Understanding Suspicion in Financial Crime

The Essential Guide to suspicion in financial crime: Understanding Suspicion in Financial Crime

Every Financial Crime Risk Officer (FCRO) dreads being asked one, simple, question. It's the same question every time: "How do I know if I'm suspicious?"

It's a simple question without a simple answer. Until now.

In "Understanding Suspicion in Financial Crime" Nigel Morris-Cotterill, a former litigation lawyer who has been a counter-money laundering strategist for more than twenty years, analyses legal and regulatory regimes, psychology, social sciences, even metaphysics and pop culture.

He draws on a huge range of material from academic studies to regulatory and legal findings, from movies to his own ability to identity and manage far-off risks. He identifies characteristics that encourage or discourage the recognition of suspicion and the filing of SAR / STR s.

The book is non-linear, in "phases" rather than chapters, as multiple approaches are examined in parallel rather than in sequence. There are surprisingly few overlaps until the moment when a decision as to suspicion has to be made. This, Morris-Cotterill, says is at the heart of why the question is so hard to answer. Simply, there are far too many and far too diverse starting points - and law and regulation are, more often than not, not among them.

The book is a serious book covering a serious subject but it is written in a simple way. Many readers will have English as a second or third language. And many do not want and do not have the time to dredge through academic terms and management-speak. "Understanding Suspicion in Financial Crime" is a jargon-free zone. Morris-Cotterill hunts for that elusive answer, the one simple, single sentence that all staff can understand, the sentence that will give the beleaguered FCRO peace of mind, that will mean they do not stand, eyes wide open like a deer in the headlights, hoping for inspiration.

The answer to the question is as unexpected as it is simple, and easy to understand by staff at all levels.

Equally importantly, the book answers the hard questions asked by investigators, prosecutors, judges and regulators: what is suspicion, how is it formed, when it is acted upon (or not formed or not acted upon). Across the world, cases report Judges lamenting the lack of guidance on these matters, and the lack of an effective definition of suspicion.

Now, at last, there is one, drawing on cases and legislation from many jurisdictions, using non-legal sources to provide both context and explanation.

FULL CONTENTS

Introduction 3
About the Author 4
Dedication 5
CAVEAT / DISCLAIMER 6
About Phases 6
Notice regarding source material. 11
Notes 12
Terminology 16
Preparation 18
Basics 1
What is money laundering? 2
Literal v lateral thought. 8
Phase One : Managing expectations 19
Phase Two : Rationality or feeling - an introduction 33
Phase Three : The role of facts in defining suspicion - or - the MLRO as "judge" 43
Case study 59
Case study 59
Phase Four : What is a fact? 63
Facts and Evidence in Court 64
Evidence and Fact outside Court 68
Fraud, recklessness & negligence 89
Facts change depending on the circumstances. 97
Do we all know the same facts? 100
Phase Five : The relationship between facts and suspicion 103
Are facts conclusive or indicative? 104
Editorialising and "fact." 105
Means, Motive, Opportunity - just dots in a picture. 113
Predictive policing. 118
The absence of facts is a fact in itself. 121
Pattern Recognition 122
Phase Six : What is suspicion? 129
Case Study 137
Case Study 139
Phase Seven : How do regulators define suspicion? 147
Phase Eight : How do we decide if we are suspicious? 161
We know what we know but how much do we know? 186
The strange case of Holly Williams 196
More on Holly Williams and the consequences 201
Phase Nine: Are we there, yet? 205
When is a transaction money laundering and when is it part of the criminal conduct? 210
Defensive and discretionary reports. 218
At what stage should I report suspicions? 223
Note re systems in non-reporting institutions 225
Phase Ten: Trust=Truth=Fact? Is suspicion the opposite of trust? 227
CASE STUDY 233
CASE STUDY 236
CASE STUDY 244
Phase Eleven: Challenges in a multi-cultural society. 247
Phase Twelve: Due Diligence: the human perspective 267
CASE STUDY 283
Identifying suspicion: corporate crime 291
The changing nature of relationships between bankers and clients 304
Phase Thirteen: cause for reasonable suspicion v reasonable cause for suspicion 309
Phase Fourteen : nature v nurture. 313
Phase Fifteen: Call centres and other remote operations 327
CASE STUDY 339
CASE STUDY 352
Point of Interest 356
Phase Sixteen Money Laundering Risk Officers and the need for full information. 361
MLROs must have full information: bank secrecy 362
The end of the global financial institution? 374
Internal information flows 375
Phase Seventeen : building a simple money laundering risk matrix 379
A risk matrix is an algorithm 386
Can we trust our own judgement? 387
Building a simple risk matrix 390
Formulating a risk policy: Country Risk 394
Phase Eighteen: Where does "belief" become "fact" and where does it become delusion? 403
Phase Nineteen: Can compliance be measured? 411
CASE STUDY 417
CASE STUDY 418
CASE STUDY 428
Phase Twenty : the role of language in relation to suspicion 435
Phase Twenty-one: The danger of autocracies. 459
Phase Twenty-one - Annex: Cross Border Manipulation of Equity Markets 475
Accounting standards 483
Audit 486
Valuation of companies 487
The marketing of shares to offshore persons. 490
The marketing of shares by offshore persons (boiler rooms) 494
Due diligence issues of alternative / private investment vehicles. 498
What does it tell you? 503
Phase Twenty-two: of trees, forests, sound, a cat in a box and black holes. 505
Phase Twenty-three: What is money? 515
Phase Twenty-four: Politically Exposed Persons (PEPs) 541
What is a Politically Exposed Person? 542
CASE STUDY 551
CASE STUDY 553
CASE STUDY 556
Diplomatic Immunity 581
Genesis 581
What is a diplomat? 582
Who can be a diplomat? 582
Abuse 592
US Law: Foreign Sovereign Immunities Act 595
The Diplomatic Relations Act of 1978 596
Vienna Convention on Diplomatic Immunity 1961 596
Government Linked Companies (GLC) / State Owned Enterprises (SOE). 598
CASE STUDY: 599
PEPs & Terrorism. 604
PEPs and Sanctions 604
Extra Territorial effect of anti-bribery laws 605
USA: Foreign Corrupt Practices Act 605
CASE STUDY 605
UK: Bribery Act 2010. 606
Tests under the UK Bribery Act: 607
Corporate Social Responsibility 610
Conclusions 612
Exercises. 618
Postscript: What is the biggest lesson in this book? 620

Note: This work was previously available under the following title:

How does that make you feel?
Understanding suspicion in money laundering and terrorist financing

It was relaunched under the title "Understanding Suspicion in Financial Crime" with correction of typos, etc. and no material content changes, with a publication date the same as the original so as to avoid confusion as to the effective date of the work.