Author: Nicola Sharp
31 October 2016
3 min read
The way banks and other financial professionals prevent financial crime is outdated.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:
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 costly.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.