29 results in The War on Dirty Money
21 - A future landscape
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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- 18 January 2024
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What happens if we win the war?
During a previous global war, the Second World War, an academic turned temporary civil servant in the British government, William Beveridge, tried to imagine a different post-war world. The Beveridge Report was published in 1942 and after the war became the basis of what is now known as the ‘Welfare State’. The publication of the Beveridge Report was initially delayed because the British minister of finance considered that it involved “an impracticable financial commitment”. At the time, the financial cost of the Second World War was crippling for Britain (and many other countries). Nonetheless, the policy went ahead and changed the lives of tens of millions of British people for the better in the post-war period. Beveridge identified five Giant Evils which he thought should be addressed: Ignorance, Want, Squalor, Idleness and Disease.
These evils still stalk the world, now adversely affecting the lives of not millions but billions of people. This chapter imagines how a victory over dirty money would free up the resources to change the world. These resources could make a real difference. The amount of lost tax, for example, converted into dirty money each year, is estimated at US$483 billion.
Where prevention fails enforcement should follow
The prevention part of the current War on Dirty Money costs an additional US$210 billion, and the cost keeps rising. This could be described as ‘an impracticable financial commitment’. Against this background our proposals for winning the war through enforcement seem absurdly cheap. This US$210 billion is currently spent on trying, but unfortunately failing, to prevent dirty money from entering the global financial system. Of the hundreds of thousands of people engaged in this prevention effort, almost all of them in the private sector, are failing to receive the support they deserve from governments. We recognise that prevention is better than enforcement, but it is our view that criminal enforcement has not yet been achieved or, we argue, even been seriously attempted. That is not to downplay the effort of the few people engaged in enforcement against dirty money; they are doing what they can. They are just absurdly few in number, generally underpaid relative to private sector compliance staff, and under-supported by their own colleagues in criminal justice.
11 - Information and intelligence sharing
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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- 18 January 2024
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- 23 February 2023, pp 193-208
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They have all the money and none of the awkward rules, whereas we have all of the rules and none of the money to do anything worthwhile.
AnonThe Cambridge Analytica story, which broke in 2018, gave an indication as to the way in which enormous amounts of confidential information could easily be extracted from a vast number of people via a single system. Even before then, society was becoming quickly accustomed to the gathering and sharing of personal data. In terms of AML/CFT, the FATF perhaps do just this as they capture details via MERs. Later, they share these details of money laundering and terrorism financing activities via typology reports – most interwoven to foster partnership working. A point often iterated in the closing comments of conferences organised by law enforcement and commercially interested AML/CFT organisations.
Yet are partnerships simply a practice of ‘smoke and mirrors’, within an already inefficient ‘global AML/CFT regime’? Are partnerships simply a cover for mediocre performance? Or are partnerships and the demand for information and intelligence sharing agreements the foundation of a much bigger excuse ready when questions are asked as to why things have not improved?
We think it is worth adding some context to partnerships before we move on. There are, of course, various partners involved in such partnerships, sometimes making the term partnership unclear. Simply, we should not conflate all those who take part in preventing, detecting and prosecuting money laundering under the term partnerships. We recognise Public Private Partnerships (PPPs) try to separate public organisations from private entities, but that is only part of the description which we see is not always appreciated against the backdrop of conflicting motivations and drivers and the protective mindsets (for obvious commercial reasons) of financial institutions. Alongside this are the different drivers and institutional jealousies within the publicsector FIUs and across law enforcement. At the same time, most partnerships are operationally focused, leaving little scope for strategic opportunities.
These differences are, perhaps, why partnerships have become a priority opportunity for some. An opportunity, perhaps driven by one's own ineffective and fruitless efforts to date, concluded by the idea that “it's not just our fault!” when things go wrong. Still, the split between the financial sector and law enforcement has always been driven by a need to preserve each side's own intentions.
