Episode 11: Martin Woods

AML Talk Show host Martin Woods on the other side of the mic with host and RiskScreen CEO Stephen Platt

AML Talk Show Hosted by Stephen Platt

In this series of podcasts, our hosts Martin Woods and Stephen Platt will interview key figures in the world of financial crime prevention and examine successes and failures in the global fight against money laundering and related crimes including drug trafficking, bribery and corruption, sanctions evasion, human trafficking and tax evasion.


Good afternoon, folks, and welcome to this KYC360 Anti-Money Laundering Talk Show with me, Stephen Platt. Yet another week of lockdown is behind us and another one is now ahead of us. I hope that you're all coping, and for those of you in the UK, that you'll be able to take advantage of the forecast good weather this weekend whilst observing, of course, the social distancing rules. Today, I'm thrilled to be joined by my AML Talk Show co-host, Martin Woods. Martin is a very well-known expert and commentator on all things AML. He has a phenomenal depth of knowledge on the subject, having worked in law enforcement and in the private sector at Wachovia and Thomson Reuters.

He has cultivated, what I can really only describe as fabulous and diverse relationships within the global AML, EBC, and sanctions compliance communities around the world. He's regularly called upon to provide commentary, to deliver presentations or to moderate at financial crime events and, of course, he also provides AML and financial crime consulting and training services. I have always admired Martin's honesty, his integrity and passion and, as you will shortly hear, his unique turn of phrase. Martin, welcome. Thanks so much for agreeing to be on the other side of the microphone today. How are things in the Woods household?

All is good in the Woods, thank you very much. Family is fine, and as you said, the weather is beautiful at the moment. I'm seeing an upside from the lockdown. I'm spending a lot of quality time with my family that I wouldn't have otherwise had. So, good. Yeah.

Good. Well, I'm delighted to hear from it that, that's the case. Martin, I want to start, as I always try to do with all of our interviewees, by going back to the beginning. Because I think it's important for our listeners to be able to contextualize the opinions and points that you'll no doubt be making by having a clearer understanding of who you are, where you come from, and how it is you've ended up in the financial crime arena. So, can you give us a little bit of information about your background? And really also, try and explain to us where your passion because you are, I think, one of the most passionate people I've ever met in this area, where does the passion come from?

Well, okay. So I'll try and live up to the billing and I will, in advance of that, advise people. I'm going to be confrontational, that's part, passion drives that. I'm going to be slightly contradictory in what I'm going to say to you. For sure, I'm going to be controversial, but that's not necessarily a bad thing. If you look at Mr. Cummings, he's been controversial, but what that's all caused to happen is people to say, "If Dominic Cummings really had the virus and he didn't display any of the symptoms, the three limited symptoms published by HM Government and we're not testing enough people then something is wrong here." So controversy is a good thing. And looking at the government at the moment and we'll go back to this virus, and what's going on with our world at the moment, as a super-compliancy department at the moment we try and learn lessons from what they're doing.

As to me, quite quick and straightforward at the age of 17, I decided I wanted to be a police officer. So I joined the Metropolitan Police Cadets. I travelled from Liverpool where I was born. I'm an original Dick Whittington, but without the cat. I came to London looking for fame and fortune, and probably found infamy. Haven't found a fortune, but I had a lot of fun looking. In 2001, I was serving as an officer on the National Crime Squad Money Laundering Investigation Team. And my former colleague and good friend, Neil Jeans, invited me to apply for a job as his deputy at ABN AMRO Bank. I was successful. I joined the world of banking. I stepped over at what felt like at that time was the dark side, and even now I still think it's planet bank compared to the rest of the world we live in.

And after ABN AMRO, I went to Société Générale for a bit and I ended up at a bank called Wachovia. Wachovia has now been bought by Wells Fargo, and they had some money laundering problems when I went there as a consultant. And then, signed on and stayed eventually as a permanent employee and became their MLRO. It struck me eventually that, basically, laundering money, for Mexican drug cartels had become a core business for the bank. There were many people in the bank who believed they were certainly money laundering, and that includes very senior compliance officers, but clearly was not.

And when I began to raise issues, people said to me I didn't understand Mexico. Didn't believe I really have to understand Mexico, just had to understand money laundering. The products they were using primarily to launder the money were wire transfers, travellers’ checks, helping some of the Mexicans to buy high value Swiss watches. Remind me, Stephen, at the end to ask you the value of the most expensive watch in the world at the moment. Remind me of that one. And, I began to file suspicious activity reports. Funny enough, somebody I am working with at the moment said to me that when she went to Wachovia, Wells Fargo, as it was by the time I had left. One of the complaints about me was whenever I saw something suspicious I filed a report. I'm slightly shrugging my shoulders saying, "Isn't that the law?" Anyway that’s, what I dealt with.

And I did come into confrontation with people at the bank. I identified a very senior banker who was helping the Mexican drug cartel to launder money, so I filed a suspicious activity report upon him. Not every day, you do that kind of thing and it does put you on a collision course with the bank. We saw a lot of high values and high volumes of travellers’ checks, illogical wire transfers and there were other money laundering agents of operations, there was a Russian one, so I did file a second whistleblower report to the FCA in which I mentioned lots of Latvian banks and even Bank Sampo in Estonia, for those of you who don't tie it together Bank Sampo was bought by Danske Bank and became Danske Bank's branch in Estonia which is all the problems now.

