The amount of money that is laundered annually is of truly colossal proportions. ML poses an existential threat to all countries. It warrants and demands thorough oversight and a transnational prevention strategy. The UK’s National Crime Agency (NCA) calculated recently, “hundreds of billions of pounds are laundered through UK banks each year.”
However, the real cost of ML is on our society, our democratic, financial and security institutions and on the lives of victims. There is no victimless crime.
A director and senior professional crime analyst at a leading global bank, “Most of this is crime, whether its serious organized, gun running, drug smuggling, people smuggling, or whether it’s a £40 online fraud, somewhere in all of that, there’s a victim.”
ML is often described as a cancer on society that affects national security, people’s lives
the best practice functioning of our financial institutions. It has negative connotations for the reputation of UK plc particularly upon the City of London. Further, the consequences of organized crime can be seen on our streets and the media in all forms: knife crime in the streets, smuggling of immigrants across borders and drug trafficking, especially County Lines https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/drug-trafficking/county-lines
However, the average citizen feels distanced and doesn’t make the link with ML. Julie Beesley, Global Financial Crime Executive at RBS describes ML , “almost silent crimes…because nobody complained.”
The consensus amongst the general population is ML solely, primarily a banking problem. Beesley, “being part of a bank means there is always going to be ML going through-it’s part of a bank’s DNA.” Criminals will always need bank accounts or financial products to launder money. Another senior banking figure: “It’s a holistic problem. There are real life outcomes to this that impact people and lives.
What makes London the ML capital of the world?
• The size, location, importance and historical significance of “Empire”
• Often referred to as the ML capital of the world
• The high levels of IT and critical financial infrastructure that together with the rapidly evolving quantum leaps in technology and globalization; lures criminals from all over the globe
• These make the UK a very attractive place for criminals, cartels et al to launder their money in London
• For ordinary immigrants, there is the infamous “hostile environment” reception established under current PM Theresa May, whilst Home Secretary
• However, those who organize serious crime and ML through the UK act brazenly when engaging in ML because current UK laws focus on convictions and prosecutions, imposition of fines upon those financial institutions (FI) that facilitate this.
• The criminal thinks, “So, I might end up in prison. I might have my operations disrupted or blocked, but actually, they’re the hazards of the jobs.” But I get to keep my money.
Criminals are not like the us. They don’t have barriers or mental moral on/off switches. They pro-actively support one another, share real time data and flaunt data protection laws and are not constrained by borders.
They are the epitome of financial sophistication and do not use Uzi’s, shotguns and pistols etc.
Their weapons of choice are the laptop, encrypted cellular mobile phone. They do not lurk on unlit dark street corners.
They use the “Dark Web”, create peer to peer (P2P) networks; use Artificial Intelligence (AI) and analytical tools to make strategic placements to avoid detection.
Julie Beesley, RBS, “We need to join the dots across different areas,” and “ to map out who does what and who talks to each other, so the landscape is visible and we can identify gaps and overlaps in different areas.”
But its not so simple as “us and them”. In complex ML cases insider involvement is inevitable in the guise of individuals who facilitate, allow and even actively engage in opening fraudulent accounts opening and compromise their FI (financial institutions) integrity and viability by covering up paper and electronic trails.
Angela Foyle, Partner and MLRO at BDO UK LLP, “Often, money launderers behave in the same way as everyone else or they use people who are real people in order to disguise what they’re doing.”
Regardless of all and any safety measures, red flags and compliance systems, it appears the criminals are always one step ahead.
Martha O’Neill, Head of AML & Sanctions UK at AIB Group (UK) plc, “The pace of change and the pace of technical evolution is so frantic we are running to keep up. There is a whole raft of things going on out there in terms of the virtual world and crypto currencies and the dark web that is not properly understood by the people who are trying to manage the risk. And I think that is a challenge both at industry level and at a regulatory level.”
A recurrent complaint amongst financial crime experts is that banks are struggling to cope with a rapidly evolving ML activity globally. The consensus amongst them is that more needs to be done to prevent financial crime.
Nigel Kirby is Deputy Director for Economic Crime at the National Crime Agency and opines that, we need to put more effort into prevention…which will require a more in depth understanding of the scale of these crimes and how they are perpetrated, followed by the design and implementation of system changes. Kirby elaborates by; its just not requiring the banks putting in new systems for protection but requires a cultural change, “It’s about changing the tolerance of the public.”
Stuart Whitby, Financial Crime Director at Barclays UK agrees that the industry should examine new ways of real-time prevention of ML, “The industry is making some progress but there is more to do.”
Suspicious Activity Reports (SARs) highlight suspected cases of ML which led to successful investigations but the problem with these is that these occur when the transaction has been completed. But the money could have changed hands several times by then.
• Negative reports around SARs so frequent that the Law Commission was recently asked to investigate and undertake a review.
• The main criticism was that too many were being submitted to the NCA, over 630,000 between October 2015 and March 2017.
• According to Europol, the UK submitted over 33% of all SARs in Europe between 2006 and 2014
Julie Bleesley estimates that RBS submits tens of thousands in a year and that for UK banks collectively, the value of SARs being reported, the figure is “probably in the tens of billions.
