Markets-Based Money Laundering: Spotting the Signs Early
The Russian Laundromat case – in which several Russian individuals bought securities through Deutsche Bank’s Moscow office and concurrently sold the same through the bank’s London office – is one of few cases of money laundering involving the markets to make headlines in recent years.
These ‘mirror trades’ transferred billions in roubles originating in Russia to dollars paid into offshore companies based in Cyprus and the British Virgin Islands between 2011 and 2015. The case resulted in the largest fine ever handed out by the FCA (£163 million) and revealed how large market players without adequate controls may be exploited to launder billions of pounds using relatively simple techniques.
And yet despite its high profile, the case has not resulted in sea-changes in the approaches taken by regulators and law enforcement to scrutinise how the markets can be abused to launder money, or in significant changes to how firms operating in this space control the risk of money laundering.
Capital Markets Are Vulnerable to Money Laundering Too
Capital markets are globally interconnected and predominantly highly liquid; vast sums moving between jurisdictions in fractions of a second present an attractive target for money launderers. And while retail banks have felt pressure in recent years to build more robust safeguards against money laundering, the same pressure has not been felt by wholesale market participants.
Instead, the significant regulatory developments made in this area have focused on managing the risks of market manipulation and insider dealing.
Market manipulation and insider dealing have as their main objective the generation of profit through trades that take unfair advantage of other market participants. In most cases, this causes a detrimental – and intentional – impact on the transparency and efficiency of the market.