The Positive Potential of 2022 for Anti-Money Laundering

- 6 January, 2022

As with 2020, 2021 was a challenging year and as we enter 2022, we face continued Covid-19 headwinds. There are restrictions upon travel, more working from home, with many firms losing customers and business opportunities. All the while, the global anti-money laundering (AML) community work to comply with laws, regulations and rules, simultaneously seeking to deter, detect, report and all being well, stop money laundering.

Positive

Against this backdrop, we want to focus upon positive, thinking, messages, opportunities and hopefully outcomes. The fact is, negative is easy and commonly unproductive. For sure, there is a place for criticism, indeed criticism can identify and present opportunities to adjust or enhance processes. Positive thinking is more engaging, rewarding and when applied to AML it may provide solutions to problems as well as improvements to existing processes.

Positive anti-money laundering solutions and training (PAMLST)

Pursuant to the above I have determined in 2022 my mantra will be PAMLST. I want work with The Laundry, The Global Compliance Institute (GCI) and AMLWoods to create a think tank and natural provider of alternative strategies, intelligence and training solutions for firms and banks seeking to change, enhance or even rebuild their AML frameworks. Please note we do not want to compete with similar groups or organisations, whilst competition is healthy, collaboration is healthier.

Change

Everyone knows change is a constant. Life is change and evolution is change. We should not fight change, albeit it is often a natural instinct, for some people to do so, because they have anxieties about it. We should drive change and in doing so reject the failings within the status quo. We can and therefore, we should do so much more with the AML resources and funds collectively spent by the public and private sectors.

My friend David Lewis, the former Executive Secretary of the Financial Action Task Force (FATF) has made a number of calls for change. In particular, he has previously advised the global AML community not to try and stop all instances of money laundering. Now some may instantly react and ask two questions. Why should we stop pursuing such a noble endeavour? While others will ask, why would he make such a proposal? The answer to both questions is the application of risk-based approach to AML.

Risk-based approach

The key word here is risk, I will offer some alternative risk thinking later, for the time being we need to accept and apply the very basics of risk management. Our lives are risk based, some very unfortunate people, risk becoming ill or dying when drinking water from rivers, wells and ponds, whereas others wear uniforms and stand on the front line, fighting diseases, whilst accepting, but seeking to mitigate the risk of being infected with such diseases. Many of us take a risk when we walk out of our homes, the roads maybe uneven, and we could fall over. A motorist’s attention may be drawn to a mobile telephone, subsequently causing him/her to crash the vehicle and harming or killing us.

There is always risk, but such risks do not stop us living our lives. When the risks are very high, such as the infection risks from Covid-19, governments impose additional restrictions to protect citizens, including the brave health workers on the front line fighting the virus. In the world of AML, risk-based means there will be a risk money will be laundered, notwithstanding the controls put in place, but we must carry on with our legitimate business and accept such risks.

Tolerated, managed and rejected risk

Historically the global AML community has applied a risk model of high, medium/standard and low. Variations have seen some instances which have added ultra-high and simplified risk. Perhaps 2022 is the time to think about an alternative approach, similar to the risk-based approach applied by airlines and airports. Here there is a constant reliance upon intelligence and scientific advice.

Airline passengers are permitted to carry small quantities of liquid (no more than 50ml), within a small bag. There is a tolerance of the risk presented by such small quantities of liquid. Beyond this tolerated risk, there is the managed risk of passengers carrying medication and young parents carrying milk for their babies. Outside of these parameters the risks, including containers with more than 50ml of liquid are rejected.

There is no discretion at the airport, the rules are robustly enforced and passengers accept the same as terms and conditions of travel. Drawing upon the lessons presented by the passenger airline industry, we could reconsider our approach to risk and perhaps tolerate the low level of money laundering risk presented by groups of customers, accounts, transactions and products. It is not common practice at an airport for every case to be searched and/or every 50ml container of liquid be examined.

