Monday, October 10, 2011

The World-Check Global Compliance Leadership Forum 6 - 7 October 2011

To Brocket Hall, Hertfordshire as an invited guest and speaker, to attend the annual Global Compliance Leadership Forum organised and produced by World-Check.

I have known the company since they started over a decade ago when they launched the world's first database for KYC compliance. Today they are rightly considered to be the leading global authority on resolving risk through targeted intelligence.

Now an integral component of the new Thomson Reuters Accelus Screening product, World-Check has been joined by the Northland Solutions Transwatch transaction monitoring software, to create a suite of end-to-end solutions that provide a comprehensive view of regulatory and legal risk, helping organizations manage Governance, Risk and Compliance globally, encouraging growth and innovation instead of bogging them down.

In the distinguished company of Rear Admiral Chris Parry, a specialist in Geo-Strategic Forecasting and Risk Assessment; Professor Alain Bauer, Professor of Criminology; Neville Tiffin, Global Head of Compliance of Rio Tinto; B.C.Tan, Head of Organised Crime Research for World-Check and Keith Packer, a former Commercial General Manager of British Airways, we spent two delightful and instructive days evaluating and analysing high-level issues of compliance with international regulatory demands.

My paper, which examined the issues surrounding narcotics and terrorist money laundering in Pakistan and Afghanistan, sought to evaluate the implications of the lack of meaningful aml systems and controls which still pertain in Pakistan, and how her failure to comply fully with FATF requirements has made her a real risk to international banks who could easily be induced to provide services to Pakistani high net worth individuals, or exchange-quoted companies.

When discussing money laundering typologies in Pakistan, it is an enormous mistake to start by thinking in conventional, money laundering terms.

In Pakistan, cash is routinely used, every day, as the traditional means of value transfer, and a very large number of even sophisticated, educated people will routinely withdraw the entire contents of their monthly pay cheque from the bank, once the cheque has cleared into their account, and hold it in cash.

It is not unusual to observe significant amounts of cash being used to pay for very large bills. When one checks into a hotel, even one of a very high standard, the clerk routinely asks whether the bill will be settled in cash or by the use of a credit card.

Pakistanis keep large sums of cash in their homes, and no-one thinks anything remotely untoward of such significant possession.

Therefore, when conventional money laundering methodologies are reviewed, but in Pakistani terms, the traditionally accepted truisms do not so easily apply.

For this reason, a major number of Western-style anti money laundering methodologies simply have no resonance in Pakistan because the criminals routinely keep the cash, and no-one is in the least bit concerned or suspicious if such sums are used to maintain their lifestyle.

This is not to say that money laundering techniques are not used in Pakistan, indeed, the more important requirement for illegally-acquired money in Pakistan is to have an acceptable way to explain its existence in cash form, as opposed to seeking to use conventional ways of laundering it. This does mean, however, that in many cases, the laundering methods adopt a form of 'reverse money laundering' where the activities of the person conducting the laundering activity are aimed at providing a putative legitimate provenance for the money, to give the cash a legitimate 'legend'.

We are dealing with a State which is very resistant to implementing meaningful aml systems and deliberately engineers a legally-instituted system of cross-border financial transfers, designed to allow the free-flow of all kinds of international currencies into and out of Pakistan, but without any meaningful questions being asked as to the source, provenance or ultimate destination of that money, a system which flouts international law and makes a mockery of any internal anti-money laundering proposals or initiatives, and which deliberately facilitates the financing of international drug trafficking and terrorist financing.

Addressing an audience largely composed of senior risk and compliance professionals is no sinecure, and a sharp debate ensued, identifying and recognising the problems associated with States like Pakistan and Afghanistan, and asking how they can safeguard their institutions from the risks of doing business with major Pakistani criminal elements or Afghan terrorist paymasters.

When discussing the difficulties associated with the narcotics connection which Pakistani money poses, it became easier to appreciate the dichotomy which financial sector practitioners have to face. Nevertheless, the debate did point up some potential solutions, which I have no doubt the World-Check and Thomson Reuters professionals present would have noted and will be working on.

This is the real value behind these fora, the chance to meet and discuss real-life problems with those who have most to lose from getting them wrong. This is where Thomson Reuters is really defining a new agenda of risk management, and opening up a whole new series of prevention mechanisms and tools. Working at this depth of intellectual challenge and with this degree of granularity defines a whole new scenario of sophisticated supports for the regulated sector.

As these kind of new products come on stream, they will quickly spotlight those 'so-called ' solutions which seem to promise much but deliver very little, and in time, they will be excluded from the market, as the new Thomson Reuters solution suites become recognised as providing significant added value.

Thank you World-Check for the invitation, thank you to the new friends and contacts I made, it was one of those events that was worth every minute!

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