Crime-money, reputation and reporting

Abstract

The emphasis of government legislation on money laundering has been based on the assumption that reporting institutions are able to spot deviant customer behaviour and that implicitly such behaviour is criminal. This paper looks at the drivers for reporting of suspicious or unusual activity, in particular, focusing on the principle of reputation. It considers the evidence over bank disclosure within annual published reports with respect to their money laundering compliance activity; particularly examining whether there was any change in disclosure and hence reputation management reporting by those banks fined by the regulator for lapses of compliance. An attempt is also made to apply the principles of legitimacy theory to evaluate the association between money laundering and reputation looking for evidence of a 'virtuous cycle of compliance'. However, the findings point to limited public awareness of money laundering and to the adoption of a deficit rather than enhancement model of reputation management. Imagery, rhetoric and ill-guided activismGovernmental efforts to counter money laundering are justified by the argument that they are required in order to preserve the reputation and integrity of the financial system [17]. This belief is most consistently espoused by the IMF who notes that money laundering can "harm the soundness of a country's financial sector as well as the stability of individual financial institutions" [31, p II-4]. The current approach to legislating against money laundering is justified on the grounds that it helps to make the UK less attractive to potential launderers "protecting the financial sector from operational and reputational risks" [18, Ch. 9, p. 1]. Van Duyne [35, p. 1] draws attention to the new enemies of the financial system as being those "who do not take moneys[sic] out of the financial system; but bring these into it"; the focus being very much on the potential damage inflicted by tainted money co-mingling with legitimate funds. However, if, after more than a decade of anti-money laundering Newcastle Business School, Northumbria University, Newcastle upon Tyne, UK e-mail: jackie.harvey@northumbria.ac.uk legislation the threat rhetoric pervades, then surely financial systems, as pointed out by van Duyne et al. [34], should be on the point of collapse from the effect of so much cross-contamination. The authors also argue convincingly that past bank losses have resulted from operational risk rather than an exclusive influx of crime-money and suggest that arguments over integrity and reputation should be seen as "mere rhetoric". They go on to suggest that integrity is important not from the point of view of the source of the funds but because of the trust bestowed in the bank by its customers that it will properly handle their funds irrespective of whether they are criminal or of honest intent [15]. Reuter and Truman [28, p. 60] make the valid observation that "Banks... are quasi-public utilities, and the public does not want them to be directly involved in handling d...

Client privilege, compliance and the rule of law: Swedish lawyers and money laundering prevention

“…Finally, the iterative process of risk assessment points to a third example of practices of separation. In line with extant research on regulatees aiming for making compliance defendable [16,20], we find that the lawyers document compliance with an eye to possible future audit. In order to exhibit compliance, lawyers provide an auditable trail that shows that risks are and have been handled properly, and that risk are being defined in accordance with standard AML/CTF knowledge as present in the regulation.…”

“…It thus appears that: '… there will continue to be a less than virtuous shifting of responsibility between the regulator and the regulated, with the latter merely doing sufficient to proverbially "cover their backs".' ( [20], p. 70).…”

Re-thinking FATF: an experimentalist interpretation of the Financial Action Task Force

“…Harvey and Lau [24] find that banks rarely publicize their own AML efforts, as we would expect if there were rewards or penalties at stake. We might expect blacklisted jurisdictions' currencies to lose value, especially relative to the US, as a financial superpower and strong FATF supporter, but that is not the case [25].…”

Prevention of money laundering and the role of asset recovery

“…A lack of consistent statistics is not only a problem for the UK as Europol drew attention to inconsistencies in data collection in their 2016 survey of criminal asset recovery in the EU. 18 Although statistics have been included in the annual reports from the Financial Intelligence Unit (FIU) since the introduction of POCA, that body has a tendency to change the data they report in order to frame recovery efforts in a positive light. For example, the Serious 14 Available at: https://www.sentencingcouncil.org.uk/wp-content/uploads/Fraud_bribery_and_money_ laundering_offences_-_Definitive_guideline.pdf (accessed 2/12/17) 15 Information sourced from: http://www.parliament.uk/business/publications/written-questions-answersstatements/written-question/Commons/2016-01-12/22147/ (accessed 04/02/2017) 16 Data for Scotland is available from http://www.copfs.gov.uk/foi/responses-we-have-made-to-foirequests/40-responses2014/1103-prosecutions-for-money-laundering-offences-r008561 (accessed 17/02/17) 17 Note that figures will not add up as sentence decisions by the court can relate to cases running from previous years.…”

“…For example, the Serious 14 Available at: https://www.sentencingcouncil.org.uk/wp-content/uploads/Fraud_bribery_and_money_ laundering_offences_-_Definitive_guideline.pdf (accessed 2/12/17) 15 Information sourced from: http://www.parliament.uk/business/publications/written-questions-answersstatements/written-question/Commons/2016-01-12/22147/ (accessed 04/02/2017) 16 Data for Scotland is available from http://www.copfs.gov.uk/foi/responses-we-have-made-to-foirequests/40-responses2014/1103-prosecutions-for-money-laundering-offences-r008561 (accessed 17/02/17) 17 Note that figures will not add up as sentence decisions by the court can relate to cases running from previous years. 18 Europol ( 19 is more circumspect in disclosing information on asset recovery arguing that due to the complexity of cases, recovered assets failed to indicate the wide amount of disruption to criminal activity, itself regarded as evidence of success. By way of example, referring to its first year of operation: 'NCA operational activity resulted in nearly £22m denied to criminals in the UK and almost £104 million being denied to criminals impacting on the UK by overseas partners'.…”