Corporate Advisory

Danske Bank – Audit firms to be investigated over AML rules breach

Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.comT&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found here.
https://www.ft.com/content/e4acb586-5d17-11e9-939a-341f5ada9d40?shareType=nongift

The Danish government has reported Big Four auditor EY to the domestic fraud squad to investigate whether the firm broke money laundering rules when it audited Danske Bank in 2014.

The Danish Business Authority, a government agency, said it had conducted its own investigation into EY’s 2014 audit of Danske and found the firm had discovered information about potential money laundering issues at the bank.

The firm should have made further inquiries and reported the matter to the authorities at the time, according to the business authority. It said on Friday it had asked the Danish state prosecutor to launch a police investigation into whether EY violated laws against money laundering and terrorist financing.

Danske’s money laundering scandal started in 2007 and stretched until 2015, with €200bn of non-resident money — much of it suspicious and from Russia — passing through its Estonian branch during the period.

The referral to Denmark’s fraud investigators is a fresh blow to EY and the wider audit industry, which has come under heavy criticism during the past 18 months following a series of high profile corporate scandals involving the Big Four firms.

EY was one of a number of audit firms that vetted Danske’s financial statements during the period when money laundering activities allegedly took place at the bank.

The Danish Business Authority launched an investigation of EY, as well as Deloitte, KPMG, PwC and Grant Thornton, in October to assess whether they had fulfilled their anti-money laundering duties with respect to their audit work for Danske up to 2015.

The Danish Business Authority has not explained why it is focusing on 2014, which is just after the peak year for the scandal in 2013, when about €35bn flowed through the Estonian branch. The government agency said it was still investigating the audit conducted in 2013.

See full article here

Corporate Advisory

Financial Crime, Governance and Conduct. Just what is going on with the Nordic banks latest AML crisis?

When Danske Bank’s Estonian money laundering scandal exploded last autumn, other Nordic banks rushed to reassure investors that they were different.  This week’s dramatic events at Swedbank, the Swedish lender that is the biggest bank in the Baltic region, instead show that it is following a similar script to Danske, almost to the word. 

Birgitte Bonnesen, who was fired as chief executive by Swedbank’s board on Thursday, was previously head of the Baltic region for the bank, just as was Thomas Borgen, who was ousted as Danske’s CEO in October. Both reached the top in part thanks to the healthy profits the Baltics provided with questions now raised about whether some of that was based on illegal activity. 

What started off as a seemingly small affair has rapidly expanded to become one of the biggest money laundering scandals of all time. €200bn of questionable money from Russia and other ex-Soviet countries flowed through Danske’s Estonian branch over a decade while Swedbank had about €135bn of “high-risk non-resident” flows in the same Baltic country, according to Swedish public broadcaster SVT. 

Both banks are alleged to have been part of a system that allowed oligarchs and criminals from Russia and elsewhere to move money through their Baltic branches and into the western financial system.

Swedbank is facing questions about its alleged involvement in the Panama Papers and Russian Laundromat money laundering schemes, while Danske has been implicated in the Azeri Laundromat too.  Shareholders at both banks have questions about why the boards did not act sooner after such serious allegations. There has also been concern over the actions of Danish and Swedish regulators who both had close links to the two banks.  “You would have thought Swedbank would have learnt from the mistakes we made,” said one Danske executive.

Swedbank is now facing multiple regulatory probes just as Danske is. Swedish and Estonian financial supervisors are investigating the scandal. Most worrying for both banks is the interest of US regulators, given their record of imposing hefty fines. 

On top of this, the whole Nordic financial and political system is now in the spotlight.  Nordic countries have long topped rankings of the least corrupt countries and those with the most amount of trust in society.

Many are worried that this is being undermined by multiple scandals beyond even Danske and Swedbank.  “I think the most serious thing here is that trust is so important in the Nordics but it is invisible. I am scared that it has been damaged by the bank in ways we can’t see. We need to take that incredibly seriously,” said one senior Danske official. Anders Karlsson, Swedbank’s acting chief executive, told the annual meeting on Thursday: “Today our trust has been dented . . . We need to focus on rebuilding trust.”