• There is no “de minimis” value for a SAR in the UK. De minimis non curat lex can be translated as “the law does not concern itself with trifles”
As Martha O’Neill points out, “They keep talking about valueless reporting, but they forget that the law requires us to do it. If they don’t want to receive low value SARs, the law has to change.”
Nigel Kirby from the NCA disagrees. He believes that even low level SARs can be of benefit for law enforcement as they could assist an investigation where there has already been suspicious activity, “Sars have resulted in investigations and have informed investigations.” He references an example where a SAR for a low level investigation fraud revealed vital information that led to a major investigation
The origin of SARs reveals a very distorted picture across the regulated sectors.
95% of Sars originate from the financial services sectors which poses several questions: Are the other regulated sectors not reporting SARs and should they be penalized for this? Or are financial services zealously over-reporting in an act of self-preservation in fear of having financial penalties imposed upon them? If so, this must be presumed a case of defensive tactics that wastes precious resources, time and effort.
In summary, the current concept of raising SARs and submitting them is highly inefficient. The technology is outdated as it was not built for the sheer volume of received submissions. Reporting is often duplicative and banks sharing the same information with law enforcement and other parts of government because of fraud and/or sanctions screening. Its like wading through treacle.
Money is passing through global jurisdictions like greased lightning. One senior executive from a leading global bank, “Thirty years ago, it literally took three days for dirty money to pass from A to B. Now, its milliseconds. You can be sitting in one jurisdiction somewhere in the world and you can be moving money between two other jurisdictions on your mobile phone.”
To counter this, a coordinated global response is required appropriate to current modern technology. This would require all institutions to share information about suspicious people and transactions across borders in real-time.
However, the current methods are slow, clunky and not fit for purpose.
• Example: A bank has noticed that money is being moved around ten different countries; it must deconstruct those ten transactions into ten different reports.
• Each of those must be filed separately for each jurisdiction
• The bank is not allowed to revel to the other nine jurisdictions what it has found even though the money trail is linked.
Stuart Whitby, Barclays, “Money mules don’t just attack one bank, they attack all the banks. There are problems with sharing information between banks meaning its hard for the industry to stem the flow.”
This system of “keeping at arms-length” banks from knowing the information held by other banks is true across all sectors. This method is hindering banking and professional financial services sharing information is preventing progress to adapt to a more preventative approach.
Financial institutions are looking for more innovative methods in datamining, to gauge a more thorough comprehensive approach. They hope to put in place an early detection system by using AI and possibly to teach a machine to recognize these.
AI and machine learning are deployed in ever increasing numbers for this purpose. The major players in global finance are the ones financing this and the innovators in the quest for more efficient and effective solutions.
However, regulators are placing barriers (and rightly so) against further advances of AI-led financial crime detection. The regulators are against this because of the lack of transparency and audit trails. An experienced regulator,” What doesn’t work is for a firm to say: I’ve bought the biggest, latest, most expensive black box and it will tell me the answer. That won’t work.”
A far bigger danger with using machine learning is “That you have to be very careful what the machine learns.”
…are a powerful force against change
Professor Nic Ryder: “That’s part of the problem, because banks are so important to the British economy. If banks fail-like we’ve seen in the financial crisis-the economy fails. If banks make a profit, everyone is happy. The government clearly has to balance the economic needs of the country against enforcing its financial crime provisions.”
Other concerns are that individuals in financial sectors may be tempted by the large financial and/or cash offered by criminals thereby adhering to the letter of the law but “The spirit of their requirements,”
The usual blurb often regurgitated by the UK, the international center for money laundering, is, “We are a founding member of the Financial Action Task Force (FATF)…strong voice in developing European AML…we have implemented …some cases exceeded, our AML obligations.”
Another famous British saying is, “methinks the lady doth protest too much…when called a whore.”
But there are concerns regarding the effectiveness of the regime, especially for enforcement. The government, regulators, law enforcement, trade bodies, professional services and the private sector have a duty to put their house in order by asking themselves:
• How to improve AML techniques
• Striking the right balance between stricter, specific regulation and higher penalties for non-compliance
• Better incentivization and reward for good behavior
• Examining the barriers preventing effective AML and how to overcome these
• Information sharing on SARs and entities; is it enough?
• Striking the right balance between public and private sector
• Keeping up to date with future trends in AML
• Using the right tools for the right job.
The public are unaware of the link ML and financial crime have with human and sex trafficking, arms sales, drugs and the financing of terrorism
A senior financial crime professional from a multi-national bank: “This provides the government with a fantastic opportunity to educate the public, promote the good work being done in the fight against crime and establish closer links between the public and private sectors.”
He elaborates: “Although I agree with transparency, I also think government commentary needs to be coupled or balanced with the positive contribution. Whilst there has been tangible action taken to address the challenges, the banking sector still requires visible endorsement and support to ensure the significant impact that our actions have had in reducing financial crime and terrorism continues.
