Were EY aiding in the laundering of drug money and did they fail to meet the reporting (SAR) standards

INTRODUCTION

1. Criminals make £5bn a year by selling illegal substances and the majority of the transactions are in cash. With large sums of cash being obtained through illegal means, criminals are not able to deposit such funds in banks, which is where money laundering comes in.
2. With these eye watering numbers Financial service organisations are meant to keep dirty money out of the system by having stringent processes in place. However, according to an investigation by BBC Panorama and the French news agency Premieres Lignes, Big Four accountancy giant EY allegedly allowed British drug money to filter into the system by failing to report evidence of smuggling.  The findings from the case have been alarming.
3. According to the documentary, the involvement of EY in this case is sure to generate more distrust in regard to the firms that are meant to keep dirty money from circulating.
4. For EY to be involved in this cover-up raises questions of transparency and trust in audit, and further poses the question of how this all transpired in the first place and concerns around the audit regime continue to grow amid calls for reform.

THE STORY IN A NUTSHELL

5. Highlighting the role of the professional services sector in financial crime, the documentary claims that
   1. an organised crime gang laundered drug money by selling 3.6 tonnes of black market gold to the Kaloti trading and refinery business in Dubai in 2012 through an operation which started in Europe.
6. A year after the gold was traded in Dubai, EY was asked to conduct a review of Kaloti's compliance with rules designed to keep gold from illegitimate sources out of the global supply chain.

The Chain

7. The chain of events began in London when airport cleaner Hassan Mougammadou is recruited by the gang to collect £70,000 on the Isle of Dogs.
8. He became their 'money mule' where he collected over a million pounds of drug money to smuggle into France. Helena Wood from the Centre for Financial Crime and Security said:
   1. "By using a mule you're placing another barrier between you and the originator of the funds and the actual proceeds. They provide an essential service to the money laundering network".
9. The gang recruited people with ordinary jobs and once the money mules reached their destination, it was collected by an ambulance driver.
10. Captain Quentin Mugg from the French police said:
    1. "Cash is circulating and someone has to retrieve it and repatriate those funds. We identified four groups of collectors in France".
11. The money was counted and then passed on again.
12. This time the trail leads to Antwerp, Belgium where the dirty money was allegedly swapped for black market gold through a dealer – Gheorghe Blutner.
13. To stop money laundering, cash purchases over €3,000 are banned, however Blutner was exchanging 200 kilograms of gold for €6m.
14. In secret filming conducted by the BBC, he said:
    1. "I don't call this illegal. It's just not allowed". Blutner was a crucial link for the gang as he turned cash into gold, allowing it to be smuggled out of Europe.
15. After this the gang moves to Dubai where they sold the gold for clean cash. Wood said:
    1. "The more you move across a border, the harder it is for the investigator to track it back to the original source and you can move into jurisdictions that will ask very few questions and sell them on".

The Aftermath

16. Documents seen by the BBC reveal that a company owned by a member of the gang, Renade International, sold $146m (£114m) of gold to Kaloti in Dubai in 2012 alone.
17. After the EY audit team were called in to conduct the review, they discovered that Kaloti had paid out a total of $5.2bn (£4bn) in cash. However, the auditors failed to report this suspicious activity to the money laundering authorities.
18. Graham Barrow, anti-money laundering expert said:
    1. "If I found out a business was collecting and handing out $100m a week in cash, I would be enormously suspicious. When people are dealing in large amounts of cash it is more likely to be for criminal reasons than legitimate".
19. EY were also shown what appeared to be bars of silver from Morocco, but scratching the surface revealed they were in fact gold bars which were coated with silver.
20. Amjad Rihan, EY's lead auditor in Dubai in 2013, was given the job of auditing the Kaloti group, which at the time commanded half of Dubai's gold refining market.
21. He told the BBC that
    1. he wanted to report the suspicious activity but was told not to by his superiors.
    2. "If you identify a suspicious transaction you should report it to the authorities and what we identified was way beyond suspicion.
    3. Instead of reporting the crimes that I told them about, my bosses just covered them up,"
22. The documentary also claims that a compliance report was rewritten by EY to cover-up the crime.
23. A number of drafts to a Dubai regulator seem to state that Kaloti admit to buying gold coated with silver. It says:
    1. "We acknowledge an incident... with the bars coated with silver".
24. However EY allegedly rewrote the report to say:
    1. "We acknowledge transactions... in which there were certain documentary irregularities".
25. Both EY and Kaloti deny any wrongdoing, with EY Global saying in a statement that:
    1. "The unfounded allegations raised in BBC Panorama's segment on Kaloti are not new.
    2. Similar baseless allegations were first made and publicized over five years ago by a disgruntled former EY Dubai partner, Amjad Rihan.
    3. These allegations have resurfaced again now, many years after the events in question, as part of an employment related claim that Mr Rihan has brought against certain EY entities seeking substantial sums of money.
    4. Mr Rihan's claim is denied and is being vigorously defended".
26. Kaloti maintain that they carried out all appropriate anti-money laundering checks and
    1. "would not knowingly enter into a trading relationship with any party in the knowledge that such party had been engaged in financial impropriety or criminal activity of any kind. It is categorically denied that Kaloti purchased gold coated in silver from Renade, or anyone else for that matter".
    2. The company said that cash payments were common in Dubai, but it no longer buys gold for cash.
27. Over 25 members of the money laundering gang were jailed in France in 2017. However, the crime boss Nour-Eddine Ech-Chaouti is still on the run in Morocco.
28. With transparency, and trust in auditors, running increasingly thin, firms need to ensure that every link of their chain is secure.

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