Arachnys

Arachnys 

Posted Thursday September 11, 2014
 

A look back at the Cambridge Symposium on Economic Crime from a compliance perspective

A look back at the Cambridge Symposium on Economic Crime from a compliance perspective

Cambridge Symposium

Last week Arachnys attended the 32nd Cambridge International Symposium on Economic Crime. The conference, hosted by Jesus College, Cambridge, brought together a huge range of policy experts, government officials, and business representatives to discuss financial crime issues including intellectual property theft, money laundering and fraud.

The sheer number of issues and policy areas discussed warrants a full briefing paper rather than a blog but in this short note we look back at a selection of the discussions and themes relevant to the compliance and due diligence world.

Growing regulatory pressures

Throughout the week, compliance issues dominated the conference. On Tuesday speakers kicked off a debate about the changing customer due diligence (CDD) requirements and obligations in the financial sector. William Hughes, former head of SOCA, asked whether due diligence requirements have become too onerous, and where the burden of responsibility for customer due diligence should lie. The debate was particularly lively when concerning the much-publicised cases prosecuted under the Foreign Corrupt Practices Act over the last year. The general consensus was that banks should be doing more, and there was also discussion on whether increased regulatory attention to customer due diligence should be offset by increased support in actually performing it. Some delegates suggested a country-level database where banks could pool and access due diligence information.

There was much debate about Deferred Prosecution Agreements in the UK. Discussion centred on the merits of the practice whereby companies who fear they may have inadvertently breached compliance and corruption laws can work with the UK Serious Fraud Office (SFO) to undertake an internal investigation in return for not being formally prosecuted.

Forthcoming legislation

There was also much talk of two pieces of forthcoming legislation in the UK and Europe.

The first, at the European level, is the 4th Anti Money Laundering Directive (officially known as, “The Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing”). The Directive will have a major impact not just on banks but also other businesses. First, and most importantly, the directive will enforce a “risk-based approach” to AML, putting responsibility on banks and businesses to do everything they can to mitigate the risk of money laundering by “requiring evidence-based measures to be implemented” and demonstrated. Second, on a practical level, the threshold over which the directive will apply will be reduced from €15,000 to €7,500. This has huge implications, especially for consumer-focused banks handling more, smaller transactions. The idea is to make money laundering steps, placement and layering more costly and less attractive by increasing complexity for those attempting to carry it out.

The second piece of legislation discussed was the UK National Anti-Corruption Plan, which can be expected in the next couple of months. The sense at the conference was that the new plan would boost coordination across the UK Government on anti-corruption and add further strength to the UK Bribery Act: a piece of legislation which caused ripples amongst the international business community at the time but is yet to actually mount a significant successful corporate prosecution. Compare this to the US Foreign Corrupt Practices Act which currently has over 80 live cases.

Solutions

In terms of solutions, delegates focused on two major areas: lawyers and technology. They stressed how software solutions can provide actors with the investigative tools to not only support the due diligence needed but also provide the paper trail to prove it has been done. Finally, as Caroline Binham reported in the FT, delegates also discussed how lawyers did not in all cases have their own houses in order: they are themselves at risk of being complicit in money laundering if they fail to report suspicious transactions or highlight potentially suspicious clients.

Technology as part of the solutions to customer due diligence

Customer due diligence is getting harder, and the technology to address this challenge isn’t always up to the job. That was the conclusion from the conference on technology. Data itself is not the only problem, but typically there is a need for that data to be better and for systems that can automate processing and analysis.

Interestingly, there was a widely-held view that part of the problem with the development of compliance technology in the banking sector suffered from the lack of a feedback loop, with banks not willing to admit that their internal systems could be improved for fear of provoking the wrath of regulators or damaging their compliance reputation.

Several delegates also noted that established CRM systems were “crumbling under the pressure” of increased customer due diligence research needs and that there was a clear need for new, bespoke tech solutions. Some delegates including Jenny Granger from HMRC highlighted new software systems being “game-changers” in the way institutions can uncover relevant information on customers. Obviously we believe that Arachnys is at the forefront of that!

Finally there was a difference of opinion amongst the delegates as to how senior management view the importance of structural and technological improvements to in-house compliance. Some delegates reported that management and board level decision makers simply don’t get the importance of the burgeoning technological challenge within compliance teams and view the increasing spend on compliance technology as being profligate at best. This contrasts with the recent KPMG 2014 Annual AML Survey where 88% of respondents said that AML issues are rising up the agenda for senior management.Dr George Demetriades, Lecturer in Law at Neapolis University, and a speaker at last week’s symposium, took an in-depth look at this exact debate in a recent research paper he published.

The continued hunt for UBOs

As the conference entered its final days the emphasis moved beyond due diligence and compliance, but there were still some useful discussions for compliance professionals, not least in some of the workshops. One area that unsurprisingly received a lot of attention was the continuing opacity around the declaration and registration of Ultimate Beneficial Owners (UBOs). For the compliance sector, this is in many ways the holy grail of customer due diligence research. Several providers have rolled out or are working on UBO tracking products, but the reality is that it is a hugely complicated field.

During one breakout session entitled ‘Obtaining evidence and information from the Channel Islands – the practical issues’ the debate boiled down to one issue - how easy is it for investigators to obtain UBO information on Channel Island registered trust companies. Both Cyril Whelan, Crown Advocate and Commissioner Jersey Financial Services Commission and Kevin Bown, Deputy Director, Intelligence Services, Guernsey Financial Services Commission forcefully repudiated the view that the Islands are opaque, and highlighted the fact that both jurisdictions have comprehensive UBO registries. The sticking point for compliance professionals however is that neither register is public, and any requests to view it must be backed up with compelling evidence that a probable criminal or civil case will be brought against the individual suspected to be on the respective UBO register. This makes it useless as a method of verifying information supplied by a customer, for example.

It’s good to talk

Running over a full week, the conference seemed long even to the most enthusiastic of delegates. Even British political party conferences only stretch to 5 days. Yet discussions were generally excellent and the array of speakers and expertise hugely impressive. Furthermore, while big industry events such as the upcoming Compliance Week Europe conference allow thought-leaders and industry figures to get together and network, the Cambridge International Symposium on Economic Crime fostered a level of intellectual and conceptual thinking about compliance that is sometimes missing in the fast-paced business environment. We at Arachnys shall certainly be heading back to Cambridge for next year’s event.

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