Financial crime - the fine line between helping and enabling

News / / London

“Understand the difference between helping and enabling. Don't participate in someone else's misbehavior” – Anonymous
Global financial centres like the UK are attractive locations for corrupt actors who seek to launder illicitly gained funds through the financial system. Hence, tackling the problem of corruption and illicit finance remains a key priority for governments, regulators and businesses.

The EU 4th and 5th Money Laundering Directives (MLDs) strengthened and expanded the regulatory scope of anti-money laundering and counter-terrorist financing (AML/CTF) legislation by imposing greater customer due diligence (CDD) obligations and capturing previously unregulated sectors. The 6MLD [1] sets out measures to enhance the investigation and prosecution of money laundering offences such as, ‘self-laundering’ in respect to the conversion or transfer of criminal property and concealment or disguise of the nature and sources of criminal property; and the criminalisation of attempts to launder money or the aiding and abetting of such.

In the UK, the Money Laundering Regulations 2017 (as amended) requires lawyers, accountants, estate agents, art dealers, trust or company service providers and financial institutions (otherwise known as ‘professional enablers’) to comply with AML/CTF requirements including the obligation to know their customer by conducting CDD checks as well as reporting suspicious transactions to the relevant authorities. A failure to do so can be a criminal offence.

On 26 April 2021, the UK government implemented the Global Anti-Corruption Sanctions Regulations (Regulations) [2]. This new sanctions regime enables the UK government to designate persons involved in serious corruption. For the purposes of the Regulations, corruption means:

  • Bribery; or
  • Misappropriation of property.

The prohibitions and requirements imposed by the regulations apply to the conduct of all UK persons wherever they are in the world. UK persons includes British nationals, as well as all bodies incorporated or constituted under the law of any part of the UK. Accordingly, the prohibitions and requirements imposed by the regulations apply to all companies established in any part of the UK, and they also apply to branches of UK companies operating overseas.

The regulations impose financial sanctions through a targeted asset freeze and prohibitions on making funds or economic resources available; and immigration sanctions by imposing a travel ban on persons if they are, or have been, involved in serious corruption.

Money makes the world go round

Every year, trillions of pounds of transactions from across the world are conducted. According to the World Payments Report from Capgemini, global non-cash transactions reached 708.5 billion transactions from 2018 – 2019 [3]. In the UK, payments made through the three retail payment systems managed by Pay.UK reached an all-time high in 2019, with businesses and individuals making 9.2 billion transactions with a combined value of £7.4 trillion [4].

With the growing volume of transactions, the complexity of global financial systems, together with the presence of a highly developed professional services industry, this significantly increases the vulnerability of the UK’s financial system to exploitation by those engaged in laundering the illicit funds of both international criminals and state actors.

The Panama Papers, Paradise Papers and FinCEN Files are document leaks that exposed the vast network of industrial-scale potential financial crime around the world.

The Panama Papers revealed the network of over 214,000 offshore entities connected to persons and companies in more than 200 countries and territories. The documents show the myriad ways of how the rich and powerful can exploit tax havens to hide their wealth. This included using shell corporations for illegal purposes such as fraud, tax evasion and evading international sanctions.

The Paradise Papers provided unprecedented insight into the workings of the offshore financial affairs of politicians, multinational corporations, celebrities and high net worth individuals. The Paradise Papers also threw light on the legal firms, financial institutions and accountants working with clients to reduce their tax burden; obscure their ownership of assets like companies and real estate; and set up offshore trusts that in some cases held billions of dollars.

The FinCEN Files are based on Suspicious Activity Reports (SARs). SARs are records of money movements that are compiled and submitted to the relevant authorities when a potential suspicious activity is identified. In this case, the relevant submissions were made to the US Department of the Treasury. The FinCEN Files highlighted the complex trail left by nearly US$2 trillion of suspicious funds being manoeuvred around the world and on the role of banks in facilitating such movements.

