Episode 09: Tom Keatinge
AML Talk Show Hosted by Stephen Platt
Good afternoon folks, and welcome to this KYC 360, Anti-Money Laundering talk show with me, Stephen Platt. I’m truly humbled by your interest in and the enthusiasm that has been shown for these podcasts. Most listeners around the world are still in lockdown, and I hope that you and your families are all safe, and well. These truly are extraordinary times. As I’ve said many times before now, we’re all in this same horrific storm, but not all in the same boat.
The pandemic poses some terrific opportunities for criminals, and we need to remain alive to the way that AML risk is evolving and consider whether our business risk assessments, our systems and controls are fit for purpose. It’s now, for example, the time to accelerate the digitisation of your AML processes. Certainly many businesses appear to think so. It’s certainly a time to keep ourselves and our teams alert, and I want to remind you to encourage your colleagues to sign up to KYC 360, and all of its free content for that purpose.
Today, I’m delighted to be joined by Tom Keatinge from the Royal United Services Institute in Whitehall, London. For those of you unfamiliar with RUSI, it is the world’s oldest independent think tank on international defense and security issues. I’ve known Tom for about five years now, and I’ve always been very impressed with both the quality of his analysis and thought leadership in the areas of threat finance, terrorist financing and money laundering. So, Tom, welcome, and thank you very much for taking the time to talk to me today. How are you bearing up over there in the New Forest?
Well, thanks very much, Stephen for having me. Yes, I think, you were one of our very first guests for an event at RUSI when we started our program back in 2014 with your book launch. Go and buy one now listeners. So I’m fine. I’m, as you were saying, in the New Forest, it’s a national park. If you live in a national park, you’re welcome to enjoy it. If you don’t live in a national park at least up until this coming weekend, you’ve been asked to stay away. So it’s been a very pleasant place to ride out the storm. I don’t think the storm is by any stretch of the imagination over yet, but it’s been a good place to be for part one at any rate.
Well, I’m pleased to hear that Tom, and thank you very much for the plug. I shall send you a commission check after the podcast! Now, Tom, I know that you transitioned from the world of investment banking, if I recall, you were JP Morgan was it for about 20 years?
So, you make that transition from investment banking to research policy, which has always struck me as an unusual, if not inspired move. Tell us a little bit about your background and how you came to be at RUSI specialising in financial crime?
Yeah, sure. Yes, I suppose it was an odd move. It seems entirely logical now, but it was a series of fortuitous events that led to it. I mean, it started with a conversation very early one morning on a Eurostar to Brussels, with the person sitting next to me who had just graduated from what sounded like a fascinating master’s course at King’s College London, their MA in intelligence and international security, and I found myself a few weeks later, very delayed for a flight in an airport, if you remember the concept of flying, and I applied without really thinking about it, and then didn’t think about it until a few months later, I got an email saying, your offer has been made. Please click here to accept, and then I had to somehow explain to my boss that I had decided to take a year off without really discussing it with him to study for a master’s and to JP Morgan’s credit they said, Absolutely. You’ve been here, that point for whatever it was 17 years. Please do.
And so I went and spent that year studying intelligence international security and I wrote my dissertation on the effectiveness of the global terrorist finance or counter terror finance regime, and I was hooked at that point. I found that fascinating. A nice link between my knowledge of finance and my interest in security. I went back to the bank with my distinction in my hand, and after a year, trying to help with the fallout of the consent order that JP Morgan was under. So this is 2013.
I had the opportunity to leave and took it and again, JP Morgan, wished me well, and so then I fiddle around for six months or so and ended up at a conference at RUSI, which was all about public private partnership and fighting financial crime. This is just around the time that the JMLIT, the Joint Money Laundering Intelligence Taskforce was being dreamed up, and I found myself sitting next to I didn’t know who he was at that point, but Donald Toon, who was the new commander or leader of the economic crime command, the National Crime Agency.
