MICT’s own Money Laundering and Financial Crime Expert John can be seen showcasing his knowledge and expertise on the BBC programme about the Northern Bank Robbery. If you missed it, it is still available to watch on the BBC iplayer at the link below. Get in touch for further information on how MICT can help you and your business.
https://www.bbc.co.uk/iplayer/episode/m000vwxx/heist-the-northern-bank-robbery
Have you passed through an airport recently? Did you stop to chat with the armed police on patrol? No neither did I but if you did would your first comment be “how’s your year been and how many terrorists have you killed?” Just sounds wrong doesn’t it, there is also a good chance it will get you arrested in the wrong airport.
As an ex police officer I always notice them. I am sure for many seasoned travellers they are just background. I often wonder what they consider a good day at work and the answer is obvious. A day filled with tedium and nothingness. Their role is one of primarily prevention. Appropriately armed and trained they can and will respond if required but prevention is the purpose. So if nothing happens, “Job done”. An eminently sensible attitude and approach.
Turning to the world of AML/CFT, at every juncture Financial Institutions are told Prevent, Deter Detect and Report. I am sure it sounds familiar in one version or another, PDDR is the one I use. Yet it appears Prevent and Deter are missing from the mind-sets of many regulators. I have lost count of the number of clients who have told me that a regulator visit contains a request to see how many SARs and of what type the FI has made.
I have underlined deliberately the word request as the inspection team often develop a sulk when told they are there to carry out a Money Laundering Regulations compliance visit and SARS fall under the Proceeds of Crime Act and are outside their terms of reference.
Yet in our world the regulator considers how many SARs you have made to be a reasonable question and a benchmark that you are compliant, sometimes they are even cheeky enough to ask for sight of them. So prevention and deterrence by the use of a robust and fit for purpose AML/CFT regime are not enough. No one would be so naïve as to suggest that any system is fool proof, nor do I suggest that proficient money launderers won’t defeat the systems in place. What they will do is avoid the efficient and culturally compliant FI turning instead to the weak and stupid not to say criminally negligent and corrupt FI whenever possible.
That said detect and report are part of the equation and integral to it. That leads me to the title of this post.
Some compliance officers are either not sufficiently well trained, quite frankly not a good fit for the job or are frustrated criminal investigators. They suffer from the misapprehension that any anomalous behaviour by a client or prospective client is suspicious, that way they can justify what they are doing and are accordingly frustrated when unable to pick holes in an application hence COAST
Compliance Officer Absence (of) Suspicion Trauma
The existence of COAST leads them to become the dreaded Business Prevention Unit, resulting in a lack of confidence in them from Operational staff and dare I say it a lack of self-confidence and the just say no syndrome.
Sometimes a day without drama is a “Job done” day just as much as a day of saying no. Just a thought.
John Horan
It is accepted that one of the most invidious and prevalent forms of money laundering currently is Trade based. It generates huge amounts of money and is particularly difficult to identify without specialist skills and experience.
In the field of KYC and ID and V the tools to detect forgeries are becoming more sophisticated. The ability to check the validity of government issued documents by the use of OCR and a multitude of high tech innovations is seriously impacting on the use of false documentation. This ability is of course based on the standardisation and known parameters of such official documentation. The use of same fonts spacing etc. by an issuing body allows accurate evaluation.
So the use of minions (nothing to do with the movie!) or low level criminals is becoming more common. They are easily replaced and can be frightened into non-cooperation with authorities when arrested leaving the leaders of the OCG or Terrorist group retaining anonymity.
The use of such software in detecting trade based money laundering is limited. The regulators are suggesting/advising the inspection of invoices orders and shipping documentation. More boxes to tick. Unfortunately the same standardisation does not apply to commercial issued documentation such as invoices and the others mentioned as it does to officially issued documents. There is no obligation to use commercially provided accounting documentation and many companies do not do so. This lack of standardisation negates the use of bespoke software.
That said the money launderer will always try to minimise risk and given trade based money laundering is a collusive form of money laundering the solution for him is to actually move something with attendant “legitimate” documentation. Most financial institution compliance staff can spot a dodgy homemade invoice, shipping documentation creates more problems, so we are back to under and over invoicing.