And when I blew the whistle upon that in 2009 the FCA described it as Martin Woods, his latest missive. What I think on that was, Martin Woods, his latest dismissive because they dismissed it and did nothing about it, such was the way, it was at the time. Now, let me just be clarify one thing still before we move on and I will give it back to you. There was some very good AML professionals at Wachovia Bank. It wasn't totally the Martin Woods show. The ones in America tended to disappear overnight, not Winston Wolf style, they would just kind of kicked out of the bank, the American employment law style and disappear.

And also, the Wachovia story really the credit must go more so to the endeavour of the Drug Enforcement Agency because those guys were looking at the planes, chasing the planes for the cocaine that were leased by and repaired by, and handled and managed by Wachovia Banks clients. And it was their endeavours that caused it. I was just a sideshow in the background but, I was already pleased to be part of supporting that endeavour. The bank paid on the $60 million penalty. The senior banker left the bank and went to a bigger bank to a better job. I left the bank and got on with my life.

It's an incredible story Martin and I want to come back to visit your experiences at Wachovia in a little bit more detail later on if we may, but I want to really start in a sort of macro sense. What did you make of David Lewis, executive secretary of the FATF, What did you make of his recent comments that although most countries have now got dedicated laws and regs to combat money laundering, he said and I quote, "There rarely being used effectively or to the extent that we would expect." He said that, "Everybody is doing badly, but some are doing less badly than others." It was a pretty damning indictment, but do you agree with him and if you do, from your advantage point, what do you think the problem is?

I do agree with him. I think he is very brave to say it as well, bearing in mind he is almost a political appointment. And when we spoke with him he said, "We are doing badly," so he puts himself in the same category. He criticizes his own organization, he wants to change the way they operate. So, you know what I like about David, and he's a bit similar to me, we all have a role to play here and we want to be saying to ourselves, "What can I do to make it better?" So we are seizing less than one percent of all the money that is being laundered and yet if we are doing badly what we should take is that and if I can help him, this call can help in any way. If we need to go away and say, "What can we do better, what can we do different?"

And I'm going to moderate a panel for the AMLP Forum within two weeks’ time. We're talking about money laundering threats and trends and the biggest threat and the biggest trend would be to carry on doing what we are doing. We need to change. I think the fault of it really is primarily at the government level. The UK has more laws and more AML regulations than most places and has some really dedicated committed people in the public sector and the private sector. You've got a group of people in the public sector who've devised and sought to implement this unexplained wealth order to try and do something better and the law enforcement and the courts are wrestling with that right now.

But at the same time, nowhere launders more money than at the United Kingdom. If you look at our Companies House, I did some research for some companies connected to some of the previous money laundering scandals and I first came across these UK LLP entities at Wachovia Bank. Wachovia bank's Russian money laundering had got to three billion by the time I left, 11,000 transactions and I still see the same addresses. I still see the same data. Let's talk about your black box theory later on. That's a very important point and we can improve if we go and use some of that data, but the Company House is, continuing to launch these money laundering avatars that are used all of the world to launder money with a perception that because they’re for the UK they’re virtuous, which is wholly untrue. You've asked me, is he correct? Yes now do you want to ask me what's the solution?

Well, look before I want to ask you what you think the solution is, but I want to dig a little bit deeper into what you think the problem is, what the cause is first. If we were to look at all of the agencies and stakeholders that are involved in, if we take the UK and the UK's anti-money laundering efforts. We've got obviously government, we've got the legislature, we've got law enforcement agencies, we've got various regulators, we've got the regulated community itself. If we look at the activities, the effort that's being put in by each one of those it's difficult, I think isn't it, to find much for it. We can both identify...

I wholly disagree.

It may be that there is room for improvement, but we wouldn't deny, would we? That there has been a phenomenal amount of effort that has been put into this by each one of those stakeholders over the course of the last 10, 15, 20 years. But yet when we look at some of these scandals, you could be forgiven for thinking that nobody had put any effort in at all. That just seems to me often when you are looking at the anatomy of some of these failures that there's a complete mismatch. You would accept, wouldn't you? That people are trying their best in difficult circumstances in the main, so the question is, is this a structural defect? Is it a cultural defect? What's the issue? If you went back to the drawing board and wanted to start again and redesign an anti-money laundering echo system for a country like the United Kingdom what is it you do differently?

Two things right, my first one is effort. In fact, hard work isn't enough by itself because competency is important as well. I could be put in goal for Liverpool, I am a fan of Liverpool , but they would lose no matter how hard I tried, because I'm not a good goal keeper. Effort alone isn't adequate, strategy is important. The right people in the right place is important. And actually right now, rather than we redesign the whole thing our own. I'm going to give you two kinds of contrasts and one is Coronavirus. So right now in Coronavirus, we have a common enemy it's called a virus. We have common objectives and we have communities all around the world being complaint. There's so much of a contrast to what is going on in our world, but in AML do we have a common enemy? I don't believe we do, so I wrote about this, only yesterday, for Money Laundering Bulletin. The enemy to some firms is the regulator.

