Signed, Sealed and Undelivered
You never thought you’d be alone
This far down the line
But I know what’s been on your mind
You’re afraid it’s all been wasted time
Lyrics “Wasted Time” by the Eagles
No, this article is not about lost love. As a”grey hair”, or in my case “bald old fart”, my personal lockdown has found me speaking to many people within the compliance, risk and financial crime industry who have been unfairly made redundant or furloughed and are struggling to come to terms with their loss in an industry that desperately needs them but undervalues and abuses them.
If the light at the end of the Pandemic tunnel is dim, one thing that can be certain is that the post pandemic world needs to rethink its approach to financial crime compliance. So i have written down my “rants” (i am using the definition of rant as being “a loud bombastic declamation expressed with strong emotion”) here in notes that i will never send because i don't know the right people to send them to and; because there are far better people than me who can capture the attention of the world.
The lack of effective enforcement of anti money laundering laws and regulations and the lip service paid to board member accountability reminds me of that old joke featuring many different cities where the local is asked for directions and responds “if i were you i wouldn’t start from here”.
My point?, we need to take a step back from the problem and start again.
To all regulators and AML rule makers worldwide…. The approach to anti-money laundering policies was introduced over 30 years ago based on the theory that a global issue with increasing crime rates could be transformed by making it more difficult for criminals to utilise the financial system to move their illicit funds. However, AML legislation is like an old wall, built by dodgy craftsmen that requires multiple repairs over the years to maintain its use but does nothing to improve its effectiveness.
My belief is that the subsequent updates to AML initiatives owe more to politics rather than any positive improvements for those operating in financial crime departments across the world.
The European Commission publishes a list of countries that it considers a high risk financial crime threat but it exempts its own 30 EEA members. When Saudi Arabia met the criteria for inclusion on their list, the commission decided to veto the decision. They also vetoed the commission’s listing of American Samoa, Guam, Puerto Rico, and the US Virgin Islands. All were excluded because Saudi Arabia and the US were considered to be the West’s geopolitical allies.
The Financial Action Task Force (FATF) has been around for 30 years but how responsive, or effective has it been to the changing world around it? Better people than me can answer that: see Dr Ron Pol article below https://medium.com/datadriveninvestor/the-war-on-money-laundering-has-failed-2e8b3df7507b
I could mention my confusion with the word “corruption” in Transparency International’s Corruption Perception Index or ask why the president of the World Bank is always an American, while the president of the IMF is always European. Perhaps it would be better to expand on those in another “rant” elsewhere. Finally, because ineffectiveness, like oil on water will float to the top, there is more and more criticism of the richer countries being written and questions asked — such as this case study written in 2017 on AML standards in Nigeria:
There are countries that are at the forefront of international initiatives against money laundering, and the fact that they escape any form of significant censure from appropriate bodies‘ calls into question, the genuineness of the international drive against money laundering. Amali, Mohammed O. (2016) Curbing money laundering: global reception and implementation of international anti money laundering standards a case study on Nigeria. http://eprints.hud.ac.uk/id/eprint/31396/
To the financial services industry…. Too often, the compliance regime is undermined by the calibre and quality of people you want to employ in financial crime teams. The kind of person you look for is a low-level employee with minimal length of service. You are looking for someone with a couple of years experience to fill a senior position (or, at least that is what the title suggests), but you don’t want to pay an appropriate salary for anyone with any skills, real experience, or more importantly, who would stand up to senior management or the board of directors and say, “you can’t do that” or “we need to do this to be compliant”.
Consider the dissimulation and hypocrisy between the recruitment process and the financial institutions’ aims of promoting best practices in global governance. The reality is that the negative attitude within financial institutions towards the cost of financial compliance and the incessant bickering and pettiness from senior management leaves young people, and also many veterans, feeling disillusioned.
For those with a passion for working in financial crime, i suggest that you take a military analogy and use it to justify your existence within the business.
No soldier wants to be called a hero after they die. They just want to protect peace in places that should be peaceful.
To all financial institutions regardless of size…. Just as with the NHS, what you seek is not absolute perfection but an immediate diagnosis followed by an assurance that there is a cure, while not giving a thought to a previous lack of investment in people or equipment needed to perform the life saving operation. You underfund the systems and processes required to do the job properly and expose the shortcomings and fragilities between the application of AML rules and regulations and running a complex, innovative and/or profitable business.
The sword of criticism is sharper when things go wrong and it is only when you face reputational and financial repercussions that you apologise for getting it wrong and pronounce that you have taken steps to improve…(insert any mundane excuse here). Yet you still do not set in motion reconstruction, “build it better” processes because the costs involved have no tangible benefits to your profit margins.
I want to see all those who work in financial compliance to be afforded the same respect as dealers, traders, qualified accountants and lawyers. Your regulatory obligations to have a comprehensive AML program have not changed much over the years, but the penalties imposed for failure to enforce them has risen without a personal cost to your senior executives.
The Senior Persons Regime was implemented to ensure that the most important responsibilities are assigned to specific, senior individuals so they can be held fully accountable for their decisions and the standards of their organisations. I see the opposite though, with many small and medium sized financial institutions operating on the theory that the higher up the chain of command the individual is, the less blame will be attributed to them.
How do we start again? If we accept that the lack of coordinated regulations and the application of local exemptions make it impossible for financial institutions to protect themselves from being used as vehicles for financial crime, then we have to provide one global, uniform solution to address money laundering in all of its forms as an international crime and not a specific crime. I accept that there are “pro’s and con’s” from a legal and practical view and there are other views I have not considered here, but unless we treat the ailing patient soon, the probability of a cure may ultimately depend upon the invasiveness of the surgery.
