Financial institutions, customers, and anti-money laundering
Andrea Martin-Swaby, Guest Columnist
THE FRUIT of the proverbial poisoned tree may be apt to describe the wealth derived from illicit activity. Money launderers seek to sanitise this fruit to conceal its provenance. Unconcealed, its possessor remains vulnerable to detection by law enforcement. Consequently, successful placement of this fruit within the financial sector is a crucial step. Once placed, it can be further disguised by engaging in layers of transactions which makes detection an arduous task. The fruit, then reintegrated in society, has the appearance of legitimacy.
Concealment and adequate disguise are achieved by first introducing the fruit to the legitimate business or institution in the financial sector. Consequently, any institution that engages in financial transactions must be aware of this undeniable vulnerability of being a conduit for the cleansing of dirty money.
Financial institutions, such as banks, building societies, and co-operative societies have had the unenviable but important task of adjusting their policies and protocols to keep pace with international and domestic requirements for anti-money laundering best practices and procedures. What may appear to be burdensome and irritating to many customers was devised to prevent a deliberate mischief.
But what about John, a law-abiding citizen who may not be aware of these anti-money laundering protocols? He goes to a remittance agency to withdraw a sizeable gift sent from a relative overseas. Questions concerning his address and source of funds are posed. John is then asked to produce proper identification. A transaction that may have previously taken three minutes now takes a much longer time. Unbeknown to John, these questions are deliberately posed in an attempt by the regulated business to ensure the gift is not a fruit of the proverbial poisoned tree.
The plethora of questions asked of John result from the important obligations in law placed on financial institutions to know their customer, and to maintain proper records of transactions. Remittance agencies, banks, insurance companies are required by law to take steps to ensure that their institutions are not used to sanitise the ill-gotten fruit of the poisoned tree.
The Proceeds of Crime Act requires that persons employed to these institutions disclose suspected money-laundering activity. As such, a person employed in this institution commits an offence where he knows or has reasonable grounds for believing that a person has engaged in a transaction that involves property derived from crime, and this information came to them in the course of business. The questions asked of John are deliberately posed to ensure that adequate due diligence is exercised before engaging in the transaction.
A business in the regulated sector is also required to pay special attention to all complex, unusual or large business transactions carried out by each customer. The business must also maintain records of all complex, unusual transactions, or unusual patterns of transactions. These records must be maintained for a period of at least seven years. The law does not define the term suspicious transaction, but it uses words such as complex, unusual and large.
John, having endured the questions, is allowed to access the gift sent. He shares his experience with several of his peers who indicate that they faced similar questions when they utilised other institutions. They laugh as they perceive that the nature of the questions endured may mirror that which is to be expected in an Ebola screening. John and his colleagues ponder the reason or cause of the present state of affairs.
These requirements are in keeping with international best practices. They have been influenced significantly by the Financial Action Task Force, an intergovernmental body responsible for promulgating anti-money best practices and procedures. Their recommendations to participating states include the inclusion of certain professionals and businesses within the reach of the anti-money laundering regime.
The concern was expressed that money launderers were increasingly using certain professionals and businesses who engage in certain types of transactions to launder their illicit wealth. As such Know Your Customer requirements, and suspicious transaction reporting, which were imposed on financial institutions, were to be imposed on registered public accountants engaged in certain specified activities, licensed gaming machine operators (who operate 20 or more gaming machines), real estate dealers, casino operators and attorneys-at-law engaged in certain types of transactions.
In November 2013, certain professionals and businesses were designated as non-financial institutions for the purpose of bringing them within the regulatory framework imposed on financial institutions.
One may question the reason for the inclusions. It has been argued that the strict regulatory requirements imposed on financial institutions act as a deterrent to persons who seek to sanitise their ill-gotten fruit. Consequently, alternative institutions whose services could be utilised to achieve the end of concealing or disguising the ill-gotten fruit remained vulnerable to money launderers.
Andrea Martin-Sawby is assistant director of public prosecutions.