The criminals are no longer simply winning when it comes to money laundering; they’re harnessing a growing arsenal of digital capabilities to completely change the game.
Despite important steps forward, less than 1 per cent of the estimated more than USD1 trillion of illicit funds that flow through the financial system each year is frozen or confiscated. The rapid diffusion of cyber capabilities in the criminal underworld will make the fight even more challenging.
Criminal use of cyber tools and channels is on the increase. Moreover, it is becoming even easier for conventional gangs to access specialist expertise, with cyber-crime increasingly being offered as a service.
This means you don’t have to be a hacker, you can hire one; you don’t have to own a network of mule accounts to covertly move money around the system, you can just ‘pay-as-you-flow’. This trend is escalating and gives organised criminal groups access to a vast and growing treasure trove of ways to exploit the system and reduce their own risk, with the weakest brick in the wall being the target entry point for access.
Why it takes more than money
Banks have been redoubling efforts to meet these challenges, spending billions of dollars annually on anti-money laundering and counter-terrorist finance. Since 2012, our bank has seen a nearly ten-fold increase in annual financial crime compliance (FCC) spending, and over seven-fold increase in FCC headcount. While these investments have vastly improved our defences, it’s becoming clear that throwing money at the problem alone isn’t enough to solve it; we need better ideas.
" Of the thousands of Suspicious Activity Reports generated, Europol estimates that no more than 10 per cent are likely considered useful to law enforcement"
I see three big areas of focus for us this year that could offer a breakthrough in how we fight financial crime.
Raising technology game
First, our industry needs to raise its technology game. When it comes to financial crime, our industry’s alert systems deliver 99 per cent false positives. Of the thousands of Suspicious Activity Reports generated from that 1 per cent, Europol estimates that no more than 10 per cent are likely considered useful to law enforcement.
Counterintuitively, getting this right could mean gathering more data, not less. New machine-learning technologies can enable banks to evaluate vast quantities of data quickly and to fine tune our financial crime surveillance tools, freeing up more bandwidth for experts to investigate truly suspicious behavioural and transactional patterns. Regulatory support will be crucial for taking these innovations to the scale and at the pace required to drive real change. As these new tools are developed, it’s essential that banks and regulators work closely to build the trust necessary to break new ground.
Breaking down silos
Second, the intersection of cyber-crime and financial crime requires special focus. Conventionally siloed specialist disciplines across cyber and financial crime must be joined. At Standard Chartered, this is being spearheaded in the US by an integrated ‘CyFi’ Intelligence unit. We are forging public partnerships with US and UK law enforcement and developing powerful new cyber weapons of our own: from virtual currency mapping, uncovering bad actors attempting to breach the financial system’s conventional defences, to new abilities in profiling, based on the digital fingerprints and footprints criminals leave behind.
More partnerships are crucial
Third, we need to scale and connect the partnerships being developed between governments and the financial system. For criminals, this is international business – arguably the most profitable in the world – and any single bank or government agency only sees a fragment of the picture. That’s why the new information-sharing partnerships on financial crime being seeded around the world are vital. They are producing breakthroughs that would have been impossible only a few years ago. Yet we’ll only reach a tipping point when all major financial centres adopt legislation which allows financial information sharing to happen at scale and speed with appropriate safeguards. For there to be success, we need governments to prioritise these types of meaningful, outcome-oriented partnerships.
"Ultimately, trust will create the enabling conditions to break new ground"
The people, technology, frameworks and shared ambition are in place in banks and across the system to make 2018 a pivotal year in transforming the fight against financial crime. But ultimately it is trust that will create the enabling conditions to break new ground and achieve results that haven’t been realised before.
A version of this article first appeared in the Financial Times on 13 May 2018.