Lex’s Midweek Mail: NatWest’s musty bag of cash means UK fails the sniff test

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Dear reader,

Famous money launderers in hiding. But there’s no need for subtlety in the scheme that just landed NatWest with a £265m fine.

The circumstances of the case – described as astonishing by the bank’s own lawyer – involved black barrel liners filled with cash. The deposits – quite literally – failed the smell test. Employees complain about their “musty” smell, indicative of long-term storage, rather than commercial use.

The UK drug cartels’ ability to launder money and other crimes causes direct harm. But the total amount involved is only a fraction of the hundreds of billion pounds Illegal funds – often stolen from citizens of very poor countries – are hidden within or passed through UK structures.

Those schemes rarely involve anything as obvious as the bag of banknotes. But the weaknesses shown in the NatWest case are relevant. Bank, fined £265 million by a London court for failing to stop the scheme, had not identified suspicious activity. Its system generates many alerts. But it fails to scrutinize them.

A similar problem, write large, undermines the global anti-money laundering system. It is based on reports of suspicious transactions. Behind-the-scenes organizations submit a large number of reports, overwhelming regulators’ ability to analyze them.

According to the UN commissioner, very few cross-border financial crimes are prevented or exposed through such reports. search. According to financial crime expert, compliance costs are 100 times higher than recovery crime funds Ronald Pol.

Focusing on the process – rather than the outcome – would explain why, notably, the UK has received points in the top for its control from the Financial Action Task Force, the global anti-money laundering watchdog. It’s 2018, a year of re-evaluating the role of “London laundromat” in wash Russian illicit money.

The UK is not alone. There is a correlation between countries that score high in anti-money laundering compliance and countries that launder money illegally. The so-called “money laundering” paradox“Less surprising than it sounds. Places that score high on these indicators tend to have expensive homes and other attractive ways to spend and store illicit wealth. They also offer a veneer of respect. As Brookings’ Matthew Collin said: once you walk into the VIP area of ​​a club with a fake ID, chances are no one will ask you to leave later.

This situation has been left for many years, despite a lot of hand-waving. One reason is that storing dirty money rarely causes much damage to financial centers or institutions. That may be changing. Denmark’s Danske Bank’s role in Russia’s corrupt money laundering has toppled its management and could cost billions of euros in fines or settlements. As the chart shows, British shell companies have played a large role in the scandal.

The chart shows non-resident customers sin the Estonian branch of Danske

There are signs that banks are becoming more cautious, as regulators imposed harsher punishments worldwide. The decision to file criminal charges against NatWest, the first in an anti-money laundering case, sends a powerful message. UK banks, wealth managers and insurers have given up a record number of high-risk customers.

But even as banks become more vigilant, money launderers may find new opportunities elsewhere. Transparency International this week warned about payment industry, which identifies money laundering risks at more than a third of UK-licensed crypto institutions. Regulators are concerned that blockchain technology making it easier for criminals to move money in the global financial system. Freelance transport operations, currently rolling out across the UK, are also likely to be abused by money launderers.

Regulators may not get much sympathy, but they have an undeniably difficult task. In its recent Budget, the UK government announced a new £100 million levy to the financial sector to help fund its anti-money laundering efforts. That would help, but it would still be a struggle for regulators to keep specialist staffers able to command higher wages in the private sector.

A more progressive suggest was brought up by Jason Sharman of the University of Cambridge and colleagues, who note that many money laundering scandals have been exposed by journalists, NGOs and whistleblowers. They propose to give NGOs legal status to sue civil cases to recover proceeds from corruption and other financial crimes. They will be financed through a portion of fines collected from complicit banks.

The hunt for stolen money can even turn into a spin. It can attract impact for-profit or ethical investment schemes, the researchers argue.

It’s a controversial policy rule, but it’s free from the frivolity – and hypocrisy – that have long plagued the fight against money laundering. Troubleshooting can require more than just a better implementation of existing rules. However, as the NatWest case shows, it is a necessary starting point.

Enjoy the rest of your week,

Vanessa Houlder
Writer Lex

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