EY aided the laundering of drug money | Bambos Tsiattalou

Partner Bambos Tsiattalou discusses the EY money laundering case, offering some insight on the exposé, its implications and challenges in the legal sector as a whole.

Bambos’ article was published in Lawyer Monthly, 5 November 2019, and can be found here. 

An explosive BBC Panorama exposé 1 suggests that EY aided the laundering of drug money through its Dubai office. A former EY auditor turned whistleblower said his bosses would not inform 2 the authorities of extraordinarily suspicious activity. This was despite an litany of suspect activity involving Kaloti gold refineryin Dubai. As Kaloti’s auditor, EY noted the company had paid out some £4bn in cash 3 in 2012 alone, but failed to raise concerns.

A lawyer and head of compliance at Deutche Bank in Dubai, Anna Waterhouse, also raised concerns 4 about Kaloti’s extraordinary levels of cash withdrawals, noting that the company had literally used wheelbarrows to withdraw cash.

Such reports raise serious questions about what can happen when major banks and professional service firms become embedded in jurisdictions where corruption is more common. Yet, while we might not often see people taking wheelbarrows full of cash out of UK banks, we should not be complacent about money laundering in the UK, or Europe more widely.

For example, ABN Amro NV is currently subject to a Dutch criminal probe 5 into its alleged money laundering failures. The bank is far from alone in having questions raised as regards its compliance with anti-money laundering and terror financing rules. In recent years, similar questions have been raised as regards Danske 6, Nordea 7 , ING 8 and several other European banks.

However, it may be that the legal sector’s money laundering failings are also significant. Last March, the UK’s National Crime Agency director Donald Toon told 9 MPs that 83% of suspicious activity reports came from banks, noting 10 pointedly that, “usually lawyers and accountants” are involved but ’it’s unusual for us to get a report from them.”

For lawyers, the question of whether to make a suspicious activity report can be affected by considerations of legal privilege. However, a major SRA review of 400 law firms has now found 11 that 21% of firms failed to comply with the money laundering rules. The SRA also criticised 12 law firms for using template forms that did not properly address their own specific risks.

Both law and auditing firms need to adopt a more risk-based approach to money laundering. This is a systemic issue and, as such, requires a systemic response. Nowadays, money can easily move across borders, particularly within the EU’s single market. Therefore, any effective regulatory response must be both systemic and transnational.

The European Commission recognised this last July, with a report 13 urging better implementation of the EU’s existing anti-money laundering and terror financing regime. The Commission specifically suggested 14 turning the EU anti-money laundering directive into a regulation, which would then be directly effective across the EU.

As it stands, member states have significant latitude in terms of how they implement the directive. Making it a regulation would mean exactly the same regime applies throughout the EU, and auditing firms will then be more able to address potential money laundering activities universally.

In addition to new laws, there is a need for greater knowledge relating to money laundering in both the financial services and professional services sectors. Above all, banks and their advisors must be willing to act rapidly and robustly once suspicious activity is detected.

The allegations about EY should serve as a wake-up call to the legal profession. The regulatory trend towards an increased focus on money laundering is clear. We have now seen a number of major banks and other entities suffer significant damage both to their share prices and reputations 15 as allegations of money laundering failures emerged. As lawyers, we have a duty to help our clients both better understand, and fully meet, the regulatory standards required of them in terms of money laundering and terror financing.