The enemy to some parties might be a consultancy company providing a false or misleading audit report. We will talk about that later. Their enemy might be the whistleblower who blew the whistle up on it, but the common enemy is not the money launder that's a structural fault in the system. There's a structural fault in what's the objectives and outcome of the entire effort that you we would be referenced and all the strategies. And a great comparison for that and I have used it before, you have in a previous call you heard me say it, is the airline industry. So pre-coronavirus there would be about 102,000 passenger flights that fly around the world every day, three million people would fly from one place to another. How many American airplanes have been attacked by terrorists since 9/11? The answer is zero because that industry is very good at what it does in KYC, because they need to know about customers who are getting on the plane, they screen them. There's a lot of similarities between the financial service industry and the passenger airline industry.

But where they win if they have a common objective of safety, they have a common enemy of the terrorists and they collaborate at every single level. In particular, at the level of the customer and we have scenarios because we have regulators who tell me I can't rely upon them. Whereby, if they run the airport and the passengers are about to get on my plane and the airport says to me, "Oh you can't rely upon our screening of his bag." you are going to screen search the bag yourself? Now. Let me tell you something, I would never have landed the plane at that airport in the first instance. And to put this into the real life context of AML and financial crime, when I was at Thomson Reuters I wrote to an offshore regulator about a regulated firm.

I said, "Heads-up, I'm going to rely upon you for KYC for this firm," for the owners and controllers of this firm. And they telephoned me back and said, "You can't rely upon us." I said, "With respect, it wasn't a statement, it wasn't a question, it was a statement." He said, "So is mine." And I said, "Well, my statement was on one and a half pages of paper in black ink and when I get your statement back in that context I'll adhere to it until then I'm relying upon you." Now, no regulator in the world can write to me and we don't know who we regulate, but why should they basically even think of telling me I can't rely upon him? It is akin to an airport saying to an airline that you can't rely upon us for screening passengers and searching bags. We do not collaborate, we do not cooperate and therefore the outcome is flawed before we even start.

The analogy that you draw with the aviation industry is a fascinating one and I know you and I have spoken about it many times before, I mean, is the essential difference other than, of course, the aviation industry, there's the important question of self-preservation. Is the important difference that with airlines they’re not looking to obtain a competitive advantage by reference to cutting corners on safety; whereas, in the financial services industry the profit motive is just as strong, if not stronger than it is in aviation. There, people are prepared to compromise on safety possibly because that self-preservation dynamic is not as strong.

This is never going to happen in my backyard and frankly if it does there's no fine that can be levied that can be big enough to really hurt us anyway. Or, as an individual seen in your office within the organization the chances of me being gnawed for this are so slim that it is worth me taking the risk. That is a very interesting I think, comparison, with a captain of an airliner, who, if the plane goes down is going to go down with it. So, it's a good comparison but is it a fair one and do those points give us an insight into the difference in the success of those respective industries sectors in managing risk at the same time as making money?

Well, one of the risks of the financial services industry is not making the money, so money really dictates all this. The big error that we make in this industry is we let the people with the money run the business. So customers that have money dictate the terms and we've heard this retort before, “I can't ask him where the money came from, that's offensive”. So when he turns up to get on a British Airways flight That's why money tends to sneak out on a fishy airlines flight, do BA say it's offensive to ask what's in his bag or if he packed it himself. Imagine if the very rich guy turns up at the airport and we say, "is this your bag sir?" And he says, "No it belongs to a British Virgin Island Company," BVI, which to someone it might stand for Beneficiaries Virtually Invisible.

Well, the guy behind the ramp at the airport says “fair enough” , and just pushes the bag to one side and the passenger might say, "Do you not want to know who owns this?" "Don't care mate, if you don't own it. It'll be you're getting on a plane, the bag's not." You see we take onboard problems that we shouldn't take onboard. We now have a course that teaches you how to investigate and find out who owns an offshore company. Well isn’t it the job of the owner of the offshore company to tell me and evidence who owns it. I have no idea the lunacy we go through, we spoke about this in prep when it comes down to little bit to, let's go BVI, let's go Jersey. And I'm going to ask you, as I said, I think sometimes you're a lobbyist in the offshore world. What is the point of the offshore world, what does it do?

Well, I mean look, first of all let's define offshore. You and I both know the world's leading offshore financial centre is the United Kingdom, so we can have that debate about what offshore is, I'm certainly not a lobbyist for offshore per se but I believe that every country has to attract as big a slice of the capital pie as they can. And, as long as the levers that they're pulling are legitimate and aren't designed to attract criminal money. Then I can't see the problem. The UK does that effectively, the United States does it effectively. Of course, the smaller international financial centres also do it effectively.

Traditionally they've done it by pulling some levers that people like you and I have got a serious problem with through offering lack of transparency and secrecy and so on and so forth. Really there is no place for that in the 21st Century. But what I've got a fundamental problem with, Martin, is the hypocrisy of big jurisdictions like the US, like the UK imposing rules on smaller states that they're not prepared to comply with themselves. That's something that I do have a fundamental problem with and if because of that I'm mistaken for being a lobbyist for offshore, well so be it. That's as Forrest Gump says, "All I've got to say about that." I know what your view is.

I feel like I have kind of flipped, I've made you the interviewee so…

Yeah, I'd come back to this side of the microphone but, it's lovely.

When you had Tom Keating on, I mean, Tom said, and I was quite surprised by what he said, because you and he discussed the offshore wealth. He said, "Maybe they should do more to talk about the positive things they do to contribute to AML," such as helping the NCA to secure those unexplained wealth defrauders. Well, with respect to you and him, if you go back to the Cayman Islands and say I've got this great idea, let's do an advertising campaign or let's get some good press about how we help the NCA, they'll throw you off the islands. |Are you crazy? We do sell secrecy. We don't want people put off coming here because they have some anxiety that we're going to help the NCA with their money as well. It was unfortunate that we have to help the NCA in that case, it's not what we want to do. I mean, I wonder whether Tom talking about Fantasy Island more often than the Cayman Islands.

