Financial crime is a global problem that may be affecting you and, the environment around you, without you even knowing it. The value of illegal wildlife trade has an estimation of between $5 billion and $20 billion per year, one of the most lucrative illegal businesses, following narcotics, human trafficking and weapons trade. As technology becomes more advanced, financial criminals are becoming more sophisticated and adaptable in their illicit methodologies; therefore, it is important for legislation to stay updated and mirror the flexibility of their illicit counterparts in order to effectively combat financial crime. Anti-Money Laundering (AML) was a strong focal point for 2019, with new directives and legislation becoming adopted by jurisdictions to combat this global rise in financial crime. 2020 is set to follow-on, improve upon and adapt to foundations that financial crime compliance laid in 2019. This article will draw upon 5 key predictions for 2020 in regards to financial crime compliance. We must address the main issues faced today and how companies and countries can overcome them to stamp out or minimise financial crimes.
Financial Crimes & Hefty Fines
The financial system has heavily evolved in the last decade, rapid payments, instant payments, PSD2 and other advancements have acted as vehicles for financial misuse, resulting in money laundering and harmful effects on economies, society and the environment. Since 2015 there has been a steady rise in money laundering fines issued, notably, 2019 saw almost double the amount of fines issued than 2018. In 2019, global money laundering fines exceeded $8 billion, whereas in 2018 the figures were around $4 billion. France, alone, issued fines of over $5 billion and the global average penalty for money laundering was around $145 million.
The above chart symbolises a need for change in regards to fighting financial crime. Governments, regulators and agencies are scrambling to find optimal solutions to reduce this illicit activity and effectively monitor illegal financing. Below is a variety of key areas that 2020 may unveil in an attempt to reduce financial crime and ensure compliance.
- Private-to-Private Information Sharing:
Currently there is a major lack of information sharing across private companies at a global level. Financial crime is a global issue, yet institutions are combatting them at a microscale. 2020 should see an increase in information sharing at a macro-level. Information sharing is currently difficult due to legislative barriers and due to a lack of digitalisation. Only 54% of data and legal documentation, that is needed to carry out effective due diligence, is digitalised. Therefore, before private information can be successfully shared, it must be digitalised for institutions to utilise effectively. However, with an increasing rise in data privacy and security, it is difficult to share data without breaching data protection legislation. Institutions will opt for information digitisation and information and data sharing solutions for the private sector.
- Contextualised Financial Crime:
2020 should see a focus on redefining the context of financial crime. By this, we mean, currently transactions monitored are based upon a fixed set of rules and thresholds. This approach can allow anomalous behaviour that escapes the standard of protection and monitoring, allowing illicit activity to go unnoticed. Monitoring needs to be contextualised and not generalised in order for future success in preventing financial crime. In order to contextualise monitoring, there needs to be more agile and optimised systems in place that can account for anomalous behaviour, systems that can learn, adapt and predict. In order to make more informed decisions you need relevant content that you can analyse. A prediction for the near future of AML is to integrate multiple sources of data into a centralised system; this can ensure a wider scope of information, account for numerous circumstances and allow for an increased contextual monitoring approach. Additionally, enhancing data analysis can aid this approach, by better understanding the context of transactions you can increase your understanding of consumer activity. Taking informed data-driven approaches based off a centralised data system can provide necessary contextualised financial crime compliance.
- Real-Time AML Monitoring:
This approach is perhaps in its early stages, but 2020 will see a trend in focussing on real-time AML monitoring to allow for quicker decision making than the current batch file process. With the increased usage of artificial intelligence (AI), financial institutions are encouraged to take innovative approaches to work in coexistence with current risk-based approaches. This hybrid of AI and current practice can allow for a prioritisation of scenario-based alerts and quickly and automatically adapting to new money laundering schemes. Additionally, 2020 predicts the convergence of AML transaction monitoring and inbound fraud payment monitoring for operation efficient purposes. This implementation may also aid in preventing financial crime by providing more data to be analysed and contextualised to support the above two factors.
- Quality over Quantity:
To only implement technical compliance is not enough, it is important to also provide higher quality of information. 2020 will place a great emphasis on the quality of information provided to the necessary authorities. Quality of information concerning financial crime will also parallel an awareness movement, to make people, companies and institutions aware of the dangers involved with financial crime, the possibilities and the realism of the threat. Illicit wildlife trading, human trafficking, terrorist financing, arms dealing, drug smuggling and more are all activities that bear implications in the reality of financial crime. These very serious social, economic and environmental issues need to be addressed and managed. Therefore, through spreading relevant and informative information and, moreover, being able to provide the quality information to authorities, we can collectively help reduce financial crimes.
Companies have already begun to adopt campaigns to spread financial crime awareness. For example, Barclays campaigned to fight against human trafficking.
“We need to prevent it entering the supply chain, we need to educate other companies, and we need to raise awareness beyond our consumer base.” – Paul Horlick, Director – Head of Barclays’ Financial Intelligence Unit
Barclays, as a bank, understands the importance of preventing money laundering and is part of the process in redefining how big businesses view, and combat, financial crime. The emphasis on a higher quality of information will bring an increase in thorough investigations that can aid relevant authorities in their mission to end illicit financial activities.
5. Conformity – Alignment of Standards:
As previously stated, financial crime has implications at a global level, money laundering doesn’t stop at the border and criminals will take any means and jump through any loophole in the law that presents itself. 2020 calls for an alignment in regulations and standards to combat financial crime, compliance at this level should hold an international standard that companies can abide by. This factor will also aid to the centralisation of information discussed in the first prediction. Importantly, jurisdictions must first issue a consistency of standards for crimes, punishments and all that falls under the umbrella of financial crime compliance. The EU has taken great leaps in bringing about consistency through their 5th AML directive. The EU are working on implementing a 6th AML directive that will include tougher sentencing and additional offences of criminal liability in the form of aiding and abetting. The EU has acknowledged the necessity for an alignment of standards and has worked tirelessly to compile a respectful standard for companies to follow. Yet, what must follow is a global standard for financial crime punishment and regulations that will, hopefully, reduce financial crime and stop individuals from successfully manoeuvring across jurisdictions.
Bright Days Ahead
Financial crime compliance has undergone transformation and 2020 does not see it slowing down. Newer legislation, technology and methodologies will consistently be tested until financial crime is reduced and, hopefully, eradicated. The above predictions each come with their own hurdles and tests, yet they each propose a slightly better future for financial compliance. We shall see across the next decade if the industry takes the necessary routes to successfully combat illegal financial activities.
MENA’s Finest AML
Cedar Rose has understood the issue of financial crime and has embedded, in their culture, a desire to tackle money laundering from the hardest of regions. We have over 23 years’ experience in the Middle East and North Africa, where we have been combatting money laundering through enhanced due diligence investigations using a collection of resources, local networks and expertise to help companies put an end to financial crime. Tackling financial crime throughout the MENA region is especially difficult due to the scarce digitalisation of data, secrecy of free-zone jurisdictions and its particularly volatile political climate. However, our team of expert researchers can help you with your due diligence needs, we have the experience, the resources and the knowledge to help with your AML requirements. It is our duty to help spread the awareness of financial crime and to help companies avoid it at all costs. This is a global problem, which requires a global solution and Cedar Rose are proud to be part of the solution.
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Written By Jack Evangelides, Marketing Executive