aml-partnership

Why AML partnerships need a broader base

In the battle against financial crime, the partnership model makes sense. The world’s law enforcement agencies are charged with investigating and prosecuting crimes such as money laundering. But banks are responsible for operating the systems and processes through which such crimes are perpetrated. Clearly, there is more chance of tackling crime when law enforcement agencies and banks work together.

That is what has happened in recent years. Regulation makes it mandatory for banks to disclose more information to the authorities about their clients in certain circumstances. And, more positively and constructively, many banks and law enforcement agencies are proactively seeking out opportunities to work together on anti-money laundering (AML) initiatives and other efforts to combat financial crime.

These public-private partnerships are increasingly common all around the world. A report published earlier this year by the Future of Financial Intelligence Sharing (FFIS) research program at the Royal United Services Institute identified no fewer than 23 such financial crime information-sharing partnerships now in existence in different territories and jurisdictions.

How the UK led the way

The template for these initiatives is to be found in the UK’s launch of the Joint Money Laundering Intelligence Taskforce (JMLIT) in 2015. Its successes – the FFIS report suggests the JMLIT has resulted in the closure of 3,400 accounts, the seizure of £56m worth of assets, and 210 arrests – have inspired similar collaborations in many different countries, with partnerships in place across Europe, North America, Asia and Africa.

In addition, trans-national partnerships including The Europol Financial Intelligence Public Private Partnership and the Global Coalition to Fight Financial Crime have followed the same model. Many of the partnerships profiled by FFIS report similar successes to the UK.

Still, while it would be churlish to criticise these collaborations as under-delivering, it is clear that they are barely scratching the surface. Given that the United Nations Office on Drugs and Crime estimates that between 2% and 5% of global GDP is laundered each year – as much as €1.87 trillion annually – the recoveries made in the UK and elsewhere look pretty trivial.

One major issue appears to be that the partnership model has become a victim of its own success. Banks are sharing ever-greater volumes of information with their partners in regulation and law enforcement. The problem with that is that agencies lack the resources – and the knowhow – to interrogate that information in order to identify wrongdoing. They can’t see the woods for the trees.

This is a consequence of partnerships relying on suspicious activity reports (SARs), a concept developed many years ago. What was once meant to ensure that banks handed over information pointing to specific instances of wrongdoing has become a catch-all system where the authorities are drowning in reports.

Moreover, there is good reason to think this approach is not even catching the most sophisticated and high-value instances of money laundering – that these partnerships would not catch these cases even if the public sector was capable of wading through all the information it receives. Financial criminals adept at playing the system know how to avoid being flagged up by any single bank with which they have dealings during the money laundering process.

Newcomers to the party

Where does the solution lie? Well, one possibility is broadening the partnership model so that other market participants can put their expertise to best use. In particular, the growing number of fintech businesses with specialist AML tools have a crucial role to play. They can help banks – and banking networks – to make more targeted suspicious activity reports and interventions that capture a broader range of bad actors; and they can help the authorities extract much greater value from the information they receive.

The potential of tools is huge and the regtech segment of the fintech market is growing rapidly. Globally, the regtech market is expected to grow from $6.3bn today to $16bn by 2025, a compound annual growth rate of more than 20%.

In an AML context, that growth reflects the contribution that regtech businesses now have to make to the partnership model. Their solutions have the potential to transform the efficiency of manual AML processes, employing technologies such as data analytics, machine learning and blockchain functionality. Machine learning, for example, offers the opportunity to join the dots between multiple participants across different relationships to identify patterns of suspicion that would otherwise have gone unseen.

There is already some evidence of partnerships encouraging greater participation from these regtech providers. In Singapore, for example, the AML/CFT Industry Partnership (ACIP) has set up working groups and workshops to look at how to leverage analytics and machine learning. In Australia, the Fintel Alliance has launched an “Innovation Hub” to test new and innovative technology solutions that might augment the partnership’s operational effectiveness.

For now, however, these collaborations remain limited in scope and at an early stage of adoption. Broadening the partnership model in order to harness new technologies is likely to take a little time – but it offers the best hope of substantially increasing the recoveries and prosecutions these models deliver.

David Prosser

Freelance journalist and consultant, and a former business editor of The Independent.