Watching the Detectives! The ‘FSA’s AML/CTF Twenty’. Interpreting the findings provided by Timon Molloy of 'Money Laundering Bulletin'.

When giving evidence to the Home Affairs Committee on 30 October 2012, Lord Turner, Chairman of the Financial Services Authority said, “the number of people operationally devoted specifically to anti-money laundering, which includes things to do with PEPs as well as drugs or terrorism, is only 20.”

I was not unduly surprised.

Annoyed, yes! Perturbed, yes! Surprised, absolutely not! And why?

Because the regulatory regime in the UK has never considered it to be any part of their responsibility to investigate financial crime. In fact, if the financial crime remit had not been specifically written into the Financial Services and Markets Act 2000, the FSA would have done even less than they have done up to now.

What is so astonishing is how these so-called, hyper-intelligent people who are chosen to run the regulatory agencies cannot seem to appreciate that financial crime is a natural concomitant of financial regulation, in fact, it is probably the biggest issue which faces regulators in their day-to-day control of the financial markets.

But these elitist protectors of the financial environment refuse to sully their hands with such grubby issues such as financial crime. There is safety in obscurity and they would much rather spend their time dealing with matters of high policy, which is much safer than taking on a bunch of criminals who want to manipulate the market or use the market to help launder criminal money. When you take on the top financial criminals, your balls are literally, on the line, and it very quickly becomes clear whether you have got any, or not!

Hence the reason why they have not, in the past, bothered to train their staff in financial crime case studies to enable them to understand the historical context of the financial criminal milieu! It had to be left to Lord Lawson to suggest that perhaps it might be a good idea if FSA staff received such training, to better inform their awareness of signs of financial crime, and hopefully, to make them better informed more generally. According to Lord Adair Turner, he agreed, although he hadn't hitherto ever considered the matter. Honestly, this man is supposed to be so intelligent, but frankly, just listening to him makes me tired!

So, sooner than bother to employ staff who are properly trained and who have serious experience in investigating serious financial crime, the FSA simply doesn't bother. In this shocking recognition, all their intellectual arrogance, their complacency, and yes, let us admit it, their class-based prejudices are laid bare.

Investigating crime is a class-based issue! Our society has always been willing to leave the regulation of the criminal class to the Police, because for the rest of the upper-socioeconomic group, crime is a working-class phenomenon, and they want nothing to do with it.

So while City bankers will vociferously demand that the people from the streets who burgle their houses, mug their nannies, or nick their cars, should be dealt with using the full force of the criminal law, they will just as stridently demand that people from their class who commit equally-egregious criminal offences, insider dealing, LIBOR manipulation, drug money laundering, or PPI fraud, should be dealt with by regulatory methods of control.

It is an unconscionable state of affairs where some City wide-boy can steal hundreds of thousands of pounds from a client's account, or lose fortunes through acts of false accounting, but then walk away from his crimes, after having been subject to a 'regulatory' penalty. Yet this has happened on a number of occasions. The individual may end up being banned from the City for life, but what the hell, he will always make another living selling double glazing or second hand cars.

This blog has repeatedly compared the punishments handed out to single mothers on benefits who fail to disclose the existence of their life partners, and who inevitably end up in prison, as compared to those who commit the crimes of the powerful, and almost inevitably walk away free. When crime is allowed to go unpunished using socially-recognised methods of control, arrest, charge, trial, acquittal or conviction, followed by sentencing, cynicism for the rule of law floods in, and sends all the wrong messages to the sector subject to supervision.

Such a state of affairs does not bode well for a free society, but it is continuously perpetrated by the FSA in the way in which they handles financial crime allegations. In so doing it perpetuates the scandal that there is one law for the rich and powerful and one for the poor and socially excluded. Such a recognition creates a growing gulf between the haves and the have not's in our society, and provides for an wholly false set of values, a state of affairs which continues to be exemplified by every action of the financial sector. Every pay deal, every bonus settlement, every threat to move to other jurisdictions if bankers don't get their way, these are all symptoms of an extremely dysfunctional sector of our commercial life, and they are all based on the two shibboleths of money and class.

This is why it is so important that the FSA should be capable of delivering the highest standards of criminal jurisprudential management and its failure so to do should be a matter of censure against Adair Turner and the others who have so nonchalantly appeared before the Banking Commission and drawled their elitist drivel in front of the Commission members. We should be eternally grateful for the acerbic comments of the Chair and Lord Lawson among others, who excoriated some of the witnesses, including Lord Turner, for their apparent inability to recognise the reality of their situation, and their incapability to identify the need to change!

This egregious social prejudice arises directly out of the professional inability to act coupled with the lack of confidence on the part of the FSA to conduct criminal investigations. There is virtually no attempt made by the Board to give any recognition to the skills possessed by former law enforcement officers, whose skills should be routinely deployed within the financial crime division of the FSA or whatever new portion of alphabet soup we will soon inherit as a regulator.

So, we must examine with care the findings identified by Timon Molloy in his research for Money Laundering Bulletin, where he required the FSA to identify the qualifications of the financial crime team.

