Friday, December 28, 2012

Knowing what questions not to ask!

The City of London, and those who serve its commercial interests, is a self-fulfilling prophecy. You may only be admitted to membership if you are willing to sign up to all its mores, its practices, and its standards, with absolutely no caveat.

You must not have been seen to be critical of its methods or the ways by which it enriches itself,  you must not have any doubts about the complete integrity of its conduct of business, and you must openly demonstrate your support for its ambitions, its traditions, and its culture.

Above all, you must not speak critically of its activities, either within the system, but especially not to outsiders. To do so is to guarantee your eviction to financial outer darkness.

Another shibboleth is that you do not speak critically about its regulators, to do so is to guarantee that you will never be employed within the Temple of Mammon. A strange decision, you would think, but no, the City has this exotic belief to which it clings like a deranged limpet that the regulatory agencies are a vindictive elite with super-human powers and long angry memories who will remember any institution which has once criticised them, or employs anyone who may have been critical of their actions, and then single them out for particularly draconian treatment.

This means that a compliance officer will never fight back whenever a regulator makes any demand, no matter how unreasonable, the firm simply doesn't want any of its compliance personnel to give the regulator any perceived excuse to single the house out for special treatment. It doesn't really matter as both sides know that the regulatory , in most cases, is essentially a box-ticking exercise, and little more.

So, the entire financial sector operates on a belief mechanism that does not allow for any, even remotely, critical observation of itself, its members or its regulators. Thus everyone operates in an intellectually-critical  vacuum, where no one says 'That is not a proper way to behave', or 'I really do not think this the right thing to do', or especially, 'what you propose is unlawful', so nobody is made to feel that what is going on is anything other than a perfectly normal set of actions, designed to benefit those inside the magic circle.

City practitioners instinctively know these things, they don't have to be taught, because they learn it from the very earliest days in their jobs. When a young trainee banker/trader/broker/analyst, whatever, joined their firm in the past, they would already have been through a selection process, during which they would have probably been introduced to the team with whom they would be working. In many cases, they would have spent some time with their new counterparts, perhaps they would have been wined and dined by them or spent time with them in a social atmosphere. They would quickly have become aware of the amount of disposable money their new colleagues seemed to possess, and they would remark how they were dressed. They would quickly come to enjoy the freewheeling, hectic routine of the office, the desk, the team building exercises, and the tales of hedonism and excess, and particularly in those cases where they had received a hefty signing-on bonus.

They would be introduced to others who had become senior players at an early age, who were earning huge-figure salaries and even bigger bonuses, and they would have quickly learned that the true route to promotion and success was determined exclusively on how much money was earned and brought to the employing firm in profits.

Like Jesus being taken up by the devil into the high place and tempted, the young trainee is shown all the rewards for keeping the faith, and quickly comes to realise that the return on the investment being made in them is complete and utter unquestioning obedience to the new set of norms which have replaced those with which they were brought up, and absolute silence as to the means by which those new norms are defined and interpreted !

So what happens if someone from within the financial milieu does step out of line, and behave in a way that is not proscribed by the unwritten rules of conduct which the financial sector expects to see applied.

Martin Woods was a London-based compliance officer with the American bank Wachovia (now owned by Wells Fargo). He alerted the authorities to what he suspected was the massive laundering of drug money through the bank. Woods claims that he was pushed out of the bank due to his actions.  Wachovia subsequently paid a $160 million settlement for anti-money laundering failures in relation to Mexican drug smuggling.

Martin Woods had simply done the job that was required of him, and being a former British police officer, he was very aware of his legal responsibilities under the money laundering laws and regulations. Having made the disclosures he was by law required to make, he was sacked from his job.

Subsequently, Martin wrote an opinion piece for the Financial Times on 23rd August 2012. In it he said;

"...Three years on, I have not found the fear Mr Sants was hoping to instil (in the City). This failure has led to further instances of bad banking and scandal. There are some who neither fear nor respect the FSA as a credible regulatory authority. In 2011 the FSA imposed fines totalling £66m. So far in 2012, US authorities have fined British banks about $700m. Does the sum of £66m present a credible deterrent..?"

Fairly bland stuff you might have thought!

This  year in March the FSA fined Coutts Bank £8.75m and ordered it to significantly step up its efforts to prevent drugs barons, deposed dictators, organised criminals and terrorists from using the bank as a conduit and purifier for their ‘dirty’ money.  The bank was censured for failing to check whether the wealth of “politically exposed persons”, code for toppled Arab dictators and their families, was legitimate.

Describing Coutts’ failings as “significant, widespread and unacceptable,” the FSA ordered it to strengthen its anti-money laundering controls and ensure money-laundering reporting officers (MLROs) had sufficient “robustness” to challenge its private bankers, a difficult ask when banks and bankers have much to gain from turning a blind eye to ‘dirty’ money, earning fees of 5% to 25% for sums laundered.

 Coutts Bank, an RBS subsidiary, had appointed Martin Woods as an anti-money laundering (AML) expert a year ago. Woods was interviewed by Martin Bush, a senior consultant who was running the bank’s ‘AML change programme’. During the interview Bush told Woods he was hired. In an internal RBS email reported by Ian Fraser in the Sunday Herald, the appointment was approved and Woods signed a contract on July 18 2011 at a day rate of £650, which equates to a salary of £130,000 a year.

The Royal Bank of Scotland then almost immediately reneged the job offer to this leading anti-money-laundering expert on discovering he had blown the whistle on drugs money-laundering by a former employer.

