Main Image Credit The City of London seen from the south bank of the River Thames in London. Courtesy of 0x010C/Wikimedia.
The financial sector has long been in the forefront of the fight against financial crime. But, as the industry works to rehabilitate its reputation following the global financial crisis, this largely unseen role is increasingly being brought into the light.
Since the 2008 Global Financial Crisis (GFC), the banking sector has found itself under relentless pressure from politicians, journalists and the public at large as incompetent (at best) and criminal (at worst) practices have been regularly exposed.
Bankers, a class of society that had evolved from respected and unremarkable to ‘greed is good’ masters of the universe, suddenly found themselves the centre of investigations and scandals. The recent prosecution of a former HBOS manager and his associates disclosing lurid details of fraud and corruption is the latest hangover to affect the sector.
On the back foot for nearly a decade since the collapse of Northern Rock in September 2007, banks have focused their advertising and self-promotion on winning back the trust of customers. This had once been taken for granted, but it evaporated as the irresponsibility that brought the global economy to the brink of disaster was revealed.
An important lesson was reinforced by the GFC. The banking system, although run almost entirely by the private sector, is part of every nation’s critical infrastructure. For the UK, where finance is such a substantial contributor to the national economy, the reliable and trustworthy functioning of the financial sector is a national priority, however much some may wish it were not.
One failing that emerged in the years following the financial crisis was the apparent lack of diligence with which banks were handling the funds they moved around the globe. Banks were revealed to have laundered funds for Mexican drug cartels, as well as assisting with sanctions evasion and experiencing a number of other systemic compliance and controls deficiencies.
The charitable view is that incompetence and a failure to invest in staff and systems were responsible for these failings; other activities, such as LIBOR and foreign exchange rate-rigging, were far more sinister.
Since these failings were exposed, banks have been on an intensive and expensive programme of remediation. According to the BBA – the leading trade association for the UK banking industry – its members invest at least £5 billion per annum in financial crime compliance in the UK.
Banks’ customers have felt the result of the sometimes overzealous ‘recalibration’ of banks’ tolerance of risk, resulting in account closures and onerous documentation demands. This is what we have so far seen as customers of the banks.
What has remained unseen, until now, is the work the banks do to use their position of responsibility in the financial system to support the efforts being made by governments to disrupt financial crime and identify illicit financial flows related to organised crime, human trafficking, money laundering and terrorist financing.
The UK government has been at the forefront of efforts to co-opt the banking sector into its effort to disrupt financial crime more effectively.
Banks have long been required to report suspicious activity to the authorities. In the year to September 2015, financial institutions filed the vast majority of the more than 381,000 so-called ‘suspicious activity reports’ lodged with law enforcement in the UK.
While of some use to the authorities, these reports are mostly filed by the banks with little insight into, or understanding of, the crimes that law enforcement agencies are prioritising. For some time now, all involved have recognised the inadequacies of the system.
Serious and organised crime is estimated to cost the UK £24 billion per annum; the National Crime Agency (NCA) has estimated that ‘hundreds of billions of pounds of international criminal money is almost certainly laundered through UK banks and their subsidiaries each year’. The system as it was needed to change. And so it has begun to.
In February 2015, the UK government launched the Joint Money Laundering Intelligence Taskforce, a vehicle for public–private sector collaboration in tackling key financial crimes where information can be shared between banks and the NCA in order to boost law enforcement’s ability to identify and disrupt economic crime.
This new approach is reportedly working well and will be supplemented by the proposed provisions of the Criminal Finances Bill currently passing through Parliament.
But now, for the first time, we are hearing from the banking sector itself about the work being done to disrupt financial crime. It is using its significant transaction monitoring and ‘big data’ analytical capabilities to identify crime-related anomalies and conduct far-reaching investigations based on the activity of its clients, seeking to maintain the integrity of the financial system.
Standard Chartered Bank’s recently launched web pages highlighting the lender’s commitment to fighting financial crime is striking in this regard. In a related video, the bank’s Chief Executive expresses the belief that effectively fighting financial crime is not only the right thing to do, but is a competitive advantage that will boost returns for shareholders in the long term.
After an extended period in purgatory and after nearly three years of commitment to the government’s public–private partnership efforts from which the authorities appear to be benefiting, the banking sector is seemingly beginning to feel that the time is right for their central role in the fight against financial crime around the world to be recognised.
Centre for Financial Crime and Security Studies