December 6, 2007
James Ibori, former governor of an oil-rich Nigerian state, liked investing in Britain and putting his money in its banks. British anti-corruption investigators claim he had a “criminal lifestyle” involving accounts at Barclays and Abbey National, properties in London and Dorset and four cars, including a Bentley, a Jaguar and a Chrysler.
Most spectacularly, police claim, he bought and armour-plated a €406,600 (£293,700) Mercedes-Benz from a Mayfair showroom in a 2005 deal arranged by a Swiss private bank, carried out via a company registered in the tiny Pacific island of Niue. Mr Ibori has declined to comment on the claim – made in a police affidavit first obtained by Saharareporters, an internet newspaper – that these assets were part of a scheme to launder at least £20m through Britain.
The investigation is a reminder of the dangers facing leading companies – in Mr Ibori’s case, Abbey and Barclays – over money-laundering allegations, in spite of internal due diligence and global attempts to crack down on dirty cash.
As banks, regulators, law enforcement officers and government officials gather in London today for two days of discussions on anti-money laundering efforts, they are faced with both existing systemic weaknesses and dangers that are emerging with the arrival of new sources of international capital. They must tackle a problem that can earn companies fines, criminal charges and huge reputational damage.
The meeting – organised by the Financial Action Task Force, the leading intergovernmental body combating terrorist financing and money-laundering – comes amid growing concerns about the potential dark side of shifting global investment flows. Britain faces perhaps the biggest risks, thanks to the much-publicised arrival of significant capital from opaque sources such as the former Soviet Union, sovereign wealth funds and Middle Eastern oil states.
At worst, the argument goes, the influx of wealth risks opening London up to repeats of notoriously damaging cases such as the money-laundering by Gen Sani Abacha, the late Nigerian dictator, who processed at least $1.3bn through British financial institutions in the late 1990s.
Jeremy Carver, trustee director of Transparency International UK, the anti-corruption organisation, says: “If you want to hide illegal money, what do you do? You put it in the biggest haystack you can find.”
Law enforcement authorities and regulators acknowledge the increased risk posed by the capital influx, but they say a lack of good intelligence from source countries often precludes action. Ken Farrow, a former police officer who now works on corporate investigations at Control Risks, the security company, compares the situation with the problems he and former colleagues faced when they tried to probe individuals who wanted to set up businesses in Britain after the fall of the Soviet Union.
“Although there was masses of smoke, trying to get tangible proof that would satisfy a court . . . was impossible,” he says.
Officials’ reluctance to act – whether justified or not – puts extra pressure on the banks and other companies that have already become the first line of defence against money-laundering. New European Union rules – to come into force in Britain next week – are toughening due diligence requirements and imposing tighter monitoring of industries such as estate agents and consumer credit companies (see below).
Critics point to a range of problems with the way the system is run. Like regulators, companies with anti-money-laundering responsibilities are finding it increasingly expensive to gather information on their customers, particularly when they are from countries where good data are hard to find.
Tommy Helsby, chairman of Europe, Middle East and Africa for Kroll, the security company, cites the anecdote of a big bank that wanted to set up an investment fund for wealthy Russians but said its profit margin allowed it to spend only $5,000 vetting each person. For that money, says Mr Helsby, “you will almost certainly find something to make you suspicious. But you won’t be able to afford to find out whether it’s true or not.”
An even broader problem is that anti-money-laundering controls still vary between countries and even within institutions, where the pressure to do deals can sometimes override the caution of compliance departments. One financial investigator says he has carried out probes in which central managers of banks do not appear to have ready access to the details of all clients taken on by wealth management departments. “It’s amazing,” he says. “They really are quite complacent, despite everything.”
Companies are also grappling with the consequences of the tightening of anti-money-laundering duties since the terrorist attacks of September 11 2001. Authorities in some countries have struggled to cope with a deluge of so-called suspicious activity reports by banks and other institutions. In Britain, these jumped 10-fold in five years, although authorities say the increase is now slowing and their management of the situation is improving.
The struggles to sort out the system have triggered complaints from companies that they are spending money providing intelligence that no one uses, leaving the most egregious transactions deeply hidden beneath the background noise. In the worst cases, anti- money-laundering controls and their “know-your customer” provisions have become a form-filling exercise carried out by people who are irritated by having to discharge what they see as a pointless task. As one lawyer puts it: “Mr A. Capone can walk through the door and my only initial responsibility is to ensure he is, indeed, Mr A. Capone. If he brings his passport and brings a utility bill, I am satisfied.”
Another peculiar problem facing companies is that the proclaimed success of international efforts to crack down on weakly regulated jurisdictions has choked off important intelligence.
The Financial Action Task Force used to publish a regularly up-dated blacklist of so-called non-co-operative territories, which at one time included Russia, the Cayman Islands and Israel. As the list has been whittled down to zero – re-moving even stalwarts such as Nigeria and Burma – companies processing transactions are left less sure where in the world the biggest risks are. One banker says it is a sign of a more general shortcoming: authorities expect banks to be “Argus-eyed”, without offering enough help in being all-seeing.
Today’s meeting is in part an attempt to deal with some of the divisions between the public and private sector on tackling money-laundering. Both sides realise that, whatever the improvements of the past few years, the reputational price of becoming embroiled in cases such as the Ibori investigation is growing.
As one banker puts it delicately: “The growth of these new [money flows] will add some new challenges. But they are surmountable.”
Copyright The Financial Times Limited 2007
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