AML/CTF

Is Client Due Diligence there to stop Criminals and Criminality?

Lance Barclay AML/CTF , , , , ,

ImageOver the last few years of training people in the weird and wonderful world of AML/CTF I have noticed that people have become despondent with the subject.  I will be the first to admit that it can be a pretty dry subject if not put across well.  One of the areas of despondency that Licensees and their employees have with AML/CTF comes from the task of collecting Client Due Diligence (“CDD”).  Will the collation of CDD actually stop criminals utilising the Bailiwick?  Does this process have any effect on stopping criminality? With some Licensees believing that this burdensome exercise acts as a detriment to business, is this really the case or a misunderstanding?

Stopping criminality and criminals using the Bailiwick by obtaining a passport and utility bill is improbable. It is very unlikely that on production of these documents that they will inform you that they are a criminal and will be using your services and products for their criminality (I have only ever had one unsuccessful drug importer inform me what he was up to when stopped, but that’s another story). These documents are provided to criminals by Government agencies and Utility firms, legitimately, as it is the criminal’s human right after all to be able to live and travel and many do have legitimate incomes.  Criminals will sometimes use fraudulent documents which I’m afraid are prevalent in today’s society.  Fraudulent documents are cheap and easy to obtain and in today’s world of computer technology easy to produce to a very good standard, just look at the print quality of documents that you produce in your office on a day-to-day basis!  Criminals have access to the same if not better technology. Criminals in my experience are only different from ourselves through their moral and ethical values. Ethical and moral values change throughout a person’s life due to the situations they find themselves in and therefore a legitimate customer at a start of a business relationship may change in to a criminal. Unfortunately a passport or utility bill will not tell you if your customer will become a criminal at a later stage.

We are an International Finance Centre respected worldwide for our professionalism and the quality of our products and services and this will naturally be attractive to our customers and potential customers as well as criminals.  Our regulatory framework requires us to identify and verify our customers by obtaining CDD and in my opinion this is not only for us to know our clients and undertake checks to identify any adverse information on them but it also assists Regulators and Law Enforcement Agencies in preventing and detecting criminality and identifying the perpetrators.  By obtaining the required level of CDD when international requests for assistance in investigations are received by either our Regulator or Law Enforcement Agency, it will allow a licensee to react effectively and efficiently, searching their client database to establish if there is any connection or potential connection.

Our Law Enforcement Agency and the Regulator receive requests for assistance from overseas agencies and from my experience the requests are not always the most detailed or extensive and sometimes not totally accurate, this is not the fault of the overseas agency as they are only as good as the intelligence they receive from their sources.  From my time in the Financial Intelligence Service it has never ceased to amaze me that with a little information provided to our Licensees they are able to quickly identify if there is a connection or a potential connection to an enquiry, this is a credit to the professionalism of their employees and commitment in not allowing criminals to prosper.

In one case I dealt with the request for assistance was received from an overseas Law Enforcement Agency who could only provide the suspected person’s name which was very common and a potential address. Not expecting a lot I was surprised to get a phone call from a local financial institution that had a possible match on the suspected person. Relaying this information back to the overseas Law Enforcement Agency their amazement was evident. With a bit more investigative work and liaising between the parties involved it transpired that the local financial institution did have the person the overseas Law Enforcement Agency believed to be involved in criminality, an exercise made easier due to the financial institution having obtained the required CDD which also led to further details being discovered.

I have also been told on occasions by overseas agencies that they always like dealing with the Bailiwick as they are able to establish quickly if there is a connection to their suspect.   This greatly assists them in directing and managing their case and also any potential prosecution. Something positive for all stakeholders in our financial industry to take away with them!

We can safely say that the CDD documents we obtain will not stop criminals utilising the Bailiwick but as you can see they do act as a deterrent.  These documents won’t stop criminality but they will assist in the fight to detect and identify effectively and efficiently suspected criminals when we receive requests from our Law Enforcement Agency or Regulators. The assistance we give to the international community allows the Bailiwick to hold its head up high while discrediting the view held by some out there that we are a safe haven for criminals and their ill-gotten gains, and we do have our supporters out there.