I was chatting to him and he was explaining all the problems and how they’re going to be fixed, and I thought, well, I’d love to be part of that, and RUSI then asked me to help them set up the research program that I have been running since mid 2014.
It’s a really interesting story. I know, Donald. He has contributed some interesting content historically to KYC360. So it’s interesting to hear that he was, as it were, part of the inspiration for you. Now, Tom, what I’d like to do is really start off our substantive discussion with something that a mutual friend of ours said last week, David Lewis, the executive secretary of the Financial Action Task Force. As I’m sure you will have seen David said that although most countries now have dedicated laws and regulations to combat money laundering, they, and I quote, are rarely being used effectively, or to the extent that we would expect, close quotes. And he went on to say, quote, I would sum up the results as everyone is doing badly, but some are doing less badly than others. Straightforward question for you, Tom. Do you agree with him?
Yeah, I do. I do. Yes, I read that article, and I thought crumbs. David must had a bad weekend. But actually, I think it’s very refreshing for him as I think he always is to be so honest about the system that he as executive secretary steers at the Secretariat in Paris. I think what is Interesting about what he has to say as it obviously we are now five or six years into the latest period of Financial Action Task Force evaluation. As I’m sure everybody knows, that process was updated in 2012, and the evaluation’s under the new process, which was scrutinising effectiveness, as well as technical compliance began in 2014. And I think what we’ve realised over recent years is that just because you have an FIU, and so you tick that particular box or just because you’ve criminalised terrorist financing and ticked that box doesn’t mean that you’re actually using the FIU or that law to address issues of financial crime.
And that really appears to be a major problem that I think that the system has got to come to grips with and I hope that this strategic review that Financial Action Task Force is pursuing at the moment will go some way to making the system effective because I think we all agree that right now it isn’t.
Now, let’s unpack this a little bit. Tom. You refer to the system being ineffective. Obviously there are a number of actors within the system of which FATF is only one, and then we’ve got nation states, we’ve got regulators and prosecutorial and law enforcement bodies within each of those nation states and we’ve got financial institutions themselves. Now, if David’s right in what he says, despite enormous efforts that a lot of well meaning people have gone to over the course of the last sort of 20 or 30 years in waging the AML war. This is an appalling indictment. But the question is on who? Is it on governments? Is it on regulators? Is it on law enforcement or is it on institutions? What’s your view on that?
So I think perhaps, where things have gone awry, is that I think if you’re in something when it begins, and I’ll use terrorist financing as an example, if you were around the table at the time of 9/11, if you were reviewing the evidence and the documents that made it clear, that substantial amount of funds flowed through the formal banking system to support the hijackers as they trained in the United States, you then construct a response to that specific threat. To what you see, the evidence you see in front of you at the moment but now we’re, the best part of 20 years on since 9/11, and if you’ve come into the AML, CFT world in the last 10 years, you weren’t there when that seminal moment occurred.
But you’ve got in front of you a series of guidelines and rules that you need to implement without really appreciating what it is you’re precisely trying to do. And so I think where we’ve got to, is that the system, essentially people have been quite effective at cramming for the exam, and countries prepare for these FATF evaluations, because they think, well, if I can get the right tools in place, and essentially cram for this, I can pass and then I can move on to other things. They’re not really stopping to say, what is it we’re actually trying to do? We’re not trying to pass the FATF exam. We’re trying to strengthen the integrity of our financial system, and I think those two things have often been divorced.
So I think that’s the first thing I would say. The second thing I would say is that-
I mean – sorry, Tom, sorry to interrupt – actually, that first point, which I think you make extremely well is powerful and it resonates with me. Certainly, and some of my experiences of being called in or at least contacted by certain jurisdictions who were evaluated four or five years ago and are staring down the barrel of another evaluation within 12 months. Realising that actually, since the last evaluation, they’ve done, the square root of nothing, and it’s just a mad panic then to get themselves prepared for the upcoming evaluation. And so, I might be being a little bit harsh, but that’s certainly been my experience of talking to a lot of jurisdictions, and I think that echoes with what you’re saying about let’s just cram for the exam and not focus on enhancing the integrity of the system. Sorry to interrupt.
