The Fight Against Money Laundering: Promoting Effectiveness

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Speech by Philip Robinson, Financial Crime Sector Leader, FSA.
City & Financial Money Laundering and Financial Crime Fifth Annual Conference
22 June 2005

Introduction

I am delighted to have this opportunity to speak to you today at this Money Laundering and Financial Crime fifth annual conference. My theme is promoting effectiveness over the fight against money laundering, and I will be looking back at the progress which has been made in recent months and forward to some of the key challenges ahead. In particular I will be confirming what has been achieved over the three initiatives that the FSA launched last April – on 'defusing' the ID issue, and promoting a more risk-based approach and better targeting in the fight against money laundering – and the follow-up work we plan over these initiatives now that they are completed.

I was appointed as the FSA’s first Financial Crime Sector Leader at the beginning of last year, and since that time I have seen some substantial and very welcome changes to the way in which we wage the war against the money launderer: in firms, in law enforcement, in Government and in the FSA. And there are exciting changes ahead, with the Serious Organised Crime Agency, SOCA, just over the horizon; the major rewrite by the Joint Money Laundering Steering Group (JMLSG) of their Guidance for the UK financial sector in full swing; the FSA about to consult on possible changes to our Rules on money laundering; and a bit further ahead new UK law in prospect to implement the Third Money Laundering Directive. At the City and Financial Conference last April I talked about it being the time to look at the necessary evolution of the UK’s anti-money laundering (AML) regime and the FSA’s contribution to it. Fourteen months have passed, and much water has flowed under the bridge. It's time now to take stock as to what has been achieved, and to look forward to how we can together push on towards the more effective regime for fighting money laundering that we all want.

Fighting crime – the only reason for the anti-money laundering regime

Much of what I will have to say today will be about improving effectiveness – getting the right outputs from the substantial resources we all put into the fight against money laundering. And it is crucial that in whatever we do over money laundering we keep focused on the ultimate goal – deterring and detecting crime. Effective procedures and practice in firms, focused and proportionate regulation, a smooth-running reporting regime – all these and more are important, but only as means to an end. And we cannot, must not, underestimate the potential value of the anti-money laundering (AML) system in achieving this end. The result we are after is that the UK AML regime leads to less crime. Fewer drugs on our streets; less trafficking and abuse of human beings (adult or child); and above all denying safe access for organised criminals to our financial system, whether they are home-grown, or based overseas. Even the cleverest criminal cannot avoid leaving some trace of his use of the financial system as he moves funds around the world. That is why an effective AML system has so much potential for tracking down criminals. So we must strive constantly to improve our systems for fighting money laundering, so that our investments in AML yield the maximum return in the fight against crime.

Three key elements in the fight against money laundering

What then are the key elements of the fight against money laundering? There are three:

We need an effective framework within which we can work together to maximum effect. That means having good, proportionate and focused:
- Law,
- Regulation, and
- Guidance material
People taking full responsibility for delivery of an effective regime, which means:
- Government providing:
1. strategy,
2. leadership, and
3. adequate resources for law enforcement,
- Law enforcement:
1. turning information into intelligence and then into disruption of crime,
2. articulating what they need from the financial sector, and
3. helping industry understand where the biggest risks lie, including through feedback on Suspicious Activity Reports,
- the FSA providing effective and risk-based regulation, and contributing to the UK’s policy and strategy development, and
- firms’ senior management providing:
1. leadership,
2. resource over AML and strong support for the Money Laundering Reporting Officer (MLRO), and
3. whole-hearted commitment to the firm adopting a risk-based approach
Effective practice on the ground, which means effort:
- whose value is judged by output not input,
- which is targeted on where it can make the most difference,
- which aims to deliver what law enforcement need, and not what they don’t,
- which stems from an informed understanding of and support for why it is being done, and
- which is managed by firms confident that if they are mitigating their money laundering risks effectively, they have nothing to fear from the regulator.

