FINANCIAL CRIME IN FOCUS – Edition 7
Published Date: 30th May 2019
The latest research report in our Money Laundering Exposed initiative has now been launched. ‘On the Frontline: The UK’s Fight Against Money Laundering’, asks Money Laundering Reporting Officers (MLROs) and equivalent from regulated sectors how effective they think the UK is in its fight against money laundering and explores where they want to see change (please download your complimentary copy).
The report throws up some surprising results from the people that run AML systems and controls in Banks, Fintechs, Law Firms, Estate Agents and the Gambling sector - a fairly broad spectrum of the sectors covered by the 2017 Money Laundering Regulations.
Overall, those surveyed feel the UK regulator and regulated businesses are doing enough to address the money laundering problem in the UK (68%), however the real question is whether we’re all busy doing the right things. Whilst we might be ‘doing’ a great deal, it’s clear that this effort isn’t having the desired impact, as the NCA conservatively estimates that over £100bn is laundered through the UK economy each year, and yet less than 1% of this is stopped through the current Suspicious Activity Reporting regime.
Certainly, there is little appetite for more regulation – 57% think the existing regulatory framework is effective – but there is considerably more appetite for greater clarity around regulation, more best practice guidance and more information sharing. Nearly half of all respondents want to see improvements in information sharing and feel their inability to share information more proactively is the biggest barrier to their combatting money laundering more effectively. Respondents want to see improvements in information sharing across their own organisations, with peers in other regulated organisations and with the regulator and law enforcers. Surely this must be a priority for the newly formed National Economic Crime Centre?
The report also highlights challenges and for almost a quarter of respondents (24%), the single biggest risk in the fight against money laundering over the next 12 months is ‘evolving criminal methodologies’, such as cryptocurrencies. We all know that modern day money launderers and financial criminals tend to be smart, tech savvy and ruthlessly professional in what they do. They know how to exploit loopholes in the system and keep their activities under the radar. Criminal methodologies adapt and make good use of the latest techniques and technologies to find new ways to clean dirty money through the system.
FATF clearly recognises this growing threat and is driving to strengthen existing regulation, resulting in the 5th Money Laundering Directive (5MLD), which looks to plug some of these gaps by extending the scope of so-called obliged entities to include Crypto-asset exchanges and art traders, at the same time strengthening the availability of public registry data on beneficial owners and improving information sharing. The UK government is currently consulting on the implementation of 5MLD and firms have until 10th June to respond.
Classic money laundering placement scenarios such as smurfing and money mules continue to rise. Both of these methods typically target multiple banks and they could be identified much more easily if banks were able to share information with each other. In fact, the technology exists to automate this type of suspicious activity monitoring, which would revolutionise the identification of money laundering schemes.
About one third of respondents think that using advanced analytics and new technologies is the single best way to improve the fight against money laundering. The vast majority of organisations (78%) are already using, or plan to use, analytics and artificial intelligence for AML purposes over the next 1 to 2 years. Investment continues to rise with the belief that these technologies will deliver greater detection rates and improved operating efficiency, particularly in relation to transaction monitoring and suspicious activity reporting.
However one of the major barriers to overcome, according to the report, is the serious shortage of qualified compliance staff and a lack of understanding of the technologies in senior management.
Surprisingly it’s not banking! Nevertheless, it’s fair to say the main focus for AML regulation has been in the Financial Services sector so it’s not surprising that weaker links have appeared elsewhere. There can be little doubt that the industry is crying out for consistency across regulated sectors in terms of regulatory obligations, consistency in AML procedures and consistency in reporting (SARs), information sharing and the penalties applied for failure to adhere to them; the recent OPBAS report underlined this emphatically.
We will be releasing further research over the coming weeks into specific sectors as part of the Money Laundering Exposed initiative and will continue to facilitate discussion between key stakeholders in the industry, from compliance practitioners and policy makers to law enforcement and regulators.
Armed with facts and figures from the industry, AML professionals can take more targeted and focused action against financial criminals. As we have said many times, money laundering is not a victimless crime it leaves in its wake tragedy at every level.
The Government recognised this when it set up the Economic Crime Strategic Board and we sincerely hope this commitment is maintained.
If we are to truly tackle the financial crime problem, leadership and coordination of resources are essential.
Please download the report and let us know what you think.
Author: Michael Harris
Director, Financial Crime Compliance and Reputational Risk
LexisNexis® Risk Solutions
A detailed view from those on the frontline
LexisNexis® Risk Solutions, working with the Economist Intelligence Unit*, has surveyed more than 200 professionals charged with combatting money laundering, to provide a detailed view of AML from the frontline. The resulting intelligence exposes we have much to do and highlights: