tag:theconversation.com,2011:/global/topics/anti-money-laundering-21488/articlesanti-money laundering – The Conversation2023-09-05T17:03:24Ztag:theconversation.com,2011:article/2106592023-09-05T17:03:24Z2023-09-05T17:03:24ZUniversities and their students are vulnerable to money laundering – new research<figure><img src="https://images.theconversation.com/files/542976/original/file-20230816-21-towf59.jpg?ixlib=rb-1.1.0&rect=46%2C0%2C5184%2C3445&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Students are at risk of being exploited by financial and organised criminals.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/back-view-man-presenting-students-lecture-478521652">Monkey Business Images/Shutterstock</a></span></figcaption></figure><p>Money laundering jeopardises the security of UK citizens and the integrity of its economy. Money launderers often target financial institutions, but they are also increasingly <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945411/NRA_2020_v1.2_FOR_PUBLICATION.pdf">targeting</a> lesser regulated or unregulated sectors, such as universities. </p>
<p>Our <a href="https://orca.cardiff.ac.uk/id/eprint/160289/">research</a> has focused on how universities apply anti-money laundering legislation, as well as their response to identified threats. We have found that universities, their employees and students are vulnerable to threats from money launderers because universities are not explicitly included within the UK’s money laundering, terrorist financing and transfer of funds <a href="https://www.legislation.gov.uk/uksi/2017/692/contents/made">regulations</a>.</p>
<p>The government’s anti-money laundering laws and regulations focus on preventing the crime by requiring organisations to submit suspicious activity reports to the National Crime Agency’s (NCA) <a href="https://nationalcrimeagency.gov.uk/what-we-do/crime-threats/money-laundering-and-illicit-finance/ukfiu">Financial Intelligence Unit</a>. These are reports of financial transactions that may be linked to money laundering.</p>
<p>In the UK, <a href="https://www.nationalcrimeagency.gov.uk/who-we-are/publications/480-sars-annual-report-2020/file">more than 90%</a> of suspicious activity reports submitted to the NCA are from financial or credit institutions. However, money launderers have adapted their techniques to exploit the weaker controls and regulations in the university sector. </p>
<p>UK universities, in some cases, <a href="https://carnegieendowment.org/files/Page_AfricaUK_Corruption_1.pdf">attract</a> the family members of convicted criminals and corrupt politically exposed persons. These are people who hold prominent positions in government, business or other organisations. Their status makes them <a href="https://www.fatf-gafi.org/content/fatf-gafi/en/publications/Fatfrecommendations/Peps-r12-r22.html">vulnerable</a> to corruption and involvement in money laundering schemes.</p>
<p>The NCA <a href="https://www.nationalcrimeagency.gov.uk/news/nsa2020">revealed</a> in 2020 that increasing numbers of students are having their bank accounts used by organised criminals. Young people can be used or exploited as “<a href="https://www.bbc.co.uk/news/uk-england-45797603">money mules</a>” by crime gangs for laundering money. In 2018, students Abdi Mohamed and Nyanjura Biseko were <a href="https://www.bbc.co.uk/news/uk-england-sussex-46196850">found guilty</a> of laundering more than £10,000 through their bank accounts, part of a £37,986 fraud.</p>
<p>There have also been instances where people have used their student loans to finance terrorism. For example, Yahya Rashid was <a href="https://www.theguardian.com/world/2015/nov/18/yahya-rashid-used-student-loan-join-isis-syria-youth-custody">jailed</a> for five years in 2015 after using his student loan to pay for himself and four friends to go to Syria to join the terror group, Islamic State.</p>
<h2>What we found</h2>
<p>We sent freedom of information requests to 120 universities across the UK to discover how anti-money laundering legislation is being applied. Nine out of ten institutions responded to our requests, and while some universities provided a full response to every question we asked, others declined to answer some or all questions. Overall, <a href="https://orca.cardiff.ac.uk/id/eprint/160289/">we found</a> there is a disparity among universities regarding the implementation of anti-money laundering legislation. </p>
<p>A significant minority of universities are failing to provide staff and students with guidance on money laundering and terrorism financing risks. We found that 20% of respondents do not provide any internal anti-money laundering training for staff. While 24% of respondents do not provide any guidance to their students on the risks posed to them by financial and organised criminals. </p>
<p>Some universities are failing to recognise the money laundering risks inherent in large cash payments, with more than 21% of respondents willing to accept cash payments. For example, three universities received more than £1 million in cash between 2019 and 2020, for tuition fees and accommodation. This is concerning, particularly given that some universities do not impose any limits on cash payments. </p>
<p>Also, universities are seemingly failing to recognise the value of the financial intelligence created by submitting suspicious activity reports. This is despite the fact that university employees are bound by the obligation to submit these reports under the <a href="https://www.legislation.gov.uk/ukpga/2000/11/contents">Terrorism Act 2000</a> and the <a href="https://www.legislation.gov.uk/ukpga/2002/29/contents">Proceeds of Crime Act 2002</a>. </p>
<p>In fact, we found that most universities do not submit any suspicious activity reports at all to the NCA. Most suspicious activity reports are submitted by a small number of universities. </p>
<p>This means that while universities are not explicitly included within the regulations, the current disparity of its application by the sector will continue. It means that universities and their employees are at risk of criminal and civil liability for committing money laundering and terrorism financing offences, or for failing to establish preventative measures. </p>
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<img alt="Students wearing black gowns throw their mortar board hats in the air." src="https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/545238/original/file-20230829-15-tf55pk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Students can be exploited as ‘money mules’ by organised criminals.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/portsmouth-july-20-graduation-ceremony-university-298907810">Enrico Della Pietra/Shutterstock</a></span>
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<p>To reduce the risks to which universities and their students are exposed, the UK’s money laundering, terrorist financing and transfer of funds <a href="https://www.legislation.gov.uk/uksi/2017/692/contents/made">regulations</a> should be explicitly applied to the higher education sector. This should include providing guidance to staff and students on terrorism financing and money laundering risks. And allowing cash payments for accommodation and tuition fees should be prohibited, or at least severely restricted.</p><img src="https://counter.theconversation.com/content/210659/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Higher education institutions are not explicitly included within the UK’s anti-money laundering regulations.Nicholas Ryder, Professor of Law, Cardiff UniversityHenry Hillman, Lecturer in Law, University of ReadingSam Bourton, Senior Lecturer in Law, University of the West of EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1926082022-10-18T05:43:33Z2022-10-18T05:43:33ZStar Sydney suspension: how do casino operators found so unfit get to keep their licences?<figure><img src="https://images.theconversation.com/files/490286/original/file-20221018-16-zhfp4w.jpg?ixlib=rb-1.1.0&rect=0%2C800%2C5086%2C2585&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>How low does a casino operator in Australia have to go before it loses its gaming licence?</p>
<p>That question is still hanging after the punishment meted out this week to the operator of The Star Sydney casino – found to be “<a href="https://apo.org.au/sites/default/files/resource-files/2022-08/apo-nid319488.pdf">not suitable</a> to be concerned in or associated with the management and operation of a casino in NSW”.</p>
<p>A four-month inquiry into the casino found Star Entertainment’s management “rotten to the core” and documented, in a report of more than 900 pages, a litany of failings from flouting anti-money-laundering laws to deliberately misleading regulators. </p>
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<a href="https://theconversation.com/now-sydney-has-two-casinos-run-by-companies-unfit-to-hold-a-gaming-licence-190540">Now Sydney has two casinos run by companies unfit to hold a gaming licence</a>
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<p>On Monday, NSW’s new Independent Casino Commission, having given the company two weeks to “show cause” why it should not lose its casino licence, suspended that licence, appointed an emergency manager to run the casino for at least 90 days, and imposed a A$100 million fine.</p>
<p>This is the maximum fine possible under laws introduced in August, and $20 million more than what Victoria’s regulator <a href="https://www.sbs.com.au/news/article/melbournes-crown-casino-handed-record-80-million-fine-over-illegal-funds-transfer-scheme/o1i5k8724">fined Crown Resorts in May</a>. </p>
<p>The head of the Independent Casino Commission, Philip Crawford, <a href="https://www.nsw.gov.au/star-casino-licence-suspended">said</a> it was “no longer in the public interest that the Star should remain in control of that licence”. </p>
<p>This is progress of a kind from the new casino regulator, established this year to replace the former Independent Liquor & Gaming Authority in light of that agency’s regulatory failings.</p>
<p>But it raises obvious questions about the upshot of all the other casino inquiries – in NSW, Victoria, Western Australia and Queensland – that have found Star Entertainment and Crown Resorts unfit or unsuitable to hold casino licences.</p>
<p>Yet not one casino has had to close its doors. </p>
<h2>Saving jobs, and revenue</h2>
<p>So what does a casino have to actually do to lose its licence? </p>
<p>Looking at the case of The Star Sydney, it’s apparently not enough to allow more than A$900 million to pass through the casino in contravention of anti-money-laundering rules. Or to fabricate receipts to hide this. Neither is allowing a Macau-based junket operator with known links to criminal enterprise to run a high-roller room.</p>
<p>Crawford defended not going further than suspending the casino licence, because Star Entertainment had “demonstrated genuine contrition” and to preserve the livelihoods of the casino’s employees:</p>
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<p>A big issue for us, to be frank, in this environment is that there is probably about 10,000 employees of the Star casino, and a lot of them rely on the income to pay their mortgages and raise their kids. </p>
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<p>This is, in part, recognition that culpability lies at the level of senior management, not croupiers, waiters and cleaners. </p>
<p>Even so, such a rationale also suggests regulators are in danger of being trapped by a culture of considering operators “too big to fail”. </p>
<h2>Too big to fail?</h2>
<p>The Star Sydney employs an estimated <a href="https://www.zoominfo.com/c/the-star-entertainment-group/347613908">8,000 people</a> at its site in Pyrmont.</p>
<p>Crown Resorts has 11,500 people working at its Southbank premises in Melbourne and 6,000 at its Burswood site in Perth – making it the largest single-site private employer <a href="https://www.crownresorts.com.au/our-contribution/employment-training">in Victoria and Western Australia</a>.</p>
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Read more:
<a href="https://theconversation.com/illegal-dishonest-unethical-and-exploitative-but-crown-resorts-keeps-its-melbourne-casino-licence-170625">'Illegal, dishonest, unethical and exploitative' – but Crown Resorts keeps its Melbourne casino licence</a>
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<p>By comparison, Australia’s biggest employer, Woolworths, employs 190,000 people across more than 1,000 Australian and New Zealand sites. The ABC <a href="https://www.zoominfo.com/pic/abc-australian-broadcasting-corporation/363975">employs about 5,000</a> staff. </p>
<h2>Raking in gaming revenue</h2>
<p>But perhaps even more important than the jobs are the revenues that casinos deliver to state and territory governments.</p>
<p>Figures from the <a href="https://www.abs.gov.au/statistics/economy/government/taxation-revenue-australia/latest-release#data-download">Australian Bureau of Statistics</a> show that, in 2020-21, states and territories collected A$7 billion in gambling taxes. More than half – nearly A$4 billion – came from casinos and gambling machines. </p>
<p>The NSW government collected A$2.7 billion – 7.3% of its total revenue. The Victorian government collected A$1.6 billion – 5.4% of total revenue. Again, the vast majority came from gambling machines. </p>
<p>The government most reliant on gambling revenue was the Northern Territory – with nearly 15% of its taxation income from gambling. </p>
<p>Casinos are not only big business for private investors. They have become key to the sustainability of state and territory finances. That no casino has been forced to shut its doors is emblematic of this problematic and increasing financial reliance. </p>
<p>It’s one thing to hold public inquiries and make adverse findings against casino operators. But, as with banks, the apparent reticience to revoke gaming licences signals that money, in the words of Cyndi Lauper, changes everything.</p><img src="https://counter.theconversation.com/content/192608/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Simpson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>State and territory governments dependent on gambling revenues seem loathe to shut down casinos despite criminal activity.Alex Simpson, Senior Lecturer in Criminology, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1842532022-08-07T20:45:02Z2022-08-07T20:45:02ZCrown Sydney casino opens – another beacon for criminals looking to launder dirty money<p>Crown Resorts’ striking new A$2 billion casino on Sydney’s Barangaroo Point opens its doors to gamblers for the first time this week. But only if they are “VIPs”.</p>
<p>Its licence to operate remains conditional, after being found unfit to run a casino by the inquiry headed by former Supreme Court judge Patrica Bergin.</p>
<p>Victorian and Western Australian inquiries into Crown’s Melbourne and Perth casinos reached the same conclusion. Agreements have been made, directors have <a href="https://theconversation.com/gaming-the-board-crown-resorts-shows-you-just-cant-bet-on-independent-directors-148522">resigned</a>, major shareholder James Packer has divested, and US private equity player Blackstone Group has <a href="https://theconversation.com/crown-resorts-has-sunk-so-low-that-private-equity-is-the-best-option-177149">taken over</a>.</p>
<p>But will this be enough to stop the major reason Victoria’s inquiry found Crown had engaged in <a href="https://theconversation.com/illegal-dishonest-unethical-and-exploitative-but-crown-resorts-keeps-its-melbourne-casino-licence-170625">illegal, dishonest, unethical and exploitative</a> practices; its complicity in money-laundering potentially worth billions of dollars?</p>
<p>This is not unique. The NSW inquiry into rival casino Star Sydney has also heard allegations of billions of dollars being <a href="https://www.abc.net.au/news/2022-03-25/star-casino-inquiry-hears-further-evidence-of/13812646">funnelled through the casino</a> in contravention of anti-money-laundering rules. </p>
<p>If Crown’s experience is anything to go by, being found unfit to <a href="https://www.liquorandgaming.nsw.gov.au/__data/assets/pdf_file/0008/1082087/DAY-37-Draft-End-of-day-Public-Final.pdf">hold a casino licence</a> is still not enough for governments to revoke a licence. </p>
<p>This fact appears to be an implicit acceptance that illegality comes with legal casinos. Which is true. Gambling, whether illegal or legitimate, will always attract criminals. </p>
<h2>Why criminals love gambling</h2>
<p>When casinos were illegal they were a lucrative revenue stream for those prepared to take the risk. </p>
<p>A 1974 study of Sydney’s dozen or so illegal casinos estimated they made annual profits of about <a href="https://www.sydneycrimemuseum.com/crime-stories/the-casinos/">A$15 million</a> – equivalent to A$130 million now – even after paying out about A$1.4 million (about A$12 million now) in bribes to police and politicians.</p>
<p>Licensing and regulating casinos was meant to free the industry from criminal associations and protect public institutions from corruption. </p>
<p>But as the revelations of the four casino inquiries in the past two years show, legal casinos remain plagued by associations with crime and criminals because of their value – knowingly or not – as sites for laundering money.</p>
<h2>Have money, need laundering</h2>
<p>Significant proceeds from crime, be it drug trafficking or fraud, have to be “washed” before criminals can spend it. </p>
<p>Why? Because law-abiding citizens are expected to declare their income, and pay tax on it. Any individual with no obvious income source but lots of assets will attract attention. </p>
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Read more:
<a href="https://theconversation.com/how-sydneys-barangaroo-tower-paved-the-way-for-closed-door-deals-161816">How Sydney's Barangaroo tower paved the way for closed-door deals</a>
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<p>Making “dirty money” appear as if it comes from a clean source is a massive global industry. The United Nations’ Office on Drugs and Crime estimates up to US$4.2 trillion (A$6 trillion) is laundered globally each year – <a href="https://www.unodc.org/unodc/en/money-laundering/overview.html">2-5%</a> of global GDP.</p>
<p>In Australia the value of local crime proceeds laundered each year is estimated to be more than <a href="https://www.aic.gov.au/sites/default/files/2022-04/sr38_estimating_the_costs_of_serious_and_organised_crime_v2.pdf">A$13 billion</a>, plus billions more in foreign crime proceeds.</p>
<p>Australia has “become <a href="https://michaelwest.com.au/money-laundering-fuels-house-prices-aml-ctf/">one of the world’s most attractive destinations</a> for money launderers”, according to financial crime expert Nathan Lynch, author of <a href="https://www.harpercollins.com.au/9781460713372/the-lucky-laundry/">The Lucky Laundry</a> (HarperCollins, 2022). </p>
<h2>How to launder dirty money</h2>
<p>There are a variety of ways to launder money. One is to own a legitimate business, such as a car wash, and declare the dirty money as revenue. </p>
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<figcaption><span class="caption">Criminal lawyer Saul Goodman explains money laundering in the series Breaking Bad.</span></figcaption>
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<p>Another is to buy real estate using obfuscatory legal mechanisms. Federal agencies estimate <a href="https://www.smh.com.au/business/the-economy/of-course-there-are-examples-criminals-laundering-billions-through-australian-housing-market-20211110-p597nc.html">tens of billions</a> of dollars are laundered through Australia’s property market each year. </p>
<p>But the easiest is through gambling.</p>
<p>In 2018, an estimated <a href="https://www.aihw.gov.au/reports/australias-welfare/gambling">A$25 billion</a> flowed through Australia’s gambling industry – one of the highest amounts per capita in the world. Of this, almost <a href="https://www.aihw.gov.au/reports/australias-welfare/gambling">A$5 billion</a> was spent in casinos. </p>
<p>Laundering money in a casino is surprisingly simple. Walk in with a bag of “dirty” cash. Convert it into chips. Play for a while – win a bit, lose a bit – then cash out. </p>
<p>Now all that dirty money you walked in with is clean. If anyone asks, say you won it – and who’s to say different? </p>
<h2>Regulations are not enough</h2>
<p>Australia has some of the toughest anti-money-laundering regulations in the world – and those rules are getting tougher. </p>
<p>Since 2020, any transaction greater than A$10,000, and the recipient’s identity, must be recorded and reported to Australia’s anti-money-laundering agency, AUSTRAC. </p>
<p>But this has only narrowed the ability to launder vast sums at a time. With every change, criminals respond.</p>
<p>Even poker machines in the local pub or club can be used to launder money. </p>
<p>The NSW Crime Commission is <a href="https://www.nsw.gov.au/customer-service/media-releases/poker-machine-money-laundering-inquiry">currently inquiring</a> into the nature and extent of money laundering through the state’s poker machines. </p>
<p>Of chief concern is the lack of transparency. Tickets from poker machines are anonymous if less than $5,000 is claimed. Anyone can place up to $4,999 of “dirty cash” into these pokies, place one $5 bet, then redeem the rest as “clean winnings”. </p>
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<img alt="Cash in, cash out: even poker machines can be used for money-laundering." src="https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/477814/original/file-20220805-18-fgco3b.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Cash in, cash out: even poker machines can be used for money-laundering.</span>
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<p>With more than <a href="https://www.nsw.gov.au/customer-service/media-releases/poker-machine-money-laundering-inquiry">$85 billion</a> pouring into the state’s <a href="https://www.smh.com.au/politics/nsw/nsw-cabinet-to-consider-an-extra-1000-pokies-for-star-casino-20210812-p58icl.html">95,000</a> machines dispersed across 4,000 venues each year, policing them is next to impossible. </p>
<h2>What can be done?</h2>
<p>In her damning report, Commissioner Bergin raised the possibility of a statewide scheme to combat money laundering through mandatory use of a “<a href="https://www.theage.com.au/politics/nsw/gambling-card-a-powerful-mechanism-to-stop-organised-crime-bergin-20210209-p570ym.html">gambling card</a>” that would enable the tracking of cash through a casino.</p>
<p>She made the point that casinos were <a href="https://www.parliament.nsw.gov.au/tp/files/79129/Volume%202%20-%20Inquiry%20under%20section%20143%20of%20the%20Casino%20Control%20Act%201992.pdf">already free</a> to introduce their own mechanisms “of a similar kind for their own patrons”. </p>
<p>NSW appears to have <a href="https://www.canberratimes.com.au/story/7705329/nsw-cools-on-cashless-gambling-card/">cooled on the idea</a>, in yet another sign that Australian governments aren’t serious enough about tackling the collateral damage associated with gambling. </p>
<p>Until things change, the implicit message will remain that if you want to launder dodgy money, head to your most convenient gambling venue.</p>
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Read more:
<a href="https://theconversation.com/responsible-gambling-a-bright-shining-lie-crown-resorts-and-others-can-no-longer-hide-behind-162089">Responsible gambling – a bright shining lie Crown Resorts and others can no longer hide behind</a>
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<p class="fine-print"><em><span>Alex Simpson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australian governments appear to implicitly accept that illegality comes with the territory of legal casinos.Alex Simpson, Senior Lecturer in Criminology, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1693192021-10-06T11:04:25Z2021-10-06T11:04:25ZPandora papers: media rage at billionaire tax cheats but ignore Boris Johnson’s failure to reform tax havens<p>Many of the world’s richest and most powerful people are in the spotlight for the wrong reasons – again. The <a href="https://theconversation.com/pandora-papers-its-time-to-pursue-lawyers-and-accountants-who-enable-tax-evasion-offshore-tax-expert-qanda-169192">Pandora papers</a> is the third and largest leak of documents in which the secret financial practices of the wealthy are exposed in the media. They highlight mass tax avoidance and evasion, as well as potential money laundering. </p>
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<p>As with the Panama and Paradise papers, the UK is heavily referenced as either the origin or destination for funds that are moved through offshore financial centres to obscure the ultimate recipients. The papers also highlight the still prominent role of British overseas territories such as the British Virgin Islands and Cayman Islands in such schemes.</p>
<p>But what is missing from this story is that this UK involvement could have been avoided. The UK has long known it could do more to prevent individuals from moving money in and out of the country through offshore jurisdictions. The National Crime Agency <a href="https://www.nationalcrimeagency.gov.uk/who-we-are/publications/16-high-end-money-laundering-strategy/file">identified the practice</a> as an issue in its 2014 report. And in 2016, after the leak of the Panama papers, then prime minister, David Cameron, <a href="https://www.theguardian.com/uk-news/2016/apr/21/ministers-consider-forcing-disclosure-of-true-ownership-of-uk-property">pushed for</a> a <a href="https://www.investopedia.com/terms/b/beneficialowner.asp">beneficial ownership</a> register that would force UK companies to reveal the person who ultimately enjoys the benefits of owning an asset, even if they are not the named owner. Five years later, we are no further forward. </p>
<h2>Registration of overseas entities</h2>
<p>In 2018, <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/727915/Draft_Registration_of_Overseas_Entities.pdf">Theresa May’s government</a> publishing a draft Registration of Overseas Entities Bill. This focused on setting up a register in which any “overseas entities” seeking to buy property in the UK would have to disclose their beneficial owners.</p>
<p>The register, which was originally due to come into operation in 2021, would have reduced the likelihood of the UK being embroiled in future scandals by making ownership of UK property transparent. But the legislation was not passed while May was in office and, since Boris Johnson took over in 2019, it appears to have been pushed to one side. </p>
<p>The UK also made it clear, by publishing a draft Order in Council under the <a href="https://www.legislation.gov.uk/ukpga/2018/13/contents">Sanctions and Anti-Money Laundering Act 2018</a>, that following consultation with British overseas territories they would be required to establish a public register of companies’ beneficial owners by 2021. However, it has since <a href="https://www.gov.uk/government/news/british-overseas-territories-commit-to-publishing-further-information-on-company-ownership-in-major-anti-corruption-move">been reported</a> this will now not be required until 2023. </p>
<p>The UK government does have <a href="https://www.gov.uk/government/news/reforms-to-companies-house-to-clamp-down-on-fraud-and-give-businesses-greater-confidence-in-transactions">a commitment</a> to reform Companies House, giving it investigatory powers to verify the identities of proposed company directors before they can be appointed. But no timeline has been set for implementing this. So once again, for all the rhetoric around making the UK more resilient to financial crime, the government’s lack of action speaks louder than words. </p>
<p>This lack of political will is also evidenced by Johnson’s decision not to implement the EU’s <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2018.284.01.0022.01.ENG">6th Anti-Money Laundering Directive</a>. While the UK is no longer a member of the EU, it was still in the transition stage at the date when the directive was due to be implemented by member states (December 3 2020). However, the UK had a special concession under the <a href="https://www.europarl.europa.eu/factsheets/en/sheet/5/the-treaty-of-lisbon">Lisbon Treaty</a> whereby it had the freedom to opt in to policing and criminal justice measures in the national interest. In this case, it simply chose not to opt in. </p>
<p>The <a href="https://www.lexology.com/library/detail.aspx?g=7d1db7a3-04b5-4d25-8e6a-f29eaec24cb2">UK government’s justification</a> for this was that the UK is largely compliant with the directive. But this is not the case in relation to beneficial owners: had the UK implemented the directive, it would have introduced similar requirements to the Registration of Overseas Entities Bill. This therefore represents a further decision not to implement a register of overseas entities and their beneficial owners. </p>
<h2>What it means</h2>
<p>The frustration is that the mechanisms to combat offshore secrecy are there, but they are not being advanced – or certainly not with any urgency. If the political will existed, a bill could probably go from draft to assent in months. </p>
<p>My worry is that this inaction amounts to tacit acceptance by the UK government of the wealthy avoiding tax and of illicit finance circulating in the country. Years of leaks and negative attention have done little to spur on the government. And as other countries launch inquiries into the Pandora papers, the UK remains largely silent. </p>
<p>Why is this so? There have <a href="https://www.theguardian.com/news/2021/oct/04/tory-party-top-female-donor-lubov-chernukhin-vast-offshore-empire-husband">been suggestions</a> that some <a href="https://www.independent.co.uk/news/uk/politics/pandora-papers-conservatives-donor-amersi-b1931721.html">Conservative Party donors</a> are the beneficiaries of the currently flawed system. There is also the fact that the proceeds from such transactions ultimately benefit London’s financial district, and that the elites that benefit under this system are the kind of individuals that keep governments in power. </p>
<p>Whatever the case, misplaced media anger at the wealthy who exploit this system, rather than at Johnson and his government for failing to reform the law, perpetuates this inaction. It enables the prime minister to rest easy and make conference speeches about helping voters by levelling up the country, while the same voters are forced to pay more taxes to make up for the amounts that the ultra-wealthy have been able to avoid paying through offshore secrecy.</p><img src="https://counter.theconversation.com/content/169319/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Shillito does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Five years after David Cameron was pushing for tighter rules around disclosure of beneficial owners, nothing much has changed.Matthew Shillito, Lecturer in Law, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1596512021-04-23T14:59:48Z2021-04-23T14:59:48ZBitcoin: UK banks are getting tough on crypto, but money-laundering rules are the real problem<p>NatWest, the UK retail bank, <a href="https://www.theguardian.com/technology/2021/apr/21/natwest-will-refuse-to-serve-business-customers-who-accept-cryptocurrencies">has announced</a> it will not engage with business customers who accept payment in bitcoin or other <a href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a>. It follows recent announcements from HSBC that it <a href="https://www.thetimes.co.uk/article/bitcoin-holders-barred-from-depositing-profits-in-uk-banks-pgswbfrdz">won’t allow transfers</a> from digital wallets and <a href="https://www.finews.asia/finance/34290-hsbc-adds-coinbase-to-crypto-ban-list-bitcoin">won’t enable customers</a> to buy shares in companies associated with cryptocurrencies, such as <a href="https://theconversation.com/coinbase-is-listing-for-us-100-billion-on-nasdaq-but-you-might-be-better-buying-bitcoin-instead-158843">Coinbase</a> or MicroStrategy. </p>
<p>The feeling from both banks is that cryptocurrencies are high risk and therefore justify a cautious approach, though they note that their <a href="https://www.theguardian.com/technology/2021/apr/21/natwest-will-refuse-to-serve-business-customers-who-accept-cryptocurrencies">stance could change</a> if and when regulation evolves.</p>
<p>Interestingly, this is not a view shared by institutions across the Atlantic. Both <a href="https://www.coindesk.com/morgan-stanley-approves-bitcoin-exposure-for-handful-of-mutual-funds">Morgan Stanley</a> and <a href="https://www.forbes.com/sites/korihale/2021/04/05/goldman-sachs-cryptocurrency-endorsement-boosts-wealth-management/">Goldman Sachs</a> are now offering their wealth management clients the opportunity to invest in bitcoin. Indeed, the initial uptake has been strong, with Morgan Stanley alone drawing in nearly <a href="https://www.coindesk.com/morgan-stanley-bitcoin-fund-draws-29-4m-in-2-weeks-filings-show">US$30 million (£22 million)</a> of investment in two weeks.</p>
<h2>Why the caution?</h2>
<p>The cautious approach of NatWest and HSBC stems from the <a href="https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf">2012 recommendations</a> of the <a href="https://www.fatf-gafi.org/">Financial Action Task Force</a>, a G7 initiative geared towards defeating money laundering. These recommendations mandate each member state to implement measures requiring their banks to scrutinise customers’ transactions for the purposes of money laundering and terrorist financing.</p>
<p>Under recommendation one, the anti-money laundering framework is to be applied on the basis of perceived risk. In other words, if a transaction or business activity is perceived to be more risky than usual, it needs closer scrutiny by the bank to ensure compliance with the framework. </p>
<p>This increases the strain on bank resources to verify that a transaction or business activity is safe to continue, but they also face large fines for non-compliance where there are deficiencies in their implementation of the framework or if things go wrong. </p>
<p>NatWest and HSBC are no strangers to being under the spotlight for compliance issues. HSBC was <a href="https://www.bbc.co.uk/news/business-20673466">fined US$1.9 billion</a> by US authorities in 2012, while <a href="https://www.ft.com/content/df2aea12-265e-4a71-aead-bef65eb78ec7">NatWest faces charges</a> over significant compliance breaches in the UK. While these charges relate to traditional money-laundering compliance breaches, perhaps it goes some way to explaining the caution of the two banks.</p>
<p>Banks view digital currencies <a href="https://www.fca.org.uk/consumers/cryptoassets">as risky</a> because they have the potential to be used for money laundering, they are targets for fraud and scams, and their value can be extremely unstable in the short-term. Indeed, the UK’s Financial Conduct Authority <a href="https://www.fca.org.uk/news/news-stories/fca-warns-consumers-risks-investments-advertising-high-returns-based-cryptoassets">has warned that</a> those investing and dealing with cryptocurrency are at risk of losing all their funds. Rather than face the enhanced burden of investigating businesses and individuals dealing with these assets, it is easier for banks to avoid the risk and not engage with them. </p>
<p>This situation is not unique to cryptocurrencies. For instance, it has long been a byproduct of the anti-money laundering requirements that <a href="https://www.thirdsector.co.uk/charities-de-risked-mainstream-banks-says-cfg-report/finance/article/1460805">banks have refused</a> to offer financial services to charities operating in high-risk jurisdictions. The banking sector accepts this reality, particularly given that charities tend to be relatively low-value customers. </p>
<h2>The wrong approach?</h2>
<p>On the face of it, banks are perfectly entitled not top offer financial services to businesses transacting in digital currencies. As well as anti-money laundering, banks are bound by anti-fraud measures and consumer protection. Fradulent crypto transactions are both difficult to spot and impossible to reverse, so the risks of engaging are high, at least until the market establishes itself and the business case to engage is stronger. </p>
<p>Of course, this is not to say that they have necessarily made the right call. The fact that the leading US banks have taken a different approach suggests that they think the potential rewards are worthy of the compliance burden. In defence of cryptocurrencies, they are both <a href="https://www.sciencemag.org/news/2016/03/why-criminals-cant-hide-behind-bitcoin">more traceable</a> than cash, and <a href="https://www.swift.com/sites/default/files/files/swift_bae_report_Follow-The%20Money.pdf">used less</a> for money laundering. </p>
<p>And while it is true that there is a risk of significant losses with cryptocurrency investments, there is also clear potential for big gains. Banks are profit-making businesses: the returns from crypto investments <a href="https://www.coindesk.com/price/bitcoin">in recent months</a> – notwithstanding the big sell-off in the past couple of days – plus the <a href="https://digitalik.net/btc/">very bullish forecasts</a>, ought to prompt them to at least speculate in the area, regulatory burden aside. </p>
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<a href="https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Bitcoin locked up in jail" src="https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/396799/original/file-20210423-21-q4uwua.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">De-risked.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bitcoin-bansbtc-illegal-blockchain-technology-cryptocurrency-759593668">Phanurak Rubpol</a></span>
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<p>We could simplistically blame the UK banks for either being too cautious or not doing enough to help these businesses, but it overlooks the bigger design flaw in the anti-money laundering framework. Compliance measures are a significant drain on a bank’s resources where a transaction or business is considered high-risk. Banks and their workers also face criminal sanctions, including large fines, where they fail to properly implement the rules, which is particularly troublesome when it is almost impossible for a bank to identify what a suspicious crypto transaction looks like.</p>
<p>Without a guaranteed high return for the bank, it is easier to de-risk and not engage with these businesses. This represents a missed opportunity for banks, and a potentially unnecessary stifling of legitimate business growth for companies wishing to deal with cryptocurrencies. </p>
<p>Banks are portrayed as the public villain, but the bigger problem is at a much higher level. It is a political and legal issue which requires the attention and intervention of lawmakers to address the fact it is much easier for banks to de-risk than to comply with the rules and help these businesses grow.</p><img src="https://counter.theconversation.com/content/159651/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Shillito does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>NatWest and HSBC are restricting customers in their crypto-dealings.Matthew Shillito, Lecturer in Law, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1569032021-03-15T17:41:19Z2021-03-15T17:41:19ZBounty programs: Ineffective in the war on money laundering<figure><img src="https://images.theconversation.com/files/389340/original/file-20210312-21-qj0bne.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C8511%2C5678&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">At first glance, these programs might seem attractive. But they suffer from fundamental flaws.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>Much like the war on terrorism and the war on drugs, the politics of law-making around the war on money laundering could easily be co-opted to impose Orwellian measures that risk eroding our liberties. </p>
<p>As the political hysteria over money laundering reaches its pinnacle, and <a href="https://www.narwallitigation.com/2020/05/31/fallout-from-dirty-money-and-its-threat-to-privacy-by-joven-narwal/">as I have pointed out before</a>, policy-makers are resorting to measures, oftentimes first seen in the United States, that would result in serious invasions of privacy. </p>
<p>Now, there is a growing push to import another Americanism into <a href="https://www.fintrac-canafe.gc.ca/fintrac-canafe/antimltf-eng">the Canadian anti-money laundering strategy</a>: a whistleblower incentive program that would amount to bounty hunting for violations.</p>
<p>Implementing a program such as this would not only be unfair, it would be fundamentally ineffective.</p>
<h2>The American experience</h2>
<p>The U.S. has had bounty hunting programs for banking law violations <a href="https://www.sec.gov/spotlight/dodd-frank/whistleblower.shtml">for some time</a>, presented under the guise of whistleblower protections. Most notably under the <a href="https://www.congress.gov/bill/111th-congress/house-bill/4173/text/enr?format=txt">Dodd-Frank Act</a>, which encompassed a series of reforms brought about to better regulate Wall Street after the 2008 financial crisis.</p>
<p>An enhanced bounty program for anti-money laundering violations came into effect this January with the passage of the Anti-Money Laundering Act (AMLA). It was included as part of the <a href="https://www.congress.gov/bill/116th-congress/house-bill/6395/text">National Defense Authorization Act for Fiscal Year 2021</a>, an omnibus bill that passed in December 2020 <a href="https://www.washingtonpost.com/national-security/house-votes-defense-bill-ndaa-trump-veto/2020/12/07/b872dd72-38c3-11eb-9276-ae0ca72729be_story.html">with bipartisan support, despite former President Trump’s veto</a>.</p>
<p>Under the new AMLA, a whistleblower that reports violations of anti-money laundering laws to the government that results in an <a href="https://www.sec.gov/news/speech/speech-peikin-100318">enforcement action</a> of more than US$1 million (about C$1.3 million) is entitled to a “reward,” <a href="https://www.sec.gov/news/press-release/2020-266">calculated as a percentage</a> of the money collected by the state.</p>
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<figcaption><span class="caption">What is the <em>Dodd-Frank Act</em>?</span></figcaption>
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<p>Under Dodd-Frank, these rewards were capped at US$150,000; but the new AMLA has no cap. Instead, whistleblowers receive a reward of up to 30 per cent of the enforcement action. Given the magnitude of some recent money laundering scandals, whistleblowers could receive hundreds of millions <a href="https://www.reuters.com/article/us-danskebank-moneylaundering-whistleblo-idUSKCN1NI2HC">or even billions of dollars</a>. </p>
<p>The AMLA also expands the scope of who may receive a reward to people that were ineligible under Dodd-Frank, such as internal auditors, lawyers or compliance officers — people whose job it is to find and correct behaviour before it turns into misconduct. It also protects whistleblowers from retaliation against their employers.</p>
<h2>Crossing the border into Canada</h2>
<p>Being our closest ally and trading partner, what happens in the U.S. inevitably influences Canada, and the anti-money laundering bounty hunter program is no exception. </p>
<p>The Ontario Securities Commission has already implemented a similar program and recently <a href="https://www.cbc.ca/news/business/whistleblower-payout-osc-1.5035440">made its first payments under the scheme</a>, totalling $7.5 million. Likewise, the Canada Revenue Agency (CRA) has created a bounty program for offshore tax cheating, called the <a href="https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/offshore-tax-informant-program.html">Offshore Tax Informant Program</a>, which offers informants up to 15 per cent of the tax collected relating to the non-compliance they report. </p>
<p>With <a href="https://www.rcinet.ca/en/2021/03/03/canada-urged-to-toughen-whistleblower-protection/">recent calls to enhance whistleblower protections in this country</a>, it is only a matter of time before we see more programs like this across Canada.</p>
<h2>Caught in the crossfire</h2>
<p>At first glance, these programs might seem attractive. But they suffer from three fundamental flaws.</p>
<p>First, they are completely reactionary, only rewarding the reporting of misconduct after it has occurred. This means that an employee who finds out about potential misconduct and does nothing, but reports it to the government later, gets a reward. Whereas an employee who stops misconduct from happening, gets nothing. This underscores that when you do things right, people won’t be sure you’ve done anything at all.</p>
<p>Second, <a href="https://doi.org/10.2308/ajpt-51663">research suggests</a> that financial incentives like these may actually decrease whistleblowing, which upends its entire purpose.</p>
