The Financial Action Task Force, the governmental club that sets the anti-money laundering and terrorist-financing standards for its members to follow all over the world, has come out with a new statement of recommended practice. It is largely a non-binding “to-do” list for governments that drag their heels when being asked to enforce United Nations anti-terrorist resolutions and contains no “best practice” tips for financial firms.

The text, intriguingly, does not mention one country by name or comment on its performance against terrorist finance; nor does it mention one case. It does, however, contain a list of “product, service, transaction or delivery channel risk factors” to do with terrorist financing and sanctions, with private banking at the very top, followed by anonymous and non-face-to-face transactions.

Some thoughts for private banks

Under the heading of “customer risk factors” it lists:

·        business relationships conducted in unusual circumstances, perhaps when there is a significant and unexplained geographical distance between the financial institution and the customer;

·        non-resident customers;

·        legal persons or arrangements that are personal asset-holding vehicles;

·        companies that have nominee shareholders or shares in bearer form;

·        cash-intensive businesses; and

·        unusual or excessively complex ownership structures.

The FATF’s evaluative skills

Under the heading of country risk factors it includes “countries identified by credible sources, such as mutual evaluation...reports”.  Such reports come from the FATF's own investigative teams which visit countries periodically but which are not, in fact, credible at all. As the head of one of the FATF-style regional bodies recently pointed out privately at a conference, the evaluators of a well-known offshore centre “only saw what they were allowed to see”. A senior police officer from that same jurisdiction called the evaluation report “a bit of a whitewash”.

A troubled standard-setter

This disconcerting tendency to insist upon countries and their banks taking FATF pronouncements about countries' law enforcers at face value has been increasing for many years and has become a weighty issue ever since the FATF resurrected its old, disastrously discredited and previously abandoned blacklist of “non-compliant countries” in 2012. At the top of the list, for reasons involving US government pressure, are Iran and North Korea, the two remaining “axis of evil” states. As another FATF delegate once said at a conference, “nothing gets done at the FATF unless it is supported by the Franco-Germans or the Americans”.  For years the international body has been torn between falling into line as an US tool against “rogue states” and the Franco-German objective of tackling conventional career-criminals with money to wash for a wealthy retirement.

The rest of the report consists largely of reminders of the FATF terrorist financing rules, especially recommendation 16 which exhorts countries to outlaw (or apply extra due diligence to) business with any country that the FATF singles out. It enjoins all countries to enforce United Nations sanctions against Al Qaeda, but otherwise the document is vague and often impenetrable.

When the giant roars – at his friends

It is most likely that the true value of the document is political, reminding FATF member-states that US objectives are important. It replaces another document released at the time of the invasion of Iraq in 2003, when the US was also keen to dragoon others into endorsing its plans for the Middle East.

Despite the emphasis on the UN in these pages, the US has had a great deal of trouble persuading the international community to see things its way over Iran, as it had earlier over Iraq. In 2008 it was the only country that wanted to turn Iran into a complete pariah. Its stated reason for this over the years was twofold: that Iran was not fulfilling its obligations under the so-called Treaty on the Non-Proliferation of Nuclear Weapons; and that Hezbollah, which the US alleged that Iran was funding, was a terrorist organisation. Neither the United Nations nor the US’ own security services believed the first assertion; neither the UN nor most of the world's countries, including the UK, believed the second in toto. It took until 2010 before the US could persuade the European Union to impose heavy-handed sanctions on Iran's financial services, oil industry, shipping and other things.

The UN, for its part, has never imposed sanctions on Iran that are as sweeping as those put in place by the US. Only in March 2008 did a UN Security Council resolution attempt to stop publicly facilitated credit for trade with Iran from helping its nuclear programme and to watch Bank Melli and Bank Saderat with a view to stopping them from doing the same. Only in 2010 did it call on states to withhold financial services, and then only those that might help Iran do anything “proliferation-sensitive”.

Empty threats and how to deal with them

Long before that, in 2007, some blue-blazered US Treasury officials went on a tour of private banks in the City of London to warn them that any dealings with Iranians would incur US displeasure. Their threat – never carried out – was that the US Treasury would invoke its power to ban US business with any British bank it cared to earmark for such punishment by means of its powers under the USA PATRIOT Act 2001. They threatened to do this to banks, oil shippers and brokerage companies if they continued to handle Iranian currency, process letters of credit that involved Iran, have anything to do with Iranian shipping, and generally do business with that republic.

Various private bankers complained to the Financial Services Authority, which has since been split into two distinct successor bodies, the Financial Conduct Authority and the Prudential Regulatory Authority, with the latter overseen by the Bank of England. The FSA, far from rushing to their defence and asking the US Treasury to cease such an unprecedented intrusion into the City’s affairs, cravenly did nothing and indeed would not talk about it. This being what some considered to be a supine dereliction of duty led the FSA to be pilloried by the British press and by Conservative politicians such as Kenneth Clarke, the former justice secretary, before its ignominious abolition.

As Rowan Bosworth-Davies, an ex-policeman who performs compliance “health-checks” for banks, stated at the time, there is a legal remedy for such behaviour, which s21 Theft Act 1968 classifies as blackmail. According to s21(1) a person commits an offence if, with a view to gain for himself or another or with intent to cause loss to another, he makes any unwarranted demand with menaces. The demand is unwarranted unless he makes it in the belief (a) that he has reasonable grounds for making it; and (b) that the use of the menaces is a proper means of reinforcing the demand. Section 21(2) says that it is also immaterial whether the menaces relate to action to be taken by the person who makes the demand.

Courts interpret the word "menace" to mean something much wider than "threat". It covers any warning of any consequence known to be considered unpleasant by the intended victim. Bosworth-Davies concluded that any attempt to coerce British banks into cutting off their business with Iranian banks or other entities was “a menace” to those entities and indeed potentially to the profits of the British banks themselves. The perpetrator of such menacing behaviour faces a custodial sentence of 14 years under the Act, although a non-violent menace is unlikely to warrant that.

Any private banker who receives such visits from such officials in future would be within his rights to offer each of them a cup of tea, excuse himself from the meeting room, and call the police. The average police response time in the UK is officially six minutes but in reality almost double that. Perhaps two cups would be in order.