Blind faith

The term “professional enabler” has a menacing tone to it, I always think.  We started hearing it back in 2014, when the UK’s National Crime Agency, in its “High End Money Laundering Strategy and Action Plan”, observed this: “The ability of criminals to launder large sums of money themselves without attracting attention is limited.  Therefore, criminals need someone professional, capable and trustworthy to make the necessary arrangements.  Although there are many ways to launder money, it is often the professional enabler who holds the key to the kind of complex processes that can provide the necessary anonymity for the criminal.  Professionals such as lawyers, trust and company formation agents, investment bankers and accountants are among those at greatest risk of becoming involved, either wittingly or unwittingly.”  Wittingly, we all gasped – surely not!  And yet… an interesting story was forwarded to me last week by Roy in Jersey (thanks, Roy).

On 22 June 2018 Chester barrister Peter Moss was jailed for eighteen months for tax fraud: he earned more than £600,000 over an eight-year period but failed to submit twenty-six VAT returns, and the last self-assessment tax return he submitted was in 1999.  HMRC reckon that he defrauded them of about £138,500.  His defence was that, although he knew he should have submitted returns, he didn’t realise that it was an offence not to do so.  This was despite earlier warnings from HMRC.  Oh, and the fact that Mr Moss specialises in cases of serious fraud.  (Usually committed by other people but, as it turns out, not always.)

Staff in training sessions sometimes ask me why they have to do CDD checks when the client already has a bank account, or has been introduced by a reputable solicitor or accountant.  “They’ve already done the checks, surely, so why should we do them again?”  But if a barrister can come equipped with the blindest eye since Helen Keller, and with HMRC currently leading a research project into the risk posed by professional enablers, I think we have our answer.  Or, as Mr Moss might once have said, I rest my case, m’lud.

Posted in AML, Fraud, Money laundering | Tagged , , , , , , , , | 4 Comments

Going to pot

There is much in the news at the moment about marijuana – legalisation, therapeutic benefits, different strains (Tom Cruise Purple, or Sour Diesel, anyone?).  I have never come within puff of any drug, as I grew up in Singapore where any drug-related conviction could lead to death or – worse – the deportation for life of one’s whole family, including apoplectic parents.  But I am very interested (colour you surprised) in the financial ramifications of the status of drugs.  In short, if trading in a drug is legalised, handling the money from that trade cannot be money laundering.  As has happened in, for instance, California.  But marijuana sellers have hit a snag.  They take their – now completely legally derived – proceeds to their bank to pay it in.  But because marijuana is classified by the federal government as a Schedule 1 drug, federally-insured financial institutions cannot process cannabis-related transactions without the risk of facing money laundering charges.  This is such an problem that California has actually seen an increase in cash transportation, with armoured trucks carrying sacks of cash from sellers to suppliers.  Convictions for dealing in marijuana have been eliminated, only to be replaced by convictions for armed robbery of cash trucks.

And so someone has suggested setting up what have inevitably become known as pot banks.  At the end of May 2018, the California Senate passed a bill to create a state charter for banks to serve California cannabis businesses.  The bill would establish banks and credit unions, regulated by the Department of Business Oversight, that could process deposits, withdrawals and other transactions by cannabis businesses.  Cannabis businesses would be issued with special-purpose cheques which could be used to pay rent and taxes (aye, there’s the rub – California is keen to maximise revenue from its lucrative new industry), and to make payments to California-based vendors, but not for much else.  Banks and credit unions licensed under the legislation would be able to form a network to facilitate the provision of cannabis banking services, but the legislation would bar them from engaging in banking activity with any other bank or credit union.  SB930 – as the bill is designated – now heads to the state Assembly for further deliberation. Although if the Assembly members sample the product, that could take some time.

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Tainted treasures indeed

I have always been a swot, living mainly in my head.  Physically I’ve never been much cop; I was always the one picked last – and even then, reluctantly – for sports teams, and my clumsiness is legendary.  But in the same way as other people marvel at a fiendish goal or a world-beating marathon time, I thrill to a nifty piece of deductive reasoning.  Let me give an example.

We all know that rich people like to buy nice stuff – whether they have come by their wealth honestly, or whether they have pinched it or otherwise acquired it dishonestly.  That’s a fairly simple deduction to make: rich = buying luxury goods.  And indeed that was the main reason behind the publication in April 2017 of Transparency International’s interesting report “Tainted treasures: Money laundering risks in luxury markets”.  In it, they argue for the adoption of sellers of luxury goods into the AML family, the adoption bringing with it regulation and supervision requiring those sellers to undertake the standard AML steps: due diligence, record-keeping, reporting of suspicion, and staff training.  But tucked away in the report’s conclusion was the deduction that I had never made, even though – in the words of Basil Fawlty – it’s bleeding obvious: “The desire to own luxury items can be a primary motivation for corrupt behaviour.  While the psychological motivation of individuals engaged in corruption is an under-researched field, the behaviour of kleptocrats who amass multiple luxury properties and items in a short period of time suggests owning these goods was one of the goals of the corrupt activity.  The same does not apply to other high-risk business sectors; few if any corrupt deals have, for example, the ultimate goal of paying accounting fees.”

