EY Aided the Laundering of Drug Money, But Who's Really to B

An explosive BBC Panorama exposé suggests that EY aided the laundering of drug money through its Dubai office. An old EY auditor turned whistleblower said his bosses wouldn't inform the authorities of extraordinarily suspicious activity. It was despite a litany of suspect activity involving Kaloti gold refinery in Dubai. As Kaloti's auditor, EY noted the company had paid out some lb4bn in cash in 2012 alone, but failed to raise concerns.

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

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

For example, ABN Amro NV is currently susceptible to a Dutch criminal probe 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 in regards to Danske, Nordea, ING and many other European banks.

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

For lawyers, the issue of whether to make a suspicious activity report could be impacted by considerations of legal privilege. However, a significant SRA overview of 400 law firms has found that 21% of firms didn't adhere to the money laundering rules. The SRA also criticised lawyers for using template forms that didn't properly address their own specific risks.

Both law and auditing firms need to adopt a far more risk-based method of money laundering. This is a systemic issue and, as a result, requires a systemic response. Nowadays, money can easily move across borders, particularly inside the EU's single market. Therefore, any effective regulatory response should be both systemic and transnational.

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

As it stands, member states have significant latitude in terms of the way they implement the directive. Making it a regulation means the identical regime applies through the EU, and auditing firms will be more in a position to address potential money laundering activities universally.

In addition to new laws, there is a requirement for greater knowledge associated with money laundering in both the financial services and professional services sectors. Above all, banks as well as their advisors must be prepared 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 a heightened focus on money laundering is apparent. We have now seen numerous major banks and other entities suffer significant damage both for their share prices and reputations as allegations of money laundering failures emerged. As lawyers, there exists a duty to help our clients both better understand, and fully meet, the regulatory standards required of these when it comes to money laundering and terror financing.