Never ask for whom the bell tolls, it tolls for you

Ukraine is burning, it’s not just Ukraine, it’s humanity. Humanity is in the crosshairs. Around the world, almost every crime, whether it’s a war crime or a financial crime, is driven by greed. And greed will be there until the end of human existence. Just like oligarchs and kleptocracy when we think of corruption.

Oligarchy and Kleptocracy: Other Faces of Corruption

What John Donne once called (later adapted by one of my favorite novelists Ernest Hemingway) in his work of 15/16^and century, seems perfect in today’s context. Donne was trying to point out the mortality of people and when a funeral should take place clock is heard, it is a reminder that we are approaching death every day. But this time, deaths are caused by senseless acts of greedy people.

As we can admit, many crimes end up more or less in money laundering and the money is obtained through human trafficking, tax evasion, pyramid schemes, kleptocracy/political corruption/oligarchy, drug/arms/organ smuggling, green crimes, terrorist fundraising and so on.

These crimes have a common name: ‘conditional offense’, which ultimately leads to money laundering.

A journey back in time to the thirties

Money laundering is as old as any other illegal business. American gangster Al Capone was found guilty of tax evasion (one of the predicate crimes), he owed over $200,000 in back taxes, which earned him 11 years in prison. His income came mainly from his gambling establishments, brothels and illegal liquor smuggling.

The practice of hiding source and mixed funds (legal and illegal) predates Al Capone and Money Laundering itself postdates Capone. From that perspective, Capone had nothing to do with the term Money Laundering. Unfortunately, even after 75 years of his death, Capone is still blamed for coining the term Money Laundering. Sorry about that Capone, hope you are well.

If Capone had been born in the current era, I’m pretty sure he would have focused on buying yachts (instead of running brothels) with “untraceable” names and of course he would have had to take the blame for “inventing” a fancy word like oligarchy. Even he could have figured out that he would be curious about ways to exploit Airbnb.

Evolution in typologies – from drug trafficking to green crime

Fighting financially motivated crimes is not just about money. It is also about saving lives from drugs, from being victimized by gun violence/war crimes, from modern slavery/online child exploitation, green crimes.

With the significant expansion of the list of predicate offences and innovations in products, Financial Institutions (FIs) have moved to the Risk Based Approach (RBA) to assess their own risks and decide which clients to onboard and service. Will they continue to recognise Politically Exposed Persons (PEPs) as high-risk clients without categorisation? Will FIs come up with best practices to deal with Reputationally Exposed Persons (REPs)?

Global standard setters or regulators don’t have much to do with setting new standards for examining/periodically reviewing REPs. PEPs named in the recently revealed Pandora Papers are already in a gray area in terms of risk factors. REPs also raise thoughts or eyebrows when we see news of a Miami professor being told to stay behind bars for laundering dirty Venezuelan money.

Have we ever considered that we should put heads of international sports associations under the category of Politically Exposed Person (PEP)? Perhaps the Rule Based Approach seems more feasible for FIs in the future, combining human intelligence with artificial intelligence.

Money laundering through social media

Capone certainly wasn’t familiar with that. Bad actors have always been creative. If they had used their talents for humanity, the planet would have benefited. But they decided to take the road less traveled at the time (now those roads are very busy… because greed increases).

They often convince vulnerable and young people on Instagram and Snapchat to use their bank accounts for illicit money flows. Sugar daddy scammers are so active in this space and Twitter. Perhaps these events are still underreported, but they are increasingly demanding our attention for money mules.

Yachts – Of the people, by the people, for the people

My sincere apologies to Abraham Lincoln for changing his words in a different context, while pointing out a luxury property, often owned by corrupt people. In this age of yachts, superyachts and megayachts, we see authorities around the world seizing nearly half a dozen superyachts belonging to billionaire oligarchs who are allies of Russian President Vladimir Putin. Not an Arabian Nights story. Authorities in Italy seized a 215-foot superyacht called the Lady M.

It is owned by Russia’s richest businessman and is valued at $27 million. The ship requires 14 crew members, has six guest cabins, a swimming pool and a gym. Wow, that could be a dream spring vacation for anyone! Document leaks such as Pandora Papers and Suisse Secrets once again showed that there is an urgent need to establish rules and standards for professional facilitators such as lawyers and accountants. What was the source of the funds used for this huge infrastructure around these floating castles? I don’t think so, cash payments are involved in these services. There could be multiple invoices.

‘Unexplained Wealth Orders (UWO)’ – To enforce or not to enforce, that is the question

When the owner of a property needs to prove the source of the funds used to pay for it and cannot do so, they must go through UWOs and the property can be seized and sold. This is common practice in the UK and may be the case in a few other jurisdictions. Was this practice followed to trace the source of wealth of the owner of Chelsea club?

I understand that UWO can work better than Beneficial Ownership Registry when it comes to combating money laundering through real estate, art and antiques and other luxury properties. The UK has already started to take advantage of UWOs in actually recovering the alleged proceeds of crime. However, much more meaningful efforts need to be made, because it is still not strong enough.

Role of Cryptocurrency Exchanges

Big crypto-currency exchanges have the limitation of ordinary Russians of using the service. But here comes the question, who will be held responsible for identifying the ‘extraordinary’ Russians. It is undeniable that the battle between compliance, ethics and revenue has been going on for quite a long time. While exchanges insist that they are well equipped to prevent abuse of their platforms, can they really prevent (or do they want to prevent) sanctioned entities from parking their assets using cryptocurrencies? Are they sure that the ‘people of interest’ will not slip through the net? Sorry for my raised eyebrows, it has nothing to do with me… poor me.

Compliance professionals are inundated with ‘Sanctions Overdose’

Sanctions compliance has never been more challenging compared to the current compliance landscape. Sanctions and executive orders are being issued faster than light. Aggression is happening in many places; it is happening in Ukraine, which is getting the attention it deserves. It has been happening in Palestine for a long time, but unfortunately is not getting the attention it deserves. The responsibility lies with all of us to navigate this. AFC professionals, with a strong background in Correspondent Banking/Trade Finance, will be in high demand in the coming days. And it is undeniable that the Anti Financial Crime (AFC) mission never ends, to be more specific, it is never completed. It is not a mission of British novelist Ian Fleming untimely character James Bond.

When it comes to AFC space, we can win many battles, but it seems we can never win the war. This mission is never accomplished, unlike the James Bond movies. However, we, the AFC professionals, fight tooth and nail to give bad actors a hard time, keeping in mind that the cost of non-compliance has always been higher than the cost of compliance.

Final thoughts

Corruption is defined as unethical behavior by people in positions of power, such as executives or government officials. Giving or accepting bribes or improper gifts, double dealing, under-the-table dealing, rigging elections, diverting funds, money laundering, and defrauding investors are all examples of corruption. An example of financial corruption is an asset manager who is essentially running a pyramid scheme.

When corruption occurs within an organization, it is usually followed by unfavorable media coverage, which can cause customers to lose confidence in the company’s business practices and products. To limit reputational damage and restore trust, an extensive public relations campaign is often required. This requires valuable resources such as time and money, which can deprive other critical areas of the organization. As a result, inefficiencies leading to financial losses are possible. The Corruption Perceptions Index (CPI) measures the perceived level of corruption in the public sector. Transparency International publishes the CPI annually.

The author Ahsan Habib is currently working in the AML department of a leading bank in Canada. He is a seasoned banker from Bangladesh, where he worked in correspondent banking and foreign remittances department. He is outspoken against greed-driven crimes such as human trafficking, child sexual exploitation and corruption.

Feel free to check him out on LinkedIn here.