This article is part of Kyckr’s new Future of Financial Crime Series which will feature interviews with leading industry professionals and thought leaders to learn more about the trends that will shape the future of financial crime.
The following is an interview we recently had with Matt McGuire, Co-founder and Practice Leader, The AML Shop.
What is the state of financial crime today?
Financial crime persists nearly unrestrained. For decades the international community has focused on a common set of standards to prevent, detect, and deter the movement of financial proceeds – deputising financial institutions and other gatekeepers. Those standards have created a morass of administrative burden and produced hoards of intelligence. Hoarding has been proven widely effective. Many are now focused on the later ends of the intelligence lifecycle, particularly, law enforcement, prosecution, and adjudication of cases – the actions which are designed to deprive criminals of their liberty and ill-gotten gains to reduce crime.
The typologies surrounding the movement of financial crime proceeds are dominated by opaque ownership structures and ancient identification methods. Countries around the world have slowly started to adopt common standards to unveil those structures and those hiding behind them.
The system is plagued by ransomware schemes, putatively driven by sanctioned countries seeking alternative sources for income. So too is the system experiencing an increase in influence scams, and those which exploit non-face-to-face interactions with financial institutions and among peers.
Financial institutions are still staffing large departments to try and meet evolving regulator expectations.
How has financial crime evolved over the past 5 years?
Covid has accelerated the trend of financial crime players exploiting the absence of digital identity adoption in non-face-to-face transactions and relationships. Consumers now have raised expectations with instant access to information and services online and the ability to share their records with other trusted services. That evolution has been fueled by the advances in payment speed and reach, the disaggregation of financial services, the intermediation of payments by less regulated fintech players, and the mainstreaming of digital assets.
The response of larger financial institutions has been the adoption of more robust cybersecurity data collection and identification methods for individuals and corporations; combined with the exploration of artificial intelligence and machine learning systems to manage this increased information intake. These tools are being leveraged in parallel with traditional rules-based detection engines, and the creation of fraud and cybercrime fusion centres to reconcile the detection of risks from the influx of data.
What’s the future of financial crime?
The financial crime arms race will accelerate. Services on the dark web facilitate the movement of illicit assets through ancient, mainstream, and evolving transaction tunnels (see, for instance Anti-analysis). Financial institutions will respond with countermeasures that rely more heavily on automated decisioning and interdiction of transactions. Open banking adoption across North America will necessitate more sophisticated and persistent information sharing among financial institutions, be challenged by privacy constraints, but supported by emerging anonymised intelligence transfer.
Beneficial ownership information will become more accessible and traceable across jurisdictions (see, for example, Open Corporates). Not only can that lead to greater capacity for financial institutions to uncover and report financial crimes, but the availability of that data will also enable journalists and the general public to conduct and share research and analysis into nefarious corporate practices. The use of nominees and gatekeepers may increase as a strategy to obscure the semi-public listing of registries, however their detection with advanced systems can help identify outliers. Pressure has begun on governments to increase the integrity of information in registries through identification means, however tactically this may be a logistical challenge.
Other countries will begin to meet the United States’ increased reliance on targeted sanctions on individuals to achieve policy objectives. This will lead to more conflicts in laws to reconcile for financial institutions, and the increased involvement of professional intermediaries and complex structures for criminals seeking to circumvent those sanctions.