THE PRACTICE OF PROFILING BY DAVID THOMAS

Transcription

1 PROFILING PART 3 THE PRACTICE OF PROFILING BY DAVID THOMAS Statement of intent This paper follows the two previous titles The Psychology of Money Launderers and the Psychology of Anti-Money Launderers and extends the thinking to the practice of profiling.

2 ABOUT THE AUTHOR David Thomas was Head of the UK Financial Intelligence Units from 2006 to 2010, having earlier been appointed by Sir Stephen Lander (Chair of the UK s Serious Organized Crime Agency and former Director-General of MI5) to be the financial crime expert to review and to improve the UK Suspicious Activity Reporting (SAR) Regime. During his time as Head of UK FIU, David received a commendation from the UK Home Secretary for vision, leadership and technical expertise. He is internationally recognized as an expert in developing aligned anti-money laundering strategies with a deep understanding of suspicious activity reporting, money laundering threats, terrorist financing, and wider financial crime. David was Project Leader and Chair for the FATF s project to design, research, and author the first Money Laundering and Terrorist Financing Global Threat Assessment published in July From 2006 to 2007, David served on the Egmont Group Committee and, subsequently to 2010, he participated in each annual Plenary and the Operational and Training Working Groups, frequently presenting the UK experience. 2 PROFILING PART 3: THE PRACTISE OF PROFILING

3 CONTENTS DEFINITIONS THE NEED FOR PROFILING GENERAL PROFILING STATISTICAL PROFILING CONCLUSION PROFILING PART 3: THE PRACTISE OF PROFILING

4 DEFINITIONS As with the earlier papers, this paper uses my definitions that may or may not coincide with more formally adopted terms. Psychology this is not a scientific paper, I am not a qualified psychologist. I use this term to capture my study of the mind and behavior of those that launder criminal money. I classify Money Launderers into four categories: A. Those that commit predicate offenses and launder their own money; B. Those that commit predicate offenses, launder their own money, and also launder the proceeds of other criminals; C. Those in business that do not commit predicate offenses, but launder the proceeds of others crimes as part of their otherwise legitimate business; D. Those who launder the proceeds of others crimes as their only business activity. THE NEED FOR PROFILING Compliance staff in the regulated financial sector are not expected to create pseudopsychological profiles of their clients in order to identify individual money launderers. Indeed the psychologist and author Peter Ainsworth said in Offender Profiling and Crime Analysis that acquisition crimes such as theft (and we can include here money laundering) are not suitable for psychological study in order to identify suspects, as the offenders do not display any relevant individual behavior when committing those offenses. That is why individual psychological profiling is mainly reserved for cases of murder, rape, extortion, kidnapping, and arson all emotive and destructive rather than acquisitive. However, I believe that we can still use general profiling to improve our understanding and our risk-based approaches. GENERAL PROFILING We can say that those in my category A tend to launder in an unsophisticated way in the, often substantiated, belief that they won t get caught, just as they do when they commit the predicate offenses. Typically we see cash placements in banks, money service businesses, and high value goods and services. However, because of the wide range of qualifying offenses and potential offenders, there isn t any prominent type of person that can be profiled into this category they include both sexes, all ages, widespread geography, socioeconomic groupings, etc. Anti-money launderers should not be discouraged by that I have always considered progress to include knowing what cannot be done as much as what can be done. There are nevertheless many options to combat this category of money launderer as we will see later. To be in category B requires criminal experience, credibility, and the trust of others. That is generally achieved by male career criminals aged between 35 to 60. However, they too come from as diverse backgrounds as those in category A. Those in category C and D are considered as elaborate in their financial dealings because this is their profession. Typical laundering is planned and structured to minimize suspicion and maximize obstacles for any later criminal confiscation. In my experience, these categories generally feature males aged between 20 and 40 with an employment history in the financial sector. In a separate study, not geared towards money laundering but ethical corporate behavior, the accountancy firm PricewaterhouseCoopers (PWC) in October 2010 published Trust: the behavioral challenge. The research found that male employees, particularly aged between 20 and 40, were the 4 PROFILING PART 3: THE PRACTISE OF PROFILING

