Staying the course

Brace yourselves: this is going to be one of those posts where I have a vision of how it is all going to tie together, but it will take time.  I was at an event recently where I was told – to my combined delight and horror – that “everyone in AML reads your blog”.  I was entirely unaware of this: the only stats I get are from WordPress, which informs me that I currently have 1,006 followers; I have no way of knowing how many people are reading my posts on LinkedIn (to which I copy them automatically) or because other people have forwarded them.  So “everyone in AML” – that’s unexpected.  I am hugely gratified, of course, and would like to claim particular brilliance, but as with most things in my life, I think my success can be put down to stickability.  I am a great sticker-at things: once I start a project, I will always finish it.  (I bought a car in 1985 and still drive it today; I met a man in 1984 and reader, I married him.)

I mention all of this not to boast, but because I think it’s the characteristic I have in common with compliance people in general and MLROs in particular: we’re like a dog with a bone.  Not for us the quick buzz of a sale and then move on: we like to dig and pick and revisit until we really understand a client or a transaction or a situation.  And yet, this tendency is rarely recognised with any admiration: financial institutions reserve their praise for those who bring in profit rather than for those who prevent it being lost (to dodgy clients, or in regulatory fines, or in reputational damage).  In an entirely unscientific survey of the current Big Four banks in the UK (please don’t write in), I find that all four are led by individuals who have risen through the sales side of their organisation – not one has a compliance background.  Jes Staley of Barclays was in corporate finance and private banking; Noel Quinn of HSBC came through equity finance and commercial banking; António Horta-Osório or Lloyds Banking Group through corporate finance; and Ross McEwan of the Royal Bank of Scotland Group through securities and retail banking (he’s to be replaced next month by Alison Rose, whose career has been in commercial and private banking).  Perhaps it’s simply a matter of personality – sales people are better at selling themselves, while compliance people are happier in the background – but it would be interesting to see how a regulated firm would operate with a compliance expert at the helm.

So stickability: that’s the identifying characteristic of my tribe (and therefore presumably many of the “everyone in AML” readers of this blog).  Welcome to you all, and thanks for sticking with me: this blog started in 2011 and has continued without a break since then.  Perhaps it will turn out to be the part of my AML career for which I am best remembered.  At least it’s solved the problem of what to put on my gravestone: Susan Grossey – she really hated money laundering.

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Dutch courage

One of the dearest ambitions of my little AML-ish heart has been to participate in a think-tank or colloquium or workshop or similar learned gathering, with the aim of influencing AML strategy.  I want to take part not for the splendid biscuits – although I believe that participants are usually well-rewarded in the baked goods department – but for the co-operative atmosphere.  I know that regular readers will be sick of this particular drum and my banging of it, but it is called “organised crime” for good reason: criminals co-operate to their mutual benefit, sharing expertise and laundering methods and the names of likely victims and professional accomplices.  We, on the side of the angels, make mealy-mouthed excuses about commercial confidentiality and sectoral differences.  I’ve ranted about it recently, in my plea for a repository of case studies for more lively training.

But lo! what is this I read in the Dutch press?  A month ago the Dutch banking association (Nederlandse Vereniging van Banken, or NVB) announced that five Dutch banks – ABN AMRO, ING, Rabobank, Triodos Bank and de Volksbank – have agreed to set up an organisation that will monitor payment transactions: Transaction Monitoring Netherlands (TMNL).  The five banks and the NVB will spend the next six months checking the technical and legal challenges, but the aim is to monitor their combined transactions – all 27 million transactions a day, across the five banks – to spot money laundering.  If it goes well, other banks will be invited to join.  As we know, money launderers do like to share their money around, so each bank looking at its own transactions in isolation is really not the best approach.  As the NVB puts it: “The combining of transactions effected by the various banks is expected to make it easier to spot flows of criminal funds.”  It won’t be easy, we know that, but then good, effective changes rarely are.  Of course, TMNL will not be the very first example of competitor banks co-operating on an IT project: that is probably the SWIFT system, set up in 1973.  Here’s hoping that TMNL becomes as much of an industry standard – and that we don’t have to wait another forty-six years for the next co-operative initiative.

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The stink of money laundering

Have you ever fibbed slightly about what you do for a living (that you work in AML) in order to avoid yet another tedious story about someone’s grandma who was with her bank for 312 years and STILL had to prove her identity when she wanted to pay in a cheque for £3 million when she sold her council house?  I know I have: I just say I work in finance, which gets rid of most people pretty sharpish.  And of course the more rabid end of the press is full of tales of woe from people who have been asked to take in their passport to their local bank branch or give an explanation for source of funds and really don’t think they should have to.  Which is what made me sit up and take notice – and cheer rather loudly, which startled the office cat – when I read this on one of my news alerts at the weekend.

