‘Financial crime and the latest trends’ Dr. Nicholas Ryder Professor in Financial Crime UWE November

Introduction What is financial crime? The extent of financial crime Money Laundering Bribery and Corruption Terrorist Financing Recent Developments 2 IIA South West Annual Conference, May 12, 2pm, 2016

What is financial crime? The term was first used by Edwin Sutherland: De defined it as: – “a crime committed by a person of respectability and high social status in the course of his occupation”. 3 IIA South West Annual Conference, May 12, 2pm, 2016

What is financial crime? A more modern interpretation: – “financial criminal will be defined as someone who has committed a financial crime and who has a certain level of standing (i.e. that of management) within a business or corporation” (Harrison and Ryder, 2016) 4 IIA South West Annual Conference, May 12, 2pm, 2016

The extent of Financial Crime Fraud: – £39bn (NFA, 2011) – 73bn (NFA, 2012) – £52bn (NFA, 2013) – Fraud is the most prevalent crimes committed against people in England and Wales (British Crime Survey, 2015) 5 IIA South West Annual Conference, May 12, 2pm, 2016

The extent of Financial Crime Money Laundering – International Monetary Fund: Between 2 and 5 % of Global GDP – United Nations: 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered (2009). – Financial Action Task Force: Between $590bn and $1.5tn per year 6 IIA South West Annual Conference, May 12, 2pm, 2016

The extent of Financial Crime Money Laundering: – £10bn via the regulated sector (HMT, 2007), – £25bn to £57bn (FSA, 2011), – £48bn (Transparency International, 2011), – £57bn (Financial Action Task Force 2013) and – £100bn (The Independent, September 2015, citing Transparency International). 7 IIA South West Annual Conference, May 12, 2pm, 2016

The extent of financial Crime Bribery and Corruption: – $1 trillion is paid in bribes on a worldwide basis each year (Pope and Webb, 2010) – $30 trillion is paid per year (World Bank) – Cost the European Union £99bn per year (European Commission, 2015) – 27 percent of people admitted to having paid a bribe in the 2013 (Transparency International, 2013) 8 IIA South West Annual Conference, May 12, 2pm, 2016

Money Laundering “the UK is an … attractive place through which to launder the proceeds of crime” (National Risk Assessment of Money Laundering and Terrorist Financing, October 2015) “it is often the professional enabler who holds the key to the kind of complex processes that can provide the necessary anonymity for the criminal” (National Crime Agency, 2014) 9 IIA South West Annual Conference, May 12, 2pm, 2016

Money Laundering: the threat to firms and MLROs Criminal sanctions: – Proceeds of Crime Act 2002 – Terrorism Act 2000 Financial Penalties: – Financial Conduct Authority – Credible Deterrence Reputation: – HSBC – Standard Chartered 10 IIA South West Annual Conference, May 12, 2pm, 2016

Money Laundering: the threat to firms and MLROs Financial Conduct Authority: – The FCA is “the competent authority for supervising compliance … with the Money Laundering Regulations”, – Credible deterrence enforcement policy – Issuing private warnings, public statements of misconduct, unlimited financial penalties and a prohibition order. 11 IIA South West Annual Conference, May 12, 2pm, 2016

Money Laundering: the threat to firms and MLROs Money Laundering Reporting Officers fined: – Michael Wheelhouse: £17,500 (FSA, 2009) – Sudipto Chattopadhyay £14,000 (FSA, 2010) – Syed Itrat Hussainn £17,500 (FSA, 2012) 12 IIA South West Annual Conference, May 12, 2pm, 2016

Money Laundering: the threat to firms and MLROs Firms fined: – Coutts & Company (£8.75m, 2012) – EFG Private Bank (£4.2m. 2013) – Guaranty First Bank (UK) Ltd (£525,000, 2013) – Standard Bank Plc (£7.6m, 2014) 13 IIA South West Annual Conference, May 12, 2pm, 2016

Joint Money Laundering Intelligence Taskforce JMLIT has four priority areas: – Understanding and disrupting the funding flows linked to bribery and corruption; – Understanding and disrupting trade based money laundering; – Understanding and disrupting the funding flows linked to organised immigration crime and human trafficking; and – Understanding key terrorist financing methodologies. Pilot project for 12 months. 14 IIA South West Annual Conference, May 12, 2pm, 2016

