Financial Crimes - Once upon a crime: Introduction

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Financial Crimes: Once upon a crime

[00:00:00] Paul Latham: Hello everyone and welcome to the first IFSL Financial Crime Podcast once upon a crime. Firstly, I'd like to introduce the podcast team, which is myself, Paul Laham and Jen Tippey. Hello, Jen.

[00:00:23] Jennifer Tippey: Hi Paul. You okay? Excellent today. Thank you. So Jen is a compliance analyst working within our compliance team, and we'll also have some special guests in this series to share their knowledge relating to preventing financial crime.

[00:00:39] Paul Latham: The purpose of these podcasts is to discuss all things financial crime and improve our understanding of how we can fight against it. There's some questions about this podcast and the answer to which you can add to Suzanne as part of your personal development and training record. Today we are going to discuss all things money laundering, which will also include how to report suspicious activities.

[00:01:13] Paul Latham: So let's start with the basics. Jen. Could you explain to our listeners what money laundering is?

[00:01:20] Jennifer Tippey: I certainly can. Money laundering refers to the process of hiding illegally obtained money by passing it through a legitimate financial system. In simpler terms, Paul, it's the process of turning dirty money into clean money.

[00:01:32] Jennifer Tippey: Money laundering can occur in many forms, including drug trafficking, tax evasion, embezzlement, and other illegal activities.

[00:01:39] Paul Latham: I see. And how about terrorist and proliferation financing? How are these different from money laundering?

[00:01:46] Jennifer Tippey: Well, terrorist financing involves the provision of funds or financial support to individuals or groups that carry out terrorist activities.

[00:01:54] Jennifer Tippey: The money can come from legitimate sources, for example, charities or from criminal activities such as drug trafficking, extortion, or fraud. Proliferation financing facilitates the movement and development of sensitive items and as such can contribute to global instability and potentially catastrophic loss of life if weapons of mass destruction are developed and deployed.

[00:02:15] Jennifer Tippey: I'm quite glad I got that word right Paul, cause I struggle with that on a daily basis.

[00:02:19] Paul Latham: Proliferation. Yeah, it's a tough one, but well done. It is. Um, and, and back to those subjects which are quite alarming. Can you tell us a little bit about the impact of these crimes on society Jen?

[00:02:32] Jennifer Tippey: Yeah, they can have a significant impact on society and they can have devastating consequences for innocent people.

[00:02:39] Jennifer Tippey: And a lot of people don't realize that, but fundamentally, money laundering can also undermine the integrity of the financial system.

[00:02:47] Paul Latham: And are there different types and stages of money laundering?

[00:02:51] Jennifer Tippey: Yes, there are. The fundamental stages are placement, layering, and integration. Placement is the introduction of a legal funds into the financial system, typically by depositing them into a bank account or purchasing assets such as real estate or luxury goods.

[00:03:07] Jennifer Tippey: Layering is to obscure the origin of the funds by transferring them between accounts and converting them into different currencies or using complex financial transactions and integration. Is laundered funds reintroduced into the economy as a legitimate income, often through a business or an investment like your paintings that you own, Paul.

[00:03:25] Paul Latham: Uh, yes, the Van Goch's and the, uh, more local Lowry I wish.

[00:03:30] Jennifer Tippey: Nice.

[00:03:31] Paul Latham: So, Jen, can I ask you, how has this process changed in recent times?

[00:03:36] Jennifer Tippey: Well, one major change has been the impact of new technologies for example, cryptocurrencies have emerged as a popular tool for money laundering because they allow for anonymous transactions that are difficult to trace and due to complexity of cryptocurrencies, cuz they're a bugle to me, I don't know about you, Paul.

[00:03:52] Paul Latham: Mm-hmm.

[00:03:52] Jennifer Tippey: You know, if people can be easily scammed. In addition, the rise of online marketplaces and digital payment systems have created new opportunities for launders to move and hide their money.

[00:04:04] Paul Latham: Thank you Jen. So there must be consequences if we don't guard against money laundering.

[00:04:08] Paul Latham: What are they for a firm and its employees?

[00:04:11] Jennifer Tippey: Well, they can be severe, including fines, imprisonment, up to 14 years, reputational damage for the business as well as the employee. I dunno if you heard recently in the press such as Santander and HSBC have been fined millions in regards to poor customer due diligence.

[00:04:28] Jennifer Tippey: Mm-hmm. There's also a broader economic and social consequence, such as distorting markets and facilitating corruption.

[00:04:41] Paul Latham: Right now we've covered the basics. How can money laundering be prevented?

[00:04:47] Jennifer Tippey: Well, as a firm, we refer to regulations that provide guidance and support how to achieve effective controls in the prevention of financial crime. So these consist of the money laundering regulations 2017, the Proceeds of Crime Act, or what we call POCA, the Financial Action Task Force and JMLSG, the Joint Money Laundering Steering Group.

[00:05:09] Jennifer Tippey: The last two give us guidance on how we can implement these regulations. However, the key to this prevention is customer due diligence and know your customer.

[00:05:17] Paul Latham: That's right. And there's also the FCA, the financial conduct authority, which we both know.

[00:05:22] Jennifer Tippey: There is indeed. How awful that I didn't mention that, that's me outta of a job.

