Confessions of a compliance officer: How I handled dodgy demands
11 Mar 2019

A London-based compliance officer looks back at some of the requests he came across and tells KYC360 how he reacted on the occasions he smelt trouble. He did not wish to disclose his name and details.

Being a compliance officer has some highs and lows, and some colourful moments too. Regarding the latter, I’ve come across some odd requests during my time. What did I do about them?

Well, one London bank I worked for did a lot of business with Swiss private banks. We accessed these private banks through local Swiss investment advisors, who we would remunerate with a fee of up to 4 per cent of the nominal value of any transactions we executed with the Swiss banks.

Through our KYC procedures, we knew that one Swiss investment advisor had been born, brought up in Switzerland, attended a local university, married a Swiss woman and sent his children to local schools.

On one transaction, he requested that his fee be paid to his bank account in Singapore.

As I had been repeatedly told that Switzerland had the best banking industry in the world, I asked him why he wanted his fee paid to his account in Singapore.

“Bank fees are cheaper in Singapore” was the reply.

A Suspicious Activity Report (SAR) was swiftly submitted.

Another Swiss investment advisor requested that his fee be paid to a company in the British Virgin Islands.

I asked the adviser whether the company belonged to him.

He responded by telling me that the company belonged to “a friend”.

“Who is your friend?” I enquired. “Oh, I couldn’t possibly tell you that” he said.

Another Suspicious Activity Report was quickly submitted.

Another Swiss investment advisor requested that his fee be paid to a bank account in Liechtenstein.

I asked the Head of the Desk the reason for the request. I was told that all the advisor’s clients were from Liechtenstein.

I checked the underlying records, which showed that half of the clients were Swiss with the remainder being based in Leichtenstein.

I advised the Head of the Desk accordingly.

“Well, there are lots of banks in Leichtenstein” he responded. I agreed, but pointed out that the advisor would have to drive south for an hour to get to the principality.

However, if he drove 20 minutes to the west, he would reach the Swiss city of St Gallen, which had a population of 150,000.

I was sure that there were many banks in St Gallen.

“Perhaps he wants an international bank” the Head of the Desk responded.

That was a possibility I surmised, but as the advisor lived very close to the Swiss-Austrian border, I was sure he could drive across the bridge which formed the border and find an Austrian bank in the town just across the border.

I advised the Head of the Desk that the Swiss town where the advisor lived had six Swiss banks with branches in the town and I knew the advisor had accounts with two of them.

“I see now, he wants a “secret” bank” said the Head of the Desk.

I congratulated the Desk Head on his brilliant powers of deduction. Once again, a Suspicious Activity Report was submitted.

On another occasion, a salesperson wanted to open an account for a hedge fund.

To test his knowledge of hedge fund structures, I asked him to draw an organisation chart for the typical hedge fund.

He admitted he had no idea, so I drew one for him. I pointed that one sub-fund would be established as a limited company, whilst another fund would be established as a partnership.

I asked him whether he understood the difference between the two structures.

He affirmed he did, so I invited him to explain the difference to me.

After a lengthy silence, “Non-recourse” was the reply. I said “Very good. What does that mean?”

Another lengthy silence ensued, which I eventually broke.

“Does it mean that when a company goes bust, you lose your shares, but when a partnership goes bust, you lose your house?”

“Yes, that’s what I meant to say!” said the salesperson.

As a chartered accountant, I would always request a copy of a company’s annual financial statement as part of the KYC set of documents.

The financial statements are helpful for KYC purposes as they should present a picture that should support all the other information gleaned from the KYC documents.

A Business Manager recognised my right as the MLRO to request this document, but he advised me that I must not read the financial statements.

He insisted that was the role of the Relationship Manager.

I ignored his instruction.

Read more:

Confessions of a Compliance Officer: Bewilderment in the corridors of power

Chris Usher: Challenges facing compliance professionals

EU Sixth Anti-Money Laundering Directive (6AMLD) – Expert analysis of new EU measures

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