As we continued living the new-Covid-normal, criminals, fraudsters, hackers and the like were busy re-imagining their operations and demonstrating their ability to be truly agile in these uncertain times. Although official fincrime statistics for the year have yet to be released, from what we saw these past 12 months, we already know the metrics are high.
Here’s a look back at some of the key anti-money laundering (AML) fincrime compliance moments in 2021.
Shift in behaviours
As a direct impact of the pandemic, we saw a shift in behaviours across:
- Consumers with more online payments and transactions taking place as we shop online and conduct more business via online channels and methods
- Criminals and fraudsters who have been, and continue, to specialise in the various components of organised crime and target specific areas for money launderings and scams to benefit their agenda
- Cyber crime, which soared in volume as threat actors became more sophisticated and evolved in their ways, manners and tactics
Crypto takes the limelight
Cryptocurrency became mainstream in 2021. We saw the highs and lows of price volatility and social media influence, the fascination of stable coin adoption and cost savings from traditional FX fluctuations, the popularity of non-fungible tokens and growth of between $7-$13.2 billion, and country based digital currency as a means to bring banking more into the digital age.
We also saw growing interlinkages with the regulated financial system, crypto risk exposure, DeFi-related fraud and digital assets trading. The Financial Action Task Force (FATF) reviewed adherence to their guidance on Virtual Asset Service Providers, concluding more work needs to be done, the European Commission announced changes to Transfer of Assets regulations, the US released its Anti Money Laundering Act (AMLA) to include virtual assets and the EU announced changes to its Anti Money Laundering Authority for 2025. This is just the start, however. Expect to see more in 2022 and beyond.
Enforcement and regulation
When compared against previous years, the trend in enforcement action appears to be down in most regions, with perhaps the exception of the UK and Europe.
The overall downward trend is most likely an impact of the pandemic, with fewer investigations occurring and rescheduled onsite examinations as we transitioned to home working. And the exceptions – most likely the effects of the UK’s EU exit and crypto related crime (eg. Binance and licencing, ransomware attacks and scams.) The European Commission’s fifth and sixth AML Directives (5AMLD and 6AMLD) also introduced a set of key changes, such as the harmonisation of 22 predicate offences, an extension of criminal liability to legal persons and a requirement of greater cooperation between countries.
We saw first-hand how the past is enforceable. Take, for example, Capital One ($390 million fine) and Natwest (£265 million fine), which both involved major publicised AML failures for years gone by; in the latter case, Natwest’s guilty plea in one of Europe’s biggest money laundering cases, despite having spent over £700 million in its AML processes.
The release of the Pandora Papers shook the compliance world and the globe. The biggest leak ever with over 11 million documents, it exposed a global financial system where power and wealth too often crowd out transparency. It has pushed the boundaries around anti-money laundering for Designated Non-Financial Business and Professions and hidden beneficial ownership, such as for lawyers, solicitors, real estate agents, art auctioneers, and dealers in precious gems and stones.
Fraud
Banking fraud hit an all-time high in 2021 thanks to savvy threat actors and ongoing pandemic circumstances. The UK observed a notable increase in scams, impersonations, card crime and automated push payment fraud. In fact, Action Fraud in the UK recorded over 13,000 instances of fraud from Jan-April, up 33 per cent on previous year, and UK Finance reported £97 million in card related fraud from Jan-Oct this year, which resulted in 108 arrests and 74 secured convictions.
Sanctions
The amount of sanctions issued by imposing bodies globally was high in 2021, and this comes as no surprise. Whether it was the Office of Foreign Assets Control in the US, the UN, or the Office of Financial Sanctions Implementation in the UK, the frequency and volume of sanctioned countries, entities, individuals and vessels in response to world events, crimes and supply chain issues were abundant. As we move into 2022, we can expect to see the management of sanction lists a continued focus for AML compliance teams, which are responsible for implementing the lists and all the frequent changes, which come from the specific bodies who set the sanctions.
Transparency for payments and corporates
A call for greater payment transparency was evident in 2021, especially as it relates to all parties involved in transactions, as well as aiding law enforcement to follow the money, and better cooperation with cross border transactions, and with business registries.
Many nations announced new or ongoing work on new payment networks, the need to separate bulk payments, refinement in AML regulations and P2P/P2C overhaul. For example, the UK with the New Payments Architecture and German regulator BaFin extending AML/Know Your Customer regulations to universal ibank accounts.
The announcement of ISO Standard 20022 to be implemented by 2025 also lends itself to greater transparency, with a message format that captures more information for transactions, will better facilitate cross-border transactions and will aid AML/transactions monitoring systems with better attributes for rule detection, STP movement and sanctions screening.
Business and ownership registries were also a focus for transparency this year – with the US AMLA proposing the government hold their first beneficial ownership registry, much like how other countries do already, such as in Europe and the UK. Reform of registry information also saw attention in the UK and several cities in the EU.
Sustainability and the human impact
The pandemic made us more aware of environmental and human factors of crime, and the impacts they have on society, including the lasting effect on victims of crime, and the difficulty in retrieving illicit funds from such activity. Human Trafficking, slave labour, sex crimes, wildlife crimes and drug trafficking continued throughout 2021, despite country border closures and Covid restrictions. In fact, environmental crimes such as illegal logging and wildlife trafficking generate up to $281 billion in criminal gains each year, according to FATF.
The sophistication and specialisation of criminals in these typology areas only matured this year as they relied on specialised networks to move products and facilitate the financial flows, combining their illicit funds with the larger criminal network funds and laundered money. While often not publicised as much as other crime typologies, this continues to be an area of growth and where detection scenarios are not always as effective as they could be.
All of this has resulted in a new-wave of crime sophistication, specialisms, scams and money laundering methods that will surely keep fraud and compliance professionals as well as IT/Infosec teams on their toes in 2022.
How was 2021 from a compliance perspective? Here, Charmian Simmons considers the ups and downs of the past 12 months and reflects on all the key trends and changes we witnessed
