Tackling financial crime can be an uphill battle, with criminals often employing new tactics and strategies in order to move the goalposts for regulators.
Attempting to stay one step ahead is therefore essential, with some understanding into the criminal mind-set likely to be discussed at the FinTech Money20/20 event, which takes place on 3-5 June in Amsterdam.
This event will reveal the competition winner of an annual award to find ‘the perfect financial crime of the future’. Entrants are asked to submit ideas for a financial crime that exploits a potential loophole, technological development or a change in social convention. The aim is to show how the electronic marketplace can be exploited, while encouraging counter-fraud experts to come up with solutions.
The inspiration for the event comes from a UK government-backed competition which was first
held way back in 1817, following a theft at a Portsmouth dockyard. The winning entry that year was a Chubb lock which remained unpicked for 33 years. Nowadays it is becoming increasingly apparent that physical deterrents no longer offer the same sort of protection that they once did against modern financial crimes which often occur in a digital environment, therefore regulators are faced with a growing challenge of finding alternative methods of dealing with such issues.
AI in the armory
Artificial intelligence is increasingly being used to combat financial crime. An example of AI being used can be found within the blocking of ‘smurfing’ practices. This is when criminals make millions of small deposits, via bots, often across many different countries, which they believe will fall under the radar of anti-money laundering checks.
Typically, ‘money mules’ will be recruited and their accounts are used to launder funds in return for a small fee. AI is viewed as the most effective way of tackling this crime with the FBI in the US, working on “applied technical enhancements” to its systems to tackle this very issue.
Meanwhile, attempts are also being made to deter young people from participating in such activities, making them aware that being a mule could result in prosecution and that they may be facilitating the most serious of crimes such as human trafficking and terrorism. Europol has launched a social media campaign hashtag #DontbeaMule to provide further warnings and education.
Better UBO data
The sources of wealth can be extremely difficult to unravel as shown by the myriad of shell companies set up by criminals, particularly following the release of the Panama papers. However, this year is expected to see more pressure for change around Ultimate Beneficial Ownership (UBO) issues.
Overseas territories such as Bermuda, Anguilla and the Cayman Islands, for instance, have been required to establish public registers, while there is now a cross-party suit to demand Jersey, Guernsey and the Isle of Man to follow suit. Globally, there is also some progress being made in regards to improving the transparency around UBOs with it being the focus at last year’s G20 summit. Meanwhile in 2018, the EU published the fifth Money Laundering Directive, which sought to make ownership registries, compiled under the Fourth Directive, publicly accessible.
Stronger crypto asset regulation
Tightening up rules around cryptoassets is a further measure to help reduce financial crime. It is on the agenda for the UK, the EU as well as the Far East and Australia, who have all taken action to regulate digital currencies and improve anti-money laundering (AML) – the Financial Action Taskforce is also due to release international standards on anti-money laundering in June 2019.
Severe fines for banks and other financial services companies that do not manage their AML activities well enough could sharpen resolve. One key fine to look out for is the one set to be imposed on Danske Bank, which is accused of laundering billions of dollars through its Estonian branch. It has been said the fine could run into many billions once the full details have emerged and the penalty decided.
The Brexit effect?
As yet it is unclear about the impact Brexit will have on the UK’s AML capabilities. Notably, the UK has enacted the Sanctions and Anti-Money Laundering Bill, which gives power to introduce AML and sanctions legislation post-Brexit. The UK may well want to show it can be a leader in this area – and many would argue it needs to, given the uncertainty and threats on the horizon.