<p>Third, and most troublingly, <a href="https://www.narwallitigation.com/2014/02/06/potential-pitfalls-of-the-cra-offshore-tax-informant-program/">as I’ve raised previously in relation to the CRA’s offshore tax informant program</a>, bounty programs like this create a strong incentive to provide misleading or unreliable information in the hopes of receiving an award. </p>
<p>It has long been understood in the criminal law context that information provided based on the hope of gaining an award or advantage — particularly from someone who may themselves be implicated in the wrongdoing — <a href="https://www.aclu.org/other/snitching-institutional-and-communal-consequences-professor-alexandra-natapoff">is unreliable</a>. This lesson was only learned in the criminal law sphere after <a href="https://heinonline.org/HOL/LandingPage?handle=hein.journals/jtlp10&div=13&id=&page=">countless wrongful convictions</a>. </p>
<p>Anti-money laundering policy-makers would be wise to look to these unfortunate experiences before extending a fundamentally flawed structure to yet another facet of our legal system.</p><img src="https://counter.theconversation.com/content/156903/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joven Narwal does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There is a growing trend to import another Americanism into the Canadian anti-money laundering strategy: a whistleblower incentive program that would amount to bounty hunting for violations.Joven Narwal, Adjunct Professor at the UBC Allard School of Law, University of British ColumbiaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1485222020-10-22T05:03:29Z2020-10-22T05:03:29ZGaming the board: Crown Resorts shows you just can’t bet on ‘independent’ directors<figure><img src="https://images.theconversation.com/files/364633/original/file-20201021-19-lamjf8.jpg?ixlib=rb-1.1.0&rect=0%2C52%2C5000%2C3285&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>What’s the difference between an independent and non-independent director?</p>
<p>This question lies at the heart of the scandal embroiling Crown Resorts, Australia’s largest gaming company, which owns casinos in Melbourne and Perth, and is seeking a licence to run a third in Sydney.</p>
<p>The inquiry into the company’s suitability to hold that licence by New South Wales’ Independent Liquor and Gaming Authority’s has revealed abject board failures, including failing to prevent its casinos being used for money laundering. </p>
<p>As the Australian Financial Review <a href="https://www.afr.com/companies/games-and-wagering/easy-decision-to-make-on-crown-s-nsw-licence-20201016-p565o8">has editorialised</a>, the inquiry has revealed “a litany of extraordinary events, remarkable management failures, a bullying culture and an appalling lack of corporate governance.”</p>
<p>At Crown Resort’s <a href="https://www.smh.com.au/business/companies/crown-chairman-coonan-apologises-to-shareholders-for-casino-s-failures-20201022-p567h2.html">annual general meeting today</a>, shareholders expressed their displeasure with 34% of votes cast rejecting Crown’s remuneration report. Any vote of more than 25% represents a “first strike”. A second strike could require a spill of the entire 11-member board.</p>
<p>There were also significant votes against the reappointment of individual board members. Two directors were saved only by the votes of major shareholder James Packer, who holds a 36% share of the company.</p>
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Read more:
<a href="https://theconversation.com/experienced-shareholders-better-than-independent-directors-for-business-61160">Experienced shareholders better than independent directors for business</a>
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<p>But that’s a big part of the problem – how much the board has been in the pocket of Packer, who quit as the board’s <a href="https://www.abc.net.au/news/2018-03-21/james-packer-resigns-from-crown-resorts/9570344">executive chairman in 2018</a>.</p>
<p>In particular the inquiry has raised questions about four of Crown Resorts’ six “independent directors”, meant to ensure the company is run in the interests of all shareholders, not just major shareholders.</p>
<h2>Committed to Packer’s interests</h2>
<p>At the top of the list of cosy personal relationships is that between Packer and Andrew Demetriou, the former boss of the Australian Football League who Packer invited to join the board as an independent director in 2014.</p>
<p>Independent directors, as the name suggests, are <a href="https://aicd.companydirectors.com.au/-/media/cd2/resources/director-resources/director-tools/pdf/05446-1-10-mem-director-t-bc-types-of-directors_a4_web.ashx">expected to have</a> no personal or economic ties with the company, its management or major shareholders. </p>
<p>But the inquiry heard how Demetriou pushed for less focus on complying with gambling regulations and more on increasing profits. In December 2018 <a href="https://www.smh.com.au/business/companies/exist-to-win-demetriou-worried-crown-was-too-focused-on-compliance-20201012-p564ax.html">he emailed Packer</a> about compliance and regulatory issues taking up “time, resources, costs and focus of management”.</p>
<p>He went on: “We exist to win; I asked management and the board to come back in the new year and turn our minds to strategies to grow revenue.”</p>
<p>In a <a href="https://www.theguardian.com/australia-news/2020/oct/13/crown-resorts-director-andrew-demetriou-denies-dishonesty-at-casino-inquiry">2019 email</a> he assured Packer of his commitment “to serving the best interests of Crown, and most importantly you”. </p>
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Read more:
<a href="https://theconversation.com/independent-isnt-necessarily-better-why-appointing-independent-directors-can-achieve-little-103092">Independent isn't necessarily better. Why appointing independent directors can achieve little</a>
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<h2>Not that independent</h2>
<p>Demetriou’s relationship with Packer appears indicative of the relationship between the entire board of Crown Resorts and its major shareholder. </p>
<p>Since 2016, for example, Crown has provided Packer and his private company CPH Holdings confidential information not available to other investors. This arrangement was <a href="https://www.theguardian.com/australia-news/2020/oct/21/former-crown-resorts-chairman-rob-rankin-should-be-referred-to-corporate-regulator-inquiry-told">terminated the day before</a> the annual general meeting.</p>
<p>Technically <a href="https://www.crownresorts.com.au/About-Us/Board-of-Directors">six of the 11 directors</a> on the Crown Resorts board are independent, in line with the Australian Stock Exchange’s <a href="https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-fourth-edn.pdf">corporate governance principles</a>. </p>
<p>This includes Helen Coonan, a former federal minister in the Howard goverment, appointed board chair in January; former Australian chief medical officer John Horvath; former senior federal public servant Jane Halton; former Aristocrat Leisure executive Antonia Korsanos; and advertising guru Harold Mitchell.</p>
<p>Yet the NSW inquiry <a href="https://www.theguardian.com/australia-news/2020/oct/17/the-crown-inquiry-will-the-house-that-packer-built-come-tumbling-down">also heard evidence</a> of Packer’s personal ties to Horvath, once the doctor of Packer’s father Kerry, and Mitchell, given a “no-strings-attached” $1.9 million loan by Kerry Packer in the 1990s. It also heard Korsanos should not have been categorised as an independent director, given poker machine maker Aristocrat’s business contracts with Crown. </p>
<h2>The rule, not the exception</h2>
<p>My research into boardroom dynamics suggests <a href="https://eprints.qut.edu.au/72595/">cosy boardroom relationships</a> are the rule, rather than the exception. </p>
<p>As part of my research I’ve interviewed more than 30 directors from for-profit, not-for-profit and government organisations. Those interviews confirm how important personal connections are in getting appointed to a board. Close friendships between senior executive and board members were not infrequent. </p>
<p>For example, one experienced director on the board of a public company described the intertwined relationship between the chair and chief executive. This included the chief executive renting his home from the chair and employing the chair’s former personal assistant. The problem, as the director told me, was “people didn’t know it”.</p>
<h2>Misleading shareholders</h2>
<p>This research – and the Crown Resorts saga – highlights a significant problem with corporate governance disclosures.</p>
<p>Independence on paper does not always translate to independence in decision-making.
Boards are meant to assess and review the independence of directors. But while formal relationships are considered, friendship ties and social connections are typically ignored, despite the obvious conflict. And <a href="https://theconversation.com/company-boards-are-stacked-with-friends-of-friends-so-how-can-we-expect-change-95790">social connections among the corporate elite</a> abound.</p>
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Read more:
<a href="https://theconversation.com/company-boards-are-stacked-with-friends-of-friends-so-how-can-we-expect-change-95790">Company boards are stacked with friends of friends so how can we expect change?</a>
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<p>This potentially misleads shareholders looking for independence as an indicator of good governance.</p>
<p>Minority shareholders without inside knowledge of a company’s decision-making rely on independent directors in particular to ask the hard questions and keep management accountable. In the absence of any clarity around a director’s true independence, shareholders are left guessing who is looking out for them and who has other loyalties.</p>
<p>Coonan has promised more “independence of thought” in the boardroom. </p>
<p>But as long as it remains at the board’s discretion to review and determine director independence, shareholders need to be aware that what they see may not be what they get.</p><img src="https://counter.theconversation.com/content/148522/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Natalie Elms does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cosy personal relationships among the corporate elite abound. So what makes an independent director actually independent?Natalie Elms, Lecturer, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1469152020-09-29T02:15:30Z2020-09-29T02:15:30ZRecord corporate fines don’t deter: here’s a ‘frank’ fix to make penalties bite<p>All things considered, Westpac’s record A$1.3 billion fine for breaching anti-money-laundering laws could have been worse. </p>
<p>Each of the alleged 23 million breaches of the <a href="https://www.legislation.gov.au/Details/C2019C00011">Anti-Money Laundering and Counter-Terrorism Act</a> between 2010 and 2018 carried a penalty of up to A$63,000. So the fine might have been more than A$1 trillion. </p>
<p>The A$1.3 billion equates to three months’ earnings for Westpac. It is A$400 million more than the A$900 million the bank set aside in its half-year results (in April). But that didn’t bother the market. </p>
<p><a href="https://www.asx.com.au/asx/share-price-research/company/WBC/statistics/shares">Westpac’s share price</a> ended the week 7% higher. </p>
<p>As Nathan Zaia, an analyst with investment research company Morningstar, <a href="https://www.smh.com.au/business/banking-and-finance/westpac-announces-record-breaking-1-3b-fine-20200924-p55yno.html">explained</a>: “It’s huge. It’s the largest fine in history. It’s an eye-watering number. But it’s already pretty much been expected by the market.”</p>
<p>With Westpac’s annual profit exceeding A$6 billion, and its market capitalisation more than A$60 billion, Zaia said a few hundred million dollars more didn’t “really have much of an impact with the valuation we put on the bank”.</p>
<p>If the biggest fine in Australian corporate history doesn’t make a difference to a company’s share price, it’s hard to see how that fine serves as a deterrent. It is the job of the board and senior management to serve the interests of shareholders. What doesn’t matter to investors won’t matter much to the board either.</p>
<p>There could be a way, though, to use the tax system to give corporate fines more bite, by making shareholders feel more of the pain.</p>
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Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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<h2>What franking credits do</h2>
<p>Franking credits – also known as <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">dividend imputation payments</a> – are tax credits provided to shareholders with their dividend payments. </p>
<p>The credits are intended to ensure income from investment is not taxed twice – first by the company paying tax on its profit, then by the shareholder paying income tax on their share of that profit (their dividend).</p>
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<strong>
Read more:
<a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">Words that matter. What’s a franking credit? What’s dividend imputation? And what's 'retiree tax'?</a>
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<p>Franking credits on dividends allow shareholders to cut their tax bills by the tax already paid on the dividend income they receive.</p>
<p>In some cases, thanks to a provision in Australia’s law, where the shareholder pays no overall tax, they can receive a tax refund from the government, a <a href="https://theconversation.com/words-that-matter-whats-a-franking-credit-whats-dividend-imputation-and-whats-retiree-tax-111423">dividend imputation cheque</a>, of the kind Labor promised to wind back in the 2019 election campaign. </p>
<h2>Franking debits as penalty</h2>
<p>There already exists a mechanism to use the imputation system to penalise bad behaviour by companies.</p>
<p>Where a company has not followed the rules relating to franking credits, the tax office can debit the company’s franking account, leaving less to distribute to shareholders as tax credits. </p>
<p>A similar mechanism could be used to impose fines. Instead of the company writing a cheque, the government would debit the value of the fine from the bank’s franking account.</p>
<p>This would directly affect the bank’s capacity to “impute” tax it has paid on profits. </p>
<p>Though the same amount of money imposed as a fine might have little impact on a company’s operations or profits, the loss of franking credits is something shareholders are likely to notice. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/westpac-ticking-every-anti-money-laundering-box-wouldnt-make-much-difference-to-criminals-127988">Westpac ticking every anti-money-laundering box wouldn't make much difference to criminals</a>
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<p>And if shareholders care, the directors might get the message louder and clearer.</p><img src="https://counter.theconversation.com/content/146915/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael William Blissenden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rather than imposing a straight fine, taking away franking credits would ensure shareholders feel more pain when companies misbehave.Michael William Blissenden, Professor of Law, University of New EnglandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1453652020-09-09T12:19:47Z2020-09-09T12:19:47ZAmericans are renouncing US citizenship in record numbers – but maybe not for the reasons you think<figure><img src="https://images.theconversation.com/files/357055/original/file-20200908-20-1dylgm.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4361%2C2844&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">American citizenship is not as coveted as it once was.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/american-flag-thumbs-down-royalty-free-image/172691591?adppopup=true">iStock / Getty Images Plus</a></span></figcaption></figure><p>President Trump hosted a <a href="https://www.c-span.org/video/?475188-1/president-trump-attends-naturalization-ceremony">televised naturalization ceremony</a> at the White House, aired during the Republication National Convention. </p>
<p>“You’ve earned the most prized, treasured, cherished, and priceless possession anywhere in the world,” he told the five new United States citizens. “It’s called American citizenship.”</p>
<p>Prized? Perhaps. But maybe not priceless. </p>
<p>A record number of Americans are renouncing their citizenship. In just the first half of this year, <a href="https://intltax.typepad.com/intltax_blog/2020/08/2020-second-quarter-published-expatriates-second-highest-quarterly-number-ever.html">5,315 Americans</a> gave up their citizenship. That puts the country on track to see a record-breaking <a href="https://intltax.typepad.com/intltax_blog/2020/08/2020-second-quarter-published-expatriates-second-highest-quarterly-number-ever.html">10,000 people</a> renounce U.S. citizenship in 2020. Until <a href="https://intltax.typepad.com/.a/6a00e54fb13f5188340240a4e5fd87200d-pi">a decade ago</a>, fewer than 1,000 Americans per year, on average, chose to renounce their citizenship. </p>
<p>Why are so many people abandoning the United States?</p>
<h2>The financial factor</h2>
<p>While many liberal Americans <a href="https://www.washingtonpost.com/posteverything/wp/2016/03/02/you-may-think-youll-move-if-trump-wins-but-heres-why-you-wont-really-do-it/">threatened to move abroad</a> after Trump’s election in 2016, rising renunciations are not directly attributable to any particular election result. The trend began in 2013, mid-way through the Obama administration. That year about 3,000 Americans suddenly gave up their passports – three times more than usual.</p>
<p>Nor are people fleeing the U.S. because of the coronavirus. The paperwork for the 5,315 renunciations completed so far this year began long before COVID-19 ravaged the country and made Americans <a href="https://www.cbc.ca/radio/thesundayedition/the-sunday-edition-for-july-19-2020-1.5647948/u-s-citizens-no-longer-have-access-to-most-of-the-world-the-global-south-never-had-it-1.5648022">global pariahs</a>.</p>
<p><iframe id="RUQwY" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/RUQwY/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>In fact, most Americans giving up their U.S. passport already live abroad and hold another citizenship. In <a href="https://www.cnbc.com/2020/07/01/taxes-may-be-top-reason-why-americans-want-to-drop-their-citizenship.html">surveys</a> and <a href="https://www.finance.senate.gov/imo/media/doc/Att%205%20Democrats%20Abroad%202014%20FATCA%20Research%20%20Stories%20of%20FATCA%20-%20Affecting%20Everyday%20Americans%20Every%20Day.pdf">testimonials</a>, these people say they’re dropping their U.S. citizenship because American anti-money laundering and counter-terrorism regulations make it too onerous and expensive to keep. </p>
<p>In 2010, Congress passed the <a href="https://www.greenbacktaxservices.com/blog/fatca-us-expat-taxes-explained/">Foreign Account Tax Compliance Act</a>, which requires foreign financial institutions to report assets held abroad by U.S. citizens and green card holders. The law, intended to identify the non-U.S. assets of all taxpayers, also ended up strengthening a 1970 anti-money laundering law, the <a href="https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar">Foreign Bank Account Report</a>, which requires citizens to declare all foreign assets to the U.S. Treasury Department.</p>
<p>Together, these two regulations represent a major burden for low-income and middle-income expatriates. Until 2010, they could basically ignore or remain ignorant of the Foreign Bank Account Report because there was little chance the U.S. government would discover their non-compliance.</p>
<p>They weren’t avoiding taxes. Of the roughly 9 million U.S. citizens living abroad, most don’t earn enough to owe Uncle Sam a dollar. Only expatriates who <a href="https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion">make over $107,600 in foreign income are required to pay U.S. taxes</a>. </p>
<p>According to a <a href="https://www.americansabroad.org/files/663/">2018 survey</a> by InterNations, an expatriates’ networking organization, the education sector is the largest employer of Americans living abroad, at 29%. Few educators make six figures. In the U.S., the average teacher earns <a href="https://www.bls.gov/oes/current/oes252021.htm">$60,000</a>. In most other countries, <a href="https://data.oecd.org/teachers/teachers-salaries.htm">it’s even less</a>.</p>
<p>Still, all American expats – even those who’ve lived abroad for <a href="https://www.cambridge-news.co.uk/news/cambridge-news/grandmother-toddler-dollars-usa-14873554">decades</a>, earn no income in the U.S., and hold no U.S. <a href="https://www.thelocal.fr/20200706/frances-accidental-americans-file-new-suit-over-bank-refusals">assets</a> – must submit an annual tax return to the Internal Revenue Service. Now, ever since Congress strengthened anti-money laundering and counter-terrorism financial reporting requirements, many have had to hire <a href="https://www.bbc.com/news/magazine-24135021">costly</a> international accounting firms to do their taxes. </p>
<p>The consequences of noncompliance are <a href="https://www.nationalreview.com/corner/tax-treatment-us-citizens-abroad-absurd-and-unfair-and-getting-worse-veronique-de-rugy/">severe</a>: forfeiting up to <a href="https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar">50%</a> of all undeclared assets held overseas.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A shredded one dollar note on a wooden table" src="https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/357045/original/file-20200908-16-100q1zi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">For some, US citizenship has become too annoying to keep.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/shredded-one-dollar-note-on-a-wooden-table-royalty-free-image/76186554?adppopup=true">Halfdark via Getty Images</a></span>
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<h2>Unbecoming American</h2>
<p>“Becoming American” is a <a href="https://www.jstor.org/stable/20092199?seq=1#metadata_info_tab_contents">favorite</a> topic in U.S. literature, popular history, and the <a href="https://www.theatlantic.com/ideas/archive/2020/08/historian-historic-times/615208/">media</a>. There are entire sections of <a href="https://www.amacad.org/publication/what-does-it-mean-be-american">university libraries</a> devoted to books and studies on the topic. My <a href="https://jhupbooks.press.jhu.edu/title/captives-consuls/">first book</a>, about how ordinary American citizens shaped early American national identity, will soon be among them. </p>
