Business secretary Sajid Javid promises to reduce bureaucratism on money laundering

Cumbersome rules that cost customers and banks time and money but do not actually stop money launderers and terrorists could be axed, business secretary Sajid Javid says, under a new assault on red tape in the finance sector.
Rules to stop the transfer of ill-gotten gains have tightened in recent years following a spate of high-profile scandals such as HSBC’s failure to stop laundering by Mexican drug dealers using its accounts.
However, those tighter rules have also harmed some innocent customers. Some have found themselves cut off from bank accounts or payment services because they are associated with unstable countries such as Somalia, while others have had to pay fees to prove their identity to their bank or investment firm.
“We are committed to saving businesses a further £10bn in red tape to help create more jobs for working people, boost productivity and keep our economy growing,” said Mr Javid, who is himself a former financier and used to work at Deutsche Bank.
“This new review is about making sure the rules we have to protect our strong financial services industry from abuse are not unintentionally holding back new and existing British business. I want firms to come forward and tell us where regulation is unclear or its enforcement ineffective.”
The call for evidence from the Department for Business, Innovation and Skills is open until October 23, and seeks to hear from banks and their customers if there are cases of the rules being disproportionate and heavy handed. Ministers also want to see any examples of better systems from around the world.
Banks hope that the threat of enormous fines will be reduced in instances where lenders can show they worked hard to meet competing goals of stopping illegal activity while also serving the vulnerable customers who the government wants to help.
A particular concern is incoming rules on politically exposed persons, shortened to PEPs in the sector’s jargon.
While this traditionally covered politicians in countries with high levels of corruption, new EU rules could expand this to all politicians in the UK and their families.
“This sometimes runs a little contrary to common sense,” said Chrisol Correia, director of global anti-money laundering at LexisNexis Risk Solutions.
“For example, this will mean that at the point of entry to a bank, the son or daughter of an MP will initially have the same risk weighting as the governor of an oil rich province from an unstable emerging economy – the bank will have to treat them initially the same way, when they clearly pose different levels of risk,” he said.
“That will be quite demanding on customers, and it is a large population, covering elected officials, civil servants, senior members of the judiciary and military, and also their family members.”
Those customers and their banks will all have to spend far greater amounts of time applying for accounts, which means resources will not be free to allocate to the riskiest customers, he said, and could result in higher costs for ordinary customers across the bank.
One problem for the government is that the British authorities may not easily be able to adjust rules and guidelines which are set at a global or European level. In addition, UK banks must abide by differing rules on the ground in the different countries in which they operate - particularly the US, which enforces its finance rules rigorously, covering anyone who settles dollar transactions through the US even when the parties involved in the tranfer of funds are based in other countries.

Five men have been arrested following an investigation involving the FBI into cocaine trafficking and money laundering in Australia

Five men including a well-known music promoter have been arrested following an investigation involving the FBI into cocaine trafficking and money laundering in Australia, police said Friday.

New South Wales police said the case, which allegedly involves money laundering through casinos, dates back to 2011 when they seized Aus$702,000 (US$500,000) from a Sydney hotel room.

"We'll allege that the criminal network involved has been importing cocaine to Australia [and] that approximately $5 million or so has been laundered as a result of that importation," Detective Superintendent Scott Cook told reporters.
"[The] $702,000 that we seized in 2011 related to that."

Police said three men were arrested in Sydney on Thursday, another in Melbourne and the fifth in the United States, reportedly as he played golf.

They did not name the five but the man arrested in Melbourne was named in reports as music promoter Andrew McManus, 54, whose promotion company has been involved in bringing bands such as Kiss to Australia.

New South Wales police said only that a 54-year-old had been charged with perverting the course of justice, having the intention to defraud by providing a false or misleading statement, and knowingly participating in a criminal group.

A lawyer for McManus said his client would "strenuously defend the charges that have been brought against him".

All four arrested in Australia, two of whom face the same charges as McManus while the third was charged with money-laundering, have been released.

Australian police said they would seek the extradition of the man arrested in the United States, who is a citizen of that country, on allegations of money laundering, drug supply and other offences.

Data Privacy and Anti-Money Laundering Rules on a Transatlantic Head-On Course

In the digital age, financial data is both a commercial tool and a means of detecting criminal activity. This leaves multinational financial institutions, especially those that operate in both the United States and the European Union, at risk for fines and litigation.

The dual nature of financial data means that it is simultaneously governed by two regimes: anti-money-laundering and counter-terrorism finance laws that seek to protect the financial system from fraud, crime, and political violence; and data protection and privacy laws that seek to protect an individual's identity and choices from government and private abuse.

