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.
Against this backdrop, I want to focus upon positive, thinking, messages, opportunities, and hopefully outcomes. The fact is that negative is easy and commonly unproductive.
For sure, there is a place for criticism, indeed criticism can identify and present opportunities to adjust and enhance processes.
But positive thinking is more engaging, rewarding and when applied to AML it may provide solutions to problems as well as enhancements to existing processes. Positive anti-money laundering solutions and training (PAMLST)
So in considering all of the above - I have determined in 2022 my mantra will be PAMLST.
I want the Global Compliance Institute (GCI) to become the go-to think tank and natural provider of training solutions for firms and banks seeking to change, enhance or even rebuild their AML frameworks.
Everyone knows change is a constant. Life is change, thus evolution is change. We should not fight change, albeit it is often natural instinct for some people to do so, because they have anxieties about it. We should drive change and in doing so reject the status quo because we can, and therefore, we should do so much more with the resources and funds collectively spent by the public and private sectors.
My comrade in the fight against financial crime, David Lewis, the former Executive Secretary of the Financial Action Task Force (FATF) has made several calls for change. In particular, he has advised the global AML community don't try to 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? And the answer to both those questions is - the application of a risk-based approach to AML.
The keyword 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.
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 may be uneven, and we could fall over. A motorist may be drawn to a mobile telephone, subsequently crashing and harming or killing us.
There is always a risk, but such risks do not stop us from 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 some 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 them 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 to be examined.
The 50ml customer or account
Drawing on the above, should we now be looking for the accounts, customers, and transactions that present a low level of tolerated risk?
Note, this is not a proposal of no risk, as mentioned earlier, 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 that can be added or adjusted to handle new or specific 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 to learn from and provoke debate around change.
The money laundering threats
The money laundering threats have not changed considerably and of course, there are new products and services which can be used/abused by money launderers, including cryptocurrencies 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 cryptocurrencies that 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.
Watch this space 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 onshore. Bluntly, money launderers do not use personal accounts for several reasons and this is evidenced within almost all prior major money laundering prosecutions.
The risks presented by politically exposed persons (PEPs) have 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 in charge of AML?
You are. Most importantly, your customers are not in charge and 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.
Let me give you some context, during lockdown I broke the kitty containing thousands of coins and a small number of notes. Whilst I was able 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 and I didn’t argue. This 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 contained in two black bin bags. Such cash handling presents huge risks to customers and such risks should be rejected by AML professionals
With the training and certifications, we provide, The Global Compliance Institute is focused on showing you how to apply the laws, stop money laundering, protect shareholders/staff and save money.
We change all of the time because risks change. Throughout 2022, we will keep you updated and we may help some of you to do far more with much less, by applying a level of tolerance to money laundering risk.
We retain a positive mindset and believe that 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 want 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.