All loopholes must be closed
The county administrative boards need to be more efficient in their mission to reduce money laundering, writes Otto Barnekow, specialist in regulatory transformation at PA Consulting.
When debating money laundering, banks and finance companies and their supervisory authority, the Swedish Financial Supervisory Authority, are often mentioned. What is discussed less frequently is how the County Administrative Boards should fulfil their supervisory responsibility over many activities in accordance with the Money Laundering Act.
Money laundering is one of our biggest societal problems today. It has a close link to crime and organized crime. In 2015 and 2016, around 2,000 money laundering offences a year were reported. In 2018, the number of reports increased sharply to 7,000 and suspects more than doubled, and the upward trend is continuing.
According to the Financial Police's annual report for 2019, a total of 21,709 money laundering reports were received in Sweden. Of these, only 130 came from companies under the supervision of the County Administrative Boards. This is not a reasonable number given the huge number of operators that the County Administrative Boards monitor. Among other things trade in capital goods such as vehicles, jewellery, watches, art, construction trade and electronics stand out in the context of money laundering.
It is not uncommon for assets derived from crime not to be laundered but instead directly consumed to conceal their origin. Capital goods such as vehicles, watches, jewellery and more expensive designer clothes are bought because they can be relatively easily resold. Those who provide these goods need to be better informed about their obligations under the Money Laundering Act. In order to avoid the risk of sanctions, they must have appropriate processes and routines for knowing their customers and the origin of assets.
If society is to become more efficient in the work of counteracting money laundering, all loopholes must be closed. It is unreasonable, for example, for a trader in capital goods to receive large sums of cash without having processes for ID control or to ask questions about the origin of the assets. For criminals, the current situation offers a risk-free way to launder assets because they never enter the banking system and so become largely untraceable.
But the County Administrative Boards are not inactive. As recently as last summer, the County Administrative Board of Stockholm County decided on sanctions against two watch dealers of SEK 8.5 million and SEK 2.2 million, respectively, resulting from poor information about customers and the origin of assets.
What are the real reasons why so few operators who are under the County Administrative Board's supervision do not report suspected money laundering? One of the reasons may be that it is up to the operator to, for a fee, report his business to the Swedish Companies Registration Office's register against money laundering. This does not happen automatically. Another reason may be that the information provided by the County Administrative Board to operators needs to be better and there needs to be more outreach.
The County Administrative Boards must continue to improve both supervision, education and the dissemination of information. The fact that criminals have expensive cars, watches and designer clothes inspires younger people in their vicinity. If, for example, the trend of recruiting younger people into criminal networks is to be counteracted, it must become more difficult for criminals to get hold of and retain capital goods. In this way, the attractiveness to young people of criminal activity can be reduced.
The County Administrative Boards have received increased resources in recent years to combat money laundering. It is important that these resources are used to increase the supervision of licensed activities in order to make the fight against money laundering and the prevention of indirect recruitment to crime more efficient.
Criminals should not be able to appear as winners to a younger generation, but rather as losers. Therefore, the County Administrative Boards’ work is as important as the Swedish Financial Supervisory Authority's. Money laundering must be discouraged at all levels and in all industries.
Otto Barnekow, regulatory transformation expert at PA Consulting