Stuart Jones, Jr., Executive Director, Forensic Practice, EY MENA
Detecting and combatting financial crimes orchestrated by international criminal syndicates is complex and time-consuming, however, it is also terribly important. Despite calls for collective global action, too few financial institutions operate systems and controls designed to proactively detect and stop it.
Despite the investment and ‘prioritisation’ made by financial institutions, governments and international bodies like the United Nations and the Financial Action Task Force, combatting the rise of the many sources of illicit financing requires new and smarter approaches to the fight. Some of these approaches include collecting and sharing intelligence and utilising tried and tested programmatic methods to detect and disrupt illicit finance. The game, however, is changing fast and governments and institutions should further leverage the vast amounts of data that now exist within banks, international databases, and a multitude of public social media platforms if we are to make a serious impact on financial crime.
Utilising social media to uncover risk management data
For perspective, consider that industry reports reveal that every minute of the day, YouTube users upload more than 300 hours of video, Twitter receives in excess of 180,000 tweets, Facebook users share well over half a million pieces of content, Instagram users share some 220,000 new photos and the pace of this information explosion is set to only quicken. Roughly a third of the world actively uses the Internet, a universe that undoubtedly includes users linked – at varying levels – to the broad world of illicit finance.
Governments and financial institutions can utilise deep web searches to uncover new, publicly available information that can be applied across unique customer sets, transactions types and geographies to better manage risk – and possibly uncover an actual or potential illicit finance linkage between individuals or entities.
Some global financial institutions have already incorporated social media and negative news reporting into their compliance risk management functions, but more can be done. Furthermore, there is no agreed best practice for doing so, no ISO standard for how we link disparate data to make the world safer.
Understanding ever-complex, global linkages
For years, financial institutions have screened customers, searching for matches with various publicly available sanction lists. In recent years, however, these lists have grown in number and have not always included all listed entities that are owned or controlled by a named government, which basically makes them incomplete. In the past, the UN list, the US OFAC list and the EU list were seen as sufficient, now other countries have their own ‘black lists’ that must be factored into the broader screening equation.
The one-for-one approach currently taken via list-based screening misses a number of key follow-on linkages that can only be seen through further analysis. For example, specialised firms can now tell you the second and third-level associations – business, familial etc. – of individuals and entities on various lists. What’s more, these data sets can easily be incorporated into existing compliance frameworks – at very little cost to the institution beyond the extra time for internal investigations to review expanded red flag-related matches.
Stepping up the fight against illicit finance
While there is no panacea for financial crime, one thing is clear – more can and should be done at both a global and regional level to leverage a variety of data sources.
Some specific policy steps that should be considered in the near-term include the following:
- Sharing best practices and defining new global standards via technology and open source information
There is an urgent need for global dialogue among leading financial institutions, allied governments, and subject matter experts to outline what more can be done to identify and diminish illicit financing and associated threats utilising new technology and data analysis.
- Take immediate steps at the individual financial institution level (companies operating in high risk regions)
Global and regional financial institutions should conduct – or refresh – AML/CTF risk assessments, ensuring proper client risk rating, and apply appropriate illicit finance-related filters across those customer sets who are higher risk as a result of geography, industry, travel and other related factors. Institutions should also ensure robust and complete data quality – with refreshed KYC checks performed on an agreed and regular basis, starting with high risk customer sets.
Global and regional financial institutions should also utilise social media and bank transactional data to proactively look for patterns and trends that raise red flags for investigation.
- At the sovereign level (nations in high-risk jurisdictions)
Urgently consider and conduct a robust national anti-money laundering/CTF risk assessment. As an example, Singapore and a number of other nations have completed or are already in the process of completing their assessments. These countries should also ensure that the nation’s financial intelligence unit is well-funded, staffed, trained and active in its collection, analysis and dissemination of information.
In summary, without smarter, next-generation approaches to combating illicit finance, criminal organisations will become increasingly successful in raising, moving, and storing cash and other value that can be used to enrich bad actors or fund illicit activities. The time is now for governments, financial organisations and specialised firms to work together to combat financing for criminal syndicates and to reconsider – particularly with innovation in mind – how we can do it in a more effective way.