16 - National security vs the threat of money laundering
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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- 18 January 2024
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- 23 February 2023, pp 268-279
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It is difficult to get a man to understand something when his salary depends upon him not understanding it. Upton Sinclair – candidate for Governor of
California 1935If Ben Bradlee, an editor at the Washington Post during the US Watergate scandal was right when he said, ‘It is my experience that most claims of national security are part of a campaign to avoid telling the truth’, then discussing money laundering as a threat to national security needs to be included in this book.
Bradlee's statement suggests by attributing national security to any topic, it then becomes too sensitive to discuss openly in public. Any such move then to resolve it must require sensitive management and coordination at the highest levels of government administration. So, does this now mean telling the truth about money laundering is so awful that it has to be attributed as a threat to national security to protect us? Yet is money laundering really a threat to national security? Maybe it once was, but with such vast amounts of ‘dirty money’ now in circulation, has the threat simply gone away? Has the threat dispersed to such a point that it is hard to pinpoint where the actual threat to national security is now coming from?
With the lack of tangible knowledge on money laundering as it is happening today, as discussed in Chapter 3, it is still easy to believe money laundering has a significant bearing on national economies. This is regardless of it being attributed as a customary practice of most serious crimes. Nevertheless, attributing money laundering to national security seems to be all too easy for the policy writers, government officials and those who navigate the direction of AML/CFT compliance regimes.
Of course, there are many definitions of national security, each one we suggest relating back to the reasons by which it was created. Still, it is possible to generically determine national security as ‘a nation state's ability to protect or defend its people’. So where then is the evidence that money laundering is a threat to national security? Is it with suggestions like those of the IMF who have estimated money laundering comprises approximately 2– 5% of the world's gross domestic product (GDP) each year, or approximately US$1.74– US$4.35 trillion in 2019?
7 - Financial Intelligence Units or data black holes?
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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[T] he Council takes the view that the section on Financial Intelligence Units must be strengthened.
The Parliamentary Assembly of the Council of EuropeThe national FIU is one of the main components of the global AML system. Established by individual countries, the national FIU is an expectation of the internationally agreed FATF standards. The collective group of FIUs are supported by the Egmont Group – a global semi-official organisation whose secretariat is in Canada. The number of FIUs has grown from 12 members in 1995 when it began, to 164 in 2020, as a way to generate mutual knowledge.
As a depository for AML/CFT data, FIUs have gained importance thanks to increasing need for suspicious transactions or suspicious activities to be reported. Sending such reports directly to law enforcement is impractical, due to the vast size and varying levels of quality and scope. Sometimes it can also be a lack of trust in law enforcement's ability to deal with SARs sensitively or even sensibly, that has triggered a country's FIU to become the first ‘port of call’.
Yet, it is here, in the FIU, where the details received can then be analysed and decisions made as to whether to take further action. The FIU acts as a buffer between law enforcement and the provider of the SAR. Still, the anticipation involved in sending a SAR to an FIU is like that of throwing a stone into a well and waiting for it to reach the bottom. Only in this instance, seldom do you ever hear the sound of any contact no matter how big the stone.
As the Egmont Group highlights, for effective collection and disclosure of financial intelligence related to money laundering derived from corruption, the most important requirement is the need for FIU operational independence and autonomy. Yet for those FIUs run by law enforcement personnel, independence and autonomy can be far from realistic. Still, according to the Egmont Group there are four models of FIUs: (1) the Judicial Model which permits seizing funds, freezing accounts, conducting interrogations, detaining people and conducting searches; (2) the Law Enforcement Model that exists within law enforcement systems; (3) the Administrative Model, which is a centralised, independent, administrative authority, which receives and processes information and disseminated accordingly; and (4) the Hybrid Model that provides a disclosure intermediary and a link to both judicial and law enforcement authorities.
List of figures, tables and boxes
- Nicholas Gilmour, Tristram Hicks
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19 - AML/CFT supervision or tick-list observers?
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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More often than not the [supervisors] are asleep, but still, they seem to always keep one eye open.
AnonThe battle to defeat money laundering has highlighted a game of ‘cat and mouse’ taking place. In doing so, two critical players are clearly defined: the supervisors, or regulatory authorities (the cats) and the opposition – the reporting entities (the mice).
