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Money and money laundering fuels serious crime and terrorism. Going after the proceeds of crime is essential to national and international efforts to combat crime and terrorism. It is about reducing the harm caused by the illegal drugs trade, arms trafficking, people trafficking and modern slavery, fraud, cyber-crime, environmental and other serious crimes.
In these challenging times, governments around the world are focusing on building safer societies and fairer, stronger economies. They can only be successful if they follow the money, take the profit out of crime and cut off funding for terrorism.
So where are we? Thanks to the Financial Action Task Force (FATF), money laundering and terrorist financing is now a criminal offence and there are successful investigations and prosecutions every day around the world. Criminal activity is being prevented, detected and disrupted through the regulation of the financial sector and gatekeepers, with firms doing KYC, monitoring transactions and reporting suspicious activity.
Today we have a global consensus on and commitment to global standards by more than 200 jurisdictions. The FATF is the definitive source of information on risk, trends and methods, and also regularly publishes best practice and guidance for countries. The FATF is the first standard-setter to look beyond laws and regulations and assess the extent to which countries are actually stopping money laundering and terrorist financing. FATF evaluations are therefore the authoritative source of how well countries are doing in practice and what they need to do to improve.
“Regulated businesses are consumed by and overly focussed on compliance and ticking the boxes, rather than taking a risk-based, intelligence-led approach to AML. Criminals are adept at exploiting loopholes in financial regulation and these gaps continue to exist or emerge, especially in newer areas such as virtual assets.“
The FATF’s evaluations reveal the harsh reality: countries have the tools to do the job but are too often failing to use those tools effectively. Regulated businesses are consumed by and overly focussed on compliance and ticking the boxes, rather than taking a risk-based, intelligence-led approach to AML. Criminals are adept at exploiting loopholes in financial regulation and these gaps continue to exist or emerge, especially in newer areas such as virtual assets. As much as $2 trillion, perhaps more, is laundered globally each year.
Money laundering scandals are never far from the headlines. This shows that law enforcement agencies and supervisors are finally paying attention to money laundering but also that many banks have turned a blind eye to the issue. And when it comes to what we call ‘designated non-financial businesses and professions’ the problem is much worse and we are only seeing the tip of the iceberg.
“We continue to see vast amounts of dirty money funnelled through offshore shell companies or stashed away in real estate; lawyers and accountants turn a blind-eye in exchange for a fast payday; corrupt officials play the system to hide their illicit gains.”
There are new areas for AML folk to focus on, such as virtual assets, but the truth is that the most common methods of money laundering remain the same. Cash is king. Banks and the financial system are still largely used, along with money service businesses and some charities. Professional money launderers are much more common and much more adept than the efforts to stop them. Vulnerable businesses that are struggling in the pandemic provide another opportunity for criminals to exploit to launder illicit funds.
We continue to see vast amounts of dirty money funnelled through offshore shell companies or stashed away in real estate; lawyers and accountants turn a blind-eye in exchange for a fast payday; corrupt officials play the system to hide their illicit gains. All of this is within our collective power to change. When it comes to taking effective action, some countries do better than others. However, ultimately, all need to prioritise more effective action and tackle entrenched problems.
There is huge a gap between the global standards and the reality on the ground. The challenge today is making sure that everyone, at every level, knows what to do and is obtaining tangible results. Supervision must improve globally. Supervisors need to give recognition for the right outcomes and not just the right pieces of paper. Companies need to have the confidence to apply a risk-based approach and not just tick boxes. To do that they need support from supervisors and they need better and more information and intelligence from law enforcement agencies and financial intelligence units.
“The importance of countries developing public-private sector relationships cannot be overstated. In many complex forms of money laundering, the expertise of both national authorities and banks or other businesses is crucial to effective action. The development of these relationships aids increased communication, speedy information sharing, and tip-offs that could be vital to investigators.”
The FATF has called on G20 countries to set an example and focus on tangible results. All countries need to fully and effectively implement FATF standards to crackdown on money laundering and the financing of terrorism and weapons of mass destruction. This includes in politically challenging areas. Each countries’ risks and requirements are specific but, in general, the actions they need to take include:
- Investing in the skills and capacity of financial intelligence units and law enforcement agencies to investigate complex, cross border cases
- Breaking down the barriers to information sharing and making information rapidly available about those behind companies and trusts, their beneficial owners
- Effectively regulating and supervising the financial and non-financial sectors, such as lawyers, accountants and company formation agents
- Increasing the use and development of public-private partnerships to improve information sharing and coordination
The importance of countries developing public-private sector relationships cannot be overstated. In many complex forms of money laundering, the expertise of both national authorities and banks or other businesses is crucial to effective action. The development of these relationships aids increased communication, speedy information sharing, and tip-offs that could be vital to investigators.
