The Anti Money Laundering Network: the past year

The past year has been strange. And the reasons for that strangeness began, at least in the UK and at least in part, in early 2001. At the beginning of 2001, in the UK, we knew that there were going to be several significant changes to the law relating to money laundering and the regulatory framework in which we operated. The Terrorism Act 2000 would come into force in spring and sometime in Autumn, if they ever managed to fix a date and stick to it, the Financial Services Authority would become an effective entity and formally continue what it had informally been doing for some time. The word was that the regulatory change would mean significantly increased examination of the quality of systems and that this would include training, which had, almost universally, been appallingly done.

There was considerable demand for information and advice.

In early to mid 2001, therefore, there was a significant increase in the number of firms and individuals offering services to do with compliance in general, with some claiming expertise in relation to money laundering. Few of these had any long term commitment to the topic, and were simply opportunistic.

Then came 11 September 2001. Suddenly, at least with regard to both information and training, all bets were off. Proposals that were on the verge of signature were abandoned. All providers of information and most providers of training and consultancy found that the market simply stopped. And it stopped in the USA, too. Everyone in financial services found themselves focussed on one thing: finding and freezing money that may be connected to terrorism. And that, so far as the regulators were concerned, meant spending on technology. And everything else was regarded as secondary.

The Anti Money Laundering Network, at that time a set of loosely connected companies, launched Risk Values. Risk Values is a customer profiling tool. This uses a simple questionnaire, embedded in application forms or CRM surveys, to assign to each prospective customer a Risk Value that describes the customer's propensity to commit financial crime. It uses no financial data, no racial or religious profiling and no information as to address. It is designed to run on very low grade computer systems, even in one version a stand alone PC with only 8mb RAM. And it costs only USD1000 for a stand alone installation, so making it affordable and usable by even the smallest business, and even businesses in the developing world where monitoring software is, simply, impossible to afford.

A rash of new laws around the world meant that businesses could not hope to keep up with the changes, especially those operating internationally. Many struggled to cope but found that they needed extra compliance staff, some at very senior level. The costs of compliance soared. And so any part of the compliance spend that could be cut, was largely cut.

So, as 2002 was beginning, its fate was already sealed. It was going to be tough economically, businesses in trade were going to suffer and that meant that businesses that fed off them - banking, law etc. - would also be adversely affected. The only people expected to make much money were those able to make money from insolvencies - insolvency practitioners and arbitrage specialists.

But then came the seismic event that may be proved to have had a bigger effect on US and global business than 11 September 2001: the announcement that investigators were examining the books at Enron where things, literally, did not add up.

A rush of companies realised that they had been doing much the same, albeit to a lesser degree and there was pandemonium as companies "restated" their accounts. In layman's terms, they removed or replaced misleading or untrue statements.

The year saw the growth of law firms making huge claims against advisers, brokers, banks, directors of companies in respect of reductions in share values. One case alone is currently awaiting approval of a settlement of USD30 million.

The so called "war on terror" resulted in a resurgence of interest in the USA's OFAC lists and similar lists around the world.

The Anti Money Laundering Network, now a more cohesive group, opened an office in Kuala Lumpur and began to develop a global data source for monitoring. The service can be used on-line for only USD0.80 per name search or companies can license the data to run on their own systems. Again, the service has a remarkably low technology demand. It includes the world's only international register of freezing and confiscation orders in both civil and criminal cases.

In many companies, the continued mess over corporate responsibility and funding terrorism diverted thinking and resources away from money laundering.

In the USA, prosecutors continued to rack up prosecutions, the SEC continued to bring civil actions and impose regulatory fines but the focus was elsewhere.

The Financial Action Task Force came under fire from all quarters as its NCCT programme gained powerful opposition. Seemingly, its fate was sealed when the IMF and the World Bank told it to cease the programme, at least so far as new names were concerned. But it still added Nigeria and Ukraine to its "very bad countries" list and Ukraine has now had "countermeasures" applied to it.