In terms of costs for all this, they are significant for both players. Globally, we have witnessed an extraordinary growth in efforts to control money laundering and it seems the costs are not due to lessen anytime soon. Associated costs have largely been driven by the FATF and through a desire by countries to pass the FATFcreated, controlled, partially administered, and unevenly applied MER. Like the pull of gravity, the reality of the problem of AML/CFT lies predominantly with those at the bottom. It is here where most are left scrambling to adhere to costly regulatory obligations while following guidance on a problem, perhaps equally as old as they are. It is here too where money is thrown in the billions at problems to make them appear no longer a problem.
The fallout from this AML/CFT scenario has been the creation of a distinct ‘us and them’ position. On one side of the battlefield, as we will call it, is the supervisor or regulatory authority. On the other side, hunkering down behind makeshift defences, are the reporting entities – most too scared to raise their head above the parapet even to surrender. This situation has created a global scenario that has thrown genuine partnership working out of the window. It has created an opportunity to openly punish entities for regulatory failures. The fear of huge fines and subsequent reputational harm – not always for allowing money laundering to take place – has forced some entities into a spin while others have simply accepted punishments as a cost of doing business.
Whether called ‘supervision’ or ‘regulatory oversight’, the rules of the game have by now been carved into stone. Governed by the FATF but equally controlled by the wealthiest countries, the rules, whether perceived as good or bad, have created businesses, authorities and agencies intent on supporting AML/CFT efforts. However, it is clear from the scale of money laundering as a problem today, the intent has not delivered anything spectacular.
15 - Countering the financing of terrorism: money laundering in reverse
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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- 18 January 2024
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- 23 February 2023, pp 256-267
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Are they relatives … ? No, they are not even from the same planet.
The authorsThe comfortable world of AML was pottering along in a backwater of global public policy when 9/11 suddenly turned that world upside down. The attack on the World Trade Center in New York had clearly been planned for months if not years and it had been financed. It was clear to everyone that there was a link between the crime and the money, but what was it and what could be done about it?
Financial intelligence could have flagged up foreign nationals taking flying lessons. Financial links to previous known suspects and previous attacks could have been better harvested and passed to law enforcement agencies. But the attack, its precursors (in East Africa) and its suspects’ movements had been tracked all across the world from Malaysia to Yemen and from Pakistan to California. A global approach was needed to harness such information. A global system already existed to identify finances which were the proceeds of crime after the event, so identifying finances before a criminal event was sort of similar. The same players were involved: banks and financial investigators. The same techniques would be used: financial analysis to detect unusual transactions, the freezing of assets pending investigation. The same preventative methods could be deployed: compliance with Recommendations likely to assist with identifying suspect people and entities. It was just like AML, only in reverse, pre-facto not post-facto.
Of course, terrorism was not new, but the idea of addressing terrorism through finance was relatively new. Two years before, in 1999, the United Nations had agreed a ‘Convention for the suppression of the financing of terrorism’. The UN had failed to agree on a definition of terrorism, and we are not going to attempt to do so here. The Convention text referred to previously agreed conventions relating to terrorist-type crimes: bombings, hostage taking and the hijacking of aircraft and ships. For our purposes, in this book on dirty money, the key points are that terrorism is widespread around the world, some of the financing is dirty money derived from crime and the main technique to tackle it is closely linked to the war on dirty money.
1 - Global standards, governance and the risk-based approach
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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To succeed in life, you need two things: ignorance and confidence.
Mark Twain“Money is not the root of all evil”, said the finance manager in the audience, “It's the love of money, which causes all the trouble”. He was right, of course, and his contribution corrected all future presentations given by this author. There is nothing wrong with money itself, the evil comes from the bad behaviour of people. The behaviour is the ‘evil’ that makes good money dirty and has done since biblical times.
