Tackling Financial Crime: Information Sharing is Key

Last month in Washington DC, Keith Bristow, director general of the National Crime Agency (NCA) spoke at George Washington University, highlighting the national security threat posed by transnational organised crime. In his speech he observed that ‘organised crime is a transnational phenomenon which demands a coordinated, transnational, response’ citing a roll call of international jurisdictions that impact crime in the UK. The heroin on the streets of Liverpool from Afghanistan; the cocaine at dinner parties in London from Colombia; UK criminal money laundered in the UAE; and boiler room scams that rob the elderly in Birmingham perpetrated from Indonesia.

One particular vulnerability of the UK to which he drew attention is the country’s leading financial services industry, suggesting that ‘many hundreds of billions of pounds of criminal money is almost certainly laundered through UK banks and their subsidiaries each year.’ Echoing his Washington speech, this week the director general reiterated that what the Evening Standard headline writer termed ‘crime in banks’ is a threat to national security and that money laundering by banks, along with other illegal activities, risk undermining the reputation of the UK.

There is no doubt that as one of the leading global financial centres, the UK (specifically London), almost inevitably handles flows of tainted funds – even the most sophisticated transaction monitoring systems will fail to detect every dirty pound, dollar, or euro that is washed amongst the trillions that pass through London each day. In recent years, banks have spent billions of dollars on improving monitoring systems. Furthermore, KPMG estimates that global annual expenditure is likely to exceed US$10 billion in the next two years.

It's not only about money

But is this spending actually advancing the effort by banks and law enforcement agencies to disrupt the national security threat posed by organised crime and other forms of financial crime? Given the comments from the NCA boss it would seem not. As he points out in his Evening Standard interview, ‘We need the evidence to investigate people and bring them to justice.’ Put simply, without information from the banks, the NCA will have great difficulty in doing its job.

For many years, banks in the UK and around the world have been required to file ‘suspicious activity reports’ (SARs) to their national Financial Intelligence Unit (FIU) whenever they believe they have identified nefarious activity being conducted by accountholders. In the year to September 2014, over 350,000 SARs were filed with the NCA, the designated FIU for the UK – 300,000 of which came from banks or building societies.

Two issues are striking. Firstly, it seems highly unlikely that the NCA is able to process, utilise, and investigate well-over a quarter of a million filings per annum, and secondly, how are banks determining what is ‘suspicious’? How do they know what information is of use to the NCA or are they simply filing SARs to avoid accusations of negligence in comparison to peers?

At the heart of ensuring that the efforts to tackle financial crime by both the NCA and the bank sector are effective is information sharing. In 2014 the UK Financial Sector Forum involving banks and regulators was created with the aim of improving information sharing and building trust between public and private sectors. The initiative that the NCA revealed in the Evening Standard is to be applauded and makes effective use of the new Crime and Courts Act. The fight thus far has often been predicated on guessing what each party knows or wants to know despite the significant synergy that could be achieved in partnership. This new effort will see the NCA proactively approaching banks to identify whether a suspicion that has been reported by one bank can inform the financial crime work of other banks – holding multiple accounts to limit transaction activity and transaction size is a core modus operandi of any financial criminal.

The UK is not a Financial Island

Yet whilst this initiative is welcome, it does not go far enough. As Keith Bristow’s list of transnational threats evidence, financial crime is a worldwide business. UK banks operate internationally, sending and receiving money from accounts in every corner of the globe. If we are truly going to undermine such a threat to national (and international) security then the example set by the UK needs to be replicated around the world; banks that are often unable to share relevant information internally between different jurisdictions (think of ‘Swiss bank secrecy’) need to be cleared to do so; and the NCA’s partner FIUs around the world need to likewise share information with each other in a manner that reflects the transnational nature of financial crime. Just as the Crime and Courts Act forms the basis of this activity in the UK so Article 18(4) of the UN’s so-called ‘Palermo Convention’ against transnational organised crime could serve as the basis for international cooperation.

Without a truly integrated and global information sharing regime, financial criminals will simply take advantage of those countries that provide limited threat to their operations. Like water, illicit finance finds cracks in the system through which to flow – the challenge Keith Bristow seeks to address can only be effectively tackled if a global approach is taken to partnership and information sharing.