Palgrave Studies in Risk, Crime and Society Series Editors Kieran McCartan Dept of Criminology, University of the West of England, Bristol, United Kingdom Philip N. S. Rumney University of the West of England Bristol, United Kingdom Nicholas Ryder University of the West of England Bristol, United Kingdom Risk is a major contemporary issue which has widespread implications for theory, policy, governance, public protection, professional practice and societal understandings of crime and criminal justice. The potential fl harm associated with risk can lead to uncertainty, fear and con ict as ff well as disproportionate, ine ective and ill-judged state responses to perceived risk and risky groups. Risk, Crime and Society is a series featuring monographs and edited collections which examine the notion of risk, the risky behaviour of individuals and groups, as well as state responses to risk and its consequences in contemporary society. The series will include critical examinations of the notion of risk and the problematic nature of state responses to perceived risk. While Risk, ‘ Crime and Society will consider the problems associated with main- ’ ff stream risky groups including sex o enders, terrorists and white collar criminals, it welcomes scholarly analysis which broadens our under- fi standing of how risk is de ned, interpreted and managed. Risk, Crime and Society examines risk in contemporary society through the multi- disciplinary perspectives of law, criminology and socio-legal studies and will feature work that is theoretical as well as empirical in nature. More information about this series at http://www.springer.com/series/14593 Abdullahi Usman Bello Improving Anti-Money Laundering Compliance Self-Protecting Theory and Money Laundering fi Reporting Of cers AbdullahiUsmanBello ForensicAccountingandFinancialInvestigation EconomicandFinancialCrimesCommission Abuja,Nigeria PalgraveStudiesinRisk,CrimeandSociety ISBN978-3-319-43263-2 ISBN978-3-319-43264-9(eBook) DOI10.1007/978-3-319-43264-9 LibraryofCongressControlNumber:2016948409 ©TheEditor(s)(ifapplicable)andTheAuthor(s)2016 Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseof illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similarordissimilarmethodologynowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthis book are believed to be true and accurate at the date of publication. Neither the publisher nor the authorsortheeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedherein orforanyerrorsoromissionsthatmayhavebeenmade. Coverillustration:©Fly_Fast,GettyImages Printedonacid-freepaper ThisPalgraveMacmillanimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland To my wife, Hadiza Abdullahi, the mother of my two lovely children; Muhammad and Usman Foreword As these words are crafted, money laundering is centre stage both in connectionwiththeleakedPanamapapersandtheperceivedrisksposed ff fi by o shore nance centres (OFCs) and with its link to corruption. ‘ Public disquiet over foreign criminals using OFCs as a means of laun- dering’ their criminal assets through the London property market1 appears to be prompting more overt action on the part of the UK Governmentwithaseriesofrecentannouncements:requiringdisclosure of owners of all overseas companies purchasing property in the United ff Kingdom (UK); a new corporate money laundering o ence that would hold employers responsible for failing to prevent money laundering by theiremployees;2andplansforintroducingtheoffenceof‘illicit’enrich- ment for UK public servants.3 1DamienGayle“ForeigncriminalsuseLondonhousingmarkettolaunderbillionsofpounds” TheGuardian,25thJuly,2015.Availableat:http://www.theguardian.com/uk-news/2015/jul/25/ london-housing-market-launder-offshore-tax-havens. 2Patrick Wintour and Heather Stewart, The Guardian 12th May, 2016 “David Cameron to introducenewcorporatemoney-launderingoffence”.Availableat:http://www.theguardian.com/ politics/2016/may/11/david-cameron-corporate-money-laundering-offence-anti-corruption- summit. 3BBCNews“Moneylaundering:newlawplannedtotargetcorruptofficials”21stApril,2016. Availableat:http://www.bbc.co.uk/news/uk-36098769. vii viii Foreword fi If these proposals nd their way onto the statute books, there will be yet more rules and regulations with which companies and institutions fi nd themselves legally bound to comply. Of course public intervention ‘ ’ within otherwise free markets is predicated on the desire to correct fi someimperfectionandindeedmustbebothjusti edandproportionate. This is especially the case when state intervention places burdens upon fi or intrudes into the lives of its citizens. Intervention in the nancial fi market is more frequently justi ed because in its absence, the rest of the economywouldfailtofunction.Writingalmostthirtyyearsago,Lomax (1987) cited in Franks et al. (1998, p. 1548) makes a most salient “ fi observation the only major threat to the future health of the nancial ” servicesindustryisthatofexcessiveorinappropriatelegislation .Forregula- tion is not cost neutral. Indeed in the UK each new law must be ‘ ’ accompanied by a regulatory impact assessment (RIAs), a soft cost- fi ‘ ’ bene t assessment. Soft because very often costs are only partially fi fi fi identi ed whilst claimed bene ts are unquanti able, presented in narra- tive terms. Thus, Harvey (2004) reviewed the RIAs for UK Money Laundering Regulations in 1993 and 2001 and demonstrated costs to fi fi fi be signi cantly understated and bene ts unquanti ed merely promising sweepingprotectionsforsocietyfromtheglobalthreattotheintegrityof fi the nancial system. Whilst no one would condone