FINANCIAL CRIME IN FOCUS – Edition 10
Published Date: 23rd July 2019
I recently attended the UK Finance sanctions conference for banking and the energy sector. The event was at capacity, with a high calibre of speaker; the debate vigorous as policy differences between the US and Europe became clearer. Differences that are punctuated with the very real threat of secondary sanctions being applied to organisations who breach OFAC Iranian sanctions.
In over a decade in this industry the divergence between the US and the EU has never been more stark - especially on Iran (although the recent seizure of a British flagged tanker may reduce those differences). This superb article from the European Council on Foreign Relations (ECFR) explains the issues well and is highly recommended reading if your business has any potential indirect exposure to possible secondary sanctions.
Europe’s response to the growing secondary sanctions risk from the US, which threatens to test bilateral relations in the coming months, has been somewhat fragmented. And the US Administration’s proposed Nord Stream 2 legislation is likely to test this further.
If your organisation has a direct or indirect interest in Nord Stream 2 a read of this article will be time well spent. Aside from the US-EU situation, it highlights other potential risks, for example what if another economic superpower like China waded in with secondary sanctions?
All of these challenges, of course, translate into a high degree of complexity for those tasked with managing sanctions risk. As such, now would be a good time for organisations to undertake a thorough risk assessment of their primary and secondary sanctions risk exposure, and reassess and update their policies as appropriate.
It’s also critical that the sanctions list provider you use is fully vetted, that you are happy their processes are rigorous, and that the data presented is as up-to-date as possible and is enriched with information that can help intelligently manage the risk. There are only a few organisations who can achieve this reliably, and whilst I normally avoid plugs, it would be remiss of me not to flag the LexisNexis® WorldCompliance™ Data which sets new standards in this area.
Sanctions is an area that will only continue to heat up - next in line Turkey?
After the welcome recent news of West Midlands police breaking up the largest modern slavery network in the UK, modern slavery and human trafficking is firmly back in the spotlight.
As one of the most pernicious forms of crime, which tragically effects many lives, it was also good to see the launch of a new initiative by Europol to tackle the perpetrators of such loathsome criminality. The Joint Liaison Taskforce Migrant Smuggling and Trafficking in Human Beings (JLT-MS) is designed to identify criminal networks and the big gangs behind them.
The UK Government has also enhanced its counter measures in the form of a new modern slavery research centre. The £10 million centre will create a knowledge sharing and research hub, which joins together academics, businesses and charities to drive collaboration and combat this crime.
This stakeholder collaboration is critical; charities – such as the Salvation Army – have a key role to play in the fight against modern slavery. The good old ‘Sally Ann’ has been doing some amazing work in the frontline of tackling the issue, highlighting how the demand for ‘cheap labour’, ‘cheap goods’ and ‘cheap sex’ is creating the ideal conditions for modern slavery to thrive.
The vast proceeds from these evil crimes need to be laundered and easily find their way into our financial systems, as criminals continue to apply innovative methods to avoid controls. We are all aware of the rise in Money Mules, one such technique commonly used by traffickers, but we can do so much more to understand the typologies.
As guardians of the financial system, it is incumbent on us to identify new criminal methodologies and trends. In turn this will enable us to better enhance our controls and improve the training to first line of defence teams. None of the crimes that lead to money being laundered are acceptable but perhaps those that rob people of their basic human rights deserve our best endeavours.
‘Tis the season for reports and consultations in the world of tackling financial crime, and whilst understanding the threat is critical I can’t help but hope the next season is one of action.
It seems barely a week goes by without a new review, consultation or report being published, in the last few months we have seen:
HMG publish the long awaited Economic Crime Plan for the UK for 2019-2022. This much anticipated report sets the tone for the UK’s fight against economic crime which includes fraud, money laundering and terrorist financing. Many of the news headlines on this focussed on the Government’s plans to regulate the cryptoasset markets.
A public consultation on the 5th Money Laundering Directive. Now closed, the findings are eagerly awaited. Having had the opportunity to speak with market experts over the last few months, it’s evident that the industry awaits much clearer guidance on what will be required of it under the 5th Anti-Money Laundering Directive. There are many unanswered questions and January 2020 is approaching fast. Watch this space for our guide to 5AMLD for compliance officers, which will provide our thoughts around the issues, and actions needed.
A public consultation on Transparency and Companies House – this is open until the 5th August, so you’ll need to get your responses in soon. Long overdue in the opinion of many, the consultation provides views on how the governance, accuracy and quality of information held on the register can be improved. In particular, the consultation looks at the introduction of identity verification of directors and shareholders, and ways this might be done in practice.
HM Treasury release it’s Anti-Money Laundering and Counter-Terrorist Financing Supervision report (covering 2017-18). It looks at how well AML regulation has been supervised by the 22 Professional Body Supervisors that it’s responsible for appointing.
And these are just the tip of the iceberg, we’ve also seen reports from the Gambling Commission (Enforcement Report), FATF (Cryptocurrency Guidance) and the FCA (Annual AML report; money laundering risks in capital markets). Not to mention additional sector specific direction for solicitors (Solicitors Regulatory Authority), those in estate agencies (HM Treasury) and updated guidance, released just a few days ago, for Accountants.
Whatever sector you are in there are a number of common themes; the financial crime problem is significant and there are a lot of agencies tasked with tackling it simultaneously, which leads to inconsistencies in the way the problem is approached. This lack of a common standard can create opportunities for criminals, and make the job of those fighting financial crime even more difficult.
Analysis of the threat is critical, and these insightful reviews are to be commended, but 2020 must be the year of action. Reports, consultations and meetings help to describe the problem but now is the time for a national strategy to be implemented that aligns all our resources in the fight against fraud, money laundering and terrorist financing.
Finally it was heartening to read this latest article from the International Consortium of Journalists (ICIJ). The cost, sacrifice, risks and perseverance of a bunch of dedicated people determined to expose how the elite exploit loopholes in our financial systems to evade tax or hide their ill-gotten gains, has so far led to £1.8bn being clawed back by governments around the world. The report gives a country by country breakdown, including £252m recovered by the UK, and makes clear there is still a lot more to come.
I hope the ICIJ team inspires all of us working in financial crime compliance to make a difference. Every little bit counts and is a victory over the millions who are victims of financial crime.
Remember what we’re fighting for.
Author: Michael Harris
Director, Financial Crime Compliance and Reputational Risk
LexisNexis® Risk Solutions