Alerting Senior Management to AML failures and blowing the whistle

MARTIN WOODS Head of anti-money laundering (AML) DFSA Outreach September 2013

Disclaimer

• Please note, these are my words and opinions, they are

based upon my own personal experiences. These are not the

views of Thomson Reuters. Furthermore the Wachovia case

was brought about by outstanding work by detectives within

the Drug Enforcement Agency. My role was not material to

that case. Moreover, there were at the time some

outstanding AML people in Wachovia Bank, such that this

was not the Martin Woods show. In addition, there are

currently some excellent AML officers within Wells Fargo who

have helped to implement a commendable and robust AML

regime. In respect of the Wachovia case, I am subject of a

non-disclosure agreement, which I will not breach, I will not

tell lies about the bank. The objective of the presentation is to

help you with your own AML combat.

Introduction

• Have you brought AML failures to senior

management’s attention?

• Have you ever blown the whistle?

• Have you filed a suspicious activity report?

• What did I do?

• Am I MAD?

• Are you MAD?

• Once upon a time in a bank.......they didn’t all live

happily ever after.

Background

• I am a self obsessed whistleblower – all

whistleblowers are

• I worked as an AML compliance officer for the

London branch of a US bank

• My appointment was approved by the FSA

• I am a former police detective, I have met money

launderers, and arrested some

• I am not easily dissuaded from logical thinking

• I am a very positive person – BUT.....

Blowing the Whistle!

‘PROSECUTORS IN MIAMI ANNOUNCED $160 million in

money-laundering penalties against Wachovia Bank on

Wednesday, the largest penalty ever obtained under federal

anti-money-laundering laws. The bank acknowledged its

failure to adequately monitor the billions of dollars it

processed for Mexican currency-exchange houses between

2004 and 2007, a money flow including at least $110 million

of narcotics proceeds from Mexican drug cartels. The Justice

Department agreed not to prosecute Wachovia as long as

regulators see continued compliance and cooperation from

the bank—once the nation's fourth largest and now part of

Wells Fargo.’

Barrons March 22nd 2010

Wachovia states:-

• ‘”Woods remains a Wachovia employee, now

on stress-related disability leave.” Bank

spokesperson Mary Eshet said last week that

Woods hadn't been treated unfairly. "Wachovia

believes that it has acted appropriately in its

business dealings," her written statement said,

"and Mr. Woods' claims to the contrary are

without merit.“’

• Barrons March 9th 2009

Blowing the whistle

The obvious questions

Why did I do what I did?

What action did I take?

How did it effect me?

Would I do it again?

What is the future of regulation?

To Make A Difference

There have been in excess of 75,000

people murdered in Mexico because of

drug trafficking.

Back to the fundamentals:- FATF

• The FATF objective is to have a regime that prevents, detects and forestalls money laundering and terrorist financing.

• The FATF Website includes the following excerpts:

– “…a new comprehensive framework for combating money laundering and terrorist financing.”

– “…national systems for combating money laundering and terrorist financing”

– “…provide an enhanced, comprehensive and consistent framework of measures for combating money laundering and terrorist financing.”

• Governments, with reference to the FATF 40 Recommendations, translate this in to regimes of law and regulation.

Combat

• Definition:-

• Oxford Dictionary

• take action to reduce or prevent (something bad or

undesirable):an effort to combat drug trafficking

• archaic engage in a fight with; oppose in battle:

• Can you win if passive?

The BIG Picture

The money that Wachovia admitted

laundering came from Mexico, the drugs

come from and through Mexico, where

the 22,000+ (at that time) murders had

taken place in Mexico

All of these things are connected this is

the big picture

This is money laundering

The Financing of Business

In this instance the drug trafficking

business

Drugs – Money – Laundry – Clean Money –

Wages, More Drugs, Logistics, Weapons

– Murders

This is where banks become exposed to the money, the murders and the risks

• International businesses need international banks

• The launderers are constantly looking for new

opportunities, new banks, new products, even new

staff

• Money launderers are charming, and ordinarily nice

people. Why wouldn’t they be?

• If an opportunity [including a launderer] finds you,

is it your opportunity or theirs?

• On guard, the launderers are coming, they always

have been and always will be - COMBAT

The President

• "We need to do more to make sure that illegal

guns and cash aren't flowing back to the

cartels.”

• "That's part of what is financing their

operations. That's part of what is arming them."

• Barak Obama March 2009 & May 2013

• “And we also recognize that most of the guns

used to commit violence here in Mexico come

from the United States.”