Isn’t it obvious now you read it?  Many criminals launder money through the purchase of luxury goods, but some become criminals in the first place in order to own those luxury goods.  In recent weeks Malaysians have been “transfixed”, as the local press would have it, “by the sight of truckloads of orange boxes containing Hermès Birkin handbags and luggage filled with cash and jewellery being seized from flats linked the former Prime Minister Najib Razak”, who is being investigated for his part in setting up the 1MDB state investment fund (now suspected of being a vehicle for corruption and a front for money laundering).  The sensationalism of the event was maximised, as the police raid was live-streamed on social media.  And with Razak’s wife Rosmah Mansor being compared with Imelda Marcos – another insatiable consumer of luxury goods – it seems that Transparency International’s deduction is right on the money.  I shall tuck it away for future use.

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E for effort

Here I am, back from my holiday, refreshed and raring to go.  I will admit that I was feeling rather jaded before my break, and wondering whether AML – or more specifically, AML and I – had run its course.  As I mentioned in a previous post, one of my workshops was rather poorly attended.  And then there was the damnation with faint praise.  Someone contacted me, asking for information, and observed that they had been given my name by a colleague who found my services “mildly helpful”.  After a quarter-century of living and breathing AML, this rather rocked me back on my heels.  But I have decided to be amused by it, and have instructed my husband to put it on my gravestone: Here lies Susan Grossey – beloved wife and mildly helpful.

However, there is often a grain of truth in such comments, and while I was away I started to wonder whether I am indeed spending my AML energy where it can do the most good.  Some time ago I stopped tweeting in the AML community (I still tweet in my other persona, as an author of historical financial crime novels – @ConstablePlank).  Do you miss my AML tweets?  I stopped partly because I was told that in the regulated community very few people are allowed to access Twitter at work, so it seemed a bit pointless to target a market that was not allowed to read me.  But should I tweet again?

And on my company website, I have a Newsroom.  Every day I check numerous news sources and put links to relevant stories on this page.  I have quite specific requirements – it can’t be rumour/gossip, and I prefer to report convictions rather than charges, although I will make an exception for well-known names – and it does take about thirty minutes a day to check all relevant stories and select the ones to link.  Do you even know about the Newsroom?  Is it worth doing?

With your feedback, who knows?  By this time next year, I might have bumped up my rating to a dizzying “rather helpful”.

Posted in AML, General thoughts, Training | Tagged , , , , , , | 14 Comments

Source for the goose

I am about to shut down for a fortnight’s holiday – my next blog post will be on Monday 18 June – but I thought I would like to leave you with a clever idea to mull.  No, it’s not my clever idea: it’s one from a recently-published book called “Radical Markets: Uprooting Capitalism and Democracy for a Just Society” by Eric Posner (a law professor at the University of Chicago) and Glen Weyl (an economist at Microsoft).  I’d like to claim that I picked it up for holiday reading but honesty demands that I admit to reading a review of it in The Economist.

As the MLROs among you will know, one of the most vexed aspect of AML is “source of funds” and its even more complicated and opaque cousin “source of wealth”.  (The former is the money used for one particular transaction; the latter is a client’s wealth in general.)  Most AML legislation requires that, for high risk clients at least, firms “take adequate measures” or “make reasonable efforts” to ascertain source of funds for each transaction, and source of wealth in general – with the aim being to ensure that they are not accepting the proceeds of crime (often, money stolen from the public purse by corrupt leaders).  As you can imagine, getting clients to tell the whole story is tricky enough – after all, can you remember the original source of all of your assets?  And getting them to prove the entire story with documentary evidence is nigh on impossible.  But Posner and Weyl have come up with a suggestion – albeit conceived with a different purpose in mind – which could be interesting…

In their book, the pair look at the difficulty of getting people – particularly wealthy people – to declare all of their assets, as a precursor to being able to tax them efficiently.  And this is their suggestion (as explained in the book review in The Economist – I shall now admit that I have read only the review, not the book itself…): “Every individual would put a value on each item she owned, down to the last pencil (potentially a laborious exercise), and would be taxed on her total declared wealth.  The twist: she must stand ready to sell any item at its declared value, should a buyer emerge.  To see off interested purchasers, she would have to set the value high, and thus incur a hefty tax that would compensate society.  If she set the price low, to minimise her tax burden, her assets would be bought up.”

