Friday, November 01, 2013

Yet again, the FCA ducks the issue of prosecuting banks for money laundering breaches.

The FSA has just published yet another Thematic Review entitled "...Anti-Money Laundering and Anti-Bribery and Corruption Systems and Controls..."

It is widely held that by preventing and forestalling money laundering, criminals will find it so much harder to enjoy the fruits of their crimes. This has become an article of faith and we have draconian laws to achieve these ends.

This is a highly laudable ambition, but as with any law, enacting such legislation is fruitless, if at the same time, sufficient provision is not made to ensure that the law is first obeyed, and secondly, enforced, and that persistent refusal to comply with the law is punished in an appropriate manner!

Despite the fact that the FSA has long been given the power to enforce the anti-money laundering rules and regulations, for so many years, the regulator studiously refused to have anything to do with them.

Later, when they were literally shamed into accepting their role in the regulatory process of these laws, they started to undertake some very limp-wristed 'thematic reviews', culminating in a major report in June 2011, in which a large number of institutions were reviewed, and the findings of a repeated series of failures to comply with the money laundering regulations were published.

The reason for this reiteration is to state, right at the start of this article, that the financial services industry knows full well that they are required to comply with the anti-money laundering laws; that they have to provide a full compliance regime; and that a failure to comply is punishable by law. They have been visited before, they have been reviewed, they have been inspected, they have been investigated, they have been coaxed, cajoled, and still they refuse to provide the level of compliance required by the law.

Lest anyone be in any doubt, and for these purposes I include the relevant members of the FCA, who clearly do not appear to know the law, the specific provisions of the criminal offences regarding non-compliance with the Money Laundering Regulations are contained in Section 45 of the Money Laundering Regulations 2007, which states;

 45.  (1)  A person who fails to comply with any requirement in (specific regulations) is guilty of an offence and liable—

(a) on summary conviction, to a fine not exceeding the statutory maximum;
(b) on conviction on indictment, to imprisonment for a term not exceeding two years, to a fine or to both.

It is perfectly clear that Parliament intended that penal sanctions should apply to those who are subject to the anti-money laundering laws, so why is it that the FCA steadfastly refuses to prosecute any financial practitioners for failing to comply with the law?

Their report starts with the predictable mission statement. I don't know why they bother because it is perfectly clear from their actions that they don't intend to practise what they preach, but it looks good in print!

"...Tackling financial crime is a key part of our remit, a responsibility we took over from the Financial Services Authority (FSA) in April 2013. Preventing financial crime is a vital element to achieving our objective of protecting and enhancing the integrity of the UK financial system..."

If prevention of financial crime is key, and is so vital, why are they so weak-kneed in the way they go about dealing with the very suppliers of professional services who are the greatest help to criminals laundering their criminal proceeds?  They continue;

"...There are some areas where the risk of money laundering and bribery and corruption is heightened in the asset management and platform sector. These include the selling of investment products, particularly where third-parties are employed to raise money; the dealings that firms have with clients, both at the point of take-on and on an on-going basis; and the search for information to obtain a competitive advantage..."

Ironically, the FCA demonstrates it knows the high-risk areas, but what does it do about them?  It continues to pontificate. It seems they have to publish this stuff more to justify their existence and to prove to others that they might know what they are talking about! They state;

"...The specific risks will vary depending on the nature, scale and complexity of firms’ operations. Factors that may increase the risk of money laundering and bribery and corruption include:

•           Non face-to-face business, which can be attractive for money launderers hiding behind stolen or fabricated identities.
•           Customers from, or with links to, countries that are considered high risk from a money laundering and/or corruption perspective.
•           Wealthy and powerful clients, particularly where they insist on a high degree of confidentiality.
•           The use of offshore trusts and shell companies to distance beneficial owners from their funds.
•           High value and/or unexpected transactions.
•           Payments or inducements, without a clear business rationale, to third parties..."

Their findings were quite explicit.

"...Given our strong regulatory focus and previous publications on AML and ABC we expected firms to have taken more action to ensure their controls reduced the risk of money laundering and bribery and corruption.

Our findings were of particular concern where the firms were part of major financial groups, which should have been aware of our expectations. In some cases, the firms we visited were from groups that had been subject to previous regulatory attention but we still found significant weaknesses..."

Firms should have taken more action, and should have been aware of the regulator's expectations. In some cases, this was not the first time they had been visited, and there were still significant weaknesses being found.

In other words, the firms concerned were not doing what they should have been doing to comply with an important law, despite the fact they knew they should have been doing the work. They were completely ignoring the law, sticking two fingers up to the regulator and thereby, almost certainly enjoying the benefits of significant value flows of dirty money.

And the outcomes?

"...We have provided feedback to those firms in our review, but we expect all firms to consider our findings and the examples of good and poor practice to improve their AML and ABC frameworks where necessary. We will be following up with some firms to discuss the actions they should take..."

