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Bringing banks and regulators closer in the fight against financial crime

Posted By on September 20, 2019 @ 11:00

Despite the best efforts of law enforcement agencies, regulators, international government organisations, diplomats and a complex framework of multilateral legislative and cooperative arrangements, the cost of financial crime and money laundering globally and regionally remains unacceptably high.

The UN Office on Drugs and Crime estimates [1] the amount of money laundered globally each year at 2% to 5% of global GDP, or somewhere between US$800 billion and US$2 trillion. A 2018 Thomson Reuters report [2] estimated that the total cost of financial crime in Asia, including money laundering, was an eye-watering US$166 billion in 2017.

Compliance with anti-money-laundering and counter-terrorism-financing (AML/CTF) arrangements varies greatly between countries. But addressing the challenges of AML/CTF will require more than simply introducing new legislation or crafting new agreements. What’s needed is greater collaboration between financial institutions and regulators.

In July, I spoke on cooperation on financial crime at Interpol World [3], a biennial law enforcement conference focused on challenges to and solutions for combating the crimes of the future. During the discussions, police participants said that they believed financial institutions should be more proactive and transparent about information-sharing with law enforcement agencies. To make this possible, several regional law enforcement representatives argued for a better framework for financial institutions to share data with law enforcement agencies.

Last week I provided a similar presentation to the Asia AML/CTF Summit [4]—a private-sector event drawing representatives from the financial sector and regulators across the region. Unsurprisingly, the financial institutions seemed to agree with law enforcement’s proposition that financial regulation and compliance are critical to the response to transnational organised crime. Unfortunately, financial institutions’ focus on AML/CTF compliance at the summit meant that many conversations coalesced around identity and the need for financial institutions to know their customers, and their customers’ customers, rather than on information-sharing.

Even if financial institutions were more internally proactive with identifying AML/CTF-related information to share with law enforcement and regulatory agencies, the arrangements for doing so are complex. At the same time, most financial institutions would probably be reluctant to sign up to new frameworks, given the rising cost of AML/CTF compliance; over the past two years, compliance costs have risen by 10% [5] in the Asian region. The implication is that developing better information-sharing frameworks has economic costs, and they shouldn’t necessarily be borne solely by the financial sector.

As a founding member of the Financial Action Task Force [6] (FATF)—an intergovernmental body that sets out and assesses standards of legal, regulatory and operational measures for combating money laundering and terrorism financing—Australia has three decades of experience in progressively enhancing AML/CTF legislation, regulatory frameworks and law enforcement responses.

The inaugural FATF assessment of Australian AML/CTF measures [7], released in October 2005, prompted a hefty transformation of the AML regime. The evaluation found that Australia’s regime was noncompliant with around half of the FATF’s 40 recommendations on AML/CTF. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 [8] was quickly brought in to address those shortcomings.

But it is Australia’s more recent, and experimental, innovation that might offer a model for supporting proactive and transparent information-sharing between financial institutions and regulatory and law enforcement agencies.

In 2017, the Australian Transaction Reports and Analysis Centre (AUSTRAC) launched the Financial Intelligence Alliance [9] (Fintel Alliance). The alliance is a private–public partnership between the federal government and the financial sector designed to combat money laundering and terrorism financing.

The Fintel Alliance has two hubs: an operations hub and an innovation hub. Individuals from various private-sector financial organisations are seconded into the alliance, which allows for high levels of collaboration.

The operations hub [9] is a physical space where the alliance partners have co-located staff. That arrangement enables staff from the two groups to ‘exchange and analyse financial intelligence face-to-face in close to real time’. In doing so, they work together to combine data with tracking tools.

The innovation hub’s activities are either ‘push projects’ (that is, looking at ways new technologies can be employed in an operational scenario) or projects generated by the hub’s identifying operational problems that might be solved with technology. The innovation hub develops capability, through proof-of-concept with the Fintel Alliance members, which is then moved across to the operations hub.

In developing the Fintel Alliance, AUSTRAC acknowledged that projects with multiple stakeholders that cross sectors are complex. Therefore, participation isn’t mandatory, and contributions from financial institutions can vary.

The Fintel Alliance offers a potential framework for improving regional information-sharing between financial institutions, regulators and law enforcement. Importantly, this innovative approach acknowledges that stakeholders have much to bring to the table, and has shown that information-sharing can be enhanced if all stakeholders understand that as a design principle of the partnership.



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URL to article: https://www.aspistrategist.org.au/bringing-banks-and-regulators-closer-in-the-fight-against-financial-crime/

URLs in this post:

[1] estimates: https://www.unodc.org/unodc/en/money-laundering/globalization.html

[2] Thomson Reuters report: https://www.thomsonreuters.com/en/press-releases/2018/may/almost-50-percent-of-companies-have-been-victims-of-financial-crime-according-to-new-thomson-reuters-report.html

[3] Interpol World: https://www.interpol-world.com/about-interpol-world/

[4] Asia AML/CTF Summit: https://summits.fintelekt.com/AsiaAMLCFTSummit2019

[5] risen by 10%: https://www.prnewswire.com/news-releases/the-cost-of-anti-money-laundering-compliance-in-asia-pacific-region-increased-10-in-past-24-months-finds-study-by-lexisnexis-risk-solutions-300867959.html

[6] Financial Action Task Force: https://www.fatf-gafi.org/

[7] FATF assessment of Australian AML/CTF measures: http://www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20Australia%20full.pdf

[8] Anti-Money Laundering and Counter-Terrorism Financing Act 2006: https://www.legislation.gov.au/Details/C2017C00268

[9] Financial Intelligence Alliance: https://www.austrac.gov.au/about-us/fintel-alliance

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