There are specific questions about the clubby nature of banks and their regulators in both countries. Sweden’s top financial regulator Erik Thedéen, head of the Financial Supervisory Authority has recused himself from dealing with Swedbank due to his friendship with one of the bank’s directors.

The former chair of Denmark’s regulator until last May was a former finance director of Danske. The communication style of both banks has been severely criticised, with shareholders querying how seriously the lenders take the allegations months after the scandals broke. Johan Sidenmark, chief executive of pension fund AMF, is one of Swedbank’s largest investors, pointedly told the Swedbank annual meeting: “It’s very important that the board of directors tell us they understand the seriousness of the situation.”

Swedbank’s leadership conceded it might have made communications mistakes having long downplayed that it had any problems with money laundering. “Perhaps we need to explain things in a better way,” said Mr Karlsson.

But just as in the Danske case, there were concerns over whether Swedbank has fully grasped the seriousness of the allegations. There was no apology for the scandal itself from Mr Karlsson, who was chief risk officer at Swedbank from 2013 until 2016, but he said the bank had “overestimated” the knowledge of what money laundering was among the public. “We [banks] cannot stand alone in the fight against this criminality. We need to work together,” he added. 

Swedbank chairman Lars Idermark declined to comment on why it had not heeded the lessons from Danske: “Of course, we have discussed that in the board but it’s not possible for me to discuss that just now.”  For all their similarities, there is one big difference between Danske and Swedbank. The Swedish bank is a much bigger presence in the Baltics, being the largest bank in Estonia, Latvia and Lithuania.

Regulators in Estonia and Latvia have expressed their concerns that Swedbank and SEB the two remaining Nordic banks present in the region in a big way could be forced to withdraw from their countries due to the fallout.

Mr Karlsson reiterated on Thursday that Swedbank had “no plans to reduce our presence in the Baltics”.

See full article here

Corporate Advisory

FCA Regulatory round-up

On 8 March, the FCA published guidance to help firms prepare for the Senior Managers and Certification Regime (SM&CR). The purpose of the guidance is to give FCA solo-regulated firms practical assistance and information on preparing Statements of Responsibilities (SoRs) and Responsibilities Maps. The guidance sets out the purpose of SoRs and Maps and outlines examples of good and poor practice. It also contains examples of Responsibilities Maps for two fictitious firms.

Under the SM&CR, all Senior Managers must have a Statement of Responsibilities and all enhanced firms must have a Responsibilities Map. A SoR should be clear for regulators, the Senior Manager and others in the firm to understand – and contain enough information to describe clearly what activities the Senior Manager is responsible and accountable for in the business. The guidance is designed to be read alongside the Guide for FCA solo-regulated firms.

The aim of the SM&CR is to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. 

Solo-regulated firms should be preparing for SM&CR which comes into effect on 9 December 2019.

If you need more information, please visit the FCA’s website and read our guide

Corporate Advisory

Lloyds – How whistleblower exposed UK regulation failings

A former employee’s evidence suggests the bank frustrated a police investigation into large-scale fraud

In the summer of 2011, an employee of Lloyds Banking Group based in Scotland emailed three senior colleagues about an ongoing police investigation into an alleged fraud at the bank.

Sally Masterton had worked for the lender since 1998, first under HBOS and then Lloyds after the rescue of the foundering Scottish lender during the financial crisis. An accountant and insolvency practitioner, she was part of the bank’s “high risk” unit, which looked after small business customers seen as likely to default.

Conscious that the police inquiry involved her department, she wanted to report a worrying conversation. Ms Masterton told the bankers, senior figures in the commercial lending division how she had been urged by a senior colleague in the high risk unit to shred documents and delete electronic records in an unrelated case involving an HBOS client.

She hadn’t done it, of course, she said, but the colleague had warned her that a “DTI investigation” was imminent and they should cover their tracks.