Well, I can't answer for Tom. I think, I draw a distinction in my mind between the substantive efforts that a jurisdiction goes to in providing assistance and then whether or not it wishes to advertise it. I'm more interested in the former, I think, than I am in the latter. But I agree with you that there are many jurisdictions in the world that wouldn't want to advertise that because they think that it will repell a certain type of business and I agree with you that they should be looking to repell that business.

Now let's get back, you talked earlier about Cummings and obviously over the past week in the UK there has been a pretty lively debate on whether there's one set of rules for the powerful and a different set of rules for the rest of us. I was very interested to watch the Andrew Marr Show last Sunday in which he asked the UK government minister whether there was now a Cummings sub-clause in the UK regulations on lockdown. And, what I want to ask you Martin is, do you think that this is fundamentally part of the AML problem that we've got, that there is one set of rules for big business, which regards itself as untouchable in any meaningful sense, and another set of rules for other actors in the space?

Well, what I would say, so if you're going to launder money make sure you launder a lot of it. I mean Jho Low is a great example, he's got PR companies, he's got law firms working for him, he's got billions of dollars to play with. The fact that he stole it all from Malaysia and it's equivalent to their health budget for a year and people will die because of that. The PR companies don't want that noise so Jho Low will pay them a lot of money, out of the money he had stolen and try and change the narrative, so make sure you launder or steal a lot of money, would be my advice to you. And, yes, I think this could cut the things on that, Stephen, and it comes back to some of the hypocrisy references you made early on.

I think every major regulator, perhaps every regulator has a home game and an away game. And they tend to be more aggressive against banks or firms that are operating within their country as a subsidiary or branch of an entity which is headquartered overseas. And the FCA had a reputation for sometimes protecting small foreign banks and then it did take some action against Standard Chartered Bank. It did take some action against Deutsche Bank, but yes, I do think that's happened, that has prevailed.

If I go back to my Wachovia case, in my time I've served three subject access requests upon the FCA and FSA. I have a curiosity about I need to know what they're up to. And, it is for good reason because actually, to finish off my whistle blowing story of that Wachovia Bank, the saddest part of my story is I learned many years later, that actually my biggest enemy who was held by a common enemy, was not the bank actually. The bank was a full-profit enterprise, where people who weren't well trained, there were people who went rogue and more widely they just they didn't have the right culture and conduct.

But the FCA unbeknownst to me, they blacklisted me. I'm just going to read some of this. It said I was going to be at the event in Miami with David Marchant to talk about generic whistle blowing, it said “Martin will not breach his nondisclosure agreement, he will talk about what you should do if you find criminal conduct in your firm and how you could report it to the regulator”, which I thought was a good thing. And, then they said “Interesting”, this is what one of the operatives said, he said, "If so, we should probably log this matter." This is me presenting at the event I might say something negative about the FCA's whistleblowing process. It may be of relevance to his F&P [FNP 00:26:11] (integrity), should he seek FSA approval ever again.

What they did then, is they fabricated allegations against me that I breached this nondisclosure agreement notwithstanding they had evidence in front of them that I hadn't. They contacted the bank and the bank said he hadn't and we're not taken any action against him, but having fabricated the allegations they couldn't put their own name to it. So, they invented a non-existing whistleblower, they submitted a false whistleblower report against me to stop me ever working in the industry again. So, common enemies, practices and who's doing what here? That was 10 years ago, but we spoke about this before event. There’s some people I've advised to go and see the FCA about whistleblowing matters and there's other incidences I’ve said don't go near them, don't trust them with that. And that's the sad type of thing to say about the regulators.

It's absolutely shocking what you've just outlined there, Martin, and it actually segues nicely into a question we received before our conversation today from a listener and I'll read out the question. It's this, is whistleblowing self-defeating, having blown do employers now avoid taking you on? Now, that's the question that has been put to us.

And the answer is yes and no, and maybe yes again. It's not just about employment. I think employers, I used to be a chairman of a whistle blowing group in the UK and it is a very privileged position to sit in the room with these incredible remarkable individuals and one of my great outcomes of my whistleblowing is the people I now have met and the people I am able to spend time with and be in company with. Tom Mueller, who I interviewed, look at what that guy did and who he spoke to and now I met people through him. I met a guy who talked about how most many of us sit 18 inches from a hand-grenade whenever we get into a car because the actual airbags are faulty and he eventually blew the whistle upon that and they're all being changed. But that wasn't before 25 people died. So, it's not always about my employment or the whistleblower's employment.

I think most importantly it's about the whistleblower's frame of mind and if I hadn't blown the whistle I would've become one of the people I despised. I don't know how many tablets I'd take today to try and pretend that it was normal. I'd betray so much of what I've stood for. I remember again coming back to Wachovia and my boss, and when all of this was going on was on sick leave, I was suing the bank at that time, litigation against them within an Employment Tribunal. And he telephoned me and it was my own mobile and he said you didn't answer your phone. I said, "My phone, I do what I want with it thanks, very much."

