• The head of the world’s top counter-crime compliance watchdog has resigned, a surprise move after he was given a three-year extension, leaving a gaping gap threatening to slow gathering global momentum to champion fincrime program effectiveness – at the country and institution levels.  
• The upcoming departure of the widely known, deeply respected and imminently influential David Lewis has also opened up the Paris-based Financial Action Task Force (FATF) to a rare cacophony of criticism with the publication of a testy letter sent to staff, according to media reports.
• But the show must go on and finding a new star to fill the void will be challenging. Whoever FATF chooses after Lewis will be under immense pressure and scrutiny to balance the political power wielded by members, keeping large jurisdictions on their toes, without losing site of smaller, riskier regions that could become gateways for illicit financial flows.

By Brian Monroe
bmonroe@acfcs.org
October 5, 2021

The head of the world’s top counter-crime compliance watchdog has resigned, a surprise move after he was given a three-year extension, leaving a gaping gap threatening to slow gathering global momentum to champion fincrime program effectiveness – at the country and institution levels.  

The upcoming departure of the widely known, deeply respected and imminently influential David Lewis has also opened up the Paris-based Financial Action Task Force (FATF) to a rare cacophony of criticism with the publication of a testy letter sent to staff, according to media reports.

To read more details on the resignation, first reported here and here, please click the related links.

Some of the reasons why Lewis chose to leave such a high-profile position – he has been FATF’s Executive Secretary for the past six years – were detailed in a fiery missive he fired off to staff, expressing frustration related to a lengthy negotiation process and a plan to advertise for his replacement in three years, regardless of his accomplishments.

“Unfortunately, this last renewal process involved a prolonged period of uncertainty, exasperated by a proposal out of the blue to introduce a new requirement that the role be readvertised, regardless of my performance,” Lewis wrote, according to media reports and a social media posting, which can be viewed here.

“I hope my successor will be selected as I was, and all secretariat staff are —on merit, on the basis of fair and open competition,” he reportedly wrote.

It is those words that call into question the independence of FATF – and the broader Organisation for Economic Co-operation and Development (OECD), of which FATF is an organ – an issue magnified by the group’s influence on the global fight against financial crime and the resources countries expend to comply with recommendations and withstand reviews.

The letter follows a video message Lewis released tied to a speaking engagement at Cambridge where he again exhorted governments, regulators, banks and law enforcement to go beyond the process of compliance to engage in truly going after the illicit groups and their shadowy financial networks.

“There is a chasm between what the FATF recommends, what governments do, what the police are able to do, what regulators do and real world implementation by firms,” he said.

With great power – to name and shame – comes great responsibility

The group also wields enormous power through its various country listings, the dreaded “blacklist” saved for the worst of the worst and the more populated, but equally reviled and feared “grey list.”

Since February 2020, the group has kept its blacklist in a form of stasis due to the COVID-19 pandemic, with only Iran and North Korea populating the dungeon.

The grey list, or “jurisdictions with strategic deficiencies,” on the other hand, is arguably the more feared list because it touches countries with a broader reach when it comes to touchpoints with the international financial system.

To get on this list means other countries, particularly large financial centers, would perceive these jurisdictions as higher risk, potentially making their banks jump through more hoops for relationships or correspondent connections.

Here is the current incarnation of the grey list, with FATF most recently adding Haiti, Malta, Philippines, and South Sudan:

• Albania
• Barbados
• Botswana
• Burkina Faso
• Cambodia
• Cayman Islands
• Haiti
• Jamaica
• Malta
• Mauritius
• Morocco
• Myanmar
• Nicaragua
• Pakistan
• Panama
• Philippines
• Senegal
• South Sudan
• Syria
• Uganda
• Yemen
• Zimbabwe

As a point of context, Malta being mentioned in the same breath as Yemen, Syria and South Sudan – countries rocked by strife, terror attacks and a teetering financial sector – has been an ongoing embarrassment for Europe.

That is further compounded by Danske Bank scandal, which saw Denmark’s largest lender facing a plethora of probes, investigations, accusations and recriminations in several countries for its monitoring, reporting and handling of some 200 billion euros, or more than $224 billion, in potentially suspicious transactions tied to Russia between 2007 and 2015.

The scandal has sacked some top leaders at banks in Denmark and Sweden, snared Deutsche Bank and even cast regulators in the regions in harsh lights, even as these financial watchdogs work to levy statement-making penalties against the institutions involved.

Not surprisingly, the EU Commission and Parliament have voiced concerns and put forth formal measures to create a pan-bloc AML enforcement body that would put member state regulators, not just banks, in the hot seat for compliance failures.

Staying in FATF’s good graces is a massive endeavor, for even large countries with strong AML rules, big enforcement actions under their belts and investigative wins.

Why?

Those efforts must run in parallel to FATF-reviewed countries – along with responding to group evaluators – as regions must also craft countrywide fincrime risk assessments, a herculean task that further lays bare longstanding weaknesses.

Even so, a country not being on the list doesn’t mean a rosy fincrime compliance outlook.

Case in point: Germany.

The country routinely scores highly on FATF recommendations and is the engine of the bloc’s economy, but has had in recent years to juggle some scandals of its own, including a fumbling financial intelligence unit, that was recently raided by authorities, and the still simmering Wirecard scandal.

The accounting debacle has in some media outlets been referred to as the “Enron of Germany,” with the implosion of the payment processor and financial services firm also bringing scrutiny and accusations to the country’s financial regulator, BaFin, and longtime Big Four auditor, Ernst & Young.

