Smarter weapons needed to fight savvy financial criminals

Money laundering has existed for as long as we have had money.

Today, it is estimated that money laundering around the world reaches between US$1 trillion (S$1.35 trillion) to US$2 trillion, around 2 per cent to 5 per cent of global gross domestic product. While many are not directly exposed to the effects of money laundering, the impact in social and economic terms is staggering.

On the social spectrum, successful money laundering leads to increased criminal activity, fuelling terror and drug-related crime. On the economic front, illicit financial flows result in additional costs to businesses such as banks for monitoring and prevention purposes, losses in tax revenue for governments, and artificially inflating financial and property sectors.

Make no mistake, governments around the world are taking tough affirmative actions to combat this threat.

The Monetary Authority of Singapore has also accelerated efforts to tackle this issue, with initiatives such as the Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP) and the launch of platforms such as MyInfo, which enables more efficient Know Your Customer processes for banks and customers.

While these initiatives have made Singapore one of the countries in the region with the strongest anti-money laundering (AML) ecosystem, money laundering remains a problem.

This year, the Republic dropped from second to fourth place in the Basel AML Index ranking Asia's lowest-risk countries.

Another report, PwC's 2016 Global Economic Crime Survey, shows how money laundering in Singapore is the fourth most common financial crime, representing more than a quarter of the country's economic crimes combined.

This is a clear sign that in the war against financial crime, conventional law enforcement is no longer enough, and smarter weapons are needed to fight financial criminals.

There needs to be a new era of collaboration among the financial services industry, law enforcement, regulators, technology partners and compliance specialists in the fight.

In a recent report released by BAE Systems, we identified six common personas involved in money laundering to help businesses to start the fight back. These include: The Source, The Leader, The Bystander, The Watched, The Shark and The Shop Front.

The first and most prominent of the six is The Source, which refers to organised crime gangs that obtain illegal profits directly from their crimes and need their money cleaned before it can be used.

This is made possible by The Shark, who helps move illicit funds through the banking system, and The Shop Front, which means legitimate-looking businesses that launder money for criminals.

HIDE FUNDS

The Leaders hide their funds and spend money on things that keep them in power, and The Watched are high-profile individuals who could either be corrupted or facilitate corruption for a price.

The Bystanders do not facilitate crime but are happy to turn a blind eye while their mysterious client lines their pockets.

As Singapore becomes a Smart Nation and embraces the Internet of Things, the risk of potential cyber attacks is greater than ever before.

While the recently launched ACIP is a first big step to better understand and mitigate the risks, identifying potential threats requires a holistic approach to financial organisations' asset protection strategies.

In recent times, criminals have been diversifying their tactics and circumventing banks and financial institutions altogether. Some of the latest strategies to launder money include trade-based money laundering, where criminal organisations utilise the trade of goods to transfer illicit funds from one place to another by altering shipment and trade-finance documentation.

For example, issuing an invoice for shipping 500 bags when only one item is being shipped. This is a real threat for non-financial businesses as well.

Fighting a common threat requires a common solution, an integrated approach where all parties potentially at risk play an active role.

This includes banks and other institutions targeted by financial fraudsters, such as governments, security experts as well as national and international regulators and industry bodies.

Sharing of information and actionable intelligence must become a top priority.

The draft of Singapore's Cybersecurity Bill establishes a framework for the sharing of cyber-security information with and by the Cyber Security Agency of Singapore, and the protection of such information.

The two-way provision of timely information is critical for financial entities and experts to become better at developing an integrated view of risk, fraud and compliance as well as support best practices in tackling financial crime.

Consolidating and analysing data shared by these parties and the use of machine learning and artificial intelligence models to identify unusual activity, criminal patterns and new fraud techniques will help anticipate where the next attack might strike.

These technologies are key in building a collaborative and proactive response to financial crime by foiling fraudsters, money launderers, organised crime and those wishing to fund terrorism.

The writer is general manager and head of Financial Crime Solutions for Asia at BAE Systems Applied Intelligence. This article appeared in The Business Times yesterday.