And he telephoned me to tell me my bonus for that year was zero. And I genuinely, honestly, he was excited in more ways than one when he told me that, he was so motivated by money. "Is that the entirety of your phone call?" He said, "Yes." I said, "Thank you. Goodbye." When all of this came undone and came apart I wrote to him and said I didn't lose my bonus that year. My bonus that year I was I hung on to my integrity and my credibility. Many people at Wachovia didn't and when you've lost it, you can't get it back. So, it's far more than money and employment, it's about a state of mind.

I don't think I really need to ask you the obvious question, which is, would you do it again?

I would. I probably have in many ways, in some ways. You know those of you on the phone and are nominated offices, welcome to the club. Every suspicious activity report is a qualifying whistle blowing report. Don't get me wrong I don't think it's right. I can see why people don't employ you. I did litigate against Coutts because in an email they said they wouldn't employee me because of what I did at Wachovia Bank. They stripped me as an unfair discrimination because they can't employee someone that is too honest. There I was, I was too honest to work for the Queens Bank. We lost that case because of legal technicality. But, none the less my statement still stands that I was too honest to work at that bank.

Now, while we're on the subject of whistleblowers, Martin, let's talk about a recent case. What did you make at the recent judgment in the EY, Ernst and Young's and Rihan case?

Well, I’ve met Amjad, he is a very nice man. Very humble, wonderful man. In this case for those of you who are not aware of it Amjad Rihan is part of the case that was highlighted on Panorama and others who were subject to detrimental treatment by their employers, but Amjad's case was EY, he was doing an assurance audit on a firm called Kaloti, which is a jewellery company and gold refinery business in Dubai. It was on behalf of the local regulator of the DMCC and also connected to the LBMA, the London Body of Metal Association; is the gold delivery practice the right one.

And when they did that assurance they found gold bars painted with silver and they also established overtime Kaloti had paid back in excessive of 5.5 billion that is billion with a B dollars in cash for over the counter gold transactions. These were negative findings and subsequently the DMCC and Kaloti weren't happy and EY embarked upon a course of action, as the judge put it, to make those findings vanish and to mislead any readers of that report. Amjad blew the whistle, Amjad lost his job, good for him, he won in court after eight to nine years and EY are going to pay him over 10 million dollars.

Now, that particular case was just extraordinary. The facts as they were sort of oxygenated in that case in reading the judgment. Just I'm going to read one of the quotations here from Justice Kerr. He said, "EY encouraged by global and regional leaders within EY network helped the DMCC and Kaloti to conceal the findings on the Morocco gold and cash transactions issues sanitizing the findings and improperly lending EY's name to a flagrantly misleading assurance reporting process." Now, it may well be, of course, that this was one off, this is a completely isolated case and that whoever EY at was responsible for this took temporary leave of their senses. And this kind of behaviour has not affected any other relationship in which EY is in, but as a big four accountancy practice ones got to, I think, have legitimate concerns about how far and widespread this sort of behaviour is. What's your view on that?

Well, you know I am read on it, and so it isn't isolated and it's certainly not over a short period of time within the court case and the judgment, there's reference to the discovery of fraud within the subsidiary of a US company in Dubai. And the indications are that they buried that. EY buried that because they had anxieties about losing their license to operate in Dubai. So there is potentially a US company out there, who have a subsidiary in Dubai, EY discovered a fraud and buried it. Now they also have this one whereby, the judge said you tried to make these factors vanish and this case went on over 10 years. Well not 10 years, but it went on over a protracted period of time. Don't forget the lawyer quote in there, when the lawyer said that his EY's own internal lawyer said he met with the LBMA, he couldn't say when it was or where it was. And the judge said it didn't happen that meeting never took place.

In essence, the judge said, "You are not telling the truth to this court." Now if a police officer does that in a criminal trial quite rightly, the judge calls it out and then there's question marks over any other case where the officer has given evidence as to the safety of conviction of individuals and the Crown Prosecution Service may seek to offer no evidence, in other trials it may be about to take place with the same police officer. So to the wider aspect of EY's audit reports, this is the same EY global organization being investigated in Denmark by the Danish police for money laundering in connection with its audit Danske bank. And only this month Westpac equally being investigated by the regulator for money laundering failures have said they have sacked EY of the AML assurance auditor down there. Which makes sense because you probably want a better relationship with a regulator than to say notwithstanding EY's constant transgressions in this space, we're going to use them.

Now let me just say one final thing. There are some good people of EY, in the world of AML. And I don't know what's going on here, but I wouldn't want to be there with my reputation attached to these people. And then the final part is if I'm an investor, I would have anxieties about any firm I'm invested in particular financial services business, where EY have done any form of audit, can I really trust it? If you look at Danske Bank's case, they were the auditors for Danske Bank and the share price is off 60%, and they didn't find or didn't see an issue with a subsidiary that was generating a 400% return on equity that our previous guest Bill Browder said was clearly fraud and money laundering.

Now EY, it's important I think to point out, Martin, is not exactly an outlier here. I mean, each of the big four, have had some serious issues when it comes either to facilitation of criminal schemes or very serious failures in relation to AML audits and so on and so forth. Do you think they are a big part of this systemic defects that we were referring to earlier? The big four.

