21 Jul 2017
This article first appeared on LinkedIn and is republished here with the author’s permission.
I admit it, several of my friends launder money, and yours do to. The four cases below show just how easy it is for “innocent” people to assist in money laundering.
In my defense, I have always told friends when they are inadvertently assisting money launderers – at least as strongly as you can tell a friend. But their stories show why the war on money laundering is far more nuanced than regulators would have us believe.
The elderly lady
My friend was recently widowed and decided to sell her husband’s Bentley. The first prospective buyer offered her the full asking price which she accepted. He paid cash. She was relieved that the buyer didn’t haggle and all seemed good, then she went to her local bank.
The teller was shocked to see so much cash and asked where the money came from. When my friend explained her bereavement and the car sale the teller helpfully told her the single transaction and cumulative limits to prevent an “investigation”.
It is surprisingly easy to launder dirty money by mistake
Knowing the AML trigger amounts, my friend began slowly paying in the money and even opened an account with another bank, keeping the cash deposits under the limits.
It is very clear to me that my elderly friend was aiding and abetting money laundering but she had no idea until I told her, and even now she can’t comprehend what she did as money laundering. She doesn’t wear dark sunglasses, wear a shiny suit and have a numbered Swiss bank account. In short, she just looks like any other honest elderly person.
A secondary point is that the bank teller shouldn’t have “helped” the customer by telling them the transaction limits for triggering AML investigations.
The private banker
My private banking friend was so proud when he told me how he had helped his firm avoid laundering money for a client. The bank’s client received a transfer of US$ 20m in his account and the compliance department correctly flagged it and enquired as to the source of the funds. So far, so good.
The client said they had sold a piece of art. The private bank realised that a US $20m piece of art would be well documented so asked for the sales invoice, purchase invoice, a professional valuation and insurance records. The client responded that the art was around 20 pieces of “low value” which were not individually documented.
Private bankers can misapply AML rules
The bank realised that they were being played for fools and persisted in asking for more details. The client then transferred the money to another private bank.
My private banking buddy and the compliance department were delighted and very proud that they had not accepted the hot money. Kudos to them!
Unfortunately, they had tipped off their client and had failed to freeze the account. They had aided and abetted the client’s money laundering and hadn’t even realised it. The client just found a bank which asked fewer questions and the hot money was successfully integrated into the banking system.
The retired businessman
My friend was a successful businessman who retired a decade ago to play golf. He recently sold some development land to a New Yorker and was given $250,000 + an extra $50,000 in cash (he still has the money “under the bed”). The $50,000 was from a “cash business” back in New York. I have seen the movie “The Godfather” so have some idea regarding the source of funds.
The land buyer got an added bonus, they pay property tax on $250,000 and not the full value.
There are a lot of people who view cash payments as an innocent way to reduce their tax costs but evading tax is a crime, even if you don’t get caught.
My friend is a lawyer at a major law firm. A Swedish client was worried because they had amassed a lot of wealth in Asia without disclosing it to the Swedish tax authorities.
My friend explained how she was able to create a company in a reputable jurisdiction to take ownership of the assets and find nominee shareholders, all to hide her client’s assets from the Swedish tax authorities. She was very proud of her commercial acumen and her grateful client has referred several associates with similar problems.
Lawyers can inadvertently aid money-laundering
As a qualified accountant, I am sure that my lawyer friend’s actions were “wrong”. Her defense was that her advice was legally privileged and her client was breaking no laws in her jurisdiction, but this seems to be a little too convoluted.
The definition of “money-laundering” varies between jurisdictions. The purpose of this article is to show how honest and decent people can be confused by the changing definitions and changing responsibilities. This is not intended to be a detailed analysis of the nuances of AML legislation and enforcement between legal jurisdictions.
Is everyone laundering money?
All my friends are decent and honest people, if they weren’t they would be “associates” and not “friends”. Each case above shows how easy it is for good people to get into complicated AML situations. What makes the cases particularly insightful is that in each story there was at least one player who was trained in AML and would be expected to have “stepped to the plate”, but none did.
I don’t write articles without offering a solution so what should be done to stop my friends, and yours, money-laundering? The short and honest answer is “I don’t know”.
Governments had implement tough laws, regulators rigorously enforce them and financial firms try to comply. At the end of the day AML gets complicated.
Despite everyone’s concerted best efforts “dirty” money is like water, it finds the path of least resistance. We can make money laundering harder, more expensive and time consuming but we can’t and won’t stop it.
Adrian Pay is a UK qualified Chartered Accountant who has specialized in financial regulation for over 20 years, working in the UK, US, Hong Kong, Singapore, Japan and Luxembourg. Adrian was a co-founder of LatentZero (now Fidessa BuySide) and is a Director of Dynamic-GRC, a leading RegTech solution provider.
You can claim CPD minutes for reading this article, by signing up to our CPD WalletFREE CPD Wallet