Billions of dollars are spent on futile efforts, like employing the proverbial Chinese Army of compliance officers, most of whom may know a bit about AML, but next to nothing about the actual business and transactions. The same, unfortunately, holds true for many regulators, who can only thrive by regulating big banks. Gert Demmink’s idea is to allocate more resources to intelligence, police and CPS, and have them work closer together with FIU’s and internal bank AML units or MLRO’s
His suggestion: do away with current practices and the fixation on auditable processes, focus on outcomes and results instead. We speak with Gert on the notion of giving banks specific classes of licences for specific transactions and levying a transaction tax on banks.
What would you say is the main concern in reforming the processes behind the fight against money-laundering?
There is good effort being made to fight money-laundering but I still believe banks and financial institutions ought to work together with law enforcement to get the best results. I would say law enforcement and CPS (Crown Prosecution Service) would have to sit with banks and discuss their top priorities and keep a watchful eye on particular transactions.
You say ‘good effort is being made’ to fight such issues, can you outline what is currently helping?
The coordination and interactive nature of those reporting and receiving transactions, particularly in the Netherlands and other countries. However, there is no meaningful feedback from the FIU to the bank about transactions that they reported and their general policies. Banks, under the eyes of the regulators, will set up compliance rules and will have customer diligence, monitoring and reporting but the bank and regulators work in silos. It does not in any sort of way involve the enforcement agenda and I think that is needed.
Which jurisdiction is most vulnerable to financing terrorism and why do you think this is?
Many are vulnerable; this is difficult to pinpoint as terrorism finance laundering may only require € 5.000 to fund a bombing, for example. This can be perpetrated and financed via savings, Ebay or cash transactions, for example, and this can take place anywhere; however, larger schemes, such as the moving and proliferation of strategic goods or setting up training camps, food, water, training and weaponry, require a sophisticated financial set up.
What are the clues that might indicate there is terrorism funding?
Now that is the difficult bit; there is a list of suspected terrorism markers but the majority of them are not yet known [financially]. This is where the intelligence forces come in and we must know what they are looking for. It is a good thing to screen against a sanctions list, but this is only a small part of what we can do.
Would you say sharing that info is quite restricted in that aspect?
Yes – I would say there should be a department in banks that work closer with the FIU (etc.) as it would help with customer and transaction due diligence; also, working closely with law enforcement and intelligence as it will help map out where the money comes from and where it is going to.
What would entail as a failure of observing AML/CMT standards? How do you ensure that revoking licences is done at the right stage and won’t be too late/too early?
With many violations, such as those leading to HSBC and BNP Paribas being fined, the cases are embroiled in never-ending legal resolutions and what happens is that their customers (especially with regard to HSBC) end up picking up the fine.
What do you think could be done to solve this?
I particularly like the Yates memo (from the former assistant attorney general in Washington); it is a firm memo that states we should get to those responsible: the well-established directors, managers and individuals who were responsible, rather than leave huge fines for the institutions; instead of ‘HSBC failed’ it would and should be ‘the board/management of HSBC failed’. When institutions fail so many times, you beg the question of why does someone not revoke their licence?
What do you expect the outcome of revoking their licence to be?
We would expect other banks to take over the client base. It would also send a very strong message to the sectors. Financial movement could be funding the proliferation of goods involving weapons of mass destruction and so banks should follow a process similar to that of strategic goods. Marshall Aerospace in Cambridge can only process specific goods under specific licences and other companies selling missiles (etc.) can only sell them when approved by the UK government. Therefore, my idea would be that if strategic goods need specific licences for certain transactions, we should adopt the same standard for banks.
For example, retail is a low risk for money-laundering so it could have an open-general export licence and mimic that on a financial basis.
Is this a realistic expectation to have?
Yes, as we can give open licences, general licences to the banks; it is open to discussion and some regulations may have to change, but I think it could work.
In the report (The Clearing House, A New Paradigm: Redesigining the U.S. AML/CFT FRamweork, February 2017) , it is claimed that the Treasury / Terrorism Financial Institute and The Financial Crimes Enforcement Network (FinCEN) should establish a robust and inclusive annual process to establish AML/CFT priorities; what do you think this process should entail in order to ensure it effectively tackles AML/CFT?
All it needs is better communication; management from banks and the Serious Fraud Office (SFO) or FIU (etc.), intelligence, the police can get together and discuss priorities based on the national security agenda. From this, they could look at certain transactions and the persons and countries procuring them.
What are the main barriers for this not happening?
As usual, ‘privacy’ is an issue. Data protection has always allowed that that if security is at stake, banks and regulators can share information, of course mandated by the law. Of course, financial institutions must inform their customers of the notion that data may be shared in order to fight money laundering and fraud, but regardless, it is a matter of ambition, not a matter of laws. The three arguments/barriers are usually: data protection issues, difficulty in implementing it internationally and difficulty in ‘convincing the judge to undergo this movement’.
It is advised that Treasury TFI should strongly encourage innovation – in what sense is innovation not fully embraced and what are the effects of this?
This is a good question and I think it all comes down to data mining; I was in a meeting with HSBC and others, and we all agreed that data mining is a good idea. Via data we can find out if buyer and seller transactions are occurring through the same person, simply by looking at IP addresses, telephone numbers, work addresses or even information on Facebook and other internet activities; this can really help tackle money laundering.
Do you think there is a way around to ensure that customer’s privacy is respected whilst data mining?
If banks were to disclose the information beforehand, it is a good way of allowing the customers to make the decision themselves; they can either agree to it or move to another bank.
What would be an ideal way of determining whether customer accounts from a particular industry or country are appropriately examined to ensure they are not being inappropriately discriminated/ given little voice?
I think if you look at different sectors and the risk involved, you can better distribute attention; for example, for argument’s sake, we can determine retail to be a very black and white sector, thus allocating it less attention in comparison to the defence industry, because of the enormous budgets involved..
How has ineffective communication and barriers for sharing information between financial institutions enabled money-laundering to occur at ease? What barriers should be broken down to prevent this?
Money laundering thrives on the inabilities of law enforcement to share important information internationally and on the fact that jurisdictions are limited when it comes to communication. The competency of one law enforcement agency stops outside its jurisdiction, but only where another [enforcement agency] begins and if there is no communication between the agencies, nothing will happen. There are so many reasons why communication is weak: the psychology and power of police and intelligence forces is certainly one. It is difficult to overcome communication problems and I think that we can only win the battle if there were one supra-national police force. One already exists in Europe - Force OLAF and does it work? No, as they are being consumed mainly by themselves.
There is a fine line to balance, and I think that the law helps manage this. If there were no barriers, they would be little restriction to what was shared and so I always say it is better to have one crook go free than two innocents going to prison.
Out of all the matters which need to be resolved to ensure compliance is met, which do you think is the most pressing and why?
The most pressing would be shifting budgets; there are tens and hundreds of millions being spent by banks to no end. I do think there should be tax on transactions to help fund intelligence and police; currently these people are bought out with higher salaries by banks, draining law enforcement and benefiting the banks. There will be negative reactions but it is doable.