Yeah. Because, sadly, in that case again, the judge said, "You haven't even produced to me your copy of the whistleblowing report." The whistleblowing policy, you haven't even refused to make a copy of the whistleblowing policy. One of the most senior in EY embarked upon a campaign to mislead readers of that audit report. And as the judge said, lend EY's brand to a flagrantly false report. That's from the very top of the shop. So, you talked about Cummings making his failure and perhaps not giving the best advert for government and one rule for them, one rule for others. I do get a sense that perhaps some of these people think we’re big, we’re powerful, we’re partners. If I say it's this way, that's the way it is.

I kind of like that, going against that, that's just an out and out bully and I've always liked to tackle bullies. That's why I joined the police. When I was at Wachovia in particular, I don't know if it's an American trait and sadly I'm going to say it, there's a sense that if I'm senior to you, I'm right, you're wrong. Whatever I’m saying that you were just... I'm laughing now, it's just utter nonsense. Just put some context and contradiction into that, Steve Jobs was a fabulous American entrepreneur, and his main job was to hire people that are smarter than him, but there's so many people in this space, they fear people that are smarter than them.

Yeah. It really is fascinating but equally it's petrifying because these audit firms, they're providing assurance to businesses in relation to the efficacy of their own AML systems in circumstances where it doesn't appear that they can actually get it together themselves as auditor firms.

Well, getting it together is a very polite way of putting it. That conduct was bordering on deceitful, wasn't really? If they're trying to make the findings vanish. Right now, it would be fundamentally wrong of the FCA to a point EY to undertake a 166 AML assurance for the regulator. And if I was an MLRO in a firm, they would be doing no AML work for me whatsoever.

We've had a question actually from a listener in advance of today's session. This segues in with it. The question is, do you believe it's time for financial services businesses to use small boot boutique firms of AML CTF experts rather than using the big four? That's the question.

I don't care who they use, providing they've got integrity, credibility and they do the job properly.


I mean, sometimes you're a smaller firm. It's a nice idea, but they may be far more vulnerable to a cashflow problem and therefore, I'm only going to say it because it's the way it's going to come out they’re easier to influence and maybe manipulate, whereas a bigger firm shouldn't be and that the bigger firms should more robustly standby and say, "You employed us to do this job. And actually we're bigger than a jewellery and refining business in Dubai where EY were a very powerful global brand, up in the top 50 most respected employers in the Sunday Times, which Sunday Times list because I would hope I'd like to think they're not in their next year if they're going to stand by this. One of the things that gets me on this is where is the accountancy profession to move forward in this. Where’s the ICAEW, where’s the International Federation of Accountants to say, "Hang on, is this acceptable" You know Ernst & Young signed contracts that are subject to the laws of England and Wales, what until the judgment goes against them.

I mean it’s this age old problem, isn't it Martin? We've got to recognize that in every organization there are going to be perhaps some bad apples and the larger the organization, the higher the risk that, that will be the case. But, when do the actions of an individual, or group of individuals fairly reflect on the whole institution itself? In some ways it's the corollaries now of the argument, which is, you impose a billion dollar fine, or $2 billion fine, for example, on, let's say Westpac, for example. And the institution, which is nothing more than a certificate of incorporation and some articles of association cuts a check. As you said earlier, shareholders take a big hit and the individuals who are responsible either remain in post with their feet under the boardroom table, or they walk away and get another job. It's this distinction that we have to draw between the individuals and the institutions that they work for. That's so problematic, isn't it?

Yeah. Let's clarify something, institutions do not launder money, people launder money, but they haven't been accountable. And our other friend, Bob Mazur has often said, "It won't change until you hear the rattling of handcuffs in a board room." I'm not over confident that will happen, although Bill Browder thinks it will happen. He’s assisting with, what is it 14 money laundering investigations around the world, but then you have the other case within Danske bank where the pension funds are suing the former CEO and the former chairman personally, for losses incurred by their own investment advice by putting their signatures to comments in the annual reports that influence those investment decisions. I'd like to see, I'm not a vindictive nasty man, but I would like to see the former CEO and the former chairman of Danske bank, living in a cardboard box in the streets of Copenhagen, because their money is being paid back to the pensioners who work in America, because that might make other CEOs think, "Whoa, I've quite a good job here, and I earn good money. I should be more careful."

Ian Narev that he was a former CEO of CBA. So CBA Coldwell bank Australia currently holds a record for the biggest financial penalty for money laundering in Australia and the second biggest in the world outside of America. And they were laundering money cash for drug dealers and all kinds of, but in the actual bigger inquiry into, by the bank by the Royal Commission into banking, he'd been told by one of his senior people that an insurance policy, similar to a PPI that he was selling to customers was defunct. And really couldn't be used by customers and should they be doing it, And the Ian Narev said, “you should temper your sense of justice” and they carried on selling it. So he said that because he can hide behind an institution. And if you look at Cum div – Ex Div, if you look at the Barclays bank executives who were charged and their defence submission was in two parts, that first part was, we don't think it was a fraud.

The second part was, if it was a fraud, we didn't do it. Okay. So who did it? And if you look at the Cum Div, Ex div bank scandal going through the courts in Germany at the moment, The banks participants defaulted governments of tens of billions of euros, maybe 60 billion euros. And that the scheme in part revolved around a stock lending by a bank lending stock from a pension from a big fund, then on the day a dividends to be paid, they obfuscate the ownership of the actual stock. The dividend is paid, but it facilitates a claim for a rebate in more than one jurisdiction. They know only one dividend was paid. So how do you claim two rebates? Nonetheless, they did claim two rebates and divided the proceeds of this fraudulent criminal enterprise between the participants included in the fund, but you'll never prove who did it.

