“There’s zero evidence that crime is reduced as a result of all this AML”; says Charles Littrell.
Charles Littrell, a senior advisor at the Central Bank of Bahamas and a former executive general manager at the Australian Prudential Regulation Authority, brings a unique perspective to the topic of the current global anti-money-laundering (AML) regime.
He thinks that it has become increasingly evident over the past five years that the global AML regime is deeply unsatisfactory. Among other things:
- It probably captures less than 1 per cent of the world’s illicit funds flows and assets.
- It imposes massive costs on the world’s financial providers and consumers.
- There is no evidence that the regime, despite its costs, has produced any appreciable reduction in the crimes that the regime was built to combat.
“Australian and other governments have fallen into the lazy habit of uncompensated conscription of private sector industries (such as real estate agents or lawyers) to act as AML enforcers,” says Charles Littrell.
Regulators, like Australian Securities & Investment Commission and AUSTRAC have effectively outsourced their legislative compliance duties, responsibilities and investigative powers to the banks without judicial oversight. He thinks the current anti-money-laundering (AML) regime, which centre on banks reporting millions of transactions each day at an annual compliance cost of perhaps $US300 billion ($432 billion), “is a joke”.
Littrell is scathing in his criticism of Australia’s AML enforcer, AUSTRAC. He says that if the media reports are accurate, it was missing in action throughout the Crown Casino and Star money laundering debacle, which included bags of cash passing around and the use of credit card expenses to wash illicit gambling funds from China.
Also, he says that the AUSTRAC action against Westpac in 2020 for millions of breaches of AML laws was “the most chickenshit global AML enforcement I have seen anywhere” (See: https://zucoins.com/westpac-banking-corporation-wbc/).
The breaches by Commonwealth Bank two years earlier only reinforced the view that the AML regime was designed to only financially penalise shareholders without sending any deterrent messages to bank executives and officers (See: https://zucoins.com/commonwealth-bank-of-australia-cba/).
“It’s just an astounding policy failure,” he says in his first interview since returning to Australia. After a five-year stint as Inspector of Banks and Trusts for the Central Bank of the Bahamas.
“The AML system we have is a child of the American war on drugs, which has been an utter failure except in one respect – it’s been a huge success as a war on black families. It exceptionally kicked the shit out of them.
His analysis shows that the Financial Action Task Force (FATF), which was established by the seven richest countries in 1989 to rein in AML, has assessment processes that display bias in favour of the United States, Australia, Canada and New Zealand.
Drowning in hypocrisy
“America and the UK are the world’s two biggest arbiters of which countries are good or bad, but they are also the two biggest collective recipients and probably originators of dirty money,” he says.
“And until they fix that basic problem, the whole system is just going to drown in its own hypocrisy.”
This analysis fits with the findings of the Tax Justice Network’s annual publication of the 10 countries most complicit in helping individuals to hide their wealth from the rule of law. The list is headed by the US.
To gain a more profound understanding of how the US facilitates money laundering, read the piece in The Guardian in November 2019 by British journalist Oliver Bullough on why the US state of South Dakota is the preferred tax haven for the super-rich.
The FATF policy paradigm rests on two foundations: a know your customer requirement that forces people to fill in proof of identity forms; and the monitoring of billions of transactions run through financial institutions.
“One problem with the international AML framework is billions of honest people are inconvenienced or shut out of the system who are honest,” says Littrell.
The best estimates say that over 99 per cent of the world’s cross-border, illicit funds is all happily proceeding along.
“So, we’re in a system where if you have a child who wants to go to Oxford University, that child will have more trouble opening a £5000 bank account with a British bank than a Russian kleptocrat would have putting £5 billion in the same British bank. What’s wrong with that picture?”
Littrell, who has been retained as consultant to the Bahamas Central Bank to run its annual AML conference for the next two years, was shocked at the outcome of the inquiries into large-scale money laundering through casinos at Crown Resorts and The Star.
“But in Australian gaming, a casino licence means I only have to say, I’m sorry. I don’t actually have to do anything, or lose anything. And the state regulators will say to a casino owner: ‘Oh, you’ve been bad, you can have a licence, but please sell your business for $5 billion to the next guy’.”
He reckons there is a lot of merit in the findings of a controversial paper published in 2020 by Ronald Pol, who is a senior researcher at La Trobe University.
Pol argued that AML policy intervention has less than 0.1 per cent impact on criminal finances, compliance costs exceed recovered criminal funds more than 100 times over, and banks, taxpayers and ordinary citizens are penalised more than criminal enterprises.
Littrell says that although many disagree with some of the calculations and analysis in Pol’s paper, there is a strong consensus that there is a yawning gap between criminal funds generated annually and the AML success rate.
Lack of questioning of the regulatory paradigm is a function of the incentives in the AML ecosystem for hundreds of thousands of businesses and professionals, according to Pol’s paper.
“Banks must also avoid or mitigate regulatory sanction, which means implementing AML programs and complying with laws dictated by standards framed in the global policy prescription,” Pol’s paper says.
“In a compliance-oriented intervention model, if such laws achieve their policy objective, or not, is immaterial. Banks and other firms must comply, or risk ruinous reputational damage and financial penalties.”
Littrell says reform of AML regulation requires four basic things:
- A switch in focus from monitoring transactions to finding out where the money is landing.
- Removing the use of currency notes for illicit purposes.
- Forcing the disclosure of beneficial interests behind trust corporations, foundations and shell companies.
- Making a clear distinction between financial crime and terrorism financing.