So does the UK have all three of these elements safely in place – an effective framework, the right people taking responsibility for delivery of results and effective practice on the ground? My answer to that question has to be 'not yet', but we have made significant progress over the last fourteen months. We must now 'kick on'. And also take full advantage of those exciting prospects ahead I mentioned earlier – SOCA, the new JMLSG Guidance, possibly new FSA Rules on money laundering, and then further down the track new UK law to implement the Third Directive.

We at the FSA are fully committed to doing what we can to encourage the development of a better system with these three elements in place. Hence my announcement last April of our initiatives to help with the evolution of a new regime – 'defusing' the ID issue, and the promotion of a more risk-based and targeted approach. I will be speaking about each of these initiatives today, but let me begin with the thorny issue of ID.

'Defusing' the ID issue

We all know that anonymity is the friend of the money launderer; but we all know too that forged ID documents – sorry, I should say 'replica ID documents sold for novelty or educational purposes', are readily available. Not least from the Internet. Here for example is the wording from one site – 'all relevant documents are provided for legal purposes only! Well we have to put that in! Sorry!'. So ID processes are important, but we need to recognize they can't always be relied on.

When I became the Financial Crime Sector Leader one of my early impressions was the nonsense that can sometimes be involved in taking ID. I mentioned in the speech I gave last April the Oxford College that had to produce its 15th Century charter. This may have been trumped by one firm's advice to a woman in her seventies that learning to drive might be the best way to get hold of a document to allow her to prove her identity. If ever there was a situation needing sorting out and a bit of common sense being brought to bear …

What were we trying to achieve in launching our initiative to 'defuse' the ID issue? To produce a system that:

worked – that is provided a reasonable level of certainty that somebody really was who they said they were;
didn't involve too much time, inconvenience and expense for the firm or the customer – so made realistic demands on those involved; and
was designed to bear a certain amount of weight in the fight against money laundering, but no more than anyone could reasonably expect. Basic customer ID is one tool against money laundering, to be deployed alongside all the others in the AML toolbox. It is certainly not the be all and end all.

Sorting out a problem like that sounded to me like a tall order. Having to please lots of different people, with different agendas and different motivations is not the ideal recipe for success. But when we actually got down to the task and set up an ID Working Group, it became clear that everyone thought the system needed sorting out. All that was really needed was a catalyst to get things going, and some give and take from those involved in the interests of getting a system that was better for all.

So what did people say to us?

Law enforcement spelt out what they really needed from the system, and it came as something of a surprise. Their shopping list of what information they wanted collected was rather different from the information that the current system was providing. In particular, we learnt that verifying a customer’s address at the time that they took out a product wasn’t all that crucial, given that the firm always had every incentive to keep an up-to-date address of a customer and it was that address that a suspect was likely to be found at if law enforcement needed to go looking. So we could do away with the 'futility of the utility bill' – making customers leap through hoops to prove where they lived.
Law enforcement also said that it was critical to have good, common sense practice at the 'sharp end'. 'Front-line' staff in firms noticing that the young man before them was unlikely to have been born in the nineteen-fifties as his passport stated. Or that the signature on the application form didn't match that in his passport.
They also told us that forged ID documents had forensic value to them, so even if the criminal did get into the system the ID process would have been valuable;
the JMLSG were champing at the bit to change their guidance on ID requirements, for personal and corporate customers alike. My hope is that the ID work we initiated encouraged them to be that bit bolder in their new approach;
we took the views of customers both through the consumer bodies who were involved with the ID Working Group and directly through a survey that we conducted. What they told us was that for the most part they didn’t mind too much having to prove their ID, although many didn’t understand the links between that process and the fight against crime and terrorism. But those without the standard documents for proving identity or address – full-time students, those dependent on State Benefits and refugees for example – clearly did face problems in proving their identity and address. Problems that we needed to tackle.