No, no, that’s right, and I think it’s also worth bearing in mind, it’s a huge lift to go through one of these evaluation processes. So I guess, I’ve seen a few of them up close. I haven’t obviously been involved in any of them, but I’ve seen a few up close, and if I look at the phenomenal way in which the British Civil Service organised itself, marshaled itself, to deal with the UK’s evaluation, which was published at the end of 2018. Yeah, that was a year to 18-month long process of preparing documents and, really building the case for the UK’s evaluation.
Now, imagine doing that if you’re a low capacity country and English isn’t your first language, and where perhaps you don’t have the political air cover of a minister of finance or a supervisor or whatever it might be who thinks that this is something that’s important to commit resources to. So I think, the system has become very, very overbearing. So you’ve got all that sort of the consuming of resources, the challenge of undertaking one of these, and all with the aim of trying to stay off the FATF’s grey list, that’s what people are trying to do, and if that’s your mission, and it’s staying off the grey list doesn’t necessarily mean that you’re tackling the financial crimes that are relevant to your country, then all that effort is to some degree wasted.
That’s not to say that the FATF doesn’t play – hasn’t played – an extremely valuable role in raising standards and normalising standards around the world and I think people will say, “Oh, here he goes again, having a go at the FATF” – not at all. I think the FATF has really contributed a tremendous amount to building the integrity of the finance system but I think we possibly got to a point where the mission of meeting the FATF’s requirement has divorced itself from the mission of fighting financial crime.
Fascinating. Let’s just explore Tom, why is it that maintaining the integrity of the financial system is not something that is automatically at the top of the list of priorities of governments, of nation states? I mean, is that a function of economic capture? In other words, is it the same as the dynamic that we often see with financial institutions themselves? So, where the sort of profit greed motive seems to at least in some situations outweigh the compliance motive? Do we see this same dynamic at play amongst countries? Is that part of the problem do you think?
I’m not sure whether that’s the case. I mean, I certainly would say that there is and you see this in the way that technical assistance and capacity building is delivered. There certainly is a sense that, so let’s think about the makeup of the Financial Action Task Force. It’s primarily kind of OECD countries. I mean, that’s where its based. That’s kind of where it was started. The membership is expanding, has expanded a little bit to be more diverse, but it’s definitely not a representative body, bearing in mind that it is imposing a global standard.
So then you have the regional bodies that try and represent in East Africa or in Asia Pacific to try and represent those communities. But I think the first thing to say is that there is a risk that one takes a cookie cutter that’s shaped like the United Kingdom or the United States and says right Uganda, please fit into this particular shape, and that may not be an appropriate way for Uganda to operate.
Oh, and by the way, a lot of these countries have much, much greater priorities for their economy, for their health, for the education of their people than fighting financial crime. So, whereas it might be a priority for the United Kingdom, it may well not be a priority to the same extent for other countries. So I think that has a lot to do with it. How do you engender the importance of this issue, into the mindset of the leadership of a great many countries around the world that probably see this as an unnecessary distraction from things that really matter to the people in that country.
That’s a really, really fascinating answer. I mean, the idea that the landscapes over which the FATF is seeking to impose this uniform model are so different with lots and lots of different political, societal and economic interests which are diverging, and I’m reminded actually, I did some work maybe about 15 years ago now in Malaysia, and I can remember running a training program there and there were a lot of people in the room and I was talking to them about the requirement to report any concerns or suspicions internally about customer relationships and the realisation dawned on me as I was giving this talk that these people were looking at me as if I just landed from the moon because the idea that they were going to report concerns or suspicions about customers was to them to undermine the relationship that they had with their own superiors.
Because if they superiors weren’t concerned about these relationships, then they certainly were not in a position to be concerned, and I realised then that the sort of cookie cutter approach that you refer to, the sort of defensive based reporting model that was being imposed upon that culture just simply didn’t work as effectively as it might do in sort of other cultures. Is that something that you recognised, Tom?
