UK: A Month in Money Laundering - November 2005

Welcome to the November 2005 edition of A Month in Money Laundering

This edition includes news on the United Kingdom Financial Services Authority’s plan for inspection of anti-money laundering controls in private equity firms (3 November), a grant from the Asian Development Bank to the Philippines for the second stage of its anti-money laundering initiative (8 November) and new cash transfer rules proposed by the State Bank of Vietnam (22 November). These issues and others are summarised in this edition of A Month in Money Laundering.  

Regards

Michael Corrigan
Partner, Governance and Regulation
Deloitte & Touche LLP

Philippine banks may pool funds to invest in new anti-money laundering system. Members of the Chamber of Thrift Banks and the Bank Association of the Philippines (BAP) are considering a ‘shared facility’ system to detect money laundering activities. The system will incorporate several functions including monitoring suspicious transactions and transfers, review customer information, provide a transaction audit trail and generate statistics.

United Kingdom’s Financial Services Authority plans inspections of anti-money laundering controls at private equity firms. The inspection initiative is a result of failures in policies and procedures uncovered during a review of private equity firms earlier this year. The failures included staff with poor AML training, lack of evidence to show full customer identification checks and out of date compliance manuals and procedures.

Canada’s financial watchdog sees drop in money laundering cases but a rise in the amount of money involved. Canada’s money-laundering watchdog, Fintrac, this year saw 142 cases involving $2bn of funds. This is a decrease from the previous year which saw 197 cases covering less than $700m. Horst Intscher, Director of Fintrac, said the increase was likely to be down to better procedures and increased experience rather than a steep rise in money laundering incidents.

New commission will coordinate money laundering fight, says Russian Finance Ministry. The Finance Ministry is to create an inter-departmental commission for coordinating the effort against money laundering and terrorist financing. The role of the commission will be to manage the efforts of both the federal executive agencies and the central bank in their fight against money laundering as well as developing national anti-money laundering strategies.

Report calls Slovenia’s anti-money laundering rules ineffective due to poor implementation. The report by the Council of Europe illustrated the need for greater supervision in implementing the measures by non-financial institutions especially to improve currently inactive policing and slow prosecution. The report was published by the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval).

Asian Development Bank grants the Philippines financing for anti-money laundering initiative. Following the successful first stage, which provided $1m technical assistance, the Asian Development Bank (ADB) has approved a further $400,000 for a second stage. The second stage will help create local training programs in essential subjects like forensic accounting.

Survey in the West Midlands, England, claims anti-money laundering laws are ineffective. A survey of members of the Institute for Chartered Accountants in the West Midlands, revealed a majority believe that the Government’s anti-money laundering regulations are not effective in deterring or detecting the crime. The survey expressed the accountants’ wishes to make the regulations cost-effective and to introduce limits to remove minor infringements.

India on drive to wipe out money laundering. United States Treasury Secretary John Snow is visiting India to discuss efforts to prevent money laundering including the strengthening of Indian supervisions and surveillance, amongst other issues scheduled for the four day visit.

Greece introduces anti-money laundering legislation. A draft bill harmonising Greek legislation with a European Union anti-money laundering directive has been introduced by the Greek government. It calls for the establishment of an independent authority called the National Authority Combating the Legalisation of Income from Criminal Activity, and compels financial institutions to tighten their anti-money laundering measures

Thailand plans new reporting rules for gold and gem traders. The Thai government is planning to introduce new regulations, in 2006, that will impact local gold and gem trades. Traders will have to report any business transactions worth more than Bt1 Million ($24,000), with non-regular customers. Business of a similar amount with regular clients will not need to be reported, as established clients should have already been vetted by the traders.

Australia signs tripartite tax treaties to fight money laundering. Australia, New Zealand and Bermuda have signed joint tax treaties in a bid to curb money laundering and terrorist funding activities. According to the Treasurer Peter Costello, Australia was signing its first tax information exchange agreement with Bermuda, as well as amending and updating a previous one with New Zealand. He stated that the agreement with Bermuda would initiate a complete exchange of information on criminal and civil tax matters, whilst the upgrade of the New Zealand treaty would benefit local Australian businesses.