<p>However, there is very little written about the reverse: unbecoming American.</p>
<p>Renouncing U.S. citizenship is pretty complicated and costly. It involves one or two interviews with a consular officer, a $2,350 administrative fee – <a href="https://www.movehub.com/blog/dual-citizenship-around-the-world-map/">very expensive</a> compared to <a href="http://isaacbrocksociety.ca/2014/08/22/comparison-of-fees-and-procedures-for-renouncing-citizenship-in-various-countries/comment-page-1/">other wealthy countries</a> – and potential audit of the citizen’s last five years of U.S. tax returns. </p>
<p>The whole process takes about a year. Once you have successfully unbecome American, you need to submit a tax return to the IRS the year after renouncing. After that, your ties to the U.S. government are severed.</p>
<p>The formal, bureaucratic process of unbecoming American resembles the <a href="https://www.uscis.gov/citizenship/learn-about-citizenship/10-steps-to-naturalization">process</a> of becoming American. By the time those five new citizens were naturalized at August’s virtual Republican Convention, they had been U.S. residents for at least five years and spent the past <a href="https://www.wnyc.org/story/citizenship-application-backlog-persists/">12 to 18</a> <a href="https://theconversation.com/us-citizenship-applications-are-backlogged-prolonging-the-wait-for-civil-and-voting-rights-123747">months</a> filing paperwork, scanning their fingerprints, and studying for a civics test.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Trump stands with five new US citizens, with American flag in the background" src="https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=321&fit=crop&dpr=1 600w, https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=321&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=321&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=403&fit=crop&dpr=1 754w, https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=403&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/357041/original/file-20200908-16-hglmgg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=403&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A naturalization ceremony aired during the Republican National Convention on Aug. 25, 2020.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/in-this-screenshot-from-the-rncs-livestream-of-the-2020-news-photo/1268603740?adppopup=true">Courtesy of the Committee on Arrangements for the 2020 Republican National Committee via Getty Images</a></span>
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<p>Early in American history, though, citizenship was clumsy, informal, and changeable.</p>
<p>Colonists during the Revolutionary War often switched their allegiance, declaring themselves Patriots or Loyalists, depending on personal circumstances or which army controlled their town at the time, according to historian Donald F. Johnson in his forthcoming book “<a href="https://www.upenn.edu/pennpress/book/16134.html">Occupied America</a>.”</p>
<p>National identity was still in flux after the war. It was often unclear who was actually a citizen. Sailors, in particular, were frequently challenged on their status because many looked and sounded indistinguishable from the British when at sea or in foreign ports, wrote Nathan Perl-Rosenthal in his 2015 book “<a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674286153">Citizen Sailors</a>.” </p>
<p>One of the sailors I researched for my book, James L. Cathcart, regularly changed national allegiances to improve his fortunes. By my count, he switched identities or allegiances eight times by the time he turned 29, in 1796. </p>
<p>Born in Ireland, Cathcart fought for both sides in the American Revolution. Then when captured by Algerian corsairs in 1785, he spent a decade in captivity wavering between calling himself British or American, depending upon which offered the best hope of ransom. During captivity in Algiers he was also made a senior bureaucrat, advising and representing the interests of the ruler of 18th-century Algiers.</p>
<h2>Goodbye, America</h2>
<p>The confusion over identifying American sailors eventually inspired the documentation and bureaucracy that would ultimately be used to determine U.S. citizenship for all.</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>As this history shows, the notion of American citizenship as the “most prized, treasured, cherished, and priceless possession” is a relatively recent invention. And it may not be permanent.</p>
<p>With 10,000 U.S. passports expected to be dumped this year and another <a href="https://www.greenbacktaxservices.com/blog/2020-expat-opinion-survey-results/">23%</a> of American expats – about 2 million people – saying they are “seriously considering” renouncing citizenship, unbecoming American is starting to sound as American as apple pie.</p><img src="https://counter.theconversation.com/content/145365/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brett Goodin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some 10,000 people are likely to give up their US passport this year, way above average. Are they fleeing COVID-19? Nasty politics? Taxes? None of the above, says an expert on American citizenship.Brett Goodin, Postdoctoral Fellow, Shanghai campus, New York UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1272322019-12-11T18:55:23Z2019-12-11T18:55:23ZWhat limits shareholder activism is the free-rider problem<figure><img src="https://images.theconversation.com/files/306265/original/file-20191211-95159-b65v6f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shareholder activism involves directly engaging with directors and executives of companies to effect change.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>The board of Australia’s second-biggest bank is in for some stick at its annual general meeting today, as Westpac shareholders vent their displeasure at the scandal involving breaches of anti-money-laundering rules.</p>
<p>But though it will be uncomfortable, with enough shareholders likely to vote against the remuneration report to trigger a vote to spill the entire board, a full-blown revolution is not on the cards.</p>
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<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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<p>The Australian Shareholders’ Association, with proxies <a href="https://www.theaustralian.com.au/business/financial-services/humbled-westpac-faces-shareholder-anger-at-gm/news-story/2e975d2c1cf38ce4fb6c77c597b3faeb">for more than 2,000 shareholders</a>, will not support a spill. Nor will <a href="https://www.bloomberg.com/news/articles/2019-12-10/westpac-braces-for-shareholder-anger-over-money-laundering-probe">major institutional shareholders</a> such as industry superannuation funds HostPlus and Unisuper. </p>
<p>With the number of shares held determining how many votes each shareholder gets, major investor support is enough to suppress most shareholder uprisings.</p>
<p>This, and a fundamental problem facing all collectives, currently limits the potential of shareholders to hold corporations to account, both through choosing to hold shares or not, as well as through voting power.</p>
<h2>Ethical divestment</h2>
<p>Decisions by shareholders to avoid profiting from business considered unethical arguably goes back centuries, with religious communities consciously avoiding investments in slavery, arms, alcohol, tobacco and gambling – so-called sin stocks. </p>
<p>Since the the 1980s secular funds have extended this idea to the more expansive agenda of social and environmental sustainability. One thread of this ethical investment trend has led to the divestment movement. </p>
<p>A notable example is the campaign targeting <a href="https://thegreenlist.com.au/listing/unsw-latest-australian-university-to-divest-from-fossil-fuels/">universities</a>, <a href="https://www.smh.com.au/business/companies/big-banks-facing-investor-heat-on-fossil-fuel-lending-20191009-p52z2c.html">banks</a> and other big <a href="https://www.forbes.com/sites/davidnikel/2019/06/12/norway-wealth-fund-to-dump-fossil-fuel-stocks-worth-billions-in-environmental-move/#3fc3517848a3">institutional investors</a> to dump their stocks in fossil fuel companies.</p>
<p>The movement’s rationale is that divestment increases the cost of capital. It’s effectiveness, however, is a matter of debate. Bill Gates is among the critics, calling divestment “<a href="https://www.theguardian.com/environment/2015/oct/14/bill-gates-calls-fossil-fuel-divestment-a-false-solution">a false solution</a>”. One argument is that it simply means companies end up being owned by shareholders only interested in profits. It has also been argued fossil fuel divestment might even <a href="https://theconversation.com/fossil-fuel-divestment-will-increase-carbon-emissions-not-lower-them-heres-why-126392">cause emissions to rise</a>. </p>
<h2>Shareholder activism</h2>
<p>Shareholder activism takes a different approach to divestment. It’s about immersion rather than aversion. It involves shareholders directly engaging with directors and executives of companies to effect change from within. </p>
<p>Unlike ethical investment, the roots of shareholder activism are not altruistic. Historically to be called an activist shareholder was no compliment. It probably meant you were a hedge fund focused solely on reaping bigger profits. This was typically done by pressuring boards and management to sell off under-performing assets and disburse the cash to shareholders. </p>
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<a href="https://theconversation.com/how-companies-should-fend-off-attacks-from-activist-investors-80855">How companies should fend off attacks from activist investors</a>
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<p>To date, little activism has been motivated <a href="https://theconversation.com/shareholder-activism-might-sound-good-but-its-delusional-to-think-it-will-change-anything-much-125807">by altruistic purposes</a>. That’s partly to do with a fundamental problem that limits the ability of activism to influence corporate behaviour for non-financial reasons.</p>
<p>Economists call it the free-rider problem. In essence <a href="https://www.investopedia.com/terms/f/free_rider_problem.asp">it’s the problem</a> of individuals having little incentive to contribute to a collective resource when they can enjoy its benefits even if they don’t. </p>
<p>How this applies to shareholders was first outlined by Harvard academics Adolf Berle and Gardiner Means in their seminal 1932 book The Modern Corporation and Private Property. </p>
<p>Ownership of public corporations is generally diffused between a significant number of shareholders. Individual shareholders have little incentive to monitor senior management, because of the cost they bear while others reap benefits. </p>
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Read more:
<a href="https://theconversation.com/giving-workers-a-voice-in-the-boardroom-is-a-compelling-corporate-governance-reform-115463">Giving workers a voice in the boardroom is a compelling corporate governance reform</a>
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<p>Ironically, corporate boards are meant to mitigate this free-rider problem. Their job is monitor management on behalf of shareholders. But Westpac’s anti-money-laundering scandal adds to the evidence the system might be broken. The allegations suggest a board incapable or unwilling to effectively monitor senior management in complex and sprawling conglomerates. </p>
<p>Shareholder engagement and activism <em>should</em> play an increasingly important role in shaping corporate behaviour, improving the quality of board monitoring and addressing the free-rider problem. </p>
<p>Big institutional shareholders in particular could be more active in ensuring boards have skilled, competent directors. They could also foster a culture of openness by supporting directors to challenge senior management without fear of putting their tenure at risk.</p><img src="https://counter.theconversation.com/content/127232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Salvatore Ferraro does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We want to to believe in the power of shareholder activism, but reality is another thing.Salvatore Ferraro, PhD candidate, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1279882019-12-02T18:13:50Z2019-12-02T18:13:50ZWestpac ticking every anti-money-laundering box wouldn’t make much difference to criminals<figure><img src="https://images.theconversation.com/files/304613/original/file-20191202-79489-1gp25sn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The trouble with looking for transactions 'consistent' with 'known' patterns 'indicative' of child exploitation payments to countries with 'known' risks is that countless legitimate payments exhibit similar features.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>The charges surrounding Westpac’s alleged <a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">23 million breaches</a> of anti-money laundering laws have been called “<a href="https://www.theguardian.com/australia-news/2019/nov/25/westpac-in-crisis-talks-with-largest-investors-amid-money-laundering-scandal">about as serious as it gets</a>”. They include, in the words of Home Affairs Minister Peter Dutton, giving “<a href="https://www.reuters.com/article/us-westpac-regulator/a-free-pass-to-pedophiles-australian-lawmaker-slams-westpac-idUSKBN1XZ0CA">a free pass to paedophiles</a>”.</p>
<p>But the Westpac case obscures another serious issue: the anti-money laundering system’s compliance focus has a <a href="https://theconversation.com/the-global-war-on-money-laundering-is-a-failed-experiment-125143">puny impact on crime</a>, including child sex trafficking.</p>
<h2>Compliance culture</h2>
<p>Symptomatic of a compliance culture <a href="http://dx.doi.org/10.1108/JMLC-07-2017-0029">measuring activity rather than results</a> is the sheer number of Westpac’s alleged breaches.</p>
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<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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<p>The 23 million figure really involves a handful of different types of breach. </p>
<p>About 19.5 million alleged breaches involve what are known as “international funds transfer instructions” (IFTIs). These are arrangements between Westpac and overseas banks (known as correspondent banks) to process each others’ customer transactions. These must be reported to AUSTRAC within ten days, with funds origin details included in data passed on to other banks for processing.</p>
<p>AUSTRAC’s <a href="https://www.austrac.gov.au/sites/default/files/2019-11/Westpac%20concise%20statement%20-%20November%202019.pdf">claim</a> says Westpac reported 19,489,427 incoming and 10,771 outgoing transfer instructions late (often very late). It says another 10,521 were given to correspondent banks without information about the money’s origin. </p>
<p>Westpac also allegedly didn’t report 2,314 outgoing transfer instructions sent through its “LitePay” international funds transfer system.</p>
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<a href="https://theconversation.com/westpacs-panicked-response-to-its-money-laundering-scandal-looks-ill-considered-127700">Westpac's panicked response to its money-laundering scandal looks ill-considered</a>
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<p>A further 3,516,238 alleged breaches involved the bank’s data retention system deleting records of incoming transactions before the seven years required.</p>
<h2>Many reports, few arrests</h2>
<p>Westpac’s alleged “free pass to paedophiles” isn’t about these millions of transactions. It’s about 3,057 transactions with 12 customers. </p>
<p>AUSTRAC expects transactions matching patterns known to have been used by criminals to be reported as “suspicious” (not necessarily criminal). AUSTRAC says the relevant transfers were made to countries with known risks, consistent with known patterns indicative of child exploitation. Average payments for the 12 customers were between A$43 and A$333. One customer, with ten payments totalling A$2,612, had a prior conviction. </p>
<p>Westpac shirking its reporting responsibilities is bad, obviously. But the context is also important. Consider the sheer number of reports banks are expected to file automatically with the number of reports involving suspicious transactions, and the number leading to actual arrests and convictions.</p>
<p>In 2018, according to <a href="https://www.austrac.gov.au/sites/default/files/2019-10/AUSTRAC_AR1819_Web.pdf.pdf">AUSTRACs annual report</a>, 155 million transfer instructions and 246,458 suspicious matter reports were filed (the latter is a fraction of millions of alerts initially raised by banks’ systems and staff).</p>
<p>According to its <a href="https://medium.com/r/?url=https%3A%2F%2Fwww.austrac.gov.au%2Fsites%2Fdefault%2Ffiles%2F2019-10%2FAUSTRAC_AR1819_Web.pdf.pdf">annual report</a>, this led AUSTRAC’s joint taskforce with Australian law-enforcement agencies to arrest ten people over alleged criminal activities relating to 163 bank transactions. </p>
<p>AUSTRAC’s <a href="https://www.austrac.gov.au/about-us/fintel-alliance">Fintel Alliance</a> with public and private sector agencies (including Westpac) also contributed to 73 arrests, with 35 victims saved or protected from child exploitation.</p>
<p>This is not an exhaustive account of AUSTRAC’s successes, because it also helps investigations by other agencies in Australia and overseas, but it indicates the tiny proportion of reported transactions leading to arrests.</p>
<h2>Needles in haystacks</h2>
<p>Don’t get me wrong. The system catches some criminals. That’s a good thing. But very little of the vast amounts of data generated points to crime. Sure, it can be said that if Westpac reported on time, more crime might have been found. (And hindsight and a multi-million litigation budget makes it easier afterwards). But it’s a big ‘might’. If Westpac had filed everything on time, it would still have been like searching for a proverbial needle in a continent of haystacks.</p>
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<a href="https://theconversation.com/the-global-war-on-money-laundering-is-a-failed-experiment-125143">The global war on money laundering is a failed experiment</a>
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<p>Overall, there’s almost no impact on crime. As <a href="https://theconversation.com/the-global-war-on-money-laundering-is-a-failed-experiment-125143">I’ve noted previously</a>, in 2011 the United Nations estimated just <a href="https://www.unodc.org/documents/data-and-analysis/Studies/Illicit_financial_flows_2011_web.pdf">0.2%</a> of the global proceeds of crime were seized by anti-money laundering efforts. My update of the UN’s estimate (not yet published) suggests the figure might be 0.1% or less. Other research, albeit with poor data, suggests Australia’s recovery rate might be <a href="https://doi.org/10.1108/JFC-08-2017-0071">0.38%</a>. </p>
<p>The bottom line is simple, if stark. The modern anti-money laundering experiment finds some criminals but is terrible at finding enough to have any real impact on crime. Banks are a much easier target for regulators.</p>
<h2>Knowing the unknowns</h2>
<p>The trouble with looking for transactions that can be ticked off against regulatory checklists is that countless legitimate payments exhibit similar features. </p>
<p>It also means banks have little incentive to figure out better ways to find the “needles”, because they still must deliver the whole field of haystacks or face serious consequences not reporting everything “consistent” with “known” patterns “indicative” of payment to “known” risk countries. </p>
<p>Law enforcement has always been focused on crime, but the overlay of modern anti-money laundering regulations rewards compliance, and punishes non-compliance. Catching criminals features more in well-meaning intent and rhetoric than system design.</p>
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<a href="https://theconversation.com/westpacs-scandal-highlights-a-system-failing-to-deter-corporate-wrongdoing-127619">Westpac's scandal highlights a system failing to deter corporate wrongdoing</a>
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<p>My specialty is policy effectiveness and outcomes. This means not just asking if we have rules, or if firms comply. We need to ask if the rules work. When “success” is measured by compliance activity and notching up record penalties against banks, we’re stuck with lousy results. </p>
<p>We might see justice for some people and discomfit for banks, but the real tragedy is the harm we fail to stop: almost all of it.</p>
<p>Right now the system penalises banks for not ticking boxes that scarcely prevent crime. We need to stop mostly focusing on the “known” patterns of crime and think more about the 99.9% “unknown” zone where most criminals actually operate.</p><img src="https://counter.theconversation.com/content/127988/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronald F Pol does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Anti-money laundering rules give the comfort of doing something, but prevent surprisingly little crime.Ronald F Pol, Senior researcher NZ - views expressed are author’s and do not necessarily reflect those of, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1279132019-11-28T19:10:24Z2019-11-28T19:10:24ZVital Signs: let’s not weep for Westpac’s board, but directors do need help<p>There are many reactions one can have to the shocking revelations of Westpac’s failure to comply with <a href="https://www.austrac.gov.au/business/legislation/amlctf-act">Australia’s anti-money-laundering requirements</a>.</p>
<p>One reaction is it’s not that big a deal – along the lines of now-ousted chief executive Brian Hartzer <a href="https://www.theaustralian.com.au/business/financial-services/stay-calm-this-is-no-enron-says-westpacs-brian-hartzer/news-story/9850db52eab6c338f6389813d1a508b8">reportedly telling senior executives</a> “this is no Enron” and “for people in mainstream Australia going about their daily lives this is not a major issue, so we don’t need to overcook this”.</p>
