Why Organized Illicit Finance Demands An Organized Global Response
Illicit finance is a major threat to the security and prosperity of all nations. It not only enables criminals to profit from the most heinous crimes, but also finances terrorist atrocities. It causes an immense financial and human cost to society, business and government; a cost that we cannot, and should not, bear.
Organized financial crime prevails over a disorganized system
In an increasingly interconnected, digital world, those engaged in financial crimes are continuously evolving their international operations, working across multiple jurisdictions. They act with a speed and sophistication with which the siloed “system”— government, law enforcement, regulators, corporates, and financial institutions— struggle to keep pace. For example, the Financial Action Task Force (FATF) has identified just how quickly criminals have exploited the COVID-19 pandemic to commit fraud and money laundering.
Despite some excellent examples of successful collaboration, strategic system-wide cooperation continues to be needed. Less than 1% of the billions of dollars laundered annually are ever recovered (source: Global Initiative Against Transnational Organized Crime).
The regulated sectors, for instance, financial services, have taken significant steps to protect customers and the economies in which they operate. Investment in people, processes, and technology to monitor customer transactions for signs of risk has been huge, and regulatory pressure has been high. Despite this, it has proven extremely difficult to effectively stem the flow of illicit finance.
The word “flow” here is appropriate. Like water, financial crime always takes the path of least resistance, quickly finding its way into the cracks. And a system is only as good as its weakest link. Which is why it’s vital that all system stakeholders collectively—and quickly—address their current weak spots.
Crucially, this requires a commitment from all parties to take an empowered, proactive stance rather than a defensive, reactive one: to own a common ambition and approach, effectively sharing intelligence on individuals and groups so financial crime can be tackled swiftly. Strong international leadership is vital, and it is encouraging to see the fight against illicit finance in all its forms as an area of focus for the new administration in the US.
Only by working collectively as a single, coordinated system can public and private organizations effectively fight illicit finance. Only together can we change how it’s perceived, opposed, and prevented.
Five steps to collectively tackle illicit finance
From Deloitte’s engagement across the illicit finance regime, we believe there are five key steps which the ecosystem should take collectively in response to the threat.
1. Improve alignment
A greater alignment of preventative effort across the public and private sector, concentrating on high-value activities, is paramount.
This should include better sharing of information and intelligence, such as emerging typologies and tactical data sets, which would sharpen the regulated sector’s ability to identify suspicious activity.
Anecdotally, some banks report that as little as 1% of transaction-monitoring alerts identify information that warrants reporting to national intelligence authorities, suggesting significant effort and capacity in the system is arrayed against activity that does not lead to outcomes.
2. Renew the focus on effectiveness
In some cases, the ability to align resource to where it’s needed most is inhibited by legislative and regulatory frameworks, or their interpretation.
It is important that financial crime risk management frameworks are implemented by organizations and regulated to prioritize the effective delivery of outcomes rather than focusing on technical compliance as an end in itself.
There are encouraging signs that innovative approaches are being considered and progress is being made, such as within the Deloitte US’s recent consultation on enhancing the effectiveness of Anti-Money Laundering (AML) programs.
3. Increase collaboration
The adage “the whole is greater than the sum of its parts” is certainly true of the illicit finance regime.
Improved collaboration could also enable global public sectors to leverage the capacity and capabilities of the private sector to help drive a more disruptive agenda and secure better outcomes. As an example, global law enforcement could look to the approach taken by the US Department of the Treasury and Department of Justice (DoJ). The DoJ has worked with the private sector for the best part of a decade, bringing in forensic accountants, open source intelligence analysts and more, which has enabled them to make a dramatic step-change in the seizure of criminal assets.
4. Embrace new technologies
While the proliferation of emerging technologies, including new payment platforms, cryptocurrencies and Digital ID, represent criminal opportunity—with Treasury Secretary Janet Yellen commenting1 that when Bitcoin is used “it’s often for illicit finance”—it also provides an opening for the ecosystem to start designing out vulnerabilities.
Emerging analytics and encryption technologies will allow us to “see more” in data and enable new kinds of data sharing in compliance with overarching privacy principles.
5. Make broader connections
Illicit finance requires all sectors to play a strong, active role. This goes beyond financial services, governments and law enforcement. Within the global corporate sector social media, Internet Service Providers, and telecommunication companies can all be vectors through which fraudsters access their victims. All have a preventative role to play.
The challenge is significant and requires considerable reform of the current system. But from Deloitte’s experience of working with organizations across the ecosystem, we know that everyone involved wants the same outcome: to prevent crime, protect citizens and customers, and disrupt the criminals. The task, for leaders in both governments and industry, is to harness their shared ambition and go on this transformational journey together.