The fight against money laundering requires increased information exchange

There is no doubt that the current anti-money laundering system is not working.

Money laundering and the offenses it commits are one of the biggest challenges facing governments around the world today. But this challenge is so badly opposed that we cannot even agree on its scale.

However, we can agree that the current anti-money laundering (AML) compliance system is not working. Governments have in fact provided financial institutions with solutions to this problem. But according to a recent study by BAE Systems, compliance experts believe that they spend too much time filling boxes and not enough time to detect illegal actions.

Ultimately, effective compliance with anti-money laundering rules can have a real positive impact on national security, society and the economy. But to achieve this, banks need to spend more money on anti-money laundering, including advanced technology, and stakeholders need to work more closely together. This is the promise of the “FinCrime feedback loop”.

The worst of humanity

Money laundering is a list of the worst crimes of mankind. These include terrorism, human trafficking, organized crime, murder, kidnapping and sexual exploitation.

According to the United Nations Office on Drugs and Crime, the pandemic has benefited some criminals, especially those who profit from human trafficking. “The pandemic has exacerbated and highlighted deep systemic economic and social inequalities, one of the main causes of human trafficking,” he said in a 2020 report.

The bad news is that these crimes are becoming harder to spot, according to anti-money laundering experts we interviewed. Almost two-thirds (62%) say that money laundering is more difficult to detect than a year ago, and in general they believe that more than half of the cases go online. A quarter say they are forced to work with outdated technology, a little more (27%) do not keep track of the number of notifications generated, and a third say they do not have enough resources to do their job.

What if compliance itself was the problem?

In addition to these problems, there is another major culprit of past failures in the fight against money laundering: the culture of compliance itself. Three-quarters of our respondents say that compliance has become an exercise in ticking, and one-fifth say a “stagnant culture.”

This is not the first time these ideas have been expressed. A report by financial crime expert Robert Paul, published last February, described the fight against money laundering as “the least effective political experiment in the world.” A year earlier, the well-known think tank RUSI published a report highlighting concerns about the regime established by the Financial Action Task Force (FATF). He noted that the intergovernmental body involved in the fight against money laundering determines the effectiveness of its recommendations on how to implement them, rather than on their ability to stop the crime.

Recent events seem to emphasize that the current anti-money laundering rules do not work. The British lender recently pleaded guilty to failing to prevent the laundering of almost £ 400 million by one customer. This was a lawsuit filed by the Financial Control Authority (FCA). Other cases may be ongoing.

In addition, a massive hacking of data, coordinated by an international consortium of investigative journalists, has exposed the dubious financial transactions of hundreds of government officials and billionaires around the world. This prompted the Tory MP to describe Britain as the “world capital of money laundering”.

time for change

Our research shows that compliance professionals want to do what is right for their employers, for money laundering victims, and for society at large. But they need support. Half of those polled want politicians to do more, and 92% say a lack of co-operation between banks, politicians and law enforcement hinders progress. The FinCrime feedback loop, which improves cooperation in the sector, as well as between the public and private sectors, strengthens technology and allocates more money to combat money laundering, can help.

Funding for IT security, fraud and risk was reduced by an average of 26% by financial institutions in the United States and the United Kingdom during the pandemic. That must change. For example, most financial institutions still do not have an anti-money laundering intelligence unit.

Money needs to be targeted more effectively. Some of this money should be spent on improving internal skills so that analysts can better spot primary crime rates in financial data. Funds should also be spent on smarter automated anti-money laundering solutions that detect suspicious behaviors that can be missed by the human eye, while freeing up staff to focus on more important tasks.

And yet, perhaps the heart of FinCrime’s feedback is the idea that stakeholders need to improve collaboration. More than a quarter of compliance professionals say that the feedback they receive from the police and the government about their anti-money laundering reports is not helpful or infrequent.

With better communication between all parties, the police need to receive information more quickly to facilitate investigations, and politicians need to take into account the sector’s response to make legislation more effective.

To achieve this, all parties must recognize that current approaches have failed, and spend time, money and effort to correct them. It won’t happen overnight, but the stakes are too high to ignore.