Rick McDonell: AML Issues and FATF

ACAMS Today had the privilege of interviewing Rick McDonell about his accomplishments, the Financial Action Task Force’s (FATF) mutual evaluations and anti-money laundering (AML) challenges.

McDonell is currently the executive director for ACAMS and a member of the ACAMS advisory board. McDonell has many years of direct experience working with regional bodies, which gives him a unique global perspective on AML and financial crime challenges.

McDonell was the executive secretary of FATF since 2007. Under his leadership, FATF developed a new standardized country assessment methodology and the FATF Global Network ex­panded to nine FATF-styled regional bodies. Prior to this role, he worked for the United Nations Office on Drugs and Crime where he was chief of the U.N. Global Programme on Money Laundering. Previously, McDonell established the Asia-Pacific Group on Money Laundering and became its first executive secretary.

In addition, he is a lawyer by training and has had extensive experience as a federal prosecutor and in conducting complex investigations, including being in charge of many multidisciplinary investigation task forces into organized crime cases both nationally and internationally. He also has had experience in private legal practice and as a university lecturer.

ACAMS Today: From an AML perspective, what do you think the biggest challenges have been this year?

Rick McDonell: From an AML perspective the emphasis has been on FATF to try to ensure that information exchange is up to scratch. What I mean is their expectation is that the information—in accordance with the inter­nationally agreed standards—should be made available quickly and automatically in many instances. This has been a big challenge because it is not just international standards that have been agreed, it is different standards for holding and processing information. So, there is still a long way to go in terms of efficient information flow and that’s exactly what the times require.

AT: What is the biggest misconception the AML community may have regarding FATF?

RM: You may think this is a little odd, but I think that the biggest misconception is that many people outside of the technical people seem to think that FATF is one monolithic body—one large gigantic international body that has all of the rules, makes all of the standards and gives all of the instructions. When in fact that’s not the case at all. It is an organization where decisions are made in accordance and in agreements between sovereign countries, and it is those countries who actually own, run and are responsible for FATF. The reason I am explaining this is because sometimes you have an odd situation where countries are examined on FATF standards and on how they are applying them and what the compliance levels are, and you often hear these countries saying, “Look what FATF is doing to me. They are being too harsh or they are being too this or too that.” That sounds slightly facetious, but it’s an interesting indication that while the level of ownership rests on the members, when it comes to abiding by the standards and being tested on them everyone likes to blame an outside party when in fact it is up to the individual countries themselves to apply the standards in accordance with what is expected of them and what they have agreed to do.

AT: Could you describe the difference between the mutual evaluation process in the past and where we are now?

RM: There is a huge difference between what used to be the evaluation requirements and what they are now. In the past—meaning the third and the previous rounds of evaluations—the concentration was 95 percent on technical compliance. Technical compliance meaning whether there is a money laundering offense, if there is a financial intelligence unit in place and whether there are investigations being conducted. These are concrete questions and objectives based on tools that needed to be put in place as opposed to how those tools are actually being used and whether they are being used to good effect and what effect does that usage have on the overall problem that FATF was set up to counter, which is money laundering, terrorist financing and proliferation financing.

So, the big difference is that since the fourth round of evaluations began last year, the evaluation process, the onsite visits by experts and the ultimate written report, is concentrating now on the aspect of effectiveness. However, that’s not to say that the technical compliance part is being ignored. There is a recheck on whether or not the laws are in place and whether any country has rescinded or amended them. However, that aspect is done by the FATF Secretariat, and it is covered in an annex to the mutual evaluation report. The actual body of the report done by the team of expert assessors is now entirely concentrated on effectiveness. In other words, are investigations being conducted as they should be, what has been the result, what has been the conviction rates, what are the asset seizure or confiscation rates, and how well are the agencies working together and if not, why not? Those are the main elements on determining whether the system as a whole is effective as opposed to individual components of the system because the effectiveness of methodology focuses on the whole system operating as seamlessly as possible.

Thus, you have to have the preventive measures, the regulatory requirements, law enforcement and financial institutions working hand in glove with the government apparatus and show, for example, how international investigations have overcome problems such as information exchange. For instance, how well is information being shared both domestically and internationally between agencies, are there silos still between agencies (if so, why and what’s being done about them?), if not, how effective and valuable and how high quality is the information? For example, in relation to money laundering cases, if you are in the federal system, are the federal authorities and in some cases the state authorities working together to ensure that all information is available?

The basic emphasis is now on the 11 effectiveness outcomes listed in the FATF assessment methodology, which are very easy to read and you will see from those the bedrock of what are the effectiveness requirements. So, from a policy and a practical point of view, the aim of the evaluation process now is to show if the system is working well, if the government and the private sector are getting value for the investment they are making and if not, why not? The report points these things out and there is a rigorous follow-up mechanism.

The essence of the effectiveness aspect of the reports is on whether or not countries have identified the real risks and vulnerabilities they face and if so, what are they doing about those and how effectively are they handling those things? It is a mechanism dependent on what are the threats and vulnerabilities.

AT: Can more be done in the private or the public sectors to work closely together with FATF’s mission?

