This Occasional Paper reports on findings from three RUSI workshops on the gathering and sharing of intelligence related to money laundering.
One of the findings of the 2018 RUSI Occasional Paper ‘Known Unknowns: Plugging the UK’s Intelligence Gaps on Money Laundering Involving Professional Services Providers’ was that information and intelligence relating to money laundering should be gathered, structured and disseminated along activity rather than sectoral lines.
This paper, which follows on from the earlier Occasional Paper, reports on the findings of three workshops convened by RUSI in February and March 2019 which sought to bring together representatives of law enforcement, the professional services sectors, and the third sector (including NGOs and investigative authors and journalists) to examine why and how criminal actors might seek to involve the UK professional services sectors in money laundering.
The three workshops focused on the threat posed by these actors (threat workshop), the responses of the various representatives (response workshop), and a ‘red team’ exercise which challenged participants to draw up money-laundering schemes they felt would defeat the defences of the professional services sectors. Approaching the problem initially from the viewpoint of the criminals provided an opportunity to explore their possible motivations and how these would inform an approach to the professional advisers they might seek out. It was then possible to discuss how the various professions might respond to such identified threats.
The aim of this approach was to identify shortcomings in: the understanding and identification of risk; the processes to identify potential clients and their businesses; and the identification and reporting to the authorities of suspicious activity.
Using the cases of an oligarch and an organised crime group as examples of threats faced at the high end of money laundering, the threat workshop highlighted that highly motivated and resourced criminals would seek UK professional services to participate in their money-laundering schemes, likely as part of a multi-jurisdictional and complex structure. There were different views among the sectors represented at the workshops as to how realistic it is to expect risk assessment (the theory of which is relatively simple, but complex in application) and customer due diligence measures to identify these schemes.
It was not possible to identify specific patterns of involvement of the professions and their roles in these schemes that could act as red flags beyond the most egregious examples. There was clear disagreement here (predicated to an extent by both bias and context), with the law enforcement authorities feeling that obvious cases of suspicion were not being reported; the professional services sectors seeking to understand how they are being duped and what more they can reasonably be expected to do; and the third sector demonstrating good knowledge of both laundering techniques and specific details of cases that are being underused, as there is currently no structured way to get this information to the professional services sectors and in some cases it is prevented from even reaching the public domain.
The most successful and difficult to detect schemes will by their nature not produce obvious indicators and there is a need for more work on actual cases to distinguish criminal activity from licit use of professional advisers. The response workshop highlighted the importance of the initial stages of a relationship and noted that those from the professional services sectors would not typically handle actual proceeds of crime, but rather be involved in facilitating arrangements to manage them.
However, reporting obligations and guidance under the Proceeds of Crime Act 2002 (POCA) rely on the identification of specific proceeds of crime, which may not be immediately possible in these circumstances. The workshops highlighted tensions between the professional services sectors and law enforcement around reporting made in such circumstances and the perceived lack of information sharing from both sides.
This paper makes a series of recommendations to address the challenges identified, including: more innovative ways to share and analyse data; greater proactive use of third-sector information; and examination of the reporting requirements in relation to the Section 329 ‘arrangements’ offence under POCA, which is the one most likely to be identified by the professional services sector.
- The National Crime Agency (NCA) should either carry out, or commission, rigorous research into money-laundering cases involving professional services providers who are regarded as not corrupt or witting. The research should identify the methods criminals are using to defeat the anti-money laundering defences of the businesses involved, including, where possible, analysis of why particular businesses were targeted. Identification of chokepoints, where effective intervention by professional services providers is reasonable, should be a focus for the National Risk Assessment (NRA) and other information-sharing initiatives, such as the Flag It Up campaign.
- The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) should require Professional Body Supervisors (PBSs) to include detailed case analysis in their sector risk assessments and should work to facilitate the sharing of the information they require from law enforcement for a meaningful assessment.
- PBSs and OPBAS should work together to find ways to pool intelligence resources, beyond membership of systems designed to exchange specific case intelligence. The feasibility of a central assessment facility should be explored, funded pro rata by PBSs.
- OPBAS should ensure that PBSs are requiring their regulated members to report relevant financial crime risk data across all sectors and that this information is collated in more intelligence-focused products than currently.
- Policymakers, law enforcement and intelligence agencies, supervisors and representatives of the professions should explore ways of sharing these types of intelligence in a joint task force approach, drawing on the principles of the Joint Money Laundering Intelligence Taskforce but without duplicating its structure. PBSs should act as the dissemination route for products derived from this process.
- The Home Office, the NCA and the professional services sector supervisors, including HMRC, and practitioners should formulate guidance on the reporting of suspicious arrangements, but where no clear identification of particular suspected criminal property has yet been formed, which should be included in sectoral guidance on reporting.