The story Ms Masterton told shook the bankers. The senior colleague and would-be shredder was also a key police witness in the fraud case. Data about the incident, uncovered by Ms Masterton, showed unauthorised lending and evidence of possible money laundering and theft.

The note of a follow-up conversation with two members of the bank’s legal department took four months to finalise. Ms Masterton claimed her boss later told her that the lawyers hadn’t handed the note to the police because it might damage the would-be shredder’s credibility as a witness in the case.

But that first email and what followed would have far-reaching consequences that are still unfolding. It would lead to claims that Lloyds frustrated a police investigation, flouting its duty to report wrongdoing to the authorities.

See full article here

Corporate Advisory

SFO to investigate the collapsed LCF’s mini-Bond scheme

Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.comT&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found here.
https://www.ft.com/content/71d947a0-4970-11e9-bbc9-6917dce3dc62?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content

The UK’s Serious Fraud Office has opened an investigation into London Capital & Finance, which collapsed with £236m of investors’ money, after it emerged that its “fixed-rate Isa” was in fact a high-risk mini-bond scheme.

About 11,500 customers who put their money into the company, which was promising up to 8 per cent returns on the mini-bonds, fear they will lose most or all of their investment.

LCF was barred from touching any funds in its bank accounts and ordered to stop promoting the product after the FCA raised concerns in December over the company’s marketing, which it said was “misleading, not fair and unclear”. The company went into administration at the end of January.

Instead of individual savings accounts, LCF was in fact selling mini-bonds to make loans to small companies, which is a much riskier investment. Indeed, according to the FCA, the mini-bonds “do not qualify to be held in an Isa account”.

The SFO said on Monday that four people had been arrested on March 4 in Kent and Sussex but had been released pending further investigation. The four people were not named. The anti-fraud agency also said it had opened its investigation after the FCA referred the matter to the National Economic Crime Centre. It added it was encouraging those who had invested in the scheme between 2016 and 2018 to get in touch. LCF was authorised by the financial regulator.

However, the mini-bonds are unregulated and therefore unlikely to be covered by the Financial Services Compensation Scheme. In a letter to bondholders dated February 21, administrators Smith & Williamson said LCF had paid a marketing company, called Surge Financial, to promote the mini-bond for a fee of roughly £60m.

To repay LCF’s investors after it made the £60m outlay, the mini-bonds would have had to make 44 per cent returns from their borrowers for the one-year bond and 24.5 per cent returns annually for the three-year bonds, the administrators stated.

The administrators have estimated that the investors could get back as little as 20 per cent of the amount invested. They have not yet identified the borrowing companies on the other side of the scheme, but said they had not received any returned loans or interest since being appointed.

“This does not mean that we won’t in the future and we are in detailed discussions with a number of them about the return of funds soon,” they wrote in a FAQ sheet published last week.

On Monday London Oil & Gas Ltd, an energy investment company that received financing from LCF, also appointed administrators. London Oil & Gas lists two “strategic partners,” Independent Oil & Gas, listed on the small-cap AIM market, and Atlantic Petroleum, a Faroese company listed in Oslo and Copenhagen.

See full article here

Corporate Advisory

SEC Subpoenas Hit Crypto Industry

Blockchain Capital’s Bart Stephens on risks of experimenting without safe harbor, exodus to Singapore, Switzerland and Malta, and how NFTs are the killer dapp

“If 2017 was a raging party, then 2018 is the hangover,” laughed Blockchain Capital’s Bart Stephens as he addressed the Back to the Crypto Future conference during SF Blockchain Week. “You can’t have an asset class go up 20 to 30 times, like in the case of Bitcoin and Ethereum, and not have some sort of retrace. It’s the nature of capital formation and speculation.”

”What we saw last year was that the Ethereum ERC20 standard really captured the imagination of both investors and entrepreneurs worldwide where with just two lines of code you could create your own crypto assets, whether it was a utility token or a security token. Whether the category of utility token even exists in the eyes of the SEC, we saw $18 billion of capital being raised with a kind of Kickstarter on steroids. It proved Ethereum as a platform for global crowdsourcing,” said Stephens commenting that ICOs made it possible for entrepreneurs to bypass raising capital from traditional VCs, a far more arduous task that involves established relationships on Sand Hill Road and greater scrutiny and due diligence of investors.