Neither set of regulations adequately addresses financial data's dual role. This means that multinational banks can find it difficult to comply with one without violating the other — particularly given that different countries incentivize banks to prioritize different regimes. It is time for the financial sector to take this opportunity to establish industry standards that turn client privacy into a business asset. This will mitigate the operational risks arising from sometimes-contradictory national AML and data protection requirements.

There is some harmony between U.S. and E.U. risk-based laws intended to root out money laundering and terrorist financing. Privacy is a different story.

The E.U.'s comprehensive rules-based system protects privacy as a human right. The law is meant to be applied with limited exceptions. Meanwhile, the U.S. protects privacy by sector and typically treats consumer data as property, with civil rights set by case law. Multinational banks find themselves balancing different demands on the data they collect from their clients, which causes problems in AML compliance.

The legal ambiguities have their greatest impact with cross-border data flows. This year, the E.U.'s fourth money-laundering directive legalized group-wide suspicious activity reports and supporting data and included data protection provisions that safeguard these transfers.

Couching data protection within AML operations provides a trail of accountability. But U.S. and E.U. multinationals still face obstacles since they do not, and cannot, allow unfettered data access among all of their affiliates and subsidiaries. That's because network systems and software are often incompatible and some data protection and disclosure laws forbid trans-border access. In addition, in the U.S., banks are forbidden to share SARs with their foreign branches and affiliates because of disclosure restrictions, which make it difficult to implement group-wide compliance programs. Thus, AML compliance officers must circumvent technological and legal barriers in one jurisdiction to investigate or complete reports for another and risk penalties for doing so.

Conflicting Accountabilities
One thing that data protection and AML officials do share is an affinity for enforcing accountability with fines and litigation. In 2014, the U.S. levied $13 billion in fines against banks for AML violations, including European firms. Europe also issued millions in AML penalties. On the privacy side, a bevy of U.S. state and federal agencies enforce corporate privacy regulations, but there are generous exceptions for AML and national security. The E.U. Data Protection Directive, meanwhile, allows for a wide range of national penalties and actions for data violations, but it also contained exemptions for AML under the umbrella of the "public interest."

The inclusion of data protection in the Money-Laundering Directive closes many of the E.U.'s AML data loopholes. The requirement for group-wide data sharing makes it clear that AML processes and procedures must include privacy standards no matter where they operate. And soon, the E.U.'s General Data Protection Regulation will allow either 2% or 5% global annual turnover or €100 million in fines, which incentivizes banks to take these rules seriously.

Yet given the current trend of holding AML compliance officials personally accountable for violations as well as the broader regulatory effort to instill a cultureof ethical responsibility into business, it's likely that AML priorities will remain many banks' top priority. The AML/privacy dichotomy will prompt many compliance officials to weigh their own welfare against that of their firms.

An experienced AML officer made this point explicitly in May at the Association of Certified Anti-Money Laundering Specialists' 11th Annual AML and Financial Crime conference in London when a fellow panelist challenged him about using data that might violate data privacy and protection rules:

"But you might get a 5% global fine!"

"Yes, I know, but I am not putting myself in jeopardy."

Few compliance officers would disagree.

A Multidisciplinary Approach to Best Practices
It is in no one's best interest for AML and data privacy regulations to maintain their transatlantic collision course. To navigate this new environment, financial services officials need to change their attitudes about data privacy.

For many, it is understandably easier to view countering illicit finance and terrorism as a public good. The threat of state surveillance or corporate data misuse might seem benign in comparison.

But financial institutions must reevaluate their ethical responsibilities to client data. The political climate has shifted, and the public expects private corporations to consciously balance national security with individual rights.

Moreover, banks' entitled attitude toward client data — and their attempts to monetize it as an asset — are not helping their public image. Clients care about privacy both in the U.S. and E.U. Firms that respond to this demand and market their commitments to privacy effectively will gain reputational trust and simultaneously lower their risks for data protection violations with Europe.

Ultimately, it is big banks' responsibility to establish data privacy best practices in the context of their AML duties. At the global and regional levels, some conflicts could be mitigated by establishing regular dialogues among government, regulatory and law enforcement officials. From these deliberations, banks should establish best practices for products and jurisdictions. To avoid informational and educational stovepipes, they should do so with a multidisciplinary approach that involves information security specialists, privacy and AML professionals, and senior executives who possess overlapping knowledge and skillsets.

The duality of data in finance cannot be eliminated. However, the risks among national security, privacy, and business can be improved — with a concerted effort on the part of the industry.