BAE Systems has published its latest report looking in-depth at the significant and serious money laundering risks within the insurance and financial services sector. Given the FCA’s strong focus on the issue, it’s crucial that insurers and brokers in the commercial, retail and property sectors truly know their customers.
We take a look at some key findings from the report – The State of Anti-Money Laundering 2021 – which analyses responses from more than 450 financial professionals working in risk management and compliance.
The need for collaboration
The UK’s National Crime Agency (NCA) believes that high-end money laundering “can threaten the UK’s national security and prosperity, and undermine the integrity of the UK’s financial system and international reputation.”
Against this backdrop, it’s worrying that more than 90% (92%) of those surveyed for BAE’s report believe existing money-laundering rules are `stagnant’, and that a lack of collaboration between insurers, law enforcement and politicians is holding back progress in tackling the issue.
As technology such as crypto currency evolves, and email and text message scams become more sophisticated than simply sending a message claiming to be Warren Buffett, it’s obvious that everyone involved in combatting money laundering needs to up their game.
In wider terms, the report also identified that insurers felt that fighting money laundering was a good thing for society in general. In the end, this is all about trust, and as insurance is essentially a promise to pay in an emergency, the matter of trust between policyholder and insurer is something that needs to be protected. In short, reputation matters.
The report also highlighted a widespread view that compliance can be something of a patchwork, from one country or regulatory area, to another.
To address this, there is a clear willingness to explore the idea of a FinCrime loop, which would essentially automate red flag warnings and join up the right enforcement bodies when potential money laundering was identified.
Spotting the trends
As a global leader in fraud and financial crime management solutions, protecting over 200 financial institutions from risk, BAE Systems is in a unique position to shed light in this area. Their big data analytics expertise allows them to help spot criminal typologies hidden in financial patterns. But how can this work in practical terms?
The United Nations Office on Drugs and Crime (UNDOC) describes three stages of money laundering:
· Placement – moving funds away from direct association with the predicate offence and integrating it into the financial system
· Layering – disguising the trail to foil investigators who may be in pursuit
· Integration – delivering the money to the criminal from what appear to be legitimate sources, enabling them to purchase luxury assets or make financial, commercial or industrial investments.
Nearly two thirds (62%) of those questioned for the report say money laundering has become harder to spot in the last 12 months or so.
The pandemic – and in particular government responses to it – have undoubtedly created new opportunities for fraud in general. In addition, new sources of money, in the shape of government loans and grants, form a tempting target for launderers keen to siphon off those funds.
Another worrying trend is that people trafficking is on the rise, and lockdowns or travel restrictions linked to the Covid pandemic have actually driven this further underground, rather than eradicate it.
The trend towards working from home has also increased the risk of ransomware or email attacks, as companies disperse their employees away from offices. Around 70% of those in insurance said that they had seen an increase in home workers being targeted for data breaches and other scams, with criminal activity online increasing by 29% since the start of the pandemic.
Is technology a solution?
A lack of joined-up responses to various fraud or money laundering alerts can undo the good work done by the latest anti-fraud systems. Some 76% of respondents said that compliance has become a box-ticking exercise that neither gets to the bottom of fraud nor deals with it effectively.
Technology can help address this. By creating a fully-automated FinCrime loop, staff could be freed up to deal with more complex cases, whilst routine red flag incidents could be dealt with quickly and data used to identify trends and patterns. That in turn would allow companies to use technology to train staff to spot typical patterns, or identify new money laundering techniques.
Enda Shirley, Head of Compliance, BAE Systems Applied Intelligence, said the new report provided a clear view of the problem, together with valuable insight on how to tackle it.
“For many financial institutions, getting a handle on money laundering is now simply about ensuring they avoid fines or reputational damage,” he said.
“Our research is telling us that the current system just doesn’t go anywhere near deep enough to have a significant impact on the crux of the issues. For many, compliance has got in the way of the primary goal – how to identify and protect vulnerable victims. Stopping these incidents at the point of transaction is really still only a small part of tackling the problem. There is work to do to look deeper into how we can look for early indicators of these often life changing offences. Financial institutions must channel more funding into key areas like internal training and technology.
“And for real change to happen, collaboration across the anti-money laundering industry is essential. This means law enforcement, policy makers, finance and technology sectors consistently working together more closely to share insights and intelligence. We’ve shown already how this can be achieved in the cybercrime space with initiatives like BAE Systems’ The Intelligence Network. With the same kind of positive, collective action, anti money-laundering compliance can become a force for tremendous good.”
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