5 least likely to do the right thing for the greater good and were more likely to be driven by financial gain. Fortunately, along with this extremely general behavioral profiling, there is value to be had from statistical profiling. STATISTICAL PROFILING Back in 1997, UK psychologist Anne Davies studied 299 cases of stranger rape (committed by 71 rapists) and found that over 50% of all offenses were committed less than 3 kilometers from the offender s base (whether home or work). Today that remains a valid statistic, and, although no case-specific conclusions can be made (for example 12% of offenses were committed more than 16 kilometers away from the base), the profile does begin to form a risk-based approach to investigation. Other regular profiling of destructive criminals includes factors such as age, educational background, IQ level, and family criminal history, for example. In this field of crime it is proven that combining profiling with case-specific information leads to more efficient inquiries and decisions. Anti-money launderers can learn from statistical profiling, as it would surely be helpful to know the profile of all convicted launderers within the four categories, or in any categories. And yet there is very little of any kind of profiling in the anti-money laundering world. Some law enforcement agencies have analyzed the use of money launderers in closed cases in order to identify common profiles, such as criminal associates, ethnic/familial/or geographic roots, preferences in methods, and so on. The results are used to populate general intelligence databases, sometimes to generate fresh investigations or to use in court cases as evidence of association. The analysis tends to be ad hoc and results are rarely shared with financial institutions, for a range of understandable reasons. However, there is an opportunity here to benefit from bilateral, secure relationships across the so-called public/private sector divide. Some Financial Intelligence Units (FIUs) analyze the generic profiles of subjects of Suspicious Transaction Reports (STRs). For example, one FIU analysis of all STRs over a 12-month period (i.e., tens of thousands of seemingly unconnected STRs) showed a very small number of geographical hotspots of activity that could be narrowed down to individual roads and multi-occupancy buildings; the subjects were male, describing themselves as selfemployed or consultants, in rented accommodations, and used accountants who themselves fitted a certain profile. FIUs do tend to share such profiling with financial institutions but often as presentation material at conferences and the like a temporary knowledge transfer for the duration of the conference that does not lead to embedded profiling within the firms. Some banks have also profiled their own customers, where these were the subjects of STRs, criminal court orders, and other law enforcement inquiries, and identified common groupings of suspects by sex, age, occupation, income, geography, and preferred investment products and services. I am familiar with two banks that used the newly discovered profiles to review activities by customers that fit the profiles but who had not been the subject of STRs, orders, or inquiries. The result was enhanced due diligence, submission of further STRs, and the closure of business relationships with some 5 PROFILING PART 3: THE PRACTISE OF PROFILING

6 undesirable clients. That was proven to be a useful and commercially rewarding risk exercise. So jointly we, the anti-money launderers, already have a wealth of information available to us in order to profile the known risks better. Of course profiling the known risks is only the beginning and yet I am not confident that any jurisdiction has safely achieved that. The driver for sustained momentum to monitor, share, and use the information that is already within our combined grasp has to come from Financial Action Task Force (FATF) and/or domestic regulatory requirements. In the absence of such a driver, it is for anti-money laundering professionals within each jurisdiction to take the initiative to create the environment of trust between them, share information, build knowledge, and drive forward a joint public/ private sector program of activity to systematically undermine the criminals ability to manage their finances and profits. The purpose of FATF s Global Threat Assessment of Money Laundering and Terrorist Financing (published May 2010) is to prompt such national efforts. As well as building generic profiles to enhance our risk-based approach, we can also use our knowledge of psychological behaviors to create a program of activity to prevent money laundering. Category A & B: Launderers those who commit predicate offenses. I have already stated that this category, the most common launderer, cannot be deterred from money laundering. He/she can only be deterred from committing the predicate offenses, which of course will in turn prevent money laundering. The best deterrence is to undermine the motive by ensuring that acquisitive crime does not pay in the end it is evident that crime does pay for many and so the emphasis needs to be that any gain will only be temporary. The surest way is to start by identifying those people that we know or strongly suspect to be engaged in crime. Once that is achieved we can move more confidently to identifying those who are not yet known nor suspected. Building on the good work of World-Check in providing overt source criminal details, the authorities can and should make more resources available to financial institutions in order to improve the flow of actionable information, for example details of: A. convicted criminals with unpaid debts (from the widest variety of criminal or civil actions), so that assets can be secured, whether or not there is attached suspicion of money laundering. Both the authorities and the participating financial institution should publicize this joint effort to assure the public and to demotivate criminals; B. convicted or suspected criminals subject to national and international arrest warrants, so that criminal customers can be located and arrested, regardless of any allied suspicion of money laundering; C. career criminals convicted of acquisitive crime not in the above categories, to encourage reporting of individual asset purchases or lifestyle spending, irrespective of suspicion of money laundering; 6 PROFILING PART 3: THE PRACTISE OF PROFILING

7 D. suspected but not convicted acquisitive criminals to be shared with financial institutions under more controlled conditions, for example via a group of security cleared professionals across the sectors. FIUs, law enforcement, and tax agencies should consider writing to and visiting these individuals to increase their perception that they are being monitored and to discourage other criminals from conducting business with them. As a general preventative measure, financial institutions should be more overt about their engagement with the authorities. There is an opportunity for commercial gain in being seen to be an active, if not strident, good corporate citizen. Since the financial crisis in 2009, the public and politicians in many countries have voiced a low opinion of the moral ethics of firms in the financial sector. Being seen to champion the effort against issues of public concern such as crime, security, and the environment builds trust and the value of the brand. Customer contracts should stipulate that customers must not invest monies derived from crime if customers are later found to have done so then the firm can pursue breach of contract and financial compensation, such as compliance costs. Such overt messages demonstrate that the legitimate financial system is a hostile environment for the criminal and the likelihood of losing any financial advantage from crime is increased. Category C: Corrupt employee Firms should have in place policies and systems to prevent and identify internal corruption and should highlight their existence to deter it. The risk management process of the business must highlight the business areas most vulnerable to compromise and include risk profiles of staff within those areas. Anti-money laundering training should include heightened awareness of being corrupted by criminals and identifying colleagues who may have been corrupted. There should be systems in place to encourage staff to disclose that they have been, or who feel they may be, compromised by criminals; similarly there should be a confidential whistleblower channel and a corporate culture of rewarding ethical behavior rather than just punishing the unethical. Such measures will deter and hence protect the vulnerable employee. Category D: Specialists These are distinct because they are rare they stand out as providing services that are particularly profitable, with high turnover and with little or no similar competition. Retrospective analysis often reveals that while such customers satisfied due diligence checks, the relevant bank staff felt that there was something not quite right with the business activity. Systems should be in place to have periodic common sense monitoring as well as transaction monitoring. Also, law enforcement agencies often know the individuals but do not have the evidence to demonstrate criminal conspiracy sharing such sensitive intelligence with security-cleared professionals in the relevant bank(s) opens up alternative commercial options to limit the services the suspect can provide. CONCLUSION The bad news is that there is still a great deal for anti-money launderers to do. The good news is that there is still a great deal for anti-money launderers to do. 7 PROFILING PART 3: THE PRACTISE OF PROFILING

8 THOMSON REUTERS ACCELUS Thomson Reuters Governance, Risk & Compliance (GRC) business unit provides comprehensive solutions that connect our customers business to the ever-changing regulatory environment. GRC serves audit, compliance, finance, legal, and risk professionals in financial services, law firms, insurance, and other industries impacted by regulatory change. The Accelus suite of products provides powerful tools and information that enable proactive insights, dynamic connections, and informed choices that drive overall business performance. Accelus is the combination of the market-leading solutions provided by the heritage businesses of Complinet, IntegraScreen, Northland Solutions, Oden, Paisley, West s Capitol Watch, Westlaw Business, Westlaw Compliance Advisor and World-Check. For more information, visit accelus.thomsonreuters.com 2012 Thomson Reuters L /1-12