<p>A second reaction is this is a massive failure of management that typifies a culture of arrogance and greed that requires wholesale change. Home Affairs Minister Peter Dutton encapsulated this sentiment when <a href="https://www.reuters.com/article/us-westpac-regulator/a-free-pass-to-pedophiles-australian-lawmaker-slams-westpac-idUSKBN1XZ0CA">he told parliament</a>: “Westpac banking bosses, through their negligence, have given a free pass to paedophiles and there is a price to pay for that and that price will be paid and we have been very clear about it.” </p>
<p>A third is to blame the board of directors for inadequate oversight of the bank’s management.</p>
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Read more:
<a href="https://theconversation.com/how-westpac-is-alleged-to-have-broken-anti-money-laundering-laws-23-million-times-127518">How Westpac is alleged to have broken anti-money laundering laws 23 million times</a>
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<p>While there is little support for Hartzer’s <em>nothing to see here and sorry for cancelling the boozy Christmas party</em> view, there is probably some truth to the other two positions.</p>
<p>Indeed, two board members are on their way out – chairperson Lindsay Maxsted and Ewen Crouch, who has chaired the board’s <a href="https://www.westpac.com.au/news/authors/ewen-crouch/">risk & compliance committee</a> – along with Hartzer for his leadership failures. There are calls for <a href="https://www.smh.com.au/business/banking-and-finance/proxy-adviser-calls-for-more-westpac-director-scalps-20191127-p53em8.html">other directors to follow</a>.</p>
<p>But it is worth reflecting on how the board might have done better and what tools could have helped them do their jobs more effectively.</p>
<h2>It’s not easy being a director</h2>
<p>I don’t expect many readers to weep for the plight of directors <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/2019_Westpac_Group_Annual_Report.pdf">who earn north of A$250,000</a> per board on which they sit. But let’s consider what the job entails.</p>
<p>A company like Westpac is large and complex. It has nearly a trillion dollars in assets, earns about A$10 billion a year in profit before tax, operates in complicated financial markets, and is subject to requirements from multiple regulators both in Australia and around the world.</p>
<p>The board papers – the reading directors are given to prepare themselves for each meeting of the board – often run to more than 900 pages. </p>
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<a href="https://theconversation.com/shareholder-activism-sounds-good-but-it-cant-change-much-125807">Shareholder activism sounds good, but it can't change much</a>
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<p>Those 900 pages aren’t the intellectual equivalent of a romance novel. They’re not even Tolstoy. They’re about credit default swaps and the effect of US monetary policy on funding costs in the wholesale market. They’re about demographic shifts driving consumer preferences for multi-platform product offerings. And, yes, they’re about regulatory compliance to prevent facilitating paedophilia or terrorism.</p>
<p>We could simply expect more of these well-paid folks. But it might be more constructive to look for ways to help them do their jobs better.</p>
<h2>Analyst support for independent directors</h2>
<p>One old idea that should definitely be new again is to give independent directors their own analytic support.</p>
<p>Nearly 50 years ago (in 1972) one of America’s foremost corporate law professors, Arthur Goldberg, <a href="https://www.nytimes.com/1972/10/29/archives/debate-on-outside-directors-outside-directors.html">suggested precisely this in the New York Times</a>:</p>
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<p>It would be the counsel of wisdom and in the interest of shareholders and the public to provide outside directors with the means whereby they could discharge their fiduciary responsibilities in the conduct of corporate affairs.</p>
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<p>Goldberg’s terminology is a little out of date but the issue he identified is all too current.</p>
<p>Boards are supposed to oversee management on behalf of shareholders. The interests of managers aren’t always aligned with those of shareholders; they understandably care more than shareholders about their own remuneration and their career prospects. They may want to make big acquisitions or expand internationally because it gives them a larger and more impressive business to run, even if it is not in the interests of shareholders.</p>
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Read more:
<a href="https://theconversation.com/giving-workers-a-voice-in-the-boardroom-is-a-compelling-corporate-governance-reform-115463">Giving workers a voice in the boardroom is a compelling corporate governance reform</a>
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<p>Managers also have a big edge over directors. They are the ones running the business day to day, so have superior information. On top of that, they have a whole team of people to do analysis and run numbers for them.</p>
<p>A board member who wanted to challenge the financial analysis of an acquisition proposed by management would have to do their own valuation supported by swathes of analysis about market conditions, financing arrangements, synergies from combining the businesses, and so on.</p>
<p>That’s an impossible load for one person, no matter how smart or well-paid.</p>
<h2>Better boards</h2>
<p>There has been a lot of focus in recent times on diversity of company boards, and the <a href="https://faculty.chicagobooth.edu/marianne.bertrand/research/papers/Paper_and%20Tables_5_29_2014.pdf">pros and cons of quotas</a>. </p>
<p>These are very important issues. But so too is equipping board members, whoever they may be, with the tools and resources to be effective. </p>
<p>A pool of five well-qualified financial analysts for a large public company board (for instance in the ASX 100) might cost $750,000 a year.</p>
<p>That’s peanuts in the scheme of things.</p>
<p>The smallest of the <a href="https://www.asx100list.com/">ASX 100</a> companies has a market capitalisation of A$2.3 billion. Those in the top 10 are all more than A$45 billion. Fourth-placed Westpac’s market cap was about A$98 billion at the start of November.</p>
<p>That’s a lot of shareholder value to protect – and due to compulsory superannuation a lot of it is our money. </p>
<p>So, yes, we should expect much of the directors of our public companies. But we should also ensure they have tools they need to succeed.</p><img src="https://counter.theconversation.com/content/127913/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Board directors of our biggest companies simply aren’t equipped to take on management. An idea floated 50 years ago could help.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1277002019-11-26T03:42:10Z2019-11-26T03:42:10ZWestpac’s panicked response to its money-laundering scandal looks ill-considered<p>Westpac’s board has <a href="https://www.asx.com.au/asxpdf/20191126/pdf/44by46ysjf6w06.pdf">jettisoned its chief executive, Brian Hartzer</a>, just hours after he reportedly told his team mainstream Australia was not overly concerned about the bank’s <a href="https://www.austrac.gov.au/about-us/media-release/civil-penalty-orders-against-westpac">23 million alleged breaches</a> of anti-money-laundering laws, including handling transactions potentially involving child sex abuse.</p>
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<a href="https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303604/original/file-20191125-84262-191li1p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.asx.com.au/asxpdf/20191126/pdf/44by46ysjf6w06.pdf">Westpac's announcement to the Australian Securities Exchange.</a></span>
</figcaption>
</figure>
<p>Harzter will receive a year’s salary in lieu of notice, worth A$2.68 million. Had he stayed on, he would have been eligible for share rights worth $20 million.</p>
<p>Westpac’s chairman, Lindsay Maxted, will bring forward his own retirement to the first half of 2020.</p>
<p>But far more customers have already been thrown overboard.</p>
<p>The <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/media_release_response_plan.pdf">emergency response</a> Westpac rushed out a few days ago abandoned thousands throughout the Pacific and other regions.</p>
<p>Westpac announced its “immediate fixes” included immediately shutting down “LitePay”, its low-cost system for customers to transfer money from one country to another.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/791/FINAL_Media_Release_-_Response_Plan.pdf?1574568052">Extract from Westpac's weekend response.</a></span>
</figcaption>
</figure>
<p>Customers used LitePay to send “remittances” to family members outside Australia. </p>
<p>The bank’s response statement implicitly acknowledged the importance of these remittances. It noted LitePay was launched as part of a broader initiative with Australia’s Department of Foreign Affairs “to improve the livelihoods of men and women in the Pacific”.</p>
<p>Shutting down LitePay, without providing customers viable alternatives, is likely to do the opposite.</p>
<h2>Westpac has abandoned customers who need it</h2>
<p>The United Nations <a href="https://www.un.org/development/desa/en/news/population/remittances-matter.html">recognises</a> remittances as vital in helping millions out of poverty. It estimates about one in nine people around the world rely on remittances from family members working abroad. </p>
<p>Remittances are particularly important throughout the Pacific, from the Philippines to a small island nation like Tonga, where the money adults working abroad send home <a href="https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS">accounts</a> for more than 40% of their GDP. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/if-australia-cares-about-pacific-nations-we-should-also-invest-in-their-care-givers-102780">If Australia cares about Pacific nations, we should also invest in their care givers</a>
</strong>
</em>
</p>
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<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303607/original/file-20191125-84217-t3iy8u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A Western Union branch facade in Cebu City, Philippines.</span>
<span class="attribution"><span class="source">Shuttersock</span></span>
</figcaption>
</figure>
<p>Remittances can be sent via companies like Western Union and Moneygram, but these are relatively expensive and generally focused on urban customers. In Australia members of expatriate communities with connections to their home countries established lower-cost remittance services. These small businesses facilitated the transfer of small amounts – <a href="https://www.un.org/development/desa/en/news/population/remittances-matter.html">generally</a> less than A$500 a month – at an affordable price. They did so using accounts with banks like Westpac.</p>
<p>From 2011, remitters were required to register with the anti-money-laundering agency, AUSTRAC, and comply with anti-money-laundering laws. Compliance obligations include identifying customers and verifying their identities, generally known as “know your customer” or “KYC” measures.</p>
<p>Then, in 2013, Australian banks joined a global trend to “de-bank” small remitters, due to money-laundering and terrorist-financing risks. Over the next few years the accounts of more than <a href="http://www.austlii.edu.au/au/journals/UQLawJl/2017/6.pdf">700 small Australian remitters</a>, many of which were AUSTRAC-registered, were closed.</p>
<h2>Compliance obligations</h2>
<p>Westpac was the last of Australia’s big four banks to withdraw from servicing remitters. In November 2014 then chief executive <a href="https://www.smh.com.au/business/banking-and-finance/westpac-closes-door-on-money-transfer-operators-as-terror-laws-bite-20141118-11p75z.html">Gail Kelly said</a>:</p>
<blockquote>
<p>The regulatory requirements for anti-money laundering are you need to know your customer and, in the case of remitters, you need to know your customer’s customers. That’s quite a responsibility. You do millions of these transactions and if one goes wrong and is connected with terrorism financing, that’s a real problem.</p>
</blockquote>
<p>The need to “know your customer’s customers” was not, however, a clear regulatory obligation. In 2015 the global standard-setter for controls on money laundering and terrorist financing, the Financial Action Task Force (FATF),
<a href="http://www.fatf-gafi.org/documents/news/private-sector-forum-march-2015.html">stated</a> it did not require this. </p>
<p>The task force had also stated since 2014 that risks relating to remittances should be assessed on a <a href="http://www.fatf-gafi.org/publications/fatfgeneral/documents/rba-and-de-risking.html">case-by-case basis</a>. The low risk of criminals or terrorism financiers sending money through remittance providers from Australia to Pacific island countries has since been confirmed by <a href="https://www.austrac.gov.au/about-us/media-release/joint-media-release-keeping-pacific-remittances-affordable-and-safe-crime">a 2017 report</a> by AUSTRAC and the Department of Foreign Affairs and Trade.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/with-increased-anti-money-laundering-measures-banks-are-shutting-out-women-46869">With increased anti-money laundering measures, banks are shutting out women</a>
</strong>
</em>
</p>
<hr>
<p>Whatever the potential risk small remitters pose, the fact of de-banking created real risks. As <a href="https://theconversation.com/real-lives-real-risk-threats-to-small-money-remitters-hit-african-families-48315">research by myself and Supriya Singh</a> into the effect on African communities found:</p>
<blockquote>
<p>Some worry that if the money stops their parents will starve. Young people will join terrorist groups or decide to flee hunger by joining the boats. One Eritrean community leader said his cousin fled to the Mediterranean shores and died in the attempt to reach Europe.</p>
</blockquote>
<p>De-banking remitter accounts lessened the compliance obligations of Westpac and others. But it had the ironic effect of reducing the transparency of remittance flows for law enforcement. In many cases payments continued to flow using <a href="http://classic.austlii.edu.au/au/journals/UQLawJl/2017/6.html">unregulated channels and even cash</a>, giving rise to crime risks to users and to Australia.</p>
<h2>Leaving customers high and dry</h2>
<p>It is a further irony that having de-banked small remittances services due to compliance concerns, Westpac ran afoul of anti-money-laundering obligations with LitePay, which it <a href="https://www.reuters.com/article/westpac-remittances-idUSL3N1831BB">launched in 2016</a>.</p>
<p>AUSTRAC’s charges against Westpac outline 12 cases involving repeated suspicious payments to the Philippines using LitePay. The money transfers matched known child-exploitation transaction patterns. Westpac failed to identify and report these prior to 2018 because it lacked appropriate detection measures for those transaction patterns. </p>
<p>But AUSTRAC says Westpac fixed the problems with LitePay in June 2018. Instead, AUSTRAC alleges, it is in its non-LitePay channels where the bank has still not implemented such measures. It is therefore in those channels that it continued to fail “<a href="https://www.austrac.gov.au/sites/default/files/2019-11/Statement%20of%20Claim_Filed.pdf">to identify activity indicative of child exploitation risks</a>”.</p>
<p>So why shut down LitePay? Why leave high and dry all its honest customers and the families who depend on remittances?</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-states-rocked-by-conflict-could-harness-funds-from-their-diasporas-111270">How states rocked by conflict could harness funds from their diasporas</a>
</strong>
</em>
</p>
<hr>
<p>Westpac has options. It could improve its control measures further. It could launch a <a href="http://classic.austlii.edu.au/au/journals/UQLawJl/2017/6.html">collaborative</a>, risk-based program aimed at re-banking small registered community-based remitters, starting with those servicing low-risk regions in the Pacific. </p>
<p>These remitters know their communities and users well. Together with Westpac’s improved systems, they could deliver an even safer system.</p>
<p>Jettisoning LitePay looks like a classic case of throwing out the baby with the bathwater – and doing so with scant regard for Westpac’s corporate social responsibilities. </p>
<hr>
<p><em>Editor’s note: Subsequent to the publication of this article Westpac amended its response plan to <a href="https://www.westpac.com.au/about-westpac/media/media-releases/2019/26-november1/">remove its claim</a> that LitePay was launched as part of an initiative with Australia’s Department of Foreign Affairs. It acknowledged that its memorandum of understanding with the department does not include the LitePay product.</em></p><img src="https://counter.theconversation.com/content/127700/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Louis de Koker is affiliated with La Trobe University. Some of his research on remittances was associated with the Consultative Group to Assist the Poor (CGAP), an independent think-tank on financial inclusion housed at the World Bank. The views expressed in this article are his own and are not necessarily shared by La Trobe University or CGAP.</span></em></p>Westpac’s decision to shut down its LitePay money transfer system will hurt people relying on remittances throughout the Pacific region.Louis de Koker, Professor of Law, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1275182019-11-24T21:59:37Z2019-11-24T21:59:37ZHow Westpac is alleged to have broken anti-money laundering laws 23 million times<figure><img src="https://images.theconversation.com/files/303316/original/file-20191124-74567-1v5vru5.jpg?ixlib=rb-1.1.0&rect=0%2C227%2C2348%2C1449&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Westpac is "deeply sorry" and has pledged to spend $18 million over three years tackling the online sexual exploitation of children in the Philippines.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Australia’s second-biggest bank, Westpac, is poised to overtake the biggest, the Commonwealth Bank. Not in terms of assets, earnings or market capitalisation, but in having to pay the heftiest fine in Australian corporate history.</p>
<p>Westpac is accused of breaching laws aimed at hindering criminal money laundering and the financing of terrorism. With some of those breaches involving supicious transactions in South-East Asia, it is alleged Westpac has potentially facilitated the most heinous of crimes – the commerce of child sex abuse. </p>
<p>Each breach carries a penalty of up to A$63,000. Westpac is accused of 23 million breaches.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/westpacs-scandal-highlights-a-system-failing-to-deter-corporate-wrongdoing-127619">Westpac's scandal highlights a system failing to deter corporate wrongdoing</a>
</strong>
</em>
</p>
<hr>
<p>That means it could potentially be fined more than A$1 trillion. The actual fine is likely to be bargained down, as Commonwealth Bank did in agreeing to pay <a href="https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-money-laundering-breach/9831064">A$700 million</a> in 2018 for its own breaches of anti-money-laundering provisions. </p>
<p>Even so, Westpac is still likely to be up for more than A$1 billion. </p>
<p>So what exactly is it accused of doing wrong, and what should it have done? Here’s a quick guide to how Australia’s anti-money-laundering laws work.</p>
<h2>Know your customer</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=848&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=848&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=848&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1065&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1065&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303305/original/file-20191124-74599-8meo8z.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1065&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Know your customer.</span>
<span class="attribution"><a class="source" href="https://www.austrac.gov.au/sites/default/files/2019-06/austrac-A3-poster-gambling_05.pdf">AUSTRAC poster</a></span>
</figcaption>
</figure>
<p>The Australian Transaction Reports and Analysis Centre (<a href="https://www.austrac.gov.au/">AUSTRAC</a>) requires organisations that handle big amounts of money, such as banks and casinos, to monitor transactions and report suspicious ones. </p>
<p>AUSTRAC assembles intelligence and passes it onto partner agencies such as the Australian Federal Police. </p>
<p>The requirements spring from Australian legislation and obligations under international agreements.</p>
<p>One of the better-known requirements is an obligation to report any cash transaction exceeding A$10,000. </p>
<p>Less well-known, but perhaps more onerous, is the obligation to “know your customer”.</p>
<p>“<a href="https://www.austrac.gov.au/business/how-comply-and-report-guidance-and-resources/customer-identification-and-verification/customer-identification-know-your-customer-kyc">Know your customer</a>” means banks and other financial services organisations must collect information about their customers and assess their legitimate business behaviours before entering into an agreement, such as the provision of international money transfer services.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/video-michelle-grattan-on-the-westpac-scandal-and-changes-to-robo-debt-127610">VIDEO: Michelle Grattan on the Westpac scandal - and changes to robo-debt</a>
</strong>
</em>
</p>
<hr>
<p>Banks must then monitor ongoing customer transactions. If, for example, a business makes a large number of small cash transactions remitted to one overseas address then the bank needs to understand the purpose of the transactions and the legitimacy of the receiver.</p>
<h2>What it’s alleged Westpac did</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=838&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=838&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=838&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1053&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1053&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303308/original/file-20191124-74542-dk6sre.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1053&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.austrac.gov.au/sites/default/files/2019-11/20191120%20Westpac%20Concise%20Statement%20FILED%2019008953.pdf">Federal Court notice of filing</a></span>
