‘Moving Money’ – the cost of more onerous AML procedures

George Hodgson

George Hodgson

I attended a lively presentation today on the paper Moving Money: International Flows, Taxes, and Money Laundering by Professors Richard Gordon and Andrew P. Morris. They basically argue that the move to more onerous anti-money laundering (AML) procedures and the move to automatic information exchange are both going to significantly increase transaction costs for everyone, legitimate and illegitimate users of the financial system alike. This increase could have significant implications for economic growth, but with little evidence of any real benefit from the new measures in terms of improved tax revenues or reduced illegitimate funds flows. In spite of that, there was a general air of optimism about the outlook for international finance centres (IFC). The professors noted that the best IFCs already have very effective systems and skill sets in these areas. They may well be able to adapt to the new regimes more rapidly and with fewer costs than their on-shore counterparts — who also face huge compliance costs — hence preserving their competitive advantage. Indeed the rising cost of on-shore, rather than off-shore, compliance may well start to become a political issue in the major economies now pushing through such dramatic, and expensive, changes in tax reporting and the AML regulatory environment

We understand that the UK has decided not to adopt the proposed delay to the on-boarding of new entity accounts announced by the US in notice IRS notice 2014-33. Instead UK Financtaxh_2023675cial Institutions will be required to obtain self-certifications from new customers (both entities and individuals) from 1 July 2014. This will maintain consistency between Entity and Individual on-boarding processes, as well as between the due diligence obligations for US and CD/OT reporting purposes.

George Hodgson is STEP’s Deputy Chief Executive.  

Across the AML Divide: data sharing, de-risking and debate

George Hodgson

Having spent two days this week in Brussels at a meeting of the Financial Action Task Force’s (FATF) private sector consultation forum discussing international anti-money laundering (AML) regulations, it was striking how two or three strands are now starting to dominate the debate.

First is the growing divide between the big banks and what they looking for from governments to help with their AML obligations relative to how the legal and accountancy professions see the issues. The banks want lists – as many as possible – computerised and machine readable, with the aim of removing any human role in AML checks. With this in mind, we had a presentation of a major project the UN, US and the Wolfsberg Group of banks had been working on regarding sanctions lists. There was much talk of metadata, fuzzy logic and machine readable formats, but when asked if a sole practitioner would be able to use the list or if legal professionals had been part of the consultation process on this project there was a slightly awkward silence.

There was also a real clash of thinking around data protection and the human right to privacy. It is clear that those responsible for data protection are increasingly concerned at AML proposals that will make large amounts of personal information widely available to a range of governments and institutions. This data sharing is supposedly for AML purposes, but with relatively few checks in practice about how this data is really going to be used.  The gulf here is enormous; from the US Government’s representative who found concerns about the human rights of people who might be terrorists ‘bizarre’,  to those who feel there is now an urgent need for the FATF to bring data protection supervisors into their structure at the very top (given that the AML system FATF is building is in practice now major exercise in data exchange).

The other major theme that attracted intense debate was the way the banks are ‘de-risking’ in the face of huge penalties for any AML breaches. They are therefore increasingly pulling out of business with a range of clients or jurisdictions based on their perception of potential AML risks. The debate identified correspondent banking as an area where this was already having a major impact but it was widely felt to be a growing issue across all bank business lines.  I suspect STEP members may also have views on this too.

George Hodgson is Deputy Chief Executive of STEP.