It certainly is. It certainly is. So, I think it’s worth putting ourselves in the shoes of an international bank trying to operate in that environment because if you’re a correspondent, or if you’re a respondent bank, and you’re providing banking services to countries in East Africa, that’s potentially an economic lifeline to those countries, but you know full well as one of those big global banks, that the standards of your customers, your client banks in those countries, in that region are going to be lower than your standards.
So you as a correspondent bank in that case, you’re underwriting that delta in capacity. You’re underwriting the difference between a bank in a country in East Africa in terms of due diligence standards and your standards. And so, that difference in standards and capabilities, perspectives and ways of operating, that’s not a function of criminality necessarily, that’s just a function of different cultures and ways of working and environment and experiences. So that gap, I think we haven’t yet figured out really how to bridge that gap.
Interesting. Now, just focusing in on institutions themselves, financial institutions, well nobody can doubt that they have been spending very heavily on AML Compliance, and yet we continue to see widespread failure. 2019 something like $10 billion worth of fines imposed on institutions globally for AML breaches, and if you look at examples like Swedbank, Westpac, for example, the failings at least it seems to me were elementary. So, what’s the problem, Tom, you think? Is it a problem of culture? Is it ineffective IT systems? Is it lack of understanding of the true nature of the threats and the way that they manifest themselves in specific products and services? Or is it moral hazard?
Where do you think the problem lies? Because I don’t think any of us could allege that it’s through want of trying.
So I think when we’re talking about these kinds of problems, here we’re talking about problems which are inexcusable because we are talking about developed economies where, frankly, these organisations have the resources and the expertise necessary to do this properly. So we just kind of focus on that community. I think if you look at the history of banking penalties, you would be forgiven for having concluded until not that long ago, that this was an Anglo Saxon issue. This was an issue in the United States, this was an issue in the City of London, but what we’ve obviously seen in more recent years, is that no, it’s not. Again, it’s a systemic issue.
Many of the issues are old. That’s not to downplay them. But obviously many of the investigations that are demonstrating problems are historic ones and I think that just shows you how de-emphasised the issue of genuine issue of compliance was, until relatively recent. That’s the first thing. I think the second thing is that as technology is used to a greater and greater extent, and we rely on technology to a greater and greater extent, that presents tremendous opportunity, but it also presents tremendous dangers.
No, you set your filters or your screening software incorrectly, and millions of transactions can go through the system that shouldn’t have passed through the system. And so, I certainly I think now of the FinTech world as challenger banks are established and expand, I think every financial institution needs to demonstrate to a supervisor that it has the capacity to deal with the business growth, that it’s undergoing and I think what we’ve seen is many of these problems that banks have faced have come about because they’ve expanded without having the capability or the capacity to absorb that expansion, without taking the risks that come with that expansion seriously enough. And obviously, the original sin in all of this was HSBC, and its business in Mexico.
But that was the first of a string of these issues. Danske’s issues came about through acquisition, that then was not properly embedded from a compliance perspective into the organisation. So I think what we’ve learned in recent years is you better have the head of financial crime compliance sitting in the M&A deal team from day one, asking the awkward questions that might get in the way of the transaction that the chief executive wants to do, but that person needs to be there because that person needs to be the kind of the conscience on the shoulder of the CEO saying, what risks are we taking that we don’t understand from a financial crime perspective?
Yes. I mean, I think that really is superb advice. The problem is that businesses exist to do business and the momentum is always to walk in the direction of doing the deal, and once they can smell that blood, it’s enormously difficult to point out the reasons why they perhaps shouldn’t proceed but, yeah.
I was going to say, I think that’s right. I think that in a way the financial crime compliance operations in banks obviously need to, they need to earn their reputation internally as well. Now, what do I mean by that? Clearly, what they say goes because they have tremendous influence now in financial institutions in a way that they didn’t perhaps 10 years ago. But I was talking to a friend of mine last weekend, who works in the private banking world, and how things going and so on, and she’s like, oh, compliance this, compliance that. She goes, you know what? I just think compliance are morons with machine guns.