In a separate internal RBS email dated July 27, 2011, sent by Bush to Coutts’ compliance director Peter Nelling, reveals that the bank chose to renege on its commitment because it “we had become aware of an incident at Wachovia, one of Martin Woods’s previous employers, and that Coutts was keen to avoid any risk of reputational damage that might relate to the incident”. Coutts, the bank, which numbers the Queen amongst its clientele, told Woods the job offer was being withdrawn the previous day, July 26.

In an employment tribunal to be heard in London later this year, Martin Woods will sue Coutts private banking arm for discrimination and detrimental treatment of a whistleblower. Woods' claim is simple. He argues that Coutts tore up a signed contract of employment on discovering that he had exposed a $378 billion money laundering scandal at former US employers Wachovia Bank.

“I am suing Coutts for discrimination against and detrimental treatment of a whistleblower under the Public Interest Disclosure Act and the Employment Act,” said Woods. “If I was there, I would have seen my role as being to robustly challenge their private bankers to explain their relationships with certain customers and what these customers were doing with Coutts, as set out in the FSA’s final notice.”

Coutts has argued that, since it was not a party to the contract, which it says was the work of an external recruitment firm, Woods was never technically an employee and therefore is not eligible for protection under the Public Interest Disclosure Act and the Employment Act. The bank has also blamed its withdrawal of the job offer on the fact Woods had been “vocal” in his criticism of banks and the FSA in December 2010. Coutts is also arguing that Woods’ claim is out of time.

Woods, argues that a number of untrue and misleading statements from Coutts, which contradict what bank officials said in internal emails, had delayed his ability to issue proceedings.

Throughout this all-too-predictable-episode, you may have noted one of the reasons given by Coutts for their treatment of this brave and honorable man, "...the bank has also blamed its withdrawal of the job offer on the fact Woods had been “vocal” in his criticism of banks and the FSA in December 2010..."

Now, how does that work, I wonder? Here they are seeking to apply their own twisted set of standards as a legitimate means of withdrawing a job offer, because Martin Woods had publicly stated his criticism of banks and the FSA! You would have to be a complete delusional imbecile not to have criticisms of banks and the FSA after what has gone on in the last few years. It would be an indictment not to have criticised the  banks, because not to have done puts you squarely in the camp of complicit organised criminals who make up the criminogenic structure of the financial sector . The FSA has been a significant failure in the way it has regulated the financial sector.

The real truth is that to be a successful money-laundering reporting officer (MLRO) these days, you have to know which questions not to ask. Banks don’t want MLROs with any skills, experience, or the independent knowledge to be able to stand up to the commercial people and say, ‘you can’t do that’, because that would be to admit someone to the club who was challenging the status quo, and that would never do.

I first learned about the concerns that the City has about being criticised when I used to write a column for a financial newspaper. It was called 'Bosworth Files' and I used it to identify failings in compliance models and suggest other ways of making the compliance officer's job more effective.

Certain financial sector members contacted the editor and hinted that unless my column was pulled in its entirety, they would recommend to their friends to withdraw their advertising from the paper. My column was duly eradicated. Since those days, such an event has happened to me a few times, and I suspect it is about to happen to me again in a column I was writing for an Australian anti=money laundering journal.

The best example occurred when I was editing an academic journal called the Journal of Regulation and Compliance. I had written a coruscating editorial in which I had pointed the finger at a series of financial practitioners who were behaving in various criminal ways, and I had used the editorial to identify a series of criminal offences which were being routinely ignored by the then regulatory authority, the SIB. You will note how little has changed over the years!

I then received a letter from a very senior executive in some eminent Scottish investment institution who wrote to me complaining bitterly about the content of my editorial, saying that he could not believe that an 'organ' of our stature and profile would stoop to such irreverent commentary, and demanding that I bring his letter and its contents to the attention of my publishers. In the usual financial sector manner he clearly believed that he and his institution were extremely important and powerful and that the publishers of my journal would be heavily influenced by their complaint and would use it to either discipline me or indeed, remove me altogether.

I replied to his pompous missive by saying that I was delighted to receive it, but that I did not believe in conducting discussions of such obvious importance in private, and that I felt his complaint was of such importance, that I would publish it in the next edition of the Journal, together with my reply, so that my publishers would able to see the depth of his concerns.

I then invited him to write an article in which I said that he could set out in great graphic detail his concerns about my editorial, and allow him Journal space to tell me why I was wrong, and to set out his objections to my observations in writing and in public.

Needless to say, I never heard another word from the pompous arsehole!

Martin Woods' case is due for hearing shortly. I am certain that like me, you will want to wish him well!


AbogadoNZ said...

Another 'good-un' Rowan and fingers crossed for Martin Woods. I wish him well.

As for how to deal with the miscreant bastards in the banks and regulatory authorities surely the time has come to start a web site setting out their misdeeds together with their FULL contact details and invite/suggest that a boycott commence.


Kelly Yip said...

Ex-MLRO loses whistle-blowing claim against Coutts

Jan 07 2013 Martin Coyle, Compliance Complete
A money laundering reporting officer who blew the whistle on allegations of widespread money laundering involving Mexican drug cartels at U.S. bank Wachovia has lost an employment hearing against Coutts, the private banker. Martin Woods, former MLRO at U.S. bank Wachovia, lost a preliminary employment tribunal claim against the bank, part of the Royal Bank of Scotland, over a job it offered him in 2011 in its AML compliance unit. Woods, who is now the AML compliance officer at Thomson Reuters, claimed the bank withdrew its temporary job offer because senior Coutts managers had concerns about his whistle-blowing at Wachovia. He was claiming an unspecified amount from the bank which denied the allegations. At the London Central Employment Tribunal pre-hearing Woods' case was thrown out on legal grounds. Coutts claimed successfully that Woods could not be described as a "worker" under the Employment Rights Act 1996 because the job offer was conveyed through a recruitment agency to

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