“For what it’s worth,” corruption is the key.
Thirty-four years after the passage of the Money Laundering Control Act of 1986, (the real start of the current AML infrastructure we face today), our community has seen a plethora of laws, regulations, guidance and examiner subjectivity. The result: confusion, unending cost overruns and competing noise on how to fix a truly broken system; not broken because the private sector should not have a law enforcement role (we should!), but because we cannot seem to agree on what the source of the dysfunction is.
It is pretty simple – there’s a lack of accountability.
When we have regulatory partners failing to admit they have poorly-trained examiners, fearful of missing a major problem, we have a problem. And when we have a private sector that voices complaints about escalating costs, sometimes turning a blind eye to the actions of their wealthy customers or actually assists those same customers in avoiding sanctions, reporting and similar requirements to increase revenue, we have a problem.
In 2019, as an industry, we saw a tremendous amount of discussion on how to fix the AML system. There was a lot of talk about innovation, transparency, efficiencies in recordkeeping and reporting, training and setting priorities. While all of these themes warrant focus and frankly, more specificity, it seems like we have neglected to focus on a clear cause of financial crime – corruption.
Corruption – a driver for money laundering
I am honored to take over teaching a class at George Mason University’s Schar School of Policy and Government on “International Money Laundering, Corruption and Terrorism” from my good friend Les Joseph. Les made clear to the students when he was teaching, as I do now, that corruption enables and relies on money laundering and many other types of financial crime to hide illicit funds and support terrorist acts.
Because of this foundational reality, improving the AML system must address corruption. There are many definitions of corruption; one that covers the private and public sector actors is:
“Corruption is a form of dishonesty or criminal offense undertaken by a person or organization entrusted with a position of authority, to acquire illicit benefit or abuse power for one’s private gain.”
So, as we tackle corruption, consistent accountability is a necessity.
Over the holidays I finished a book about a libel trial against former President Theodore Roosevelt who had commented and written publicly about corruption of boss politics in both parties in New York State in 1915. A major case at its time, Roosevelt was eventually acquitted. The trial prompted much debate on what corruption meant. Further, it became clear that there was no need of financial gain to be corrupt; as is still the case. Lord Acton’s statement about the corruption of power clarifies that both the private and public sector can be corrupt. Following the trial, Roosevelt said “[t]he foundation stone of national life is, and ever must be, the high individual character of the average citizen.”
So, for what it’s worth, we need a renewed focus on corruption.
Additional AML Reform Themes
We will certainly follow the various House and Senate bills addressing AML in 2020, but remember we are in an extremely volatile election year. While AML tends to be bi-partisan or non-partisan, there is no way to predict legislative success.
The themes we can address without new laws and regulations are improved governance, enhanced ethics training, and the culture of compliance that demands enterprise-wide support. There needs to be real commitment from executive management that will penalize any business line that ignores compliance, assists in illegal tax avoidance, or forces products on unsuspecting customers. Whistleblowers must be protected, training should include proactive approaches to art and antiquities theft, there can be no compliance advantages given to the wealthy. The board of directors must be engaged.
For our regulatory and law enforcement partners, a commitment to understanding the financial sector, sharing relevant information, and ensuring that the focus of all AML compliance is reason and practicality.
Sadly, corruption is as old as the civilized world, but that should not discourage us from seeking improvement.
A final quote:
“Once widespread corruption in both civic and personal affairs becomes established, reestablishment of the necessary equilibrium in affairs of state is nearly impossible because the rise of corruption means that the [republic] already is lost when both its leaders and its ordinary citizens lack civic virtue.”
For what it’s worth…
 “For What It’s Worth” was written by Stephen Stills for Buffalo Springfield and released December 1966. It became a well-known protest song.