Opportunities (let's make lots of money) – ‘facilitators’ and ‘enablers’ 

There are many ways in which the professional enabler can hold the key to creating the complex structures and processes that can provide the necessary anonymity to facilitate financial crime.

It should be emphasised that the majority of professionals are law-abiding. However, a minority of professionals are among those at greatest risk of becoming involved in financial crime activities such that, those engaged in willful, complicit or negligent conduct have earned the name – ‘professional enablers’ and can pose a very significant threat to the financial system.

An example is illustrated in the diagram below:



An official in country A wanting to hide assets first hires an enabler.  Although the enabler could be a professional in country A, hiring one located in another state makes it that much harder for local authorities to uncover wrongdoing. The enabler, shown in the diagram as located in country B (most often a wealthy country), then creates the offshore vehicle.  The enabler could have created the vehicle, in this case a corporation, in the enabler’s own country[5]

Crack in the shell

“So the process of moving from untruth to truth is not really about covering a geographical distance. This is like an eggshell – right now you are outside the shell…….When you crack it, nobody goes in, but a completely new possibility comes out. When you crack the shell, something else which you have never imagined possible comes out [6].” IshaSadhguru

In February 2021, the OECD published a report – “Ending the Shell Game Cracking down on the Professionals who enable Tax and White Collar Crimes” [7] which explores the different strategies and actions that countries can take to crack down on professional service providers who play a part in the planning and pursuit of criminal activity. The recommended counter-strategies to combat professional enablers are:

  • Awareness – ensure that tax crime investigators are equipped to identify the types of professional enablers operating in their jurisdiction, and to understand the risks posed by the ways they devise, market, implement and conceal tax crime and financial crimes;
  • Legislation ensure the law provides investigators and prosecutors with sufficient authority to identify, prosecute and sanction professional enablers, both to deter and penalise; 
  • Deterrence and disruption – implement coherent and multi-disciplinary prevention and disruption strategies, notably through engagement with supervisory, industry and professional bodies, to prevent abusive behaviour, incentivise early disclosure and whistle-blowing and take a strong approach to enforcement;
  • Co-operation – ensure relevant authorities proactively maximise the availability of information, intelligence and investigatory powers held by other domestic and international agencies to tackle sophisticated professional enablers operating across borders;
  • Implementation – appoint a lead person and agency in the jurisdiction with responsibility for overseeing the implementation of the professional enablers strategy, including to undertake a review of its effectiveness over time and devise further changes as necessary.

The report also highlights the damaging role played by professional enablers and the importance in clamping down on tax and white collar crimes due to their significant impact on government revenue, public confidence and economic growth, including the recovery from the COVID-19 pandemic.

I've got to follow the money

Fighting financial crime is complex. It goes beyond simply implementing policy and procedures. Establishing preventive and mitigating controls and then actively managing these controls is crucial. This includes monitoring and analysing transactions; and investigating the people or organisations behind them.

Transparency International reported that “the transaction is often enabled by professionals from many fields. Corrupt intermediaries link givers and takers, creating an atmosphere of mutual trust and reciprocity; they attempt to provide a legal appearance to corrupt transactions, producing legally enforceable contracts; and they help to ensure that scapegoats are blamed in case of detection”. [8]

Therefore, the rule in detecting organised crime is always the same: “follow the money”. That is, track down the shadowy professional enablers and their network links to stymie the movement of money; block their entry to conduct any further transactions; and pull up the drawbridge behind them to ensure their illicit activities are stopped.

In the HBO television series, The Wire, Detective Lester Freamon directs the team to research public records and emphasises the importance of following the money and paper trail, identifying ownership and piercing the veil of anonymity that shell and front companies provide –

Detective Lester Freamon: [9]

“First thing is we need the names of all front companies, limited partnerships, LLCs, and all that mess. LLCs? Limited liability corporations. Start with the nightclub Barksdale owns. Look up Orlando's, by address, you match it, and you see it's owned by who? It's on Baltimore Street, right? Got it. D & B enterprises. Hand it over to Prez who's gonna get off his ass and walk over to the state office buildings on Preston Street. Preston Street? Corporate charter office. Corporate who? They have the paperwork on every corporation and LLC licensed to do business in the state. Look up D & B Enterprises on the computer. You're going to get a little reel of microfilm. Pull the corporate charter papers that way. Write down every name you see. Corporate officers, shareholders or, more importantly, the resident agent on the filing who is usually a lawyer.
While they use front names as corporate officers, they usually use the same lawyer to do the charter filing.

