Financial Crime In Focus

YOUR ROUND-UP OF CRITICAL FINANCIAL CRIME NEWS

FINANCIAL CRIME IN FOCUS – Edition 1

Published Date: 22nd March 2019

In the last few weeks money laundering stories have reflected both sides of the fight. In the blue corner, we have new initiatives from government, the regulators and the compliance sector designed to bolster our defences against financial crime. And in the red corner, breaking stories about new scams, large inflows of dirty money into the financial system and more heart breaking stories about their impact on human beings and society. Financial crime is not victimless.


In the blue corner:

The BBC reported on the UK Government’s Treasury Committee chaired by Nicky Morgan MP which calls for the UK’s AML bodies to ‘Get a grip on Money Laundering’. The committee flagged a number of money laundering risks including the absence of any due diligence controls in the formation of new companies, post-Brexit trade risks (and the need to ensure we don’t forget financial crime risks as we rush to secure new trading deals) and weak controls in the Estate Agency sector.

The latter, in particular, exemplifies the fragmented nature of the UK’s AML defences. There is an overabundance of supervisors responsible for ensuring the implementation of the 2017 Money Laundering regulations and the result is an inconsistent approach to their application across regulated sectors.

Professional services businesses, such as Estate Agents, Law Firms and Accountants, were all identified as potentially carrying higher levels of risk in the most recent National Risk Assessment (October 2017), a sentiment echoed in last December’s FATF Mutual Evaluation Report of the UK, which called out the significant risks from these sectors as a Priority Action area.

So, there were no surprises when OPBAS published its assessment of Professional Body Supervisors (PBSs) in March. The report highlighted a number of major shortcomings in the way money laundering regulations are supervised by PSBs which oversee the legal and accountancy sectors.

This may be a reflection of a legacy, erroneous belief that these sectors are low risk, leading to oversight that ranges from light touch to non-existent. However Law Firms, Accountants, Tax Advisors, Conveyancers, Notaries and Estate Agents are all potential channels for money laundering targeted by organised criminals, who even call on the help of complicit insiders.

The report challenges the PBS’s to come up with plans to improve AML supervision and I suspect this will be the first step towards an inevitable streamlining of the numbers of Supervisors covering these sectors, with a move to the standards applied in the mainstream Financial Services sector. I share further thoughts on the OPBAS assessment in a recent blog.

Interestingly the report was published a week after HMRC announced a crackdown on Estate Agents following unannounced visits on 50 firms to audit their AML systems.

Awareness and education will be critical in reducing the risk in these sectors, something that he Government is acting on. The Flag It Up campaign, which encourages professionals in the property, legal and accountancy sectors to report suspected money laundering has recently been stepped up.

I suspect we will see more and more focus on the professional services sectors from Government, supervisory bodies and the media in the coming months.


And in the red corner:

More fallout from the Laundromat Money Laundering scandals engulfing Europe’s banks has dominated the news. Dirty money flows and the vast sums of Russian money that exploited weaknesses in the Baltics region has now engulfed banks in the Nordics, Netherlands and further afield.

Many journalists have been challenging the idea that the ‘West’ is serious about stemming these flows because of the obvious financial and economic benefits that arise from such vast sums of money finding their way into the legitimate economy. Bloomberg published an insightful piece with this focus - ‘Huge pools of dirty money are Europe’s worst-kept banking secret‘.

The flow of this dirty money will undoubtedly continue to course through the veins of not just Europe’s main banks but global banks too. This scandal is in danger of escalating beyond financial crime, to become a security issue; no doubt it will continue to unfold over coming weeks.

In other laundromat news, the Troika Laundromat has been widely reported. Uncovered by The Organised Crime and Corruption Reporting Project, $9bn has allegedly been laundered with the help of Russia’s leading private investment bank ‘Troika’, the funds being held by powerful politicians and oligarchs and linked to some of the largest US and EU financial institutions.

Using techniques such as ‘account takeovers’, the launderers assume the identities of impoverished people as unwitting proxy signatories of offshore companies in tax havens. These shell companies were used to facilitate trade based money laundering scams enabling the purchase of luxury yachts, expensive houses and other high value assets.

Away from the Laundromats, Crypto assets, and the risk they pose from a money laundering and terrorist financing perspective, continue to be hot topics. Last week the Basel Committee warned banks about the potential money laundering and terrorist financing risk exposure Crypto Assets can present.

We can certainly expect more focus in this space as the deadline for implementing the 5th Money Laundering directive looms closer.

In these uncertain times, one thing is for sure, there is never going to be a shortage of money laundering stories to discuss - I look forward to sharing more with you in my next update.

Author: Michael Harris 
Director, Financial Crime Compliance and Reputational Risk
LexisNexis® Risk Solutions

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Money Laundering Exposed

Leading anti-money laundering experts in the UK share their views on how the response to money laundering can be improved in a new LexisNexis® Risk Solutions report.
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