So where are we over the challenge to 'defuse' the ID issue by the end of this year? I am delighted to be able to report significant progress. We are publishing today on our website an update on developments over the issue. We are also publishing our survey of consumers’ experiences over having to identify themselves. Let me highlight three of the key developments that we have seen in recent months:

First there is the work of the JMLSG, who deserve enormous credit for all that they are doing to promote good industry practice over the fight against money laundering and terrorist financing. Their March consultation draft does much to address the ID issue, including:

recommending less reliance on initial ID of a customer, and more on other money laundering tools such as Know Your Customer and monitoring of customers’ account activities;
using a single document or electronic means to identify customers in many circumstances, thereby doing away with the low gain, high pain address verification process;
greater reliance on ID done by other financial services firms, so that often customers will have to be identified only once in relation to a transaction even if more than one such firm is involved; and
a more tailored approach to meeting the need to identify those like full-time students, single parents on State Benefits, those returning to the UK from overseas etc., who might otherwise struggle to access the financial system because they don't have the more commonly used documents to prove their address or identity.

Then there is the work of Companies House, the DVLA and the UK Passport Service to make their data and documents more secure. So that if a potential customer presents himself as representing a particular limited company, or shows a recently issued UK driving licence or passport as proof of identity, you can be much more sure than was the case a couple of years ago that he is who he claims to be.
Thirdly, there is the customer awareness angle to the ID issue. ID checks are a crucial tool in the fight against money laundering and also important for us all as a defence against having our identities stolen. Getting this message over is crucial. The industry is very active over this: increasingly, for example, firms include material on the reasons for customer identification in their application packs and we very much welcome that. We welcome too the Government's commitment to doing more in this area, as part of their work on the UK money laundering strategy. For our part, in June 2004 we issued a factsheet on customer identification , and encourage all stakeholders to use this resource in whatever way is appropriate to help get these messages over to customers.

It will take some time for the many changes being made to feed through fully to new practice on the 'front-line'. In particular the new JMLSG Guidance will not come on stream until next year. But we have a framework for going forward, and a plan for getting this in place. And if there are things that can be done now to help 'defuse' the ID issue, then let’s just get on with them - the FSA will not stand in the way!

We are well on course for 'defusing' the ID issue. And having an ID regime which when fully implemented will really deliver the win-win that we were hoping for – better for firms, better for law enforcement and better for us all as customers.

The FSA’s expectations of firms

A big part of 'defusing' the ID issue was to work out what the regime was supposed to deliver and then how best to make sure that this was how the system would work. But a key question for me was whether the FSA was regulating in the way that would best encourage good practice – that is practice that helped fight crime. If we can step back to the late 1990s for a moment, the standards of customer ID across the industry were not always as high as they should have been. We need look no further than our investigations into the Abacha case as evidence for this. Then came a number of changes, notably the FSA's new powers, a new set of Money Laundering Regulations and the Proceeds of Crime Act. Customer ID procedures improved. But to return to my question, did the FSA’s emphasis on customer ID, and in particular the public enforcement actions we took in relation to firms whose procedures weren’t up to scratch, lead firms to pay too much attention to ID at the expense of their other AML tools? Quite possibly.

We must be clear about this. What we expect of our firms is effective management of money laundering risks through considered use of the full range of AML tools. Not zero failure. Not excellence over customer ID if this is at the expense of KYC, monitoring, reporting, training and so on. To put it another way, for senior management to manage those risks as they would many others to which their firm is exposed – putting resources where there is most marginal benefit and to resource that activity adequately, against the backdrop of their legal obligations. This is a message that I have sought to communicate time and again over the last eighteen months. And I make no apology for repeating it here: effectiveness, defences tailored to risk, consistently engaged senior management, high quality systems and controls appropriate to the firms’ risk exposure and circumstances: these are the kind of things we are looking for.

And this is why I wanted the position I have just outlined to be on the record. So I wrote last October to Ian Mullen as Chairman of the JMLSG about the so called 'fear factor' – firms feeling compelled to be overly conservative over their money laundering risks because of fear of the FSA. You can find this letter on our website - let me quote a few lines from it:

'A better understanding that our approach to failures in AML controls will not automatically involve disciplinary sanctions and that our supervisory activity will be based on a risk-based approach should remove any 'fear factor' and encourage firms' senior management to implement an effective risk-based regime.