That’s what she described them as, and I said, well, what do you mean by that? And she said, oh, they ask us to do all these things that they have to ask us to do, but we kind of know that they’re completely irrelevant. And so I think we need to help compliance departments demonstrate the value that they add to a business, not that they are simply a deduction from business, and I don’t think in many places, we’ve got that equation right.
Yeah, I agree with you. It is enormously difficult though, because any risk professional has great difficulty in justifying the value add. I mean, because the business is always able to point to the value of business lost as a consequence of the application of rules. Whereas risk professionals are never able to point to the value of disasters avoided or the cost of disasters avoided as a consequence of the application of those rules.
So, the game is stacked against risk professionals in that regard, but just picking up on that last point Tom and turning to the pandemic. I know that you’ve written about the challenges it presents to institutions that are trying to manage financial crime risk. Do you think that their reaction highlights an inability to exercise some sensible judgments about the application of processes? I’m referring, for example, to such things as electronic identity and verification. Many institutions, it seems to me a struggling to verify their customers, but they seem paralysed to adapt because unless a regulator tells them that they can embrace these sorts of new technologies, they seem incapable of making a risk based decision for themselves, and that’s just one example. But do you think it points to a deeper problem that organisations are unable to think for themselves and compliance functions in particular?
So the piece you’re referring to, I suppose, what I’m hoping is that, in this period of extreme stress for everybody regardless of what business they’re in, what sort of life they have, I think the banks obviously are having to figure out: how do we rise to the challenge of distributing these business support loans? How do we, if you like, adapt the way we operate to ensure that things remain as efficient as possible, and we don’t contribute to additional stress for businesses that are fighting to survive, we support them, and I think that will force financial institutions to make risk based decisions, real risk based decisions.
Now, the question then is, what do supervisors do to facilitate that decision making for financial institutions? I never thought I would see the word selfie in an official communication from the UK’s Financial Conduct Authority, but there it was in a dear CEO letter four or five weeks ago. So, I think that the FCA should be commended for encouraging banks to take advantage of the various forms of innovation that exist, but this shouldn’t be a one-off. We should take this experience and say, right? What did we learn during the pandemic that actually is redund? What did we learn that we dropped doing certain things in order to support our clients through this challenging period? And did we suffer as a result of dropping doing certain compliance things? No, we didn’t.
So let’s be genuinely risk based, and I think the key to all of this is supervisors being willing to take some risks. Supervisors willing to accept that they just like their clients are human and can make mistakes. But let’s not hold back from trying to advance the system and improve the system through fear of making a mistake. If you go through life hedging against downside every single day, you’ll never make progress. You have to accept that to achieve some upside, you need to take some downside risk, and that’s what supervisors need to be doing and then encouraging banks to do likewise with this range of technologies in FinTech and RegTech, which obviously is emerging, and for which the UK is rightly becoming noted as a world leader.
Yeah, I absolutely applaud the point that you’re making there, and I think it’s hugely important that supervisors encourage their constituencies of license holders to similarly as it were, be prepared to take risks, recognising that they’re not always going to get it right. But provided they’ve demonstrated that they’ve gone through the right thought process, that it’s risk based, that it’s rational, that in those circumstances, even if they get it wrong, they’re not going to be made an example of it. I think, part of the difficulty has been too much of a rush to try and make an example of organisations who perhaps tried to do the right thing but got it wrong, and that has sent out a completely the wrong message to industry.
So I think that’s right. The way I like to characterise it is there is no doubt if we use the global financial crisis as a kind of a moment in time, there is no doubt that it became clear that financial institutions, compliance procedures and systems were nowhere near what they should have been 10 or 15 years ago, and so we’ve had this period through which financial institutions have had to feel the weight of the regulatory stick and the fines and the penalties in order to drive up standards and to encourage coerce change.
