There has been a lot of discussion about the level of effectiveness of anti-money laundering (AML) within the United Kingdom (UK) and even globally. Some have attributed the problem with AML to weak regulatory and compliance framework, others lay the blame on the regulated sector for not doing enough to prevent money laundering, while some have attributed the problem to the cost of compliance imposed by the regulators. This book looks at the problem of AML from the perspective of one of the most important stakeholders, the money laundering reporting officers (MLROs), because their voice is often not heard in the debate despite the critical role they play in AML.
Consequently, the chapter introduces the problem with AML from the perspective of MLROs. The aims and objectives of the book, the justification for the writing of the book and a brief discussion on the philosophy and methodology adopted for the research that underpinned the book are also included in the chapter.
Introduction
Money laundering is a global phenomenon that has been around for ages (Unger 2013a). In its basic form, it is the process of concealing of the source of illicit money. The problem with money laundering is that it encourages criminal activities, allow money launderers to benefit from the proceeds of their criminal activities and threatens the soundness of the financial system (Schott 2006).
As a result of these negative effects, the international community has introduced various initiatives to tackle the problem caused by money laundering. The main organisation that deals with the problem globally is the Financial Action Task Force (FATF), an institution formed by the Group of Seven most industrialised nations initially to deal with drug-related money laundering offences and later terrorist financing and other serious offences. The organisation developed 40 Recommendations in 1989 as a comprehensive measure to preventing money laundering. The recommendations were subjected to various amendments before the organisation finally adopted the Recommendations in 2012 for the prevention of money laundering, counter-terrorist financing and proliferation of weapons of mass destruction.
The United Nations (UN) was, however, the first to introduce a global measure to tackle the problem with the introduction of the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in 1988. Later, the UN introduced other conventions, such as United Nations (2000) on Transnational Organized Crime and United Nations (2004) on Corruption, to widen the scope of predicate offences and adapt to changing money laundering schemes. Other institutions that are at the forefront of the fight against money laundering include the World Bank, IMF, Egmont Group and Wolfsberg Group.
The European Union (EU) is also active in combating money laundering. Countries in the EU are obliged to follow various Directives on money laundering that were passed mainly to implement the recommendations of the FATF. The first Directive was passed to give effect to the first forty Recommendations of the FATF, and when the recommendations were amended in 1996, a second Directive was issued. There is also the third Directive that is more comprehensive, which broadened the scope of predicate offences, included other organisations as regulated entities and introduced a risk-based approach to AML. The Directive that is now in force is the fourth EU Directive, which was issued in 2015 to further address the threat of money laundering. Furthermore, member countries are required to comply with the Directive by June 2017 (European Union 2015).
The UK, being one of the major countries in the EU and a strong member of the FATF, is one of the most active countries in implementing various AML Directives and FATF recommendations (de Koker 2009), mainly through money laundering regulations (MLR). The first MLR was issued in 1993 to implement the first Directive, the second in 2003 to implement the second Directive and finally the MLR in force is the 2007 MLR regulation, which is essentially a regulation that gives effect to the third EU Directive (van den Broek 2011).
Several acts were enacted to support the fight against money laundering. These include the Proceed of Crime Act 2002 (PoCA 2002), which is the foremost legislation for dealing with money laundering. Before 2002 there were Drug Trafficking Act 1994 (DTA 1994), the Criminal Justice Act 1998 (CJA 1988) and the Terrorism Act 2000 (TA 2000) that were also related to the fight against money laundering. Several organisations were also created to enforce the provisions of the law. Some of the organisations include the Serious Organised Crime Agencies (SOCA) and the Financial Service Authority (FSA), which, though not mainly created for AML, had powers to implement AML regulations. These two organisations were replaced by the National Crimes Agency (NCA) and the Financial Conduct Authority (FCA), respectively, but they retain the same powers and responsibilities to prevent money laundering. The two agencies were created by the Crime and Courts Act 2013 and Financial Services Act 2012, respectively.
One industry that was subject to intense regulation regarding AML was the banking industry because of the belief that the majority of money laundering activities were conducted through the industry (Takats 2011). Banks were unwillingly recruited to support the fight against money laundering through requirements for them to implement systems and controls to deter the use of their system for the conduct of money laundering. Several other requirements were placed on the banks, but perhaps the most important requirement now is to appoint an MLRO to coordinate AML activities and liaise with regulators. The main duties of an MLRO are to identify and report suspicious money laundering activities within the bank to the regulators and to ensure that banks are complying with other MLRs.
The Purpose of the Book
The purpose of the book is, therefore, to provide an understanding of this regulatory environment, identify the problems affecting it and suggest solutions. To achieve this broad objective, it was decided that the best way is through understanding the concerns and behaviours of MLROs and discovering a grounded theory that would explain these concerns.
Justification of the Book
There are a lot of books and articles on money laundering, but most of the writings are conceptual; reviews and opinions and the empirical research in the field are mostly descriptive rather than theoretical (Demetis 2010). There is, however, research that deals with the regulatory issues, but most are looking at the effectiveness of the regulation from the perspective and based on the objectives of regulators. Examples of such studies are Takats (2011), Masciandaro (1999) and Araujo (2008). Other books in the area are focused on the effect and the typology of money laundering. The author, therefore, decided to write a theoretical book in order to contribute to knowledge in AML since according to Demetis (2010 p. 36), “while these typological examinations remain useful for practitioners, academic research ought to be grounded on a theoretical level and assist in drawing the implication to practice”.
MLROs were eventually selected as participants for the research underpinning the book because they are at the heart of AML regulation given the responsibilities placed on them by law and the importance of their duties to preventing money laundering. Besides, there is surprisingly limited research on the role of MLROs despite their critical role in compliance. The two studies in the UK focusing on MLRO identified in the literature (Bosworth-Davies 1998; Webb 2004) are descriptive and dated.
This book is, therefore, an attempt to look at the problem of AML regulation from the perspective of MLROs and to discover a theory that would contribute to AML field that lacks a theoretical foundation.
The Aims and Objectives of the Book
Consequently, the main aim of the book is to explore the main concerns of MLROs in the UK banking industry in relation to the anti-money laundering legislative framework and to present a theoretical explanation of these concerns.
Specifically, the objectives are as follows:
- Provide an understanding of the AML environment from the perspective of MLROs.
- Discover concepts from their perspective that will explain their concerns and the ways of resolving them.
- Identify the main concern of MLROs and the core category that resolves it.
- Discover a theory that would explain how MLROs are resolving their main concern.
- Discover a framework that will explain the environment in which they operate.
- From the framework, suggest an effective and efficient approach to AML compliance.
To achieve these aims and objectives, the book seeks to find answers to two questions:
- What is the main concern of MLROs?
- How are they resolving their main concern?
These questions are based on the classical grounded theory approach for conducting research in which a researcher is advised to enter the field with as little preconception as possible and with no defined research problem or research question (Glaser 1998). As data are collected and analysed, the real research problems and research questions will evolve.
The answer to the first question denotes the problem facing MLROs and the answer to the second question becomes the core category that resolves the problem.
The main concern of MLROs from the research was found to be unfair pressure mainly from regulators, and the strategy for resolving this problem was through protecting themselves from the unfair pressure. Below is a summary of how the problem and the question emerged from the data.
Emerging Theory
The problem or the main concern that emerged was unfair pressure. Unfair pressure is a high-level concept formed from a combination of two concepts called unfair and pressure, which together conceptualised the main concern of MLROs. Unfair pressure comprises two ...