the full picture, this week – 4 May 2018
In our weekly roundups, the encompass team take you through all the breaking news on Know Your Customer (KYC), compliance and financial crime, keeping you informed at all times. This week, we look at the introduction of a UBO Register for Crown dependencies, the rise of automation and whether unexplained wealth orders could solve the problem of dirty money in London.
UK overseas territories Ultimate Beneficial Owner register
Little doubt as to what the big news of the week is, as the UK Government has conceded that Crown territories will be required to create, and make public, their lists of company beneficial owners. The Government had been debating the forthcoming Anti-Money Laundering Bill, during which it became clear that the opposition parties were united in their commitment to ensuring that dependencies such as the British Virgin Islands and Cayman Islands followed the lead of the UK and created a publicly available list of company beneficial owners. The dependencies themselves had campaigned this, stating that they were already transparent in their financial methods, and that the creation of such lists would be expensive at a time when they were rebuilding following last year’s hurricanes. The Caribbean countries are further frustrated that although they have been targeted, other dependencies such as Jersey and the Isle of Man have so far been exempted. Pressure for the creation of a public list of UBOs has been growing following the release of the Panama and Paradise Papers.
Andrew Mitchell who called for the amendment to the sanctions and anti-money laundering Bill alongside Margaret Hodge said in the House of Commons:
“It is only by openness and scrutiny, by allowing charities, NGOs and the media to join up the dots, that we can expose this dirty money and those people standing behind it. Closed registers do not begin to allow us to do it.”
Foreign Office Minister, Sir Alan Duncan told the Commons:
We do not want to legislate directly for them [Crown dependencies], nor do we want to risk damaging our long-standing constitutional arrangements which respects their autonomy.
However, we’ve listened to the strength of feeling in this House on this issue and accept that it is without a doubt the majority view of this House that the overseas territories should have public registers ahead of it becoming the international standard, as set by the Financial Action Task Force.
There has been coverage in all of the major press of the announcement, including commentary from encompass MD, Paul Charmatz.
Further coverage can be found in the Guardian, Nasdaq, Daily Mail, City AM, Independent, BBC, and Belfast Telegraph. ITV News leads on the Channel Islands avoiding the measures. An editorial in the Guardian argues that the UK is right to take these measures, and they should have been brought in sooner. Tax Justice campaigner Richard Murphy has written an op-ed in the i. CBC has mourned that as the UK begins to legislate, it is time for Canada to pick up the pace on tax havens. Finally the Jamaica Observer has published the Caymans displeasure at the measure being passed.
anti-money laundering and financial crime
This week we focus on the Asian market with developments in Taiwan and Hong Kong, before taking in some recent developments in the legal sector, and on Unexplained Wealth Orders…
Ready? Let’s go.
In the Taipei Times, there is a detailed look at Taiwan’s first ever money laundering and terrorism financing report. Thirty-seven government agencies and 31 private-sector groups collaborated on the report, which is aimed at preparing the government for the Asia Pacific Group on Money Laundering (APG) meeting in November. The report highlighted nine areas for improvement, including trafficking in narcotics, fraud, organised crime, corruption, smuggling, securities crimes, third-party money laundering, tax evasion and intellectual property crimes.
The South China Morning Post revealed Saturday that the volume of suspicious transactions carried out in Hong Kong has more than quadrupled in six years. They concede however that this may be down to better reporting and more focus on the area of money laundering. However, there has also been a slump in the number of people convicted of money laundering offences.
And the Post followed up on this on Tuesday, reporting the release of a government report on Monday night which confirmed many of the fears that they reported in their Saturday article. The official report was released prior to an official audit from the Financial Action Task Force (FATF) in October.
The report states:
The number of suspicious transaction reports received by the Joint Financial Intelligence Unit has risen significantly over the past five years. The rapid growth in [suspicious transaction reports] reflects a growing awareness of money laundering and terrorist financing but presents challenges to the JFIU in terms of handling capacity.
On to the legal sector now, where there have been a number of recent developments over the last week…
The Department for Business, Energy and Industrial Strategy (BEIS) of the UK Government has concluded an investigation into Scottish Limited Partnerships (SLPs) and has – entirely unsurprisingly – concluded that the scheme be scrapped. There have been numerous calls for the ending of SLPs which allows for secrecy and have reportedly been used as a conduit by money launderers. SNP Member of Scottish Parliament, Alison Thewliss, has written in the Herald newspaper “on the dark and murky world of SLPs”, noting that further action from both Holyrood and Westminster are required.
Reports to the Solicitors Regulation Authority (SRA) around the mishandling of client money in the sector have fallen by around a third in the last twelve months. The SRA has also moved to enforce money laundering regulations more strictly after it found two-thirds of firms had inadequate compliance procedures in place in a recent review of 50 firms.
The Law Society Gazette has reported on private wealth in the UK, noting that lawyers advising wealthy private clients must walk a fine line by ensuring privacy for their clients against pressures from the public and regulators for more transparency. More than 100 jurisdictions have signed up to Common Reporting Standard (CRS) as set out by the Organisation for Economic Development (OECD), with half of these now sharing information on offshore accounts. Trusts are also being targeted with Her Majesty’s Revenue & Customs (HMRC) launching an online register of trusts following implementation of the 4th Money Laundering Directive (4 MLD).
