It is a time of considerable and rapid innovation in the financial space.
Fintech companies and challenger banks have created and developed disruptive models that make it easier for consumers to save, invest and spend their money, facilitating the purchase of goods and services from online merchants. Similarly, cryptocurrency has captured the public imagination to the point that some people see it as a hobby, if not their sole mode of investing.
One of the key risks that arises from this brave new world is that new business models are exploited by those seeking to launder money or finance terrorism. Money laundering is a national security issue for the UK due to London’s role in the global financial system.
The private sector is alive to money laundering risk and is investing heavily in compliance to address this, driven by regulatory scrutiny of more conventional financial institutions and the large fines that have been imposed for money laundering failings.
However, there are concerns that the public sector may not be keeping pace in the fight against money laundering, which is akin to an arms race with organised crime groups.
Anti-money-laundering and counter-terrorist-financing policy are set at an international level by the Financial Action Task Force, an intergovernmental body. While FATF’s work affects us all, the closest it has come to general awareness is in the form of James Bond’s great lost love, Vesper Lynd, the femme fatale FATF attaché in Casino Royale.
FATF’s work does contribute to international security – though in a less immediate or glamorous way than the activities of Mr Bond – by making recommendations that are considered to be the internationally endorsed global standards against money laundering and terrorist financing.
FATF’s recommendations are implemented by nations via legislation and set out the essential measures countries should have in place to pursue money laundering and terrorist financing. The FATF recommendations also put the onus on certain types of private sector companies, which act as gate-keepers to the financial system, and have additional obligations from an AML perspective. These financial gate-keepers include financial institutions, auditors and estate agents. Obligations include conducting know-your-customer checks, having in place AML policies and procedures, and reporting suspicions of money laundering to law enforcement.
The regime is intended to require certain private sector companies to make it harder for criminals to access the financial system, to require these companies to report their concerns to law enforcement and to create a framework that provides intelligence on money laundering and terrorist financing to law enforcement.
One of the drivers for investment in compliance by private sector companies is that the financial penalties they can face for deficiencies in AML systems and controls are substantial. In 2021, the first criminal conviction in the UK of a large bank for AML failings saw a fine of £264mn imposed. Ten years ago, the US levied a fine in the billions of dollars on a high street bank.