RM: Enough has not been done in the past. That is improving now, but I think that enough is still not being done. I don’t say that unfairly and I think that FATF members themselves are recognizing that a lot more needs to be done. What do I mean by that? The system is predicated largely on the private sector raising suspicions where they are warranted because as you well know you can’t have and should not have a policeman everywhere looking at everything in terms of financial transactions. Thus, there has always been a reliance from the beginning of FATF on the premise that the private sector is best placed to determine who its customers are and where its vulnerabilities or risks lie. I think that FATF took quite some time to really determine what things other than submitting and filing suspicious transaction reports are expected of the private sector. It was overdue in coming to a closer realization that a partnership doesn’t just mean how you are doing your assigned job under national law of filing suspicious transaction reports, but whether you are doing it well and if you are also assisting where the law allows for it.

The level of defensive filings did reduce over the years, but I have a feeling that it has not reduced as much as it could. There are a number of reasons for this. One of them is the level of working relationships between the components of the government side of AML and the financial side. There needs to be much more outreach than there has been in explaining to the nonbank sector, in particular, what is expected of them and how they can improve their identification of suspicious or unusual transactions. I do think that if that continues along the track that has begun in more recent years, then public-private partnerships should mean much more than how many suspicious activity reports you have filed, but rather what value added has the financial institution or the designated non-financial business or profession been able to give to legitimate investigations.

For example, there is somewhat of an experiment going on in the U.K. over the last 12 months where the government has formed a task force with a number of vetted officers from private commercial banks and has given them a higher level of security clearance. They are able to discuss with them ongoing cases for the benefit of the investigations of those cases. I think that is something that is very well worth trying. The jury is still not out on the full outcome of it, but I personally think that when you have professional compliance officers in the financial institution as we have for many years, we are not making enough use of their skillsets if we solely rely on suspicious transaction reporting rather than on their professional judgements of why transactions of a suspicious nature are occurring.

AT: What are your proudest accomplishments that you were a part of while at FATF?

RM: My history goes back to being a prosecutor and doing investigations many years ago. I start there because the hurdles in place years ago are no longer as much in place as they used to be in terms of following the money trail. One of the biggest changes, improvements and accomplishments is that if someone were to be conducting a financial investigation that involved transactions outside of their jurisdiction, they would often come up against a brick wall. Either a brick wall in terms of practical or legal capacity in a given country which couldn’t or wouldn’t give them information. And I’m not just talking about beneficial ownership information and secret tax havens—although that’s a significant element that is being overcome gradually.

But the very fact that FATF has been able to now expand its model of operating to over 190 jurisdictions, and the fact that all of those jurisdictions have money laundering laws in place and are evaluated in the same way, the expectations are therefore understood. Although they are not all met at the same level for various reasons of capacity that is the single biggest improvement that has occurred, which I am proud to have been a small part of. It has meant that the world has become—in terms of financial transactions and tracing them—a much smaller place than it used to be. For example, there are now nine FATF-style regional bodies. Twenty years ago there were one or two and at a very immature stage of development. Now the world is pretty much covered in terms of the FATF-style model and the FATF-style bodies.

The level of understanding in the government agencies that are part of the AML system nowadays is absolutely amazing

But what does this mean in practice? It means that they all know that all of those bodies—while retaining independent operations subscribe to the standards—have the compliance mechanisms in place to assist their countries for compliance. The level of understanding in the government agencies that are part of the AML system nowadays is absolutely amazing. This is not to say that there is a perfect system. But compared to what the case was many years ago, we are talking “chalk and cheese.” In other words, a country in the Western hemisphere wanting to conduct an investigation in relation to activities in a country in Africa or Asia, is in a far better place now than it ever was because of the existence of the FATF-style regional bodies and the fact that their existence has meant that countries in those regions are all members of these bodies and must apply the same standards and must follow-up on mutual evaluation reports where deficiencies have been identified. I think that in both a strategic sense and in a practical sense that has been the biggest single accomplishment and it’s getting better year by year.

AT: If you were talking to a University or College class regarding the AML field as a career, what would you tell them?

RM: I would tell them that it is no longer about just cops and robbers. It is about a whole bevy of important international issues, security and financial integrity because following the money trail and keeping the financial systems as clean as possible, is the essence of the job. FATF matured by necessity of world events to an organization that has been given the task of essentially being the primary body responsible for identifying, stopping and keeping at bay all sorts of illicit funds flowing through domestic and international financial systems.

So, when you look at it from that perspective, the world of interest for a young person is much broader than simply law enforcement. I don’t mean to undervalue law enforcement. On the contrary, I used to work in it myself. If you’re looking at this field now, you are looking at foreign relations, diplomacy, international law, financial regulations, and the new ways (payment mechanisms) in which money and value are transferred. So, there is a whole host of new emphasis and new ways of looking at how money and value is sent and how bad money is transacted.

These are issues which I think are attractive to younger people than a more confined law enforcement background or career as might have been the case in the past. So, I think it’s a broader and a much more exciting space and one which for those who have an interest in these topics and a sense of duty for their jobs, provides a broader capacity to serve those interests and that sense of duty.  

Interviewed by: John J. Byrne, CAMS, executive vice president, ACAMS, Centreville, VA, USA, jbyrne@acams.org

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