Boxed into a corner

What else could I write about this week except the Pandora Papers?  The initial focus will be on the individuals named in the leak, but away from the gory headlines will be the real work: looking at the enablers.  The primary targets will be the fourteen “secrecy brokers” identified in the Papers (and all their offices – after all, a client taken on in one jurisdiction is often and easily passed to another).  But after that will come the real sifting of data: with 600 journalists on the team, looking at 11.9 million documents relating to the financial affairs across five decades of more than 29,000 beneficial owners, you can be sure that many more enablers will be exposed.  Indeed, some experts are already hinting that that is where the hatred (and perhaps the weight of the law) will fall.  Alex Cobham of the Tax Justice Network observed that “few of the individuals had any role in turning the global tax system into an ATM for the super-rich.  That honour goes to the professional enablers – banks, law firms and accountants – and the countries that facilitate them”, while you can hear Maíra Martini of Transparency International sighing as she says “here we are again, looking at clear evidence of how the offshore industry promotes corruption and financial crime while obstructing justice”.  (I’m not a fan of the word “offshore”, as it is so often used inaccurately to pinpoint specific jurisdictions.  But no “offshore” jurisdiction is offshore to its own people.  What it actually means is “outside of your own country”, which is a moveable feast – at some point, we’re all offshore.)  But she’s right: there are plenty who pay lip service to AML/CFT while happily signing up the dodgiest of clients.

The name of the leak interests me.  According to the ICIJ website, they chose the name because “this collaboration builds upon the legacy of the Panama and Paradise Papers, and the ancient myth of Pandora’s Box still evokes an outpouring of trouble and woe”.  To be precise, Zeus gave Pandora a box (in ancient Greece, it was referred to as a jar) as a wedding present but warned her never to open it.  Pandora’s curiosity overcame her and she opened the box – and out flew greed, envy, hatred, pain, disease, hunger, poverty, war and death.  She quickly slammed the lid shut – but the only thing left in the box by then was hope.  We’re going to need plenty of that as the implications and ramifications of this latest leak become clear – whether that’s realising that a client is not as you had imagined, or getting the stomach-liquifying feeling that your CDD processes might not stand up to close scrutiny.

I’m taking a few days off next week to celebrate my gazillionth wedding anniversary, so no blog post next Wednesday (imagine the marital disharmony if I sloped off to write about AML) – business as usual on Wednesday 20 October.

Less than super-vision

I assume most of you know how I feel about the theory of OPBAS – i.e. that the solution to the fragmented and conflicting AML/CFT supervision arrangements in the UK is not to rationalise the number of supervisors but rather to insert another layer above them, creating a supervisor of supervisors.  (And in case you don’t know, I think it’s nutty.  OPBAS now oversees the 25 – yes, 25 – legal and accountancy professional body supervisors in the UK, while alongside them are the statutory supervisors like the FCA, HMRC and the Gambling Commission.  Told you.)  I work regularly in two other jurisdictions (Guernsey and Jersey) which, despite having sophisticated and varied financial sectors (albeit smaller than those in the UK), both manage perfectly well with one or two AML/CFT supervisory bodies.  But hey ho, OPBAS is what we have, and it’s been in place since January 2018 – so after 3½ years it should have licked the 25 PBSs into coherent shape.  Their latest report on “progress and themes” has just been published, so let’s have a look…

Modelling themselves on the FATF, OPBAS have adjusted their supervisory assessment of the 25 “and moved from looking at each PBS’s level of technical compliance with the MLRs to a greater focus on how effectively they were conducting their AML supervision”.  And – as did the FATF – OPBAS has found that theory is one thing and practice quite another: “when focusing on effectiveness… we found differing levels of achievement and some significant weaknesses”.  But even the theory is still lacking, right down to how the PSBs are structured: “A third of PBSs did not have an effective separation of their advocacy and regulatory functions, presenting a clear risk of conflict of interest.”  (In other words, they try both to protect/promote their members and keep them in line – with the almost-certain result that, given a choice, a professional will join the supervisory body that is least demanding, which means that the body that wants members and their fees must drop its standards.)  But more shocking is the revelation that “the vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach” – despite the fact that the OPBAS Sourcebook, issued right back at the beginning, states clearly that “the Money Laundering Regulations 2017 require anti-money laundering supervisors to adopt a risk-based approach [which] applies to the way professional body supervisors allocate their resources [and] act in a manner that supports the application of a risk-based approach by their membership”.  For those of us steeped in the world of AML, the risk-based approach is second nature, but steeping is rare in the PBSs: “Only a third of PBSs assessed were effective in recruiting and retaining staff with relevant experience and providing support through ongoing professional development [and] on occasion, staff in key AML roles lacked sufficient expertise and knowledge.”