Nowadays we use the word ‘crime’ to describe evil in our national legislation, across the world, and some lesser evils we describe as ‘breaches of regulations’. But they too create dirty money. Every year, millions of crimes and breaches of regulations generate billions of dollars. Evil may be a strong word, but crime kills people or causes irreparable harm to our lives, our bodies, even our dreams and ambitions. Enabling all this evil is money laundering, the crime of handling dirty money. So, if you are not angry now, you should be. You, and everyone you know is worse off than they could be. Your water, the very air you breathe contains extra polluting particles that are there because someone, somewhere, broke an environmental rule to get some dirty money. There is no escape, everything you see about you is tainted by money laundering.
It does not have to be this way. The regime to control money laundering and its many evils, is not protecting us, but it could be so easily redesigned and at the same time, strengthened. This chapter, and those that follow are about how we tackle global crime by targeting the money. Even as you read this chapter, wherever you are, whoever you are, you too will likely have access to money. Money, by the way, in the context of this book, means money's worth. So, it also includes the home in which you are perhaps sat reading this book, or the device which you are reading it on, or the book itself. Laws will sometimes use the words ‘property’ or ‘goods’, so you will see these words too, but unless the example is very specific, we are referring to anything, because any asset with a monetary value is capable of being laundered.
Notes
- Nicholas Gilmour, Tristram Hicks
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4 - The obsession with defining money laundering
- Nicholas Gilmour, Tristram Hicks
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Those involved in the fight against money laundering, or the financing of terrorism rely on the most current information on typologies.
IMFImagine just for a minute you have the pleasure of being a money launderer. You appreciate AML/CFT compliance professionals are supposedly watching your activities, you know law enforcement officers have an interest in asset recovery, yet you need to launder money for a cartel whose leaders are not going to take too kindly if you fail.
What do you do? Do you go with a well-publicised method of money laundering that you know has red flags, is considered risky and is likely to be detected, or do you choose the best bits from lots of methods to limit your risk of raising suspicion? If you chose choosing the best bits, you are probably like many other professional money launderers – so well done, because life just became a whole lot easier. But if you chose going with a wellpublicised method, you are equally as good, perhaps just a little more discreet. In this chapter we shall explain why.
The principal premise
The principal premise behind money laundering is to make the illicit value usable. Dirty money, which is money gained through crime can never be made clean – despite the word laundering implying that when it comes out of the three-stage process of placement, layering and integration it is then somehow clean. Equally there is no need to hide the illicit value, because if it is hidden, how can it then be spent?
It is the change of appearance where money laundering is most effective. Although there may be many definitions of money laundering, the principles are always the same: illicit money should appear clean so that it can be enjoyed without fear of raising suspicion. The less suspicion, the less chance of having to hand it over to law enforcement and thus having wasted time committing the predicate offence which provided it.
Various definitions of money laundering exist, a handful of which were captured in Chapter 1. Many definitions also derive from the EU Directives that show money laundering as: ‘[T] he conversion or transfer; concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership; acquisition, possession, or use; of property, knowing that such property is derived from criminal activity.’
Foreword
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- By Phil Mason
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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One problem, two architects
Wherever you are in the world, The War on Dirty Money should make you angry. Few other sinews of modern globalism have woven such a powerful and effective network of cooperation as illicit financial flows, connecting every corner of the world. Dirty money leaves an impact everywhere – from poor, underdeveloped countries that are losing gargantuan amounts of public funds which should be contributing to the improvement of the lives of their people, to the streets of London, New York and many other cities in the developed world which witness the effects of the inrush of such funds in the form of block upon block of plush, newly built – and for the most part unoccupied – apartment buildings, all snapped up as convenient parking lots for foreign money, both inflating the area's housing prices and driving large numbers of local people out of the city in order to find affordable accommodation.
Those who want to move their dirty money need the willing assistance of others in the destination location to complete the movement safely. This has fashioned a huge conspiracy of silence and deliberate ignorance: between criminal perpetrators, on the one hand, generating the illicit funds, and, on the other, accommodating bankers, lawyers, accountants and estate agents who are disposed to not ask too difficult questions, to look the other way and not voice concerns. The unholy alliance is no better symbolised than by the classic triptych – the unseeing, the unhearing and the unspeaking.