On the This is Money website, financial journalist Tony Hetherington responded to a question from “Ms J W”, which was this: “I have had my Barclays accounts since 2014, when I was a student, before moving to Gibraltar.  My balances of almost £25,000 have been wiped clean by the bank, without notice.  All my transactions are normal, but now I am left with no money.”  I sighed, expecting the usual “poor you, you’ve been caught in the fiendish web of over-zealous AML checks, I will take up the cudgel on your behalf and here’s hoping the ill-informed and overly-pedantic bank staff learn their lesson” – but no!  Mr Hetherington’s response is entirely unexpected.

“I receive letters like yours quite often.”  (I bet he does.)  “If a bank suspects a customer of money laundering, it must freeze the account.  This does not mean the money is lost, but it is temporarily blocked.”  (Excellent explanation.)  “That’s what I thought had happened, but your own experience is more serious.  The National Crime Agency uncovered evidence that you and other current or former overseas students at British universities were laundering criminal cash from China.  NCA investigators won a court order to freeze 95 bank accounts holding about £3.6 million – rather more than you might expect to be held by students or recent graduates.  More than a dozen pages of evidence about your own accounts” (a dozen pages – I’m now wondering why on earth Ms J W wrote in in the first place) “highlight three deposits at a bank in Wood Green in London: £4,000, another £4,000, and then £3,560.  These separate deposits were made in cash over the space of seven minutes.  Four days later, there were three separate cash deposits in less than 30 minutes at a bank in Knightsbridge, totalling £8,000.  And two days after that, more than £3,000 in cash was deposited at a bank in Canary Wharf.  On the day those deposits were made in Wood Green, your debit card was used repeatedly in Gibraltar and you have confirmed to me that you were there.  You have told me that the cash deposits in London were made by a currency exchange firm that turned Chinese funds into sterling, though why the firm would make multiple cash deposits just minutes apart is unexplained.  It has the stink of money laundering and the NCA was completely right to take action.”

Mr Hetherington, you have restored my faith in financial journalism – and I may have your final sentence printed onto a t-shirt to wear under my work clothes (no-one will see it, but I’ll know it’s there and will take succour from it at difficult moments).

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The smile on the crocodile

As regular readers will know, last month I spent two weeks in Botswana, on safari.  We saw all the usual amazing beasts (elephants using their trunks as snorkels!), but perhaps the most alarming were the crocodiles – enormous, prehistoric and terrifying.  At the same time as we were making sure not to dangle any body parts in the croc-infested waters, the Most Serene Republic of San Marino (yes, that’s its real name) announced that it had confiscated €19 million that had allegedly been deposited in local bank accounts by Denis Sassou Nguesso – president of the Republic of Congo since 1997.  The Sassou Nguesso family is not known for its poverty, nor for its open manner of doing business: Global Witness reckons that the president, his son Denis Christel and his daughter Claudia have all had their hand in the state’s till.

San Marino has been running a money laundering investigation and the €19 million is only part of the €69 million deposited in thirty-six accounts in San Marino’s banks by the president and his relatives and cronies between 2006 and 2011.  Not all the money was socked away for future use: investigators’ notes reveal that, alongside the usual blingy watches and luxurious hotel stays, Sassou Nguesso spent €114,000 on crocodile skin shoes.  It’s hard to know which reptiles are more scary: the ones in the rivers, or the ones in power who wear them.

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An officer and a target

I’m very familiar with the work of Money Laundering Reporting Officers, Money Laundering Compliance Officers, general compliance officers and police officers.  But I had never heard of Section 151 officers until a money laundering story of relevance to them popped up on one of the news feeds that I follow.  Section 151 refers to a part of the UK’s Local Government Act 1972 (now don’t all rush that link at once and crash the government website), and this section requires every local authority to appoint a suitably qualified officer responsible for the proper administration of its financial affairs – hence the Section 151 officer.  These people have their own dedicated online news and discussion forum called Room151, and it was here that a warning appeared in August (traditionally the silly season for government, but this warning is deadly serious).  In the wake of the NCA’s recent annual report, the Chartered Institute of Public Finance and Accountancy has been reminding its members that money laundering is a big deal, and that with the new powers introduced by the Criminal Finances Act 2017 (I assume here they are talking about UWOs), Section 151 officers should be vigilant.  As Marc McAuley, head of counter fraud services at CIPFA, put it: “Councils should put in place appropriate and proportionate AML safeguards.  Anyone who has enabled a transaction linked to money laundering could be liable – especially if the person behind the crime has been designated as a PEP.”

So, for those of us unfamiliar with the ways of local government, how could they be at risk?  Two suggestions offered by CIPFA are:

  • Signing rent contracts on housing properties where the landlord is running a front company to launder drug money
  • Organised crime groups could take on public sector contracts, thereby defrauding the government and also creating a legitimate-looking front for money laundering and other criminality (such as modern slavery offences).