But perhaps the most disappointing revelation is that the 25 are, for the most part, toothless tigers: “half of PBSs, particularly those in the accountancy sector, failed to ensure members took timely action to correct identified gaps [in AML controls]”, while “around two thirds of PBSs didn’t have effective enforcement frameworks [and] some PBSs could not explain their criteria for taking enforcement action and which tools would be used”.

The main aim of OPBAS is to “ensure a robust and consistently high standard of supervision by the professional body AML supervisors overseeing the legal and accountancy sectors”.  It has not achieved this, although – deludedly, as it contradicts even its own findings – it is still declaring that “if a PBS significantly fails to deliver its obligations under the MLRs, we will not hesitate to take robust enforcement action”.  This is patently not happening, even nearly four years down the line.

A mammoth task for the MLRO

A little while ago I was giving a training session and used an analogy that the people attending found useful and amusing.  And, being both vain and generous, I thought I would share it in case it helps with your training.  I was trying to explain why people in compliance often have difficulty persuading their colleagues in client-facing roles (in short, the sales people) to complete the required AML checks to the specified standard within the necessary timeframe.  And then I mentioned the woolly mammoth.  Wavy lines, if you will, as we drift back to the Palaeolithic era.  Humans have gathered into small communities for safety and companionship, and they are what we would recognise from the movies as cavemen (although I’m not convinced any of them wore a bikini and bootees like Raquel Welch).

Each day a small group leaves the safety of the cave and goes in hunt of the woolly mammoth.  This is a valuable beast, as it will provide the whole community with food from its flesh, clothing from its skin and fuel from the leftovers.  Waiting back at the cave are the other cavepeople, discussing what should be done with any mammoth they get: how to check it for eating suitability (you don’t want to eat anything maggoty), how much to scoff straight away and how much to store for later, which are the most urgent items of clothing to be made, and so on.  And hurrah!  There is a kill, and the hunters drag the mammoth back to the cave.  “Join us,” say the waiting people to the hunters, “while we process this beast – you can help us decide how many chops to make and which bit of skin will make the best maxi dress for Raquel.”  The hunters yawn and frown and shake their heads.  “That’s way too boring,” they reply.  “That’s your department, doing the checks.  We’re going for a shower and then we’re off on the hunt again.  We think we saw an even bigger mammoth in the next valley.”

Now I know that any analogy can be stretched too far, but nothing I have seen in more than two decades of working with compliance teams and sales people has changed my mind on this one.  I don’t know what makes you one or the other – whether it’s nature or nurture – but I do know that they find it hard to understand each other, and they rarely switch sides.  And – this is crucial – the overwhelming majority of firms are run by mammoth hunters rather than mammoth processors.  In other words, CEOs almost invariably come from the sales side rather than the compliance team.  And an ongoing challenge for any MLRO is to find the right language with which to communicate with a sales-driven CEO and Board: sales is all about numbers, and risk-based compliance is very much not.

A bid for freedom

Woohoo, I do love a good helping of Schadenfreude, and to this end one of my favourite things is hearing about what happens to the fancy assets of criminals when they are taken away (both the assets and the criminals).  I’ve gloated about this before, and when I’m looking for a way to avoid work while sort of remaining true to my AML roots, I do like to sniff around the various auction sites that offer “police seized items” and the like.  (Anyone fancy a pair of designer trainers, doubtless impregnated with criminal sweat?)

And now my auction sniffing can go international, as I have discovered Police Auctions Canada – the name gives it away, I think.  This site features much more mundane items – at the moment, I could bid on a cordless drill (safecracking…?), a pre-paid Visa card (counterfeiting…?) and some rose-scented candles (I’m not even going to hazard a guess).  More predictably, there is quite a lot of precious metal for sale – silver coins and gold ingots.  And if you’re given to speculation, that’s where it will end: coyly, the website confirms that “we are not privy to specifics of where the items originated”.  But with all auctions starting at C$1 (about 80p) and running 24 hours a day for seven days, it can be tempting – like eBay with jeopardy.  And in case you’re worrying about supporting crime, they also confirm that “a large portion of the sales goes back to help sponsor non-profit organizations and community projects in each of the areas represented” – the website sells on behalf of police forces throughout Canada.  I’ve heard of old lags, but I’m still puzzled about the Pride Mobility Go Go Elite Traveler Plus HD Electric Mobility Scooter, currently at a bargain C$22.70 – if that was their getaway vehicle, it’s no wonder they were caught.

