The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

THE Central Bank’s former chief enforcer says the US and UK are the biggest recipients of “dirty money” and suggests racial bias against countries like The Bahamas in anti-money laundering (AML) programmes.

Charles Littrell, the former banks and trust companies inspector, said in an interview with Financial Review that: “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. It’s just an astounding policy failure,”

He continued, “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 (expletive) out of them.”

Governments of developing nation states like The Bahamas have been vocal about the apparent racial overtones of the Financial Action Task Force (FATF), the Organisation of Economic Cooperation and Development (OECD) in addition to the European Union (EU) and their carefree approach to attacking small, non-European jurisdictions but fail to examine countries like Luxembourg and Liechtenstein and now even failing to examine themselves like the US and UK.

A paper Mr Littrell published on the enforcement of AML last year in The Bahamas had a section dedicated to biases in national AML risk assessments, which concluded that dirty money in aggregate is much more of a problem in white majority countries and for major financial institutions in those countries, than in non-white countries.

His analysis showed 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 a bias in favour of the US, Australia, Canada and New Zealand.

The technical compliance assessment by FATF is not demonstrably biased against black majority jurisdictions, but the FATF effectiveness ratings are largely a function of whether or not the country in question is black majority and/or a small island state.

He also said: “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 and until they fix that basic problem, the whole system is just going to drown in its own hypocrisy.”

Mr Littrell also said: “One problem with the international AML framework is billions of honest people are inconvenienced or shut out of the system who are honest.

“There’s zero evidence that crime is reduced as a result of all this AML. The best estimates say that over 99 percent 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?”

Mr Littrell, has been retained as consultant to the Bahamas Central Bank to run its annual AML conference for the next two years. “In our world, if someone commits fraud, they’re probably going to go to prison, and if a company is said to be rotten, that company is going to be closed or merged and the shareholders are going to get hammered,” he noted.

He also believes 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.

Mr Littrell also said 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 programmes and complying with laws dictated by standards framed in the global policy prescription,” Pol’s paper says.

Mr Littrell also said: “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.”

He also notes that reform of AML regulation requires four 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; and making a clear distinction between financial crime and terrorism financing.

“When the money stops, someone buys a luxury mansion, someone invests in a trust, someone buys a suitcase full of $100 notes, or whatever – it’s just sitting there, and you can find it,” he added.

He continued, “Redirect your effort to focus on illicit assets starting with currency notes – 80 per cent of the value of US currency is in $100 notes. If you go to America, you never see them. But they turn out close to $150bn a year of $100 notes, it’s their most lucrative export.

“If America and Europe and Canada and Australia and all these places withdrew their large denomination notes from circulation, let’s call it $2tr or $3tr worth of assets, of which probably more than half is illicit.

“Let’s not talk about financial crime as one big thing – it is not true. Terrorist spending is very different from drug dealer spending.

“Drug dealers commit a crime and then try to invest the money in legal things. Terrorists take legal money, typically, and try to spend it on illegal things, and in very different amounts and patterns of distribution.

“But they’re all lumped together in the same financial crime basket. They are not at all the same thing.”