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Whiter than white

One of my first anti-money-laundering training projects was back in the early 1980s, in the same year when Derby winner Shergar was kidnapped for a 2m ransom and women’s shoulder pads were wider and racier than any racehorse.

I would start the session by explaining that money laundering is said to originate from Mafia ownership of Laundromats in the US. Gangsters there were earning huge cash sums from extortion, prostitution, gambling and bootleg liquor and needed to show a legitimate source for these monies. One of the ways in which they were able to do this was by buying outwardly legitimate businesses and mixing their illicit earnings with the earnings they received from these businesses. The gangsters chose Laundromats because they were cash businesses, which was an undoubted advantage to people such as Al Capone and his gang.

Money laundering is a global problem that is estimated in more than 80 per cent of cases to have international connections. A prominent case was called Operation Green Ice, where law enforcers from Italy, Colombia, the UK, Canada, Spain, Costa Rica, the Cayman Islands and US co-operated together to expose the financial infrastructure of the Cali Mafia. During the first phase of Operation Green Ice, over $50m in cash and property were seized and almost 200 people were arrested worldwide.

Back on home ground, at the end of last month, the FSA issued a 52-page policy statement reviewing the anti-money laundering rules. All firms involved in overseeing, developing and administering anti-money laundering systems and controls should read this paper. There are some areas of major change as it moves towards a risk-based rather than prescribed approach. The FSA plans to revoke the existing rules from August 31 and firms are expected to be fully compliant with the new requirement by this date. Details can be found at www.complianceonline.co.uk.

The FSA had overwhelming support to abolish the anti-money-laundering sourcebook and replace it with high-level provisions in its senior management arrangements, systems and controls sourcebook. It appears to have listened. Two main issues were raised in response to the consultation:

  • The perception that some firms may see the changes as a message that the FSA has reduced its focus on anti-money laundering and
  • li>The role of the money laundering reporting officer in light of the FSA’s proposal that firms must allocate to a director or senior manager overall responsibility for ensuring compliance with the regulations.

      The FSA confirms that it is not reducing the importance it accords to anti-money-laundering. It considers that the proposed shift towards high-level rules and guidance is entirely consistent with its commitment to reduce financial crime and is a necessary evolution of its policy to enable firms to develop a risk-based approach to the issue. It says the proposal to require apportionment of responsibility for avoiding money laundering to a director or senior manager is intended to reinforce the emphasis on senior management responsibility.

      The policy statement says there was considerable support in principle for extending some of the high-level changes concerning money laundering to fraud. The new senior management arrangements and controls will come into force on March 1, 2006 but firms will have a transitional period until August 2006.

      At the same time as the FSA is reducing its anti-money-laundering sourcebook, it is encouraging banks to further engage consumers in the fight against online banking fraud after research found consumer confidence is fragile. The FSA’s Financial Risk Outlook 2006 builds on the rule that firms must have systems and controls in place to reduce the risk of fraud.

      FSA research shows half of active internet users are extremely or very concerned about the potential fraud risk in making an online transaction and, while consumers are protecting themselves by installing security software on their PCs, over a quarter do not know when they last updated it or update it infrequently.

      Is it not time that all financial services companies, especially banks, took greater responsibility for online fraud and reducing money laundering, as both activities have a seriously detrimental effect on peoples lives?

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