Frown and gown

I loved being a university student.  I liked pedalling around on my bike, modelling my road positioning, arm signals and indeed wardrobe on those of Miss Jean Brodie (in her prime, gels, as the first two minutes of the movie will demonstrate), and kidding myself that reading books all day long was Real Work.  It was fabulous, and an experience entirely wasted on the young.  However, the potential of tertiary education facilities for money laundering has not been wasted on criminals.

I have written before (here and indeed here) about the dangers posed to the private school sector by those seeking to pass their dirty money unnoticed through the financial system, but any educational establishment that takes payment for fees – from a private nursery to a college or university – is at risk thanks in no small part to their naivety.  In any jurisdiction whose legislation derives from the EU Directives, the obligation is to ensure that the AML family includes “high value dealers” – those who trade in goods for cash.  Notwithstanding the recent slight expansion to include “art market participants” (“[anyone who] by way of business trades in, or acts as an intermediary in the sale or purchase of, works of art and the value of the transaction, or a series of linked transactions, amounts to 10,000 euros or more” – therefore covering any form of payment), the current definition of a high value dealer still leaves enormous gaps in the AML defences.  What about those who sell services for cash, such as, oh, I don’t know, universities?

I have sympathy for universities, of course: their raison d’être is to promote excellence in learning and research – not to be on the lookout for scummy little devils trying to take advantage of their bank accounts.  But such is the modern world, with those pesky banks asking all their tiresome questions, thereby forcing criminals to be more twisty and imaginative.  Thankfully some universities are getting the message, and indeed sharing it with their staff.  On one of my recent tumbles down an AML rabbit-hole I fell upon this AML policy from the University of Reading (hah – I told you that university was for reading).  Crucially – and unlike many other similar documents I have seen – it doesn’t stop at simply saying “money laundering is against the law – we mustn’t do it”.  Rather, it gives good, realistic examples of how – in the university environment – money laundering can occur and be spotted, and what controls have been put in place to guard against it.  If you’re involved in education in any way – parent governor, trustee, part-time teacher – I recommend you share it.

Could do better

One of my most over-used phrases in my AML training is “new entrants to the AML family” – when I am explaining that we cannot expect all sectors (e.g. estate agents, art market participants) to be as au fait with their AML obligations as those who have been in the gang since the very beginning.  Cast your mind back, if you will (and if you’re old enough…): on 1 April 1994 Bill Clinton was in the White House, John Major was in Number 10, the Church of England had just ordained its first women priests, and the Money Laundering Regulations 1993 came into force, requiring retail banks to put in place procedures designed to prevent and forestall money laundering.  A quick count on fingers and toes tells me that this was more that 27 years ago – so plenty of time to get used to it.  And yet, and yet…

On 21 May 2021 the Financial Conduct Authority was moved to send a “Dear CEO” letter to the retail banks that it supervises for AML/CFT purposes.  It starts with a turn of phrase familiar to everyone who had one of those fierce teachers in primary school: “We are disappointed to continue to identify, across some firms, several common weaknesses in key areas of firms’ financial crime systems and control frameworks.”  You can imagine the sad shaking of heads in the board room at FCA Towers.  But actually, it’s no laughing matter: how can retail banks STILL be getting it wrong after a quarter of a century?  And the failings are so consistent and so persistent that the FCA has set a deadline – 17 September 2021 – by which banks must perform a “gap analysis against each of the common weaknesses… outlined”, ready to be shown to the regulator if requested.

And so what are these failings – presumably they are all at the knottier end of AML, perhaps issues around beneficial ownership and outsourcing, or the corroboration of source of wealth information?  Heck no – it’s the basics (as well as the knotties):

• “The quality of the business-wide risk assessments we have reviewed is poor” – incidentally, I note the introduction of the word “wide” to avoid the unfortunate acronym BRA
• “We often identify instances where CDD measures are not adequately performed or recorded.”
• “Firms do not always assess the level of risks posed by a PEP and tailor the extent of their due diligence.”
• “We also find some firms’ transaction monitoring systems are based on arbitrary thresholds, often using ‘off-the-shelf’ calibration provided by the vendor without due consideration of its applicability to the business activities, products or customers of the firm.”
• “Often firms are unable to adequately demonstrate to us their investigation, decision-making processes and rationale for either reporting or not reporting SARs to the National Crime Agency.”