“It’s a challenging time if you’re an entrepreneur or investor right now, primarily due to acute regulatory uncertainty. There’s no path forward if you’re a token issuer. If you touch the U.S. in anyway, it’s a contagion that can turn your token into a security. It’s a frustrating environment.”

“There’s a tremendous amount of innovation happening here. Some of the largest market cap companies and projects are based in San Francisco including Coinbase, Ripple, Coinlist, Kraken. It’s important for regulators to recognize that this is a global phenomenon. The markets of China, Korea and Japan are incredibly important. From a regulatory point of view, the U.S. is offshoring innovation. They’re saying the U.S. is closed for business, go to Malta, go to Singapore, go to Switzerland.”

Referencing Ripple’s Swell 2018 conference last week in which former U.S. President Bill Clinton delivered the opening keynote, Stephens said with the birth of the internet in the 1990s, the Clinton Administration took a hands off approach to let innovation flourish. Federal regulatory entities like the FTC, FCC and even the IRS said no sales tax on your Amazon order, thus giving entrepreneurs and venture capitalists the rules of the road.A

“When you know the rules of the road, the magic of U.S. capitalism can happen which is the efficient allocation of capital to the world’s most promising entrepreneurs.” Stephens said, “That is no longer happening here. The crypto industry has been dangerously naive over last three years and have assumed U.S. regulators have a balanced approach to innovation on one side and consumer protection on the other. Things have changed markedly in the last six months. There are hundreds of subpeonas out in the crypto industry right now. This is not well known. Whether they’re exchanges, or law firms, or investors and ICOs, startup companies as little as three people. What we’re seeing as a result is capital formation is freezing.”

“It’s very unclear how a protocol would conduct a public sale of a utility token to U.S. investors. There’s no guidance from appropriate regulatory authorities on that. The SEC is applying laws that are on the books which were written in 1933, 1934 and 1940. Crypto assets are a new asset class and ill-equipped to be dealt with security laws that are getting close to nearly 100 years old. It’s hard to look out two or three years because things are getting worse for U.S. entrepreneurs and investors, not better.”

As for larger economies, Stephens added

“We need to take a holistic approach to fostering innovation that recognizes that this is a new decentralized technology that’s global. Writing legislation that is better crafted and not 89 years old. Provide a safe harbor for entrepreneurs who are trying to innovate.”p

The SEC was also at the Back To The Crypto Future Conference with Scott Walker on the opening panel discussing the SEC mandate to balance capital formation and efficient markets with investor protection. For guidance, he directed the audience to SEC Director Bill Hinman’s remarks on applying the Howey Test, CryptoMom Hester Pierce‘s’ dissenting opinion in support of an ETF that would give retail investors access to bitcoin, and newly appointed Crypto Czar Valerie Szczepanik, who oversees ICOs.

See full article here

Corporate Advisory

Brexit – BoE to run weekly euro auctions

The Bank of England said it will offer more euros to banks in Britain to avoid any cash crunch after Brexit and warned that other EU countries are not fully ready for the possible no-deal hit to the financial system.

The BoE said most financial stability risks in Britain from a no-deal Brexit had been mitigated, and UK banks had enough liquidity to go for months without needing to tap markets.

But as a precaution it will launch a new weekly auction of euros from next week to ensure that banks based in Britain can borrow in Europe’s single currency, following on from a similar announcement last week about weekly sterling operations.

The European Central Bank confirmed that the Eurosystem of central banks would stand ready to lend pound sterling to euro area banks, if needed.

See full article here

Corporate Advisory

OG Sporting Challenges, giving something back

The OCREUS Group are pleased to announce it will be entering selected sporting events in 2019. OG supports embracing healthy outdoor challenges and sporting opportunity for its employees and their wellbeing. Healthy minds helps contribute to a healthy working performance. Additionally OG support others and likes to give back through help those wishing to raise funds for worthy charities.