I am reporting those findings as reported to him directly because they contain, yet again, a remarkable degree of arrogant insouciance, and a reluctance to identify the need for a root and branch reform. This is taken directly from his report and I gratefully acknowledge his permission to quote from it.

"...The Financial Crime Operations Team comprises 19 non-administrative staff with varied histories according to FSA: “Ten have regulatory backgrounds, with the FSA, its predecessor regulators and/or similar organisations like the Financial Ombudsman’s Service...”

So, over half of the team have merely transferred their services from one failed regulatory agency to the next. Why do I say this? I say it because every predecessor agency has been identified as failing the public need - the DTI, the SIB, now the FSA. These agencies have all been branded with a culture of civil service bureaucratic rigidity, nit-picking inertia and a cultural resistance to thinking laterally or outside the box.

"...Two come from law enforcement; another two are legally trained; two more are from financial services; one was recruited from a government department and another two are secondees – one with a background in financial services hails from an overseas regulator while the other is from a ‘Big 4’ consulting firm..."

We should be grateful that there are at least two former law enforcement members there, but what roles are they tasked to fulfil? As for the rest, well, we may realistically assume that whatever legal training they have received, it will not have given them the in-depth criminal knowledge and understanding possessed by trained detectives. One comes from a Government Department, while two are secondees, one from abroad, and one from, wait for it, yes you're right, a 'Big Four' firm. As we know the relationship between the FSA and the Big 4 is nothing short of symbiotic - they undertake a large volume of investigations for the FSA, the ones they cannot undertake themselves, which does little more than put a vast amount of money into their consultancy fees.

I long ago came to the conclusion that the closeness of the relationship between the FSA and the Big 4 is entirely unhealthy, especially considering the fact that the Big 4 carry out so much work for the regulated sector. The capacity for creating huge conflicts of interest between regulators, regulated and consultants should be a matter of significant concern, particularly as it assists in providing a number of well-heeled and cushy jobs for former regulators when they pass through the revolving doors of the FSA at the end of their time there!

"...Asked about ongoing training provision, FSA noted that “all staff are required to pass standard AML training”, adding that “much of the team’s training is ‘on the job’ with more senior and experienced members of staff coaching relatively new joiners and more junior staff.” The regulator said that “many of the team have passed or are currently studying for ICA [International Compliance Association] diplomas or certificates on money laundering and/or financial crime.” Staff also regularly attend conferences and share the knowledge they gain. The intention, said FSA, is to review the training on offer once the Financial Conduct Authority assumes responsibility for AML/CTF supervision in April this year..."

There are many who may share my views that attending training at the ICA, a commercial training company, whose certifications possess no more academic or intellectual weight than any other commercial training provider, would hardly be thought to be a proper substitute for intellectually rigorous and examined periods of study carried out through the auspices of a university (such courses do exist); while what benefit may be gleaned from attending most public conferences where the tendency is for the industry to speak words of comfort to itself, a kind of 'the blind generally leading the blind' is debatable in the extreme.

So, thank you Timon for accessing these answers. They are no more and no less than I expected. They paint a shocking picture of an under-resourced and under-skilled department with a very limited underpinning by properly-trained former law enforcement personnel. I remain grateful that they at least are in post because they will be available to share their knowledge and their skills, if asked. I hope they are asked regularly!

As for the rest of the team, I have absolutely no doubt that to a woman and a man they are doing the very best of which they are capable. I have met some of them and they are good people, trying to do a very difficult job under even more difficult circumstances. It is not their fault that their management fails to recognise and understand the importance of dealing with financial crime in a positive and dynamic manner.

You may ask why I am so angry about all this?

I am angry because it is nothing more than a repeated self-fulfilling prophecy. I have been a regulator and I saw, many years ago in the aftermath of the Financial Services Act, just how little emphasis was placed on having criminal legal knowledge, training and understanding. I witnessed at first-hand how those of us with policing or detective skills were routinely derided and ignored, until such time as our skills were desperately needed, and even then our best efforts were criticised and defamed. (This story will be told in another blog)!  I have watched while criminals have been allowed to get away with major organised crime in the financial sector, while we have witnessed a level of PPI fraud rapidly approaching £20 billion in value, but no one has gone to prison for this institutionalised level of industry fraud. We have witnessed the LIBOR scandals, and listened while so-called expert regulators have opined that there were no laws to deal with LIBOR scamming, when all the time there were perfectly good laws waiting to be used aggressively. We have observed how HSBC decided that drug money laundering was a major business enterprise and set about creating a vehicle to launder billions of dollars for the Mexican drug cartels. Then we listened while some ermined apologist tried to defend the FSA by saying that they could not regulate a Mexican bank, when all the time it was a British Bank doing the laundering! We have witnessed other UK banks engaging in sanctions busting, false accounting, wholesale fraud, and no-one has ever been prosecuted for these crimes.

I am angry because like a vast number of good people in this country and elsewhere, I am sick to death of watching this country get a reputation for allowing every crook, spiv, wide-boy, loblolly man and bankster to operate with impunity, I am tired of London being the Money Laundering Capital of the world, and I am heartily sick of all the financial crime that is being perpetrated through our apology for a regulated market, while all the time, people in positions of authority continue to wallow in their comfortable offices telling each other that the situation is under control.