AML and The Securities Industry
The securities industry is in for a very rude and expensive awaking. The securities markets, commodities markets, and hedge funds are being used to launder money.
No, they are not seeing little blue people running up and depositing less than $3,000 in each account. That has already been done, the money is in the system. The securities industry is not dealing with Placement, but rather Layering and Integration.
A hedge fund in California raised 35 million in March, from 35 investors and made 35 investments. By November the fund is bust – all the money is lost, yet there is no litigation.
One account at a broker dealer seems to loose each and every trade it makes, another seems to profit on each and every trade it makes, yet no one is looking.
In the first example what you have is a fund manager who has convinced 35 investors to buy a unit each and that he will make an investment for them with 92% of the proceeds, he keeps 8% for his efforts. This investment produces a 1 million dollars loss in the US and allows each investor to get some of their money to another project or country with no one any the wiser. It looks like a payment from one account to another account minus the 8% vig. It could be a bribe or a payment for illicit goods or services.
The securities industry is only mildly better off than the banking industry 8 years ago. The regulators are just getting to understand how the securities market can be used and how it is being used. Several firms have been warned, especially on account intake matters. Most of the warnings take the form of – gee you have an AML manual and you are not following your own procedures. The next step will be in account usage and the failure of the broker dealers and supervisors to know or understand how their most noble business is being used to funnel funds from and for illicit activities.
I am particularly concerned with the use of both the markets and accounts to nearly seamlessly facilitate the payment of bribes and the movement of fund from drugs, corruption and frauds. As long as these crimes remain profitable they will persist. The role of AML is to keep the criminal and the corrupt out of the market – period.
The first fine for failure to monitor, not just failure to follow you policy manual, will be small in comparison to the civil litigation that will follow for the firm’s misfeasance and malfeasance and how it had impacted shareholders and companies it had worked with.
The securities markets are an excellent place to layer money while laundering money. The criminal and corrupt are well aware of this.