The 50ml customer or account

Applying alternative thinking, should we now be looking for the accounts, customers and transactions which present a low level of tolerated risk? Note, this is not a proposal of no risk, as stated above, there is always some risk, but we cannot be all things to all money laundering risks, at all times. To some this is a bold proposal, but at the same time it is logical. Imagine a policy of physically searching all luggage and examining all liquids at an airport?

Tolerated risk can be based upon, value, volume, frequency and method of transactions. With this in mind, can we apply some statistics, some science to the risk-based approach to AML? Low value credits present a low money laundering risk. To which some readers quite rightly raise the issues of accounts being used by young people to launder the proceeds of ‘county lines’ drug trafficking. Remember there are some instances when airport employees do examine the contents of some 50ml liquid containers. Moreover, there are always simple controls which can be added or adjusted to attend to new or specific money laundering risks.

So back to these low value, tolerated, money laundering risks, which could include personal accounts with a small, perhaps a single, monthly credit from a known legitimate source. Other factors could include, no international transactions, no cash transactions and low value debits.

The positive potential

It is not about the prior or existing AML processes and thinking, rather it is about possibilities presented in 2022, with new positive thinking and the courage to drive the changes required to make a difference and improve the outcomes. During the course of 2022, we will dissect some of the prior money laundering prosecutions and regulatory actions, not to be critical but learn from and provoke debate around change.

The money laundering threats

The money laundering threats have not changed considerably, of course there are new products and services which can be used/abused by money launderers, including crypto currencies and digital assets, albeit these are not as friendly to launderers as may be typically perceived. Cash remains king, because it breaks audit trails and simultaneously removes credit risk within the world of crime. It is the auditability of crypto currencies which has led to huge losses to organised crime groups. The lessons we need to extract from cash is to understand how our customers handle cash, the risks they take and how these risks impact our business. Please look out for the cash paper we will publish in Q1 of 2022.

The second risk which remains unchanged is that of international payments, using correspondent banking. Money launderers have always sought to move the proceeds of their crimes out of the countries and jurisdictions where the predicate crimes were committed. Connected to this is the use of corporate entities, both offshore and on shore. Bluntly, money launderers do not use personal accounts for a number of reasons, which is evidenced within almost all prior major money laundering prosecutions.

The risks presented by politically exposed persons (PEPs) has evolved from despots stealing vast sums of public money and laundering the same in other countries, but such despots and high-ranking politicians continue to present the highest level of PEP risk.

Who is charge of AML?

You are, most importantly, your customers are not in charge, you can determine the tolerated, managed and most importantly rejected risks. You can tell customers whether they can deposit cash and what value is tolerated. You can say no to cash; you can tell them where, when and how to deposit cash. If they don’t like your instructions they can take their cash, their business and their risks somewhere else.

Let me give you some context, during lockdown I broke my smash pot containing thousands of coins and a small number of notes. When I was permitted to deposit the coins into my personal account, my bank restricted me to ten bags of coins each day. I fully accepted this very sensible rule, I am not a money launderer I didn’t argue. The rule was put in place for the benefit of all customers, who did not wish to queue behind a man with 100 bags of coins.

You can make, apply and enforce the AML rules in your firm, which should ensure you reject any customer delivering £700,000 within two black bin bags. Such cash handling presents huge risks to customers, as well as bank employees, your colleagues and these risks should be rejected by AML professionals.

Training

Training should be focused upon how to help you to apply the laws, stop money laundering, protect shareholders/staff and save money. We change all of the time, because risks change, throughout 2022, The Laundry will keep you updated and these publications will help some of you to do far more with much less, by applying a tolerance to money laundering risk. We must retain a positive mindset and collectively assert well trained employees have the potential to stop money laundering and save lives, while simultaneously saving employers and shareholders money by better focusing collective AML endeavour. We aim to help firms, banks and individuals achieve their full AML potential in 2022.

We very much look forward to working with you and will seek to measure our AML progress in 2022.