As information overload grabbed compliance personnel everywhere, The Anti Money Laundering Network launched World Money Laundering Report: Online. With short pertinent stories Monday to Friday, the service also provides a sideways look at some of the issues that confront all engaged in battling money laundering. It complements World Money Laundering Report and WMLR:Digest, which increased its distribution frequency from sporadic to monthly and then, late in 2002, to weekly.

The Anti Money Laundering Network began to receive enquiries from employment agencies as to possible candidates. To service this demand, AMLJobSearch.Com was launched. Currently free, the service enables companies and employment agencies to post vacancies for a world wide market in compliance, AML and internal audit jobs.

Sarbanes-Oxley has not had the significant impact on businesses that was feared, although this may be a "slow burn." The Japanese NPL scandal continues to dog the financial services industry and the government's latest idea, to allow restatement of loans taking account of projected earnings was heavily criticised by The Anti Money Laundering Network as creating the opportunity for fraud and corruption.

The world was shocked by the Bali bombs. Although the USA and the UK did not notice, as they are spend all their time looking into each other's eyes at present, the social (although not economic) impact of Bali was felt over a much wider area. The important message for Blair-Bush was that terrorism was at work far away and that their selfishness was not helping in a wider context. The Australians responded first with pragmatism and good sense. Then seem to have gone through a period of madness, demanding that they want to base troops in other countries and to send hit squads in to murder those they suspect of terrorism. Whilst South East Asia was repulsed by the idea, the USA not only passed a law permitting this, but then Bush gave executive powers to various agencies to enter other countries and murder suspected terrorists. Against this background, Israel continued to send its murder squads into Palestine and to kill not just the suspected terrorists (itself an illegal act under International law) but, during the last few days of 2002, children as young as nine. The tensions created by the USA's continued support of Israel, and its avowed intent to attack Iraq even if the UN does not agree, have increased tensions for Muslims everywhere, with the result that many are viewed with suspicion even when conducting ordinary financial transactions.

The UK's FSA imposed a massive fine on a bank for failing to have good enough systems, the first indicator that the FSA would indeed be concerned with quality not just presence of systems. However it is unlikely that they will turn their mind to the quality of training any day soon maintaining the status quo which has resulted in a near monopoly for those close to the regulator since the early 1990s.

As 2002 slid away, the Anti Money Laundering Network launched its own e-learning platform, quicktolearnmore.com, developed especially for counter-money laundering training with many innovations and, importantly, very low cost per head and very low technology demand. Immediately on announcement, several major banks, and many smaller banks asked for demonstrations and proposals and the first installation is expected within about six weeks of announcing the product. The unique system is designed from the compliance perspective, with special attention to total cost of operation, especially in an international environment.

Looking forward to 2003, The Anti Money Laundering Network is to develop special products to aid in customer identification for smaller businesses and those in the developing world.

We only hope that Blair-Bush recognise that they cannot expect to wage a war without consequences, both military and economic, at home. The supposed war on Iraq is more likely to end up with terrorism attacks in the US and the UK than with a simple gun battle in a far away desert. Al Queda has shown everyone how much damage can result from a small, inexpensive event. London is gearing up for mass evacuation plans and for closure of massive areas of the city. A dry run will take place in January 2003, according to police sources. London is an obvious, and soft, target for terrorists. And the chances of preventing it by starving it of funds are close to zero. After all, Bush claims a series of successes in his "war on terror." Worldwide, only USD123 million has been frozen. That is an insignificant amount. It is a fraction of the cost of meeting the new compliance demands under the USA PATRIOT Act alone. And, as World Money Laundering Report said immediately after 11 September 2001, terrorism is cheap to do. Whilst estimates of the WTC events were being made at "millions of dollars", WMLR said that it would have cost more like 250,000 dollars. Several weeks later, the FBI said they now thought "under 300,000 dollars."

The war on terrorism and the fight with Iraq are widely seen as waging war on Islam. We have no doubt that this is not true, but the view persists in the minds of a number of people with the capacity to do something about it. p>And stuck in the middle are the financial services businesses who are required to try to stop money flowing. It is a vain hope.

We wish you peace and prosperity for 2003.