Criminals are using an increasingly complex financial modus operandi to take advantage of today’s mostly fragmented approach to detecting their criminal activity. They are, among other means, cycling through financial institutions so that no one bank has the full picture, and moving their money and accounts more quickly than bank reporting and law enforcement can keep up with.
While other areas of crime fighting have evolved considerably since the Suspicious Activity Reporting (SAR) regime was designed in 1989, we have not materially adapted our approach to leveraging the information held by the financial and wider regulated sector since then.
At last count, over 400,000 SARs are filed in the UK annually, and leading voices within law enforcement are increasingly saying that huge swathes of this information are not valuable and their resources are unable to keep pace with these growing numbers. This represents a significant amount of energy and effort that might be better directed towards higher value activity.
I recently spoke at a panel discussion hosted by RUSI’s Centre for Financial Crime and Security Studies on the UK SARs reform agenda, and it was encouraging to hear a shared belief across public and private sectors that a reformed system should, first and foremost, focus on improving outcomes. That means taking bold action to change the SARs regime so that it better meets its original intention – to provide actionable intelligence to law enforcement.
Events like this do not provide all the answers, but it did help to identify some of the crucial elements for building a more effective system.
First, the default position should be to embrace the goal of rapid, two-way information exchange. The UK government’s own language supports this, arguing for ‘radically more information to be shared between law enforcement agencies, supervisors, and the private sector’.
As RUSI’s paper on Financial Information-Sharing Partnerships describes, traditionally, individual banks have only been able to see illicit finance which flows through their own systems. But by sharing potentially suspicious financial information between and among banks, through authorised channels, we are able to identify more suspicious transactions and ultimately provide more useful and actionable intelligence to the authorities.
This type of partnership is fast becoming the norm. A recent article in the Wall Street Journal described an information sharing partnership in the United States that Standard Chartered played a formative role in establishing under authority granted by the US Congress as part of the USA Patriot Act. And there is a growing set of partnerships across the world, including the UK’s Joint Money-laundering Intelligence Taskforce (JMLIT).
These efforts have the potential to shape a new paradigm, where our work can be intelligence-led and create a more holistic view of potential criminal activity. At their best, they allow us to put together pieces of the puzzle in new ways, and identify networks, money flows and patterns that may not have been possible otherwise. The learnings from these partnerships demonstrate the benefits of closer collaboration and greater information-sharing, principles that should apply to the redesign of the regime as a whole.
A second key ingredient of the discussion was the recognition that we need to see technology as a central enabler of a reformed system, allowing us to better access, analyse and share anonymously the data we have, and to do so securely and pursuant to existing authorisations. Advances in machine learning and artificial intelligence offer new possibilities to help the financial sector distinguish between false positives and the anomalous behaviours that could indicate criminal behaviour. Successfully incorporating these technologies would allow us to refocus resources towards proactive investigation and improve output.
Third was the recognition that no meaningful reform is possible without the involvement of regulators in the discussion. For information-sharing reform and technological information to have an impact, it is essential that the key regulators share and shape the vision. That is why it is noteworthy that, in the UK, the Financial Conduct Authority (FCA) has been a key player in the debate from the outset.
At a time of shared ambition for change, adopting principles for reform is crucial to agreeing on and achieving our collective objectives. It is also important to address potential challenges, one of which is what I see as a false dichotomy between improved financial crime reporting on the one hand and data privacy on the other.
When the Wall Street Journal reported on the US information-sharing partnership, it quoted privacy advocates who worried that banks may be stretching their authority to share sensitive data, unnecessarily exposing personal information, leading to individuals or companies being penalised over mere suspicions.
To be clear, complying with our data privacy obligations is a priority. Respecting law-abiding clients’ right to control over their personal data is paramount. This is true in our everyday operations as a bank, and it is true in our public–private partnership initiatives. As a result, where the existing legal boundaries and authorities are the clearest, such as in the UK and the US, we can make the most progress in innovating to fight financial crime. Where they are not, we continue to engage on the subject, but only in ways that are completely respectful of the local jurisdiction’s rule of law.
Creating effective partnerships between and among the public and private sectors is an integral part of strengthening our fight against financial crime. Timely sharing of information between banks and law enforcement, underpinned by technology and engagement with regulators offers the opportunity to create a step change in our response in terms of detecting and disrupting crime and ultimately make the financial system a hostile environment for money launderers and terrorist financers.
David is Group General Counsel at Standard Chartered. He has held several roles in the US government, including as US Attorney for the District of Connecticut and as Associate Counsel to the US president.
The views expressed in this Commentary are the author's, and do not necessarily reflect those of RUSI or any other institution.