Just look at trade-based money laundering, one of the most complex and difficult methods to detect. By exploiting the international trade system, criminals are able to launder hundreds of millions of dollars. The FATF has just published a joint report with the Egmont Group on the topic.
The report highlights numerous issues, including how relevant trade data needed by authorities to combat trade-based money laundering is often held across multiple businesses and organisations, from shipping companies to import agencies. This is why communication between different agencies and businesses is so critical. Many of these relationships are in their early stages. The public and private sectors need to engage with one another to improve awareness of the underlying issues, risks and potential conflicts of interest.
Under the German Presidency of Marcus Pleyer, the FATF has embraced a wide range of ambitious policy initiatives, many of which involve outreach to private sector stakeholders. This includes analysing the potential impact of new technologies such as artificial intelligence, machine learning and big data analytics. These, and other developments, have the potential to transform the way businesses operate. They can speed up know-your-customer checks; improve the accuracy of risk identification and management; and make communication with supervisors more efficient. We are already seeing the changes, with large banks and financial institutions deploying AI and machine-learning tools.
“We are actively exploring the effective and responsible use of technology so that it can be the game changer we all need it to be. While new technologies can optimise and increase the accuracy and effectiveness of anti-money laundering systems, it is also crucial to respect data protection rules, privacy rights and data security.”
Technology has a critical role to play in transforming the effectiveness and efficiency of anti-money laundering efforts. The FATF’s global standards are technology-neutral but the FATF is not technology silent. We are actively exploring the effective and responsible use of technology so that it can be the game changer we all need it to be. While new technologies can optimise and increase the accuracy and effectiveness of anti-money laundering systems, it is also crucial to respect data protection rules, privacy rights and data security.
This is not about replacing the judgement of people. Rather, new tech reduces the time-consuming task of bulk data processing. This allows specialised investigative staff to focus on high-risk suspicious cases, for example by reducing the rate of false positives in financial institutions. It enables staff to do a better job, and helps identify suspicious activity that might otherwise go undetected. The use of blockchain technology is another good example. It potentially enables banks to quickly and effectively detect illicit transactions, improve security, privacy and convenience. Ultimately, financial services could also become cheaper and more accessible.
It is not all blue-sky thinking. Initial analysis has raised an array of issues, including the complexity of these new IT tools, limiting their adoption. The FATF is researching this developing sector, reaching out to the public and private sectors in the process. By bringing everyone together, we want to understand the issues, the challenges, and to increase awareness of the potential solutions. A stocktake on data pooling and analysis is due for completion in summer 2021.
The FATF is also developing guidance to help public authorities and the private sector understand how illicit money fuels environmental crime. Illegal logging and land clearing, and unlawful waste disposal are just some of the threats. The numbers are astonishing. Illicit profits from environmental crimes are soaring – estimated to be up to $260bn per year. The FATF is also carrying out work on the illicit arms trade, the funding of racially and ethnically motivated terrorism fuelled by far-right ideology, and migrant smuggling. It is a packed agenda and reflects the widespread recognition and commitment of FATF members to tackle some of the biggest global challenges.
“The work of anti-money laundering professionals – your vital work – can and does make a difference. You help prevent, detect and disrupt people trafficking networks, money mules used by drug dealers, corrupt politicians, organised crime groups involved in the illegal wildlife trade and environmental crime“
The relevance of the FATF’s work has been demonstrated throughout the COVID-19 pandemic. Governments have naturally focused on managing the almost overwhelming social, health and economic crises. But globally criminals have taken advantage of the situation, with mounting cases of counterfeiting of medical goods, investment fraud and exploitation of government stimulus measures. This is where the FATF’s standards come in. By following the recommendations, applying a risk-based approach and making use of digital ID for example, firms can carry out appropriate checks and due diligence. This reduces the risk of falling victim to financial crime and ensures money goes to legitimate business and for legal reasons.
The work of anti-money laundering professionals – your vital work – can and does make a difference. You help prevent, detect and disrupt people trafficking networks, money mules used by drug dealers, corrupt politicians, organised crime groups involved in the illegal wildlife trade and environmental crime. The job is not about regulatory compliance. It is about helping to reduce the harm from crime and terrorism.
Especially during these challenging times, the effective implementation of FATF standards must remain high up the global agenda. From helping banks conduct effective customer due diligence, to ensuring that non-profit organisations can conduct their work without being exploited by terrorist financiers, the FATF’s standards give a clear pathway to a healthier, cleaner financial system.
By taking the profits out of crime, authorities can put a big dent in what drives crime in the first place. Ultimately, by stopping money laundering, we save lives. We can and must do better, together.
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