The first charity fund raising event is the London Revolution 300km cycling event in May. All funds raised are for Qhubeka uk Ltd.

For anyone wishing to support us all any any donations are welcome.

Donate

Corporate Advisory

AML – New EU third country risk list published

European Commission – Press release

European Commission adopts new list of third countries with weak anti-money laundering and terrorist financing regimes

Strasbourg, 13th February 2019

Today, the Commission has adopted its new list of 23 third countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing frameworks.

The aim of this list is to protect the EU financial system by better preventing money laundering and terrorist financing risks. As a result of the listing, banks and other entities covered by EU anti-money laundering rules will be required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk third countries to better identify any suspicious money flows. On the basis of a new methodology, which reflects the stricter criteria of the 5th anti-money laundering directive in force since July 2018, the list has been established following an in-depth analysis. 

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality said: “We have established the strongest anti-money laundering standards in the world, but we have to make sure that dirty money from other countries does not find its way to our financial system. Dirty money is the lifeblood of organised crime and terrorism. I invite the countries listed to remedy their deficiencies swiftly. The Commission stands ready to work closely with them to address these issues in our mutual interest. ”   

The Commission is mandated to carry out an autonomous assessment and identify the high-risk third countries under the Fourth and Fifth Anti-Money Laundering Directives.

The list has been established on the basis of an analysis of 54 priority jurisdictions, which was prepared by the Commission in consultation with the Member States and made public on 13 November 2018. The countries assessed meet at least one of the following criteria:

  • They have systemic impact on the integrity of the EU financial system,
  • They are reviewed by the International Monetary Fund as international offshore financial centres;
  • They have economic relevance and strong economic ties with the EU.

For each country, the Commission assessed the level of existing threat, the legal framework and controls put in place to prevent money laundering and terrorist financing risks and their effective implementation. The Commission also took into account the work of the Financial Action Task Force (FATF), the international standard-setter in this field.

The Commission concluded that 23 countries have strategic deficiencies in their anti-money laundering/ counter terrorist financing regimes. This includes 12 countries listed by the Financial Action Task Force and 11 additional jurisdictions. Some of the countries listed today are already on the current EU list, which includes 16 countries.

Next steps

The Commission adopted the list in the form of a Delegated Regulation. It will now be submitted to the European Parliament and Council for approval within one month (with a possible one-month extension). Once approved, the Delegated Regulation will be published in the Official Journal and will enter into force 20 days after its publication.

The Commission will continue its engagement with the countries identified as having strategic deficiencies in the present Delegated Regulation and will further engage especially on the delisting criteria. This list enables the countries concerned to better identify the areas for improvement in order to pave the way for a possible delisting once strategic deficiencies are addressed.

The Commission will follow up on progress made by listed countries, continue monitoring those reviewed and start assessing additional countries, in line with its published methodology. The Commission will update this list accordingly. It will also reflect on further strengthening its methodology where needed in light of experience gained, with a view to ensuring effective identification of high-risk third countries and the necessary follow-up.

Background 

The fight against money laundering and terrorist financing is a priority for the Juncker Commission. The adoption of the Fourth – in force since June 2015- and the Fifth Anti-Money Laundering Directives – in force since 9 July 2018 – has considerably strengthened the EU regulatory framework.

Following the entry into force of the Fourth Anti-Money Laundering Directive in 2015, the Commission published a first EU list of high-risk third countries based on the assessment of the Financial Action Task Force. The Fifth Anti-Money Laundering Directive broadened the criteria for the identification of high-risk third countries, including notably the availability of information on the beneficial owners of companies and legal arrangements. This will help better address risks stemming from the setting up of shell companies and opaque structures which may be used by criminals and terrorists to hide the real beneficiaries of a transaction (including for tax evasion purposes). The Commission developed its own methodology to identify high-risk countries, which relies on information from the Financial Action Task Force, complemented by its own expertise and other sources such as Europol. The result is a more ambitious approach for identifying countries with deficiencies posing risks to the EU financial system. The decision to list any previously unlisted country reflects the current assessment of the risks in accordance with the new methodology. It does not mean the situation has deteriorated since the list was last updated.