Explaining my view on the necessity to collate these documents, Licensee’s and their employees are able understand the vital importance that they and these documents play in deterring criminals and assisting the international community in the prevention and detection of crime. I hope I have removed the perception that the CDD collation exercise is worthless and burdensome to a business, while demonstrating that it is a worthwhile and a necessary part of doing business in a moral and ethical way. It is interesting to note the recent developments in the on-shore world to pass regulations in respect of identifying ultimate beneficial owners, something we have had in or regulatory framework and have been undertaking for a very long time!

Are we guilty of stopping investment in the developing world?

Lance Barclay AML/CTF , , ,

Compliance monkeyOne of the questions that I am asked when undertaking Anti-Money Laundering and Combating Terrorist Financing (“AML/CTF”) training is “should we just stop dealing with areas and customers that have a higher risk of money laundering and terrorist financing”? Why is it that people believe that Licensee’s and Guernsey must stop any business that may have a higher risk of money laundering terrorist financing? Has this led to a paranoia within our financial industry and could this be leading our industry to be potential uncompetitive and lacking the entrepreneurial spirit that directors, management and compliance officers should aspire to? Most importantly is our paranoia stopping us from providing investment into the developing world and allowing these people to remain in poverty?

The laws, regulations, codes, rules and guidance (“the Framework”) as published by the Guernsey Financial Services Commission (“Commission”) require that licensees have suitable and sufficient policies procedures and controls for the products and services provided to customers in order to protect the Licensee and the Bailiwick of Guernsey from being susceptible to money launderers and terrorist financiers. Licensee’s must not avoid their responsibilities or manipulate the framework, but ensure that at all times they conduct their business within the Framework. The Commission does not prohibit engagement with higher risk clients or Licensees and their customers being engaged in sensitive activities that are of a higher risk of money laundering or terrorist financing, only that licensees mitigate the risks suitably and demonstrably.

The policies, procedures and controls of a Licensee must meet the minimum requirements of the Framework, though there is nothing stopping a licensee from exceeding these requirements. The Framework is merely requiring Licensees and their employees to be able to identify and verify their customers, understand the reason and rationale of their customer in order that they can assess whether the use of the product or service is reasonable. The Framework also ensures that the minimum required information on a customer is obtained and can be provided by the licensee expediently to Regulators or Law Enforcement if required.

The Licensee must assess its customer’s not on prejudice or paranoia but on a risk based approach at the start and during the business relationship ensuring that they have sufficient knowledge and information on their client as required by their risk based approach and the Framework. Just because a customer is a higher risk of money laundering and terrorist financing does not necessarily mean that they are a criminal, just that the activities or the jurisdiction amongst other things may make the customer or their activities more susceptible to money laundering and terrorist financing and that more frequent monitoring is required to be undertaken.

 There are many opportunities in the developing world that will not only allow our customers to prosper but also the people of these jurisdictions to also prosper and be able to move themselves out of poverty.Telecommunications, mining, agriculture and cash machines are some of the business propositions that I have seen being presented to licensees by their customers only to be met by the paranoia that these may expose the licensee to money laundering or terrorist financing and must be avoided or declined.

Should the question that licensees ask when they take on customers or provided products or services to a client relate to the Licensee’s knowledge and experience of the customers activity, and if the policies, procedures and controls of the licensee are suitable and sufficient for this type of activity? If the answer is no can the Licensee enhance their knowledge or policies, procedures and controls or oversight of the customers activity to become comfortable in undertaking the engagement.

By acting in paranoia it is the Licensee and their employees not the Commission or the Framework that is letting customers down and the people of these developing countries. In some ways it could be argued that we are allowing money laundering and terrorist financing to prosper by not engaging with the development of legitimate business and opportunities in these developing countries.

We can never eradicate money laundering and terrorist financing, but by ensuring that a Licensee’s policies procedures and controls meet the requirements of the Framework I believe that they can engage with customers and activities that will provide a benefit to people in developing countries and enhance the living conditions and education for all. Would it not benefit these countries and people if by applying our high standards that money laundering and terrorist financing in all guises could be reduced?