According to PWC’s Global Economic Crime Survey 2016, the incidence of economic crime has come down for the first time since the global financial crisis of 2008-2009 (albeit marginally by 1%). Any decrease is good news; however, this small decrease masks the worrying trend that economic crime is changing significantly, but implementation of detection tools and controls are not keeping a corresponding pace. Noted in the report was the resounding message financial institutions are hearing: failure to execute a sufficient (and compliant) BSA/AML program will result in enforcement actions. The survey results showed that 1 in 5 banks have experienced enforcement actions by a regulator.
Over the last few years, in the U.S. alone, regulatory agencies have cracked down on BSA/AML violations. Nearly a dozen global financial institutions have been fined hundreds of millions to billions of dollars for money laundering and/or sanctions violations. It is estimated that 50% of money laundering or terrorist-financing incidents went undetected by system alerts in 2015. And 2016 is likely to see these continue (and likely increase) unless the right measures are put in place.
The recent increase in terrorism across the globe means that its funding (and the sophisticated methods of enabling this funding) is on the rise. Following the terrorist attacks in Paris last November and now the atrocities in Belgium just last week, money laundering and terrorist-financing are escalating in priority for governments across the globe. Law enforcement agencies and politicians are seeking to take aggressive measures to bolster security.
What’s changing? First and foremost, the rapid changes in technology. With such a fast pace, more doors of opportunity are opened for new and innovative ways to conduct financial crime. In just two years, cyber-crime has jumped to the #2 spot for the most reported economic crime. A financial institution’s ability to identify and mitigate compliance risks must also evolve at a rapid pace.
Increasing complexity, increasing issues
A financial institution’s client profile continually evolves. Profiles are increasingly varied and complex, particularly when it comes to sophisticated terrorists. Therefore, anti-money laundering and sanction-screening software needs to be sufficiently nimble to adapt to the changing financial crime landscape. One approach is to use a flexible workflow management framework, with the ability to respond to changing customer profiles, changing types of transactions and new legislation.
Every transaction differs
Cultural differences must be considered when screening for sanctions, particularly as these are used to avoid detection. In many cultures, people may use four or five names, combining their given name and family names. Matching algorithms that fail to take into account such cultural differences result in gaps for financial institutions to fall through when the individual slightly modifies his or her name. Effective software should have good support for these cultural differences, capable of matching on portions of the name or name elements which are ‘flipped’ in order and weighting them differently.
The Global Economic Crime Survey 2016 results send a resounding message: the burden of preventing, protecting and responding to economic crime rests firmly within organizations themselves. Institutions must have a strong change management process in place to not only keep up with regulatory changes but also with the many new faces of financial crime.
These are just a few examples of the issues financial institutions increasingly face and how they can adapt to the changing market to avoid the penalties associated with breaches. I will be covering these in more detail, along with other considerations and best practice examples, in my webinar this week: Addressing the Changing Faces of Financial Crime (Thursday, March 31st | 2 p.m. EST), please join me by registering now.