Financial crime is on the rise. Criminal money funnelled through the UK or facilitated by UK structures amounts to hundreds of billions of pounds annually. According to a report by HM Treasury, serious and organised crime, much of which is driven by financial crime, costs the UK an estimated £37 billion a year.
Financial crime is a growing and lucrative business for criminal organisations. Criminals devise ever-creative techniques to evade law enforcement and advance their criminal activities, which threaten public safety and national security. These criminal activities, including fraud, money laundering, terrorist financing, bribery, and corruption, cause serious damage to both individuals and organisations.
The financial sector is a target-rich environment for criminals. Identifying and tackling criminal threats early on can help banks and financial institutions make strategic decisions and avoid troubles down the road.
What is financial crime?
Financial crime encompasses a range of criminal activities based on the misuse or abuse of financial systems and services. Criminals resort to deceptive and illegal practices generally associated with the following offences:
- Identity theft
- Money laundering
- Terrorist financing
- Bribery and corruption
- Forgery and counterfeiting
- Market abuse and insider dealing
- Embezzlement and tax evasion
Money laundering and terrorist financing, in particular, can undermine the stability of our financial systems, increase volatility of international capital flows, and lead to potentially disastrous global consequences.
Money laundering is a key component of financial crime, and involves the “cleaning” or conversion of illegally obtained funds into legitimate assets. This can involve hiding tainted funds in an offshore bank account or routing them through a complex web of shell companies and fake invoices.
Terrorist financing involves providing financial support or resources to terrorist groups in order to further their aims and activities. As the world becomes increasingly interconnected, the risk of terrorist financing increases as well. Advanced criminal schemes make it difficult for law enforcement to track and freeze terrorist assets.
Financial crime is a serious issue that can have far-reaching consequences. By understanding the links between financial crime and money laundering, we can mitigate the risks and protect our financial systems from exploitation.
What links financial crime to money laundering?
There are strong links between financial crime and money laundering. The explanation is simple. Criminal money cannot enter the legitimate financial system until it goes through the three stages of money laundering: placement, layering, and integration. Hence, financial crime doesn’t end with the crime itself, rather, it is perpetuated and compounded by money laundering.
Money laundering techniques are constantly evolving, as criminals adapt to new technologies and changes in the geopolitical landscape. Here are some of the most common money laundering techniques:
Smurfing is a method used by money launderers to avoid government scrutiny and hide their illicit funds. The technique involves breaking up large sums of money into smaller transactions, which are then deposited in different financial institutions. By using smurfing, money launderers are able to sidestep reporting requirements set out by financial institutions.
Money muling allows criminals to transfer illicit funds through the accounts of multiple participants, often without their knowledge or consent. While money muling is seen as a relatively low-risk money laundering method, it can also expose unsuspecting participants to serious legal consequences, including prison time and hefty fines.
Shell companies act as a backdrop for money laundering crimes, as often there is no sign of business activity or operations. In most cases, dozens, even hundreds of shell companies can be registered at a single business address. Criminals set up shell companies in jurisdictions that provide anonymity, which allows them to move money around and hide traces of their criminal activity.
Looking at the pace and sophistication of recent advances in financial technology, it is not surprising that financial criminals and money launderers are constantly innovating to stay one step ahead, and move on to new crimes. To address new and emerging threats, law enforcement agencies have ramped up their efforts, introducing anti-money laundering (AML) and counter-financing of terrorism (CFT) legislation and imposing stricter penalties for non-compliance.
How organisations can detect and prevent financial crime?
Organisations can take a number of steps to detect and combat financial crime, namely, implementing effective AML/CFT controls, and ensuring compliance with all relevant laws and regulations.
Implementing effective AML/CFT controls: involves putting in place procedures and controls to identify and manage financial crime risks within an organisation. Effective AML/CFT controls include real-time transaction monitoring, ongoing screening of customers and transactions, sanctions screening, customer risk scoring, and strict policies for handling customer data. Third-party financial crime compliance solutions can strengthen your organisation’s AML/CFT controls, helping you achieve regulatory compliance and fight crime more effectively.
Ensuring compliance with relevant laws and regulations: organisations around the world must follow certain legislative and regulatory frameworks set out by regulators in their respective jurisdictions. The latter include the Financial Conduct Authority (FCA) and the Financial Action Task Force (FATF) in the UK, the Financial Crimes Enforcement Network (FINCEN) in the US, Australian Transaction Reports and Analysis Centre (AUSTRAC).
By ensuring compliance with jurisdictional AML/CFT regulations, such as the UK’s Proceeds of Crime Act (POCA), the EU’s anti-money laundering directives (AMLD), the US’ Bank Secrecy Act (BSA) and the Australia’s AML/CFT Act, organisations can mitigate the risks of money laundering and terrorist financing, and demonstrate their commitment to protecting their customers and employees.
Financial crime is a major threat to our global economy, and it is up to all of us – individuals, organisations, and governments alike – to work together to prevent it. By paying attention to the warning signs, implementing effective safeguards and controls, we can reduce financial crime and create a safer world now and for future generations.
With Salv’s financial crime compliance solutions, organisations can leverage their data and insights, and fight financial crime more effectively, while staying compliant with data protection and privacy requirements. Curious? Don’t wait, talk to our experts.