</figcaption>
</figure>
<p>AUSTRAC expects each organisation to identify patterns of risky transactions, such as third parties undertaking transfers to and from accounts for no apparent reason, or regular international funds transfers to high-risk jurisdictions.</p>
<p>AUSTRAC claims Westpac <a href="https://www.austrac.gov.au/about-us/media-release/civil-penalty-orders-against-westpac">failed</a> to appropriately assess transactions to the Philippines and South East Asia that have known financial indicators relating to potential child exploitation risks.</p>
<p>Westpac is also accused of failing to understand and monitor transactions of money from its accounts to small intermediary banks located in countries where terrorist organisation are known to operate. </p>
<p>This does not necessarily mean money was transferred to terrorists. It does mean there was a risk, and AUSTRAC should have been informed.</p>
<h2>‘Fallen short’</h2>
<p>The senior management of banks and other cash-handling organisations is expected to fully support anti-money-laundering and counter-terrorism-financing efforts. Among other things, a compliance officer is expected report to the board and be given the authority and resources to ensure the organisation is meeting its obligations. </p>
<p>On Wednesday AUSTRAC accused Westpac’s senior management of indifference and failure to adequately invest in the technology and programs needed to monitor and report patterns of potentially suspicious transactions.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=856&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=856&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=856&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1075&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1075&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303311/original/file-20191124-74557-1vvydfy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1075&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/791/FINAL_Media_Release_-_Response_Plan.pdf?1574568052">Westpac's weekend response.</a></span>
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<p>On Sunday Westpac’s chairman Lindsay Maxsted said based on its current understanding, the board did not believe that there has been any indifference by any member of the executive team, including its chief executive.</p>
<p>But he said Westpac had “fallen short”.</p>
<p>He understood “the gravity of the issues” and had “deep sorrow for failings by Westpac”.</p>
<p>The bank would withhold all or part of bonuses from its executive team subject to the outcome of an external investigation, which would be made public.</p>
<p>In the meantime Westpac announced a <a href="https://cdn.theconversation.com/static_files/files/791/FINAL_Media_Release_-_Response_Plan.pdf?1574568052">response plan</a> that includes closing one of the products used to facilitate transactions, lifting screening standards, and “protecting people” by, among other things, spending A$18 million over three years to tackle online sexual exploitation of children in the Philippines.</p>
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<img alt="" src="https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303313/original/file-20191124-74588-15ry74a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/791/FINAL_Media_Release_-_Response_Plan.pdf?1574568052">Extract from Westpac's weekend response.</a></span>
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<h2>Not alone</h2>
<p>Two years ago it was <a href="https://www.austrac.gov.au/austrac-seeks-civil-penalty-orders-against-cba">Commonwealth Bank</a> that fell foul of AUSTRAC for allowing money to go out of the country without checks.</p>
<p>Earlier this month the <a href="https://www.abc.net.au/news/2018-11-02/nab-working-with-austrac-on-money-laundering-counter-terrorism/10457136">National Australia Bank</a> confirmed that it too was also in discussions with AUSTRAC.</p>
<p>The banking royal commission exposed ways in which elements within financial institutions seemed to regard strict compliance with the law as optional. AUSTRAC has has made it clear it is not, when it comes to money laundering.</p><img src="https://counter.theconversation.com/content/127518/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Fargher does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The number one commandment of the anti money laundering law is “Know your customer”. AUSTRAC is alleging Westpac didn’t, and didn’t seem to want to.Ian Fargher, Lecturer in Accounting, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1251432019-10-21T02:12:21Z2019-10-21T02:12:21ZThe global war on money laundering is a failed experiment<p>Money laundering rarely gets as literal as the case in Thailand last week, where police raided homes of a ring suspected of laundering a billion baht (about A$48 million) of drug proceeds and found millions <a href="https://www.bangkokpost.com/thailand/general/1773349/police-bust-alleged-b1bn-drug-money-laundering-operation">stashed in a washing machine</a>.</p>
<p>Stories about money laundering, and efforts to prevent it, are rife. </p>
<p>In just the past week there were reports about Swiss bank UBS agreeing to pay a <a href="https://www.reuters.com/article/us-ubs-settlement-italy/ubs-pays-more-than-10-million-euros-to-settle-italy-money-laundering-probe-idUSKBN1WW2EA">€10 million (about A$16 million) penalty</a> to end an Italian money laundering case; a New Zealand company, Jin Yuan Finance, being <a href="https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12276327">fined NZ$4 million (about A$3.7 million)</a> for not complying with anti-money laundering laws; and calls in Australia for a royal commission after leaked CCTV footage from Melbourne’s Crown Casino showed a man in a tracksuit exchanging “<a href="https://www.theguardian.com/australia-news/2019/oct/15/calls-for-crown-casino-inquiry-after-leaked-video-of-bricks-of-cash-in-junket-room">bricks of cash</a>” worth hundreds of thousands of dollars for gaming chips in one of the casino’s high-roller rooms.</p>
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<a href="https://theconversation.com/the-crown-allegations-show-the-repeated-failures-of-our-gambling-regulators-121173">The Crown allegations show the repeated failures of our gambling regulators</a>
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<p>In the latter case, Crown Casino defended itself on the basis of having a “comprehensive” Anti-Money Laundering and Counter-Terrorism Financing program overseen by the <a href="https://www.austrac.gov.au/">Australian Transaction Reports and Analysis Centre</a> (AUSTRAC). </p>
<p>But federal parliamentarian Andrew Wilkie called the situation a <a href="https://www.theguardian.com/australia-news/2019/oct/15/calls-for-crown-casino-inquiry-after-leaked-video-of-bricks-of-cash-in-junket-room">catastrophic “multinational, multi-jurisdictional and multi-agency” failure</a> by politicians, state regulators, police and AUSTRAC.</p>
<p>He’s right, at least in part.</p>
<p>The deeper problem isn’t that national anti-money laundering laws are being flouted. It’s that the global anti-money laundering system is a failed experiment. </p>
<p>We need to have an honest conversation about what’s wrong with it, including the possibility that much of it is a waste of time, and some of it might be doing more harm than good.</p>
<h2>99% design failure</h2>
<p>Don’t get me wrong: money laundering controls do good things too. Suspicious transactions trigger alerts, offenders are arrested and assets seized. </p>
<p>But the amount of criminal funds intercepted is scarcely a drop in the bucket. The system is designed to catch <em>some</em> criminals. It has almost no impact on crime.</p>
<p>The United Nations Office of Drugs and Crime has estimated that just <a href="https://www.unodc.org/documents/data-and-analysis/Studies/Illicit_financial_flows_2011_web.pdf">0.2%</a> of the proceeds of crime are seized. My update of the UN’s estimate (in research not yet published) suggests the figure might now be 0.1% or less. Either way, in practical terms the “success rate” of money laundering controls is scarcely <a href="https://doi.org/10.1108/JFC-08-2017-0071">an accounting rounding error</a> in criminal accounts.</p>
<p>There are many reasons for anti-money laundering’s failure, but a big problem is the emphasis on activity and effort rather than results. It’s the same mindset that focuses on the number of hours spent at work rather than what’s achieved, or how many speeding tickets are issued instead of whether harm from accidents is reduced. </p>
<p>Reforms to the global anti-money laundering system, <a href="http://www.fatf-gafi.org/publications/mutualevaluations/documents/effectiveness.html">rolled out from 2014</a>, were meant to address this problem. They didn’t. Though the language of “outcomes” and “effectiveness” was used, it meant something different to the <em>impact</em> and <em>effect</em> of regulations on reducing crime and its harms. </p>
<p>In other words, the new measures were mislabelled “outcomes”. They continued to measure effort and activity, such as the number of money laundering prosecutions, instead of the impact (if any) on crime. (I explain this in detail in a paper in the <a href="http://dx.doi.org/10.1108/JMLC-07-2017-0029">Journal of Money Laundering Control</a>, freely available until January 2020).</p>
<h2>Frenetic activity</h2>
<p>Frenetic compliance activity helps obscure the harsh reality of poor results. Casinos and banks conform to complex rules designed like a giant stack of colanders to catch water, continually adding new ones to “fix gaps”. New “compliance solutions” doggedly rake over the same ground covered by those that catch less than 1% of transactions.</p>
<p>The upshot is that companies can show they comply with anti-money laundering laws (Crown’s response is straight out of the compliance textbook) and countries can show they comply with international standards.</p>
<p>But does it stop crime? Who knows? The system isn’t designed to demonstrate its impact on crime. Jin Yuan Finance, for example, was fined because it breached anti-money laundering laws, not because there was necessarily laundering or any other crime.</p>
<p>A criminal mastermind given the chance to rewrite anti-money laundering rules might just keep what we have, on the basis it keeps the authorities ineffectually busy.</p>
<h2>Good intentions and ‘voluntary coercion’</h2>
<p>The problems with the system can be traced to the rushed and flawed way it was set up. </p>
<p>The modern anti-money laundering experiment started in 1989, at a G7 summit in Paris. The seven big industrialised nations bypassed treaty-based consensus to establish a “Financial Action Task Force” to help prevent drug trafficking. The task force – known as <a href="http://www.fatf-gafi.org/about/">FATF</a> – later targeted money laundering associated with other profit-motivated crimes and terrorism financing.</p>
<p>After a sluggish start, with few nations signing up to its compliance model, FATF made an offer governments couldn’t refuse – ironically echoing a famous line from <a href="https://en.wikipedia.org/wiki/The_Godfather">The Godfather</a>. </p>
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<p>FATF rated countries’ anti-money laundering regimes and issued “black lists” and “grey lists” publicly naming those not meeting its “recommendations”. Banks did the rest. Treating the ratings and lists as a proxy for risk, access to the financial system became difficult for many countries. FATF’s intention (in its own words) was to “pressure” countries to comply, “<a href="http://www.fatf-gafi.org/publications/fatfgeneral/documents/annual-report-2017-2018.html">to maintain their position in the global economy</a>”. </p>
<p>Risking exclusion from financial markets, 205 countries and jurisdictions “voluntarily” joined the anti-money laundering movement. The system depends on a set of self-declared “best-practice” standards. This means each national anti-money laundering regime reflects the flaws of the international standard.</p>
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<a href="https://theconversation.com/with-increased-anti-money-laundering-measures-banks-are-shutting-out-women-46869">With increased anti-money laundering measures, banks are shutting out women</a>
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<p>At the <a href="https://www.un.org/en/ga/">UN General Assembly</a> last month, leaders from small and large countries <a href="https://www.un.org/press/en/2019/ga12196.doc.htm">railed against</a> the perceived unfairness and damage caused by blacklists and financial sanctions. </p>
<p>Such protests might be more easily dismissed as self-serving if the anti-money laundering system worked. But it doesn’t.</p>
<p>Complicated laws, armies of regulators and costly compliance tasks give the comfort of activity and feeling of security, but they don’t make us safe from serious crime and terrorism. To resolve it, we must frankly confront the reality of its failure.</p><img src="https://counter.theconversation.com/content/125143/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronald F Pol does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Anti-money laundering efforts are based on measuring activity, not results. To cut crime and terrorism, we need a frank conversation about where the system has gone wrong.Ronald F Pol, Senior researcher NZ, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/979182018-06-08T05:12:04Z2018-06-08T05:12:04ZCommonwealth Bank’s $700 million fine will end up punishing its customers<p>The Commonwealth Bank of Australia (CBA) this week <a href="http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty">agreed to pay a record penalty</a> to settle its violations of anti-money laundering and counter-terrorism financing laws. The A$700 million fine plus legal costs will become final upon the approval of the Federal Court.</p>
<p>The deal was met with <a href="https://www.smh.com.au/business/commonwealth-bank-leads-asx-despite-700m-penalty-20180604-h10x2e.html">market approval</a>, and has allowed <a href="http://www.austrac.gov.au/media/media-releases/austrac-and-cba-agree-700m-penalty">regulators to claim victory</a>. Given the public’s current hostility to banks in the wake of revelations from the Banking Royal Commission, <a href="http://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-fine-money-laundering-breach/9831064">politicians also joined the bandwagon</a> and applauded CBA’s loss.</p>
<p>What if the penalty is a sign of mob justice, rather than just deserts? And given the scale of the payout, will the fine also end up further punishing customers and shareholders?</p>
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Read more:
<a href="https://theconversation.com/after-damning-the-commonwealth-banks-management-regulators-want-the-bank-to-fix-itself-95862">After damning the Commonwealth Bank's management, regulators want the bank to fix itself</a>
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<p>Answering these questions requires a close look at the case. <a href="http://www.austrac.gov.au/sites/default/files/statement-agreed-facts-admissions-3june2018.pdf">CBA was alleged to have violated</a> the <a href="https://www.legislation.gov.au/Details/C2018C00194">Anti-Money Laundering and Counter-Terrorism Financing Act 2006</a>, in several specific ways. </p>
<p>First, it introduced Intelligent Deposit Machines (IDMs) without conducting an independent risk assessment and/or instituting mitigation procedures to tackle money-laundering. Unlike older ATMs, IDMs process cash deposits and make the funds available for transfer immediately. Clearly, criminals could use these features to launder cash gained through crime. CBA wrongly believed that its existing ATM monitoring processes covered these risks. </p>
<p>Second, it was warned about these risks and could have minimised money laundering by imposing daily limits on accounts. CBA refused. </p>
<p>Third, CBA failed to provide transaction reports within 10 business days for cash deposits greater than A$10,000. This violation referred to 53,506 transactions totalling about A$625 million. The failure was due to a coding error – the software was not updated to pick up a new code created for IDM deposits. </p>
<p>Fourth, CBA failed to report transactions with a pattern of money-laundering – apparently misunderstanding its legal obligations. </p>
<p>Fifth, CBA failed to report suspicions about identity fraud – for example, in relation to eight money-laundering syndicates. Therefore, AUSTRAC and law enforcement were unaware of “several million dollars of proceeds of crime mostly connected with drug importation and distribution” that passed into accounts held by CBA.</p>
<p>Sixth, CBA was deficient in monitoring accounts despite warnings from law enforcement – 778,370 accounts were not monitored. CBA was slow to act even after suspicious accounts were terminated, facilitating money-laundering. </p>
<p>Clearly these are significant violations. However, the <a href="http://www.austrac.gov.au/sites/default/files/statement-agreed-facts-admissions-3june2018.pdf">statement of facts</a> agreed by AUSTRAC and CBA state that the bank did not deliberately or intentionally violate its legal obligations under the relevant laws. </p>
<p>Considering that CBA’s violations were inadvertent, due to technical glitches, and attributable to a mistaken belief about existing systems satisfying legal obligations, the A$700 million fine might be excessive. </p>
<h2>International comparisons</h2>
<p>By international standards, the fine seems to be very high. This week the UK Financial Conduct Authority <a href="https://www.fca.org.uk/news/press-releases/fca-fines-and-imposes-restriction-canara-bank-anti-money-laundering-systems-failings">fined the British division of India’s Canara Bank £896,100 (A$1.58 million)</a> for “consistent failure” in its money-laundering controls, and for failings “affecting almost all aspects of its business”. </p>
<p>The <a href="https://www.reuters.com/article/us-britain-canara-moneylaundering/indias-canara-bank-fined-in-uk-for-anti-money-laundering-breaches-idUSKCN1J21EI">FCA said the bank’s failings</a> “potentially undermine the integrity of the UK financial system by significantly increasing the risk that Canara could be used for the purposes of domestic and international money laundering, terrorist financing and those seeking to evade taxation or the implementation of sanction requirements”.</p>
<p>In the United States, the <a href="https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-charges-against-us-bancorp-violations-bank">Justice Department fined US Bancorp US$528 million (A$694 million)</a> for criminal violations of money-laundering laws and for concealing its behaviour from regulators.</p>
<p>CBA’s fine is far higher than Canara’s punishment for similar violations, and roughly on a par with the sanction meted out to US Bancorp - albeit the latter was for more serious criminal wrongdoing. It is also comparable to the <a href="https://www.justice.gov/opa/pr/hsbc-holdings-plc-and-hsbc-bank-usa-na-admit-anti-money-laundering-and-sanctions-violations">US$665 million (A$874 million) penalty imposed on HSBC</a> (plus US$1.26 billion in sacrificed profits). Unlike CBA, HSBC was punished for “willfully failing” to maintain proper money-laundering controls.</p>
<p>Yet the proceeds from HSBC’s violations stretching back to the 1990s were staggering: at least US$881 million in laundered drug money; a failure to monitor more than US$670 billion in wire transfers and over US$9.4 billion in purchases of physical US dollars from HSBC Mexico; some US$660 million in sanctions-prohibited transactions; and evidence of deliberate sanctions violations by processing transactions to parties in Iran, Cuba, Burma, Sudan, and Libya.</p>
<h2>A fair punishment?</h2>
<p>The size of CBA’s penalty seems to be more in line with banks that have deliberately flouted money-laundering laws, rather than the smaller punishments handed to banks that did so unintentionally. It is tempting to conclude that this is influenced by the current prevailing mood to “send a message” to financial institutions.</p>
<p>What’s more, we cannot necessarily assume that the fine will act as a deterrent. The penalty is not paid by the CBA staff who acted wrongly; it is paid by the bank, ultimately by the shareholders. </p>
<p>Similarly, the cost of managing enhanced scrutiny and investing in additional compliance machinery will be passed on to customers in the form of higher charges and fees. Likewise, if banks become excessively cautious because of apprehensions about overenforcement, that will impact services and reduce profitability – again harming innocent people.</p>
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Read more:
<a href="https://theconversation.com/cbas-board-needs-to-take-ultimate-responsibility-for-the-banks-failings-91485">CBA's board needs to take ultimate responsibility for the bank's failings</a>
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<p>The punishment must always fit the crime. Excessive punishment is counterproductive and creates additional victims. </p>
<p>If the purpose was really to tackle wrongdoing, the CBA staff who were responsible for the violations should have been identified and penalised. </p>
<p>The A$700 million fine is good for political posturing but will hurt customers and shareholders the most. Bank-bashing has a cost, and it is paid by ordinary people, not politicians.</p><img src="https://counter.theconversation.com/content/97918/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandeep Gopalan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Commonwealth Bank has agreed to pay a $700 million fine over its inadvertent failure to tackle money-laundering. But the penalty is in line with punishments for far more serious violations by other banks.Sandeep Gopalan, Pro Vice-Chancellor (Academic Innovation) & Professor of Law, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/853112017-10-15T22:27:05Z2017-10-15T22:27:05ZAll the lessons Donald Trump has taught us<figure><img src="https://images.theconversation.com/files/189693/original/file-20171011-13108-rdtf1y.jpg?ixlib=rb-1.1.0&rect=26%2C0%2C4394%2C2803&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">U.S. President Donald Trump has taught the world many lessons since his time in office -- mostly on how not to govern.</span> <span class="attribution"><span class="source">(AP Photo/Carolyn Kaster)</span></span></figcaption></figure><p>Recent surveys suggest that people who do not like Donald Trump as United States president <a href="http://big.assets.huffingtonpost.com/tabsHPWinorLoseApproval20170809.pdf">find nothing at all to like.</a> </p>