One problem, two fates
Two images are seared into my mind when, as an official working in the UK government department responsible for development aid, I started out on our efforts to combat the corruption that blights the developing world. The first snapshot shows two children knee-deep in a muddy drainage culvert surrounded by an assortment of battered but brightly coloured plastic buckets and containers. Hands on hips, looking like wizened old labourers, they stare with tired resignation into the camera. They can be no more than seven or eight years old.
They are collecting the family's daily water supply, from what appears to be a ditch. They had probably walked many miles that morning to reach this spot – instead of going to school – and faced the same trudge back to their home, bearing their now heavy loads.
10 - SARs: millions and millions of them
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.
AnonEach year tens of millions of reports about dirty money are made to the police. They are regarded as either crucial information worth killing for or debris clogging up the fight against crime. We will explain the legal reason this divergence of opinion exists and take a peek into the world of intelligence. Part of this is secret, so sorry we will need to give you a blindfold. But first, Box 10.1 gives some views from the front line.
A SAR is a formal report to the designated national FIU under AML legislation. Most reports are submitted by banks but the law in some countries requires lawyers, accountants and others to submit reports. A typical report happens when a bank official observes a transaction or series of transactions that seem suspicious. There is no definition of suspicion, but the bank official will have been trained in the meaning of suspicion. So, at the beginning there is a bit of suspicion, an inkling, if you will. They will raise the suspicious circumstances of the activity with a line manager. If the line manager also thinks it is suspicious then it goes to the organisation's MLRO, who is formally responsible to the Board for making such reports. If the MLRO thinks it is suspicious too, then a report is made to the country's FIU for a fourth opinion about whether the circumstances are actually suspicious.
The Duck Theory
You can teach people to be suspicious, you really can. Most people are not naturally suspicious, but if you expose them to suspicious scenarios they will learn how to suspect. An effective way to learn is to join the police and meet the public in a series of situations where police have been called. An added frisson is that your life may depend on calling it right. This is why the police are particularly adept at handling Suspicious Reports, which is useful because this is where they end up. For the rest of us, learning suspicion in a classroom can be rather good fun.
12 - Investigating money laundering
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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Our effort was mocked by some police supervisors: has the computer caught Ted yet?
Robert D. KeppelEve was the first money launderer
When Eve took the forbidden fruit from the tree, having been told not to, she acquired the proceeds of her crime and thus became a money launderer. You may remember this from our discussion about ‘jargon’ in Chapter 2, where we introduced the United Nations definition, which has since been transcribed, more or less unchanged, into every country's law. When she gave the fruit to Adam, they both committed another element of money laundering, transferring the property knowing it to be the proceeds of the earlier theft. At the time, police and prosecutors had not yet been created, but if they had been, they probably would not have bothered charging Adam and Eve with money laundering. This is because the fruit was gone and confiscation was not an option, given the couple did not have a fig leaf between them. Instead, they would have indicted Eve for theft and Adam for handling stolen goods (or some variation). Money laundering was always there, integral to the predicate crime, but its utility as an offence was not yet relevant. It has taken a few thousand years for the legislators to catch up – and there are two good reasons for that – social change and modern technology.
Legal origins
In 1989, the OECD commissioned a report on drug ‘money laundering’, created the FATF, and the rest, as they say, is history. The reason they decided to create the crime of money laundering was because the laws at the time could not address all the money being made from drugs. This is the ‘social change’ part that makes the crime of money laundering relevant and necessary to modern society. Interestingly, modern society has such a need for money laundering to be a crime, that it has backdated its existence to include the American gangster, Al Capone, who made a fortune from trading in illegal alcohol. Al Capone is commonly regarded as the first modern money launderer, famously using coin operated launderettes to launder the proceeds of his crime. Except this is a myth. Al Capone was convicted of tax crimes; the crime of money laundering was not created until decades later. He did not use laundromats either, not for washing money anyway.
3 - How much do we really know about money laundering?
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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If the United Nations definition of money laundering does not include ‘money’ or ‘launder ing’, or ‘placement’, or ‘layering’ or ‘integration’ – what then is money laundering?
