We’re drawing to the end of yet another year; a year that’s feeling the continued shocks and uncertainty of a global pandemic and the endless presence of increasingly sophisticated criminals determined to launder ill-gotten gains.
In 2021, it seems that despite huge global AML efforts there has been no significant reduction in the amount of money being laundered – and no increase in the amount being recovered. To take the UK as an example: £219 million was recovered in the total proceeds of crime from Confiscation Orders, Forfeiture Orders, and Civil Recovery Orders receipts in the financial year 2020-2021. This figure is largely consistent with previous years.
Much more needs to be done on an industry, national, and global scale. You can find out why I believe criminal profit recovery rates are so low here.
On a more optimistic note, we have seen giant leaps in not only the new technologies available for detecting financial crime, but for their support by the Financial Action Task Force (FATF). This is crucial for driving regulators and ultimately encouraging the adoption of technologies like artificial intelligence (AI) amongst regulated entities.
And yet, despite these positives, the amount of money being laundered globally is still staggering. The very nature of money laundering means that accurate facts are not available; the scale is hard to assess. But what we do know is the United Nations Office on Drugs and Crime (UNODC) estimates between 2 and 5% of global GDP is laundered each year. That’s between EUR 715 billion and 1.87 trillion each year.
Now let’s look at the key AML themes we’ve seen through 2021 and what we can expect from 2022:
COVID-19 continues to carve crime and AML efforts
COVID-19 is increasing money laundering risks and hampering AML efforts, a trend that doesn’t show signs of going away.
Interpol revealed that cultural property crimes, such as the theft and illegal exportation of paintings, ancient coins or other objects linked to a culture’s heritage, have been continuing to rise.
While COVID-19 has brought so many challenges - particularly for entities using legacy software - it has also driven digitalisation. FATF has encouraged the use of technology, including FinTech, RegTech, and SupTech to the fullest extent possible. Keen to ensure AML/CFT takes advantage of the pandemic to reform and make better use of technology, FATF (and Egmont Group) released several reports this year to support digital transformation.
Data sharing and collaborative analytics gain traction
It is widely recognised that improved data and intelligence sharing is one of the missing pieces to the puzzle to improving the effectiveness of AML/CFT efforts. Data pooling and collaborative analytics can help financial institutions to better understand, assess, and mitigate money laundering and terrorist financing risks. Yet, data sharing can be problematic for many reasons, from systems incompatibility to privacy issues and regulatory obligations.
It’s significant therefore that FATF’s July 2021 report, Stocktake on Data Pooling, Collaborative Analytics and Data Protection, found that new and emerging privacy-enhancing technologies offer promising ways to protect information in specific use cases and in line with national and international data protection and privacy frameworks.
As regulators begin to recognise this, it was encouraging when the Monetary Authority of Singapore (MAS), announced it is preparing to launch its new digital platform, COSMIC, in 2022. The integrated platform will enable information-sharing among financial institutions about suspicious customer activity and transactions.
It was also announced in May that EU member states are set to share a database of ships believed to be involved in criminal activity. Similarly, the European Banking Authority (EBA) is setting up the centralised database to “name and shame” banks with poor anti-money laundering measures.
Environmental/green crime moves into the spotlight
Environmental or green crime has been a big theme this year. The world is slowly gaining a greater awareness of the illegal activities that not only harm our environment - such as illegal logging, fishing, mining and wildlife trafficking - but are also providing criminals with a safe but lucrative source of income.
FATF’s Money Laundering from Environmental Crime report highlighted that despite criminals using environmental crime to generate up to US$281 billion a year, little has been done to address this rising problem. FATF has used its study to increase understanding of the scale and nature of money laundering threats from environmental crime and to strengthen the response across public and private sectors.
In November we interviewed Che Sidanius on the topic of green crime, including the consequences and AML challenges, and in December we looked at the prevalence of illegal pollution and the ‘ecomafia’ who commit this crime.
