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How public/private partnerships can beat financial crime

We spoke to the Department of Justice’s (DOJ) Karyn Kenny about the need for greater collaboration between the public and private sectors to share information and clamp down on financial crime.

Napier AI
April 26, 2022

Karyn Kenny is the Department of Justice (DOJ) Office of Prosecutorial Development, Assistance and Training (OPDAT) West Balkans Regional Platform Resident Legal Advisor (RLA), based at the U.S. Embassy, Zagreb, Croatia. Karyn is responsible for designing and implementing regional capacity-building programs to combat money laundering, corruption, and transnational organised crime.

Karyn Kenny, Department of Justice

Karyn formerly served as Attorney Advisor for the OPDAT Global Counterterrorism Unit, and from 2015-2020, was the RLA for the U.S. Embassies in Malaysia and Bangladesh. Before joining OPDAT, Karyn was the International Attorney Advisor for Latin America with the DOJ’s Money Laundering and Asset Recovery Section, International Unit.

What are public-private partnerships?

Tools for financial information-sharing

Financial crimes like money laundering and terrorism financing are serious issues that undermine the integrity of global financial markets and reduce the stability of the public sector.

Anti-financial crime public-private partnerships (PPPs) are arrangements made between private parties and government agencies that facilitate the exchange of information to enhance financial crime intelligence and analysis to combat financial crime.

These partnerships can be contractual, corporate, or collaborative and the role played by public and private sector organisations can be flexible to meet specific requirements.

Large contractual partnerships are necessary when policies and other elements are involved, but “boots on the ground” relationships are equally vital for sharing information regarding threat typologies.

PPP Example: FinTech Sector Dialogue

I designed and launched the first U.S. DOJ Overseas Prosecutorial Development, Assistance and Training (OPDAT) FinTech Sector Partnership in January of 2020, alongside Napier’s Head of APAC, Robin Lee.

The OPDAT-FT partnership was formed initially of a group of senior government, regulatory, and private sector officials to establish a sustainable and ongoing communication platform to share information between government entities and the FinTech private sector. The partnership aims to gain insight into how FinTech products can be leveraged to combat money laundering and terrorism financing by sharing information and best practices.

What began in a meeting room in the Federal Reserve Bank with just 10 people has evolved into a cohort of over 60 individuals from around the globe, most recently who spoke about the risks and benefits of privacy coins.

What are some of the key benefits of PPPs?

Develop intelligence about new technologies and threats

The financial services industry is undergoing a tsunami of change, and while it is thrilling, interesting, and important for our global economic system, some of these changes can bring elevated risk.

The growth of the blockchain and digital asset ecosystem presents more opportunities for bad actors to exploit, and from a prosecutorial perspective, it is vital that institutions can make informed decisions to identify new financial crime typologies and understand where those risks lie.

The challenges of understanding and fighting these novel financial crime threats are exacerbated if private and public sector participants operate within their separate information silos. Without sharing knowledge, they can become caught in echo chambers that slow progress, so it is important to bridge the gap between the two.

Without sharing knowledge, they can become caught in echo chambers that slow progress, so it is important to bridge the gap between the two.

Forming bilateral relationships facilitates knowledge-sharing for both parties. From a public sector perspective, organisations can understand what the private sector experiences and subsequently inform policy and the enactment of laws.

This benefits the private sector by providing greater protection against financial crime through stricter legislation. The private sector also benefits from PPPs as it offers regulators an opportunity to explain the application and reasoning behind certain policies.

PPPs help regulators get ahead of criminal behaviour

Even with the greatest intentions, regulators cannot be omnipresent.

Organised criminals may focus their efforts on specific geographical areas or vulnerable financial products that law enforcement agencies are not yet aware of.

In these instances, the public sector will only hear about issues through the Federal Bureau of Investigation (FBI) or the Secret Service, at which point it is often too late to act, and organisations will have incurred financial damage.