Feedback, following up, well, no doubt that will teach them not to do it again!

Predictably, the FCA refuses to name the firms concerned, so there is no public opprobrium attached to these findings.

The report does contain some interesting and valuable findings, and there is no doubt that some firms do take the time and trouble to do more to provide a more robust compliance regime, but this does not answer the need for a sound and effective reason why, in the most egregious cases, they are refusing to prosecute those who are repeatedly failing to provide best practice compliance with the laws.

I rang the FCA and spoke to someone in their Press department. I asked him the question why they were still refusing to prosecute?

His answers made for interesting reading. He stated that they were 'looking at it'!

What was manifestly clear is that this person had no knowledge of any criminological findings or the research which has been undertaken into white collar criminality.

He was quite robust in his defence of the regime of imposing fines on firms for regulatory breaches, and believed that excluding practitioners from the industry was a deterrent.

He may be right in this, but until practitioners start to be excluded for failing to impose the relevant anti-money laundering regulations, we shall never know.

When I pointed out to him that there was a wealth of evidence that criminalising white-collar practitioners possessed the most exclusionary features, he was unaware of the existence of such information, and when I pointed out that fines, no matter how large, merely landed on the shoulders of the shareholders, he appeared unimpressed.

Money laundering is the Cinderella crime of the financial sector! Everyone knows she is there, but no-one wants to have anything to do with her.

So let me spell it out.

Financial companies know that a significant amount of big money that comes into London for investment, has a propensity to come from sources which are less than legitimate or legal.

It could be drug trafficking money, it could be capital flight. It could be the proceeds of state looting, it could be large-scale tax evasion. It could be purloined aid money given to help a third world state, but secretly stolen by the 'President for Life', it could be the proceeds of major corruption, it could be money routed from countries subject to UN sanctions, it could simply be the proceeds of fraud or other crime, until the right questions are asked and the correct answers satisfactorily identified, the money is always going to be a potential problem for the company handling it.

The vast majority of British financial services companies don't care a jot and some (HSBC, Standard Chartered, Barclays, et al) positively facilitate the transfer of the money, as we have so recently learned.

Just as single mothers who claim benefit can be sent to prison for fraud if they allow their boyfriends to stay overnight, but who fail to report the matter to the Benefits Agency; so bankers who are repeatedly found to be deliberately refusing to comply with the Money Laundering Regulations should also face criminal prosecution.

For the benefit of the Press Department person at the FCA who appeared to know so little about the white collar canon, there has been significant research undertaken by academics into the exclusionary power of criminal prosecution upon the white collar sector. (Professor Michael Levi at Cardiff University has been among the most prolific researchers in this genre.)

Any financial practitioner who is successfully prosecuted for a criminal offence faces a life-time's exclusion from the market and rejection by his former business colleagues. It is akin to being cast into outer darkness, and it possesses grave implications for any business whose executives are so dealt with.

That is why it is such a powerful sanction, and widely feared by the City and for that reason, City practitioners are so rarely subjected to its effects. That is why I am asking, yet again, no I am not asking, I am demanding to know why no one in this latest study has been reported for the question of prosecution to be considered?

If the FCA wants to avoid the mantle of its predecessor, the FSA, of being seen as a tame and shabby toothless tiger, at least as far as City crime is concerned, then they must begin to adopt the use of criminal prosecution in specific cases, as a means of penalising the 'protected species' within the Square Mile.

If this method were adopted, they would see an overnight conversion to the way of truth and righteousness. The entire sector would burst a collective blood vessel ensuring that their systems and controls were as clean and sound as they could be. It would be the most effective way of ensuring compliance with the relevant laws and regulations.

Again, for the benefit of the FCA Press officer, mere fines do not work against the financial sector, no matter how much you may believe they do! They don't pay them anyway, they fall on the shoulders of the shareholders, and they get written off to tax at the end of the year!

Most importantly, the FCA has to start to rebuild public confidence in the equality of justice as it is employed against the City. They must deconstruct the generally-held opinion that the banksters and their molls, can get away with anything as long as they wear a suit and work in EC3!

By failing to prosecute anyone for this latest round of failings to comply with the Money Laundering Regulations, they have missed yet another opportunity, to set out a policy of compliance requirement, and it is an opportunity which will not go unnoticed by the organised criminals in the financial sector.

They will read this report (if they can be bothered), and they will be re-assured that yet again, the regulator has given them another free pass! They will continue to ignore the important provisions of the Money Laundering Regulations and continue to trouser the illicit profits!
And the FCA?

They will continue to look at the issue! This is official, the Press Officer from the FCA told me!

1 comment:

AbogadoNZ said...

I am glad you are back in good 'voice' Rowan. You make some compelling points. I was wondering if FCA failure to prosecute when finding strong evidence of crime is in itself a crime/