Julie Beesley adds that the public are unaware that intelligence supplied by banks saves lives.” It is not simply a compliance exercise, there are real life outcomes to this such as preventing human trafficking, but I still don’t think the public knows what banks do and that is frustrating as we are always the bad guys.”
Another AML expert believes the public and private sectors should unite and align resources, “To crush a particular typology or systemic issue, because the messaging would be different and the message should be, ‘“The UK is responsive and has weaponry’ ”, and the sum of parts is powerful to protect us.”
Nigel Kirby from the NCA,” We’re not yet giving confidence to the public that we are doing something to protect them. They don’t see the frankly amazing operations that are taking place; millions restrained, international bribery and corruption, big money laundering case, corrupt banker put away.” We need to be a little prouder of what we are doing.
Kirby adds that just recently a SAR resulted “in the identification and return of £500m of stolen money to Angola. SARs have saved the lives of vulnerable people.”
Kirby believes the public have a strong desire to see,” more criminals in prison and more assets denied and seized from those criminals.”
The toothpaste tube analogy; when you squeeze one end the toothpaste moves to another
“Similarly, as regulation puts increased pressure on certain areas of financial crime, the criminal move to new areas and find new ways to launder their dirty money.”
Stuart Whitby from Barclays raises red flags toward trade-based money laundering.
Whitby: “I think the industry has a problem building up with trade-based money laundering. I don’t think, today, anyone can really size that. That’s a way in which criminals can effectively, remove banks, remove financial institutions, by one layer, through direct engagement with consumers and businesses. We’re seeing the transaction flow, but criminals are going back to the weaker links in the chain. We have seen such migration on the fraud and scam side. Banks and financial institutions have put in in awful lot of controls around fraud and scams, Now, what fraudsters do is they target individuals. We’ll see the same on the money laundering side.”
Its well known that London is the money laundering capital of the world and but less well known is the extent of money laundering in the property market. London is seen as a safe deposit box for ill gotten gains. The boom in construction in central London and the City is unprecedented.
Whitby: “Rather than it being very transparent and visible, criminals will use channels to make that opaquer. Either shell companies or by leveraging citizenship from countries that will allow that through an investment. This will help to obfuscate their ill-gotten gains.”
Professor Nic Ryder from the UWE believes the future lies in the constant evolution and evolvement of money laundering: “The continued evolution of ML, whether that will be through cryptocurrencies or crowd funding. Of course, I think there are regulatory gaps and flaws which need to be addressed before the UK must implement the fifth directive by 2020. https://www.gov.uk/government/consultations/transposition-of-the-fifth-money-laundering-directive
To me that’s not good enough. It’s got to be as soon as practically possible. We’re now seeing an increased number of prosecutions and convictions in America for terrorist financiers using Bitcoin and advising ISIS on how to mine Bitcoin. The cases are beginning to creep through.”
Martha O’Neill is more blunt and talks of an “AML system on its last legs”, and is concerned the manner in which it is being examined at “much more task by task to address issues”, rather than, “What could this look like? If we had a blank sheet of paper, how would we design this to work better?”
Financial crime is expanding and increasing. It is characterized by its pervasiveness, persistency and it is pernicious. The lack of coherency and a unified approach by the public and private sector is exploited by the criminals. Regulators are forensically examining scenes of financial crimes instead of preventing them. We are reacting to events instead of driving them and at best, the response of AML professionals is patchy, incoherent and out of date. Way past its sell by date.
Financial crime neither knows or respects jurisdiction and has mastered the new technologies and uses digital tools to make a mockery of borders and boundaries and leaves no trace.
The UK is and especially its financial services sector will always attract international money launderers and other OCGs. The recent government paper, “Serious and Organized Crime Strategy” is a step in the right direction https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752850/SOC-2018-web.pdf
An important part is educating the public in exposing the hideous and vile nature of crimes that fuel money laundering, finance terrorism, human trafficking, drug trafficking, forced prostitution, sexual slavery and the cost on society and human lives.
- Anti-Money Laundering (AML) and dismantling terror financing networks by exclusion from the mobile banking system
- The Alleged Threat of Mobile Money
- An important factor within money is micro-structuring also known as “smurfing”
- Further challenges for law enforcement
- The threats of mobile money
The algorithm example used in this report is also called an exemplary embodiment which is simply put, the preferred example. It is just another terminology for “example” but specifically used when referring to a patent. This Anti Money Laundering, AML, system has been chosen to represent how an AML monitoring system should function.
Examples of case research into various topics and alerts from the Ultrascan group and associates
Ultrascan HUMINT have primary sources, extensive experience with identifying, locating, mapping, monitoring, analysing and predicting perpetrators of money laundering and the planning, funding, communications and support of terrorism.
Ultrascan FIU Financial Intelligence Unit - A mixture of intelligence gathering, investigations, reputational risk mitigation and Innovative Technology in line of objectives. Focused on external information and stakeholder engagement, to detect exposure to financial crime risk.
Intelligence and Analysis. Wander Around in our Detailed Global Interactive Research - Criminal and financial relationships visualized - Non-linear - visualizes knowledge like you've never seen before - AML KYC FIU - Business Solutions - Innovative Technology