Financial Action Task Force head Marcus Pleyer recently took aim at the anti-money laundering (AML) sector, suggesting that criminals are “getting away with it” because the financial crime industry is not using its collective power to stop it. He is right, of course – to a certain extent at least, writes SmartSearch UK CEO John Dobson
According to Pleyer’s keynote speech at the end of March to the AML Intelligence Global Action on Money Laundering Conference, banks, accountants, lawyers and others are all part of the problem.
Ultimately, he feels, it is time to shift from approaching AML processes as a tick box exercise and adopt a much more risk-led approach. The past 12 months have exposed the wide-open gaps in security that are evident in the financial services sector, as organised crime gangs sought to take advantage of the coronavirus outbreak. That, coupled with increased sophistication in creating forged documents, led to a significant increase in money laundering in the property market and the industries servicing it.
In fact, the Financial Conduct Authority (FCA) has said it has increased surveillance over the past 12 months in response to the rise in the threat of money laundering. Executive director Mark Steward, speaking at the AML & ABC Forum 2021, said two of the FCA’s biggest sanctions in the last year related to failures to address financial crime and AML risks.
He also said the FCA currently has 42 AML investigations ongoing – 25 into firms and 17 against individuals, primarily focusing on systems and controls over politically exposed persons, customers with significant cash-intensive operations, correspondent banking and trade finance, and transaction monitoring.
It is likely to be no small coincidence that the leading authorities, both globally and in the UK, have come out in recent weeks to remind the market that dealing with money laundering and financial crime should be a top priority, after a year of distraction and disruption caused by the pandemic.
But businesses in the sector also need to be aware that the technological solution has existed for some years to prevent fraud, and that they can take action today.
Start at the beginning
Preventing money laundering has to start at the customer onboarding process, which has fundamentally changed since the start of the pandemic. The traditional manual verification process, where the customer turns up with their passport or driving licence, is simply not feasible today. And if you are asking customers to take a picture of themselves with their passports to send on email, then you really are opening the door to forged documents and fraud. However, by using an automated process through electronic verification, with just a name and address you can get all the information you need in a fully compliant record, in less three seconds.
We work with a lot of accountants, and one of the biggest challenges they have faced with manual verification processes was onboarding business customers. A manual check for a business can take a significant number of hours, if not a full day out of somebody’s schedule. That may be part and parcel for large firms with compliance officers to deal with it, but for smaller businesses it can be a real burden in terms of their time.
Typically, the process involves having to ID the directors and establish who the ultimate beneficial owner (UBO) is, along with persons of significant control (PSCs), then decide how many people to run checks on after that, while contacting each individual director.
If you are operating in the property market, you cannot onboard a customer until those checks are completed. But it is time-consuming and potentially complicated if the business ownership is not straightforward. So naturally, a lot of people take a flyer and think – or hope – there will not be any problems.
With electronic verification, those hours and days spent going through that process can be reduced to just three minutes to produce a complete record of the UBO, PSCs, directors and so on, and their home addresses. Again, with just a few details to run through global watchlists and databases.
That is why I feel Pleyer is right in the sense that there needs to be a real shift in attitudes. AML needs to go beyond just basic box-ticking and must be taken seriously at all levels. Beyond the moral obligations of stopping criminals legitimising their money, studies have shown that robust AML processes can actually increase the value of a business and make it more efficient.
The simplest solution for regulated businesses is to adopt electronic verification. The government has made it clear that it backs the use of electronic verification, and this will not only protect your business, but it will also stop money laundering and fraud at the front door.