AML Insights from Conversation Circle (Sherlock Edition)

“The world is full of obvious things which nobody, by any chance, ever observes.”

– Sherlock Holmes, The Hound of the Baskervilles

In this blog, you will be introduced to some real-life cases and challenges that compliance officers solve. Let’s discuss these at the core of our sherlock edition conversation circle.

For this most anticipated conversation circle, we invited the following experts to share their opinions.

• Andrew Thomas Bosz – AML Specialist
• Georgina Demetriades – AML Compliance Strategist
• Oonagh Van Den Berg – Risk and Compliance Advisor
• Daisy Namayi Kariu – Anti-Financial Crime Expert

To deal with financial crime, one has to reconsider traditional AML concepts, how they resonate with emerging issues, and ways to solve them.

Though it is traditional to consider money laundering in three phases, the question to answer here is; ‘Is there any truth to it?’

Oonagh van den Berg, a risk and compliance advisor, narrated a story about a client who owed some money for an investment event.

In the course of the event, the amount was wired out just as the client had specified. Exactly one week later, the client disappeared. It was then proved to be a sort of ransom payment.

This compelling case underlines an important lesson on how even the best practices cannot ensure positive outcomes.

On the other hand, Georgina Demetriades, an AML Compliance Strategist, gave an example of an international client, which was an eye-opener indeed.

The compliance officer conducted an initial screening, and everything appeared to be in order. However, a month later, the client’s behavior changed. Their email and tone of communication were different, and they urgently needed to make significant changes to their financial structure.

The officer initiated due diligence, which revealed that the client was a WANTED individual. Further investigations revealed that the client was attempting to manipulate their financial assets from hiding, evading law enforcement.

Concerning transactions from 2002 to 2015, the conversation pinpointed another inquiry carried out by anti-financial crime expert Daisy Namayi Kariuki.

The case talks about suspicious transactions from 2002 and 2015. HSBC came under fire for failing to report suspicious transactions totaling $300 million.

The trail of funds, moving stealthily from Lebanon to Switzerland, caught the attention of the Swiss Financial Regulatory Authority. The discovery, linked to politically exposed persons, led to sanctions against the bank, unraveling a case that sounds like a financial thriller.

Andrew Thomas, a Global AML Specialist, described a case in which he was involved as a government regulator. He found a money laundering where half a billion dollars were involved, and all that money was being used in the trafficking of 700 helpless individuals.

The operation was sophisticated, with countless straw men and shell companies in Australia serving as its backbone. Funds flowed like a hidden river that crossed 30 entities and multiple borders.

Suspicion heightened with peculiar details, like multiple individuals using the same quiet suburban address for frequent, small transactions just below the reporting threshold.

Access to FIU data proved to be the key. Each transaction, each anomaly, added another piece to the puzzle. Red flags turned into hard evidence, and the scheme’s mastermind was finally exposed. The case culminated in a dramatic prosecution, bringing a global criminal enterprise to its knees.

This leads to the following questions; “Is there a high-stakes trade-off between speed and accuracy in compliance investigation when dealing with PEP”? The question of whether banks tick the compliance box or have a social conscience only to filter money in the right manner was finally exposed.

This underlines, “In compliance investigations, does PEP pose a high-stakes trade-off between precision and speed?”

In response to the inquiry over privacy and openness, Andrew said:

In this case, all industries have a corporate-level responsibility to practice compliance. Banks may take risks and get fined because, to a layperson’s reasoning, it all looks so cheap from their end. 

It is likely to offend regulators if that strategy is adopted. However, there is room for the law to be amended, such as by increasing fines or not allowing any bank to escape repercussions.

This leads to an important question: ‘’Are fines a good business practice for regulating enforcement to get banks on the right side of the law, or is there a need to change direction?” 

Fines can be an effective regulatory tool since businesses prioritize maximizing profits and seek to avoid financial penalties from a business perspective. 

However, additional factors must be considered, such as, in Australia, fines impose monetary costs and damage a bank’s reputation, prompting more attention to compliance. 

Such an approach varies across jurisdictions. Some countries prefer to keep the identity of fined institutions private to avoid public disclosure. 

There is often discretion by authorities since their economies are dependent on FDI, and revealing such matters would lead to discouraging the investor`s confidence.

Andrew expanded the discussion with an example of an American programmer called Virgil Griffith, who used the Ethereum coin and made transactions in North Korea. He had to use this virtual currency due to the embargo in place by the United States of America. At some other time, he was charged with 5 years imprisonment for trying to dodge U.S sanctions.

This raises the key question, “At the time of onboarding customers, has there been a moment when due diligence and KYC revealed red flags regarding that individual?”

Identifying whether the results are exact matches or false positives is quite hard. However, details like date of birth, picture, and citizenship number could provide a lot of authenticity in figuring out whether they are the same person or not.

When it comes to matching with the help of a picture, it becomes much easier. AML Watcher provides a feature where you can simply upload the image of a required person and screen whether it’s sanctioned. 

This raises a very important question as to ‘’How do regulators use open-source searches for verification and compliance operations? It is possible to ask ‘‘Does the issue of budget influence the quality of compliance operation?’’

Andrew said various companies have unique working practices that must be implemented depending on the company’s budget and capacity. Even having the opportunity to type into open search engines like Google is insufficient, as it has a certain amount of information access. The main objective of performing such an operation is to look into the activities of the particular person. 

This brings us to the wrap of our conversation circle Sherlock edition, where we deduce that customizable and cost-effective AML solutions can pave the way to simplified compliance so that abiding by the regulations doesn’t feel burdensome.