Who indeed wants to be an MLRO (& / or Directors, Partners, Senior Managers, and MLCO)?

Who indeed wants to be an MLRO (& / or Directors, Partners, Senior Managers, and MLCO)? In Guernsey, a breach of Schedule three of the Proceeds of Crime Law is a criminal offence for which the penalty is an unlimited fine and up to five years in prison. Breach of the Rules in the new Handbook can result in regulatory action including the imposition of conditions on a firm’s licence to do business, the revocation of a firm’s licence, public statements and financial penalties. Failings can also lead to action being taken against key individuals of a firm such as Directors, Partners, Senior Managers, the MLRO and the MLCO. In addition to being fined and referenced in a public statement, individuals can be prohibited by the Guernsey Financial Services Commission from working in regulated firms within the sector.

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The changing face of financial crime: Who wants to be a MLRO?

It is 56 years since Bob Dylan released his anthemic song "The Times They Are a-Changin'", but it still proves relevant in many areas of life, including financial crime.

If you were to ask the average person 10 or 20 years ago what financial crime meant, the answer would most likely have been fraud, embezzlement or insider trading, invoking images of payroll clerks driving Lamborghinis, CEOs disappearing overnight to South America and (of course) Gordon Gekko-esque investors.

Not so these days.

With the globally coordinated focus on bribery and corruption, money laundering and terrorist financing, assisted by advances in technology and information sharing on an international scale, financial crime today is increasingly characterised by investigations in that space.  This is not only in relation to criminal offences, but also by increased regulation and its enforcement.  My firm has seen a notable rise in instructions over the last two to three months from clients who have received investigation/enforcement notices from the Guernsey Financial Services Commission (GFSC).

In recent years, Guernsey has seen a number of individuals criminally prosecuted for money laundering offences, all of which ended in a conviction except the last one.

It involved the Money Laundering Reporting Officer (MLRO) of a well-known Guernsey financial institution, who was successfully defended by my firm's Mark Dunster, and is the prosecution that still sends a chill down every Guernsey MLRO's spine.

This was not a nefarious person who had sought to launder money for his own financial benefit or that of others - no, here was a MLRO held in high-regard by the compliance community who faced criminal charges for allegedly failing to report a transaction in the course of his employment as a MLRO.

Fortunately, for both the MLRO involved and the Guernsey compliance community as a whole, the authorities finally came to their senses and dropped the charges. 

Not much could be heard over the applause in the Royal Court that day, other than perhaps the collective sigh of relief from every MLRO on the Island.

However, that prosecution left a bitter taste in the compliance community's mouth and a general sense of unease remains today.

Not long after, I recall speaking to a local acquaintance who had a promising future in compliance but was leaving the industry altogether.  When I asked him why, his answer was simply

• "I don't want to go to jail" - to be fair, I couldn't argue with his logic.

If industry talk is anything to go by, my acquaintance is not alone in seeking a career change.  It may be that the GFSC is also concerned, as it has just announced an unprecedented initiative of requiring exit interviews for MLROs and MLCOs leaving banks and fiduciary firms.

Once upon a time in Guernsey, being a compliance officer was a fairly relaxed job.

He or she was often a retired police officer who worked on a part-time basis, or it was a job given to a bank employee who had spare time. Alternatively, and especially with smaller outfits, one of the company directors would simply take on the title.

This is most certainly no longer the norm.

The threat of prosecution is the Sword of Damocles over every MLRO's head, and the increased regulation and criminal investigation in relation to anti-money laundering is a heavy burden to shoulder. Compliance roles today are generally dedicated (ie not shared with other jobs, except perhaps the MLRO may also be the MLCO - a new creation), and the MLRO will not usually sit on the Board of Directors.

The MLRO can be a precarious and unenviable position.

On the one hand, the MLRO is generally an employee - employed by a business whose primary goal is to make money and bring in new clients. 

On the other, the MLRO is in the firing line personally under the terms of the anti-money laundering legislation. This can cause friction with the directors of the business who may view the MLRO as sometimes obstructionist and uncommercial. If the MLRO is experienced and robust, they are better equipped to push back.  If not, an inexperienced MLRO may be pressured into a decision that should not be made.

If an employee on a fixed salary, a MLRO may also feel that he or she is bearing the full brunt of the responsibility, for the financial reward of others (in particular, the directors and/or owners of the business).

There are some protections that MLROs can put into place for themselves, and my firm advises regularly in that regard. However, these cannot alleviate entirely the stresses and exposure faced by the MLRO.

Ultimately, it begs the question - has the risk versus the reward of taking on the MLRO role now become unacceptable?

 An original version of this article was published by the Guernsey Press, January 2020 https://www.careyolsen.com/articles/changing-face-financial-crime-who-wants-be-mlro