The authorsMany of the world's population – even those with little interest in crime – will, with any good fortune concede dirty money drives current affairs and global politics, and cultivates corruption. Avid viewers of films via Netflix, Amazon Prime and similar, will quickly appreciate money laundering is one of those activities naturally connected to illicit drugs, fraud, corruption, human trafficking and many other serious crimes. It is even considered a threat to national security; something we have decided to discuss in Chapter 16. However, what is missing is how it impacts on people's lives.
The movies, first-hand accounts and crime thrillers, demonstrate how understanding of money laundering sits only as a general topic. The knowledge gained has, in many cases, chosen to ignore the backdrop of global businesses and social activities which have sped up the way people now connect and interact with, and equally choose to disconnect from, the outside world. These are factors which we think now complicate understanding of most problems, let alone understanding as to how money laundering impacts on all of our lives.
Choose to review the current and earlier Europol Serious Organised Crime Threat Assessments side by side and you quickly begin to understand today's issues with establishing what is really taking place in the world of money laundering. All we have are two Organised Crime Threat Assessments written years apart with no real material variation. The only difference is a more sombre and defeatist tone in the latest version. We think that this shows that the problems are intractable, thanks to the same mindset and techniques over the last 20 years.
Burkhard Mühl, Head of the European Financial & Economic Crime Centre at Europol was able to confirm the gloom and misery (albeit perhaps not his sole intention) when answering a question via an online seminar in June 2020 as to how criminals were managing their money laundering. His response was to say: “We are still learning, still gathering the intelligence picture.” Although most likely true, this must raise eyebrows among those involved in preventing serious crimes across Europe, and throughout the general population. Mühl's response clearly highlighted a losing battle.
Acknowledgements
- Nicholas Gilmour, Tristram Hicks
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13 - Prosecuting money laundering
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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Countries who don't have brave prosecutors and fearless judges will instead have plenty of thieves, many killers and even stupid dictators.
Mehmet Murat ildan (Turkish playwright)Prosecuting money launderers is the ultimate weapon in the war on dirty money. The enemy's ultimate weapon is to kill prosecutors and judges, to which Mehmet Murat ildan alludes. The stakes could not be higher. Money launderers are the criminals that make crime pay and finding them guilty beyond reasonable doubt would seem to be the ultimate goal of our army of compliance, law enforcement and prosecution personnel. FATF evaluations devote an entire section to ensure that: ‘Money laundering offences and activities are investigated, and offenders are prosecuted and subject to effective, proportionate, and dissuasive sanctions.’
Yet, in some ways this is the biggest red herring of the shoal of red herrings that we discuss in this book. Finding a person guilty of the crime of money laundering does not actually matter. The investigation of money laundering at the beginning of the process matters a lot, because it widens the scope of the evidence being sought and the powers to find it. The effective, proportionate and dissuasive sanctions at the end of the process matter too; but in between a criminal conviction for money laundering matters not very much at all, provided that they are convicted of a crime which is capable of generating money. The technical decision to prosecute money laundering is exactly that, a technicality. The investigation determines what will be presented to the court, so that matters, and the court judgment determines what happens to the criminal and the criminal asset, so that matters as well. The decision to prosecute for money laundering is just a choice among many that could be made along the journey.
It all comes back to Eve again, and the fact that money laundering is and always has been integral to the predicate offences. So long as the predicate offences are prosecuted and effective, proportionate and dissuasive sanctions are applied, then the inclusion of money laundering on the indictment does not matter very much.
So let us just set out what does matter. We suggest that the investigation of money laundering does matter. This is because a money laundering investigation looks at the circumstances of the dirty money.
9 - Technology: the solution to all our AML/CFT problems
- Nicholas Gilmour, Tristram Hicks
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- The War on Dirty Money
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- 18 January 2024
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Unveiled in 1949 to help France's large rural population the low-price ‘umbrella on four wheels’ the Citroen 2CV was designed to carry four people, transport 50 kg (110 lb) of farm goods to market at 50 km/h (30 mph) and across muddy, unpaved roads. One design feature was its ability to transport eggs across a freshly ploughed field without breakage. Yet interestingly, in all the marketing material, Citroen never decided to claim the 2CV could win Le Mans, the Dakar Rally or break the land speed record.