If retail banks are still not getting it right when it comes to risk assessment, CDD, treatment of PEPs, transaction monitoring or suspicion reporting, just what are they getting right?  And next time a bank employee says to me during training, “Well, what can you expect when you deal with a law firm/estate agency/casino?” I shall channel my inner Dolores Umbridge and give them a hard stare.  (I also have an outer Dolores Umbridge, as I am frequently mistaken for Imelda Staunton.  I once got a free gelato in Italy on the strength of it.)

I am on holiday next week and so there will be no blog post.  Normal service will resume on Wednesday 8 September 2021.

The Emirate strikes back

MLROs are used to reacting to lists and warnings issued by governments and by agencies such as the FATF.  But when things change rapidly in a jurisdiction, it may be unwise to wait for an official notification, and more sensible to make an independent decision.  Over the past few – very few – days, Afghanistan has changed dramatically: a search on Wikipedia brings up an entry that is headed thus: “This article is about the country of Afghanistan. For the internationally recognized government, see Islamic Republic of Afghanistan. For the current de facto Afghan government, see Islamic Emirate of Afghanistan.”  The latter is the name under which the Taliban (an Islamist militant group) rules the country, and this is now its second “term in office”: from 1996 until 2001, it controlled approximately 90% of the country, and since the fall of Kabul on 15 August 2021, it has controlled the whole country.  In the more outward-looking period in between, Afghanistan joined the Asia/Pacific Group on Money Laundering (an FATF-style regional body) in 2006, and the Egmont Group (the “trade body” for FIUs) in 2010.  It was visited by an APG evaluation team in early 2011, and the first mutual evaluation report on its AML/CFT regime was published in November 2011.

In June 2012, Afghanistan and the FATF announced that they had made a plan: “Afghanistan will work on implementing its action plan to address [its AML/CFT] deficiencies, including by: (1) adequately criminalising money laundering and terrorist financing; (2) establishing and implementing an adequate legal framework for identifying, tracing and freezing terrorist assets: (3) implementing an adequate AML/CFT supervisory and oversight programme for all financial sectors; (4) establishing and implementing adequate procedures for the confiscation of assets related to money laundering; (5) establishing a fully operational and effectively functioning Financial Intelligence Unit; and (6) establishing and implementing effective controls for cross-border cash transactions.”  And if you track the thrice-yearly updates to the FATF list, you can see Afghanistan ticking off these tasks one by one, until in the June 2017 version of the list we read this: “The FATF welcomes Afghanistan’s significant progress in improving its AML/CFT regime and notes that Afghanistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2012. Afghanistan is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process.”

Presumably, therefore, many MLROs have removed Afghanistan from their list of high risk jurisdictions – from June 2017 to date, it has not reappeared on the FATF’s list.  I appreciate that some of those MLROs would have preferred to keep it there, perhaps waiting for the proof of the pudding, perhaps feeling that there are other issues with the jurisdiction, but commercial expediency will play its part – and a high risk jurisdiction brings with it the higher costs and effort of EDD.  So should we now wait for the next FATF list – due on 22 October 2021, at the end of the next FATF plenary meeting?  Or should we take matters into our own hands and pop Afghanistan back onto that high risk list straight away?

The decision is probably clear with Afghanistan, but there are many other jurisdictions whose alteration – in the form of improvement or (sadly more common) deterioration – is more gradual, and therefore harder to spot and harder to “sell” as a change to the list.  What of Tunisia and Turkey – neither of them on the FATF’s list, but both tackling high levels of political instability and changing alliances?  In today’s fast-moving world, where a country of over thirty million people can see its government toppled almost overnight, perhaps we need updates more frequently than three times a year.

You’d need Speedy Gonzales for all this

The pandemic has put many things on hold – holidays, weddings, house moves – but not the requirement to provide staff with AML/CFT training.  As we head towards September, and people’s minds turn towards a new school term, I am getting an increasing number of enquiries about training.  And I have noticed something interesting happening with my Guernsey clients.  For the first time ever – and I’ve been working there for two decades – clients are asking me to guarantee that my training will meet the requirements of the regulator.  Now, in principle, I of course have no problem with this: I am happy to do my very best to make sure that a regulator would be happy to know that a firm is getting its AML/CFT update from Grossey.  But (a) why are firms in Guernsey suddenly exercised about this, and (b) is it actually possible to meet the regulator’s requirements?

