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RELATIONSHIP MANAGERS’ ANTI-MONEY-LAUNDERING DUTIES IN THE UK

Chris Hamblin, Compliance Matters, Editor, 9 September 2013

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In the first of a regular series we explore the compliance side of the relationship manager’s job. RMs in certain countries are being held to greater account than before for their compliance duties. Here CM dissects a list of them as laid out in the wealth management chapter of the Joint Money Laundering Steering Group’s Guidelines.

 In the first of a regular series we explore the compliance side of the relationship manager’s job. RMs in certain countries are being held to greater account than before for their compliance duties. Here CM dissects a list of them as laid out in the wealth management chapter of the Joint Money Laundering Steering Group’s Guidelines. 

The JMLSG starts by enumerating the money-laundering risks in the sector. All relationship managers ought to be aware of them, even though their compliance departments typically have the job of codifying them in company policy. They are as follows: 

  • The combination of wealth and power in the same people. Those two things go hand-in-hand in many countries, which is why the Financial Action Task Force reckons “politically exposed persons” to be risky customers at all times. If they have recently wielded political power, they may have used it to accumulate the wealth that the RM is “onboarding.” 
  • Many accounts with other wealth management firms. If the customer does not tell the RM about these, it may be difficult for the financial firm to build up an accurate picture of his worldwide dealings, as required by the Money Laundering Regulations 2007. Regulation 5(c) obliges the firm (in the shape of the RM, usually) to obtain information on the purpose and intended nature of the business relationship. Regulation 8(2) (a) calls for “ongoing monitoring of a business relationship.” This entails scrutiny of transactions undertaken throughout the course of the individual’s relationship with the bank (including, where necessary, his source of funds which the bank must in any case establish at the beginning of its dealings with him) to ensure that the transactions are consistent with the RM’s knowledge of the customer, his business and risk profile. 
  • The tendency of customers to want their services to be conducted discreetly and in confidence. This seems to be a slight misunder-standing of the word “confidentiality,” which in general global governmental parlance merely refers to information about an individual being shielded from the gaze of other individuals and not from the government, whose informant the RM is on this subject. Only the words “privacy” or “secrecy” denote account information being shielded from the gaze of the government as well as from that of fellow-citizens. 
  • The existence of the offshore world. The word that the JMLSG uses here is “concealment.” To it, there is no difference between the concealment of something and “the misuse of services such as offshore trusts and...shell companies.” 
  • Next to this the group lists countries with statutory banking secrecy that also have wealth management markets. No examples are offered but the FATF’s list of “high-risk and non-co-operative jurisdictions” has a few states on it that RMs might want to consider. These fall into three camps. Among the “jurisdictions with strategic deficiencies that have not made sufficient progress in addressing the deficiencies” are: Ecuador; Indonesia; Turkey; Vietnam; and Yemen. In the second camp, that of “improving,” lie Argentina and Kyrgyzstan. In the third class, that of sanctions, Iran is in a class of its own. 
  • Countries with statutory banking secrecy. 
  • Countries where corruption is known, or perceived, to be a common source of wealth. 
  • The frequent insistence of HNWs on transmission of funds in high values rapidly between accounts all over the world. 
  • The use, by persons unspecified in the notes but presumably private banks on their own initiative, of concentration accounts – multi-client pooled/omnibus-type accounts. 
  • Private banks’ tendency to extend credit to clients while using potentially “dodgy” assets as collateral without researching their origins. 
  • HNWs’ tendency to conduct commercial activity through personal accounts to deceive the bank or the RM himself. 
  • The common use in wealth management of collateralised loans without disclosure of the identity of the guarantor, if there is one. 

An appreciation of these risks will be of massive help to a private bank’s compliance officer – or even an RM – in the formation of legitimate suspicions that might lead to a suspicious transaction report being sent off to the Serious Organised Crime Agency. 

The RM faces a quandary: what is a suspicious transaction? In most European Union countries for most of the time they have been obeying EU anti-money-laundering statutes, it was synonymous with an unusual transaction. The JMLSG still makes the odd pronouncement in which it conflates the two, although it should not because banks have long been required to take a risk-based approach to money-laundering problems. The MLRO always has the last say about the sending of a report, but the JMLSG expects RMs to be often the first source of suspicion because they operate on the front line of money-laundering control. 