But as these banks have developed, just as with a child, you treat a child as a child when they are a child, but as they become an adolescent and then become an adult, you don’t keep treating them the same way, and I think what we need supervisors to do is to graduate the way in which they deal with financial institutions to reflect the journey that those financial institutions have been on and then allow them to develop, mature and operate a bit more independently as time goes on, and I don’t think we’ve followed the journey the banks have been making – I don’t think the supervisors, sorry – have followed the journey that the banks have been making in the right way.
Very, very interesting. Very interesting. Tom, let’s move on now to focus on one particular threat that I know you’ve been very heavily focused on, namely terrorist financing. 20 years ago following 9/11 of course, the Americans and their allies vowed to starve terrorists of access to cash and whilst I appreciate that the risk landscape has changed pretty significantly since then, has that concerted global effort failed or in your view, succeeded?
Well, if the aim is to starve terrorist groups of cash, of funding, then clearly it’s failed. But I think that, again, this is a good example of where the simplistic approach or the simplistic objective requires to be unpacked and to be made, in that think-tanky word, more nuanced. I was very disappointed a couple of years ago when President Macron of France understandably, in light of the horrors that France had suffered at the hands of terrorist groups, but called for this conference: ‘No Money for Terror’.
I thought that was a really retrograde step because that, in a way, reinforces this view that there is a magic pipeline that one can sever and thus terrorism will end and obviously that’s not the case. And it also again sends a message to those that were asking to police the front line of finance, the regulated sector sends a message to them that that is the objective and I think what we’ve missed on this journey since 9/11, since the George W. Bush’s Executive Order 13224 and everything that’s followed from that at the UN, at the FATF and national level is what we’ve missed is a call for, again, a kind of a nuanced a thoughtful approach to what is it we’re actually trying to do?
Let’s have a look at the group that we’re trying to disrupt or the people we’re trying to disrupt. Let’s understand how they finance themselves, and then let’s come up with a solution that targets that financing, or uses their financial footprints as an intelligence source to identify who’s who and who we should be rolling up. So I think, as a concept, it makes tremendous sense but the application of it has become, I think, somewhat misguided in recent years, and anyone who’s interested in the issue of terrorist financing should read UN Security Council Resolution 2462, which was passed in the Security Council in March last year, because that, I think, is an attempt to reset the focus, the way we focus on terrorist financing, and something that I certainly was very supportive of when it was published.
So I think we’d like to see more threat based counter terror finance work rather than this is what it says in the FATF regulations or in Executive Order 13224, and this is what we will try and do. I.e., cut off, starve the terrorists’ fundings, as George W. Bush said in the aftermath of 9/11.
Yeah, because, I mean, as I said that the risk landscape has changed pretty significantly, and that terrorism is a pretty broad church, isn’t it? I mean, there are lots and lots of different types of terrorist organisations/threat that we are seeking to manage our exposure too. Are you able just on that note, Tom, to provide some practical guidance to our listeners on the way that organisations can apply a risk based approach to terrorist financing risk now?
Yeah, certainly. I mean, one example, which is a little bit old, but still, I think has some relevance. Back in 2014-15, obviously, there was a concern about people traveling to Syria and Iraq to join Islamic State. And in order to get there, at least initially, people we’re traveling via Turkey and in order to travel to Turkey as a British citizen and citizen in most countries I imagine, but certainly the British citizens, you had to buy a Visa online before you traveled. And of course, lots of people make that journey from the UK to Turkey completely legitimately every year but some people with certain profiles traveling at kind of off peak times of the year – who goes on a beach holiday as a young girl in December to Turkey? Probably nobody.
So if you’ve got 15-year old girls buying Visas online to travel to Turkey, then yeah, that might be worth a closer look. That’s got nothing to do with cutting off the finances of terrorists, that’s got everything to do with using financial intelligence to identify people who may be at risk of joining a terrorist group or worse. So, yeah, and that’s just a kind of a creative example of how maybe to think differently about the issue of terrorist financing.