The new list published today replaces the one currently in place since July 2018. A

The 23 jurisdictions are:

Afghanistan

American Samoa

The Bahamas

Botswana

Democratic People’s Republic of Kore

Ethiopia

Ghana

Guam

Ira

Iraq

Libya

Nigeria

Pakistan

Panama

Puerto Rico

Samoa

Saudi Arabia

Sri Lanka

Syria

Trinidad and Tobago

Tunisia

US Virgin Islands

Yemen

Corporate Advisory

Driving Change in Uk’s post-FATF Evaluations AML Regime

The surge of activity in the UK’s anti-money laundering (AML) regime between 2015 and 2018 was notable, with a huge range of new strategies, initiatives and AML architecture being created largely, a cynic might say, in preparation for the decennial Financial Action Task Force (FATF) evaluation of the UK, which reported its findings in December 2018. In PR terms at least, the government’s efforts seem to have paid off, with the UK receiving the highest aggregate scorings under the revised FATF evaluation methodology to date. 

The chapters in this Whitehall Report examine specific elements of the UK’s AML response and seek to challenge the intimation that the UK AML regime can be judged largely effective in real terms as the 2018 mutual evaluation report (MER) appears to suggest. On this basis, the report aims to focus post-evaluation efforts by making a series of recommendations for the government’s AML efforts in the post-MER policy cycle.

Policy

Chapter I examines the evolving AML strategic landscape and suggests that priority should be given to refreshing the UK’s AML and Asset Recovery Action Plans, and ensuring that progress is properly monitored through Parliament and/or an Independent Commissioner for Economic Crime. In terms of new structural innovations, it makes the case for giving political support to the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), adequate technical and human resourcing to the National Economic Crime Centre (NECC), and reinvesting in the depleted law enforcement response.

Chapter II examines the gap between the UK’s high aggregate scorings under the FATF ‘effectiveness’ methodology and the reality on the ground, which recognises the UK’s implication in various global money-laundering scandals. The chapter poses the question as to whether the UK’s place at the top of an invented ‘league table’ equates to an effective system overall and concludes that perhaps not all of the Immediate Outcomes (IOs) from the FATF’s evaluation methodology are created equal. It argues that the areas of identified weakness within the UK system – IO3 (supervision) and IO6 (use of financial intelligence) – best demonstrate the ‘wicked’ nature of the money-laundering problem; poor scorings in these areas drag down overall systemic effectiveness in a way that others do not. It calls on the UK government to focus on these areas to achieve effectiveness in real rather than abstract terms.

Prevention

Chapter III examines the issue of AML supervision of the UK’s non-financial regulated sectors, in particular those supervised by their own professional bodies, noting that this has been a perennial weak spot. The chapter notes the creation of new architecture, in the form of OPBAS, which was created to raise standards in professional body supervision, but missed an opportunity to include Her Majesty’s Revenue and Customs (HMRC), a statutory supervisor of accountants and estate agents, in its remit. As OPBAS readies itself to release its first annual report, the chapter asks whether it is time to consider an independent review of HMRC’s role alongside OPBAS’s work to ensure a level playing field.

Chapter IV looks at the innovations in the sphere of public–private information exchange since the inception of the Joint Money Laundering Intelligence Taskforce (JMLIT) in 2015. While JMLIT is a welcome innovation, the chapter cautions against complacency and calls for developments which expand the two-way information flow to the wider regulated sector (albeit in a fit-for-purpose form, rather than simple JMLIT expansion); firm the legal foundations for the partnership; extend existing bank-to-bank information-sharing provisions; and champion the conversation at the global level on the balance to be had between data privacy and financial crime objectives.

