In this interview we talk to Rachel Woolley (pictured), Fenergo's anti-money-laundering expert, who contrasts the speed of the European Union's legislative schedule with the slowness of its implementation. She also looks at the long-standing Irish 'alias problem' and lambasts the authorities for not bothering to support their suspicious activity reporting regimes properly.

This article takes the form of a question-and-answer session. In it, Rachel Woolley touches on the tribulations of onboarding HNW customers at private banks.

Q: What is your position at Fenergo?

A: I manage the AML side of our regulatory team. I make sure that our software is ready to comply with the EU's fifth Money-Laundering Directive and in doing so I take advantage of the experience of our community of customers.

Q: What developments in the field of money laundering are of the most urgent concern to you?

A: We have experienced an onslaught of changes from the EU on this topic in recent years. MLD5 (the EU's fifth Money Laundering Directive) is a hot topic. There are still some gaps in MLD4, with some EU countries having been referred to the European Court for not plugging them in time. In Ireland, they have just published guidelines for MLD4 - 2 years past the transposition deadline in June 2017.

The public beneficial ownership registers that the European Union wants all member-states to set up are a hot topic among our clients. MLD5 is not being implemented fully because plenty of EU countries have failed to produce their registers on time. The Dutch Government has blatantly said that it is going to wait for the MLD5 compliance deadline before opening its own register, which ought not to be an option because it should have done it already. We have the 6th directive coming up next year and they're still implementing the fourth!

On MLD5, one of people's main concerns is to do with discrepancy reporting - this is a definite requirement of the directive and can be found in the text. The way this works is that every private bank should submit new information to the authorities when it sees a conflict between the information that it has collected on a customer during the onboarding process and what's on the register.

When you think about it, clients are going to be opening multiple accounts at multiple institutions and the big question here is which institution holds the most accurate records. I know that every client is supposed to give the same information about himself to every institution with equal accuracy, but this is often not the case.

On top of this, member-states are required to transpose the requirements of the directive into their laws. The things that one state imposes on its financial institutions differ from those things required by another. In Ireland, they are looking for relatively standard information - names, addresses, dates of birth, unique identifying numbers, national numbers. This is not exactly the case elsewhere.

Q: What about the old Irish alias problem? I believe that the Irish constitution allows everybody to be known by an English-sounding name (e.g. Patrick Pierce) and also by a Celtic-sounding name (e.g. Padraig Pearse) and that this has long led to confusion and allowed people to switch between names to avoid detection.

A: They haven't called out the alias problem in the directive. I do know the rule that you mean - recently, when a lot of students were allowed to go to Australia for a year but had to come back when their time was up, they switched to their other names and went back for another year. The Irish Government dealt with this problem fairly swiftly, but it did happen. I would hope that the average bank can turn to screening providers who can pick that up. You'd like to think that information of this kind is connected to some government register.

Q: In any case, different European governments are looking for different things. Do you have some examples?

A: Yes. Luxembourg is looking for local identifying numbers. Meanwhile, Sweden is looking for a connected person - if you are acting in association with somebody else, the Government wants you to obtain really heavy amounts of information on that other individual. It's the same in Belgium.

On the private banking side, you have a lot of family trusts and in MLD5 the trustees, grantors, settlors, donors etc are specifically defined as the beneficial owners. These people include the controllers - i.e. the trustees. The directive orders every EU country to set up a register of corporate beneficial owners by 10 January 2020 and one for trusts and similar legal arrangements by 10 March 2020. Beneficial owners include the people who have funded those companies and trusts. The EU Commission is obliged (by 10 March 2021) to unite all registers. At the moment, member-states have different data points/fields to fill in. When the time comes, Fenergo will be right there with software to make all the information comparable.

Throughout the world, governments and the regulators they employ are moving towards a more principles-based approach and away from checklists. They are becoming more dynamic in terms of the information that they require banks to extract from their clients. In the Irish register, they have 8 fields that have to be filled up with various bits of information. This is far more than the minimum number of identifiers for every institution that is onboarding HNW individuals, which according to the Joint Money Laundering Steering Group in the UK is three – name, date of birth and residential address.

Q: Back to discrepancy reports. Will they work?

A: Discrepancy reports will be compulsory. Guidance has yet to emerge from anywhere in the EU about whether an onboarding bank that has collected some information about a HNW client that differs from the information on the register should correct the register, or about how it should correct it. I'm surprised that we haven't seen anything from the UK. We expect the UK to be first out of the gate in this regard. Transparency International wrote a bit of guidance themselves on this, citing the Panama Papers and other things as the reason for such a rule. In April HM Treasury published a consultative document called Transposition of the Fifth Money Laundering Directive; TI's response to it was to ask for more guidance.

The discrepancy report regime might turn out to be similar to the suspicious activity reporting (SAR) regime, with countries always being rightly criticised for not hiring enough personnel to read the reports that the banks send in. With the discrepancy reports, obviously there won't be enough people to correct things.

Q: Do most SARs get read?

A: I don't think so. Look at the stats – the percentage of people being convicted of money laundering is not even worth mentioning. On top of this, many regimes are a little chaotic. There is dual reporting in Ireland – financial institutions have to send in their reports both to the revenue and to the police. You would think that these reports would be identical but no, the numbers don't match! This means that the reports are not the same and nobody is dealing with it.

Q: And regulatory fines? Are they destined to go up and up?

A: Well, Fenergo published its AML analysis last year and revised it this year. We have seen between US$3 billion and $4 billion in fines this year. They have often been for bad reporting, or breach of policy. Lately we have seen fines being levied for insufficient training. Rather depressingly, very few penalties are for actual financial crime taking place. The fines are still often inadequate as well. One globally active institution was fined last year to the tune of only 8 days' profit. These fines are not hurting anybody.

Q: What other trends are on your radar?

A: We are seeing greater accountability in various regulatory regimes. Also, we follow updates from the Financial Action Task Force – 2 weeks ago it pronounced on people trafficking. There's a difference between human trafficking and people trafficking. With the former, the traffickers move people who are not in immediate danger and who are not wealthy but do have money. The gang charges in relation to the perceived wealth of the family, the complexity of the route, the number of borders to be crossed etc. With the latter, the traffickers prey on the desperate and often turn their customers into ransomed, kidnapped slaves.

* Rachel Woolley can be reached on +353 1 901 3786 or at Rachel.Woolley@fenergo.com