Since the big headline fines of Standard Chartered and HSBC for money laundering last year, there have been a lot of things rumbling in the background.
These movements are leaving prepaid card networks and money transmitters high and dry.
Then there is the squeeze on virtual currencies after Liberty Reserve was shut down for millions of transactions allowing billions of dollars to move on behalf of the criminal underworld, leading to questions over other money networks such as Bitcoin and how they might assist criminal activities.
What is intriguing about these movements is that there is obviously a problem here, and the problem is that there will always be criminal activity.
There always has been.
Whenever an authority tries to create rules, rue breakers will appear.
When the USA tried to outlaw alcohol, bootleggers proliferated; when China tried to squeeze the QQ economy, the use of QQ coins tripled in a year; and whenever the authorities try to shutdown money channels, new channels will inevitably appear.
In fact, it is an accepted view that as we try to shutdown fraud, fraud will always exist.
In the same way, as governments try to stop money laundering on behalf of drug runners and terrorists, there will always be money laundering.
The question is how to most effectively minimise fraud and money laundering, how to ensure the avenues for fraud and money laundering are closed and how to track, trace and convict those engaged in money laundering.
And this is where it is most disappointing.
For example, whenever I hear about fraud, there’s always a result that someone says: “yes, we know who commits this fraud but, because we now live in a global world of crime, the fact that Russian criminals use Chinese servers to target credit card lists in Europe and then transact those cards with fraudulent transactions in America makes it impossible to catch the criminals.”
Now apply that to money laundering and guess where the greatest concentration of laundering occurs?
A few highlights from the FSA’s report on money laundering in the UK, June 2011:
Around a third of banks, including the private banking arms of some major banking groups, appeared willing to accept very high levels of money-laundering risk if the immediate reputational and regulatory risk was acceptable.
Over half the banks we visited failed to apply meaningful enhanced due diligence measures in higher risk situations and therefore failed to identify or record adverse information about the customer or the customer’s beneficial owner.
Around a third of them dismissed serious allegations about their customers without adequate review.
More than a third of banks visited failed to put in place effective measures to identify customers as Politically Exposed Persons (PEPs).
Three quarters of the banks failed to take adequate measures to establish the legitimacy of the source of wealth and source of funds to be used in the business relationship.
At more than a quarter of banks visited, Relationship Managers appeared to be too close to the customer to take an objective view of the business relationship and many were primarily rewarded on the basis of profit and new business, regardless of their AML performance.
At a third of banks visited, the management of customer due diligence records was inadequate and some banks were unable to give us an overview of their high-risk or PEP relationships easily.
Nearly half the banks in our sample failed to review high-risk or PEP relationships regularly.