What's Behind the Wolfsberg Principles?
| Date | 01 February 2001 |
| Published date | 01 February 2001 |
| DOI | https://doi.org/10.1108/eb027285 |
| Pages | 348-349 |
| Author | Toby Graham |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 4 No. 4
What's Behind the Wolfsberg Principles?
Toby Graham
The past few years have seen a plethora of anti-
money laundering initiatives. One of the latest is
the so-called 'Global Anti Money Laundering Guide-
lines for Private Banking' formulated at a meeting in
Wolfsberg, Switzerland ('the guidelines'). Other
initiatives have been government led. The guidelines
were formulated by representatives from the banking
industry (in collaboration with Transparency Inter-
national and Professor Mark Pieth), and launched
on 29th October, 2000. They have received a
mixed reception in the press. Some have given
them a warm welcome, saying they 'fill ... a hole
left by government regulators'. Others are less
enthusiastic, dismissing them as window dressing
to reduce public and regulatory pressure on banks
caught out in a series of embarrassing money-laun-
dering scandals, such as Salinas, Bank of New York
and most recently Abacha. There is little doubt that
such pressure is part of the reason for the guidelines
and they seem to have generated an impression that
banks are facing up to this issue, thus reducing
pressure.
The other reason for the guidelines is harmonisa-
tion of practice for dealing with public officials, par-
ticularly from high-risk countries (that is countries
where there is a high risk of crime or corruption).
Banks have resisted unilateral action, fearing their
wealthy clients will switch to competitors. It is
hoped that other banks will in time sign up to the
guidelines. Harmonisation of practices for dealing
with such clients is important. Success depends on a
uniform application of the guidelines, which in turn
depends on the guidelines being free from ambiguity.
By way of illustration, the requirement in Regula-
tion 9(2) of the existing Money Laundering
Regulations to take 'reasonable measures' to identify
a principal for whom an agent is acting is thought
to create a scope for uncertainty and variations in
procedures between institutions.
Transparency International's opening statement on
the guidelines asserts 'these guidelines are crystal
clear. They are not ambiguous. They state unequivo-
cally that banks agree they should not be used by
corrupt crooks.' With the greatest respect, the
language used in the guidelines is not free from
ambiguity. For example,
(1) the primary purpose of the guidelines is stated to
be a commitment to 'accept only those clients
whose source of wealth and funds can be reason-
ably established to be legitimate';
(2) banks are required to take 'reasonable measures
to establish the identity of [their] clients and
beneficial owners';
(3) they must also collect information regarding
'source of wealth (description of economic
activity which has generated the net worth)
and estimated net worth'.
Quite what is required of banks is not spelt out and
references to 'reasonable measures' are obviously
capable of different interpretation.
The 11 signatories claim the guidelines reflect
internal best practice. It appears from the US Senate's
Permanent Subcommittee on Investigations on
Private Banking and Money Laundering that those
banks whose procedures were scrutinised for the pur-
poses of the four case studies had detailed procedures.
Citibank's Public Figure policy document dated
June 1998 runs to four pages. This policy document
would meet most if not all of the guidelines. But
these procedures did not prevent Citibank from
becoming involved with Abacha's funds. It remains
to be seen whether the guidelines will be any more
effective.
The guidelines are a voluntary code. They have
no force in law and no sanction will apply if they
are breached. Press reports suggest the 11 banks
considered but rejected the idea of sanctions for
breach.
The guidelines are drawn entirely from concepts
introduced in the existing anti-money-laundering
regimes found in the Money Laundering Regulations
1993 and Criminal Justice Act 1988 (as amended). In
essence the guidelines summarise key elements in the
Joint Money Laundering Steering Group's guidance
notes.
This is not surprising, as procedures of the 11
signatory banks will have been informed by the
JMLSG's guidance notes. Those procedures are
reportedly considered by Transparency International
to be 'technical and difficult to understand'. It is true
that the JMLSG's guidance notes are technical. Such
technicality is necessary to address the verification
Journal of Money Laundering Control
Vol.
4,
No.
4,
2001,
pp.
348-349
Henry Stewart Publications
ISSN 1368-5201
Page 348
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