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20201221 My Newsletter
20201221 My Newsletter
There is a growing debate around suspicious activity reports (or similar by any other name). Both the topics in this newsletter relate to that.
The first question is being revived after being more or less dormant for a while. FIUs, Financial Intelligence Units, the world over are drowning in a sea of suspicious activity reports and there are, from time to time, calls for reporting entities to submit (or ″file″) only so-called ″quality reports.″
The problem has come up again because the increasing action against banks, etc., and the widespread misleading of the public by the sensationalised and, from a legal and regulatory standpoint, largely superficial reporting of the so-called FinCEN Files, has led to what is mistakenly called ″defensive reporting.″
It is not defensive reporting because all laws all over the world require reporting institutions to file reports where there is any suspicion of any activity involving any asset or benefit arising, in whole or in part, from criminal conduct.
The law says ″reasonable cause for suspicion.″
It does not say ″cause for reasonable suspicion.″
In 1994, when I first started in money laundering risk and compliance, one of the messages I had as a tag line so people remembered the lessons was ″you can’t be a little bit suspicious like you can’t be a little bit pregnant.″
It’s an on-off switch, not a dimmer. It’s a gas cooker on full or nothing at all. The law does not provide for any graduated approach. It does not provide for vacillation. It’s simple: if there is any suspicion, the report must be made or you face prosecution.
Yet today we see people again referring to the "quality of submissions" and so over time have many others but the simple fact is that there is no protection for a reporting entity if it decides that information was not of sufficient quality and therefore does not submit a report. And it’s the same for staff and compliance officers and, even, directors who have individual responsibility.
While some regulators may provide some saving, that has no express impact on the application of the criminal law.
Making reports is a form of protection. Not making reports means there is no protection.
Furthermore, it is not for individuals within reporting entities to know whether the data they have may have value when added to data that may, or may not, already be in the hands of the FIU or may come into the hands of the FIU in the future.
The reporting entity - and its officers or partners - are always open to being second guessed and, therefore, of prosecution or regulatory action if they do not submit reports where suspicion exists or where, in the future, a court may decide that reasonable cause for suspicion existed and the individually was wilfully blind.
The solution cannot be to leave such discretion in the hands of reporting entities: it’s difficult enough to get them to submit reports even in the current circumstances.
By adding discretion, that will encourage those who are uncertain to find an excuse not to submit reports; and it will give comfort to those who support money launderers, etc. and seek an excuse not to submit reports.
I can see it now: a whole industry of people providing consultancy and training in how to produce an internal analysis of information and write an effective conclusion to justify not making a report.
The other big live issue in relation to suspicious transaction reports is the persistence of several large jurisdictions to avoid bringing lawyers within the scope of the ″reporting entity″ regime.
One would think that this argument was long dead. True, when solicitors in the UK were first brought within the regime it was as a by-product of something else: the Financial Services Act 1986 covered all of those who advised on a wide range of financial and asset transactions. All those covered by the Financial Services Act were within the scope of the Money Laundering Regulations as first brought into force in 1994. Basically, only those lawyers who specialised only in child care law and pure criminal law could claim that they were outside the regulatory perimeter.
That’s when the arguments started because solicitors, which were the affected lawyers, didn’t spot it before the Regulations came into force.
Over a period of years, lawyers all over Europe lobbied to limit the effect of the money laundering directives and, while the EU was in a hurry to get it done for unconnected reasons, the lawyers prevailed and instead of bringing everyone up to the UK’s standard, everyone was taken to a lower standard of, primarily, transactional work. That left litigators out of account which, on any sensible approach is dumb because litigation has always been an excellent way of moving moneys or even property between parties. Even so, lawyers, in many disciplines, were in.
But across the world, the rear-guard action by lawyers’ trade* bodies (some of which have a conflict: trade union v regulator under one roof) continues. The USA, Canada and Australia are some of the most prominent hold-outs.
In Australia, where its law is mind-bogglingly badly drafted, there is a thing called ″Tranche 2.″ Instead of just saying ″these are the reporting entities and this all applies from x,″ the Australian government split the implementation into two stages or ″tranches.″ Various trades and professions fell into the second tranche.
That gave time for more lobbying and, in the hilarious world that is Australian politics, more chances for more prime ministers who would get bogged down in various matters in his few months in office and this would be too much of hot potato to hold onto.
In 2009, the Law Council of Australia, with assistance from the Law Society of England and Wales, which, along with German legal bodies had been at the forefront of stalling the EU’s efforts leading up to the Third Directive, produced its ″money laundering guide.″ It’s been updated and the most recent version is 2016.
It says ″there is little if any actual evidence of lawyer involvement in money laundering or terrorism financing. For these reasons the Law Council of Australia has opposed the proposed extension of the money laundering and terrorist financing reporting regime to legal practitioners. ″
Would you like to read that again? Even if one tidies up the English and says ″involvement of lawyers...″ it still does not suggest any serious grasp of reality.
And, FYI, it’s not a ″proposed extension.″ It’s in the Act. Successive governments have failed to produce and enforce the regulations required for implementation.
Both Australia and Canada take the view that lawyers are best dealt with by their own regulatory regime. The Australian report says ″lawyers are subject to stringent requirements prescribed by the regulatory regime of the legal profession legislation and rules of professional conduct. Through compliance with lawyers’ existing obligations, the risks of becoming inadvertently involved in money laundering or the financing of terrorism may be largely addressed.″
There is so much evidence that this is not so that it’s difficult to understand how this position can be supported.
There is a back-up objection: that suspicious transaction reporting impinges on the relationship between the client and his lawyers. Well, yes. It does. That is precisely what the primary law is designed to do: to isolate those who commit crimes from right-thinking people. Therefore, so does the primary law. In fact, the suspicion based reporting regime protects lawyers if they get paid from funds from dodgy sources.
That’s just two of the issues that have raised their heads in the past twelve months. Most things have been flash-in-the-pan, trendy things that in this weird year have spread rapidly and burned out. But these two are persistent problems that show no signs of going away any time soon.
The irritating thing is that they are both issues that result from weak governments, i.e. those that demand over-performance from their FIUs while failing to provide the resources necessary and those that are unwilling to make decisions in the face of powerful lobbyists.
*The traditional position is that solicitors were in trade while barristers were a profession. It’s a distinction that few would now recognise and which has no relevance where there is a fused profession.
Remember, just because you've been working from home for eight or ten months doesn't mean you have to answer your phone in the middle of your Christmas lunch, etc.
Don't add yourself to the millions of people having family problems, divorce or seeking mental health support during this awful year.
And if you know someone who is spending Christmas in isolation, for whatever reason, just send them a smiley or something - but probably not a photo of you and your family around a heaving seasonal table. Research shows that seeing everyone else's happy snaps on Facebook, etc. makes the vulnerable feel worse.
Whatever kind of Christmas you are able to have, be happy, safe and well and here’s my best wishes for a much, much brighter and less difficult 2021.
And thanks for your support over what is now more than a quarter of a century in this field after a first career in legal practice.
And now the payoff.
Amongst our financial crime risk and compliance training e-learning courses (no mask required and social distancing guaranteed) we have...
Financial crime risk and compliance training for lawyers and all who deal with them.
There’s an easy to remember address: Financial Crime Training.com