We … recognize that any regime that is risk-based cannot be a zero failure regime. We appreciate the importance of a non-zero failure regime; not least because a 100% standard will not be cost effective and will damage innovation, competition and legitimate commercial success.'

I also made it clear in that letter that although we continue to expect good customer ID standards in firms, it is not our intention to use significant enforcement resources in this area unless there are particular aggravating factors because we intend to focus on other aspects of money laundering controls.

Now it’s all very well for me to say these things, but I’m not the CEO of a regulated firm, with the FSA potentially all over me if I’m judged to have fallen short. If that were me, what questions would I ask? Should l cover my back by getting my staff to take lots of ID from customers up front and so on? How could I be sure that the FSA would really deliver on the risk-based approach I had heard so much about?

I have three answers to those very valid questions.

First, there is what we say (and we mean what we say!) to the industry and other stakeholders about our approach.

Secondly, there is what we are doing. Let me share with you a couple of recent case studies where firms weren’t managing their money laundering risks in ways which we thought were appropriate. You won't have heard of these cases before, as they didn't involve public enforcement action. So this is an insight into how a risk-based approach to enforcement action actually works in practice. For obvious reasons, I have changed some details to protect the privacy of those involved.

With firm A, an insurer, we had concerns about the adequacy of their identification procedures, particularly in relation to potential third party payments. Now as I have already mentioned, we have publicly stated that we don't usually intend to apply significant resources to purely ID-based issues. With firm A, the ID procedures were a real concern to us, which we explained to them and communicated clearly what we expected in terms of immediate remedial action. The firm was given a period of time to improve their procedures, failing which a referral to Enforcement would be considered.

We felt that obtaining a real and timely commitment to resolve the identified ID issues was a more proportionate response to the particular risk than public disciplinary action, although we would of course not have hesitated to reconsider should the firm have faltered in its commitment to improve its procedures.

Our second case involves a large institution, Firm B, whose procedures for complying with its obligations under the Proceeds of Crime Act gave us cause for concern. Without getting into the details of the case, we felt that the way the firm dealt with a particular risk was both below the standards we would expect and out of step with its peers.

However, the Enforcement investigation revealed that this was a very complex area, involving the consideration of often conflicting factors. Firm B had attempted to take a risk-based approach to the issue and the process that it had followed and the steps taken were largely what we would have expected, even if the final result wasn't. Although we had clear concerns, we could see that senior management had engaged with the issue and made real efforts to address it. Which was one of the reasons we didn't move to discipline in this case.

My third answer to the question as to whether we are 'walking the walk' over the risk-based approach is what we are telling our staff; so that we recognize the crucial importance of our delivering our financial crime policy objectives on the 'front-line'. Our supervisors need to be equipped for delivering a risk-based approach over money laundering and to be willing to embrace such an approach. So that what they ask is along the lines of: 'What is your assessment of the money laundering risks in your business? Which products or services do you judge pose the greatest risks? What controls do you have in place to mitigate these risks? And how does Internal Audit help with the quality assuring of the effectiveness of your AML systems and controls?'. High-level questions to get to the bottom of whether the firm is delivering effective risk management. Which is why the FSA is investing this year in a programme to top up supervisors’ knowledge of financial crime issues and to refocus their engagement with firms so that a risk-based approach underpins all that they do.