Yeah, this rot in the heart of corporate culture. We see it for example, with Volkswagen and as you were describing that scenario just then I was reminded of the Volkswagen scandal. This is not something that is confined just to financial services or audit practices or whatever. It's as old as the Hills itself isn't it Martin? And the question is, how do we get to grips with it more effectively? My concern is that the war on money laundering such as it is, is rapidly I think turning into something very similar to the war on drugs. Hundreds of billions, trillions has been spent over the course of the last 30, 40, 50 years in fighting a war on drugs, which clearly is being lost. There's a massive industry that's built up around it. There's lots and lots of vested interests, that want to see that war continue to be waged, but are we actually winning? Are we getting anywhere with it? And I think some of the same questions can legitimately be asked about money laundering prevention.

It's a great segue because actually what I want to try and finish it off on was a positive note. Actually going back to what David said about we’re all doing badly. So let's have a look at where we can do better. We've got time as well in the lockdown. Actually it is about confronting our accepted practices, and to some extent our accepted failures, and I want to look at three separate areas. This is what I'm going to propose to you, and then come back to me. I'm going to look at considering terms and conditions of business with clients, through an AML lens, transaction monitoring and training, just the three for now. And we can do this very briefly and then swiftly to what your listeners say and what your users, KYC360 say. We can perhaps do another one of these at a later stage and do it more in depth and almost give these people free consultancy.

That sounds good to me. I'm sure they all like the sound of that too.

Well, anything for free, right? So the terms and conditions a bit is look at this for example, when I ridiculed the nonsense of the British Virgin islands and company, owning the suitcase. We have to keep KYC up to date. Right now, again going back to Coronavirus. We have communities that are understanding compliance. They're practicing compliance every day with their stay at home, stay alert and because of the endeavours and the commitment and compliance of these communities, we’re winning, and we're moving to now a test locate and traits. That comes into transaction monitoring, in a second, let's stick with terms and conditions of business. So why don't we say to customers, if it's incumbent upon you, you need to keep us up to date of changes of your business profile for business customers. So you need to tell us if it changes. In the event you don't, then we have to do establish and validate changes whilst doing so we may freeze your account.

We may apply costs to you, but so make them understand what we're doing, why we're doing it. And part of that is, why do we do it? Why are we actually all in lockdown? We know why. I don't think we explained to people the connection enough between banking money laundering and as David and I have said, the harm caused by money laundering. The devastation the suffering caused by money laundering. I don't think it's good enough for a bank to say, "We're now stopping elephants being killed by using money laundering investigations." When there's 250,000 dead Mexicans, I'd be appalled if I was a relative of one of those Mexicans, much as I applaud the notion that you're looking at the smuggling routes, human trafficking is far more important than elephants being killed. I'm not against elephants. I don't dislike them at all, but I've never met an elephant that's more important than a single human being on this planet.

I just think it's a wrong way of positioning it personally. But if you do that and you also say to people when they are an accountant student, will you be undertaking any foreign transactions? Yes, no. And you tell them in terms of conditions in the event that you process any transactions on behalf of a third party, we may again freeze your account. We may apply costs. You have up to a thousand pounds. Now we can make filing SARs, a profit making business. And you may be committing a criminal offense. We are actually winning in KYC, which is why there's more mules being used. And mules are being used like that in a coronavirus time. But can we sit of our businesses? And in this time when we may have some time, sit down and look at those terms and conditions of business through AML lens that's the first part. Got anything to say about that?

I think it's a brilliant idea. You and I and many other right minded so-called AML experts would always encourage businesses to analyze every product, every service, every relationship, through the lens of what is it that's being achieved here? Or what is it that somebody wants to achieve here? In other words, what's the why, and to analyze every product and service for those inherent anti-money laundering vulnerabilities. The problem is I think in a lot of businesses, they're in such a rush to get these products and these innovations out, or they're in such a rush to bring on board, new business that they go about addressing their minds to these questions if at all, in a very formulaic way. And as a consequence, they don't really understand what the vulnerabilities are or what the answer to the question, why as you outline it, is. I think what you're describing is absolutely essential.

It's very beneficial, I know it then brings it onto transaction monitoring. So transaction monitoring is difficult process, and it's an area where we fail badly. We kind of run away from it. Some would rather collect more copies of KYC documents and use them to hide behind more passports that really don't add any value and manage the actual reality of the risk. Deutsche Bank for example, or even let me go beyond that, think for a moment, which publicly traded company do you know of, around the world that laundered money? The banks do, and did on a business model, Rolls Royce did on bribery and corruption. But, it was never a case that we didn't know who Deutsche Bank was. We didn't know who Danske Bank was, and yet we have huge piles of paper, the risk that Danske Bank and Deutsche Bank presented to us, was in fact transactions, oh by the way, just as an aside, given that all that's going on in a world with different money laundering cases, Westpac, Danske Bank. EY did sign a new client this year that they're going to be auditing next year. And now it's, surprise, it was Deutsche Bank.

