W&F Issue 5 2018

www.wealthandfinance-news.com 22 Wealth & Finance International - Issue 5 2018 International efforts to combat money laundering – which latterly have been closely connected with frustrating tax evasion and aggressive tax avoidance – and to staunch the supply of money to terrorist organisations have been coordinated by the Financial Action Taskforce, and have resulted in various series of FATF Recommendations and Special Recommendations. This body of knowledge as to how to run a regime for AML/CFT has firstly been converted into law, for example via the EU Anti-Money Laundering Directives and its subsequent transposition into EU Member State law, an example of the latter being the UK’s 2017 Money Laundering Regulations. Secondly it has been used to set up national Financial Crime organisations to receive and investigate Suspicious Activity Reports (“SARs”), to monitor the compliance of those firms with responsibilities under AML/CFT – known as “obliged entities” – when measured against applicable law and regulation, and to impose sanctions on those that have failed to run a compliant regime. Thirdly it has been used to create implementation guidance for “obliged entities” through international organisations like the Wolfsberg Group and national ones like the UK’s Joint Money Laundering Steering Group. In the process a grey area has been created, however, that should not exist in a proper legal system: the enforcer of a law must be bound by it as much as the subject, and the same penalty must be imposed upon two different organisations committing the same offence. Equally the subject of such a penalty must have rights of representation, of transparency, of appeal and of redress, enabling them to continue as if the authorities had not intervened if it should turn out that the actions of the authorities were unwarranted. This is not the situation as it has emerged for “obliged entities” where breaches of the AML/CFT regime have been suspected. In February 2018 Rabobank, a California unit of the Dutch cooperative bank, was reported to have agreed to pay over US$368 million for processing funds likely tied to drug trafficking and other illicit activity and it pleaded guilty in court to conspiring to obstruct regulatory oversight. It continued in business, however. In May 2015 BNPP was sentenced to five years’ probation by a U.S. judge at the time the bank agreed to pay US$8.9 billion to settle claims that it violated sanctions against Sudan, Cuba and Iran. It continued in business and in June 2017 it was reported as having been fined EUR10 million by the French AML/CFT regulator ACPR for inadequate anti-money laundering controls. In 2012 HSBC paid US$1.9bn to the US authorities to settle allegations that it allowed terrorists to move money around the financial system, and it signed a Deferred Prosecution Agreement, which involved agreeing to the Department of Justice delegating an official to monitor HSBC’s progress at a reported cost of US$20 million annum. Bizarrely HSBC later hired Jennifer Shasky Calvery as Head of Compliance to run their side of the monitoring process, the very official at the Department of Justice who had brought the suit against HSBC, and against the named position in the bank that she then came to occupy. In late 2017 the UK’s Financial Conduct Authority Anti-Money Laundering- Blind Justice or Justice That Turns a Blind Eye commissioned a so-called “166 report” into the HSBC after the Department of Justice official raised concerns about the degree of progress. These are examples of the penalties imposed upon major banks in the Western world, two of them being Global Systemically Important Banks according to the Financial Stability Board, where the banks have continued in business. By contrast the authorities have been very quick to act in cases where banks are small and non- systemic, and to stop them doing business. On 21st March 2018 Malta’s regulators imposed a freeze on the business of Pilatus Bank after its chairman was arrested on charges of breaking U.S. sanctions. ABLV in Latvia was closed down by the Latvian authorities immediately after it was served a notice 311 by FinCen – the financial crime arm of the US Treasury Department – on 13th February 2018 naming it as an institution of prime money laundering concern, and applying the fifth special measure to it: this forbids US banks from running a correspondent account for ABLV and from handling its payments on a pass-through basis. Versobank in Estonia was closed down on 26th March by the Estonian authorities due to AML/CFT failings allegedly linked to the Russian elite and intelligence services. The Estonian branch of Danske Bank – the major Danish and Nordic institution – was investigated by the Estonian Financial Supervision Authority around the same events as resulted in the closure of Versobank, but Danske’s Estonian branch remains open.