Consulting on reform of the Handbook provision on money laundering

As a risk-based approach has begun to inform all our thinking over AML, we feel the time is right to revisit the relevant Handbook provisions. To see whether our Rules and Guidance on money laundering promote the risk-based approach and the thoughtful use of all the AML tools which we expect of firms. The specialist Money Laundering Sourcebook has underpinned our efforts to set requirements and raise standards in firms, but is past its best. It gives firms some very specific requirements over things like customer identification and training, yet is silent over the use of other tools such as monitoring and Know Your Customer. It also has little to say explicitly about the assessment and mitigation of risk. The time is right to move on, to do away with much of the detail and instead to say to firms and specifically to their senior management 'it is your responsibility to comply with the law, manage your risks well, and do so in the right way for your particular circumstances'. We see this as the natural evolution over our requirements of firms: that by having high level risk management provisions and the engagement of senior management, we will all fight money laundering more effectively, in a proportionate and economical way. Part of delivering that more effective framework that I mentioned earlier. The proposals will appear in a 'Handbook Review' Consultation Paper we are to publish shortly; alongside other proposals, with similar objectives, on non-financial crime topics which all fit in with the FSA's general strategy of promoting effective, proportionate risk management.

Money Laundering Reporting Officers

But let me say a few words here about MLROs and senior management, to clarify our supervisory expectations.

First the MLROs - they are the focus of money laundering activity in firms. As such they are central to the regime, central to the fight against money laundering. It is for this reason that the MLRO is and will continue to be a 'controlled function'. What does this mean in practice – what are the kind of things we are looking for in an MLRO? We believe it is crucial that they:

are of an appropriate seniority;
are properly trained;
have the right skill sets and competencies;
have access to adequate resources (which may for example mean budget, staff or appropriate IT); and
report to senior management sufficiently regularly and in sufficient detail for those managers to be confident that the money laundering risks to the business are being identified and handled appropriately.

And then there is senior management, whose role is just as critical in the fight against money laundering. They need to:

buy into and engage consistently with the firm's AML policy;
be sure that the system is working well;
provide leadership within the firm, helping establish the right culture for the fight against money laundering and terrorist financing;
be in regular and close contact with their MLRO, and be getting the management information they need to make the strategic decisions about AML activity;
be confident in how their firm is quality assuring the effectiveness of the money laundering regime – are they satisfied with the engagement of internal audit with the AML agenda for example?; and
be equipped to make the key decisions about how the firm should deliver a risk-based approach.

The money laundering regime can deliver what we all want only if senior management consistently bring to bear their leadership and strategic judgement in the AML sphere, as they do in the rest of their business; and if they give their MLROs wholehearted and consistent support in this crucial enterprise.

In my view it is hard to under-estimate the importance of having a good MLRO and good senior management engagement in the issues. These are pre-requisites for a good AML package. Which is why it saddens me when I hear from time to time that some senior management believe that FSA is less interested in AML matters than it was. This is just not true.

The risk-based approach

Smarter ID procedures, tackling the 'fear factor', appropriate styles of FSA supervision and enforcement, and possible reform of our Handbook: all ways in which we have delivered on the initiative I announced last April over promoting a risk-based approach. But before I move off this subject I must dwell for a few moments on two other bits of the jigsaw: the crucial role in all this of the JMLSG, and the prospect of further reform of the law.

First, the JMLSG and in particular their radical revision of their Guidance. I began this speech by talking about the need for a more effective framework of law, regulation and guidance. And in the JMLSG’s March consultation draft I see the very real prospect of just the kind of guidance we need - that will help us all deliver a more effective regime. What does the FSA hope to see in the new Guidance? We look for Guidance that:

is risk-based;
promotes high operational standards;
helps firms’ senior management play a key role over combating money laundering and terrorist financing;
helps equip MLROs to perform their role effectively;
helps 'defuse' the ID issue;
covers all the sectors and is freely accessible to them; and
and which delivers - wherever it is practical to do so - what law enforcement need.

And what we see is a draft that goes a long way to meeting all of these criteria. And to the extent that it doesn’t, yet? Well for our part over the last few months we have worked extensively with the JMLSG on the new text, giving whatever support and encouragement we can. And we will continue to do all we can to help them. And I must add how impressed I have been by the energy with which the industry and other stakeholders have been engaging in the consultation exercise, and of the JMLSG's openness to input from all quarters. With all this work in train, I am confident that the JMLSG will deliver an excellent product, which will do much to support excellence of practice in the industry.

