The tone and sentiment of this statement was that the fight against crime would be prioritised over commercial advantage and that ‘a line in the sand’ was being drawn. Coming more than 25 years after the start of the FATF group, I’m afraid that this reminded me of my own parental conduct when I have to reprimand my little princesses for their high jinks. ‘No, I really mean it this time. Honestly, I do!’
So why now and why today?
Reports on links to crime in the UK are not new. Could it be that the public exposure of these issues by the wider mass media, such as that aired by Channel Four suggesting less than apparently enthusiastic disclosure procedures by London estate agents when ‘Boris’ the doubtful Russian minister solicited help in laundering his illicit Russian ministerial funds, or pictures of a compromised Lord in the tabloids, have a far greater impact on our leader’s consciousness than the courageous integrity and diligent reporting demonstrated by groups such as the ICIJ, Transparency International (TI) and even the NCA, who have been reporting on these matters for years?
Politics aside, it is clear to me that whilst the Government may lead on legislative changes, it will not be a reliable source of moral leadership, nor can it be relied upon to take meaningful action in the short term to protect us.
What I believe is now required is for AML practitioners to look beyond the laws and take a more honest and meaningful look at crime and jurisdiction risk, and to cast aside what I have observed as being historical and prejudiced views on this area of jurisdiction risk management.
Throughout my career I learned that offshore jurisdictions that offered secrecy and tax advantages could not be trusted, and that the OECD countries of FATF were a lower risk. This implied that the UK and USA for example were lower risk and that simplified due diligence could be exercised on authorised firms from these jurisdictions of ‘equivalence’. Third party reliance on due diligence was also positively encouraged. This has led to dangerous levels of misplaced complacency and a degree of ignorance.
Last year I read a book that proved a revelation to me. ‘Global Shell Games’ confirms the findings of independent research that was performed by Cambridge of the levels of CDD compliance that are being performed by worldwide CSP’s. The results provide an interesting and timely insight on the subject of jurisdiction risk assessment.
In workshops I like to ask students to name the jurisdictions that they perceive as the most compliant, and the least compliant, and then we compare the findings from the research. I am not going to spoil the end of the story, but suffice to say that the purpose of the exercise is to demonstrate an unhealthy, but perfectly understandable, biased and prejudicial view of AML compliance standards that must be recognised if we are to make any head-way in the fight against crime.
The perception that the UK and other OECD markets have the highest compliance standards has itself drawn the moths to the light, or in this case the criminals, who wish to attach a kite-mark of quality to their illicit funds. The poachers have taken advantage of the holes that have been left in the fences by poor legislation, commercial greed and ineffective controls and any objective assessment of UK jurisdiction risk is likely to lead to a report that reads ‘caution, criminals at work!’
Put simply, there are a great many honest people in the City of London and the wider financial regulated sector working diligently to counter the risk of money laundering and terrorist financing, but the system is failing.
As guardians of the spirit and letter of the intent of the regulations, and of profession standards, we must not fail to take action to address the risks that have now been so publicly exposed, and take the lead from our compromised Parliamentarians and regulatory process.