book.

When the Regs were updated so crisply, I re-thought my position on the estate agency piggy.  Surely, I reasoned, with all the publicity about the new Regs, and all those estate agents who thought they were excused suddenly realising they are not, and all the negative press about the UK property sector being abused by money launderers, and the medium risk rating for the sector in the National Risk Assessment, well, they’ll be biting my hand off to get some accessible and digestible information for their staff.  And so I wrote like a demon and got the estate agency piggy out within a week of the Regs appearing.  I alerted the various estate agency trade bodies, I tweeted, I emailed every estate agent I knew, I contacted the estate agency press.  And the response has been: pffffff.  In July I sold five copies.  I guess we’re waiting for a high profile regulatory fine to focus the mind – for which all hopes are pinned on HMRC.  Those piggies may be waiting quite some time to be rehoused.

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Some are more equal than others

The connection between PEPs [politically exposed persons] and money laundering is recognised: with access to public influence and public money, these individuals in positions of high public service can fall prey to their baser desires and start feathering their private nests with public, well, feathers.  The accepted definition of PEPs has recently been updated in EU Member States to include homegrown domestic PEPs as well as foreigners, and “grand corruption” is (quite rightly) under fire from all sides.

What is interesting, however, is seeing what happens to PEPs who are accused of (some combination of) illegal enrichment, corruption and money laundering.  Of course, their very PEP status does mean that they will be a target for political enemies who wish to blacken their name, and an accusation of corruption is a good place to start – so an accusation is by no means always well-founded.  But still, the differences can be stark.

On 14 July 2017 it was announced that the former president of Peru, Ollanta Humala, and his wife Nadine Heredia had been placed into pre-trial detention to await the preparation of a money laundering case against them – which will take about eighteen months.  They deny all charges and have handed over their passports, but the courts have deemed them a flight risk.  Humala is now being held in Barbadillo prison, whose only other inmate is his political rival Alberto Fujimori (serving a 25-year sentence for human rights abuses).  It is unlikely that the two will socialise.

In the same week, Brazil’s former president Luiz Inacio Lula da Silva was sentenced to nine-and-a-half years in prison for corruption and money laundering.  However, it was not “go straight to jail, do not pass Go” for Lula: Judge Sergio Moro was minded to feel sympathy for him.  He said that said he would not order Lula to be arrested and imprisoned because the conviction of a president is such a serious matter that an appeal should be heard first.  Perhaps Judge Moro also has an eye to his future career: Lula, who was president between 2003 and 2010, is currently leading the polls for next year’s presidential election in Brazil…

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Ladies first

In an era when we have the first female Doctor Who, female heads of the Met, the London Fire Brigade and the London Ambulance Service, and a female sort-of-Prime Minister, it is perhaps only right that women should be in the money laundering ascendency as well.  We have had plenty of instances of men being the instigators and their female significant others allowing their accounts to be abused, or paying in money, or otherwise playing a subsidiary role.  But a recent case from Shropshire reversed the roles, when a female finance director pinched £660,000 from her employer and used her husband’s personal and business accounts to launder it.

Personally I am an equal opportunities loather: I hate all money launderers, regardless of gender, sexual orientation, religion, appearance, colour, nationality, age or state of physical/mental health.  But professional criminals know that courts often think differently – particularly when more traditional individuals are on the bench or in the jury box.  Moreover, there has been – quite rightly – concern that sentencing courts do not take enough account of the damaging impact that custodial sentences can have on the children of imprisoned primary carers (usually, mothers) and there has been a call for courts to “be more lenient to women criminals”.  Again, professional criminals know how to work the system, and for decades the mafia, for instance, have entrusted their female family members with the money laundering.  It’s not the sort of equality that women usually seek, but perhaps it is a real sign of the times that female criminals are now doing the same.

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The law of the wild

In a quest to find a country that is still outward-looking and welcoming, I am going to have a look at Canada this summer.  Although I will still be keeping a weather eye on all things AML, please note that for the next month this blog will feature only one post a week, on Wednesdays.  Normal service will resume in September.