Chinese and South Korea to swap money laundering information. The Chinese and South Korean governments have entered into an agreement to exchange information on money laundering activities. A Memorandum of Understanding was signed by the Chinese Anti- Money Laundering Monitoring and Analysis Centre (CAMLMAC) and the Korea Financial Intelligence Unit (FIU). The two sides will cooperate in the collection and analysis of financial information of suspect transactions.

Financial Action Task Force concerned over Swiss implementation of anti-money laundering recommendations. The Financial Action Task Force (FATF), in its latest review, expressed concern on the slow pace that Switzerland was taking in the implementation of recommendations on cross-border cash payments. Whilst it acknowledged Swiss attempts to cooperate in anti-money laundering drives, it criticised existing loopholes in the legislation. Swiss law does not consider smuggling, human trafficking and insider dealing as crimes which are related to money laundering activities.

APEC discusses cooperation on anti-money laundering. The Asia Pacific Economic Cooperation (APEC) group of countries have discussed increasing cooperation on anti-money laundering and anti-corruption programmes at the 17th APEC Ministerial Meeting in Busan, South Korea.

20 November Middle East FATF to examine anti-money laundering controls in Arab countries. The Middle East North Africa Financial Action Task Force (MENA-FATF) is to examine its 16 member countries to ensure that they are compliant with international standards on anti-money laundering. The assessment will start with Syria in April 2006 and is expected to take 5 years to complete for all member countries.

Romanian firms want to know outcome of suspicious activity reports. Banks and other institutions who report suspicious activities to the National Office for Preventing and Fighting Money Laundering (ONPCSB), want to know the outcome of their reports. Firms argue that knowledge of the ONPCSB’s decisions will improve their ability to manage their own risk.

Azerbaijan anti-money laundering Bill consideration period completed. The interdepartmental working group has completed the consideration of the "On Counteraction to laundering dirty money and financing terrorism in Azerbaijan" Bill. The group included representatives of 13 departments. The Bill faces further examination by the Cabinet before it can be legislated.

State Bank of Vietnam considering imposing ceiling on cash payments. A draft decree is being discussed by the State Bank of Vietnam which would seek to impose a limit on cash payments. Organisations funded by the State would not be allowed to make cash payments for sums larger than US$629 for certain transactions and US$943 for other non-State-funded organisations. The State Bank wants to tackle the prevalent use of cash payments which has created ample opportunity for money laundering.

Changes in Kenyan banking rules incorporate anti-money laundering initiative. The Central Bank of Kenya (CBK) has issued new guidelines to help fight money laundering. Additional information will be required before licenses are granted to foreign institutions to prevent the use of shell banks for money laundering. In addition, records containing information on the source of funds will have to be kept by institutions for at least 7 years and staff will be required to be given regular anti-money laundering training.

Development Bank to fund $350,000 project to fight money laundering in Latin America. The Inter-American Development Bank (IDB) is to contribute $350,000 towards an anti-money laundering project in Latin America. The IDB will work with the Federation of Latin American Banks on the project.

New anti-money laundering diploma launched in United Kingdom. A new graduate diploma course in anti-money laundering has been launched by Cass Business School. The Diploma is being supported by the City of London Police and the British Bankers’ association and will cover risk-profiling and money laundering techniques.

25 November EU to screen Croatia on Money Laundering legislation. Money Laundering is one of the areas in which Croatia will have to adjust its legislation to that of the EU chapter on freedom of capital flows. This chapter has undergone the first stage of the screening process by the EU. Freedom of capital flows, payment systems and prevention of money laundering are the three segments of the chapter. The emphasis at this point has been put on money laundering and its prevention.

Legal privilege defence extension to be considered by United Kingdom MPs. MPs are to consider the proposal to extend the legal privilege defence (which allows lawyers to not report instances of money laundering suspicions in some situations) to accountants, auditors and tax advisors. This is due to the fact that they are carrying out the same functions with respect to legal advice as lawyers, albeit in a limited fashion.

China’s electronic payment system cuts money laundering. Electronic banking has enabled the government to track money movements and collect taxes as well as curb money laundering. Last year nearly 4.32 million suspicious dealings were reported with most indications coming from electronic banking. An anti money laundering organisation has been set up and it is utilising e-commerce to track bank transactions.

