The Financial Conduct Authority (FCA) has warned that its analysis of 17 banks has found that half, including four major UK lenders, still did not have proper processes and procedures for ensuring they were not involved in facilitating money laundering.
After all these years, such findings are nothing short of criminal, and indeed, I would go further and say that the level of criminality shown here is deliberate, aggravated, sustained and provocative.
Banks have had so many years and so many adverse regulatory findings, and given chance after chance to get their act into gear, they cannot claim that they did not know what they had to do, but still they do so little!
After the Shah -v- HSBC case, you would have thought that every bank would have taken a long slow look at their systems and controls and made amends, but no, nothing.
Because nothing is ever done to prosecute the responsible directors of the bank who have the oversight for AML control. Nothing is done, nothing has ever been done, and despite so many urgings nothing will continue to be done.
Who is the Director responsible for AML controls, you might ask, well I can tell you, it is the CEO. It is well established that there should be a direct and open line between the MLRO or the relevant compliance official and the CEO, so he cannot run and hide.
But what words of wisdom do we get from the new 'crime busting' FCA'?
Tracey McDermott, head of enforcement at the FCA, said that banks’ “trade finance” businesses remained particularly vulnerable to abuse by criminal and terrorists and that in some cases the shipments being funded by lenders were just “fresh air”.
“Some banks have a lot of work to do to raise their game to the best of their peers,” said Ms McDermott.
Martin Wheatley, chief executive of the FCA, warned that organised criminal gangs “filtered, cleaned and rebottled” £10bn in the UK every year, using banks and other financial services.
“It’s simply not acceptable for firms to turn a blind eye to where the money comes from, its journey from A to B,” said Mr Wheatley.
Suddenly, Ms McDermott and Mr Wheatley have woken up to the threat of Trade Based Financing for money laundering purposes.
This is not before time, indeed, it is long overdue.
There has been plenty of documented evidence available for an MLRO to read and discuss with his CEO about TBF and its existence is not a secret.
A great friend of mine, John Cassara, a highly informed and vastly experienced former US Customs Official published the following article in October 2009.
"The Afghan Transit Trade. HO AF?PAK Drug Lords and Terrorists Are Moving Money and Transferring Value..."
In it he writes of one of his visits to Afghanistan.
"...During a 2006 trip to Kabul, we asked Afghan bankers, hawaladers and businessmen how our adversaries launder narcotics products proceeds to finance terrorism. Without exception, they said that illicit money was not laundered via the licensed banks operating in Afghanistan, but laundered primarily through trade. While some value transfer schemes are complex and intertwined with regional hawala/hundi remittance systems, it can also be as simple as a barter system, where by narcotics are exchanged for other commodities and services. This should come as no surprise in a country where an estimated 80-90% of economic activity is in the informal sector. Trade is both the traditional way of doing business and a traditional way of transferring value..."
Alternatively, there is the report I wrote for the FCO in 2010 after working in Pakistan for the Asian Development Bank, among whose topics the issue of TBF received much coverage. in which I quoted a US Report;
"...Pakistan is not considered a regional or offshore financial center; however, financial crimes related to narcotics trafficking, terrorism, smuggling, tax evasion, corruption and fraud are significant problems. Pakistan is a major drug-transit country. The abuse of the charitable sector, smuggling, trade-based money laundering, hawala-hundi, and physical cross-border cash transfers are the common methods used to launder money and finance terrorism in Pakistan. Pakistani criminal networks play a central role in the transshipment of narcotics and smuggled goods from Afghanistan to international markets...'
My purpose in pointing out these vignettes is to demonstrate that there is literature available on these topics, if someone is willing to go and look, but of course, as no-one ever gets prosecuted for these failings, why would anyone bother?
That is why we can read scandalous headlines about criminal activities in our major institutions.
HSBC was last year fined a record $1.9bn (£1.3bn) by US regulators for its involvement in illegal money laundering that saw Britain’s largest bank implicated in aiding Mexican drug cartels and breaking sanctions with Iran.
Standard Chartered was also fined $327m for its involvement in financing trade with Iran, as well as other countries subject to US sanctions, such as Libya and Sudan.
Lloyds Banking Group and Barclays have also been fined for breaches of anti-money laundering rules.
In the case of HSBC, the bank only narrowly avoided facing criminal prosecution after signing a controversial deal with US prosecutors to avoid any further punishment.
The deal led to criticism that large banks were “too big to jail” after senior regulators in the US and UK admitted that it could harm financial stability to prosecute a major lender.
Ms McDermott (predictably) did not single out any banks, but said a “deep dive” into the anti-money laundering process had found breaches of the rules.
Why does the Head of Enforcement not do her duty and tell us who these banks are?
I want to know if my bank is one of those involved. If I knew it was so engaged, I would camp on their doorstep and demand that they put things right. I would begin a campaign of client positive action and I would make life very difficult for the bank until it started to put things right. But what does Tracey tell us?
“We are still too often left disappointed by what we see,” she said.
Maybe this is the problem, maybe this is where the FSA fell off the perch and where the FCA is shuffling up behind.
Regulators shouldn't get 'disappointed', that's a word you use when your coffee is cold! Regulators need to start to get very fucking angry, angry that they are being ignored, angry that they are being taken for pussies, angry that the banks are putting the financial sector at risk, that they are openly and wilfully committing crimes because they believe they are too big to jail, angry because they have given these pampered oligarchs far too much rope, and now they need to show some guts and prove that their words mean something, really mean something.
According to the Telegraph, one of the cases cited by the FCA was a scrap metal deal financed by a bank between a British Virgin Islands-registered company and a business in United Arab Emirates which saw the metal traded without any documents showing who was taking delivery of it..."
McDermott said that scrap metal trading was regarded as a “high risk commodity in money laundering terms”.
It's taken our so-called regulators so long to work this out, it almost makes you cry!
Ms McDermott said the FCA was “considering whether further regulatory action” was necessary against some of the banks it had studied, but did not comment on what specific sanctions it could impose.
No, of course not, let's give them even more time to think about it, by which time they will decide that it was jolly naughty, but that too much time has elapsed to bring any fair action! So, instead all we get are fatuous platitudes!
“Banks and other financial organisations are in the front line regarding protecting against financial crime. We, and they, have a common interest in working in partnership to reduce the impact of financial crime both on the economy and more widely. Anti -money laundering measures and sanctions are in place to protect us from criminal activity. Financial institutions need to take this responsibility seriously and we will do whatever is necessary to ensure they do,” said Ms McDermott.
If you don't bring criminal charges this time Tracy, everyone will know that you are not up to the challenge. You have the powers and you have the responsibility to bring criminal charges, and now is the time to front up to these people, and let them know their years of taking the piss are over. You will be amazed at the singular effect it will have on AML compliance. But if you duck it, like you have before, the market will know you and your people just don't have the bottle for the fight!