Very interesting and valuable. Very valuable. Now, coming on to another area, Tom, a couple of weeks back, we were lucky enough to have the head of the UK Financial Intelligence Unit, Ian Mynot on the show, and I guess as you would expect, as the head of the FIU, he gave a pretty good account of the FIU and the SARs regime. But I’m interested to know from all of your work and analysis and your greater degree of objectivity that you bring to that particular issue, whether you think the SARs regime in the UK is still fit for purpose?
Yeah, so I listened to that interview during my early morning walk around the New Forest and I thought he did a good job of, I think, defending, justifying a system and a capability whereas I think the FATF pointed out, and as he was honest enough to admit, the UK has under invested in recent years and that they’re obviously trying to address. I just did a conference at RUSI last year that when I’m having one of my little flights of fantasy and I imagine being the president of FATF one day, I think that my legacy to the financial crime world, will be abolishing suspicious activity reports regime because, yeah, that was obviously created at a time when you had five days to look at a transaction and the authorities said, be a good chap Mr. banker, just keep an eye on things for us and let us know if you see anything suspicious.
We live in a completely different world than when that was created, and so what I think we ought to be doing is thinking, well, is there a better way to harness the transaction monitoring and the KYC capabilities of financial institutions to generate genuinely evidence based leads for law enforcement to act on. Now, Law enforcement or FIUs would say, no, no filing all this activity reports are very useful because it acts as a database that we can query in the future and it contributes to this investigation, that investigation, but as a return on investment, no business case manager would never be able to justify the system we have today.
So I think we really need a kind of a wholesale revolution in that landscape because remember, the data that is provided to FIU is through the suspicious activity reports regime is a function of imperfect information that the banks have. So if we’re going to keep the SAR regime, we need to make sure the banks have better information on which to decide whether or not to file a SAR, and then the quality of that database will rise.
At the moment, the banks are obviously doing their best, but they’re doing their best under circumstances where really their ability to identify what’s suspicious and what is not suspicious, is not nearly as good as it could be, if they were properly co-opted into the system, and so that’s why things like the Joint Money Laundering Intelligence Taskforce and so on, are tremendously valuable because they make the banks smarter, and therefore they make what the banks provide to law enforcement more valuable, and so you create a virtuous circle.
And we really need to drive that system, and then we need to update the technology and everything that allows the SARs to be properly scrutinised, and screened and manipulated and analysis done on that, because we’re not going to get rid of the SAR regime regardless of what I dream. But we need to make it more valuable, and I think that’s all to do with information sharing.
That’s really interesting. I mean, to summarise what you’re essentially saying is that a system that puts more focus on quality than quantity might serve all of our interests a little better, and really that reminds me of another area I wanted to raise with you, and that is around transparency of corporate registers. I mean, that’s one area that a lot of campaigners have been focused on in recent years. Drawing on my own experience, I’m frankly more interested in the quality of the information on registers and making sure that it gets shared with the right agencies than I am with sort of the transparency of data per se, particularly if it’s of poor quality. Do you have any thoughts on that as an issue, Tom?
Yeah, yes, I certainly do. In fact, with a colleague, Anton Moiseienko, we’re doing a project at the moment, interviewing a range of individuals in countries and jurisdictions that have perhaps been part of the company registered transparency debate in recent years, let’s say that as euphemism, and I think there is no doubt that it’s a discussion that people find very difficult to have in an un-dogmatic fashion.
If you are a believer in transparency, then it is transparency at whatever cost and everything needs to be reviewable by everybody, and I think it’s been very difficult to change the kind of attitudes of people who hold that view because as soon as you say, well, I’m not sure that everything should be transparent to everybody all the time. Immediately you’re in the position of oh, well, so you think people should be able to hide information, and that’s the end of the debate. And so I think the point that you’re making is that verified information that is high quality and is accessible to the people that can use that information for law enforcement purposes and to combat financial crime is better, some would argue, than a massive vat of information some of which is complete nonsense like the UK’s companies house register, which isn’t verified and which relies then on advocacy organisations to go digging through it to point out the errors.