It made me smile. But back to the transaction monitoring Swedbank case and the report by Clifford Chance, they did some research and they quoted that well known fact that 90% of transactions alerted actually are false. So, for many years we've been applying this failing process and paying a lot of money for it. And I listened to a podcast by a friend of mine yesterday, where she was interviewing somebody from SAS who claimed a bit of first in the transaction monitoring space in the late 1990s, early 2000s. And now they are where they are, state of the art and where they think they are on this, but one of the things that struck me, he said, "We're going to help you find these anomalies." Now, I do see where your black box thinking comes in Steve.

Whereby, we haven't taken the data from the laundromats. We haven't taken the data from the Danske Bank case. You published last week on KYC, the authorities in the Ukraine have blacklisted, seven hundred UK, LLP and LPN entities, so many addresses I've found in the Wachovia bank are still being used today. And I presented this around the world in 2010, 2011, and the only organization who took up my offer to say, we want some more information. We want to work with you was the United Nations. No bank came near me, but whilst you're identifying an unusual transaction and anomaly, and then you have this huge task potentially of saying, I'm going to formulate some suspicion and believe me, haven't been in the case of Shah vs HSBC, you better clearly tell me what our suspicion is and be bold and robust about it.

If you use the black box data that we're talking about from all these previous money laundering cases and the scandals, you won't be producing an unusual transaction. You'll be producing a suspicious transaction because it will have the characteristics. And you'll say to yourself, I'm going to file, or I'm going to use that data and make sure I don't accept suitcases from that particular address, going back to our crossover with the airports and airlines, I won't open company accounts from those addresses. There's lots of black box data out there that we haven't used.

I totally agree with that. I mean, that's as you say, it's another stark difference between financial services and the aviation industry. I mean, every time there is an aviation accident there is an international group of our investigators and specialists to literally get parachuted in. They analyze the causal factors. They report, they make recommendations and airlines around the world digest those reports and implement the recommendations so that similar disasters can be avoided in the future. Where do we see that in financial services? We don't.

And it's a constant, it continues, but also when we're all doing badly, that includes the vendors. It's wrong to speak ill of a former employer, but I tell the story because it's worth it. It's a bit tongue in cheek that needs to be told. People need to react to it and change. Thomson Reuters for a while before they split with Refinitiv, their brand was really the answer company. I remember us at a town hall, I said, "I'm not convinced by it And let me tell you for why, when I was a young man, my dad and I were watching mastermind and my dad said, "Son, watch this, I'll answer all the questions." It's a general knowledge round. And at the end of it, I said, "Dad you only got six, right."

He said, "I didn't say I'd answer right, son." My biggest problem with the answer company was, we didn't ask the client what the question was? And that's a real problem, isn't it? So the vendors, there a really an opportunity out there for a vendor who actually wants to engage with customers, say, tell me what your problems are or let me bring you some innovation in here. It's just far bigger than that now. In the OCCRP cases, they can tell you which servers most of these requests for these transactions come from. We go way beyond name, address, date of birth. And again, somebody phoned the other day and said, “Can I have some advise Mart, the company is being audited, we've been audited and the company's talking about, we haven't got non-face-to-face as high risk. I said “that's a 20th century way of thinking for a 21st century business.”

So who's still holding onto this notion that banks are closing their branches or we're being criticized for not putting on face to face as high risk. It's just ridiculous. That's the thinking and that comes down to the training then, and is again, David reference and something we have said before we need to better connect the money to the harm that the money causes. We need images. We need to change people. Provoke people make them think differently and to drugs, we're looking to doing a series of interviews, aren't we? With a very well respected journalists about the UK drug trade. And we're going to look for the mum and dad of a very poor unfortunate young person who died of a drug overdose.

And we want to see how normal this person was. At the age of seven, what he or she wanted to be when they were older. And how they've made a couple of mistakes, took the wrong turn. No way did they deserve to die. And the truth is if the banks care more about elephants and don't give a monkey's about 250,000 dead Mexicans I am going to have to show you that it's not the Mexicans, it's your niece, it's your daughter's boyfriend. It's the person sat next to you. It's his son, it's your next door neighbour’s daughter, or niece. You have to see it. And it's this nudge factor of bringing it closer to say, this is why we do what we do. This is why it matters. And it's more than ticking a box it's saving lives and getting better outcomes. And until we confront and challenge our current operating standards across all of those areas, those three and many other areas of our business, we will not change. And next year, the headmaster David Lewis will continue a bit give us a bad school report.

Well, Martin I think that's perhaps a pessimistic, but nevertheless realistic note for us to end on and I completely echo and applaud your efforts in trying to draw people's attention to the critical link between predicate criminality, predicate crimes, whether it's drugs or human trafficking, many others like them and money laundering. And it is important that people recognize that, money laundering does seriously impact people's lives. And there is a very clear link between all of those egregious predicate crimes and global AML efforts. So Martin, thanks so much. We could easily talk for much longer and perhaps we will be able to persuade you to come back and do another interview. So we can go into a bit more detail, particularly around, your thoughts on the way in which we can improve our batting average, thank you.

Thanks on behalf of all of our listeners and KYC360 members for taking the time during the lockdown. I hope that you have all enjoyed today's session. We certainly had a very large audience on this podcast and I'm sure that there'll be many more people that will download it subsequently. I would encourage you to visit Martin's website and consider the value that Martin would undoubtedly bring in motivating your teams from an AML perspective, if you like what you've heard today, spread the message about KYC360 and the AML talk show, please. This recording. Well, as I say, be available as a podcast on KYC360 and many other platforms from tomorrow for now, stay safe. Thank you. And goodbye.

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