Report by LexisNexis Risk Solutions – Strategic partner of Infocredit Group
Money laundering poses a significant threat to the global economy and to national security. It distorts our economy and people suffer. The real cost is on our society and on the lives of victims. We may be facilitating money laundering through ‘cash in hand’ businesses, by buying counterfeit goods, taking recreational drugs, using the cheap car wash or nail bar. Or else we might be fooled into giving over our bank details and inadvertently becoming money mules, as a result of scam emails or phone calls that seem legitimate.
Criminals share information. They use the dark web, create networks, use analytics and artificial intelligence to make strategic placements and avoid detection. As we introduce more controls to stop them in one area, they just move on to another area.
Martha O’Neill, Head of AML at AIB Group (UK) plc. “There is a whole raft of things in terms of the virtual world and crypto currencies and the dark web that is not properly understood by the people trying to manage the risk.”
Furthermore, there are multiple supervisory bodies in the AML space, with over 20 regulatory authorities in total, and beyond this, different committees and sub-groups and, which inevitably leads to an inconsistent approach and policy incoherence.
New legislation is being layered on top of existing regulation, which amplifies complexity.
Conflicts between financial and nonfinancial crime legislation have also begun to emerge. Data protection laws, access to banking versus financial crime compliance; and payment services versus financial crime controls have created a situation where one law is broken if the other is followed, forcing companies to make a choice as to which law they should follow.
Institutions need to be able to share information about suspicious activity instantaneously. On the contrary, even between law enforcement agencies in different countries, it is slow and clunky.
Financial institutions are looking at new ways to mine their data, to drive deeper insight into their customers/transactions. However, a major limitation in using AI-led financial crime prevention is the lack of transparency and audit trail. Another concern is that you have to be very careful what the machine learns.
Professor Nic Ryder from UWE highlights the issue of vested interest: “If banks fail – as in the financial crisis – the economy fails. The Government clearly has to balance the country’s economic needs against tackling financial crime.”
Fines need to be significantly higher than they have been to date. Additionally, more fines should start coming from the other regulatory bodies, such as HMRC and the Gambling Commission.
O’Neill thinks restricting business permissions might be a better deterrent; so you cannot do any new business for a year until you get your house in order.”
Stuart Whitby from Barclays warns of the increasing trend towards trade-based money laundering and anticipates problems with the property market: “criminals use channels to make it more opaque. Either shell companies or by leveraging citizenship through investment.”
The disparity across stakeholders, from regulators to law enforcement, to government departments, to the inconsistency in the implementation of AML regulations and the variety of laws/regulations, leaves too many gaps in our defences that are exploited by financial criminals using increasingly sophisticated methods, networks and technologies.
For the full report, visit www.risk.lexisnexis.co.uk/insights-resources/white-paper
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