AML Control – An Expert Speaks

September 20, 2021
In this article we speak to Rachel Woolley, the director of financial crime at know your customer (KYC) technology firm Fenergo, about a wide range of topics on the subject of money laundering control.

In this article we speak to Rachel Woolley, the director of financial crime at know your customer (KYC) technology firm Fenergo, about a wide range of topics on the subject of money laundering control.

The Basel AML index is now out. In it, the venerable group of banking supervisors make four main points: that jurisdictions are not doing enough to guard against money launderers using virtual currencies; that they are setting up beneficial ownership registers too slowly and carelessly; that they are bad at preventing money laundering; and that they are not regulating designated non-financial businesses and professions properly.

VIXIO asked Rachel Woolley to expound on the four main Basel themes, then asked her about recent developments in the field of money laundering control. The rest of this article comes in the form of a question-and-answer session.

Q: Jurisdictions are not responding well to money laundering threats related to virtual assets. What are your thoughts about crypto-laundering?

A: This has been a big concern for quite some time. The Financial Action Task Force (FATF) has published guidance. This is a costly, immature environment. In the European Union (EU) virtual asset service providers (VASPs) are now obliged entities in accordance with the 5th Anti-Money Laundering Directive, but not every member state has transposed that into its domestic law. There's still a staggered approach, as each country completes its obligations at a different point in time, which causes a bigger issue.

Singapore has legislation that sets the core legislative requirements for AML compliance and it'll confirm which entities are in scope. A lot of nations are bringing VASPs into scope. In the UK, the Joint Money Laundering Steering Group has taken the legislation and gone a bit further. We’re starting to see guidelines emerge that are specific to the cryptocurrency industry — in Singapore, the Cayman Islands, the UK and Australia. It’s a growing area, because everybody knows it's a growing risk. More and more governments are focusing on it, particularly in the EU and the Asia-Pacific (APAC) region. We'll see more focus in the US too.

Q: Do you put much store by lists of country risk?

A: A little. I always find it interesting to see what's at the top and at the bottom of the Basel list. Poor countries always come out worst, but a lot of dirty money goes to sophisticated markets and ends up in property and art. It’s happening in Dublin too. In fact, you can go on a walking tour where they point out the high-end properties of globally active kleptocrats.

Q: The Basel index says that countries are setting up their beneficial ownership registers slowly and badly. Have there been any victories there?

A: I don’t know about that. The UK’s Crown Dependencies and Overseas Territories (CDOTs) have made a firm commitment to producing registers. At an EU level, what's interesting is that there was a gap in the directive when they set it up. If you're onboarding a customer established in the EU, then you have to put the beneficial owner. If the customer is foreign, there is no information to be found.

Now we’re seeing a change — those non-EU companies will have to provide that information. It’s not happened yet. There was a proposed regulation published a couple of months ago in July. It was part of the central AML authority that is being set up. There’s a three-year lead-in time.

Q: The Basel index says that jurisdictions are generally ineffective at both prevention and enforcement but they consistently score worse for prevention than for enforcement. Why do you think that is?

A: In most countries these days the recovered assets go to the state. There’s a conflict of interest there. Also when you fine banks, the monies go to the state. Look at what happened to the money of Isobel de Santos in Angola and in 1MDB in Malaysia. Restitution to victims is rare.

There is more of a trend growing in some jurisdictions to hold people at financial firms to account. There is some accountability in the Nordics. The United States is one of the better ones. The UAE have jailed people and China has.

Around the world, various countries are changing legislation to allow accountability. The SM&CR regime in Britain and the BEAR in Australia are examples. Ireland has a senior accountability regime in the works. The Irish bill came out in July. We need regimes like these, otherwise they'd clog up the court system. Once those regimes are embedded, they ought to do a lot of good.

Q: DNFBPs (designated non-financial businesses and professions) tend to under-perform in AML compliance, according to the Basel index. The report says that more supervision is needed, but surely the important thing is to stop forcing the trade bodies to double as AML regulators because they only want the best for their members and their hearts aren’t in it?

A: That’s right.

Q: What else do you think is wrong with DNFBPs?

A: It’s kind of related to parking dirty money in property, in real estate. There's a stronger focus on gambling firms and real-estate agents. Different industries are becoming more subject to AML requirements. It’s going to take time for that regulatory process to mature. I'm in the Association of Chartered Certified Accountants, which have their own money laundering supervisory responsibilities. They're self-governing. They don't necessarily have the expertise.

Gambling fines in the UK have been interesting. In Australia, Crown Resorts were fined last year or this year, so progress is being made but it's taking time. We have to align cross-industry but in the legal industry there has to be consistency in the EU. At some point we need to see an EU-wide regulator.

Q: Do you have any observations to make about Malta?

A: I’m keeping up with developments there. FATF put it on the grey list. The EU have called it out a couple of times and said that if there's a weak link in the EU it impacts all of the EU because of the lack of borders between member states. Judging from FATF reports, Malta is not meeting expectations. They'll have to start providing more regulatory updates to FATF to get off the list.

The assassination of Daphne Caruana Galizia was pretty harrowing. Open and transparent journalism is important. if you're silencing the very people who might blow the whistle you can’t have a transparent system.

When the FATF evaluates a country, there are two different types of scores. Firstly the country is marked on its compliance with the 40 recommendations. Then the inspectors ask whether their rules have been adopted into then outcomes, i.e. they look at the implementation of laws. They're coming towards the end of the fourth round of inspections now. There could be new criteria.

Q: What developments in the field of money laundering are of the most urgent concern to you?

A: In terms of what money launderers are up to, I am worried about all these platforms where you can sell service. You see quite legitimate artists and graphic designers selling their services, distributing their music. I do always wonder if that's a good way to fund terrorism. Terrorists can legitimately sell PDF copies of their own books. Nobody keeps track of it. People can wire you £10 on the pretext of buying a book, but actually you’re using it to fund bombing raids.

Q: Do you have any dealings with discrepancy reports? Do they work well?

A: I don't think we've had them in place for long enough. More development is needed on the registries. They need to implement the master register [i.e. an EU-wide register].

Q: Has anything happened to stop Delaware from being a secrecy jurisdiction?

A: There are new regulations that we expect to see the US government publish in accordance with the Anti-Money Laundering Act 2020 (AMLA). The act obliges US agencies to publish their AML priorities. FinCEN and a couple of other regulators obliged, so they’re promulgating regulations and there is a focus on beneficial ownership. I think there will be a US beneficial ownership register, although that remains to be seen.

Q: How do US AML regulators treat foreign firms differently from US ones?

A: In the US, even right now, a PEP still has to be a foreigner. Domestic PEPs are still unknown there. It has changed in the rest of the world, where banks always keep an eye out for domestic PEPs, but not there.

Q: Doesn’t FATF have its own blind spot, neglecting to include nephews on the list of family members of PEPs?

A: Yes and when you read about a scandal, there’s often a nephew knocking around in there. PEPs also use their in-laws to do their murky work as well. Look at Donald Trump using Jared Kushner, who’s married to his daughter.

Q: What are the latest developments in AML/CTF regtech that strike you?

A: From a policy and legislative perspective, there’s a real recognition among most governments that the answer to this problem is through the use of technology. It's simply not possible for humans to manage all the moving parts. Instead, firms need to conduct investigations directed by technology-enabled tools. There's an interesting consortium of banks in Holland that is trying to build a centralised transaction monitoring system. It’s important for banks to pool their resources like this because no one terrorist will use just one bank. In the London bombings they used four or five different banks. There has to be more interaction between financial institutions and they have to break down the barriers.

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