The authorsThere is money laundering: an exciting criminal offence attracting attention through prevention, investigation and prosecution activities, and depicted in numerous ways in blockbuster movies. Then there is AML/CFT compliance: the boring, monotonous daily routines and actions of so many involved in AML/CFT regulated entities. Today, many technology solutions or black boxes are pretending to be compliance, prevention, investigation and much more. However, with closer inspection and critical analysis, the reality is somewhat different and misleading. Here is why.
Great claims
The exaggerated claims by solution providers suggesting technology can prevent money laundering are, we think, overstated. Still, this has not stopped high-level advocates for the adoption of technology solutions in AML/CFT compliance formulating equally exciting assertions. The most prominent of these has to be the FATF. The FATF propose innovative technologies have the potential to make AML and counter terrorist financing measures faster, cheaper and more efficient’. This type of claim does not just stay with the FATF; claims go deeper into the now hugely commercialised world of AML/CFT compliance to excite potential adopters with costly, offthe-shelf solutions.
These products want to ‘revolutionise’ what is seen as a broken AML/CFT compliance regime, and the troubles associated with false positives – those annoying time-consuming beliefs that clients or customers are involved in money laundering or terrorism financing. Algorithms can apparently be trained, using data on financial transactions, to learn and therefore identify suspicious transactions ‘even in cases that might lack the usual red flags that a human designer would program into an automated system’. All of this is reinforced by industry experts who are understandably enthusiastic about how AI can seemingly create a more efficient and transparent AML/CFT compliance regime.
8 - The ‘fingers crossed’ approach to money laundering prevention
- Nicholas Gilmour, Tristram Hicks
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- Book:
- The War on Dirty Money
- Published by:
- Bristol University Press
- Published online:
- 18 January 2024
- Print publication:
- 23 February 2023, pp 141-159
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Summary
Stopping money laundering is about saving peoples’ lives.
FATFFailures to prevent the more conventional forms of money laundering usually bring about particular types of response. The ‘we need to …’ or ‘We have now looked at our failings and are addressing them’ and, of course, the ‘We strongly regret …’. Yet such statements are almost irrelevant, and they rarely transform the effort towards preventing money laundering. You could argue it is all just ‘lip service’.
Yet it is true, change can take place, updates can happen to existing practices, more regulations may be added, but change is usually minimal outside of improvements in AML/CFT. The real problem here, is that the entire approach to preventing money laundering is wrongly and inconsistently attributed to compliance. Modern-day behaviours and those of today's criminals, and the consequences of the harm caused by their activities, are being ignored, with many remaining misunderstood. Is this perhaps why David Lewis’ (a former FATF Executive Secretary) statement, “Stopping money laundering is about saving peoples’ lives”, could be one of the most important statements of recent times?
If you want to know how wrong we have the idea of prevention, look at German digital bank N26 who found out the hard way after been fined US$5 million over the delayed submission of SARs. In May 2021, N26 was ordered by a regulator to implement safeguards to prevent terror financing and money laundering. N26 was also ordered to close loopholes in their IT monitoring/CDD processes. However, since N26 ran out of time they were hit with penalties. A statement in response to the fine (because there always needs to be a statement), noted how N26 “takes its responsibility in the fight against the growing threat of global financial crime, and in the prevention of money laundering, very seriously”. If statements such as these are to mean anything, then we think what goes before it needs to be looked at in a little more detail.
What we find is preventative measures are being reinvented time and again, but few are hitting the nail on the head, so to speak. It is true, ‘things’ are happening and much of it is aligned to a business-like strategy and surrounded by a deep belief of needing to be effective at prevention. Yet, any strategy can easily be regulator driven and nowhere near focused on preventing the actual problem.
