Around the world, the war on money laundering is being lost

In the coming days, NatWest, one of Britain’s largest banks, will have to respond before justice accuses failed to adequately review a gold client who deposited £ 365million (US $ 502million). NatWest is the latest in a long line of banks accused of failing in the fight against dirty money.

In 2020, fines for money laundering issues amounted to US $ 10.4 billion worldwide. This represents an increase of more than 80% compared to the previous year, according to data from Fenergo, a company that develops software to monitor regulatory compliance. In January, Capital One, a U.S. bank, was fined $ 390 million for failing to report thousands of suspicious transactions. Danske Bank continues to face the effects of a 2018 scandal: more than $ 200 million in potentially dirty money was laundered through its small Estonian subsidiary.

These cases suggest that banks remain the Achilles heel in the war on money laundering, despite the many regulations that aim to transform them into soldiers on the front line of battle.

However, looking at the subject more closely, there are clear indications that the global anti-money laundering system has serious structural flaws, in large part because governments have outsourced part of the policing function. A published study Ronald Pol, an expert in financial crimes, concluded that the global system might be “the world’s least effective political experiment”, and that compliance costs for banks and other businesses could be 100 times the amount seized.

Money laundering was not even considered a crime in most countries of the world until the 1980s. Since then, countries ranging from Afghanistan to Zambia have been pushed, particularly by the United States. United, to pass laws. This effort intensified after the terrorist attacks of September 11, 2001 and the passage of the United States Patriot Act.

The global system’s offensive has succeeded in putting an end to the most pernicious practices, such as using banks which are shell companies without customers in sunny places, to wash suitcases full of drugs. But criminals haven’t been forced to be particularly creative: Money laundering isn’t much more difficult than 20 years ago.

The numbers speak of a losing war. Global Threat Assessment, A report by John Cusack, former chairman of the Wolfsberg Group, an association of banks, estimates that financial crimes worth US $ 5.8 trillion were committed in 2018, equivalent to 6.7% of the Global GDP. Statistics on the proportion of this figure intercepted by the authorities are not clear. A ten-year United Nations Office on Drugs and Crime estimate puts it at just 0.2% of the total. In 2016, Europol estimated that the confiscation rate in Europe was only 1.1%.

Some experts believe that the success rate may have declined in recent years because the rise of “trade-based money laundering”, which transfers suspicious funds into the legitimate economy by doing tricks with international trade stationery. The pandemic has also created more opportunities for those who are not doing it right. There are criminals who have created shell companies to take advantage of state aid regimes with little oversight.

The Financial Action Task Force (FATE), the intergovernmental body that sets the standards for the global supervisory system, admits there are problems. In October, its president, Marcus Pleyer, looked exasperated, accusing the “vast majority” of countries of not fighting money laundering. Some countries scored high in this organization’s reviews, passing laws that looked good but then watered them down or failed to implement key clauses.

Over the past five years, global efforts to end money laundering have slowed, says Robert Barrington, professor of anti-corruption practices at the University of Sussex. In 2016, David Cameron, then Prime Minister of Great Britain, organized a world summit against corruption, and other governments joined in supporting the cause. But it was a false dawn and the enthusiasm waned.

Three major problems hamper the fight: lack of transparency, lack of collaboration and lack of resources.

Regarding transparency, investigators often have difficulty identifying the real owners of shell companies. Progress has been made to increase visibility. Britain launched a public register of business owners in 2016, prompting other countries to follow suit. At the end of 2020, US lawmakers passed a law requiring the signing of proprietary data. But many countries continue to reject registrations and those that have encountered problems. In Britain, criminals have been willing to risk presenting false information or nothing, given the modest penalties.

The FATE standard for property transparency is being revised with the idea of ​​making it more stringent. But getting its 39 core members – from the US and the EU to China and Russia – to agree on a new text will be difficult.

Lack of collaboration, meanwhile, hinders the common work of governments among themselves and with banks. The major money laundering mechanisms are sophisticated and transnational. The exchange of information between governments is improving through cooperation between “financial intelligence units”. But the system used by countries investigating crimes to request information is crude.

Regarding data flows to and from banks, the level of collaboration is “terrible”, as described by an officer of an international entity. The United States behaves the best, but despite this, the exchange of information is done on a “small scale,” and all of the above require a judge’s order, “which is difficult to achieve if you don’t know what it is. Crime again. “Britain is in second place, he said, with” about 30% “of the data shared by the United States. And third?” No one. “

The third difficulty, lack of resources, arises from the fact that white collar crime is less visible than violent crime. Spending on containing these is more suitable for the public. In Britain, fraud accounts for over a third of reported crimes, but is allocated less than 1% of police resources.

Many crime fighters do not have the funds to properly analyze the torrent of “suspicious activity reports” presented by banks. Many are of poor quality or unnecessary, because the system encourages entities to cover themselves instead of applying reasonable risk criteria.

“Blaming banks for not properly enforcing anti-money laundering laws is convenient fiction,” Pol’s report concludes. While bank fines steadily rise, lawyers setting up shady front companies, accountants who approve of his questionable presentations and other such behavior hardly get a slap in the face.

Governments must also catch up on the implications of cryptocurrencies and the companies and exchanges that operate with them.

Hope is pinned on Joe Biden, who has said tackling corruption is a matter of national security. It remains to be seen whether he can work in a more beneficial way than his predecessor with Europe. Either way, bankers should probably brace themselves for another beating.

Conocé The Trust Project