Rahman Ravelli | View firm profile
With the authorities looking for more ways of tackling money
laundering, Aziz Rahman explains why those working in finance must stop it for
The way banks and other financial professionals prevent
financial crime is outdated. Governments worldwide should pass laws to ensure
information sharing between them and those working in finance in order to
combat financial crime.
Not my personal view: this is what HSBC's Chief Legal
Officer Stuart Levey recently told a banking conference. HSBC has a far from
clean reputation when it comes to financial crime: it paid $1.9 billion as part
of a global settlement in 2012 for failing to stop drug cartels from pumping at
least $800 million through the bank.
But Levey has been Under Secretary for Terrorism and
Financial Intelligence at the US Treasury and he believes national secrecy and
privacy laws prevent information sharing that could tackle illegal flows of
money. The mere fact that HSBC has appointed him reflects the bank’s belief
that doing nothing to prevent money laundering, turning a blind eye to it or
even (in some cases) welcoming it, are no longer options.
The authorities around the world – but especially in
financial centres such as the UK and US – are looking ever closer at those
working in finance and their vulnerability to money laundering.
In the UK, the Joint Money Laundering Initiative Taskforce
(JMLIT), set up as a pilot last year, is now to become a permanent and
increasingly strong weapon in the battle against money laundering. JMLIT was
developed between the UK government, the British Bankers Association, law
enforcement agencies and more than 20 UK and international banks. The aim was
to discover, analyse and then disrupt the ways financial systems could be used for
money laundering, as well as bribery and terrorist financing.
In announcing JMLIT would become a permanent body, the
National Crime Agency (NCA) said it had led directly to 21 arrests for money
laundering, 544 investigations of bank customers suspected of money laundering,
the identification of 1,999 suspicious accounts and heightened monitoring of
573 accounts and closure of 336 accounts.
The figures look good for the NCA. But they should also be
taken as a stark indicator that the financial professional sector is under more
scrutiny than ever – and the penalties can be huge. What also has to be
remembered is that any investigation into money laundering does not begin and
end at the door of a bank or financial institution.
Anyone involved in the movement, concealment or spending of the
proceeds of crime faces prosecution under the Proceeds of Crime Act (POCA) 2002
as an investigation fans out to cover all parts of the money laundering trail.
Lawyers, those working in stocks and shares, the property sector and dealers in
luxury goods, art or other “high end’’ investments are among those who can be
implicated if they fail to make proper checks on the origins of the money they
are handling. And involvement in money laundering can mean sentences of up to
14 years’ imprisonment under POCA. Even a failure to report knowledge or suspicions
of money laundering can lead to prosecution.
If prosecution is to be avoided then anyone handling other
people’s money need to ask some basic, important questions before proceeding
further with any suggested transaction.
Where has the money come from? Who is its rightful owner?
And how did they acquire it? Are there any unusual or unexplained conditions
attached to the deal that is being requested? Is the request made suddenly,
with no prior discussion? Does the deal make commercial sense for the person
requesting it? Has the person requesting the deal’s completion been subject to
any checks now or before any previous deals? Is this is the first time they
have used a particular person or company for the deal? And, if so, why?
Most of the professional sectors that are likely to be
affected by money laundering investigations have obligations placed on them by
the Money Laundering Regulations 2007.
The Regulations cover businesses or sole traders that:
* Exchange currency, send money or cash cheques.
* Accept cash payments of over 15,000 Euros.
* Form trusts or companies or arrange directorships,
trustees or business addresses.
* Provide accountancy, auditing or tax advice services.
* Act as estate agents.
The Regulations require such businesses to introduce certain
controls to prevent them being used for money laundering. Such measures include
assessing the risk of the business being used by people to launder money,
checking the identity of customers and ‘beneficial owners’ of corporate bodies
and partnerships, monitoring customers’ business activities and reporting anything
suspicious to the NCA.
But such measures can only be effective if those obliged to
execute them have proper management systems in place. Are all relevant
financial documents kept and correctly filed? Has a full risk assessment been
carried out to identify and then remove the potential for a business to be used
for money laundering? Are employees aware of the obligations placed on the
business by the Regulations and by POCA? And have they had adequate training to
help them identify and report possible money laundering?
If a business is covered by the Regulations, it must appoint
a nominated officer to whom staff can then report any knowledge or suspicion of
money laundering. The nominated officer must then review the information they
have received and decide if it needs to be reported to the NCA.
The procedures may appear daunting. But legal advice is
available for those looking to make sure they meet their obligations under the
Regulations. But even if a business is not covered by the Regulations, it
should still have in place proper practices to make sure it does not allow
itself to be used for money laundering. Failure to have them in place can prove