National velocity checking: the answer to MSB money laundering?

Ray Stanton is managing director of SCL

Directors and senior managers of Money Services Businesses that fail to prevent money laundering now face up to two years in prison, and an unlimited fine.

Proving a controlling mind has always made evidence against a company tricky – who is really in charge? In 1844, an English judge by the name of Edward Thurlow summed up the difficulty in bringing a company to justice: “they have neither bodies to be punished, nor souls to be condemned”.

However, anti-money laundering legislation cuts through this Gordian knot at a stroke – it doesn’t require a ‘controlling mind’. In fact, it almost demands the opposite, writes Ray Stanton

Proving malice isn’t necessary to secure a conviction – instead, a failure to deal with money laundering, whether deliberate or through ignorance, is enough for a crime to have been committed.

Ultimately, senior managers at MSBs are responsible for the risk assessment to identify where their business is vulnerable, as well as for the policies and procedures that manage the risk of money laundering. Also, they may not know that if they fail to prevent money laundering, there’s a possibility of spending two years reflecting on this failure from jail.

But, just as money laundering is used to disguise money made through crime, criminals will also attempt to conceal the laundering itself. As criminals get ever more sophisticated, they will go further to make their transactions look as innocent as possible.

According to the Serious Organised Crime Agency, more than £1 billion a year is currently laundered through UK Money Service Businesses, and London has been dubbed the ‘Money Laundering Capital of the World’. With money laundering connected to terrorism in the eyes of legislators, the pressure to clamp down is only likely to increase.

SCL is calling on the MSB industry to cooperate in a UK-wide system of velocity checking to combat money laundering. We know from working a high proportion of MSBs in the UK that there is a need and a demand for a coordinated system that protects them from criminal activity, and that it is impossible to achieve piecemeal.

Velocity checking looks at trends and patterns of behaviour to spot suspicious activity, in particular the sort of behaviour made up of multiple transactions that are, on the face of it, innocent. Anything less than a fully integrated national scheme will mean the most devious criminals will adapt to the individual, separate systems that MSBs put in place and the directors who run these businesses will continue to be at risk of prosecution.

Money laundering guidelines are not secret. HMRC publishes its recommended checks on its website: “Know your customer” due diligence checks must always be carried out, such as references checks to verify identity, and the identity of whoever that customer is acting for. There are certain ‘common sense’ indicators to help identify fraudulent activity. This includes requests for high denomination notes; customers willing to accept poor rates of exchange; customers unable to provide satisfactory evidence of the source of the funds; attempts at over-the-phone transactions; and customers buying currency that doesn’t fit with their travel destination. Regular customers suddenly changing the size, frequency or type of transaction they conduct, or if there has been a significant or unexpected improvement in the customer’s financial position, could also be a reason to report suspicion.

The problem is that anyone looking to launder funds also has access to exactly the same information, and develop strategies to circumvent the regulations. Making the guidelines stricter would only make the number of ‘suspicious’ transactions too high to be useful.

As an example, if a Mr J Smith orders £9,000 of currency from 10 separate MSBs, this won’t trigger the usual £10,000 limit that demands further checks and reporting. Mr Smith could further muddy his trail through varying his personal details in slight ways – “John Smith, DOB 1May 1980” could easily be “Jonathan Smith, DOB 5January 1980” in the next MSB he visits.

Universal, industry-wide velocity checking is the only way to weed out this activity. We believe that MSBs can only protect themselves by having a national system that looks at trends, patterns of behaviour and is able to spot where slight changes of name, address and DoB are being used. However, we recognise that this would mean agreement and cooperation within the industry, and invite anyone with a view to comment or get in touch.