The first question might be answered by reference to a document published in 2016 by the Guernsey Financial Services Commission: “Training Thematic Review: Report of Findings”.  In this, the regulator shared its findings from 62 local firms on the topic of AML/CFT training, and – with regard to the content of such training – made this observation: “The Handbooks stipulate the topics which training must cover as a minimum [and] in reviewing the questionnaires completed by firms and the training materials provided by those firms visited, the Commission noted that training covered most of these factors.”  And that was five years ago.  So it’s still a mystery – perhaps the GFSC has recently said something unofficially to firms about training not covering the right ground.  So just what is the right ground?

And this is where I struggle when firms ask me to confirm that my training will cover it all.  When you turn to the Handbook, the demands around AML/CFT training for regular staff – not Board members, or MLROs – are many:

The ongoing training provided by the firm shall cover –

(a) the Relevant Enactments, Schedule 3 [the AML requirements] and this Handbook,

(b) the personal obligations of employees, and partners, and their potential criminal liability under Schedule 3 and the Relevant Enactments,

(c) the implications of non-compliance by employees, and partners, with any rules (including Commission Rules), guidance, instructions, notices or other similar instruments made for the purposes of Schedule 3, and

(d) the firm’s policies, procedures and controls for the purposes of forestalling, preventing and detecting ML and FT.

In addition to the requirements of [the paragraph] above, the firm must ensure that the ongoing training provided to relevant employees in accordance with Schedule 3 and this Handbook also covers, as a minimum:

(a) the requirements for the internal and external disclosing of suspicion;

(b) the criminal and regulatory sanctions in place, both in respect of the liability of the firm and personal liability for individuals, for failing to report information in accordance with the policies, procedures and controls of the firm;

(c) the identity and responsibilities of the MLRO, MLCO and Nominated Officer;

(d) dealing with business relationships or occasional transactions subject to an internal disclosure, including managing the risk of tipping off and handling questions from customers;

(e) those aspects of the firm’s business deemed to pose the greatest ML and FT risks, together with the principal vulnerabilities of the products and services offered by the firm, including any new products, services or delivery channels and any technological developments;

(f) new developments in ML and FT, including information on current techniques, methods, trends and typologies;

(g) the firm’s policies, procedures and controls surrounding risk and risk awareness, particularly in relation to the application of CDD measures and the management of high risk and existing business relationships;

(h) the identification and examination of unusual transactions or activity outside of that expected for a customer;

(i) the nature of terrorism funding and terrorist activity in order that employees are alert to transactions or activity that might be terrorist-related;

(j) the vulnerabilities of the firm to financial misuse by PEPs, including the effective identification of PEPs and the understanding, assessing and handling of the potential risks associated with PEPs;

and (k) UN, UK and other sanctions and the firm’s controls to identify and handle natural persons, legal persons and other entities subject to sanction.

Now take into account that I am usually asked to provide a session lasting 90 minutes – two hours at the outside – because staff won’t tolerate anything longer, or because they just can’t be spared from their work.  I am having to admit to clients that it’s just not possible to cover everything, unless they give me more time, or they fill in the gaps between training sessions with updates for their staff.  I’ve sometimes been accused of speaking too quickly during training, and now you know why!

Undue influence

I’m of an age when the people I admired in my youth were known as “role models” – for me, people like Olivia Newton-John and Indira Gandhi (I had wide-ranging interests and confused professional ambitions – should I top the pops or run the country?).  Nowadays such people are known as “influencers” – and they can use their power for evil as well as good (not to mention shifting shedloads of “merch”).

I am sure you have all been breathlessly following the case of Tara Hanlon.  A recruitment consultant, she found that her addiction to looking like influencer Kim Kardashian – through the regular application of pricy plastic surgery – needed more cash input, and money laundering seemed an easy option.  But on 3 October 2020 she was arrested at Heathrow, trying to board a flight to Dubai with five suitcases containing £1.9 million cash, vacuum-packed and covered in ground coffee to hide the smell from sniffer dogs.  She eventually pleaded guilty to that, and to three earlier successful cash-smuggling trips – carrying £1.4 million on 14 July 2020, £1.1 million on 10 August 2020 and £1 million on 31 August 2020.  In text messages to friends, she had bragged about the benefits of being a money launderer, which gave her a “perfect life, a few days in the sun and a few at home” and paid her £3,000 per trip: “Three big ones… with this wage and the next my debts go bye.”  Instead, she’s off to clink for 34 months.  T_T, as the youngsters would have it.

