Saturday, July 11, 2009

A Problem With The Laundry

How can Tyler prove it all belongs to him?

For reasons that needn't detain us, Tyler has being trying to prove he is the legit owner of certain funds, and that he obtained the funds in a properly kosher manner.

On the other end of the phone is a fairly large firm of solicitors - who admittedly do not know Tyler - and the conversation goes like this:

Solicitor: "You need to prove to us that this money belongs to you."

Tyler: "Well, I thought I'd done that by sending you a copy of my passport, my driving licence, and my Halifax savings account statement."

Solicitor: "Ah, yes, but that doesn't show where the money came from originally."

Tyler: "Originally? Well, as you can see from the statement, it's been in that account for the last two years. So... er... it's coming from that account."

Solicitor: "But where did it come from originally?"

Tyler: "It came from my savings... you see, I'm retired... I probably switched it from another account somewhere else... when it comes to savings, I'm afraid I'm rather a rate tart."

Solicitor: "Hmm... we have to know where it originally came from... that's The Law."

Tyler: "The Law?"

Solicitor: "Yes, The Law... money laundering."

Tyler: "Ah... money laundering... you mean the FSA regulations?"

Solicitor: "Yes, the FSA... The Law."

Tyler: "But surely if the Halifax were prepared to trust me, why can't you just trust them? I mean don't they have to comply with the same FSA requirements?"

Solicitor: "Mumble, mumble.... Look, this isn't our fault - it's The Law. All we're doing is complying with The Law."

Tyler: "The law... right.... the problem is I got this money in the boring old fashioned way - I earned it. I originally got it from my employer. But that was quite a while ago - I've been retired for several years. So what do you actually need to see? I've got several filing cabinets full of bank statements... how many do you want sent over?"

Solicitor: "Look, it's perfectly straightforward. We just need to see... ummm... err... the thing is... it's The Law... ahhh... look, I'll have to speak to our Money Laundering Officer."


You've undoubtedly had similar experiences. Maybe you've had the one where your own bank - the one you've been with for decades - won't open a new facility for you until they've seen your passport to prove you're still who you say you are.

There's no doubt it's a box-ticking pain in the backside.

But more importantly, does it do any good? Are we actually stopping money launderers?

According to an IFA I spoke to recently, there is not a single case of any would-be launderer being caught by this system. As you'd kinda guess, real launderers are quite capable of cobbling together the necessary fake docs, and ticking all the right boxes.

And on the other side, serious financial institutions don't want to deal with launderers - especially if they know that the authorities will take a very dim view if they do.

Indeed, back in the mid-80s - long before the FSA was ever thought of - Tyler had direct experience of senior directors at a leading merchant bank spotting, and pulling the plug on, a laundering deal far bigger and far more sophisticated than anything a high street solicitor would ever see. They did so because it didn't "smell right", and the bank's reputation was worth far more than the potential fees involved.

So why do we do have all this FSA mandated box-ticking (see here for the official guidance notes on "Prevention of money laundering/combating terrorist financing" - 159 closely typed pages... and that's only Part 1)?

Why don't we just trust our banks, IFAs, and solicitors to exercise their professional judgement (backed up with the threat of execution if they take the piss)?

Or to put it another way, why don't our tax-funded regulators focus their efforts on the stuff that really matters - like stopping our banks taking crazy risks and going bust?

And on that front, Darling's latest efforts to patch up our tripartite sytem of financial regulation are a dog's breakfast. Here's the Wall Street Journal's damning verdict (not just on Darling):

"As an international financial center, London needs a government that understands the causes of the financial panic and has a clear idea of where to go from here. To judge from this week's debate over a Labour reform proposal, Britain's political class still has a long way to go...

...There may well be a case for regulatory reform, especially given the confusion with which the current regulators greeted the crisis. But the credit mania resulted from factors deeper than simple "regulatory gaps." Instead of debating bureaucratic structures, Britain's political leaders -- Labour and Tory -- would be better off spending the time until the next election coming up with more effective proposals to secure the financial system."

Enough micro managing.

Enough box-ticking.

Enough deckchair rearrangement.

It's time we gripped some of the Big Issues.

1 comment:

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