What we are hearing - April 2021 – AML Compliance

In a recent article published by the economist, titled “The war against money laundering is being lost” – The global system for financial crime is hugely expensive and largely ineffective”, is a good read but somewhat misses the point.

The reality is, like with terrorism, organised criminal networks will always be looking for smart innovative ways of laundering the proceeds of their crimes, so the use of the term “war” implies one side loses and the other side wins which implies a zero sum game, which is not the case, The real question we should be asking ourselves is defining what an effective outcome looks like and how the good guys (law enforcement, regulators, regulated entities and vendors), should be doing to detect, disrupt and deter money laundering.

Trying to eliminate financial crime is a fool’s errand – only 1% of criminal proceeds are ever recovered despite millions being spent every year to combat the problem, which is a very poor return on investment in anyone’s books – so what actions should we be taking that could make a material difference? Here are my top 5…

1. Increase collaboration

Most organisations (and countries) take a siloed approach to financial crime risk management with little to no information sharing, pooling of knowledge and resources or leveraging systems and data, often resulting in a “tick-box” approach, with the bare minimum required to keep out of the regulators cross-hairs.

As well as increasing public and private sector partnerships, as RegTech vendors there is more collaboration that needs to occur to combine the power of innovative but often “point” solutions to more holistic end-to-end capabilities to better support regulated entities, so I expect to see more strategic partnerships and industry consolidation for this to become a reality.

On the flipside, organised criminal networks are well diversified, specialised and have a long proven track record of collaborating across organisations, industries and countries to achieve their ends.

2. Increase investment in technology solutions

In the last few years in particular we have seen a real shift in the advances in technical innovation and rising levels of industry adoption adding strength to regulators and regulated entities armoury to fight financial crime. Progression in the fields of artificial intelligence, machine learning, blockchain, rules as code, enterprise risk assessments and other smart RegTech solutions is providing tangible benefits over traditional manual approaches that rely on throwing bodies at the problem – but there is so more to be done to move RegTech from the fringes for early adopters to become mainstream.

3. Raising the bar for non-compliance

We need to see more personal accountability and enforcement actions taken for organisations that are responsible for material non-compliance and ineffective risk management. There has been an increase in fines for organisations, but these mainly punish shareholders, with Boards and Senior Management largely remaining unaffected.

Regulators should be turning up the heat by conducting more inspections, site visits, please explain letters and advocacy and industry education. The fact that in many countries (including Australia) that there is not a mandatory independent review requirement every 2-years for medium risk businesses or annually for higher risk businesses remains a big flaw as problems often go undetected and unpunished for many, many years and would be a very simple way to raise the bar.

4. Expanding the laws to new sectors

It is clear that many businesses in the financial services and gaming sectors that have been regulated for over 15 years in Australia need to improve the levels of financial crime risk and compliance management but there remain many sectors that are rife for exploitation by organised criminal networks and until these sectors are subject to the same levels of regulatory oversight, then there will remain many sectors that will be used to facilitate money laundering.

In Australia, we have fundamentally failed in this area and it is clear that organised criminal networks have used companies operating in the legal, accounting, real-estate and high-value goods sectors to wash illegal proceeds of crime and we are lagging the rest of the world in this area, so is something that is long overdue.

5. Removing opaque structures

There are still many countries that promote secrecy and encourage the setup of offshore companies, trusts, foundations and other vehicles through a web of complex structures purposefully designed to disguise beneficial ownership and control. Without stamping this out and having central Ultimate Beneficial Ownership (UBO) registers organised criminal networks will continue to flourish and provide safe havens for criminal cash.

So what have we been doing?

At Arctic Intelligence, we have had another big month, firstly we were proud to win another award for the most innovative data privacy project and secondly, we announced a partnership with PwC UK, who selected our Risk Assessment Platform to improve the way enterprise-wide risk assessments are conducted by their consultants, for their clients.

Our product team has been hard at work preparing for next month’s release of the Risk Assessment Platform, which will contain over 500 enhancements and improvements, many suggested by our growing number of clients and partners to transform the way in which regulated businesses conduct enterprise-wide risk assessments. If you would like to find out how our solutions can strengthen your defences against financial crime, please get in touch with us.

Can you please spare 5 minutes to help us out?

Earlier this month we launched our first ever AML Industry Insights survey across our customer base, partner network and industry colleagues so if you could please spare a few minutes to complete, we would appreciate it and will publish the results of this in future updates.

Thanks