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Financial Crime 2020

Dirty money – how criminals use technology to clean up

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Jane Jee

CEO, Kompli-Global Limited and, Head of Project Financial Crime, Emerging Payments Association

According to Helena Wood at the Royal United Services Institute (RUSI), the UK has been ‘sleepwalking’ through the growth of economic crime, to a point where it is a systemic national security risk. But there is technology to take the fight to criminals.

Fraud accounts for one in three of all allegations of crime and we are more likely to be the victim of fraud than any other offence.

The sheer scale of financial crime affects everyone. Victims of fraud are diverse:  from vulnerable people to high net worth individuals, from major corporations to small- to medium-sized enterprises (SMEs) and the public sector.

Financial crime – an escalating issue

In order to combat fraud, there is an increasing need to equip law enforcement with better technology, as well as increase funding, human skills and training.

It doesn’t only stop there, education of the regulators about the practical aspects of the laws they impose, and the technology available to combat economic crime, is essential.

Additionally, increasing the regulators mandate to cover supporting innovation in compliance, coupled with using the available technology, will help to combat the scourge of money laundering and financial crime in regulated sectors.

This month, the government announced a £100m economic crime levy on regulated entities, to generate income for investments in new technology and to hire more financial investigators. Announcing the levy, Rishi Sunak, Chancellor of the Exchequer, said: “Criminals will have nowhere left to hide their illicit earnings. We’re going to put more financial investigators and better technology on the frontline to fight against money laundering.”

Private sector – the burden on AML regulated businesses

As the National Crime Agency points out on its website, banks, law firms, estate agents and accountants can be criminally exploited. They can be complicit, negligent, or assist unwittingly; but they can pose a very significant threat.

They act as enablers and use their skills, knowledge and abilities to draft documentation, disseminate funds, and allow highly complex structures to be created that move and store large amounts of criminal money and conceal ownership effectively.

In order to combat fraud, there is an increasing need to equip law enforcement with better technology, as well as increase funding, human skills and training.

The increasing burden of identifying and verifying ultimate beneficial owners (UBOs) of companies causes many headaches for compliance teams – if done manually, it can take hours or even days.

Although many countries are introducing registers of beneficial owners, these do not solve all issues. However, technology can help deconstruct complex company structures.

Using technology to combat the scourge of money laundering

The government has made it too easy to set up a business in the UK, with no checks on the veracity of the data submitted to Companies House. Criminals are able to exploit company structures.

Some technology providers (such as RegTech firms) have solutions to these issues but banks and other regulated entities are fearful to use them because the suppliers are young and the technology may be unproven.  

The procurement criteria of regulated entities may also preclude engaging smaller businesses, no matter how useful their technology.

To really combat the escalating issue, the regulator needs to recognise the importance of the role that technology can play.

Encouragingly, the Financial Conduct Authority is already making inroads on this. In a recent speech, Megan Butler, the Director of Supervision for the Financial Services Authority said: “Don’t be afraid to use technology and innovate to keep criminals out.”

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