Corporate Life Sentences

The news that after two convictions by different courts the State Bank of India in Antwerp has been cleared of all its money laundering charges is certainly a cause for a sigh of relief. It isn’t that no money laundering had taken place—the facts speak for themselves – but it had more to do with the responsibility and liability of eight employees at the bank.

Courts had different interpretations on whether employees were aware or not aware that laundering had taken place. Without knowing any of the employees in person, I think it is a fair bet to say that it is not unlikely that they were ignorant and unaware of the depths of the problems.

We are talking about a case which came to light in the summer of 1997. Diamond firms had asked for loans and as collateral an amount of money was deposited at one of the Bank’s overseas branches. It was claimed that the bank itself did not have enough funds to make the loans and actually ‘borrowed’ from the collateral deposited overseas. The Bank officials had claimed all along that they had been unaware that they were violating Belgian laws. One can argue whether they should have known, could have known or even didn’t want to know, or didn’t try to know, but today that is all of little relevance.

What is relevant is that all of this happened eight years ago. Four years ago, the world faced the 9/11 atrocity which led to a worldwide revision of money laundering typologies and new laws against both money laundering and the financing of terrorism. All these laws require the imposition of compliance programs, and an integral component of these programs is the education and training of staff. As we all know, this training is not just limited to staff members of banks but is also applicable today to diamond traders in Belgium and the United States, and, very soon, also in Israel.

The questions banks and diamond companies must now be asking themselves is how can management be sure that their staff is competent in recognizing and identifying money laundering issues. Banks and diamond companies must have written anti-money laundering policies. The staff training must be relevant not only to those being trained but the training messages should reflect the best industry practices. For all practical purposes, each company will have its own interpretation and guidelines and will have to develop its own risk based policies and procedures. What we have learned is that ‘a one size fits all’ style of staff training will not generally be sufficient.

From the feedback I have received from talking and writing so much about these subjects, one must be careful in staff training not to talk too much about criminal law and the consequences of breaking it as this will simply scare the employees and it will lead to indecision and inactivity. How do you train a person to recognize what may well constitute a ‘suspicious activity’ without the staff member being scared of the consequences of reporting it to managers and even higher up? And that gets back to management. How does management assess the level of their staff member’s know-how on both anti-money laundering issues and the firm’s relevant policies and procedures? Will firms have to initiate periodic testing of the level of knowledge?

In some diamond centers, including Antwerp, some organizations have filed Suspicious Activity Reports on clients, and we all know the results… Some companies saw their bank accounts frozen, while others found themselves on all kinds of blacklists. If you are bored on a sunny afternoon, look up the various blacklists of so-called ‘blocked persons’ on the websites of the U.S. Department of the Treasury. There are tens of thousands of names there, and every day new names are added. There is only one problem. Once your name appears on a list, you will actually never get off the list – it is a life sentence. An American lawyer remarked to me that “if you have been involved in money laundering, drug trafficking or whatever, it is always assumed that all your activities are tainted for the rest of your life.”

Closer to home, in Antwerp, a few months ago I talked to a person who is currently being blacklisted and wondered together with him what ought to be done for him to restore his reputation and again become a company in good standing both in the business community and in the financial world. After a few weeks of careful checking, the answer is “there is actually nothing that can be done. It is almost a life sentence.” This gets me back to the acquittal of the officers at the State Bank of India. Banks and diamond companies heavily depend on the professional knowledge of their personnel in money laundering issues. I wonder if there is any reader of this column who can put his hand on his heart and say “in my company this will never happen. We will always recognize what a suspicious activity is and we will always be able to steer away from such transactions.” Nobody can say that, because what may look okay today will be considered not OK tomorrow.

In the United States, many banks and others who are obliged to report suspicious transactions have solved the problem through ‘defensive reporting’. They will report anything that looks slightly odd only to cover themselves legally. The bureaucracy of the Financial Intelligence Units find themselves overburdened with having to check millions of such reports – and they cannot handle the workload and don’t possess the tools to do so effectively. Defensive reporting is not the answer. Scaring employees is not the answer. Testing sales ladies and other account executives periodically as to their awareness of money laundering ‘characteristics’ or ‘indicators’ is something the law is now expecting from most of us.

Thank god that there are still courts and judges that realize that employees deserve maximum benefits of the doubt. Being convicted of money laundering may destroy a reputation for a lifetime – even if the actual sentence is only a fine or less. In the current transitional period where both banks and diamond companies are in an almost impossible learning process the authorities should be very, very careful before accusing any employee of criminal behavior.

Have a nice weekend.