wmlro.com: UK plans yet another review of AML law and regulation

In late 1997, the UK's newly elected Labour government got into a spot of bother. Its immediate response was to launch a high-profile, high-level but essentially rhetoric-only, media-friendly, sound-bite laden attack on organised crime. It grabbed headlines for a few days, long enough to distract the mainstream media from the current problems.

Now, some 12 years on, there has been a firmly established pattern: there have been dozens of occasions on which organised crime, money laundering and terrorism have been called upon to provide a similar distraction.

And, in addition to the carefully timed statements, there have also been many new or amended legislative measures.

Ironically, the legislation that gets the least publicity is that which governments negotiate behind closed doors - EU Directives.

An EU Directive does not require national governments to debate it. The Money Laundering Directives are negotiated, primarily, by Treasury departments. The historical rationale behind this is that they are measures for the regulation of the banking sector, a function that is generally conducted by (directly or indirectly) Treasury departments through central banks or semi-autonomous regulators.

Yet, since 1997, there have been three revisions of the Money Laundering Regulations, the UK's secondary legislation made under a succession of directives.

Moreover, there have been three major revisions of the regime as managed by regulators.

Now, as the government prepares for an election, and tries to face down the increasingly obvious truths that it failed to protect the UK against a global meltdown - and that its measures were wallpapering over deep cracks - it is joining with other governments to divert the blame - and to place it on regulators and the financial sector generally.

As part of a widespread review of financial sector regulation - but without making specific reference to that review - there has been an announcement of yet another review of the UK's AML / CFT regime.

This time, however, it is not focussed on legislation, nor on the specific targets, but on the Regulations made under the Directive. The Review also says that it is to look at the wider application of the Regulations: that means, without saying it, that it is expected to review both the current approach of the Financial Services Authority (which has reduced its money laundering related provisions to little more than a shell) and the Joint Money Laundering Steering Group (an industry-body which agrees its own standards and then submits them to the Treasury (not the FSA) for approval as a result of which they become, in effect, the regulatory regime that business sectors it covers must apply.

Given that one of the first acts of the Labour government in 1997 was to take steps to abolish self-regulatory organisations in the financial sector, the JMLSG is an anachronism.

But the regulatory regime takes in a multitude of professional bodies and HM Revenue and Customs (which registers various businesses and applies the Money Laundering Regulations to them.

A series of changes has moved responsibility for intelligence first to responsibility divided between between the FIU (which was then at the National Criminal Intelligence Service) and the Security Services (MI5) and later to a combined service at The Serious and Organised Crimes Agency. The Asset Recovery Agency was created and then abolished, its functions being subsumed within SOCA.

This is against the background of the re-writing of the counter-money laundering legislation into the incomprehensible Proceeds of Crime Act and a series of other Acts dealing with organised crime gangs, the financing of terrorism and other measures - all of which have meant that risk and compliance officers have had no respite from a torrent of fiddling with the provisions they are supposed to apply and enforce.

And all of this has to be set against a stream of cases that undermine or vary the laws so that fixing the boundaries of risk and compliance has become impossible.

Despite all of this, individuals are place in the position where they can be prosecuted for failures in highly complex, geographically and culturally diverse organisations where failures happen far removed from their daily work. Money Laundering Risk and Compliance Officers are whipping boys for the failure of organisations to implement and maintain effective systems and controls.

So a focus on the Regulations is only a minor part of the story. What is actually required is a wholesale review of the law and its impact on the financial sector and on criminals. The law needs to be written properly, in a properly structured fashion. And it needs to be written in a form of English that can be defined and applied. It needs to fix the holes created by judges - holes that exist due to loose language that the judges can interpret as they please.

There is, therefore not a prayer that the review will be done properly, and not a prayer that its results will produce a genuine improvement in the situation. And there is not a prayer that, even if it did generate a valuable response from government that it will be implemented before the next Election.

So here's the thing: all those who submit responses, as we all should, are actually a part of the Labour political machine. There is absolutely no valid purpose, for the industry, in this review. But failing to make submissions is worse than wasting time doing it, because a failure to respond will be taken as tacit admission that the current position is satisfactory.

It isn't.

So we should all, individually, respond, making the points, for and against the current regime that we consider appropriate.

If readers think it's fine now, then say so. Your voice should be heard. But when you do so, please explain why it is fine, and explain what it is about the current regime that you like.

But if readers think it needs work - a little or a lot - then submitting reasoned comments is a very good way of opening the discussion with the next government. After all, you are paying for this review. This may be the last time for a long time you actually get to comment on the impact on your company - and you as a Money Laundering Risk Officer - of EU law and other legislation, rules and guidance notes.

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Re-Engineering Financial Sector Regulation

Nigel Morris-Cotterill is Head, The Anti Money Laundering Network, the ultimate holding company of Vortex Centrum Limited, publisher of BankingInsuranceSecurities.Com and other titles relevant to this article.

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