I have been investigating money laundering since the 1980s—initially as a police officer, followed by a career as a money laundering reporting officer with a number of firms, and most recently as a consultant. So here we are in 2020, and as honest compliance professionals, we will acknowledge our collective AML endeavors are failing. We continue to seize less than 1 percent of funds laundered globally on an annual basis, and the level of regulatory fines for AML failures are not reducing.
All of this causes me to pose the question: Where have we gone wrong? Moreover, what has changed in the prior 30-plus years? Has there been any innovation? In Europe, we are now looking forward to the Sixth Money Laundering Directive; did the other five not get it right? Of course, there have been changes in society and business. More business is now undertaken online, in a non-face-to-face environment, and we have also seen the advent of crypto assets. Notwithstanding this, Europol has recently contended cash remains king in the world of crime
We have developed anxieties about Bitcoin and other crypto coins, but our core businesses continue to transact in fiat currencies. What have we done to counter the money laundering and terrorist financing risks and threats in mainstream finance? What have we changed; where have we improved?
Big firms and big banks continue to engage big brand consultancies to support their AML compliance, but what are these consultancies offering in the global fight against money laundering? The consultancies have grown out of and in stride with their sister accountancy and audit businesses, both of which are number driven and one of which—audit—is generally a negative business. Why do I point this out? The audit findings are the common thread to all of these partnerships, and the best mark given is usually “Satisfactory.” Whoopee.
The problem with the consultancy model is one of validation and confirmation, rather than confrontation and innovation. Hence, I posit these consultancies have directly and indirectly made a substantial negative contribution to our global AML endeavors.
I recollect an instance when a large consultancy undertook a review of an AML program I had implemented at a firm. I was presented with a report, which listed a number of processes I had determined not to adopt or follow. Part of the report stated my program was not compliant with guidance provided by the Joint Money Laundering Steering Group (JMLSG). I instructed the removal of this finding and reminded the consultant that compliance with guidance is not required.
I was struck by the totally negative nature of the report, and I advised the consultant that the scope of what the AML program was not doing was infinite. I told the consultant the report had no balance and instructed the consultant to draft another report, detailing all the things the AML program was doing.
The consultants produced the additional report and were very complimentary of what we had achieved. One of the partners asked if they could take some credit for the innovation within the program. I placed no intellectual property rights on the program and asked the consultant to go out and spread the gospel, drive change, and improve outcomes. She was later overruled by a more senior partner, who described me as “racy.”
The fact is my AML thinking is not racy; it is confrontational and disruptive, but if I was correct in my thinking then perhaps the consultancy had been failing or misadvising clients over the previous 10 years. The consultancy did not want me to be correct; it did not want change, because it made and continues to make too much money from a failing AML status quo.
Albert Einstein famously said, “Insanity is doing the same thing over and over again and expecting different results.” Ask yourselves: What have the Big Four (or Big Six, depending on how far back you want to go) consultancies done for your AML programs in the past 20-30 years? They have changed as the laws and regulations have evolved, but where have they offered new thinking, better practices, and improved outcomes?
Consultants have the opportunity to identify and encourage the eradication of poor AML practices while simultaneously promoting best practices that reduce the regulatory penalties and increase the seizure of laundered funds. Have any of the big consultancies done this for your firm or bank? In the event the answer is yes, can I please ask you to share this with the global AML community? We are all on the same side—the common enemy is the money launderer, and presently we are losing the war.
In recent years, we have seen increasing numbers of boutique financial crime and AML consultancy businesses enter the marketplace. These new consultancies can compete for business with the big players, yet big companies continue to choose the big names of the Big Four. In the event you and your firm want a different outcome, now may be the right time to go with the boutique, given they ordinarily offer a reduced price tag.
If you work for big consultancy and disagree with me, perhaps you have been offended (this was not my intention). Please do respond to this piece in the comments below, because we all want better outcomes, improved processes, and we would very much welcome your input.