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Three-quarters of finance firms report more potentially criminal activity in their networks

Three-quarters of finance firms report more potentially criminal activity in their networks

Fears of failing to comply with strict regulations grow as financial services firms identify more suspicious financial activity on their networks

Karl Flinders

By

Published: 13 Jan 2021 15:15

Financial services firms need to invest in systems to help reduce financial crime as three-quarters filed more reports of suspicious activity to authorities in 2020.

According to a survey, executives at finance firms recognise the need to improve anti money laundering (AML) technologies and get on top of cyber security, with legacy system replacement in these areas critical.

The State of financial crime 2021 report from anti-money laundering automation technology suppler Comply Advantage questioned about 600 senior executives at financial services firms, North America, Europe and Asia Pacific.

According to the report, 74% of executives’ questions have filed more suspicious activity reports (SARs) in 2020 compared to 2019.

SARs are filed by finance firms as well as other professionals, such as lawyers and accountants, to alert authorities of potential money laundering or terrorist financing. This is a way of law enforcement agencies receiving intelligence from the private sector.

Criminals use big banks to hide their dirty money, which is often linked to organised crime with funds being used to pay for assets to hide the money’s origin. According to the UN, about $2tn is moved illegally each year.

Money laundering was a headline late last year, as documents leaked to Buzzfeed News and shared with the International Consortium of Investigative Journalists revealed that banks including HSBC, Barclays and Standard Chartered have moved huge amounts of money despite spotting suspicious transactions.

According to the report, some of the trends in financial crime faced by financial services firms include fraud related to Covid-19 relief; vulnerabilities related to inconsistencies in global AML and the counter financing of terrorism (CFT) system, and the growth in sophistication of computer and mobile-enabled cyber crimes via payment systems.

Charles Delingpole, founder and CEO of ComplyAdvantage, said: “Due to the massive economic, political and social disruption brought about by Covid-19, international crime syndicates, rogue nations, global terrorists and cyber criminals have become increasingly more aggressive.”

The report revealed that IT investment is required at finance organisations to help them stay in line with legislation. Non-compliance of anti-money laundering rules can result in huge fines.

For example, in March 2020, regulators in Sweden and Estonia imposed fines totalling €347m on Swedbank for breaching money laundering laws.

Laundering

In 2018, ING was fined €775m after the regulator said the bank had failed to prevent the laundering of hundreds of millions of euros between 2010 and 2016.

And in 2017, Citigroup agreed to pay almost $100m and admitted to criminal violations as it settled an investigation into breaches of anti-money laundering rules involving money transfers between the US and Mexico. In the same year, Deutsche Bank was fined $650m by British and US authorities for allowing wealthy clients to move $10bn out of Russia.

According to the Complyadvantage report, 93% of respondents said real-time AML risk data would improve their compliance operations and over half (54%) said cyber security is a top pain point.

To this end, 62% plan upgrading their legacy AML and security systems in 2021, and 54% intend to replace or upgrade transaction monitoring systems.

Connecting the databases of regulators, law enforcement and banks, and automatically blocking certain transactions, could be a way out of a banking catch-22, enabling them to react more quickly. But the complex nature of stopping money laundering makes the tech challenge a big one.

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