While I suggest most people are aware that you cannot buy a bulldozer for $274 or sell olive oil at $7,930 a kilo (source Drs John Zdanowicz and Simon Pak Florida International University Miami) I doubt if their skills extend to the more exotic or unusual products. This means the compliance officer may have to rely on comparison websites or open source research on pricing or availability of a particular product. The problem with this approach is it is time consuming and the information may just not be available.
So what is the answer? There is no magic bullet. All the factors need to be taken into account. Who is the seller? What is known about them? Is the product common to their geographic area? Is there a known need for it in the purchaser’s area (coals to Newcastle)? Is the business new or well established? Does the owner meet the business profile? A 20yrs old male with no discernible business footprint is unlikely to be running an import/export business with a turnover in six figures for example, so are you dealing with a “face” rather than the true owner. So the key to combatting trade based money laundering is good KYC in its proper sense, stay away from those dreaded boxes that need ticking,
De-risking is fast becoming the default approach by Financial Institutions when faced with hard questions in respect of the need to continue or indeed establish a business relationship with a client or potential client.
The FX marketplace is yet again under increasing pressure as Barclays again exits from a number of existing clients and other banks are refusing to open accounts for these types of businesses. I have heard that the FX companies in question are being told it is not de-risking just a commercial decision yet they are only being asked AML questions prior to the dreaded letter telling them the bank is not open for their business.
The FATF attitude to de-risking is robust,
“De-risking can introduce risk and opacity into the global financial system, as the termination of account relationships has the potential to force entities, and persons into less regulated or unregulated channels. Moving funds through regulated, traceable channels may facilitate the implementation of anti-money laundering / countering the financing of terrorism (AML/CFT) measures”.
“It is central to our mandate to ensure that the global AML/CFT standard is well understood and accurately implemented, and that countries and their financial institutions are provided with support in designing AML/CFT measures that meet the goal of financial inclusion.” (Source FATF)
De risking is inherently lazy, rather than deal with the matter just get rid of it. Of course the answer given is usually “it’s not our fault we will be heavily penalised if the customer money launders”. Where does that come from? Can someone point me in the direction of a regulator who has come out with that statement?
Another explanation is it is too expensive to manage that client, really? No one in business is going to spend more on compliance that they make in profit, nor should they. Financial institutions are businesses first and foremost not social service providers, law enforcement agencies or the nation’s bulwark against financial crime (despite the hype to the contrary). That said opportunities are being missed.
Taking a calculated risk and on boarding a client with a “perceived” higher risk profile can lead to an increased profitability, and the added cachet of being both a forward thinker and the institution that is in the forefront of the fight against money laundering by its inclusive policies.
When training Financial Institutions I often tell them I can 100% eliminate money laundering in their bank. I can! Of course the bank will no longer have any customers as I will ratchet up the compliance levels to including asking for DNA samples and employing compliance officers in their hundreds to follow clients home or to work to ensure they have not been misleading the bank. Ludicrous thought isn’t it.
The FATF and others in recognising the impossibility of eliminating money laundering recommend a Risk Based Approach. This is particularly relevant when entering a relationship with another FI where that FI is in fact a client rather than a correspondent. Yet the rules when addressing a correspondent relationship work equally well with a Financial Institution client.
Ask for their policies and procedures, review them. Visit their premises, talk to their compliance and operational staff. Walk the scene, to use a police term. Does their attitude to compliance mirror or exceed your own? If it does then I suggest you can be satisfied. Then of course the risk averse will immediately counter with “What about their customers what if they are money laundering”?
The short answer is their customers are their responsibility, yours is to ensure they are not money laundering and they have adequate policies and procedures and are following them. That said the regulator(s) should also issue a clear unconditional statement that Financial Institutions are not responsible for their clients customers. Before anyone tells me they have already done so, can I emphasise without conditions.
MICT Ltd are delighted to welcome on board Hamid Kabir who brings to the role a wealth of international business development experience and has responsibility for developing MICT in the EMEA sectors.
