AML laws have failed

May 19, 2022 FinTech and Alternative Finance, Fintech International, Fintech Opinions, Legal Issues, Regulation, Consultation, Personal Finance, Stories No comments

UK Law Society Gazette | Jonathan Goldsmith | May 16, 2022

Johnathan goldsmith - AML laws have failed

Warren Buffett famously said: ‘Only when the tide goes out do you discover who's been swimming naked.’

The withdrawal of nearly all Western support for Russia and Russian money has been one of history’s tide-turning moments, and among those found to be swimming naked have been solicitors. We have been hammered for our servicing of oligarchs whose money was obtained by theft, violence, corruption and other crimes. It is not good enough for us to say that others were at it, too – and that our very own government was knee-deep in the mire. We are solicitors with important values, and should examine ourselves closely in the aftermath.

Having said that, which I believe needs to be said before I turn to others who bear responsibility, I consider that many governments, and intergovernmental organisations like the Organisation for Economic Development and Cooperation (OECD), need to consider their own failings, too.

See: Opinion: Rising cost of compliance may lead to consolidation

I want to focus here on the elaborate structure which they foisted on us to stop the servicing of corrupt money – the anti-money laundering laws proliferating around the world. These have failed, too. It is not an exaggeration to say that those laws lie in ruins, having failed to stop the penetration of Western economies by corrupt Russian money.

Yet there seems no recognition that the AML regime is fatally flawed. As with all mistakes, its supporters believe that it was just not applied strictly enough, and needs to be reinforced.

To understand the depth of wrongness of the current AML concept, one need only read Catherine Belton’s book, ‘Putin’s People’, which was published in 2020. This documents in some detail the various criminal dealings which led to the rise of the Russian billionaires whose money flooded the West. She conducted dozens of interviews over many years. Even so, there are large gaps because so much took place behind an impenetrable veil of secrecy, and through multiple layers of shell companies in tax havens which lack transparency.

Yet the OECD, the EU, the UK government and others behind the construction of the AML laws expect every solicitor to conduct his or her own investigation as part of customer due diligence and ‘know-your-client’. The investigation is thus privatised and fragmented, having to be done over and over again by each solicitor or law firm as it is consulted.

See: Snapshot: the regulatory framework for financial services compliance in Canada

Yet the depth of knowledge required – of Russian politics, of the Russian language, of the many varied players, of the multiplying companies and fronts and transactions, of Russian laws, and of historical events – is beyond the resources of a law firm. It is ridiculous to expect law firms to investigate what takes years, many interviews, and much academic knowledge. It is also a very inefficient way of going about things, because it requires the background to be re-investigated over and over again by separate lawyers and law firms. And we have just seen the results: huge compliance departments failed to stops serious penetration of our economies, with dire results.

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