Money laundering made difficult

The uprisings across the Arab world this year have focused the minds of regulators and prosecutors on money laundering.

They may have rich pickings: a recent survey of 600 compliance officers around the world by Dow Jones, the publisher of The Wall Street Journal, and the Association of Certified Anti-Money Laundering Specialists revealed that 50 per cent of respondents found anti-money laundering regulations were increasing. But 60 per cent said a significant hurdle to complying with the onslaught of new rules was a lack of training and resources.

The World Bank is currently examining the flow of money from deposed dictators in north Africa, with help from the UK’s Serious Fraud Office. Meanwhile, US authorities investigated HSBC, the banking group, for money laundering in the past year, and Barclays, the UK bank, paid a $298m fine in 2010 as part of an agreement to settle a US investigation into sanctions violations.

Unsurprisingly, banks are also under scrutiny in the UK. The Financial Services Authority said this summer it would step up its examination of money-laundering controls after it found that about a third of the banks it reviewed dismissed serious allegations about customers without sufficient research.

It fined the Royal Bank of Scotland £5.6m ($8.8m) last year for not having tight enough controls to guard against payments that could have been used to finance terrorism. Two more unnamed banks face further FSA enforcement action.

The FSA is also shining a light on investment banks’ compliance with the Bribery Act, which came into force in July and is meant to overhaul Britain’s antiquated bribery and corruption laws. The SFO can now prosecute a company – or person associated with it – that has ties to the UK even if it is headquartered outside the country. While the SFO is a criminal prosecutor, the FSA as a regulator can fine banks millions of pounds if they are found to have weak systems and controls, even if no wrongdoing has occurred.

In addition to the sweeping nature of the act, UK prosecutors may have another weapon in their arsenal with which to fight white-collar crime. Edward Garnier, the solicitor-general, announced plans under which companies could face fines of hundreds of millions of pounds as part of US-style deferred prosecution agreements.

DPAs occur when a company approaches a prosecutor and admits wrongdoing. It agrees to pay a fine and provide independent monitors to resolve any issues, in exchange for the suspension of a conviction, which can strike off a company from government tender contracts. For many businesses, that could be fatal and would result in thousands of innocent employees losing their jobs; an effect Mr Garnier is keen to avoid in prosecutors’ – and voters’ – zeal to bring large companies to account.

“I think now’s the time to have a more mature debate on how we deal with corporate offending in the UK,” says Kathleen Harris, a former SFO official who is a partner at Arnold & Porter, the law firm. “In reality, all we can do at the moment is impose a financial penalty; and is going through the court process really the right approach? There must be a more efficient way of going about things, and that is what DPAs are all about.”

Under Mr Garnier’s proposals, the SFO, and possibly other prosecutors including the FSA and the Office of Fair Trading, could use the agreements to encourage multinational companies to confess to wrongdoing.

The US Department of Justice garnered $2.3bn from 32 DPAs in 2010, according to data gathered by Gibson Dunn, the US law firm; Mr Garnier would like to see a portion of any fines go directly back to the UK’s cash-strapped prosecutors. The SFO, for example, had a budget of £53m in 2008. Its budget this year is £34m, with £2m ring-fenced to enforce the Bribery Act.

The one point of contention so far in Mr Garnier’s proposals is that the judiciary will have far more discretion in setting penalties than in the US. This is a necessary concession after judges harshly rebuked the SFO for bringing them precourt arrangements in the cases against Innospec, the chemical company, and BAE Systems, the defence equipment group. The problem is that if the court determines the penalties, the uncertainty attached to this will not provide companies with an incentive to confess to the SFO.

“I would expect that if DPAs were introduced, we would see some point of reference over the decision-making; we would be able to predict the factors that judges would take into account,” says Ms Harris.

All this prosecutorial attention on how companies handle money may make professionals with a relevant qualification more attractive. With that in mind, the Chartered Institute for Securities and Investment has created a Combating Financial Crime qualification. It is equivalent to an A-level (a British further education qualification), and will require 100 hours’ study time and a two-hour exam.

“It is the first time that a paper treats all of these issues at once and makes clear that implementation of measures and policies for what might seem as a very costly and overwhelming set of requirements can be achieved effectively and in line with the commercial interests of the private sector,” says Nikos Passas, a professor of criminology at Northeastern University in the US.