Turning to the Third EU Money Laundering Directive, supporting the Treasury in their negotiations has been another of our key priorities in recent months. We shared with them, and indeed with many in industry, a commitment to promoting risk-based requirements with the minimum of prescription, familiar themes of course in this speech. We will have a lot more detail in the law, but there is a good chance of the risk of undue prescription being substantially mitigated by the explicit recognition of a risk-based approach.

The Treasury have achieved much in those negotiations, and overall I judge that the outcome over the Directive to be reasonable. Certainly it could have been a lot worse if it had not been for the pressure from the UK Government and private sector. The challenge for us all now is to keep up the pace over the next couple of years and do all we can to get the best possible combination of UK law and guidance to give effect to the Directive – as part of the effective framework for the UK.

Delivering what law enforcement need – targeting efforts against crime

Let me turn now to the final of my themes today, the targeting of our efforts - what we can do to align the money laundering regime so that it delivers to maximum effect.

I announced last April a time-limited initiative to up our own game over targeting, and I feel that we have since made considerable progress over this. As a result of a concerted effort over communicating our intelligence requirements with law enforcement and NCIS, we have instigated specific cases as well as identifying trends and informing policy. This has involved a closer working relationship with NCIS and using intelligence gained from different branches of law enforcement. This has enabled the FSA to focus its resources more readily. Of course, intelligence exchange is just that, a two way flow of intelligence. As well as FSA benefiting from intelligence received, we are also helping to inform others' investigations and trend identification products, such as NCIS current intelligence assessments on financial products and sectors. Although this more pro-active role is still in its infancy, it is producing results and will continue to be the subject of much effort in the FSA.

But we are only one player in a much bigger game. Just as we recognize that we have a distance yet to travel before we can be truly intelligence-led and targeted in our efforts, we feel the same is true of the system as a whole. For me the challenge here is like that which faces those running big IT projects. Ensuring that the experts design and deliver a robust and effective system which meets the needs of the users and doesn't cost more than is really necessary. And often the key to success here lies in the specification of the users' needs. I believe the same is true over money laundering. I’ve already mentioned one example of this earlier – that law enforcement are more concerned about a customer’s current address than the address at the time of starting the relationship with the firm. Once we knew that, we could tweak the ID system and requirements accordingly.

But let me give you some more examples. Terrorist finance is one. Movements of terrorist funds are often nigh on impossible to spot. It has been well documented for example that 9/11 and the atrocities in Madrid did not cost a huge amount. The money that the terrorists moved around was in small amounts, the remittances and the behaviours on the relevant accounts looking totally benign. So does this mean that AML tools have little part to play in fighting terrorist finance? Not at all. But what it does mean is that those tools are far more likely to be effective if they are used on the back of information from law enforcement. If law enforcement ask financial institutions to check for customers who meet certain criteria or who have used particular types of forged ID document, or law enforcement ask for information on particular named customers, then the financial services industry can help enormously in the fight against terrorism. So what does this analysis imply for my premise that we need to improve the AML framework, acceptance of responsibility and practice on the ground? Two things I would suggest. First that the more that law enforcement can help financial institutions in knowing where to look and what to look for, the better. And this means information, intelligence, feedback and the like. To allow firms to target their efforts, to go hunting with a particular aim in mind rather than for a needle in a haystack. And the second thing it means is that firms need all the guidance they can get from law enforcement as to what sort of information they should be collecting and keeping, so that when an investigation is under way and a production order for example is served the firm has to hand the kind of information that law enforcement need. Law enforcement are increasingly doing this kind of thing, and my message today is thank you and please do more, for the potential returns on your doing so are huge.

