During our regular ‘Ask Me Anything’ sessions, the entire Napier team is honoured to spend a virtual hour with a heavyweight in the world of AML, compliance or enforcement.
These sessions are a fabulous learning opportunity. They provide us with highly personal experiences and insights into life on the front line of fighting financial crime. While much of what we talk about is sensitive, we’ve also been able to share many highlights over the last few months.
In October we spoke to Peter Coleman, Managing Director at Asian risk consulting company, Aegis. Peter is, as he describes, on the pointy edge of compliance. With more than 30 years of experience in law enforcement in the public and private sector, the work Peter and his company does is likely to see someone going to jail, paying back a lot of money and even facing the death sentence in some jurisdictions.
Peter kindly shared his incredible frontline experience and thoughts with us. We’ve included some highlights below:
1. Non-compliance is not a technical issue. It’s a political issue.
As a base level, most countries have excellent compliance laws but very few actually apply them. Indonesia, for example, has really great laws but they’re not enforced.
Similarly, every country has its own level of organised crime. In some countries, as we’ve seen with Malaysia, the organised crime is the government. Other countries, like Vietnam, take compliance so seriously that non-compliance can result in the death penalty.
Compliance boils down to politics. Banks rightfully do as they are told but they also have investors to keep happy. Even if the technology is available, which it is, if the government has not mandated it, and is at a net cost, then banks understandably are not going to want to take that step forward.
2. Cryptocurrency has the potential to stop money laundering
Layering is a significant issue. Until regulators talk to each other and data becomes available, there is little that can be done about it. The moment you see, for example, money going to Cyprus or the Cayman Islands, you know that money isn’t coming back. It has gone and there is no access to the related data.
That said, technologies like blockchain are going to make these transactions irrelevant. Cryptocurrency as a concept is what is going to stop money laundering. There will be no opportunity for people to launder money without it being traceable. Blockchain enables the transaction to be deconstructed, so the record will be there.
Is that going to happen in 5 years? No… 10 years? Maybe... What will happen is that the banking system will become completely transparent at a certain level; to the extent that governments want it to be that is.
This brings us back to the point above. Money laundering is a political issue. Governments don’t want the transparency that cryptocurrency can offer.
3. Criminal behaviour needs to be understood, predicted and detected
When it comes to fighting financial crime, we’re always playing catch up. It’s almost impossible to predict exactly what people are going to do, so it’s helpful to get an idea on how people might behave by holding focus groups and talking to criminals. It’s also useful to analyse behaviour using AI and smart tools, and link this intelligence back to transactions.
Rule-based monitoring can miss highly suspicious transactions. Both CommBank and Westpac made the mistake of failing to think about how their customers might behave. Take the case of introducing a smart ATM; the ATM that allows you to transfer as much money as you want overseas, so long as it’s below $200 at a time… It doesn’t take long for a criminal to figure they can manipulate the rule system and simply do a thousand $200 transactions in a day. Surely, someone in the transaction monitoring team would see this as unusual? If you walked into a bank branch to do the same thing, someone would certainly stop you.
Compliance teams should use AI and algorithms to their advantage. These technologies can detect patterns and anomalies. When detecting or investigating crime and corruption you’re looking for a blip somewhere between 1 and 9 that would need some digging – and for that you need deep intelligence.
FACT: In 45 years Peter has never seen a new fraud. Just new ways of committing fraud using new technologies. When investigating crime, you need to ‘follow the money’ – to look at where the money is going and follow it. If people are committing monetary fraud, it is only for one reason – to get money.
4. Real money launderers don’t use banks
Anyone who knows how to launder money doesn’t use a bank – there are far easier ways to do it without getting detected. The really good money launderers use money exchangers – they transfer the money on the basis of a trusted relationship developed with their money exchanger.
Many thanks Peter for sharing your vast experience with the team!