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As the recent FinCEN files news has shown, money laundering is one of the biggest criminal threats facing the world. It is also one of the hardest to quantify. Estimates suggest it’s a multi-trillion-pound problem which, despite its focus on the financial system, also has a major societal and human impact. So how effective has the industry been at responding?
 

Tuesday 13 October 2020
Read time: 3 mins
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It’s claimed that only around 1% of criminal funds are seizedi.  Against this backdrop, compliance professionals in financial institutions (FIs) have an uphill task. New research from BAE Systems has been drilling down into some of their key challenges and motivations.
 
Over the last few months, we have polled thousands of FI professionals and their customers to better understand global attitudes towards money laundering, and to compare current and possible future anti-money laundering (AML) strategies from across the industryii.
 
 

Ethics and reputation


The first thing our research clearly identified was that money laundering is a major challenge for the industry: 89% of professionals said they were concerned about illegal activity hidden in customer transactions. Of the 22 predicate offences outlined by the EU’s Sixth AML Directive (6AMLD), fraud (42%), corruption (35%) and organised crime (34%) raised most concern. Why are FI professionals motivated to stop money laundering? Most (56%) said it was because of the threat to society, although less ethical considerations like avoiding reputational damage and fines (52%) are also important factors.
 
They’re right to care about the impact on society, because consumers increasingly demand a more ethical approach from their FIs. Over three-quarters (76%) want greater transparency about money laundering activity. Expectations for effective action against money launderers is high, and many said they’d take their business elsewhere if not enough is done to stop it by their existing provider.
 
 

The challenge of technology


Our research has uncovered several challenges in tackling financial crime. Indeed, less than a fifth of FI respondents (19% on average across all 22 offences) said they were confident they could stop the predicate crimes associated with money laundering.  Other anti-money laundering challenges highlighted include digital identification, being overwhelmed by AML alerts, and a lack of access to the most effective AML solutions.
 
It’s not all about the technology, of course. Many FI professionals cited wider institutional challenges including too few suspicious activity reports resulting in justice (30%), and a lack of international cooperation (28%), while others complained of misaligned regulatory metrics.
 
 

A forward-looking strategy


The good news is that the vast majority of FIs have an AML strategy in place, and are already installing applications and solutions to help them. However, the key to any sort of success will be applying the right kind and combination of technology solutions to help uncover money laundering more effectively, whilst freeing-up more precious time for compliance. Robotic Process Automation (RPA) to undertake repetitive mundane tasks, and machine learning algorithms to provide a 360-degree view of each customer are just two ways technology is already supporting better AML outcomes.
 
The focus going forward must be for the industry to continue finding new ways to prevent money laundering, even as COVID-19 hits budgets and offers organised crime groups more opportunities to disrupt. We must seize the initiative, and we can do so, with the right blend of technology and regulatory innovation.
 
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i Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crimes, UN.ODC (October 2011)
ii Research conducted by independent research agency Atomik Research on behalf of BAE Systems in June 2020. Respondents included 452 FI professionals and 6035 consumers from either Australia, France, Germany, Singapore, UK, or the USA. For a full breakdown of the respondent profile for our research, access the report.

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