I mean, in a perfect world, you’d have a verified, properly analysed database like the US and you’d have that everywhere. So I think this debate has got a long way to go, frankly, and of course, in the context of all of this and back to the FATF story is that countries and jurisdictions are looking to global standard. They’re happy to meet the global standard, but they’re not that keen to go beyond that because in some cases they see that as a competitive disadvantage. Well, there are some gorillas in the FATF cage like the United States who lag the standards that many would want to see on beneficial ownership transparency.
So how can we move forward on a topic like this when some of the big players are arguably not setting an example?
It’s a good point, and I’m reminded of some of the very powerful points that Jack Blum, who was one of our guests a few weeks ago made in that regard, in particular about the United States and how, as a campaigner for over 60 years for improvements in global financial crime standards he, in 2020, is embarrassed by the US position on this issue and the sort of double standards that it seems to apply.
In some ways, it was quite sad to hear him speak about that. But I’m reminded of it from what you say. Now, offshore financial centers, often find themselves in the crosshairs, particularly when it comes to any debate about transparency, often unfairly. Do you think, Tom, that the pressure on offshore centers is going to increase even further post COVID because of the inevitable focus on income inequalities, what’s your view on how that’s going to play out and whether or not they’re going to come under even greater pressure?
Well, I think I would possibly turn it around and say that I’m always an optimist, I’m looking for the upside. I think I would turn it around and say I think offshore has a tremendous opportunity right now, because I think one of the things that offshore hasn’t managed to articulate effectively is how it contributes to the global fight against financial crime. So if the offshore jurisdictions were able to find a way to demonstrate how their verified company registers, albeit not transparent to anyone who wants to look at them, but open to inspection by those that have the rights to investigate and prosecute – to law enforcement. I think if they can demonstrate how they are helping police the integrity of the financial system at a time of tremendous stress, where opportunity for corruption and misdirection of donor money and all that sort of stuff is obviously heightened. If they can demonstrate the value that they are adding at this moment in time, then I think they can start to have a discussion with the transparency advocates, that is a much more powerful discussion than the one they’re having right now, and I think in a way the offshore world has so far lost the public relations battle. You’re not transparent, therefore you’re a problem. Okay, well, demonstrate what the offshore community can contribute through the verification systems that they have, and let’s start to have a debate on a different footing.
Now, that’s interesting. I mean, the problem is I think that for many of the sort of better quality offshore centers, they don’t, I think, always get the credit that they deserve for the steps that they’ve taken over the last couple of decades, and they feel that they rub up against the sort of dogmatism that you referred to earlier. When you get into the debate with people who are obsessed by transparency, you’re often the same people immediately react oh, you’re an offshore center, you’re a low tax center, therefore, you’re bad and nothing that you can do is frankly going to make a difference to our opinion of you. Is that a sort of dynamic or a mindset that you recognise?
Yeah, I certainly do, but as I say, I think that there are some good examples where offshore has contributed positively, and those should be highlighted. If you look at some of the disclosures, for example, around unexplained wealth orders in the UK, the access to information that the NCA had via the UK overseas territories to support those unexplained wealth order applications clearly was very positive. But that’s action taken by the NCA, that’s not action taken by the Overseas Territories to be sort of monitoring who is using their registers.
So, I think using the information that these registers have, through the verification and transparency processes they have, I think we need to see more of that. I think of the Overseas Territories and others can demonstrate the value they’re adding to the integrity of the global financial system then I think they’ll be able to have a more constructive debate. Until that time, I think they will just find themselves facing exactly what you described, which is that if you’re not transparent to everybody, then you’re a shady place to do business.
Yes, yeah. Fascinating. Well, look, Tom, we could easily talk for much longer but we are up to our time limit, I’m afraid. So thank you very much. Thank you on behalf of all of our listeners and KYC360 members for taking the time to share your experiences and thoughts and expertise with us.
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