With banks being investigated over alleged Russian money
laundering, Aziz Rahman examines the precautions financial professionals must
The news that the Financial Conduct Authority (FCA) has
contacted up to 17 banks in relation to a Russian money laundering scheme
dubbed “the Laundromat” will leave many in finance with questions to answer.
FCA investigators are studying information provided by The
Guardian, which revealed UK-based banks had processed nearly 2,000 transactions,
amounting to $740m, for companies set up as part of the Laundromat scheme. HSBC
was the largest conduit for the payments – handling $545M – a revelation that
comes barely six months after its chief legal officer stated that the way banks
prevent financial crime is outdated.
Arguably, the first question that the FCA will want answered
is who was involved in processing hundreds of millions of pounds of payments
between 2010 and 2014. The second must
be how they did it.
The revelations about the banks must be seen as a major sign
that all is not well with the financial institutions when it comes to money
laundering. And if such major financial organisations are getting it wrong, the
chances are that many others who work in finance are also running the same
The UK’s maximum sentence for money laundering is 14 years. In
recent years, the FCA has made money laundering a high priority. For those two
reasons alone, those working in finance must know how to stop, or at least
identify and report, money laundering.
Money laundering involves the movement of money, or the use
of it in transactions, so that it can no longer be recognised as the proceeds
A person can launder their own criminal proceeds or someone
can do it for them: both are offences under the Proceeds of Crime Act 2002
Section 327 of POCA makes it illegal to hide, disguise,
convert, transfer or remove criminal property from the jurisdiction, while
Section 328 makes it illegal to enter into, or become concerned with, an
arrangement to obtain, retain or use the proceeds of crime. Section 329
prohibits the possession of criminal property.
Sections 330 to 332 of POCA make it an offence to fail to
disclose knowledge or suspicion of money laundering in the regulated sector.
The regulated sector is the businesses and sole traders covered by the Money
Laundering Regulations 2007: including those who exchange currency, send and
accepts large amounts of money, cash cheques and provide tax and financial
The case of Da Silva (2006) defined suspicion in money
laundering as “a possibility, which is more than fanciful, that the relevant
facts exist’’. That issue of suspicion
(or lack of it) may leave the 17 banks facing awkward questioning from the FCA.
To convince the authorities of your innocence regarding money
laundering accusations, you have to be able to demonstrate that you had a
genuine commitment to preventing it. This means carrying out a number of
activities and being alert to signs of possible laundering.
If you are handling someone’s money or other assets, you must
check the background of them and their trading partners.
There has to be suspicion if someone in a transaction is
unclear about, or reluctant to disclose, the exact amounts of money or all the
people involved. Proof of identity, funding sources and the beneficiaries of a
deal all have to be established, otherwise the authorities will view this as an
inadequate attempt to prevent laundering.
You need to ask why your company has been asked to be
involved; especially if the people proposing the deal are not known to you.
Does the deal appear a logical one for all parties to make? And if not, why
If unusual conditions are attached to a deal, if someone is
insisting on a cash-only transaction or the movement of money in the deal seems
unnecessarily complex, you have to be concerned – and act on your concerns.
The outlook is much better for you if it is you that
uncovers and reports the suspected money laundering rather than a third party
or an investigating authority.
All companies have to have in place clear procedures for
staff to report any suspicions about a deal they are being asked to be involved
in. Any firm covered by the Regulations must have a nominated officer that
staff can report their knowledge or suspicion of money laundering to.
Equally importantly, these procedures have to be enforced
and any reports acted upon: introducing them as a box ticking exercise will be
of little value if money laundering is them discovered and the authorities come
Any company investigated will have to show that all
financial records are kept up to date and filed correctly and that risk
assessments have been carried out to assess vulnerability to money laundering –
and that their findings have been acted on. In addition, staff must be trained in,
and aware of, the legal obligations to identify and report possible money laundering.
The obligation is clearly now on those working in finance
when it comes to money laundering prevention. If they do not know how to
proceed, they must seek legal advice.
The Joint Money Laundering Initiative Taskforce (JMLIT),
which started in 2015, was developed between the UK government, the British
Bankers Association, law enforcement agencies and more than 20 UK and
international banks. Its intention was to understand, assess and then disrupt
the ways financial systems could be used for money laundering, as well as
bribery and terrorist financing.
JMLIT not only puts the focus on prevention of money
laundering. It has led to the identification, investigation and closure of bank
accounts suspected of being involved in money laundering.
The Taskforce has given those working in finance some input
regarding the issue of tackling money laundering. It has also emphasised the
links between money laundering and other crimes; such as bribery and terrorist
For those who work in the regulated sector to then fail to
meet their responsibilities to prevent money laundering is dangerous to them
from a financial, criminal and reputational perspective.