This is evident in point 5.4, which says that “the role of the relationship manager is particularly important to the firm in managing and controlling the money-laundering or terrorist-financing risk it faces.” In 5.5 it states that he or she must “at all times” be aware of the dangers of “becoming too close to the client.” He or she should guard against a “false sense of security,” presumably the firm’s security from the threat of regulatory fines or worse. He/she should also guard against “undue influence by others” (this is not explained) and “conflicts of interest” (also unspecified but presumably this refers to the bank’s impetus to make a profit by treating the HNW as a customer when it should be thinking instead of treating him as a suspect). 

The RM should also be worried about his/her personal safety (para 5.6). This is not an idle warning; criminal networks have been known to gain favours from high-street banking staff by threatening them with beatings. Some years ago a French private bank reported its findings about a gypsy network to the police. The head MLRO told a conference that “the gypsies” in France could use their contacts in the police to find out the whereabouts of anyone who had moved to escape intimidation and as a result, the MLRO was sent to New Caledonia in the Pacific to keep him from harm. Para 5.6, some might think rather naively, states that firms should have suitable internal procedures to require staff including RMs to report the fact that they have been menaced and a policy for reporting such incidents to the police. RMs, it adds without giving a reason, should never handle cash. 

THE RM’S DUE DILIGENCE LIST 

Although it is the RM’s job to sell services to the client, he/she is also compelled to gather information on him/her. This, according to point 5.9, means asking him at every turn for his reasons for using financial institutions, businesses or addresses in different jurisdictions. If the HNW uses these facilities across the private bank’s group, it should consider the appointment of someone to act as a leading RM. Wealth Matters would like to hear from any readers who know this to be the way their businesses do things. If such a structure exists, the leading RM’s job is to compile enough information to know and understand the HNW’s business structure. 

Private banks, as the JMLSG often points out, should gather information at a far more granular level that normal retail banks would for their customers as the risk is greater. RMs, according to point 5.13, should obtain information on the following: 

the origins of the client’s wealth; 

documents relating to the economic activity that gave rise to the wealth “where possible and appropriate”; 

  • the nature and type of transactions; 
  • the client’s business and legitimate business structures; 
  • for corporate and trust structures, the chain of title, authority or control, leading to the ultimate beneficial owner, settlor and beneficiaries, “if relevant and known”; 
  • the reasons why the client is using complex structures, if he/she is; 
  • the use the client makes of products and services; and 
  • the nature and level of business to be expected over the account. 

This last is likely to be tricky as, as one MLRO once put it, “there are no usual transactions with high-net-worth customers.” 

VISITING HOURS 

Point 5.15 calls on relationship managers to do more detective work: “in wealth management, relationship managers should generally visit their clients at their place of business in order to substantiate [its] type and volume.” They should keep a record of: 

  • the date and time of the visit; 
  • the address or addresses visited; 
  • a summary of both the discussions and assessments; 
  • any commitments or agreements; 
  • any changes in the customer’s profile; 
  • his/her expectations for product usage, volumes and turnover; 
  • any international dimension to the client’s activities and the risk status of the jurisdictions involved; and 
  • updating the client profile “where appropriate.” 

There is one job that the RM does not have to do: all new wealth management customers should be subject to “independent review and appropriate management approval and sign-off” (point 5.16). 

VERIFICATION - A MOVEABLE FEAST 

The regulations leave it up to the private bank to decide who does the necessary reputational searches to determine the level of risk to be assigned to new customers. The RM, however, has the job of obtaining information about anyone the MLRO asks to provide a written reference about the customer. References should only be trusted if they are addressed only to the firm and come from the referee directly (5.17). 

EXTRA/ENHANCED DUE DILIGENCE OR EDD 

This higher level of information-gathering occurs when the HNW in question is a “politically exposed person” (in which case, senior management sign-off is always needed) or poses a high money-laundering risk in some other way. The JMLSG leaves the details up to the firm. Transaction-monitoring also has to take place, as the only true way of “knowing one’s customer” is through his transactions. This, however, is not earmarked as a job for the relationship manager and is generally done centrally with the aid of software. 

Although the JMLSG notes expect RMs to gather plenty of information and sit on the “front line” of their firms’ anti-money-laundering efforts, their compliance tasks are essentially menial ones. If something is amiss they might be expected to be the first to form suspicions, but the suspicious transaction reporting process is generally supervised centrally by the compliance department. The JMLSG certainly does not expect the RM to “mastermind” the compliance effort. 

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