war Tag

The debate over the presence of Russian oligarchs and their vast assets in the UK after the Putin regime’s invasion of Ukraine has pushed the issue of money laundering up the political and regulatory agenda.

An estimated £88bn is laundered every year in the UK, according to research by Credas Technologies, a specialist in identity verification software. According to OECD data, their figures indicate that only the US (£217bn) is home to more money laundering. The UK figure is well above that of France (£55bn) and Germany (£51bn). However, there is evidence that even before this sudden (and, many would say, belated) concern in the UK about the scale of criminal activity, the authorities were already starting to take a tougher line on it.

The Financial Conduct Authority (FCA) has begun to use its power to prosecute in addition to imposing statutory penalties and civil penalties against money launderers. The regulator was granted this ability in 2007, but only in October 2021 did he get his first conviction. NatWest was fined £264.8m for failing to adequately monitor the activity of a commercial client, Fowler Oldfield, a Bradford-based jewelery company. During the time that NatWest acted as the company’s bank, approximately £365m was deposited, of which around £264m was in cash, despite the fact that its original business agreement did not cover cash management.

Although some bank employees reported their concerns, no proper action was taken. According to the FCA, the ‘red flags’ included a significant number of Scottish banknotes deposited throughout England; notes that arrive with a distinctly musty odor; and people acting suspiciously when paying cash at branches. In some cases, the money arrived in garbage bags. NatWest admitted three offenses under the Money Laundering Regulations 2007 (MLR).

“Tackling financial crime, including money laundering and terrorist financing, is a priority,” says an FCA spokesperson. “Financial crime harms society and the wider economy, eroding confidence in the UK financial system. It is imperative that the UK, as an international financial centre, has an effective regime in place to counter them. The FCA is committed to making the UK banking sector a hostile environment for money launderers.”

The regulator has 42 other ongoing anti-money laundering investigations into companies and individuals, but only three of those are criminal investigations. The additional effort required to mount a successful prosecution is significant.

Nikhil Rathi, executive director of the authority, presenting evidence to the Treasury select committee, revealed that the Fowler Oldfield case had required 30,000 hours of staff time, interviews with 85 witnesses, and forensic reviews of 300,000 documents, as well as 350 separate exchanges of legal correspondence with the Bank. Not surprisingly, criminal prosecutions under MLRs are justified only in “the most egregious cases,” according to the FCA.

James Alleyne, Legal Counsel at the law firm Kingsley Napley, previously worked in the FCA’s compliance division. He notes that “NatWest’s successful prosecution for anti-MLR crimes is new territory for him. This reflects an increasingly aggressive and creative approach to dealing with serious offences.”

Oddly enough, the Fowler Oldfield case should encourage banks and other regulated businesses to review their anti-money laundering practices and make sure their know-your-customer activities are fit for purpose. A request for evidence from the government in July on the regulatory and supervisory regime also suggests a greater desire in Westminster to pursue criminal proceedings wherever possible.

While compliance investigations and financial sanctions seek to punish past misconduct, they are not intended to mitigate current threats posed by weak controls against financial crime. According to Alleyne, there is no doubt that the FCA is taking an increasingly aggressive approach to the supervision of regulated companies. This, she says, follows Dame Elizabeth Gloster’s report on the collapse of investment firm London Capital & Finance, which left 11,000 people fearing the loss of their life savings.

“Companies with ongoing weaknesses in their financial crime defenses can expect increasingly intrusive oversight from the regulator, including the FCA’s own initiative imposition of requirements,” Alleyne explains. “These can prevent a company that is carrying out any activity, regulated or unregulated, from accepting new clients or serving existing clients.” This can result in “significant costs and disruptions” for the companies involved.

Other observers have widely welcomed the FCA’s tougher approach, but would like it to go further. Oliver Bullough, author of Butler to the World: How Britain Became the Servant of Tycoons, Tax Evaders, Kleptocrats and Criminals, points out that billions of pounds are “laundered in the city every year. These funds are the fruits of kleptocracy, fraud, tax evasion, drug trafficking, human trafficking and more.”

Bullough argues: “If this country wants to end such crimes, it needs to make laundering its proceeds risky, and right now it’s not doing that. To fight financial crime, law enforcement agencies need three things: resources, information, and support. To help them, therefore, the government needs to massively increase their budgets, so that they can devote as much effort to attacking illicit wealth as its owners put into defending it.”

In some countries, additional investments in anti-money laundering law enforcement have produced a healthy return as fines are imposed and profits are properly taxed. Bullough and other activists are calling for political support for those involved in a highly complex and sometimes risky area of ​​law enforcement that can bring embarrassment to the rich and powerful.

“There are many factors that make London an excellent center for money laundering. The total chaos of our law enforcement system is just one of those,” Bullough argues. “Solving such a huge problem will take years of careful and dedicated work, rather than a single case. I hope this is the start of that process, rather than an isolated spasm.”

Many business leaders face difficult circumstances, but few compare to running a business in the middle of a war. When conflict erupted in Syria in 2011, Louai Al Roumani found himself in this unenviable position.

As head of finance for Banque Bemo Saudi Fransi (BBSF) – Syria’s largest private commercial bank – Roumani was tasked with leading the company through its most difficult time. The horrifying images of the war in Ukraine remind him of his experiences in Syria.