Regulators step up
- FinCEN - The Anti-Money Laundering Act 2020 became US law on 1 January 2021.
- UAE – The Central Bank issued several regulatory guidelines to enhance the efficiency and robustness of its banking and financial system, in line with FATF standards. New Fundraising Regulatory Law is also being drafted to address money laundering through non-profits.
- EU – After 6AMLD came into force at the end of 2020, regulated entities had to demonstrate compliance by 3 June 2021. A new supervisory authority by 2024 and new regulation on AML/CFT was also announced.
- MAS – MAS announced it will introduce a digital platform and enabling regulatory framework for financial institutions to share relevant information on customers and transactions to prevent money laundering, terrorism financing and proliferation financing.
- UK – An amendment to the Money Laundering, Terrorist Financing and Transfer of Funds (information on the Payer) Regulations 2017 saw Ghana no longer classed as a high-risk country for the purposes of enhanced customer due diligence requirements. It also saw Haiti, Malta, Philippines and South Sudan being added to the high-risk category.
FATF endorses AI-enhanced transaction monitoring and more
A July 2021 report, Opportunities and Challenges of New Technologies for AML/CFT, was significant for helping to drive the adoption of new technologies.
The message from the global laundering watchdog is very clear: new technologies enhance overall AML and CFT capabilities. It was really pleasing to see an organisation as globally influential as FATF endorse the use of machine learning and other AI-based tools as a solution to costly defensive compliance and so much more. After all, this is ratification of what we at Napier have been advocating for years.
All 70 pages of the report are a worthy read but if you don’t have time, you can read the key takeaways here.
Money laundering and corruption continue
2021 will be remembered by many for being the year of the Pandora leaks, which thrusted many of the world’s rich and powerful into the spotlight. The Pandora Papers – dubbed ‘the biggest ever leak of offshore data’ – initiated an exposé of their dubious and unethical secret financial practices.
Just weeks later, Africa’s biggest data leak ever saw former DR Congo president Kabila and allies at the centre of a money laundering scandal.
And it wasn’t just the rich and powerful in the centre of the media circus. In September, German prosecutors accused the Financial Intelligence Unit (FIU) of failing to act on suspicious transactions to Africa totalling millions of euros between 2018 and 2020.
At a corporate level, the Archegos scandal caused havoc in the stock market and left several banks with major damage.
New corruption sanctions by the UK and US also made headlines.
Crypto and AML evolve at greater pace
Finally, a wrap-up of 2021 wouldn’t be complete without a mention of crypto, which consistently made AML headlines throughout the year, as regulators and law enforcement grappled to get a handle on it:
- The year started with calls from European Central Bank President, Christine Lagarde, for global regulation of Bitcoin to close loopholes that money launders inevitably exploit.
- The UK’s Financial Conduct Authority (FCA) reported that a significant number of cryptoasset providers have not met the required standards under Money Laundering Regulations. This resulted in an unprecedented number of businesses withdrawing their applications and the FCA consequently extending the end date of the Temporary Registration Regime (TRR) for existing cryptoasset businesses to 31 March 2022.
- Proposed changes to EU law were announced, which would mean companies that transfer Bitcoin or other cryptoassets will be forced to collect details on the recipients and senders.
- The US announced a new crypto enforcement team to tackle complex investigations and prosecutions of criminal misuses of cryptocurrency.
- In reflection of the growing use and acceptance of crypto, November saw three leading cryptocurrency service providers in Asia Pacific announce they will be launching crypto-funded Mastercard payment cards in partnership with Mastercard.
What’s next for 2022?
With the end of 2021 in sight, the focus is on what we can expect from 2022.
I am fully expecting even greater digital transformation, particularly from financial institutions that are still relying on legacy technology. Thanks to capabilities of application programming interfaces (APIs), integrating new tech into current architectures is not only possible, but relatively straightforward. And as more companies realise this, we will see even more digitalisation. This means more use of AI, more automation, more joined-up AML processes, and more confidence in the market to adopt new technology for fighting financial crime.