The Financial Action Taskforce (FATF) Mutual Evaluation of the UK has been hotly anticipated. Delivered last Friday, it gives a generally positive review of the UK’s financial crime controls. Its findings however have been divisive with readers falling into one of two groups: those who believe that it is a sugar-coated whitewash which ignores the UK’s role in huge money laundering scandals, and those who genuinely believe that it reflects the country’s commitment to improving controls and transparency. Emotion aside, the evaluation highlights some key areas that the UK must work on if it is to maintain such high marks in the future.
One area of particular note is the under-resourcing of the UK’s Financial Intelligence Unit (FIU) and wider law enforcement agencies to make proper use of information that could be obtained from SARs. The resourcing of the UK’s public sector gatekeepers is something that gets less attention than it should and FATF has done a good job bringing it to the fore. The report also highlights key but well known weaknesses such as the validity of data in Companies House and the vulnerability of Scottish Limited Partnerships to abuse by criminals. The Government speedily issued a statement on Monday saying that both points will be addressed with new measures. The evaluation may have split opinions but let’s hope that this doesn’t distract from the important points it does make.
Working with intermediaries and third-parties increases your chance of enabling a financial crime, especially when proper due diligence isn’t carried out. This is a lesson that HSBC and Standard Chartered will be reminded of as they become ensnared in the increasingly messy Huawei sanctions scandal. Earlier this month Canadian authorities arrested the Chief Financial Officer of the technology behemoth’s Canadian outfit, Meng Wanzhou. Wanzhou has been accused by US authorities of lying to four banks that Huawei had severed ties with a subsidiary called Skycom Tech that sends payments to, and operates in Iran. By doing business with Huawei the banks will have violated sanctions on Iran.
For the banks involved this could be dangerous. Both HSBC and Standard Chartered were under Deferred Prosecution Agreements (DPAs) at the time for historic sanctions violations also on Iran. Luckily for the banks however, this scandal is part of a much larger game of diplomatic chess and so their failings went unpunished. China has declared the detention of Wanzhou “most vile” and has threatened Canada with “grave consequences” if it does not release her. The incident also puts considerable strain on relations between the US and China who had declared a ceasefire from their trade war. Once again, in 2018 financial crimes are being used as levers in much larger international disputes.
After a number of troubling events in recent weeks, Deutsche Bank is likely to find coal at the bottom of its stocking this Christmas. It all started two weeks ago, when the Polizei raided the Frankfurt headquarters of the bank, searching for documents that related to findings in the Panama Papers. Days later, in a separate investigation, US authorities unsealed a set of indictments charging four individuals with money laundering and tax fraud for their roles in setting schemes for Mossack Fonseca (the law firm at the centre of the Panama Papers) to help its clients hide their wealth.
Both events imply that two years on from the original revelations, authorities are finally closing in on those who created and curated the schemes that shocked the world when they were uncovered. This was further confirmed on Monday when German prosecutors said that they were investigating two unnamed Deutsche Bank employees and one former employee for their roles in helping clients launder money. Not only has Deutsche Bank found itself at the center of Panama Paper investigations, but it was also disclosed last week that the bank handled $35bn more suspicious transactions from the Estonian branch of Danske Bank than was originally thought. As the new year approaches Deutsche Bank must be hoping that 2019 will be less scandal-ridden than 2018.
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