Legal Solutions | USA
Welcome to May 2016, more than seven years since the collapse of Lehman Brothers, and is a long time in banking, as well as in anti-money laundering. So let's look ahead and try to envision what the coming years hold and what we, the AML professionals (dare I suggest the AML executives) may look like in the coming decade.
The year: 1983 (this was when I joined the Metropolitan Police; happy days, good times). The place: London. There was no “anti,” there was only money laundering. There were no laws to prevent people, including drug dealers and robbers, from arriving at the bank with a suitcase full of cash. Indeed, such custom was encouraged, and such cash was welcome. Similar conduct continues to this day, albeit it is now likely to be illegal in most countries in the world.
In 1984, the UK made the laundering of the proceeds of drug trafficking a criminal offense – behold the advent of “anti.” There followed new global laws and regulations, recommendations and guidance, and “anti” was applied to all fiscal crimes. The dreadful events of September 2001 led to wider laws against the financing of terrorist activity. Next on the agenda was politics, politicians, PEPs. Sanctions have led to the imposition of enormous penalties for breaches of the same, and, post-September 2008, the new horizon is tax and tax evasion. Thus, the laws and regulations have come a very long way in a short period of time.
The multibillion-dollar penalty marks the current high point of the world of AML and simultaneously emphasizes the globalization of AML. Perhaps more specifically, it marks the globalization of AML regulation/enforcement and the globalization of the AML executive. In the event a major corporation is engaged in a $9 billion project, there will be board-level oversight and an executive sponsor. Likewise, if a corporation is facing a $9 billion loss, there is board-level engagement and executive responsibility.
The penalties applied against banks have not been matched by penalties applied against individuals, even though it is universally acknowledged that machines and processes do not launder money or breach sanctions; people do. Consequently governments and regulators have called for laws and regulations that make senior bankers accountable for, and therefore attached to, the areas they supervise together with their action/inaction related to the same.
There is increasing anxiety within the AML community, and a number of professionals have determined now is the right time to leave the industry and pursue other ventures, including retirement. Added to the regulatory and legal concerns, there are commercial considerations. In April 2015, the BBC reported that in the prior four years, the UK’s five largest banks paid 60% of their profits in penalties and restitution. More recently, in January 2016, Goldman Sachs paid a penalty of $5 billion to settle regulatory actions related to the sale of mortgage backed securities. While not all of this is related to money laundering, the actions referenced cultural challenges that apply in all areas of regulation, including AML.
For some of us, this may actually be our moment in the sun, in the event we do not make it to the executive level. We are a species in demand; our services as experienced experts are attracting substantial remuneration (or so I hear). We are no longer seen as business prevention officers; on the contrary we are key business preseveration officers. People listen to us, senior managers engage us, and recruiters constantly want to buy us coffee.
All of this reflects the importance of our role, and the discipline of AML, but for how long will it last? After all, business is generally cyclical.
In the short term, there will continue to be more billion-dollar fines as the authorities process prior AML failures. There will be increased instances of civil litigation pursuant to regulatory AML settlements, such as the case being pursued against HSBC alleging the funding of “narco terrorists” responsible for the murder of U.S. diplomats and federal agents. There will likely be more targeted scrutiny and actions against former AML and compliance heads as the long tail of many ongoing investigations and actions unfolds. There will be yet more increased responsibility, accountability, and burden. The head of AML will be asked to do more – only not with less, but more resources. Regulatory and public intolerance of money laundering and banking malpractice will continue.
Independent assurance of a company’s AML program will likely be a legal requirement as governments seek to reassure the public and apply more checks and balances to AML. This will have some benefits, but at the same time it will lead to increased demands and pressure being placed upon the AML executive.
There will be greater transparency in corporate entities, and the AML executive will shun businesses and clients from jurisdictions offering opaque structures. There will be increased use of internal, as well as regulatory, attestations that will be assessed and confirmed by the AML executive. There will likely be mandatory professional development and ongoing training for the AML executive, similar to the continuous professional development (CPD) in other professions, such as law.
And, notwithstanding the best efforts of many, there will still be money laundering, terrorist financing, bribery, tax evasion, corruption, and fraud. In addition there will be an increased threat from cyber criminals, who may become the primary threat to our business.
Our governments are in the marketplace for information and their appetite for more will increase. While, in the U.S., Senators Dodd and Frank have determined to reward whistleblowers, the government in the UK has introduced more mandatory reporting through the Bribery Act 2010, and most recently, Attorney General David Green has proposed extending this compulsory reporting to instances of fraud and cyber crime.
Behold, this role is not going to become any easier, any time soon. The AML executives will increasingly be called upon to act as law enforcement deputies in the fight against launderers and other criminals, while simultaneously supporting a for-profit enterprise.
Bits of coin, pieces of intelligence – each will further impact the role of the AML executive. Some may perceive that Bitcoin has been and gone, while others will recognize it is in fact a forerunner of what is to come. Presently, Bitcoin and other cyber/synthetic currency operators are seeking to be regulated, in order to engender stakeholder trust and thereby embrace customers while generating profits. Given the continued growth of the Internet and e-trade, a regulated cyber currency seems inevitable, but regulated by whom?
There will be increased intelligence and increased regulatory expectations that the AML executive of the future will use such intelligence.
It was Stuart Levy, the former Under Secretary for the U.S. Treasury Department, who said “We are dealing with people who are as smart as we are, and of course they can read our list.”
Thus, the bad actors will be looking for new methods, new opportunities. The upside of this is job security for the AML executive. More and more, we will be driven to think like a launderer, a corrupt PEP, a rogue banker, a sanctions breaker, and we will seek to counter them. Thus, we too will look beyond the lists, and many of us are doing so already.
AML executives will be wise, knowledgeable, experienced and therefore, likely to be older. They will be well paid, but overworked (no change there then). They will have strong relations with law enforcement as they continue to be deputies for the local and federal sheriff. They will have a global outlook and will be a key influencer within the firm/bank. If all goes well, none of us will be in prison, but some of our banking colleagues are likely to be.