Chapter V looks at the need for the AML regime to evolve to tackle the challenges posed by new technologies. It discusses the next frontier for AML regulation – ‘the virtual asset economy’ – noting that the government will need to decide on the parameters of the regulation necessary to contain potential threats. It also discusses the need to consider regulation not only of fiat-to-virtual currency exchanges, but also of virtual-to-virtual exchanges. The chapter encourages the government to develop responses which are fit for purpose, rather than simply extending existing rules.

Disruption

Chapter VI examines the UK’s place as the destination of choice for the proceeds of grand corruption and explores whether political commitments, including new anti-corruption and transparency legislation, are being actioned in practice. It welcomes the new Unexplained Wealth Order (UWO) established in 2017, but notes that without law enforcement and prosecutorial resourcing, its impact will be largely symbolic; it notes that the new People with Significant Control register is good in theory, but has problems with accuracy in practice; and it notes the need to push forward with whistle-blower reforms to generate much-needed intelligence. 

Finally, chapter VII looks at the UK’s track record on the use of financial intelligence and finds cause to both agree and disagree with the 2018 MER’s findings in this regard. The chapter strongly agrees with the 2018 MER’s conclusion that the UK Financial Intelligence Unit (UKFIU) is in need of considerable reform and suggests that the government bolsters human and technological resources and reforms the ‘devolved analysis’ operating model. The chapter disagrees with the finding that ‘LEAs [law enforcement agencies] at the national, regional and local levels integrate the use of SARs and other financial intelligence into their standard practice’, and recommends regional resources to improve SAR exploitation.

In conclusion, this report notes that the recent FATF evaluation served one of its purposes well – that of focusing attention on the area of AML and broader financial crime – but urges the government to continue its reform programme to ensure it achieves systemic effectiveness in practice, rather than on paper. 

12 Recommendations for Policymakers

Policy and Coordination: ‘Policy, coordination and cooperation mitigate the money laundering and financing of terrorism risks’ – FATF Intermediate Outcome 1

Recommendation 1: Refresh and publish the AML and Asset Recovery Action Plans and provide annual reports to Parliament setting out progress.

Recommendation 2: Appoint an Independent Commissioner for Economic Crime to drive progress across government.

Recommendation 3: Prioritise funding of human and technological intelligence capabilities within the NECC.

Recommendation 4: Prioritise addressing deficiencies in the AML supervisory regime and use of financial intelligence over the next three years to improve systemic effectiveness overall.

Prevention and Detection: ‘Proceeds of crime and funds in support of terrorism are prevented from entering the financial and other sectors or are detected and reported by these sectors’ –  FATF Intermediate Outcome 2

Recommendation 5: Provide an independent assessment of HMRC’s AML supervisory activities, alongside work OPBAS is undertaking in relation to professional body supervisors.

Recommendation 6: Review the legislative information-sharing pathways between JMLIT members and consider building fit-for-purpose gateways to support the operating model. 

Recommendation 7: Support FATF efforts to champion a conversation, at the global level, regarding the balance to be had between data privacy and financial crime policy objectives.

Recommendation 8: On bringing the virtual asset economy under the purview of the AML regime, ensure that provisions are tailored to the new regime, rather than simply extending existing provisions.

Disruption: ‘Money laundering threats are detected and disrupted, and criminals are sanctioned and deprived of illicit proceeds. Terrorist financing threats are detected and disrupted, terrorists are deprived of resources, and those who finance terrorism are sanctioned, thereby contributing to the prevention of terrorist acts’ – FATF Intermediate Outcome 3

Recommendation 9: Provide training to prosecutors and financial investigators on the use of Part 5 (civil confiscation) Proceeds of Crime Act (POCA) powers in furtherance of their objective to expand use of UWOs.

Recommendation 10: Increase UKFIU headcount to 200 as promised during the 2007 FATF evaluation.

Recommendation 11: Expedite plans to update or replace the ELMER database.

Recommendation 12: Establish proactive SARs data-mining capabilities within the Regional Organised Crime Unit (ROCU) network.

Read the Report