Mr McAuley advises his readers: “Whilst local authorities are not directly covered by the requirements of the regulations, CIPFA would advise that councils should comply with the underlying spirit of the legislation.”

This is music to my ears.  I am more used to sectors trying to find ways out of their AML obligations – even sectors who are categorically included in those obligations.  But a sector that is not covered and still thinks it’s a good idea – well, I am delighted.  And of course it makes sense.  As we (quite correctly) make it harder for criminals to launder their money through the regulated sector, their wicked little thoughts are bound to turn to the unregulated sector.  To be frank, if you deal with money in any way, you can be sure that criminals somewhere are trying to devise a way to use you for laundering, so you might as well be ahead of the curve.

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From little acorns

Apologies for the confusion at the start of my blog post on 4 September: I was not back at all, but actually watching elephants swimming in Botswana.  I wrote a couple of posts in advance, to cover my absence, and then moved them around at the last minute without noticing the mistake.  I am now genuinely, really, honestly and totally back home.

In the spirit of sharing real-life examples and near misses, I offer this cautionary tale.  I was recently discussing a money laundering case with a financial investigator.  Underlying it all was a story as old as time: a young woman had convinced an older man that, if he really loved her in the way he professed (of which she needed to be certain before sharing her womanly favours with him), he would lend her large amounts of money to invest in her business.  When he did (both love and lend), she spent the lot on bling-y fripperies and general high living.  When denied the favours to which he felt entitled, the poor fellow had eventually taken his tale of woe to the police, who thought they might be able to bring charges of fraud and money laundering.  Central to it all were those fripperies (now that’s not a sentence you read every day).  They visited the young lady and had a snoop around her apartment, but she lived seemingly modestly, surrounded by minimal bling.  And then they asked for her bank statements.

Now, they weren’t expecting to find much, to be honest.  The lovesick swain had demonstrated his love by handing over wads of cash (she told him it was simpler), so the investigators doubted they would see much movement through the bank.  But then they spied something interesting: a monthly payment to one of these self-storage places, for three large containers.  A search warrant was obtained for the containers, et voilà – fripperies as far as the eye could see.

The monthly storage charge on the bank account is the sort of tiny detail that might escape notice.  It’s a handy example to pass on to staff, of something seemingly innocuous that could – in a due diligence exercise – raise questions.

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Family values

As I hope is clear from this blog, I work with clients from all over the regulated sector – although I will admit that I have very few law firms (because lawyers like to be trained by other lawyers) and very few estate agents (because, well, they’re estate agents and just can’t accept that they have to do all this AML stuff).  But the proportions of my client base do change: sometimes I will have more fiduciary firms, and then the banks get interested, and in the past three or four years I have taken on more clients in the gambling sector.  And one area of strong recent growth for me is family offices.

When I first heard the term, I had images of “Dallas” and JR, wheelin’ and dealin’, darlin’.  But turning to industry dictionary Investopedia, we learn that a “family offices are private wealth management advisory firms that serve ultra-high-net-worth (UHNW) investors – they are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family”.  And I have noticed that in their elegant offices they tend to have rather superior biscuits, no doubt intended for the UHNWIs but gratefully snarfed by me.  But all is not well in the rarefied world of the family office, for money launderers – the little devils – have realised their potential.

It could be argued that we AMLers are not helping the cause: as AML obligations around PEPs (politically exposed persons) and other high-risk clients are increased, the more familiar, larger institutions may come to the conclusion that it’s all too much trouble, and decline to take them on as clients.  They then turn to more boutique firms, who need the business and might be willing to be that little bit more… accommodating when it comes to CDD.  We can’t say too much at the moment, for obvious reasons, but it seems that Jahangir Hajijev of Azerbaijan and his family (including his wife, of UWO fame) made extensive use of the family office services of Werner Capital in Belgravia – I bet their biccies are top-notch.  Although family offices could – quite rightly – say that they know their clients really well, it must be remembered that their clients will generally be really complicated, with – to put it simply – lots of money all over the place.  Checking source of wealth and source of funds for such people will be a full-time job.  Keeping track of their close associates will not be an easy task.  And then we have the age-old problem of client capture: if your entire livelihood depends on one client, how likely are you to rock the boat by reporting a suspicion about that client?

In the US there is an organisation called the Family Office Association, which offers guidance, training and networking to its members, and that seems a good idea – but a search on the word “laundering” on their website brings up no matches at all, which suggests that it is not on their radar.  This will not have escaped the notice of money launderers.

