The harm from illicit finance—corruption, money laundering, terrorist financing, and fraud—has the potential to impact every level of society, from governments and businesses to those living in poverty. The United Nations Office for Drugs and Crime estimates that money laundering alone comprises up to 5% of global GDP annually.
Despite massive amounts of money being spent by governments to combat illicit finance, on average less than 1% of criminal proceeds are recovered annually. Clearly, a new approach needs to be considered—and it should involve better coordination and collaboration among key stakeholders.
A question of coordination
There’s no doubt that illicit finance involves a complex set of challenges, not the least of which are bad actors’ ability to act swiftly to exploit vulnerabilities and make use of emerging technology. But there are also challenges on the part of those chasing bad actors that are impeding their effectiveness. What it mainly boils down to is a lack of coordination and collaboration.
The ecosystem of those combating illicit finance includes a range of stakeholders, including policymakers, government agencies, local law enforcement, regional and global enforcement bodies, and businesses. All of these entities have a role to play in battling illicit finance, but an uncoordinated response can greatly inhibit their effectiveness.
Stakeholders in this effort often lack transparency and operate in silos—even within the same organization—failing to work together to achieve common goals. To take on illicit finance and the bad actors that so quickly adapt to new opportunities, a coordinated approach should be pursued, including the following steps:
- Prioritizing clear system leadership. Designating one system leader who can bring together the entire ecosystem of stakeholders can enable them to better align to priority threats and activities as well as more effectively collaborate. In some jurisdictions, a workshop approach has served as a straightforward way to gather key players in order to build a shared view, establish trust, and codify ways of working—and is a good way to start the necessary conversations.
- Improve information-sharing. The information and intelligence silos that can exist between ecosystem stakeholders are often exploited by criminals. To help tackle the problem, a growing number of stakeholders are proactively forming public-private partnerships (PPPs) that enable trusted forums in which to share the information they need to make a difference. To reap the full benefits, though, these PPPs should be recognized and incentivized by policymakers and regulators as a key component of the framework fighting financial crime.
- Enhancing transparency of beneficial ownership. Greater progress should be made to help ensure national beneficial ownership registers, in jurisdictions where they exist, are trusted sources of accurate and reliable data and can be accessed globally to understand ownership structures. Register owners could build their own “know your customer” capabilities to support effective registration and help resolve data discrepancies with private sector data holders (e.g., if a bank’s record of beneficial ownership materially differs from that held by the central register).
- Enabling faster action. Organizations battling illicit finance should leverage existing points of data aggregation in financial systems, where data from across multiple institutions already reside. Reducing the upfront challenge of bringing data together when addressing financial crime could result in more quickly realizing information-sharing benefits.
Building on best practices
Collaboration is already happening and those battling illicit finance can look to these examples to build out their own efforts.
- The UK’s recent Economic Crime and Corporate Transparency Act aims to address the lack of transparent beneficial ownership data that can enable illicit activity. The legislation aims to prevent the abuse of limited partnerships to circumvent requirements that often restrict illicit finance activity. It also provides for additional powers to seize and recover suspected criminal crypto assets, improve the effectiveness of unexplained wealth orders (a non-conviction-based asset recovery mechanism), and help enable new intelligence-sharing powers between law enforcement and the private sector.
- Over the last 10 years, there has been growing recognition of the value of public private information sharing partnerships, such as the UK’s Joint Money Laundering Intelligence Taskforce, in enabling stakeholders to identify and tackle financial crime more effectively as part of an ecosystem approach. PPPs have been given a further boost through Article 75 of the European Union’s latest Anti-Money Laundering package, which gives the EU member states a clear legal basis to create partnerships for the purposes of exchanging information in a multilateral way to prevent money laundering and terrorist financing activity.
- The Monetary Authority of Singapore (MAS) has led the development of a digital platform, COSMIC, that allows financial institutions to securely share information about customers who exhibit multiple “red flags” indicating potential financial crime concerns (if stipulated thresholds are met). MAS has also led the development of a clear regulatory framework to underpin the platform that aims to give confidence to financial institutions in sharing information.
Collaborate for impact
To be sure, illicit finance is a thorny and complex challenge that stretches across borders and jurisdictions, sectors, and communities. Only a coordinated response against those perpetrating these crimes is likely to have a major impact. That means governments coming together with the private sector to confront this ongoing illegal drain on the world’s resources.
Want to know more? Connect with us at the upcoming SOCEX Economic Crime Conference, check out our report Combating Illicit Finance: Driving effective response across the judicial ecosystem, part of our Justice Reimagined series, or visit the Deloitte Global Government & Public Services page.