Hamid holds a degree in International Business with German and has previously worked in HSBC and for the German International Development Ministry. He has also provided expertise for major multinational corporations with Headquarters in the UK, Germany and Russia. Hamid is a fluent Russian, Persian (Farsi) and German speaker. With an interest in good food, Persian and English poetry, Hamid is a contributor to Arabic and English speaking News Channels on issues as diverse as the poetry of Iran and the politics in the Middle East, specifically Afghanistan. To relax Hamid plays a mean game of chess.
The sentence below was reported by Brendan Carlin the political reporter for the Mail on Sunday as a quote from Charles Walker MP.
“…up to 150,000 people – those with any family link to all national and local politicians, civil servants, Army officers, City workers, financiers and diplomats – could have their money seized”
The quote is part of a larger article into the banks’ approach to the impending 4th Directive or 4MD which will bring domestic PEPs into the AML regime. A long overdue development. After all it is hubris to imagine only “nasty Jonny foreigner” is capable of misusing a position of power.
So it appears the banks are pre-empting the introduction into UK law by starting the process early, so far so good, or is it?
It is clear some UK PEPs have been approached by their bank and they and their relatives (PEPs by definition) are being questioned to establish source of wealth in respect of their accounts. That the approach is formulaic and heavy handed is obvious by the attendant howls of outrage of those questioned and the subliminal text of “we suspect you of money laundering hence the questions”.
So the banks are back to ticking boxes, I so hate this approach to fighting AML, it is not just lazy but ineffective not to say counterproductive, alienating clients and creating bad publicity. Are the banks unable to recognise a few simple facts? PEPs are not all similar: one size does not fit all. PEPs are not inherently bad, having a PEP client can add kudos to the bank. PEPs come in shades of grey (maybe not 50, but certainly not far off). Eliciting information without offending is a skill which can be taught.
So it is fair to say the banks are trying to do the right thing but with all the finesse and skill of a bull in a china shop. Has no one thought of training the staff asking the questions? Or indeed the compliance officers sending out the instructions?
Turning to that hysterical (as in hysterically funny) quote.
Are you as amazed as I am? Where did this nonsense come from? The quote is no doubt accurately reported so where did Mr Walker get his information from? There are a number of possible explanations, one is Mr Walker has put 1 and 1 together and got 11. It makes good headlines but is neither accurate nor believable. Another is he doesn’t get much air time and needs the publicity, a third possibility is a man down the pub told him, I have always liked that one, it is so often the explanation. Also where did up to 150,000 come from? When did a City worker become a PEP or a financier? Money seized by whom and under what legislation? The mind boggles.
Finally the FATF sets out clearly and concisely the issue of PEPs
HMRC who regulate a number of Financial Institutions such as MSBs and also DNFBPs such as Estate Agents are quick to criticise and keen to issue fines to show they take their duties seriously. Indeed their predecessor the Office of Fair Trading issued a whopping fine of £169,652 to Jackson Grundy an Estate Agency firm based in Northampton.
HMRC are also issuing fines for breaches. But let’s be clear they are procedural breaches, the miscreants have failed to tick the boxes. So we can assume that the regulator, which is such a stickler for detail, is itself a paragon of virtue, hardly!
The inspection teams of the regulators are focused almost entirely on inspecting compliance with the Money Laundering Regulations 2007, and so they should be, after all that is their remit. So during their visits they want to know about such compliance.
So why am I hearing horror stories of inspectors demanding to know how many, and of what type of SARs are being submitted by the Estate Agent or MSB being visited? Or are asking to see the SARs, though to be fair not all ask for them. What relevance has the number of SARs submitted got to the regulator? Apart from anything else it is outside their role. Even if told, how does it help them understand the agent’s compliance with the ML Regs. Are the inspectors qualified in AML/CFT, and on that point how many of them are trained Financial Investigators?
The current head of HMRC (her retirement has been announced for April this year) is Dame Lin Homer. HMRC have only managed to secure one prosecution from a list of 6,800 secret Swiss bank accounts, linked to British nationals, which were provided in 2010 by French authorities. (Sky News). A situation for which they have been heavily criticised.