Despite its socially liberal tendencies, generous immigration policy and media-friendly PM, all is not perfect in what its inhabitants like to call the Great White North.  In May 2017, a Vancouver lawyer called Donald Gurney was found guilty of professional misconduct by the disciplinary panel of the Law Society of British Columbia.  The panel determined that Mr Gurney had ignored “a sea of red flags” by allowing C$25,845,489.87 [about £15.7 million] of offshore cash to pass through his trust account between May and November 2013, while he made no enquiries at all about who the lenders were, the source of the funds or the client’s intended use of the money.  He did however recognise “the risk involved”, and so he charged a tenth of one per cent as his fee but did no legal work for the client.  The panel was not impressed with the lawyer’s attitude: “He was evasive in that he would not answer questions put to him and was self-serving with regard to his knowledge of the Law Society accounting rules.”

You might think that this sort of behaviour would embarrass Canada’s legal fraternity, but far from it.  In its most recent mutual evaluation  of Canada – published in September 2016 – the FATF observed that “all high-risk areas are covered by AML/CFT measures, except legal counsels, legal firms and Quebec notaries – this constitutes a significant loophole in Canada’s AML/CFT framework”.  And the situation has yet to be rectified, not least – in fact, in main – because of opposition from the legal sector itself.  Ironically, a decade ago Canada was one of the first countries to propose legislation pulling accountants and lawyers into the AML family.  Accountants acceded graciously, but the very Law Society of British Columbia that has chastised Mr Gurney has also successfully fought all proposals to include lawyers in AML requirements.  On 13 February 2015 the Supreme Court of Canada found that the wording of the latest draft legislation breached the constitutional right to attorney-client privilege – and no new provisions have been submitted since then.  Frankly, it is an embarrassment for Canada (a dangerous embarrassment), and I shall give a special Paddington hard stare to any local lawyers that I encounter on my travels.

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Feeling the benefit

One of my very favourite things in my professional life is the concept of criminal benefit.  I like what this says about our attitude to crime and those who commit it.  Put very simply – and I am sure a lawyer or asset recovery specialist could elaborate enormously – when decisions are being made in sentencing and confiscation hearings, what matters is not the amount of money the criminal originally stole or made illegally, but what benefit he has accrued from that money.  In a ridiculous example, if someone picks my pocket and steals a pound and then buys a lottery ticket with that pound and wins a million quid, then their benefit is one million pounds – and any subsequent confiscation proceedings will seek to recover the million, not just the original pinched pound.  As you can imagine, criminals are not keen on this way of calculating things.

But there’s no getting away from it, as a recent case confirmed.  Between early 2010 and late 2011, Cornishmen Gary Fulton and Daniel Wood were involved in a missing trader scam – a sort of carousel fraud.  In June 2016 they both pleaded guilty to money laundering and were jailed – Fulton for four-and-a-half years and Wood for seven.  In June 2017 they appealed (R v Fulton and Wood 2017 EWCA Crim 308, for those of you who track these things), on the basis that their sentences had been calculated on the total amount laundered in the scam (there were demonstrably 597 transfers involving about €35 million), with the judge assessing the relevant harm as £30 million.  Fulton’s defence, however, contended that the relevant loss was the loss to foreign revenue authorities, and as the tax in Germany was 19% and that in the Czech Republic 20%, the relevant harm was only £6.1 million.  Moreover, as Fulton claimed that he was involved in only 60% of the trading, he felt that his sentence should be based on 60% of £6.1 million, making £3.6 million.

Sadly for the two gentlemen concerned, the Court of Appeal was not with them on this point, noting that it is inherent in the concept of money laundering that criminal property will be mixed with other money in the financial system.  Thus the criminality of the offence must be gauged by the nature and scale of the laundering, not the nature and scale of the underlying crime.  As the appeal judges correctly observed, it is the whole amount involved, not merely the part that comprises criminal property, which impacts the financial system.  Dismissing their appeals, Mr Justice Popplewell said the original trial judge was entitled to take the whole sum into account when considering how serious their roles were.  Sitting with Lord Justice Gross and Judge David Griffith-Jones QC, he added: “We take the view the sentences were not excessive, let alone manifestly so.”  And so say all of us.

