We are very pleased to announce our brand-new collaboration with Martin Woods, Director of AMLWoods, widely recognized as Expert in Risk and Compliance industry, who has previously worked with and provided training to regulators, central banks, law enforcement agencies and the United Nations. Square Facts and Martin Woods will be writing a series of articles in order to emphasis the increasing importance of environmental, governance and social (ESG) policies and practices and overall key and topical compliance and risk topics.
The ESG supply chain
There is nothing which connects all of us more than the environment we live in and our collective actions which impact upon the same, negatively or positively. There are parallel environmental supply chains which joins all of us together, directly and indirectly. What happens in the Brazilian part of the Amazon rain forest influences the decisions made by executives of supermarket chains in Europe, Australian and America. Activists are providing access to information which was hitherto withheld or hidden from consumers and this information has the potential to damage the brand reputation of corporate enterprises.
The information supply chain
The supply chains which join all of us together have, in recent years grown and expanded, now touching every area of our lives. Major information leaks, managed by the International Consortium of Investigative Journalists (ICIJ) and provided by courageous whistleblowers, have exposed criminal conduct within institutions and led to the collapse of governments. Other whistleblowers have brought public and regulatory attention to deceptive, environmentally damaging practices within the automotive industry and consequently, corporate enterprises have changed their conduct, their executive management and their culture.
There is a sense that what the public do not know today, they will learn about tomorrow and nowadays, getting caught is becoming increasingly expensive. All of which is causing shareholders to demand accountability and the implementation of policies which adopt a long-term approach to ESG and sustainability. Executives are coming under pressure to protect not only shareholders, but the communities where they operate. Consequently, financial service firms now need to know where and how their money is being spent in the same way they have for a long time, needed to know where a customer’s funds originate from.
As human beings in many ways we are superficial. We react to our primary senses of sight, hearing, taste, touch and smell. We repulse at foul smells and are often disgusted by things we see. Graffiti irritates people and often the costs associated with cleaning the impacted areas can be substantial, but in general graffiti does not present a significant risk. Whereas the residue and waste from illegal drug laboratories can and does cause significant environment damage and in some instances has contaminated water supplies.
People are angered by those who illegally dispose of general rubbish in the countryside, in the road and other public areas, but they seldom see the toxic waste from illegal drug laboratories, dumped into streams, buried, and even flushed down toilets, all of which causes significant environmental damage. Increasingly, there is a need for firms, in particular financial service businesses to undertake due diligence upon chemical companies they provide services to. Within the supply chain of precursor chemicals used to produce illegal drugs, there is a need for suppliers to know their customers and by extension, a need for financial service businesses to validate such know your customer processes.
In seeking to protect communities and the environment, it is necessary to go beyond the illegal drug dealer and penetrate or dismantle his/her supply chain. We all have a role to play here and it is far more than a legal or regulatory requirement.
The moral obligation
All of this was recently recognised by the CEO of ABN Amro bank, Robert Swaak, who stated the bank had a moral obligation to fight financial crime, in order to make a meaningful contribution towards a safer society. It follows, that if you cannot see this connection, you are probably not looking at it properly, or perhaps you are looking the other way.
Previously, banking executives were not held to be accountable or liable for anti-money laundering failures within their banks, whereas now CEOs are the subject of criminal investigations. In the past CEOs were either not informed or denied being informed of AML problems. There were breaks and gaps in the information supply chains, which protected the CEOs. Not now, there is an intolerance of failure and not knowing is not an acceptable excuse.
The moral proposition from ABN Amro suggests the bank is changing its culture and application to both ESG and fighting financial crime. Mr. Swaak has determined the bank’s actions must benefit society. In doing so he has embedded the fight against financial crime into the bank’s ESG policies, processes and strategy. It must be envisaged, ABN Amro bank will become a more hostile environment for financial criminals whilst simultaneously pursuing strategies which benefit society, within a wider ESG context. Furthermore, Mr. Swaak will be driving the changes, there will be no information gaps as he accepts accountability to both shareholders and the communities where the bank and the bank’s clients operate.
Firms and businesses must always supply confidence, not only in the quality of service, product or raw material provided, but also within the controls applied to their own supply chains. This includes controls to ensure there is no child labour or slave labour; raw materials are ethically sourced; production processes align with the ESG statement and policies of your firm and all of this meets with the expectations of shareholders, customers and where applicable, regulators.
Such confidence is secured from due diligence and sometimes on the ground assessments of processes, testing of materials and even interviews with staff. After all, reputation is everything, both at a corporate and personal level.
There is always risk within any supply chain, once again it is through the application of due diligence, risks are identified and thereafter can be managed or mitigated. Absent to due diligence and an understanding of the participants in a supply chain, which extends to the ownership and control of corporate entities, it is not possible to identify risks. In October 2020, the FinCEN Leaks revealed an instance within which one of the biggest banks in the world, failed to establish a corporate customer relationship was ultimately owned by a man who has featured upon the FBI’s top ten most wanted list for in excess of 25 years. Semion Mogilevich channelled almost $1billion through accounts with the bank.
In this instance, the internal data supply chain failed and this breakdown presented significant risk to the bank. Ultimately the bank conceded they did not know their customer and behold, their customer was a man on the FBIs top ten most wanted list.
All of this has a severe negative impact upon the reputation of the bank and simultaneously causes anxiety within all of the supply chains the bank participates in, this extends to the bank’s relationship with regulators.
The reverse supply chain is that of the tolerance of the wider public and the society Mr. Swaak refers to. After all, society has the ultimate say over whether, a bank or any other corporate enterprise can stay in business. What customers think matters more now than ever before, because the information supply chain gives them far more to think about. Parents are conscious of the impact of their actions upon a world they will leave to their children. Consequently, many make consumer decisions based upon long-term sustainability. They have expectations of corporate enterprises and will not tolerate a disregard for ESG.
This tolerance can change and will change when firms and banks fail to adhere to laws, rules and policies which have a negative impact upon the environment and the safety of societies. Try as they may, executives can no longer exert total control and restrictions upon the information supply chain, but they can influence ESG and financial crime fighting strategies, which is what society wants.
(1) Semion Mogilevich is described by some as the most dangerous and most sort after gangster in the world.
Martin Woods, Director of AMLWoods
Martin Woods is a seasoned anti-money laundering practitioner, financial crime fighter and strategist. He has been fighting money launderers and financial criminals for over thirty years, as both a detective and a leader within a diverse range of financial service businesses in the UK and overseas. He is internationally recognized as a leader, outstanding speaker and first-class trainer, who has previously worked with and provided training to regulators, central banks, law enforcement agencies and the United Nations.
He is an innovator who thinks like a money launderer and in doing so he seeks to deter, detect, frustrate and ultimately stop money launderers. He joins the dots between dirty money, crime and the suffering inflicted upon communities where criminals operate and intimidate those who oppose them. He has played an active role in a number of major international money laundering investigations, which allows him to provide advice and guidance based upon unique, hands on, real life, real crime insights and case studies.
He asserts financial crime is a major component of a firm’s ESG policy, strategy and business development. Arguing environmental crime impacts all of us and unchecked will have a devasting impact upon our children and our grandchildren. Thus, he believes our collective actions can and will make a difference. Along with many others he has lobbied for more transparency in the ownership of corporate entities, behind which too many criminals seek to hide.