And in a stark example of what can occur for lawyers not thorough in checking the true identity of their clients, one lawyer last week was struck off and jailed for nine months for not complying with money laundering regulations after being taken in by a known fraudster. Always, always, Know Your Customer.
The FT have this week been covering the subject of Unexplained Wealth Orders (UWO), a subject that has hit the headlines following the Skripal case in Salisbury. UWOs work when there is a gap between a subject’s declared income and a matter they are trying to buy that is significantly more expensive, and could be used against Russian oligarchs, drug dealers and more. UWOs have so far been underutilised, but the agencies that employ them, such as HMRC are independent of government, and they cannot therefore be used as a political weapon.
The repercussions of 4 MLD are explained in this in-depth piece from the FT Adviser. Looking at the implications of KYC checks and the inherited cost of conducting checks for AML purposes, the article explores whether automation is a potential panacea for these problems.
Sadia Basharat of the National Defence University of Islamabad has written an op-ed in Eurasia Review linking the dramatic rise in white collar crime and terrorism. And The New York Times has published “the white collar cheat sheet”, a – dare we say, entertaining – examination of how to make money from nefarious means.
And now for something completely different….
We’ve written screeds of text on the impact of 4 MLD on banks, law firms, and professional service companies… but not so much on art dealers. The Art Newspaper has us covered, however, reporting that all dealers selling pieces of EUR 10,000 or more will need to conduct checks for money laundering from 2019.
Anthony Browne, the chairman of the British Art Market Federation (BAMF) said:
BAMF’s main concern is to now work with the government to minimise the administrative effect on small businesses. The extension of the directive to cover all payment methods, rather than just cash, will bring almost all BAMF member businesses into the regulated sector.
The founder of WhatsApp has left the company. It is reported that Ukrainian, Jan Koum has left his position following concerns over data privacy at the Facebook owned company. Coverage can be found in TEISS and Huffington Post.
Michael Boskin writing in Project Syndicate has written on the 5 big changes that will prompt further regulation of tech firms, including privacy, market power, control of information, concentration of wealth and national security.
And if each country participating in cyber-warfare was a chess piece, which would they be? Found out which, and why in TEISS.
Business Insider has reported that the Chinese army are working to monitor soldiers brain waves. The “emotional surveillance technology” helps employers identify mood shifts so they can change break times, an employee’s task, or even send them home.
The digital only bank Revolut has attained unicorn status. Only founded in 2015, Revolut was recently valued at £1.22 billion.
There has been considerable coverage of the automation sector this week.
Huffington Post has travelled to Flint, Michigan (famous for the lack of clean water) where there used to be a plethora of jobs in car making that have now gone, and looking at what the impact on the local area has been. The Economist has also been beating the drum for those worried about the future of their jobs, stating that 50% of jobs could be lost to automation. John Harris in the Guardian has topped this however, calling our potential future “terrifying”. Christian Science Monitor, meanwhile, looks at the impact of robots on car makers, citing that humans and robots need to complement the work that each other do.
Kicking of with the Financial Brand. They have argued that AI should be used in banking to help consumers manage their finances. At this time management of day to day spending is one of the biggest concerns for consumers, yet there are surprisingly little by way of tools to help with it.
The Head of Investors in People, Paul Devoy has written on LinkedIn that companies should begin to use AI to help their employees, and it is those that can adapt to new working practices that will come out as the winners.
CryptoUK, the self-regulatory body set up to represent the sector, has called on the Government and Financial Conduct Authority (FCA) to regulate the sector by issuing licenses, say Finextra and CryptoNews Review.
Iqbal V Gandham, chair of CryptoUK, said:
Introducing a requirement for the FCA to regulate the ‘on-off’ ramps between crypto and fiat currencies is well within the remit of HM Treasury. Based on our analysis, this could be achieved relatively easily, without the need for primary legislation, and would have a huge impact, both in reducing consumer risk and improving industry standards. This is an approach which is already working well in other countries, who are now taking the lead over the UK, for example in Japan and Gibraltar. This is a wonderful opportunity for government to take a proactive stance, putting action where there are positive words and reinforcing the UK’s role as the world’s financial capital.
City AM have concluded, following the remarks from CryptoUK, that cryptocurrencies and the City of London need each other for both to flourish.
The former CEO of Paypal, Bill Harris has called Bitcoin a “scam” and has warned it will only be used for criminal activity.
And Bill Harris would certainly have said “told you so”, on reading this story in the Evening Standard. A scammer who stole £500k of Bitcoin was taken down by the Met Police as he tried to board a train last year.
But maybe he would have been quieter here – as the government of Hong Kong has announced that cryptocurrencies have made virtually no difference to crime levels in the city state.
anti-bribery and corruption
There was a stark warning to house builders Monday, as a survey indicated that a staggering 97% of middle-market house builders are susceptible of falling foul of anti-money laundering and anti-bribery legislation covering the sector.
Kelly Boorman, head of construction at RSM, said:
Our research highlights that anti-money laundering and anti-bribery legislation presents a real risk to the construction sector. Not only the reputational and operational disruption if there is a breach; but also implementing sufficient internal procedures to mitigate risk. It also suggests a worrying ‘cake and eat it’ mind-set within middle market business. On the one hand businesses recognise the major risks they face, yet on the other hand remain reluctant to fully engage in a process that minimises the risk and associated liabilities.
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