the activities of ff organised criminal gangs or of terrorists, they are very di erent both in objective and modus operandi but are within political discourse co- ‘ ’ fi joined in creating the threat giving absolute justi cation for the impo- sition of an extensive anti-money laundering (AML) regulatory framework. Such burdens are not inconsequential. Harvey (2008) noted that the machineryofAMLcompliancehadbecomeself-generatingwithincreas- ing cost implications. Those charged with their compliance within fi institutions can nd themselves personally liable for failures within their organisation or by any of their employees to spot and report ffi money laundering. Her respondents draw attention to their di culties in coping and refer to a culture that is fear driven and risk avoiding. Those bearers of the poisoned chalice of AML compliance (Harvey, 2004) negotiate a tricky line between ensuring that they keep their fi employing rm on the right side of the law whilst ensuring that they Foreword ix do not overly inhibit the activity of those employed by the same fi company to seek out and exploit pro table business opportunities. ‘ ’ fi After all, risk taking is the pursuit of pro table opportunity whereby the risk being taken is assessed, measured and managed. Concerns about costs arising from and associated with what became ‘ ’ termed the rules-based approach, an approach that was proving overly prescriptive and burdensome, resulted in banks lobbying hard for a change in which they both managed to bend the ear of the regulator4 ‘ ’ and were consulted on implementation of the revised risk-based approach to AML compliance. Risk and the appropriate way in which it is handled has its roots in the insurance industry, where it was a ff relatively straightforward a air to assess the probability of a set possible fi incidents or events that have occurred within a de ned time span to a particular subject. Then calculate the loss (for it is usually a one-sided ff a air) arising from its occurrence. In simple terms, risk = probability × impact.Thisquantitativeassessmenttoriskwaslongagoadoptedbythe Bank forInternational Settlementsand promulgatedthroughits various Basel Accords for the measurement and management of risk within the global banking sector. As the main complaint with the cost of compli- ance with the original rule-based approach to AML compliance ema- nated from the banking sector, it was understandable that they would ‘ ’ have been more receptive to a risk-based approach (RBA) as this was familiar language. The banks formed part of a group asked to develop guidance in relation to the RBA to foster a common understanding of what the ff termactuallymeant.Althoughthebestthisgroupcouldo erwasthatit “... encompasses recognising the existence of the risk(s), undertaking an assessment of the risk(s) and developing strategies to manage and mitigate theidentifiedrisks” (FATF,20075p.2). Thisinabilitytocapturewhatis ‘ ’ meantby risk withinthearenaofAMLremainsoutstanding.Guidance 4See Financial Services Authority (FSA) “DP22: Reducing money laundering risk: know your customerandAMLmonitoring”. 5FATF (2007), ‘Guidance on the Risk-Based Approach to combating money laundering and terroristfinancing’FATF/OECD,Paris. x Foreword notes on the RBA set out in the FATF 20136 (p. 4) methodology state “ that Once ML/TF risks are properly understood, country authorities may apply AML/CFT measures in a way that ensures they are commensurate — ” withthoserisks i.e.,therisk-basedapproach(RBA) .Although therewas no attempt to inform supervisors how they should set about assessing risk that being set out in the nine sectoral RBA guidance papers. The guidance for the banking sector,7 however, lacks specificity making application of the approach even more challenging, adding a new ‘ ’ dimension of interpretation risk when the assessment of the bank fails to accord with that of the regulator (see also Demetis & Angell, 2007). In a perfect world, banks should be able to objectively assess the probability that for the total number of transactions passing across ‘ ’ their books x% will likely be associated with criminal activity. Of course in and of themselves these will not necessarily be loss making, so will not be observable from any historic loss database, and so indica- fl tors and red ags have to be built up in more interpretative ways, hence the criticism that banks can only truly observe what is unusual (Favarel- ‘ ’ ‘ ’ Garriguesetal.2008).Unfortunately,unlike risktaking, beingatrisk lacks any objective rod of measurement. What is evident here is that ‘ ’ despite application of common vocabulary, the interpretation of risk within AML is fundamentally different8. ff Itisthisfundamentaldi erencethatAbdullahiBellocarefullylaysout fi before us in this book. He is, of course, not the rst to centre a PhD ffi study on compliance o cers, Antoinette Verhage conducted hers with ffi ‘ Belgian compliance o cials noting (2011, p. viii) that once they are 6FATF (2013) Methodology For Assessing Technical Compliance With The FATF RecommendationsAndTheEffectivenessofAML/CFTSystems,FATF/OECD,Paris,February. 7FATF (2014) ‘Guidance For A Risk-Based Approach; The Banking Sector’, FATF/OECD, Paris,October. 8Foranelaborationofthegeneraldiscussionaboutproportionalityandtherisk-basedapproach, see Van Duyne, Harvey and Gelemerova (forthcoming) ‘The Monty Python Flying Circus of MoneyLaunderingandtheQuestionofProportionality’Chapterin‘IllegalEntrepreneurship, ‘Organised Crime’ and Social Control: Essays in Honour of Professor Dick Hobbs’ (ed) G.AntonopolousSpringer,StudiesinOrganisedCrime.