My second example of targeting has to be that old money laundering chestnut – typologies, feedback and the flow of information on money laundering risks from law enforcement. I talked about this last April, and many times since in many different contexts. But the reason I bring up this topic so often is the same reason that KPMG stressed it in their 2003 review of the Suspicious Activity Reporting regimec , the same reason that the Financial Action Task Force (FATF) think it so important, the same reason that the UK's Anti-Money Laundering Strategy document places such emphasis on it. It is crucial to the effectiveness of the whole enterprise. And we are back here to my IT analogy. Firms need to know what law enforcement actually need. What makes for a good Suspicious Activity Report? What sort of behaviour is indicative of crime, because if law enforcement tell us then we can look out for it. A few years ago a dealer in microchips or mobile phones actually or apparently moving goods repeatedly across EU frontiers in a short period of time might not have raised suspicion. If it happens today I would hope that it would scream out for the MLRO's attention. Why the difference? Because Customs have been proactive in telling us all 'this is what Carousel fraud looks like – beware'. We're grateful to Customs for that. To NCIS for their assessments of threats to the financial sector and for their commitment to making more such material available to industry whenever they can. And to law enforcement for the information on forged documents used for opening accounts in false names. But firms need much more, more often. Because if you give them those typologies, the feedback, the advice on what makes for a quality Suspicious Activity Report (SAR) and so on the dividends will be large – better SARs, less defensive reporting, better data collection, more reliable account opening procedures and so on.

My final example of the need for more targeting is the Suspicious Activity Reporting system generally. What ought to be one of our most valuable resources in fighting crime, a flow of information on suspect activity from a huge range of private sector firms – financial services and otherwise – often feels like a huge problem. So which is it - a potentially huge asset or an equally huge liability? Time and again we have seen efforts to sort the problems – the cheque and credit card 'carve out', the 2003 review by KPMG, the introduction of a concept of limited intelligence value reports, the tweaks to the law on reporting in the recent Serious Organised Crime and Policing Act. NCIS have laboured long and hard, as have the Home Office. The Money Laundering Reporting Taskforce, on which I sat, did its best. Huge amounts of good will and effort from all stakeholders to bash this system into shape. And yet problems remain, and meanwhile the numbers of reports rise relentlessly.

So is the SARs system part of the effective regime I started this speech with – do we have effective law and effective practice? As my comments already indicate, I think not. I said much the same in my speech last April, and over the period since I have found few people who would argue otherwise. Systems like the 'carve out' and the limited intelligence value form attempt to treat the symptoms but do not get to the root of the problem.

Now that may be the price we have to pay for the fantastic intelligence that the regime is capable of generating. Perhaps we do have to open thousands of oysters before finding the fine pearl. And when that pearl might be a lorry load of heroin not reaching our streets, or a bomb not going off … The potential value of the reporting system is huge. But if there are too may low value reports it becomes all too easy to miss the one that contains the crucial information. And if you are spending all your time managing the production line, will you have the time to develop the raw information into a quality intelligence product? The full benefits of the regime are simply not being fully realized. It is imperative that we all work together to deliver change. We must have a better framework and better practice in this area.

But all is not doom and gloom, because as you may recall my third key element in a successful regime is responsibility. And here we have the Serious Organised Crime Agency in place from next April. I shared a platform with Sir Stephen Lander, the SOCA Chairman, at a conference a couple of weeks ago. I was hugely impressed by his determination to get the reporting system right and his willingness to be radical and drive through change. There is a crying need for reform of the reporting system. KPMG said that in their report in 2003, and despite everybody’s best efforts it remains just as true today. Something must be done. And in SOCA I see every prospect of the solution we all so badly need.

Conclusions

I have spoken today about the real and very welcome progress I have seen over the last fourteen months, and some of the challenges that remain for us all in helping the system fight crime better. A lot has been achieved, but there is much yet to do. And as I have attempted to identify and focus on what the FSA can do to improve things, I have been enormously encouraged by the amount of good will around in this area; and by the extent to which we are all on the same side and want to work together. That was my experience in leading the ID work for example, that all of us wanted to deliver a better regime. With a lot of hard work and good will I believe we are well on the way to doing just that over ID. We must replicate that in the other areas I have talked about, so that we can together develop a better framework, practice and apportionment of responsibility. And thereby reap the full potential of the AML regime – one which leads to less crime.

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