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A case in point

I’m ba-ack!  So let’s leap straight in with a complaint.  As every MLRO knows, nothing enlivens an AML training session like a story – known officially as a case study.  At the moment, staff are lapping up details of “the £16 million Harrods woman” and “the Assad niece living in luxury in Knightsbridge”.  But these are the big public stories of high-level political corruption – and arguably not the laundering worries that most people in the financial sector are going to be tackling every day.  Moreover, stories make it into the media only when official allegations have been made or – more commonly – once verdicts have been passed by the court.  And, as we all know, the “near miss” can be just as good a training opportunity.  Quoting lists of “red flag” indicators gleaned from industry reports does not make it real enough for people – it does not make them stop short and think, “That could easily have been me”.

I am frequently asked by clients to include case studies in my training.  But they must be relevant to our sector, they say, and they must be current.  This is not unreasonable – but where am I to find such stories?  Of course I fillet the case studies and best practice guidelines issued by regulators, and I sometimes pinch stuff from other jurisdictions and pretend it’s local.  I also ask MLROs if they have any tales from their own organisation – actual laundering, or near misses – and the answer is nearly always this: “Yes, but we can’t tell you about them and we don’t want staff to know.”  (Before I get waves of outrage about SARs and tipping off, I mean either instances where concerns were raised and then allayed, or ones where the investigation is now done and dusted.)  One MLRO even said that he wouldn’t be happy for staff to know about how a particular laundering scheme had (almost) worked because “it might give them ideas”.

What would be ideal as a training resource is a library of detailed yet engaging case studies.  But who could be trusted – or indeed bothered – to maintain such a thing?  The Egmont Group – the trade body for FIUs – does some work in this area, but their last set of case studies was published after the Best Egmont Case Awards in 2013.  (And these are grouped by jurisdiction and predicate crime rather than by affected sector, so you need to read a lot to find ones that are most relevant.)  You can use final notices and best practice indicators from regulators to cobble together stories, but it’s hard work.  So come on, MLROs: who’s up for submitting in-house tales of woe, suitably anonymised, to a central repository to be used for the good of all AML training?

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Words speaking louder than actions

Now I know it’s important to Think Big – to have goals and targets and ambition.  But you can take it too far.  And I rather think that in their recent “Economic Crime Plan 2019-2022” the joint forces of HMG and UK Finance (which I understand is the jazzy new branding for the British Bankers’ Association and a few others) have done just this.

Turn, if you will, to page 17, to the section titled “Project and commitments”.  Now, I am a world-class list-maker.  My bullet points go down to four levels – so we’re talking semi-professional planning.  But I have yet to create a table of 52 actions (it’s just occurred to me: is that one a week?).  And some of these are really, really formidable.  “Develop framework to repatriate funds to victims of fraud”, for instance, and “develop a sustainable, long-term resourcing model for economic crime reform”.  The Pollyanna side of my nature has been beaten into submission by the barrage of frankly ludicrous “promises” made by those who are trying to convince us that Brexit will be a little bump in the road, easily negotiated, and so I have no appetite for long lists of holy grails – particularly when none of the five actions related to “Better information-sharing” even features the word “international”.  And as for the five actions related to “International strategy”, all five are apparently “ongoing” – so no target date for improvement or completion.

But perhaps it makes sense when I read that this plan was signed off by Home Secretary Sajid Javid and Chancellor Philip Hammond – neither of whom holds that office any longer.

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So near and yet so far

At the end of June 2019, the UK’s Gambling Commission – one of our five-star AML regulators, getting top marks from users for both approachability and communication – published its 2018 money laundering and terrorist financing risk assessment.  This examines all incarnations of the gambling industry in the UK – arcades, gaming machines, lotteries, betting (remote and non-remote), bingo (remote and non-remote) and casinos (remote and non-remote) – and assigns to each a risk rating.  The money laundering risk ratings vary across the risk spectrum, while all forms of gambling are considered medium risk for terrorist financing.

For those of us unfamiliar with the gambling world, this report provides a timely explanation of the sector as it works now: gone are the days of perching at green baize tables, wreathed in smoke and kissing the dice for luck.  For instance, did you know that arcades now offer “privacy booths” for certain gaming machines [the mind boggles as to what might require privacy…] which makes it harder to supervise their use?  The increase in cashless payments further reduces customer interaction with staff.  And the latest technological advance – Bring Your Own Device – means that “a customer could place bets without needing an account or interacting with employees of the operator” (although this has yet to happen in the UK).  Add to this the increase in the use of crypto-currencies, as well as the continued use of informal value transfer systems (such as hawala) to fund accounts and a theme develops: no matter whether the gambling provider is technically non-remote (i.e. a real-life, physical premises), much of the money is moving in a remote manner that increases the risk of it evading due diligence checks and adequate monitoring.  And that’s a gamble none of us wants to take.

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