“The Syrian civil war differs from the conflict in Ukraine because there was not a single turning point. It was more gradual and as things escalated it turned into one of the worst wars of modern times,” he says.

A warrior and a philosopher

Now living in London, Roumani wrote about his experience as CFO of BBSF during the Syrian conflict in his 2020 book Lessons from a war zone. “When you work in such a crisis, you almost need to become both a warrior and a philosopher,” he says. “You face daily challenges which make things so much harder on the pitch, which have to be constantly overcome. There is very little room to go wrong.

At the start of the war, Roumani and his colleagues wondered how it would end. They found themselves imagining the many different scenarios that could unfold. “In times of war and crisis, it is very tempting to think only short-term and focus on short-term solutions,” he says. “It’s easy to let the overriding sense of impending doom take over and make you feel like everything is falling apart, that there’s no way things will get better.”

This exercise proved futile, with the ongoing conflict over 11 years later. Bank executives “decided to take a step back,” he says, becoming more stoic and asking important questions. “Whether the war ends tomorrow or in 10 years, whether the United States interferes or not, we are a bank – what do we need to do well?”

By focusing on the things they could control, rather than external factors, BBSF continued to operate despite the crisis unfolding outside. “When we started approaching it in this way, it became clear to us that there were things we needed to do right no matter what, and those are critical factors to our success,” Roumani says. .

One of the first barometers of a crisis are the queues. In the UK, at the start of the Covid-19 pandemic, long queues outside supermarkets were a sure sign that people feared the worst. As impending war approached in Syria and Ukraine, people lined up for banks to withdraw their money.

This presented a challenge for BBSF. “Most other banks have limited withdrawals. They were telling people not to withdraw their money or trying to delay the withdrawal,” Roumani says. “We took a risk and did the exact opposite.”

Rather than adding to the panic outside the banks, BBSF decided to reassure people that it had sufficient reserves. Banknotes were piled up in counter display cases and people started sharing photos of the stacks of money. “We wanted to send the message that we had good liquidity and that we were open for business,” Roumani explains. “If people wanted their money, they could take it.”

He believes this has helped maintain trust between the bank and its customers. This is in stark contrast to other banks that have chosen to delay withdrawals, further panicking their customers. “Although we lost cash in the short term, in the longer term people remembered our way of doing things and within three months they got their deposits back,” Roumani says. “That’s why it’s important to be a philosopher, because you have to resist the instinct to tackle short-term problems and think about long-term goals instead.”

Shake the survival instinct

However, it is difficult to focus on long-term ambitions when conflicts are happening around you. During the war, Roumani had to deal with mortar shells hitting the bank where he worked and threats of kidnapping. About a quarter of the bank’s branches were destroyed during the war.

“You can imagine how awful it was to handle operations when ISIS was rampaging through some of our branches,” Roumani said. Even in these situations, Roumani was reluctant to focus on survival. “If survival becomes your only goal, you limit yourself to not dying. It becomes almost suicidal – you stop taking risks and focus on protection,” he says. “You don’t face a crisis by simply taking the easy route: you have to go beyond it.”

Some people assume that economic activity stops during a war and businesses close. Roumani recounts a phone call he had with a Finnish company. “When I mentioned I was the CFO of a bank in Syria, he thought I was playing a prank on him,” he says.

“Although we lost a quarter of our branches, it did not destroy the main dynamic of the sector in which we operate,” explains Roumani. “Even in times of war, people continue to live.”

While around 6.8 million Syrians left the country as refugees or asylum seekers, more than 17 million people remained in the country. “Imports continued to be made every day and there was still economic activity, although it had been greatly reduced,” Roumani said. “People have to go on with their lives, despite the crisis. I was the CFO of a bank and we had thousands of depositors, so we had to go to work. I couldn’t sit at home doing nothing.

Many Ukrainian companies today find themselves in a similar situation. Despite the Russian invasion, these companies are finding ways to continue working while keeping their staff safe. “I’m sure they’re going through the same thoughts as us,” Roumani said. “With so much large-scale destruction happening around you, it becomes very easy for this negative narrative to dominate and not allow you to see any opportunity.”

However, he advises companies to stay focused on their critical success factors. Stakeholder management is also becoming an essential skill. “In a crisis, all of your stakeholders become much more demanding – shareholders, customers, government, regulators, suppliers,” he says.

To take part

In these cases, it’s important to show your support with actions rather than words. “Everyone tries to make people feel better by trying to reassure them, but without backing them up with action, people will stop trusting you,” Roumani says, reflecting on her own experiences.

“There was no way to talk about mental wellbeing when so many of people’s basic needs were unmet. Instead, we took action by moving people and their families out of dangerous areas. Making sure we met those primary needs was essential, because if we didn’t, the rest of our actions wouldn’t matter.

Business strategies must also be flexible to react to ever-changing circumstances. Roumani’s experience at BBSF shows that by focusing on long-term success, remaining flexible and embracing the warrior/philosopher mentality he describes, it is possible to run a successful business in the midst of a war zone.

“There’s no way to predict what’s going to happen, even if you have a team of 20 analysts around the table,” Roumani says. “Rather than wasting time planning, build flexibility into almost everything you do. We had no idea which branch would be ransacked by ISIS or other groups, but what we could do was make sure that branch staff, customers and assets were protected.