Now unless I have missed the point, the accounts in question are secret to evade tax. Tax evasion is a criminal offence and one which is counted as a predicate offence for the purposes of money laundering. Therefore it is fair to say that anyone involved in such behaviour could be considered guilty of an offence under Section 327 and/or Section 328 of the Proceeds of Crime Act 2002. So why have there been no arrests or court cases? Is it just easier to punish the regulated for procedural breaches than to do your job? Perish the thought. Perhaps training up some of those (visiting the regulated sector to ensure compliance with the Regulations) as Financial Investigators and transferring their role to investigating money laundering could help.
One last point, if HMRC are not pursuing more of the 6,800 bank account holders for money laundering, are they guilty by so failing of the offence of Entering into an arrangement (Section 328). The sin of failure to act (omission) as opposed to the sin of active participation (commission). Just a tongue in cheek thought but is that not what the regulated sector are being punished for?
You will no doubt be aware of the visits that HMRC are currently paying to Estate Agents throughout the UK to assess compliance with the Money Laundering Regulations. Annual training is recommended and the regulations have been around for 12 years now!
Have you undertaken appropriate training which would be considered fit for purpose by HMRC? Don’t panic! Here at MICT, we offer bespoke training for Estate Agents and other regulated sectors and are offering a great £75 per person rate for Anti Money Laundering training in early February in Lisburn, at Vic-Ryn. These sessions have been tailored specifically for Estate Agents (although we will be running more sessions specifically for Solicitors and Accountants at a later date), and we can also offer an in-house training course for all your staff if required anywhere in the UK.
Contact us today for more information!
While we all wait for the 4th Directive on Money Laundering to pass into UK Law, let us look at where we are now.
From the perspective of an ex Financial Investigation Officer and Global MLRO, I despair at the bureaucratic approach to the whole area of AML.
From NCIS to SOCA to the NCA (and it had a name before that I just cannot recall it now) nothing other than the acronyms have changed. The same linear thinking permeates everything. “Let’s create boxes and tick them”.
The consent issue has dogged the regulated sector from its introduction in POCA way back in 2002. Numerous complaints have been made about the sheer impracticality of how to avoid telling a client why their money/house purchase/contract finalisation etc. has been delayed while the stressed SAR reporter awaits consent from the FIU. Indeed, if such a consent is refused and the 28-day moratorium period invoked, what do they do then with their client?
Criticism of consent has been met with howls of outrage from Law Enforcement on the grounds it is invaluable in the war on organised crime. Such was its alleged value it is being incorporated into 4MD (caveated to such as extent as to render it worthless).
Now Nigel Kirby who is the deputy director of the NCA economic crime command COMPLAINS reporting entities are using it to avoid carrying out their own obligations.
To quote Mr Kirby, “It does not seem right to me that it is the industry deciding what law enforcement looks at and does not look at,” (Source FT.com). I was under the impression that the FIU was supposed to examine all SARs, if that is not the case why are they being made? Of course the issue is that consent SARs require a response within a very tight time frame. The inference being that others are eventually examined.
While there may a resource issue for the FIU, why should it concern the reporting entity? The legislation requires SARs to be made as soon as practicable with no time relief for the reporter on the basis of lack of resources. Are we being told then that SARs are not examined unless the FIU are forced to do so, or at such a time as to render the examination meaningless? If not why Mr Kirby’s statement about what is and what is not looked at. I hope some sort of triage system is in place.
Unfortunately for the FIU HMIC has recently criticised the SAR regime in its entirety not just consent. In accepting the criticism, the NCA has admitted the system “was not effective or efficient for either the reporting sector or law enforcement” (source Buzzfeed). One issue is that a system designed to cope with 20,000 SARs a year is now expected to deal with 350,000+. What is the experience and competence of the FIU staff given disparate reporting entities of those entities?
MICT Limited are specialists in financial investigation and compliance training providing practical solutions to businesses in and across the United Kingdom, Europe, North America and Asia.
Monday-Friday 09:00-17:00
MICT Ltd | 86-90 Paul Street | 3rd Floor | London | EC2A 4NE
Telephone: 0207 125 0147 | 0289 262 1599 Email: info@mict-ltd.com