Might such an approach work during source of wealth enquiries?  I’ll leave you with that (slightly mischievous) thought as I disappear from view for a fortnight.

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The back of beyond

When delivering AML training I like to include what clients often call “case studies”, but which are really just stories about how money laundering can happen.  The temptation is to focus on the big stories – the corrupt PEPs and the kleptocrats squirrelling away billions – but the stories that tend to have the greatest impact are those that are closer to home.  If I can show, for instance, the staff of a regional accountancy firm a money laundering story set in their home town and involving an industry with which they are familiar – rather than another Russian squillionaire parking another enormous yacht in Monaco – then they take away the most important AML lesson of all: there but for the grace of God…

And so I was thrilled recently to read about some local people traffickers being caught.  I live in East Anglia – the bulge sticking out of the eastern side of England – and it’s a fairly agricultural and rural area.  We have lots of farming: fruit, vegetables, chickens and pigs for the most part, all of which is labour-intensive.  And so East Anglia is a big user of seasonal migrant workers (we daren’t even think what might happen post-Brexit), and we have had quite a few people trafficking incidents.  But this one caught my eye because it involved Southwold.  Southwold.

To imagine Southwold, think of every Enid Blyton story you have ever read.  Imagine a sandy-ish beach with colourful beach huts and a pier with a penny arcade.  Imagine tea-shops, a hardware emporium selling buckets and spades, and a 70-seat independent cinema.  Imagine no railway station.  And into this 1950s environment three Ukrainian men sailed a yacht, the Flamingo, carrying nineteen illegal migrants.  By the time the Border Force vessel moved in on them, ten migrants were already in lorries on their way to Ipswich.  The three perpetrators have been jailed for trafficking offences and will be deported at the end of their sentences.  The next time someone suggests that I may be over-dramatising the risk from organised crime, I shall mention Southwold.

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

Hiding their light

A little while ago I had a moan (I know – hard to believe) about HMRC failing to publish information about its AML activities.  But it turns out that the fault is partly mine: I am just not looking hard enough.  Put on your deerstalker and follow me…

As part of my visceral need to know EVERYTHING that anyone is ever thinking about AML, I have set up a search on the website TheyWorkForYou – I have recommended this before.  Most of the alerts are fairly pedestrian, with some MP or other late to the party commenting in outrage that money laundering is a Bad Thing.  But on 17 May 2018 Mel Stride (Paymaster General – probably one of the best job titles in the country) was providing a written answer to a question about HMRC’s AML endeavours, and he mentioned this: “The action HMRC takes to discharge those [AML] supervisory responsibilities and its wider role in tackling financial crime, including support to government initiatives on targeting illicit finances, are described in a recent publication ‘Report on Tackling Financial Crime in the Supervised Sectors 2015-2017’.”  Eh?  I’d never even heard of this report, despite it being – as they say across the pond – right in my ballpark.

Over I clicked with alacrity, as you may wish to do as well – here it is.  And as I feverishly read, I came across all sorts of goodies, including a reference to this excellent story about a London couple who ran a money laundering business under the guise of three bureaux de change in central London and were subsequently stripped of assets worth more than a million pounds by HMRC’s Fraud Investigation Service.

So why did I have to dig so hard to find this story?  Why is HMRC not shouting its triumphs from the spectacular rooftop of 100 Parliament Street?  Or at least sending them out as press releases to those of us who – sadly – subscribe to their alerts?

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Those of us who do AML for a living can sometimes focus on the big stories – the laundering of billions by corrupt PEPs, the emptying of state coffers by oligarchs, the earning of untold wealth by drug barons.  But sometimes simple is best, requiring only determination and people with time on their hands (but sadly, in this case, not much brain in their heads).

Greater Manchester Police are celebrating a successful outcome to Operation Speedway, which targeted an organised crime gang committing robberies on cash delivery vans in Cheetham Hill and Broughton.  [I spotted the story because my mum was born in Broughton and I like to keep an eye on the place.]   Between August 2016 and June 2017 the gang robbed ten vans making cash deliveries to ATMs in banks and shops, often threatening staff with machetes before making off on stolen motorbikes with, as Harry Enfield would have it, loadsamoney.  And then they set about laundering it – and here they came unstuck.

As the cash had been dye-stained by security devices during the course of the robberies, the gang had to use machines rather than people and so they visited nearly fifty betting shops, depositing the dirty (in both senses) cash in fixed-odds betting machines and generating credit slips which they then exchanged for clean banknotes.  It worked for a while, but one day a cashier in a betting shop did not have enough cash to pay out against the credit slip and suggested that the player (aka robber) open an online account.  The player/robber started filling in an application form but then thought better of it – and left the part-completed form behind with his fingerprints and a phone number on it.