<p>But, like him or not, Trump has shown us a great deal in his short time on the political stage. For that, we should be grateful. After all, expressing gratitude is the polite and civilized thing to do.</p>
<p>So, how much do we owe Trump? As a U.S.-born linguist, an expert in Caucasian languages and politics, and someone who advised the Bill Clinton White House on Russia at various points in my career, please let me count the ways.</p>
<h2>Lesson No. 1 : Disdain for tradition</h2>
<p>Trump has shown us that the precedents and traditions surrounding the office of the presidency, and the competition to attain that office, are not enough to bring about respect and compliance by the occupant of the White House. Trump paradoxically seems to despise the traditions of the very office he sought.</p>
<p>Specifically, he has taught us that income tax returns of candidates and nominees <a href="http://fortune.com/2017/09/15/trump-tax-returns-2020-election/">must be revealed by law,</a> not by custom. Trump has good reason to flout this tradition, the least of which is <a href="https://www.bloomberg.com/news/articles/2017-09-28/trump-gets-to-replace-his-auditor-as-irs-head-prepares-to-leave">being under audit</a>. </p>
<p>That’s because his returns will probably show that his real estate empire was <a href="http://www.independent.co.uk/news/world/americas/us-politics/richard-dearlove-mi6-trump-russia-money-2008-financial-crisis-us-election-a7684341.html">bailed out in 2008 by Russian banks</a>, and that the Russian mafia has allegedly <a href="https://newrepublic.com/article/143586/trumps-russian-laundromat-trump-tower-luxury-high-rises-dirty-money-international-crime-syndicate">laundered millions</a> through his holdings by <a href="http://www.reuters.com/investigates/special-report/usa-trump-property/">buying his condos</a> for above asking price.</p>
<p>Photos exist of Trump smiling <a href="https://www.washingtonpost.com/politics/former-mafia-linked-figure-describes-association-with-trump/2016/05/17/cec6c2c6-16d3-11e6-aa55-670cabef46e0_story.html">alongside figures of ill repute.</a> Nothing need be done to uncover this link. It is in plain sight. A responsible Congress — one that truly seeks to protect the welfare of the nation — would pass a law requiring full financial disclosure, both for the candidate and for any that she or he might subsequently nominate to positions of power. </p>
<h2>Lesson No. 2: Flaws in electoral system</h2>
<p>By winning the office with the largest vote deficit in history, 2.8 million or so below Hillary Clinton, Trump has taught us that <a href="https://www.salon.com/2017/10/05/how-to-make-the-electoral-college-irrelevant_partner/">the Electoral College is an anachronism</a> whose original function, to weld together colonies with disparate populations, has never been served and whose impact today is positively deleterious. </p>
<p>The world now knows that the United States can no longer present itself as a paradigm of democratic process. In addition, the gerrymandering that has come to pervade local politics has in more subtle ways led to a much larger distortion in Congress. </p>
<p>According to a February <a href="http://www.rollingstone.com/politics/features/how-trumps-agenda-clashes-with-what-americans-want-w465914">Rolling Stone article</a>, <em>How Trump’s Agenda Clashes With What Americans Want</em>, the Republicans hold a majority in Congress despite being a full 23 million votes behind their Democratic challengers. </p>
<p>Given Congress’s dithering over what to do about Trump, one might feel pessimistic that the people who have benefited from such distortions would seek in any way to remedy them. Nevertheless, the damage to America’s image on the world stage is profound and dangerous. All of this is obvious and in plain sight. Thanks, Prof. Trump.</p>
<h2>Lesson No. 3: Style vs. substance</h2>
<p>Trump has shown that financial success, <a href="http://www.politifact.com/truth-o-meter/statements/2016/jun/21/hillary-clinton/yep-donald-trumps-companies-have-declared-bankrupt/">albeit tainted in his case</a>, does not necessarily prepare a person for the high office of the presidency. </p>
<p>Matters of character are now overshadowed by those of style. In Trump’s case, skills at making empty promises and mocking others were honed by his side career in television.</p>
<p>The two major parties were unable to present their array of alternate candidates to Trump in a forum that allowed the crucial distinction of substance as opposed to style to emerge. Trump has taught us, therefore, that clearly both parties need to scrutinize the processes and standards that underlie how they choose their presidential nominees.</p>
<p>New standards for primaries should be enforced by regulations and even laws if deemed necessary.</p>
<p>Clearly, too, the American public must become aware that the political realm is far more serious — and also duller — than flashy reality TV shows. </p>
<h2>Lesson No. 4: Medical fitness to lead</h2>
<p>Trump’s rhetoric is essentially monotonous, consisting as it does of broad, grandiose promises, fiery denunciations and denials and petty mocking of those he sees as his inferiors, which is almost everyone. But he has taught us that <a href="http://www.independent.co.uk/news/world/americas/us-politics/donald-trump-dementia-early-onset-cnn-ana-navarro-commentator-news-phoenix-rally-a7907696.html">he might not be well.</a></p>
<p>His secretary of state, Rex Tillerson, <a href="https://www.washingtonpost.com/news/post-politics/wp/2017/10/10/trump-proposes-iq-tests-face-off-with-tillerson-after-secretary-of-state-calls-him-a-moron/">reportedly referred to him as a “moron.”</a> This is unfair and probably inaccurate. Two of my colleagues, both conversant with linguistic pathologies, believe Trump may exhibit signs of a progressive dementia. </p>
<p>The danger signs were apparently first <a href="https://theconversation.com/trumpslation-why-donald-trumps-words-give-translators-so-much-trouble-81968">noted by French translators.</a> They found translating his utterances to be hard, if not impossible, because much of what he said was empty of referents and syntactically garbled or incomplete. In other words, Trump has <a href="https://www.boston.com/news/politics/2017/04/26/trumps-speaking-style-still-flummoxes-linguists">limited tone of delivery,</a> limited vocabulary, trouble finding the right word or finding the wrong one (bombing “Iraq” instead of Syria) and simple and incomplete sentence patterns. </p>
<p>Does Trump have some form of dementia? This question stands quite apart from the issue of political orientation, if Trump truly possesses a partisan bent at all. If he does have a dementia, then matters will only grow worse, not better.</p>
<p>Diagnoses from a distance are hard. What Trump has taught us, however, is that medical screening of a candidate cannot be a simple letter from a doctor saying that the candidate seems in good health, as was the case with <a href="http://www.cnn.com/2016/08/26/politics/donald-trump-doctor-note/index.html">Trump’s questionable physician.</a> A medical screening must be thorough and mandated by law.</p>
<h2>Lesson No. 5: “Fake news” origins in Russia</h2>
<p>Finally, and perhaps oddly, Trump has offered us many lessons on Russia, from its language to its hacking techniques.</p>
<p>Trump’s biggest pet peeve is the media. The term “fake news” is uttered almost daily by Trump in reference to any story that is not fawning. </p>
<p>Due to my experience with Russia and the Caucasus, Trump’s use of “fake news” was nagging at me. And like the last piece of a jigsaw puzzle, the obvious source recently struck me and shone a spotlight on the entire Trump presidency.</p>
<p>“Fake news” is a simple translation of the Russian phrase <em>pod-del’nie novosti</em>, “counterfeit or fake news” — literally “news (novosti) made (del’nie) underneath, in hiding (pod-).” The concept is a core one in Russian governance and has a long standing. </p>
<p>It has two basic senses. One is for domestic consumption, more or less propaganda, and serves to package any antagonistic event between Russia and another state as aggression against Russia, and any action on Russia’s part as defensive. </p>
<p>The second sense means to plant false and provocative reports in other countries’ media so as to sow social unrest, thereby weakening that nation. We now know that Russia <a href="https://www.nytimes.com/2017/09/07/us/politics/russia-facebook-twitter-election.html">has utilized social media</a> both within the U.S. and across Europe to exacerbate inherent tensions. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/189698/original/file-20171011-2047-1d3ru2o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">U.S. President Donald Trump, right, meets with Russian President Vladimir Putin at the G20 Summit in Hamburg, Germany, in this July 7, 2017, file photo.</span>
<span class="attribution"><span class="source">(AP Photo/Evan Vucci, File)</span></span>
</figcaption>
</figure>
<p>In effect, Russia has jerked America around like a puppet on strings. Americans therefore, regardless of their political orientation, must acquire a sense of autonomy and integrity regarding the provocations that float across the internet from suspect news services. </p>
<p>What is most chilling, however, is that Trump himself promotes fake news. He is simply and openly pursuing Russian ends by Russian means. Why? </p>
<p>In part, his outbursts hide problems within his own circle. His ongoing attack <a href="https://www.nytimes.com/2017/10/10/us/politics/trump-nfl-jemele-hill.html">on the NFL</a> started the same day that we learned his inner circle were using private e-mail servers. </p>
<p>The pattern also seems to suit his peevish temperament. <a href="http://www.cnn.com/2017/09/30/politics/trump-tweets-puerto-rico-mayor/index.html">His attack on mayor Yulin Cruz</a> of San Juan, Puerto Rico, for example, seems to have been a matter of merely venting his biases and disdainful attitudes, a feature of his narcissism.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"914089003745468417"}"></div></p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"914089888596754434"}"></div></p>
<p>Still, those outbursts also fulfil Russia’s goal to weaken and divide the United States. </p>
<p>And if Trump does not find a way to sabotage the Robert Mueller investigation into his Russian ties, the special investigator will likely produce a wealth of evidence that threatens Trump’s interests and even his tenure in office.</p>
<p>In conclusion, Trump’s presidency has been a disaster for conservatives and liberals alike.</p>
<p>He has caused major damage both domestically and internationally, in the latter case to America’s stature and reputation.</p>
<p>We should be grateful, however, because he has at least shown us the remarkable power of a new form of conflict, for the West at least — that of a modern media assault on the institutions and social fabric of our democracies by a clever and determined adversary. </p>
<p>The U.S. military is already trying to contain Trump, with varying success. Congress must now show its true role as protector of the Republic and all it stands for and bring in articles of impeachment against Trump now before he can do yet more damage. </p>
<p>As Trump has taught us repeatedly, all of this is in plain sight.</p><img src="https://counter.theconversation.com/content/85311/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colarusso does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Love him or hate him, Donald Trump has shown us a great deal in his short time on the political stage. For that, we should be grateful. Here are the lessons taught by Prof. Trump.John Colarusso, Professor of Languages and Linguistics and Anthropology, Department of Anthropology, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/820632017-08-05T08:52:05Z2017-08-05T08:52:05ZAllegations against the CBA show the need for a Royal Commission into the banks<p>The Commonwealth Bank is facing another scandal as the Australian Transactions Reports and Analysis Centre (AUSTRAC) launches civil proceedings accusing the bank of being complicit in money laundering. </p>
<p>This exposes a deeply worrying prospect, that the Australian public are vulnerable to crime and terrorism directly funded through the Australian banking system.</p>
<p>AUSTRAC <a href="http://austrac.gov.au/media/media-releases/austrac-seeks-civil-penalty-orders-against-cba">alleges CBA breached</a> the Anti-Money Laundering and Counter-Terrorism Financing Act (2006) 53,700 times since 2012, where transactions were not reported by the bank, or reported too late. The bank faces a potential penalty of A$18 million per breach, which could amount to billions of dollars.</p>
<p>According to AUSTRAC, criminals deposited cash, amounting to tens of millions of dollars, over a period of two years in intelligent deposit machines where it was automatically counted and credited instantly to the nominated recipient account. The funds were then available for immediate transfer to other accounts both domestically and internationally.</p>
<p>In their evidence AUSTRAC details how four identified criminal syndicates were able to readily use CBA ATMs to breach the A$10,000 transaction threshold on 1640 occasions amounting to A$17.3 million. A total of A$625 million of suspicious transactions flowed through these CBA ATMs.</p>
<p><a href="http://austrac.gov.au/sites/default/files/20170803-concise-statement-cba-s.pdf">CBA’s response</a> to these serious allegations is that it reports 4 million transactions to AUSTRAC per year contributing to the effort to “combat any suspicious activity as quickly and efficiently as we can.” The bank insists all key personnel have been trained in compliance with the Money-Laundering Act. The CBA acknowledges there was a software fault with a number of their ATMs which allowed these transactions to take place, but apparently this took several years to fix. </p>
<p>Unfortunately this response in the circumstances only provokes further questions.</p>
<h2>Regulators asleep at the wheel</h2>
<p>What this really shows up is the government’s “light touch” regulatory approach which translates into soft touch regulation. It seems regulators in Australia are too frightened to take action even when there is mounting evidence of illegality.</p>
<p>AUSTRAC itself did not launch any proceedings under the Anti-Money Laundering and Counter-Terrorism Financing Act until 2015. This followed a lengthy report of the <a href="https://www.hsgac.senate.gov/subcommittees/investigations/hearings/us-vulnerabilities-to-money-laundering-drugs-and-terrorist-financing-hsbc-case-history">Financial Action Task Force</a> which concluded:</p>
<blockquote>
<p>[AUSTRAC’s] graduated approach does not seem to be adequate to ensure compliance.</p>
</blockquote>
<p>Since then AUSTRAC has taken action against Tabcorp on a money-laundering case which reached a A$45 million settlement in February 2017. This contrasts with far larger fines imposed on international banks for money laundering including a <a href="https://www.int-comp.com/ict-views/posts/2016/07/22/top-5-money-laundering-cases-of-the-last-30-years/">US$1.2 billion fine for HSBC</a> and a US$262 million fine for Standard Chartered in 2012 from the US Justice Department. </p>
<p>At a US Senate hearings in 2012, a HSBC chief compliance officer famously quit his post on the spot in answering money laundering allegations, implying he could not defend the indefensible.</p>
<p>The Australian banking industry has faced minimal pressure to reform compared to other countries, where the restructuring of the banks is progressing. Australia has seen a succession of inquiries however each has focused on particular aspects of the banks functioning and proposed specific reforms.</p>
<p>It will <a href="https://theconversation.com/a-history-of-failed-reform-why-australia-needs-a-banking-royal-commission-64803">require a Royal Commission</a> into the Australian banks to examine the structural and systemic failures of the banks. The banks have become the main providers of not only retail but investment banking, insurance, superannuation and financial advice, and this deserves critical scrutiny.</p>
<p>If the AUSTRAC allegations against the CBA are proven in the Federal Court, this matter is of a different order of magnitude to earlier problems. It suggests a degree of irresponsibility which is unacceptable in major financial institutions.</p>
<p>It also suggests it’s deeply embedded in the banks cultural and operating processes, which undermines the security of Australian citizens. This would demand a substantive inquiry into the management, integrity and culture of the banks that only a Royal Commission could provide.</p>
<p>In the meantime, the CBA needs to provide firm evidence to the Australian public that none of its ATM machines can continue to be used for money laundering. It also needs to prove there are procedures in place for ensuring all suspicious banking activity by potential criminals or terrorists is fully reported to the Australian authorities as soon as the CBA has any knowledge of such activity.</p><img src="https://counter.theconversation.com/content/82063/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thomas Clarke does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Australian public may be vulnerable to crime and terrorism directly funded through the Australian banking system.Thomas Clarke, Professor, UTS Business, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/583722016-05-06T12:50:33Z2016-05-06T12:50:33ZPoliticians should not be able to sidestep money-laundering scrutiny<figure><img src="https://images.theconversation.com/files/121365/original/image-20160505-19844-1qiotfv.jpg?ixlib=rb-1.1.0&rect=9%2C0%2C2038%2C1045&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cleaning up?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/thepreiserproject/11732169633/in/photolist-iSJrhM-phbmfo-9VAmAB-xY4eL-9VDebQ-e8C8V2-ehLS2P-boZ7FK-qbqa1z-qsRL8Z-qqzAEf-bDNHus-cYUMtq-qbqame-559zLS-pWDep6-hTsWGd-9VAqRa-qbqa6e-qbrFeX-d5T4ju-cNakWm-dSh77r-o1Bkfo-4fEEuA-8iYhV2-m8Yc4T-gXi2Q2-w7D2L-dVhGE7-5koRnU-nB45bb-3rry4A-2FS3k-dSCerw-9Wfiui-dHu6PV-jHXsxL-mw6pcM-cfQgH-4Lq9Yy-cBKHzJ-9VDh7N-o8Dfuc-ac55u-psuZVo-psuZUS-8wfv3d-dSCd4W-qYPJAD">The Preiser Project/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Efforts to scrutinise potential money-laundering in Britain are hitting some last-minute lumps in the road. The <a href="http://services.parliament.uk/bills/2015-16/bankofenglandandfinancialservices/stages.html">Bank of England and Financial Services Bill</a> has been making its way through parliament since October last year and is now in the so-called “ping-pong” stage of trade-offs and amendments between the House of Commons and House of Lords before it becomes law. </p>
<p>One part of the bill tackles the extent to which politicians and those around them are watched for signs of anything untoward. But political resistance to this idea is throwing up a genuine risk. Former US President Ronald Reagan once said the most terrifying words in the English language were “I’m from the government, and I’m here to help”. This described the subtle miscalculations, unintended consequences and ironies that follow from political actions. Of course, the ironies become starker when politicians appear to be “helping” themselves.</p>
<p>Banks typically monitor politicians for potential money laundering activity as part of their general monitoring requirements for tackling <a href="http://www.fatf-gafi.org/documents/documents/peps-r12-r22.html">politically exposed persons</a> (PEPs) – who are entrusted with prominent public functions. Yet, in discussing amendments to the bill, Chancellor of the Exchequer George Osborne expressed his concern:</p>
<blockquote>
<p>Banks are at risk of going too far and being disproportionate when applying their rules to politically exposed persons in Britain, and their families in particular.</p>
</blockquote>
<p>Pushed by <a href="http://www.charleswalker.org/">Tory backbencher Charles Walker</a>, Osborne came to accept a new clause with a series of amendments which addressed this point. The technical reading of the amendments is rather alarming. This is not because they contain any preposterous assertions, nor do they exempt politicians from money-laundering monitoring altogether. But they do create all the necessary conditions for a watered-down monitoring of politicians (and their families).</p>
<h2>PEP talk</h2>
<p>Banks, and other institutions that need to comply with anti-money laundering regulations, will be pushed to take a softer approach to monitoring PEPs. For instance, banks may be fined if they’re overdoing it (concerns will be reported, assessed and adjudicated by the City regulator the Financial Conduct Authority). The amendments also demand very specific categories to be included and excluded from any definitions of PEPs. </p>
<p>Put simply, an MP could be designated as a PEP but a member of his immediate family might be excluded. If excluded from the definition this person would not receive increased scrutiny for money laundering. </p>
<p>But the question of who is a PEP and who is not cannot be put into such a straitjacket. If we had a strict answer to the question of who is suspicious for money-laundering purposes and who is not, then the whole anti-money laundering regime would collapse. Simply put, those that would know they were being monitored less, would be more likely to engage with money laundering. If anything, we should impose more oversight on those who might wield or have access to political power and influence. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/121216/original/image-20160504-22761-37g25v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sun sets on money laundering scrutiny?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/garryknight/16037087689/in/photolist-qr9grT-ebTQYW-6VZ5Lr-dq2qjE-proyLg-oVH1Dd-ebQKvb-ch6CPu-cAMNF3-nyk3BG-e3TKoS-bhwuhk-qK4tnM-pYbKss-gVgAXk-DWz3y-hkn2MC-GYR47-9iLD2N-ebQKuL-r2kdAt-aEzGnw-9M7qvc-ed8u5o-rSSjsv-dJbzbp-dX5Wsk-eeM3QK-r68j2x-nryHRg-nMaU3Z-5WQjQB-7Th2q8-7SoJRT-4MhHuy-gGZTVL-4fi1zf-oGeGPH-qwQpME-e7jANe-ixDuVK-4Zm5zt-oo3Ewf-svxkCj-oCcgGL-hz4Ani-7ZU3Ab-4sVjb6-4fcn8L-dPfQQ9">Garry Knight/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Absurd thinking</h2>