Bankers criticise money Laundering rules in Australia. A major banking group has been criticising Australia’s new anti money laundering legislation designed to combat terrorism. The group want the government to delay parts of the anti-terror laws until wider anti money laundering legislation is introduced. The Attorney General gave the industry no more than 6 months to comply, as it is argued that funds from Australian banks may be barred if the legislation is not passed.

New head of financial intelligence service in Kyrgyzstan appointed. Tajikan Kalimbetova, deputy economy and finance minister will head the financial intelligence service of Kyrgyzstan which was set up to fight financing of terrorism and illegal money laundering.

Over 2000 cases of suspected money laundering in 2005 for Russian monitoring service. The Federal Financial Monitoring Service (FSFM) in Russia analysed 2388 reports of 80,000 financial operations suspected of money laundering in 2005. 779 of these cases were being heard in court and were serious enough to be considered as criminal matters.

Azerbaijan money laundering conference held in Baku. A seminar on money laundering and terrorism financing was held in Baku on the 24-25th of November. The purpose of the seminar was to increase financial institutions’ knowledge of money laundering, ways to protect against money laundering and to facilitate cooperation between enforcement agencies and banks.

Thai anti-money laundering council detects increase in suspicious transactions. The Anti-money laundering council (AMLC) tracked more suspicious transactions and froze more bank accounts showing an increased level of vigilance against money laundering. 846 suspicious transactions were tracked for the first 10 months of the year, compared to 555 for last year.

Chile’s private banks to sue tax service. A lawsuit has been filed against Chile’s tax office (SII) in an effort to stop new secrecy regulations, which are due to be implemented in March, 2006. These rules would allow the SII to investigate transactions over US$10,000 to fight money laundering. Financial institutions will also have to inform the SII when carrying out transactions over this level. Private banks claim that this will violate secrecy and will hinder foreign banking operations.

Indian banks to tighten inward remittance scrutiny. A number of Indian banks are implementing systems to increase the level of inspection of inward remittances, to help them identify any unusual remittances, and abide by money laundering regulations and norms applied by the Reserve Bank of India.

Looking Forward

New bank secrecy regulations which will help the authorities investigate transactions over US$10,000 are due to come into effect in March 2006.

Slovenia will draw up a progress report in June 2006 on its work to reduce inefficiencies in policing and prosecution highlighted by the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (Moneyval).

Uruguay unveils fiscal reforms which will help tackle money laundering. The reforms will be submitted to Parliament in March 2006 for approval and will come into law during 2007.

Appendix

The key message at the FSA’s Annual Financial Crime Conference on 15 November was that financial fraud is an increasingly complex threat for our financial services industry clients, and remains an important issue on the agenda of the UK regulator. Institutions need to have effective systems and controls in place. Dr James Hart QPM, Commissioner of Police for the City of London, described internal fraud as the number one threat to financial institutions. Dr Hart and other speakers stressed the importance of anti-fraud measures, including implementing robust information security systems and conducting appropriate due diligence on the bona fides of prospective employees.

Evolution or revolution?

A second headline theme of the Conference was Anti-Money Laundering ("AML") compliance. Referring to the imminent and longawaited publication of the revised Guidance Notes from the Joint Money Laundering Steering Group, Philip Robinson, Head of Financial Crime at the FSA, echoed other speakers in emphasising the regulator’s expectations. The Conference highlighted the seven pillars of the revisions including greater emphasis on senior management responsibility, changes to customer identification requirements, and an expectation that firms will embrace the risk based approach to AML controls.

How can Deloitte help?

We have extensive experience of financial fraud issues, whether in facilitating risk assessments, reviewing controls designed to mitigate internal fraud, or investigating incidents and establishing the facts. Typical services in this area of specialism include:

Fraud Tier Structure Model - an ideal tool which clients use to self assess the robustness of their current financial crime risk management framework and to identify potential weaknesses and areas for improvement. Business Intelligence Services – our team assist clients in performing background checks on key members of staff and business partners. Information Security and AML - our in-depth knowledge and expertise in both these areas enable us to help clients, ranging from "health check" high level assessments, manual and automated control reviews through to remediation projects and skilled persons reports. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.