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
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
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
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
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
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.