Conclusion: A call to arms
- Nicholas Gilmour, Tristram Hicks
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- Book:
- The War on Dirty Money
- Published by:
- Bristol University Press
- Published online:
- 18 January 2024
- Print publication:
- 23 February 2023, pp 342-348
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Summary
Dirty money is a stain on society. It is literally destroying the planet and strangling efforts by good people to do good things. Its malign influence taints everything. Illicit financial flows of dirty money undermine honesty, integrity and good business practices. Yet, the parasitic people creating and moving dirty money can be identified and stopped.
The AML regime created over three decades by the FATF and other national and international bodies has developed the technical tools and the legal framework to tackle money laundering effectively, but the regime as a whole does not work. We think it lacks a moral and geographical compass. A moral compass would point to the global evils of corruption, environmental crime, tax inequality, organised crime and all other crimes that could all be exposed, tackled, and reduced by focusing on the dirty money that is both the root cause and the product of these evils. A geographical compass would point, not towards individual countries, but towards the illicit financial flows between them. Better still, the regime's compass could identify ‘Moneyland’, that artificial legal construct where bad people hide their bad money.
Yet, at the end of 30 years, the AML regime has ended up in a box, separated from crime altogether, filled with compliance specialists who are correctly regarded as an expensive ‘cost of doing business’. Their product is not valued or understood outside their own profession and is rarely even seen by the front line against crime. Ironically and unfairly, they are frequently judged not by their prevention efforts but by those on the enforcement side of the regime, who recover pitifully small amounts of money from criminals compared to the huge illicit financial flows estimated to exist. We should return to the fundamental principles that were present when the FATF was created, the twin ideas that crime must not pay and that money laundering is integral to crime.
The AML regime is now fully in place across the world, its institutions have been created and matured, its people recruited and trained, its legal framework tried and tested. This is no mean feat, so congratulations go to the FATF. The AML regime is like a giant global machine, ready and able to tackle the evil of dirty money, if only we could find the switch to turn it on. Making crime not pay can be done.
20 - Punishing AML/CFT failures or raising government funds?
- Nicholas Gilmour, Tristram Hicks
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- Book:
- The War on Dirty Money
- Published by:
- Bristol University Press
- Published online:
- 18 January 2024
- Print publication:
- 23 February 2023, pp 322-333
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Summary
AML/CFT supervision for profit.
The authorsToday there is little opportunity to ignore the policies, ideas, behaviours, software solutions and the rigorous AML/CFT compliance ‘tick-boxes’ which exist to fight money laundering. Most of this effort is governed by the FATF. Punishments, some would argue, are critical to all this effort; they act as a consequence for poor attitude and behaviour. Yet it is difficult to now find a major financial institution that has not breached money laundering regulations somewhere in the world.
Danske Bank and Nordea in Denmark, HSBC and Standard Chartered in the UK, Deutsche Bank and UBS, Credit Suisse, and HSBC North America – along with many more – have all had to answer to offences relating to AML/CFT compliance failures. A report in 2021 by consulting firm Kroll found fines for AML failings by regulated institutions were five times higher in 2020 than 2019, totalling USD$2.2 billion. Widespread media coverage has ensured we all know this, as well as how Europe has now overtaken the US and Asia in terms of enforcement. More than half of the fines in 2021 came from the Netherlands. This was of course due to Dutch lender ABN Amro, which reached a €480 million settlement with prosecutors after being accused of violating AML laws ‘for a number of years and on a structural basis’. You could think these businesses are simply not learning from their own mistakes and those of others. Do they perhaps no longer consider AML/CFT compliance a worthwhile exercise?
Whatever the reason for the failures, what seemingly follows the slap on the wrist is the generic statement incorporating responses such as ‘we are taking our legal obligations very seriously’, ‘we have now worked hard to build a robust compliance programme’ and ‘we are fully committed to undertaking our obligations’. Whether genuine or not, the punishments seem only to be increasing in value as time passes by. All the while the customer continues to pay. The idea of being sorry has, perhaps, become meaningless. All too often the corporate memory simply defaults to bygone activities.
It is at this point, the authors take caution with what we say, but the reasons why these failures happen suggest why the war on dirty money has so far been lost. The lack of interest or knowledge, ignorance and perhaps even wilful blindness?