On an altogether more ambitious scale, we now hear about the laundering activities of Hushpuppi.  Come now, you are surely among the 2.5 million followers of this Nigerian Instagram influencer, born Ramon Abbas but now preferring to be known as the “Billionaire Gucci Master”.  His followers wait on tenterhooks for photos of his lavish purchases – cars, watches, designer clothes, private jets, etc.  But in June 2020 he was arrested in – wait for it – Dubai.  Over a period of eighteen months, according to court documents, AbbasGucciPuppi and others defrauded people and institutions of large amounts of money and then laundered it.  On 20 April 2021 he pleaded guilty to various thefts, including US$14.7 million from a bank in Malta (believed to be the Bank of Valletta) and US$1.1 million from someone who wanted to fund a new children’s school in Qatar.   Although you might expect money launderers to try to fly under the radar, to blend in, it seems that sometimes bling is the way to go: according to the statement from the US Attorney’s Office, “his celebrity status and ability to make connections seeped into legitimate organizations and led to several spin-off schemes in the US and abroad”.  And then some of AbbasGucciPuppi’s illicit earnings were hidden in plain sight: “Approximately $230,000 of the stolen funds allegedly were used to purchase a Richard Mille RM11-03 watch, which was hand delivered to Abbas in Dubai and subsequently appeared in Hushpuppi’s social media posts.”  Ever modest about his achievements, AbbasGucciPuppi wrote alongside the photo: “God’s time is the best, especially when you checking it from a $150,000 Richard Mille watch (pats myself on the back).”  In case he’s wondering, there are 10,512,000 minutes in the 20-year sentence he’s being predicted.

Give me a break

I struggle to think of many good things to come out of the pandemic apart from a fabulous recipe for squishy chocolate chip cookies that I unearthed in desperation after the closure of my usual source.  However, it has afforded us the opportunity to reassess the structure of our working day – in terms of both location and schedule.  Many companies have come to the realisation that having people sitting in an office from nine-ish to five-ish is not necessarily linked to productivity – and in many cases, is linked only adversely.  And alongside this realisation comes a renewed interest in understanding when and how people work best – i.e. most productively and most accurately.

In May this year, researchers in Cambridge University’s Department of Psychology published the results of their study into “Quantifying the cost of decision fatigue: suboptimal risk decisions in finance”.  Decision fatigue is the tiredness caused by having to make difficult decisions over a long period, and previous studies have shown that people suffering from decision fatigue tend to fall back on the “default decision” – i.e. choosing whatever option is easier or seems safer.  In this study, the researchers looked at the decisions made on 26,501 credit loan applications by thirty credit officers of a major bank over a month.  The officers were making decisions on “restructuring requests”, where the customer already has a loan but is having difficulties paying it back, so asks the bank to adjust the repayments; such decisions are considered cognitively demanding because credit officers have to weigh up the financial strength of the customer against risk factors that reduce the likelihood of repayment, and errors can be costly to the bank (approving the request results in a loss relative to the original payment plan, but if the restructuring succeeds, the loss is significantly smaller than if the loan is not repaid at all).  By studying decisions made at a bank, the researchers could calculate the economic cost of decision fatigue – and they found that the bank could have collected around an extra US$500,000 in loan repayments if all decisions had been made in the early morning.

Yes, the timing matters.  As Professor Simone Schnall, senior author of the report, explains: “Credit officers were more willing to make the difficult decision of granting a customer more lenient loan repayment terms in the morning, but by midday they showed decision fatigue and were less likely to agree to a loan restructuring request.  After lunchtime they probably felt more refreshed and were able to make better decisions again.”  This second finding suggests that regular breaks during working hours are important for maintaining high levels of performance.

So why am I bothering my AML-ish readers with this – however passingly interesting it may be?  Well, it occurs to me that much of the work done by a compliance team, and even more so by the MLRO, is “cognitively demanding”.  It’s not just tick-box stuff: you are reviewing SARs submitted by staff, judging the quality and implications of CDD material, constantly assessing and reassessing risk against a changing background – all higher brain function stuff.  And if you’re doing it at 4pm, shattered because you’ve missed your lunch-break again, well, it makes sense that your decisions are going to be affected.  Definitely food for thought – mine’s a squishy chocolate chip cookie, thanks.