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Near-o tolerance

A recent article in the Economist made a very valid point about recent AML endeavours – that sometimes they can have unfortunate consequences.  I have blogged quite a bit about “de-risking”, or what the FATF calls “the wholesale cutting loose of entire classes of customer”.  In the past year, dire warning about the dangers of dealing with money service business and with charities have resulted in these businesses finding themselves unable to open bank accounts or send wire transfers.  As the Economist explains, echoing the FATF’s own concerns, what this does is send these businesses into the arms of the unregulated financial system, so that even legitimate transfers with no criminal undertones are now impossible to record and monitor.

The Economist is clear where it thinks the fault lies: “Popular though it has become to bash banks, they have been acting rationally.  The blame for the damage that de-risking causes lies mainly with policymakers and regulators, who overreacted to past money laundering scandals.”  However – and not that they need it, as they’re big enough to defend themselves – I feel that it’s important to point out that the FATF has always suggested that financial services firms should take informed decisions, not the wholesale approach.  Moreover – and crucially – they also accept that mistakes will occasionally be made, but that the application of the risk-based approach is so much the better way that occasional failures should be accepted.  In the statement they issued after their plenary meeting in October 2014, they were quite clear: “The risk-based approach should be the cornerstone of an effective AML/CFT system, and is essential to properly managing risks.  The FATF expects financial institutions to identify, assess and understand their money laundering and terrorist financing risks and take commensurate measures in order to mitigate them.  This does not imply a ‘zero failure’ approach.”

Institutions have sometimes used AML as an excuse – a scapegoat – for doing things the way they want to, from demanding certain documents to refusing business.  And de-risking is simply the latest example of this.  The AML intention as viewed by regulators is always to make a reasoned, risk-based, individual response to a situation, but – as the Economist points out – profitability is thrown then into the mix: “No wonder banks dumped less-profitable clients tainted by the merest hint of risk.”  The article calls for “a new approach to financial regulation – one that accepts mistakes can be made in good faith”, and I would contend that this is what we have already.  What we need to balance it is a new approach to AML by institutions – one that accepts that all AML decisions must be made in good faith.

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Standing my AML ground

Money laundering and I – or rather, AML and I – have been on intimate terms for more than two decades now.  The muscle memory in my fingers is such that I cannot type the word “money” without following it with “laundering”, and almost any word beginning with a capital M ends up as “MLRO”.  I feel rather protective of AML, even maternal towards it.  We’ve been through a lot together.  We weathered the storm in 2005 when the Third European Money Laundering Directive allowed that upstart, that impostor, that johnny-come-lately terrorist financing to have equal billing, so that all of a sudden everyone wanted to talk about some hybrid creature called AML/CFT (and sometimes AML/CTF – even uglier).

But recently things have Gone Too Far.  As I have said in earlier posts, the new AML legislation in the UK has the most ghastly name: the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 – so that’s someone else muscling in on AML territory.  And in Guernsey they are now talking of renaming the MLRO as the FCRO – Financial Crime Reporting Officer.  The cuckoo in the AML nest.

I am often asked whether I can deliver training on “financial crime, including money laundering, corruption, tax evasion, cybercrime and so on”.  To me, this makes little sense.  Money laundering is not a financial crime: it is the financial crime.  All of the others are simply crimes that generate money – with some of them doing it by abusing financial institutions.  Once the basic crime is committed – whether it’s drug trafficking or bribery or cyber-fraud or art theft  or tax evasion – the criminals proceeds are then available for the main event: money laundering.

Money laundering is not like other crimes: it is not done to make money, but rather to preserve and disguise money from other activities.  (Granted, there are a few professional money launderers who make their living from money laundering, and when we consider how to prosecute them – for laundering the proceeds of laundering – it’s something of a legal minefield.)

So please: let’s restore money laundering to its rightful place as the financial crime supreme, the one that touches every other acquisitive crime.  Demoting it to the status of a standalone crime, just something else that can be done to make money, downplays its importance, its spread and its danger.  AML for one, and one for AML!

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