On 4 May 2018, the ringleader Dario Eastcroft was jailed for twelve years for robbery and money laundering, and sixteen other men received sentences totalling 112 years.  It’s worth remembering that laundering is done at all levels, from the most sophisticated to the least complicated – you can bet on it.

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Unsung heroes

My busiest jurisdiction – despite my post a few days ago – is Guernsey.  Working for Guernsey clients takes up about 60% of my time, and thanks to the approachability of their FIU (and in the past – but sadly no longer – their regulator) I feel that I have a deeper understanding of their AML regime, vulnerabilities and concerns than those of my own jurisdiction.  Of course my clients are self-selecting (in other words, I see only people who take AML seriously), but even allowing for this I would say that the Guernsey regulated sector is more determined than most to get it right.  And so it is particularly galling for them that when they have a mutual assessment, as they last did in October 2014, with the report published in September 2015, they read this sort of thing: “Although the number of money laundering investigations, prosecutions and convictions [has] increased… the overall level remains low and there is a discrepancy between the numbers of investigated money laundering cases and final convictions.”

I want to smite my forehead, roll my eyes and say (as I did when a teenager), “Well, duh!”.  Guernsey is a lovely place – great beaches, excellent food, wonderful flowers – but it is a small island.  It’s quite important in world financial terms, but still a junior player in volume and value of transactions.  It is extremely safe, with local crimes being mostly of the “someone hit my wing mirror and drove off without leaving a note” variety.  When money laundering does happen in Guernsey, it is almost exclusively of the proceeds from crimes committed overseas, with Guernsey simply one of the layers in the scheme.  The local regulated sector is good at picking up on – and reporting – that kind of suspicion.  The local FIU is good at sharing that information with their more directly concerned counterparts in overseas FIUs – who in turn are good at taking on responsibility for investigating and convicting.  All of this means that the conviction eventually ends up on someone else’s scorecard, with the result that Guernsey’s money laundering conviction rates look low compared to their level of financial activity.  It does not mean that there is lots of laundering that they are missing/permitting.

And now, thank goodness, another jurisdiction has spotted the same trend.  On 30 April Hong Kong published its first-ever national risk assessment.  And at its launch, a spokesperson from the HK Police Force was quoted in the South China Morning Post as commenting that HK is often a “transition spot” for international cases: “We do not have enough evidence to arrest the culprits in Hong Kong.  They might not be physically here.  But we can share the information we have with our overseas counterparts to assist them in further investigations or possible prosecution.  Money laundering is a global matter, and intelligence matters.”  Indeed it does – for without intelligence there would be no convictions at all, on anyone’s scorecard.  Measuring AML success purely by raw conviction figures is too simplistic.  Perhaps every FIU that participates in a money laundering investigation by contributing intelligence should be awarded points to count towards local statistics, as the current system of mentioning that the FIU has “responded to x number of international requests for assistance” tends to get lost along the way, and its significance is never appreciated.

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Confession is good for the soul

Today’s question: in what way is an AML trainer like a Catholic priest?  Let me set the scene (which I shall keep deliberately vague, for reasons that shall become obvious).  Some time ago I was invited in to see a potential new client.  At the meeting were the rather harassed-looking compliance director and MLRO.  We haven’t given our staff AML training before, they said, apart from a quick online test thing.  From talking with our staff – particularly the client-facing people – we are very concerned about their lack of AML knowledge, and have come across several instances where we would have expected an internal SAR to have been made, but nothing has materialised.  In fact, we have never had a single SAR, despite being in business for several years.  We desperately need AML training.  Can you help?  Of course I can, said I, taking copious notes.  Looking back at those notes now, I see phrases like “money often returned to client no questions asked” and “staff think that small amounts cannot be laundering”.  We agreed that I would design face-to-face AML training for their staff.  Later in the process, I was trying to communicate with my contacts and had difficulty – no replies to emails or voicemails.  It transpired that all the people I had dealt with had left the company, and that the replacements had decided that this AML training was no longer a priority.  And that was that.

Of course, this is not the first time I have heard of – or imagined – poor AML compliance within a firm.  That’s my job, after all: to help MLROs do this AML stuff better.  And it’s not that I suspect actual money laundering, which would be simpler, as I would simply make a SAR myself to the appropriate FIU.  I just think their AML efforts are a bit pants.  I could give the nod to their regulator, I suppose, but then firms would – quite rightly – become chary of discussing their concerns with me.  And it could all be a cover story, which they have wheeled out in order to save the embarrassment of having to explain to me that they have chosen another training option after all.  And so, like the good priest, I simply nod and listen – and wish that I could prescribe a few recitations of the AML legislation as atonement.

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