Why we need a FinCrime feedback loop to help tackle anti-money laundering challenges
There is no doubt that the current anti-money laundering (AML) compliance framework isn’t working, says Enda Shirley
Money laundering, and the offences it enables, is one of the biggest challenges facing global governments today. But it’s one so ineffectively tackled that we can’t even agree on its size.
One thing we can agree on, though, is that the current anti-money laundering (AML) compliance framework isn’t working. Governments have effectively outsourced policing of the problem to financial institutions. But according to recent SymphonyAI NetReveal research, compliance professionals feel that too much time is spent on box-ticking and not enough on spotting malfeasance.
The bottom line is that, effective AML compliance could have a genuine and positive impact on national security, society and the economy. But to get there, banks must set more funds aside for AML efforts, including for advanced technologies, and stakeholders must work together more closely. That’s the promise of a “FinCrime feedback loop”.
The worst of humanity
The so-called “predicate offences” linked to money laundering are a litany of humanity’s worst crimes. They include terrorism, human trafficking, organised crime, murder, kidnapping and sexual exploitation.
According to the United Nations Office on Drugs and Crime, the pandemic has been a boon for some criminals, especially those who make money from human trafficking. “The pandemic has exacerbated and brought to the forefront the systemic and deeply entrenched economic and societal inequalities that are among the root causes of human trafficking,” it said in a 2020 report.
The bad news is that such crimes are getting harder to spot, according to the AML compliance professionals we interviewed. Almost two-thirds (62 per cent) say it’s more challenging to identify money laundering than a year ago and overall they believe more than half of cases are slipping through the net. A quarter say they’re forced to work with outdated technology, slightly more (27 per cent) can’t keep up with the number of alerts being generated, and a third claim they lack adequate resources to do their jobs.
A compliance bottleneck
Yet beyond these challenges lies another major culprit for past AML failures: compliance culture itself. An overwhelming three-quarters of respondents to our survey claim that compliance has become a box ticking exercise and a fifth brand it a “stagnant culture”.
This isn’t the first time these thoughts have been aired. A report from financial crime expert Robert Pol published last February described AML as “the world’s least effective policy experiment”. A year earlier, the noted RUSI think tank publushed a report highlighting concerns about the regime put in place by the Financial Action Task Force (FATF). It noted that the inter-governmental AML lead body defines the effectiveness of its recommendations based on how well they are implemented, not whether they’re effective in stopping financial crime.
Recent events seem to highlight that the current AML regulations aren’t working. A UK high street lender recently pleaded guilty to failing to prevent nearly £400m of funds being laundered by a single customer. It was a case brought by the Financial Conduct Authority (FCA). More may be on the way.
Elsewhere, a huge data leak co-ordinated by the International Consortium of Investigative Journalists lifted the lid on the questionable financial dealings of hundreds of public officials and billionaires from around the world. It led one Conservative MP to describe Britain as the “money laundering capital of the world.”
Time for change
Our research shows that compliance professionals want to do the right thing, for their employers, for the victims of money laundering and for society as a whole. But they need support. Half of respondents want policymakers to do more, and 92 per cent claim that a lack of collaboration between banks, policymakers and law enforcement is hindering progress. This is where a “FinCrime feedback loop” could help—through improved collaboration across the industry and between public and private sectors, enhanced technology, and allocation of more AML funds.
Take funding. IT security, fraud and risk funding was cut by 26 per cent on average by financial institutions in the US and UK during the pandemic. This needs to change. Most financial institutions still don’t have an AML intelligence division, for example.
Money needs to be targeted more effectively. Some of it should go into improving in-house skills so analysts can better spot the indicators of predicate offences in financial data. Funds should also be directed towards buying more intelligent, automated AML solutions which pick out patterns of suspicious behaviour human eyes may miss while freeing up staff to focus on higher value tasks.
Yet perhaps the heart of the FinCrime feedback loop is the idea that stakeholders must improve collaboration. Over a quarter of compliance professionals say that the feedback they receive on their AML reports from police and governments is either not useful or rarely provided.
With better communication between all parties, police should get intelligence quicker to aid investigations and policymakers will hopefully take on board industry feedback to make regulations more effective.
To get there, all sides will need to admit where current approaches are failing, and put time, money and effort into correcting them. It won’t happen overnight, but the stakes are too high to ignore the problem.