Fourth Money Laundering Directive Addresses several important issues: – the variation of the risk-based approach, – the development of new rules that apply to electronic money, – registers for ultimate beneficial ownership, – no distinction between internal and external politically exposed persons, – improved levels of cooperation between financial intelligence units and – an improved sanctions regime. 15 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Anti-Corruption Summit (May 11, 2016) Aims of the conference: – expose corruption so there is nowhere to hide – punish the perpetrators and support those affected by corruption – drive out the culture of corruption wherever it exists David Cameron wants to create a new global body to tackle corruption. 16 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption What has the UK government done? – “led the way on tackling tax evasion and tax avoidance”, – “bringing in more than £2bn from offshore tax evaders” – “been the first member of the G20 to establish a public central registry of company beneficial ownership information”. 17 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption What has the UK government done? – “co-chaired a UN panel that put tackling corruption at the heart of the new UN Development Goals and transformed the way the international community fights poverty” – “introduced some of the world’s strictest legislation on bribery through the Bribery Act 2010”, – “making it a criminal offence for a company to fail to prevent a bribe being paid”. 18 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Criminal Prosecutions: – Munir Yakub Patel – the Magistrates Court Clerk – took £500 to avoid putting details of a traffic summons on a court database – He admitted one count of bribery – sentenced to six years – Court of Appeal reduced the sentence to three years 19 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Criminal Prosecutions: – Mawia Mushtaq – the driving examinee – He had failed a driving test before an Oldham Council licensing officer. – Passing the test was necessary for Mr Mushtaq to obtain a taxi licence. 20 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Mr Mushtaq offered £200 which was later increased to £300 if the result of the test was changed to a pass. The defendant was sentenced by His Honour Judge Foster QC to two months’ imprisonment, suspended for 12 months. The judge also imposed a two-month curfew order between 6pm and 6am. 21 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Criminal Prosecutions: – Yang Li – the failing student Attempted to bribe his professor £5,000 Carried a loaded air pistol Sentenced to 12 months imprisonment Li, who admitted bribery and possessing an imitation firearm, was also ordered to pay £4,800 in costs 22 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Deferred Prosecution Agreements: (Crime and Courts Act 2013 s.45) Serious Fraud Office v Standard Bank PLC – Bribery Act 2010 s.7 ‘failure of a commercial organisation to prevent bribery’ – Adequate procedures defence? – Tanzania, South Africa, UK, US – Bribe $6m. Total fines etc $36.8m 23 IIA South West Annual Conference, May 12, 2pm, 2016

Bribery and Corruption Financial Conduct Authority: – Impose financial penalties – Financial Services and Markets Act 2001 (s. 206(1)). – Willis Limited were fined £6.8m for weaknesses in its anti-bribery and corruption systems and controls (July 2011) – Aon Limited £5.25m (July 2011) 24 IIA South West Annual Conference, May 12, 2pm, 2016

Terrorist Financing Models Cheap and inexpensive model – Significant threat posed by self funded terrorist cells, – Evolution of ‘cheap’ and ‘inexpensive’ terrorist financing, – Numerous examples including London (2005) and Paris (2015), – Has been used by al Qaeda and ISIL and – Renders key parts of the UKs counter-terrorist financing regime are ineffective. 25 IIA South West Annual Conference, May 12, 2pm, 2016

Terrorist Financing Models Hierarchical or corporate: – This has been used by the IRA (1970s and 1980s), – Different funding model from that adopted by al Qaeda, – This model has been utilised by ISIL (appears to have been adopted by Boko Harem and Al Shabaab) – Development and publication of its own annual budget, – Similar funding mechanisms as those adopted by the IRA and – evolution is unprecedented. 26 IIA South West Annual Conference, May 12, 2pm, 2016

Recent Developments From Russia with Cash! Property boom and money laundering Tough stance on money laundering (David Cameron, 2015, Singapore) The publication of the Panama Papers Similarities with infamous ‘Day of Reckoning’ speech (2009), ‘We take White Collar Crime seriously (2011, 2012 and 2015) 27 IIA South West Annual Conference, May 12, 2pm, 2016

Recent Developments IMF chief Christine Lagarde says that global leadership is needed to tackle tax evasion, money laundering and terrorism financing (April, 2016) “Senior bankers to face jail for reckless decisions” (HM Treasury, March 2016) Financial Services (Banking Reform) Act 2013, s IIA South West Annual Conference, May 12, 2pm, 2016