Law enforcement agencies also receive information about vulnerabilities through suspicious activity reports (SARs).

Financial institutions globally spend billions of dollars to produce millions of SARs each year (See: the UK Government’s “Cutting Red Tape: Review of the UK's AML and CFT regime," and Bank Policy Institute, "Getting to Effectiveness – Report on U.S. Financial Institution Resources Devoted to BSA/AML & Sanctions Compliance"), but research shows that only a handful of SARs produced are of immediate value to the public sector.

By leveraging PPPs, the public sector can improve their understanding of complex financial issues or services and their respective vulnerabilities, enabling them to pre-empt criminal activity to a degree and introduce proactive measures to support the private sector.

What are the biggest barriers to forming these PPPs?

Institutionalised distrust

A lack of trust exists for both parties. From a private sector perspective, firms can sometimes be wary when government agencies wish to collaborate.

Often, these organisations are sceptical of the benefits from shared dialogue.

On the other hand, the public sector must avoid exploitation. For example, something said by a single representative could be misinterpreted and portrayed as the view of the entire institution in any press coverage.

As a result, both the private and public sector can be reluctant to share information with one another, until they fully trust the partners involved.

Information sharing

Effective PPPs require a degree of information sharing between government and industry.

It is vital to ensure that such data can be shared freely with law enforcement while being respectful of legal and private sector concerns regarding the protection of the data.

While private sector institutions can share SARs and certain details of suspicious activity, it cannot be entered as evidence or put before a grand jury owing to the sensitive nature of the data.

Europe upholds comprehensive data privacy laws that prevent personal data from being processed and shared without legitimate and proportionate reasons.

In the US, there are a range of federal and state laws, the most comprehensive being the California Consumer Privacy Act (CCPA) which requires companies to declare their use of personal data. Such laws give consumers more control over the personal information that businesses collect and restrict the movement of personal information between different entities.

How can we overcome some of these challenges in creating PPPs?

Information Sharing Protocols

To comply with various data privacy laws, information sharing protocols are necessary. For example, GDPR maintains that data collected on individuals should be anonymous to prevent identification, and customers must be notified of any instances of a data breach or if their information is shared with an incorrect recipient.

Information Sharing Protocols (ISPs) assure the safe and lawful transfer of data. Novel technologies enable public and private sector firms to encrypt data as it is shared between entities, providing a means of securing digital data by using cryptography to prevent unauthorised access to information.

Communication and transparency

Law enforcement must do a better job of conveying the benefits of partnerships to the private sector.

The goal of law enforcement from a financial crime perspective is to protect the economic sector from criminals. PPPs serve that goal by improving the efficiency and effectiveness of the public sector in investigating and prosecuting financial criminals.

Criminals will typically gravitate to where legislation and prosecution may be less effective, so collaboration makes it more difficult to commit crimes. This benefits the private sector by creating a more stable environment to conduct business.

Building relationships and holding discussions with the private sector enables governments to share crucial information and ease any private sector concerns surrounding PPPs.

What is the future for AML?

Public-private integration

The future of AML will see greater integration between the government and private sector.

The DOJ’s ability to attract the best and the brightest participants from industry is a key contributing factor to the success of the organisation. The DOJ also benefits from allowing prosecutors to leave, spend time in the private sector, and later return to their public sector posts.

I hope to see more integration like this in the AML and compliance world, with individuals with backgrounds in the justice sector, law enforcement, and private sector collaborating on financial crime intelligence projects.

There are no borders between criminals, so there cannot be borders between the government and private entities.

This must be a global approach. There are no borders between criminals, so there cannot be borders between the government and private entities. While countries will always have their domestic concerns, there needs to be a globalised approach, coupled with improved whistleblower protection to encourage wider industry collaboration.

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Book a demo of our solutions or get in touch to find out how Napier can rapidly strengthen your AML defences and compliance capabilities.

Photo by Brecht Corbeel on Unsplash

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