Find that agent's name, run it through the computer, find out what other corporations he's done filing for, and that way we find other front companies.
In this country, somebody's name has got to be on a piece of paper. A cousin, a girlfriend, a grandmother, a lieutenant he can trust.
Somebody's name is on a piece of paper. And here's the rub.
You follow drugs, you get drug addicts and drug dealers. But you start to follow the money, and you don't know where the f*** it's gonna take you.”

Punishment fits the crime

Monetary fines are the most common punishment for financial crimes perpetrated by the corporate entity. However, there have been instances of imprisonment for the individual ‘professional enabler’. 

In December 2019, global penalties totalled over US$36 billion for non-compliance with AML, Know Your Customer and sanctions regulations [10]. Below are some notable recent punishments:

  • The significant sentence handed down in January 2019 to a solicitor after being found guilty of three offences of money laundering shows that law enforcement is serious about cracking down on ‘professional enablers’. Scott McKay was sentenced to seven years imprisonment for money laundering. It was reported that his conviction related to his work in the purchase of over eighty properties bought on behalf of members of a criminal gang [11].
  • In January 2020, Airbus paid a record €3.6 billion in penalties for bribery and corruption. Airbus admitted to five counts of failing to prevent bribery, and had used a network of secret agents to pay large-scale backhanders to officials in foreign countries to land high-value contracts [12].
  • In January 2021, HMRC issued a record £23.8 million fine to MT Global, a money service business for significant breaches of the money laundering regulations. The breaches related to risk assessments and associated record-keeping, policies, controls and procedures, and fundamental customer due diligence measures [13].
  • The Financial Conduct Authority (FCA) launched criminal proceedings against NatWest for allegedly failing to comply with money laundering regulations in March 2021. The FCA said in a statement: “The case arises from the handling of funds deposited into accounts operated by a UK incorporated customer of NatWest. The FCA alleges that increasingly large cash deposits were made into the customer’s accounts. It is alleged that around £365 million was paid into the customer’s accounts, of which around £264 million was in cash. It is alleged that NatWest's systems and controls failed to adequately monitor and scrutinise this activity” [14].
  • An accountant who defrauded the NHS, companies, and individuals out of more than £1.3 million was jailed to serve 11 years and five months in April 2021 for multiple counts of fraud and theft.  Stephen Day became a board member or trustee of eight companies, working to persuade them to use his business for their payroll services and financial management operations. Once they agreed, he would use his authority to take hundreds of thousands of pounds out of their bank accounts under the guise of legitimate payments [15].

A step in the right direction 

The Panama Papers, Paradise Papers and FinCEN Files provide useful case studies and lessons to be learned. They also highlight the important roles of compliance and culture in any organisation.

Complying with what is an ever-evolving set of rules and regulations applicable to financial crime is challenging. This is a particular issue for businesses that need to balance growth, fulfill customer demands, and meet regulator expectation.

Spending more money to adhere to compliance rules and fight 21st century threats with 20th century tools is not sustainable. In the past few years, the Regtech industry has developed exponentially to assist businesses by streamlining and automating processes to make compliance more efficient and effective.

In conjunction with using Regtech, firms should also seek independent legal advice on whether action should be taken in order not to contravene regulations.

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[1]  Firms within EU Member States must implement the 6MLD regulations by 3 June 2021. The UK has opted out of 6MLD. However, any regulated/AML supervised UK businesses who operate in the EU must still comply with changes set out in 6MLD. 

Colette Kelly

Colette Kelly Partner, Criminal and Regulatory Solicitor

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