AML & Compliance: Alternative History

AML & Compliance predate the pyramids and the Chin dynasty – not a lot of people know that!

In the Beginning…

Tracing the origins of AML & Compliance as distinct professions would make an interesting doctoral thesis, but let’s save ourselves a few years rummaging through the archives of the Smithsonian and the UK’s Royal Institute. We can chart the rise of compliance through refreshingly fact free unsubstantiated speculation.

Since 2017 was dominated by "alternative facts", we thought that it was about time someone wrote an "alternative history" of AML & Compliance.

What you are about to read is a collection of “alternative facts” which are so liberal with the truth they might even shame a President (or the New York Times, if you prefer).

Identity Theft - 3100 BCE

A quick web search tells us that the first Pharaoh was called Narmer, although he is sometimes called Menes, which sounds like history’s first recorded identify theft.

Was Narmer using a fake ID to launder money, or gem stones, with the Nubian cartel? We will probably never know because Client Due Diligence (CDD) records were only kept for 1 year back then, how things change!

First Came Lawyers

 As Narmer looked over the Nile all those millennia ago he would have seen vast and fertile floodplains with abundant agriculture. The river was full of traders transporting food and wears to and from exotic locations.

Being a Pharaoh, Narmer would have wanted his cut (the first cut) of everything grown on his lands and all the goods passing along the Nile.

Clapping his hands, Narmer summoned his scribe to write down his wish to receive a tribute of wine and wheat from every farmer and trader. And so, it came to pass that we had history’s first law and, that scribe, was history’s first lawyer.

Accounting and Audit

The wine and wheat started to roll into the Pharaoh’s treasury which means someone had to count it and keep track of how much came in and went out. A scribe was asked to keep track of the wine and wheat and he invented numbers – something accountants have been doing ever since. The Pharaoh’s numbers man was history’s first accountant and the accounting profession had started.

But the numbers man displeased the Pharaoh when he reported there were negative 6 bushels of wheat in the treasury which was statistically improbable.

The Pharaoh sent a trusted scribe to the treasury to check the accountant’s numbers and we had the first audit. The audit profession had started.

So Far, So Good

Our good Pharaoh liked the law his lawyer had etched, the accountant gave him regular management accounts on the wine and wheat in the treasury and the auditor checked the numbers, issuing a “true and fair” opinion which was heavily caveated. Sounding familiar?

The World’s first Regulations are Written

Something was wrong. The Pharaoh thought the wine tasted like Nile river water and the wheat was like the sand in the Sahara. At this point the Pharaoh suspected he might have been short changed by his subjects. The quantities were right but the quality was lacking.

The Pharaoh set up a Joint Steering Committee (JSC) made up of his lawyer, accountant and auditor. The JSC was tasked with ensuring the law was correctly implemented and followed which required a tablet of regulations.

Who Enforces Regulations?

The world’s first regulatory manual was produced and a team of the Pharaoh’s people who enforced the regulations were called “Regulators”.

These fine Regulators were dispatched to make sure that the merchants and farmers were registered and operating in compliance with the regulations.

The Pharaoh’s Regulators didn’t have the power to fine regulated entities, but they could and did execute those not complying. Non-compliance was not much of a problem and modern regulators might need to think about upping their powers of enforcement (just an idea).

And Finally Comes Compliance

As you might have guessed, each and every Egyptian was very keen to be in full compliance with the Regulations and they employed Compliance Officers for their own safety.

After a lengthy search of the archives I was able to track down a picture of the world’s first regulatory tablet.

Alert readers will have noticed that the tablet of regulations pictured is a lot more complex than the actual legal tablet on which it is based – some things never change.

And, if you look carefully at the tablet you will see it includes a provision on whistleblowing (there is a person speaking into an Egyptian era telephone).

After a hundred years, the single tablet had become a hundred tablets and before long there was a mountain of obsolete tablets, which is how the pyramids began.

Back to the Future

While this article was written in jest, it does make you realize that the regulatory environment we operate in is as ancient as civilization itself. In-fact, regulation is what defines a civilized society. Before regulation there could be no "civilization".

So, my fellow AML/Compliance practitioners, our jobs are important because we are on a mission to civilize the world!

About the Author

Adrian Pay has specialized in financial regulation for over 20 years, working in the UK, US, Hong Kong, Singapore, Japan and Luxembourg. He has lectured around the world on a range of regulatory, governance and AML topics and is passionate about learning and sharing his insights.

Adrian was a co-founder of LatentZero (now Fidessa BuySide) and is a Director of Dynamic-GRC, the leading RegTech solution provider: www.dynamic-grc.com

If you have questions, comments or suggestions Adrian can be emailed on:[email protected]