<p>The first reason for that is that many of us that have been conducting research on anti-money laundering, have always pointed out the travesty of politicians excluding themselves from monitoring. This lasted for more than two decades, with the <a href="http://www.fatf-gafi.org/about/">Financial Action Task Force</a> (FATF) that had set the global guidelines for anti-money laundering, considering only the risk of foreign PEPs for money laundering. </p>
<p>When the task force finally acknowledged how absurd this was, it changed its recommendations and included domestic PEP monitoring under <a href="http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf">Recommendation 12</a>. Through this change, the FATF now requires financial institutions to apply “enhanced ongoing monitoring of the business relationship” when the customer is a domestic PEP. The FATF explicitly extends these requirements to all types of PEPs and says that they “should also apply to family members or close associates”. </p>
<p>This was done for a very good reason. What Osborne failed to mention is that the families of domestic PEPs are exposed themselves. In fact, family members are more risky. Time after time, money laundering cases and considerations on PEPs, reported in the <a href="http://www.emeraldinsight.com/action/doSearch?AllField=PEPs&SeriesKey=jmlc">academic literature</a> and in FATF’s analysis of red-flags for PEP-monitoring (<a href="http://www.fatf-gafi.org/media/fatf/documents/recommendations/Guidance-PEP-Rec12-22.pdf">see Annex 1 here</a>), indicate that husbands, wives, fathers, mothers, siblings, children, close business associates, and even in-laws actively participate in the money laundering process. </p>
<p>They do this to reduce the risk of detection for corrupt politicians that are in the public eye, and of course, because they have immediate financial interest in doing so. It is why all domestic PEPs should be subject to more scrutiny and monitoring, not less. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/121367/original/image-20160505-19848-s4sat3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Scutiny.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/featheredtar/2949748121/in/photolist-5uEeme-c5gFGy-pdeaF8-oNnKXQ-e5ap1v-ps9Vjm-psbxE8-5YrZkq-rfCuUm-paBjj6-6c1jve-9NDgMs-nY6C7x-9U8dH5-mYDZL4-paEJuo-bcyxGZ-e5g1FN-qFqN8-CYdQh-dcaBvR-ptYD8z-4qUs8F-5YnL7r-dcazQy-pc9Z1q-4Pja4u-7LCmSR-dcaAXA-8FTLVn-9kQrtz-9NJbtw-pcaAMV-9Xm5NB-aDf6gb-nQpbyn-yP8Ni-cX5cA1-9NFmxc-ejZfVN-e5aq78-7LAwHr-wghQ-d39L8Q-9U7Hkj-dcazVN-pyeBd8-scCRJZ-9U6Y1s-dcazfK">Joel Penner/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>Suspicious minds</h2>
<p>When banks monitor such activity, their “highest course” of action after their own analysts review a client’s transaction records and profile is the submission of a suspicious activity report to the government’s Financial Intelligence Unit. This agency can request additional data from other institutions and may or may not forward for prosecution. </p>
<p>It seems highly unlikely that a PEP or a relative will be “disadvantaged” and not be able to use banking services. If it is made clear that banking services cannot be refused to an individual due to suspicion of money laundering then why should specific PEP-categories be excluded from increased scrutiny? It is, in any case better for anti-money laundering efforts if all activity is kept where we can see it.</p>
<p>It is also worth noting that banks are already regulated by the Financial Conduct Authority and under this regulation, they apply a risk-based approach to detect money laundering. It may not be perfect, but if politicians start to dictate the exact conditions of “proportionate” monitoring, then who guards us from the guardians?</p><img src="https://counter.theconversation.com/content/58372/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dionysios Demetis has received funding from three past research grants: a) Spotlight EU AGIS Fund on Anti-Money Laundering Research, b) FIDIS project EU 6th Framework on information-society related research., c) Next Generation Anti-Terrorist Financing Methods (GATE), funding from PASR EC Programme. </span></em></p>The government should resist the temptation to soften monitoring efforts aimed at MPs and their families and associates.Dionysios Demetis, Lecturer in Management Systems, University of HullLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/575912016-04-12T11:52:04Z2016-04-12T11:52:04ZPanama Papers: why we’re looking at global corruption the wrong way<p>Although the size and scale of the Panama Papers leak was shocking, the offshore dealing they revealed was hardly a surprise. After all, many organisations, including <a href="http://www.transparency.org.uk/publications/dont-look-wont-find-weaknesses-in-the-supervision-of-the-uks-anti-money-laundering-rules/">Transparency International</a>, <a href="https://www.globalwitness.org/en-gb/">Global Witness</a>, <a href="http://www.actionaid.se/en/2016/02/mistreated-how-shady-tax-treaties-are-fuelling-inequality-and-poverty">Action Aid</a>, <a href="http://act.christianaid.org.uk/ea-action/action?ea.client.id=48&ea.campaign.id=43136">Christian Aid</a>, <a href="http://www.cw-uk.org/">Corruption Watch</a>, and <a href="http://www.taxjustice.net/">Tax Justice Network</a> have long expressed their concerns about money laundering and the role of enablers. </p>
<p>The Panama Papers have revealed a lot about the ways in which the rich and powerful hide their wealth – and many of them are legal. But while there’s no evidence that Mossack Fonseca has done anything illegal, the reporting has suggested links between some offshore shell companies and organised crime and money laundering. The data, we’re told, reveals a <a href="https://panamapapers.icij.org/20160403-panama-papers-global-overview.html">vast underbelly of corruption</a> associated with Panama – and other offshore banking destinations.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"717330413820096512"}"></div></p>
<p>Yet it’s not as if we have suddenly just discovered that transnational networks, some of them corrupt, have used a variety of complex mechanisms and vehicles, including hiding beneficial owners behind <a href="http://www.globalshellgames.com">shell companies</a>, to manage assets in offshore tax havens.</p>
<p>Which raises the inevitable question: if we have known for so long that this kind of thing goes on, then why have we been so ineffective at preventing it? The answers are inevitably complex, but I want to suggest three key factors that have contributed to what could be considered one of the major policy failures of recent decades.</p>
<h2>Them and us</h2>
<p>First, the fact that corruption emerged as a core policy concern in the post-Cold War era and was seen primarily as something that was endemic in <a href="http://www.nytimes.com/2012/10/26/world/europe/26iht-romania26.html?_r=0">former Communist states</a> and <a href="http://www.hks.harvard.edu/fs/rpande/papers/Corruption%20in%20Developing%20Countries.pdf">the developing world</a> – and that this has contributed to its being carelessly conceptualised. </p>
<p>Corruption has always existed, but concerted international focus <a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-9248.00089/abstract">really only began in the early 1990s</a>, when the presumption was that liberal democracy was now the only game in town. In this scenario, privatisation and deregulation were the key policy prescriptions that would drive the post-Communist world towards the “good governance” model that reigned in the West and would thereby control corruption.</p>
<p>The seeming self-evidence of the superiority of the Western model was reinforced by the first systematic attempts to measure corruption (part of a growing obsession with “<a href="http://www.cambridge.org/gb/academic/subjects/politics-international-relations/international-relations-and-international-organisations/ranking-world-grading-states-tool-global-governance?format=HB">ranking the world</a>”). In particular, Transparency International’s <a href="http://www.transparency.org/research/cpi/overview">Corruption Perceptions Index</a> and the World Bank’s <a href="http://info.worldbank.org/governance/wgi/index.aspx#home">Control of Corruption</a> measure in its governance indicators, showed a clear correlation between high levels of socio-political and economic development and low levels of corruption.</p>
<p>But in reality such correlations mask a much more complicated story. In particular, they rely on a very basic notion of corruption understood as being really about bribe-paying in the developing world. In short, corruption was primarily a problem found in other countries, not well-run democracies – even if Western businesses had to pay bribes to prosper. And it was this understanding of corruption being about bribes that motivated the international financial community and the policymakers they sought to influence.</p>
<p>So what do we really mean when we talk about “corruption”? The word encompasses a vast array of different kinds of activity, only some of which involve bribery. They range from highly sophisticated transnational networks linked to criminal gangs and drug trafficking involving billions of dollars (think <a href="http://www.bbc.co.uk/programmes/p03g13rt">The Night Manager</a>) to small-scale abuses at a local level involving just a few people. </p>
<p>The very idea that these types of activity – and everything in between – can be captured in any single measure is actually pretty absurd. And yet that is precisely what has been done annually since the early 1990s.</p>
<h2>Not just a national problem</h2>
<p>Second – and closely linked to that – analysis has focused on measuring and combating corruption in individual states rather than transnationally. Hence, various initiatives – from development aid measures to membership of the European Union – have increasingly been made conditional on anti-corruption efforts at state level. These have usually come in the form of a <a href="https://www.unodc.org/documents/corruption/Publications/2015/National_Anti-Corruption_Strategies_-_A_Practical_Guide_for_Development_and_Implementation_E.pdf">national strategy</a>, the creation of dedicated agencies, or other internationally endorsed measures. They have often entailed an implicit belief that there is a “correct” way to tackle corruption, based on adopting a specific national governance model.</p>
<p>In terms of such things as ensuring the rule of law, promoting ethical standards for public officials, having clear guidelines for investigation and prosecution and so forth, a national-level approach makes perfect sense. There’s no evidence that Mossack Fonseca itself has done anything illegal, but as the leaks of its documents have comprehensively revealed, some of the most egregious types of corruption – the corruption that involves billions of dollars being stolen and diverted – relies precisely on transnational operations that are near impossible for individual states to address on their own. </p>
<h2>Devil in the detail</h2>
<p>Third, academic researchers and the advocacy community have been unwittingly complicit in perpetuating this mismatch between the reality of how corruption functions and our efforts to combat it. Much of the huge outpouring of academic literature on corruption in the past two decades, particularly that by <a href="http://homepage.ntu.edu.tw/%7Ekslin/macro2009/Mauro%201995.pdf">economists</a>, has used a poorly specified concept of corruption to supposedly explain a host of specific failings – and most especially why there is more or less corruption in <a href="http://www.ingentaconnect.com/content/aea/jep/2005/00000019/00000003/art00002">country x as opposed to country y</a>. </p>
<p>In turn, the advocacy community has similarly tended to rely on aggregate <a href="https://www.globalcitizen.org/en/content/the-23-most-corrupt-countries-in-the-world/">measures of corruption</a>, both to make a political point about the need to combat it and to secure resources in order to do so.</p>
<p>By talking in such generic terms, though, neither academics nor advocates are likely to make much headway. It makes about as much sense as having a health policy that entails “fighting disease”. It could be argued that we should stop focusing on corruption “writ large”. Instead, whenever the word is mentioned, we should ask what kind of corruption it is, where is it taking place, who is involved, what are their motivations, who or what is needed to allow it to take place, what level does it operate at, what sectors are implicated, what are the key interdependencies and how does it relate to the broader social context? </p>
<p>Without clear answers to these kinds of questions, it will remain difficult to develop practical means of intervention that have an impact on actual corrupt practices – as opposed to generic observations about <a href="https://theconversation.com/corruption-is-in-the-eye-of-the-beholder-21094">which places are more corrupt than others</a>.</p><img src="https://counter.theconversation.com/content/57591/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Heywood receives funding from DFID via the British Academy as Leader of the BA/DFID Anti-Corruption Evidence Programme, and from the EU Commission as a researcher in the ANTICORRP network. He is affiliated with Transparency International-UK as a member of its Board of Trustees. The views expressed in this article are his own.</span></em></p>Focusing on ‘corrupt countries’ misses the point – it is people who are corrupt and their money flows in and out of shady deals all the time.Paul Heywood, Sir Francis Hill Professor of European Politics, University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/489862015-10-13T03:02:13Z2015-10-13T03:02:13ZMuch more can be done to keep foreign criminal funds out of Australian property<figure><img src="https://images.theconversation.com/files/98162/original/image-20151013-17807-1nouqu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Locations such as Queensland’s Gold Coast have been nominated as at risk of money laundering by international criminals targeting real estate.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/paperpariah/20350957748/in/photolist-x1kYHS-6u8ZwU-6nr23i-5Ju2U2-hd8r5w-4Swopd-fTjMcL-brAdps-628rYQ-au8kjx-6mNQbT-bDSWXv-73nDTB-c9MfVb-5K5UJL-dkaewp-bEEbav-8AzryP-bF42jp-6ncKij-4TzrdZ-73WkVS-5e6yzR-55sywZ-8BpmWe-8Bcp5W-6ujzP6-4XqKRv-oiAUzC-4tt4ik-4Mfbp8-6SpbdY-8WGa1p-g9WebC-6E2cS4-9mocJd-aXCHf2-bqFEU3-bvj8gs-oda56G-ocVRje-6Xkwyy-nXHwDq-oi3bsd-om1eKF-nZjtZi-8BGULo-iNz4Xg-kupHTZ-9HYQu1">Flickr/Adam Foster</a></span></figcaption></figure><p>ABC’s Four Corners program <a href="http://www.abc.net.au/4corners/stories/2015/10/12/4327525.htm">this week</a> highlighted concerns that Chinese criminal funds may be propping up Australia’s real estate market. Why is Australia’s anti-money laundering framework not providing sufficient comfort that these concerns are addressed?</p>
<p>The answer lies in both the scope of Australia’s anti-money laundering and counter-terrorism financing laws, as well as the enforcement of these laws, especially in relation to proceeds of foreign offences. </p>
<h2>The scope of the law</h2>
<p>In the 1980s Australia became one of the first countries to adopt anti-money laundering laws. In 1989 it joined a small group of countries in the <a href="http://www.fatf-gafi.org/">Financial Action Task Force</a> (FATF), taking the lead in identifying appropriate policing measures. FATF then developed into the international standard-setter for anti-money laundering measures, as well as counter-terrorism financing measures, a mandate added in 2001. It also assesses its members’ compliance with those standards, known as “recommendations”. </p>
<p>Businesses covered by these rules need to identify and verify the identities of their customers, assess and mitigate the money laundering and terrorist financing risks they pose and report suspicious transactions as well as certain large transactions. By doing that they protect themselves from committing money laundering offences and their industries from abuse by launderers.</p>
<p>Australia held FATF’s presidency in 1992-1993 and again in 2014-2015. However, its early start in adopting anti-money laundering laws and its leadership role in the FATF did not ensure a soft assessment regime for Australia. In 2005, FATF criticised Australia’s anti-money laundering and terrorism financing regime for lagging behind, especially in terms of the scope and enforcement of its laws. It was held to be fully compliant with only 12 recommendations and largely compliant with another 14 of the 49 recommendations that applied at that stage. </p>
<p>This spurred Australia to adopt the current <a href="https://www.comlaw.gov.au/Series/C2006A00169">Anti-Money Laundering and Counter-Terrorism Financing Act of 2006 (AML/CTF Act)</a>. This Act created a world-class framework in relation to financial institutions. But the overall framework was not complete. FATF’s standards apply to financial institutions as well as a number of so-called “designated non-financial businesses and professions”. This list includes casinos, lawyers, real estate agents, dealers in precious metals and stones, and trust and company service providers. </p>
<p>In 2006, with the exception of casinos and bullion dealers, these were set aside to be addressed in a second tranche of AML/CTF Act reforms. Despite various statements and government consultation, also in the context of the current <a href="http://www.ag.gov.au/consultations/pages/StatReviewAntiMoneyLaunderingCounterTerrorismFinActCth2006.aspx">statutory review</a> of the AML/CTF Act, these reforms have not yet been effected.</p>
<p>Combined with the limited transparency of the beneficial ownership of companies and trusts, it leaves the property market vulnerable to money laundering and terrorist financing abuse. </p>
<p>The lack of enforcement of the existing criminal laws is, however, also a cause for concern. </p>
<h2>Lack of enforcement</h2>
<p>Australia has a well-developed set of statutory money laundering and terrorist financing offences, both at the federal and a state/territory level. At the federal level, for example, the Criminal Code creates offences that can be committed knowingly, recklessly and even negligently, for example when dealing with property which is reasonably suspected to be proceeds of crime.</p>
<p>The 2015 <a href="http://www.fatf-gafi.org/countries/a-c/australia/documents/australia-mature-regime-to-combat-money-laundering-terrorist-financing-key-areas-remain-unaddressed.html">FATF assessment report of Australia</a> found that money laundering offences involving proceeds of foreign offences, including corruption offences, are not frequently prosecuted “because Australia does not consider that foreign predicate offences are major predicates for money laundering in Australia.” (par 3.44). Predicate offences are offences generating the proceeds of crime to be laundered.</p>
<p>Authorities mentioned the difficulties of obtaining off-shore evidence to prove the foreign offence. But a lack of effective federal/state law enforcement coordination was found to pose a particular barrier, especially in relation to the property market:</p>
<blockquote>
<p>For example, while ML (money laundering) of foreign illicit proceeds through real estate is perceived to be a risk for Queensland (Gold Coast), Queensland has no ML convictions for this activity. AFP (Australian Federal Police) indicated that it does not focus on this risk, believing this ML activity relates to State level predicates, whereas the Queensland Crime and Corruption Commission stated
it does not focus on this risk as it relates to foreign money and is thus a matter for AFP. </p>
<p>At the same time, assessors took note of two examples of successful prosecution for foreign predicates (fraud and corruption) by AFP and the registration of two restraint orders from Papua New Guinea in Queensland.(par 3.44) </p>
</blockquote>
<p>The overall enforcement strategy therefore does not reflect a high level of concern about the abuse of the property market by those wishing to launder proceeds of foreign corruption. </p>
<h2>Protecting the property market</h2>
<p>Much can be done to increase the protection of the property market against criminal abuse. While the AML/CTF legal framework should be extended to all businesses and professions covered by the FATF standards, compliance and red tape concerns may continue to delay the second tranche of reforms. The best starting point would therefore be to work with the available legal tools and to prosecute money laundering offences involving designated non-financial businesses and professions and markets of concern, such as the property market. In relation to foreign corruption that will require close cooperation with foreign counterparts. </p>
<p>Increased prosecution will also provide improved evidence of the abuse that actually occurs and inform the debate on the urgency and nature of the law reforms that are required. However, Australia must also enhance the transparency of beneficial ownership of companies and trusts. If criminals find it more risky to purchase property in their own names, they will increasingly hide behind business structures. It is therefore important to improve public information regarding the control of companies and trusts.</p>
<p>It is also important to reflect on money laundering law enforcement priorities. Money laundering prosecutions levels increased over the past few years but corruption, especially foreign corruption, struggles to receive appropriate attention. </p>
<p>If Australia wants to hold an international integrity leadership position and improve its ranking on the Transparency International Corruption Perception <a href="https://www.transparency.org/research/cpi/overview">Index</a>, it will need to join its international counterparts by taking firm action against foreign corruption, including the laundering of the proceeds of foreign corruption.</p><img src="https://counter.theconversation.com/content/48986/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Louis de Koker does not work for, own shares in or receive funding from any company or organisation that would benefit financially from this article. He does provide policy advice to regulators and policy groups internationally on financial crime.</span></em></p>Much more can be done to protect Australia’s property market from international criminals seeking to wash their proceeds.Louis de Koker, Professor of Law, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.