The Evening Standard City Editor on why laundering rules could take firms to cleaners


The mafia man telephoned his 'capo di tutti' back in the old country and said: 'OK, we have the cocaine sourced in Bolivia, we have the courier system to bring it in to Britain together with all the forged import documentation; we have the concealed containers produced and we have various customs officials on the payroll.

'We have a distribution network developed on a cell basis, impossible to trace back, and we have all the offshore accounts in place. We have opened various shell companies and are able to implement all the placement and layering to legalise the funds.

'But we have just hit a major snag. The British anti-money-laundering rules say we have to produce a gas or electricity bill before we can open the trading account. How can we possibly organise that?'

This bit of role-playing came from a recent course on the measures in the Financial Services and Markets Act to combat money-laundering. It may have its unlikely elements. These are not that organised criminals use London, but that they are likely to be wrong-footed by the need to produce a gas bill. In Whitehall, where Bill drafters take even gas bills seriously, it may be the ultimate measure of probity. The rest of us are more worldly.

But it cannot be ignored because money-laundering is a hot issue with the Government, and the Act codifies existing rules and imposes new penalties for those who fail to detect laundering. If you think it is dangerous to finger one of the mob, wait till you see the penalties for not doing so. No one seriously expects all these rules and regulations to catch many launderers, although they might persuade some to divert their efforts elsewhere. Most will comply scrupulously with every requirement - indeed that might be the way to spot them, given that honest people bin their bills.

But when something goes publicly wrong, the system will demand a human sacrifice and that is where the internal compliance officer plays a crucial role. He will be the sacrifice. The new doctrine of senior management responsibility holds that when something goes wrong in a business, someone internally has to be held to account. That leaves the anti-money-laundering officer with nowhere to hide.

Before they go to jail, however, the compliance officers and their companies will have ample opportunity to lose business trying to comply with the law. The Financial Services Authority is putting in place guidance that will be extremely difficult to implement and could severely restrict any company's ability to attract genuine, clean business.

One example is that a firm should demand to see the passports of the directors of every company with whom it deals. But try that in China. No one there has any idea who is in charge of those State-owned corporations. The only certainty is that it will be someone else tomorrow. And passports are rather scarce.

Under the new rules, the entire responsibility for combating laundering falls on one designated individual within firms. It is not a task they can delegate. It is not a responsibility that goes away when they are ill, late or on holiday. They have responsibility for all the work done by subordinates, which means logically that they have to read everything produced by them. And when it goes wrong, they face the possibility of jail.

Clearly the rules are not targeted at the innocent, but they are vague. Despite the bland assurances of fair treatment that the FSA smoothly delivers now, many of these compliance officers are seriously worried at the risks they run and the responsibility that falls on their shoulders.

They think that the FSA's verbal assurances could count for nothing a few years down the line when it is under pressure from embarrassed politicians to deliver a result. They will stand accused for any tiny lapse and will have no defence. Hunting with hounds might soon be banned by this Government, but the new Financial Services and Markets Act has created a new blood sport called hunting with hindsight.


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