[00:05:26] Paul Latham: It's fine. No, you, no, you're doing well, there's lots to remember there, thank you, Jen.

[00:05:30] Paul Latham: So can you expand a little please on what is meant by customer due diligence and know your customer?

[00:05:38] Jennifer Tippey: I can indeed the overall aim of what we call KYC and CDD is to reduce the risks associated with financial crime by verifying the identity of customers and assessing the risks associated with doing business with them.

[00:05:51] Jennifer Tippey: For example, we verify a person's identity via their documents that provide or electronically screen them. We assess the risks involved in the business relationship with the customer, including the nature of the business, the source of funds and wealth, and the level of transactional activity relating to that customer.

[00:06:09] Jennifer Tippey: We also identify and verify the beneficial owner via a company's house, and this is the big thing within compliance and regulation at the moment, is the importance of understanding the beneficial owner. We screen for politically exposed persons adverse media sanctions. We also maintain accurate and up-to-date records.

[00:06:27] Jennifer Tippey: And finally, we continuously monitor the customer to identify any suspicious behavior or transactions. It is important to note if a customer is deemed high risk, for example, a politically exposed person or customer based in high jurisdiction, enhanced due diligence is required, Paul. It involves gathering additional information and conducting a more in-depth investigation.

[00:06:49] Paul Latham: Thank you very much for that, Jen. There's a lot of in depth work there and just for the benefit of everyone listening, politically exposed person, we're talking like members of parliament, high prominent figure.

[00:07:00] Jennifer Tippey: Oh yeah. So, you know, Tony Blair would still be classed as a PEP. Um, our Prime Minister, for example, is definitely a PEP.

[00:07:09] Jennifer Tippey: Yeah. So it's someone who is basically open to corruption and in the role that they have due to their public service, for example. Yeah.

[00:07:16] Paul Latham: That's right. And it's not them as individuals, it's just they're the sorts of people who do get approached rather than you and I.

[00:07:23] Jennifer Tippey: Yeah. And that in turn makes it higher risk for the business, hence why we have to do some more due diligence on them.

[00:07:30] Paul Latham: Thank you. Excellent that, so with investments then, and money laundering, any suspicions or sometimes known as red flags, should they appear, what are they really to do with investments Jen?

[00:07:42] Jennifer Tippey: This list is not exhaustive, Paul, but some of the main things are unusual source of funds. A customer who is overly aggressive and reluctant to provide information such as the source of funds.

[00:07:53] Jennifer Tippey: I find that is definitely a real red flag in my experience within financial crime. Unusual transactions that are out the norm of the customer. High jurisdictions such as Russia and Iran. Orders that are placed shortly before a significant market event, unable to identify the ultimate beneficial owner due to a complex business structure using shell companies to disguise the ownership of assets.

[00:08:16] Jennifer Tippey: For example, you may have seen in the papers recently the Panama Papers, and this highlighted a lot of businesses that were hiding money offshore.

[00:08:24] Paul Latham: Thank you, Jen. And so let's say if an employee were to become suspicious, they see a red flag or two, what's their obligation?

[00:08:32] Jennifer Tippey: Okay. It is the obligation of an employee to report knowledge of, have suspicion or have reasonable grounds to suspect money laundering.

[00:08:41] Jennifer Tippey: An example would be the company c e o might be involved in fraudulent activities, but they don't have any solid evidence to support their claim. But they're suspicious. Another example would be financial discrepancies found during an audit and the testimonies given by multiple employees that have reasonable grounds to suspect that the embezzlement might have occurred within that company.

[00:09:02] Jennifer Tippey: Does that make sense, Paul? It does. Thank you. Wonderful. I would also stress once an employee has reported their concerns, they have fully satisfied their STA obligations.

[00:09:13] Paul Latham: Excellent. So you mentioned the employees reporting their concerns. How did they do this?

[00:09:18] Jennifer Tippey: Okay. First, an initial investigation is to be completed by the employee reviewing all the evidence available.

[00:09:25] Jennifer Tippey: If the employee still has concerns after the internal investigation is to be referred to the compliance team for the money laundering reporting officer to review and establish next steps and if this needs to be reported externally. The general terminology for this Paul, is internal suspicious activity report, a saw or a suspicious transaction, an order report, a store if the concerns are related to market abuse or inside a dealing.

[00:09:50] Jennifer Tippey: But lastly, it is crucial for all of us to be vigilant and report any suspicious activities. By working together, we can help prevent these crimes and make our society a safer place. No suspicion is a bad one. Paul. I always go with my gut.

[00:10:03] Paul Latham: Good idea that, and Jen, thank you not only for that, but for everything throughout this podcast.

[00:10:08] Paul Latham: I'm sure people have found it very useful.

[00:10:10] Jennifer Tippey: I hope so, Paul. I hope so. And it's been fun doing it together. So yeah, we got there. But I will say compliance are here to support the business. So if you've got any suspicions or any questions, or you're struggling with any kind of investigation, please contact us, we're here to help.

[00:10:26] Paul Latham: Thank you. So following this podcast, if you'd like to update your training and development within Suzanne, after you've completed a few questions that are based on this podcast, that'd be great. And just as a reminder to report any suspicions money laundering you may have, please send them through our mailbox, which is compliance [e-mail].

[00:10:47] Paul Latham: And if you do have any questions related, please do get in touch with us as we are here to help.