Who shall take the reins? Someone with political savvy, government, private sector experience

Taken together, this means that whoever FATF chooses after Lewis will be under immense pressure and scrutiny to balance the political power wielded by members, keeping large jurisdictions on their toes, without losing site of smaller, riskier regions that could become gateways for illicit financial flows.

It was a diverse mix of expertise that was a vital asset for Lewis.

Prior to joining FATF in 2015, he worked for the UK Government as Head of the Illicit Finance Unit and Senior Policy Advisor at HM Treasury, and before that as a senior member of the Serious Organised Crime Agency, now the National Crime Agency.

He also, according to his bio on the FATF site, had a broad range of experience, including at NGO’s and in the public and private sector, from “leading and supporting expeditions in the rainforests of Indonesia, to working on some of the largest initial public offerings and government privatisations, and managing the digital product portfolio of the UK national mapping agency.”

Lewis has a BA (Hons) from the University of Portsmouth, MSc from Cranfield University and is a Fellow of the Royal Geographical Society.

In his role at the FATF, David is responsible for “leading the FATF Secretariat in bringing to bear the combined expertise of governments around the world to fight money laundering, the financing of terrorism and the proliferation of weapons of mass destruction.”

This includes work to monitor how money is being laundered and how terrorist organizations are “raising and accessing funds; to develop global standards, best practice and guidance to mitigate new and emerging risks; and to assess the action taken by governments.”

It also includes providing training and support for officials from FATF member countries and the nine FATF-Style Regional Bodies.

Since 2016, FATF has been represented in G20 meetings of Finance Ministers and Central Bank Governors, where Lewis supported the President and is the G20 Deputy for the task force.

Keeping the gas pedal floored on evaluations, effectiveness

On that note, many countries formerly viewed as having strong anti-money laundering (AML) rules have dropped after FATF made a change in 2013 to add a separate ranking for “effectiveness,” so think actual compliance penalties levied, assets forfeited and large, international cases crushed, rather than just laws on the books.

Under his leadership, FATF has continued its country fincrime compliance reviews, and related mutual evaluation reports (MERs), hewing toward the more stringent, strident and metrics-driven goal of effectiveness.

The group issued full reports or updates on many large financial centers and flashpoint locales, trying to paint a balanced picture, even when the bulk of the findings were more negative than positive, including:

• China
• Canada
• Pakistan
• Japan
• Egypt
• Malta
• The Vatican
• Mexico
• Denmark
• Cuba
• Sweden
• The United States
• Russia
• Turkey
• Panama
• Haiti

As well, in recent years, Lewis – in coordination with the focus areas of FATF members part of one-year and now two-year presidencies – has also pushed FATF to produce hefty and relevant reports on areas that were weak spots exploited by criminal groups, regulatory focal points and persisting vulnerabilities in the global financial system.

FATF is currently headed by its president, German finance ministry deputy Dr Marcus Pleyer.

Some examples include reports on:

• Proliferation financing and related risk assessments
• COVID-19 pandemic frauds and scam trends
• Wildlife trafficking and related laundering
• Potential red flags and rules to rein in virtual assets and increase oversight of virtual asset service providers – crypto coins and crypto exchanges
• Divining digital identification
• Financial inclusion and de-risking
• Public-private sector information sharing
• Correspondent banking and the risks of related nesting nodes
• Terror financing
• Fincrime risks tied to non-profits
• The importance of corporate transparency and criminal magnet of beneficial ownership opacity

A ‘privilege’ to lead pinnacle of compliance power, but a job well done

How FATF will keep up the pace to review countries and produce reports to better arm the universe of fincrime and compliance professionals, including bank AML, fraud and cyber teams, regulators, investigators and auditors, is anyone’s guess.

But for Lewis, it is clear he took his job, and its lofty level, seriously, with his colleagues deeply appreciative of his efforts, his courage and the thoughtful and informed way he carried out his duties.

On his LinkedIn page, Lewis stated that he felt “privileged” to lead the FATF Secretariat and serve Members of the group.

“My personal values include service, humility, responsibility and determination,” he wrote. “I am passionate about leading and uniting people behind a common purpose; health and well-being; personal and professional growth and development.”

His colleagues also lauded his contributions, saying he pushed FATF to be as ruthlessly introspective with itself as it is relentlessly rigorous with its country reviews.

Lewis’ leadership at FATF has “been exemplary over six years” and he is considered a real trusted partner to many across the wider industry, said John Cusack, Chair of the Global Coalition to Fight Financial Crime and Editor of the Financial Crime News, in a social media post.

“He and his excellent team achieved many things and brought independence and rigor to the many aspects of what FATF was mandated to do,” said Cusack, who has also been Co-chair of the influential, Wolfsberg Group and is a former top fincrime compliance officer at several large, U.K.-based international banks.

Lewis brought the task force to “ask itself some very important questions with some difficult answers coming back,” he said.

“That no one is doing well and no one is doing enough when viewed through an effectiveness lens was a difficult but necessary message to communicate as the myriad real world harms that come from financial crimes deserve an honest assessment and actions to improve.”

Lewis was a clear and cogent thinker and has much still to contribute in the fincrime and compliance community’s shared fight.

“David’s clarity of message in often opaque circles will be missed, as will his thought leadership and experience though I suspect there is much more from David still to come,” Cusack said.