In this interview, Ross Delston, renowned legal expert with over 40 years’ experience in banking and over 20 years in anti-money laundering and counter-terrorist financing (AML/CFT) speaks to the Global South Dialogue on Economic Crime (GSDEC) about addressing financial crime in a pandemic, with a special focus on trade-based money laundering.
- GSDEC: What is money laundering and what are the typical laundering avenues?
Ross Delston: Money laundering is at its simplest taking the profit of crime and moving it around to disguise its origins. The international standard-setter recognizes three main avenues: The first is moving money into the traditional financial system such as banks, securities firms, insurance companies as well as money transmitters (including cryptocurrency), and non-financial businesses and professions including, yes, the legal profession. The second is physically taking cash across borders, sometimes called cash couriers or bulk cash transport, in suitcases, packing cases, and freight containers. And the third is the least well known, trade-based money laundering or TBML, which is a particular interest of mine. TBML is the use of international trade to move money through the under-or over-pricing of goods and services. It can also include false invoicing where no goods or services are exported, just a piece of paper justifying a transfer of funds through a bank or by other means (such as money transmitters, cryptocurrency exchanges, bearer instruments).
- GSDEC: In light of the typical avenues for laundering, what key laundering trends have been noticed with the pandemic?
Ross Delston: The three avenues are generally in fine form except that the upward spiral of predicate crime, particularly face-to-face dealings in narcotics, tobacco and human trafficking might be a bit flattened by continued quarantining. On the other hand, non-face-to-face predicate crimes are generating all manner of proceeds that need to be laundered. These are crimes like fraud, corruption, and internal abuse (e.g. embezzling). The two biggest money laundering trends during the pandemic that seems to be ongoing are pandemic fraud, particularly supply chain fraud involving personal protective equipment (PPEs), and TBML, which can flourish given the price gyrations of all manner of things, including PPEs, foodstuffs, and commodities like crude oil. Also, cryptocurrency remains an attractive investment for some, with all of the possibilities for fraud, price manipulation, and thievery present in any speculative boom. Finally, economic crises always bring Ponzi schemes to light, and that’s because investor illiquidity causes demand for redemption of their investment with the scheme. And when there are too many demands for payment with too few new investors, the scheme collapses (e.g. Madoff and Stanford, both Americans by the way, as was the original Ponzi).
- GSDEC: To what extent has the pandemic affected trade-based money laundering across global south countries?
Ross Delston: TBML, as the least regulated, least detected and detectable, and least addressed, will continue to be the avenue of choice for many. For example, in the global south, there are reports of tobacco smuggling in sub-Saharan Africa and commodity mispricing in the Middle East which suggest that a combination of fraud, tax evasion, corruption and money laundering continue to be popular in many places. And did I mention published reports of PPE mispricing in El Salvador, which came to the fore thanks to investigative reporting by El Faro newspaper in San Salvador. So the pandemic opens up new opportunities, particularly when price gyrations meet scarcity caused by panic buying. The good news? Financial regulators are beginning to catch on and catch up and are starting to catch criminals as well.
- GSDEC: In your paper “Strengthening Our Security: A New International Standard on Trade-Based Money Laundering Is Needed Now” (Delston, Walls 2012), you argue for the FATF’s introduction of a 41st Recommendation on TBML. Should the FATF adopt this recommendation, how would global south countries be affected, particularly in light of arguments on legitimacy and capacity deficit?
Ross Delston: This is an excellent question but at its core it applies to all 40 of the FATF Recommendations. Why do I say this? Developing and implementing an effective and robust AML/CFT framework called for by the Recommendations is a big ask, particularly for countries still struggling with meeting basic human needs. On the other hand, fighting crime, corruption and terrorism, or at least mitigating their pernicious effects, is a worthy goal for even the poorest countries. Perhaps a middle ground would be to focus on effective regulation and supervision of traditional financial players, such as banks and money transmitters, and then move outward from there. My proposal for a 41st Recommendation that would require all those in the supply chain (e.g. importers, exporters, shippers) to implement and AML/CFT program is an even bigger ask than that of the original 40 Recommendations since it would bring a whole new universe of businesses into the regulated space. But it would also raise funds for every country since it would catch customs and excise tax evaders as a secondary gain. That alone might pay for the costs of implementing such a far-reaching program and therefore offset the burdens imposed on poorer countries.
- GSDEC: What regulatory strategies do you consider suitable in addressing the financial crime risks associated with the pandemic?
Ross Delston: The old strategies are best: Pay attention: If you’re not looking, you won’t find anything. So keep looking. And as my daughter who teaches philosophy at the University of Missouri, St. Louis says, quoting the motto of her department, “We have questions for all of your answers.”
- GSDEC: What practical solutions would you proffer to safeguard banks and businesses this period?
Ross Delston: Pay extra attention, also known as enhanced due diligence (EDD) and monitoring, of any business or transaction involving PPEs or any pharmaceutical or medical device, as well as vaccine or test. A higher percentage of these types of customers, businesses (including counterparties) and transactions will be fraudulent, and anything medical in the pandemic should be handled with care, great care, and treated as ultra-high risk. If you plan to finance, pay, purchase or offer any of these items, be forewarned, the waters are turbulent and the sharks hyperactive – and that doesn’t even count the lawyers, solicitors and barristers (lol).
- GSDEC: Is artificial intelligence the way forward in combatting money laundering, especially TBML?
Ross Delston: Someday, but I’m old, and it may not be in my lifetime. I’ve been hearing about AI and machine learning for years now. If machines every truly learned, watch out! (Full disclosure: I’m a big fan of the first two Terminator movies – who says Arnold can’t act? He can play a robot better than anyone alive (LOL))
Ross Delston in an American lawyer who has been a testifying or consulting expert on Anti-Money Laundering (AML) in 15 civil cases, most involving fraud. He has consulted for the IMF and the World Bank on AML/CFT and banking, positions which entailed reviewing and drafting laws and regulations across numerous global south countries. He has also worked on the monitorships of two multinational financial institutions, AIG and BNP Paribas.