The Secretary of State

• "Our insatiable demand for illegal drugs fuels

the drug trade.

• Our inability to prevent weapons from being

illegally smuggled across the border to arm

these criminals causes the deaths of police

officers, soldiers and civilians.”

• "I feel very strongly we have a co-

responsibility."

•Hilary Clinton 24th March 2009

The MLRO

• I suspected:-

• The drugs, the weapons, the planes, the cars, the

watches, the murders were all connected to the

transactions and – absent to any apparent AML

controls, I suspected the clients were engaged in

the laundering process

• I submitted SARs

Narco-bling

• Watch this space:-

Action or Inaction

I am sustained by the thought that had I

done nothing I could have become a

person I would now despise

I would now find myself taking pills

everyday to deal with my mental state

Action or Inaction?

There were people being murdered

everyday in Mexico, if there was a

possibility that I could make a

difference I took action

I cannot answer for others – they can

talk for themselves

Would I do it Again?

• You will work it out for yourselves – but you need

to understand that this instance is not a thing of

the past, it is ongoing.

• The end has not appeared for me and I do not

know if it ever will

Help

•I get by with a little help from

my friends!

•BUT where were the regulators?

• ‘In just the three years ending 2007, Wachovia

processed $373 billion in wire transfers, $47 billion

in checks and $4 billion in bulk cash deposits from

the currency exchanges.’

Barron’s 20.3.10

New Regulators

• B – behavior

• C - culture

• C – change

• I – integrity

Information

• Whistleblowing – is the provision of information

often about criminality to the authorities

• BUT – Did/do they want it?

• Silence!

The Irony of the System

In the financial services business,

fortunes are made and lost through

the acquisition and use of information

The FSA and other regulators appeared

not to be in the business of embracing

human intelligence

So what do they [banks and regulators] want?

• Do they want to be informed of AML failures?

• What kind of person do they want?

• Do they want to influence, even control AML

officers?

• Do they want to know, or is ignorance bliss?

• Do they need to know?

• Will you tell them in 2013?

What am I?

• I am Credible

• I have integrity

• I have experience and expertise

• I am robust and steadfast

• I am prepared to fight for what I believe – I won’t

break the law!

• I am an AML combat soldier, perhaps an officer

and probably a veteran, but I still have fight in me

This is what the US regulators said

• ‘You were the only person in the bank to get it

100% correct!’

• ‘You were Moses in the wilderness!’

• PLEASE NOTE – There were other great AML

people in Wachovia, this was not the Martin Woods

show

What did their (the US DoJ) statement say?

• ‘The Bank failed to adequately respond to several

warnings, beginning in December of 2006, relative

to the receipt of large volumes of sequentially

numbered traveler’s checks in pouches from

Mexico. The Bank failed to recognize the risks

associated with pouches and cash letters received

from jurisdictions with lax or deficient AML

structures.’

FSA – 2008-2012

• SYSC 18.2.3 31/12/2006

– The FSA would regard as a serious matter any evidence

that a firm had acted to the detriment of a worker because

he had made a protected disclosure (see SYSC 18.2.1G

(2)) about matters which are relevant to the functions of

the FSA. Such evidence could call into question the

fitness and propriety of the firm or relevant members of its

staff, and could therefore, if relevant, affect the firm's

continuing satisfaction of threshold condition 5 (Suitability)

or, for an approved person, his status as such.

What about the FSA?

• I know nothing, because I have been told nothing.

So why would you ‘alert senior management or the

regulator?’ Why would you put yourself in harm’s

way?

• Well because the world has changed and you are

compelled to alert them, but they are duty bound to

protect you

• In the past, this may not have been the case

OCC Letter March 2009

What next?

• Dodd Frank Act

• Rewards [perhaps] compensation for

whistleblowers – incentives for sure

• New – engaging and enthusiastic regulators

• Senior managers who are supporters of AML

• Senior managers compelled to submit formal

attestations – including AML

A New World

• The SEC are changing because a criminal stole

billions and gave himself up. They did not catch

him, it would appear they did not want to.

• Thanks to Harry

• The SEC changes have led to additional changes

and more will follow

Conclusion • Am I MAD?

• Are you MAD?

• Would you ‘alert senior management?’

• I believe you have no choice.

Questions

• What does DELAWARE stand for?

• What does Beau + Joe =?

• Which country is number 1 in the world for bank

secrecy?

• Do you have to tell a lie to be dishonest?

• Cross word clue SGEG - 9 & 4

• What is the difference between illegal and

unlawful?