A recent spate of high-profile money laundering cases involving big banks in Europe has shone a spotlight on just how thieves are making off with the cash — literally.
Annegret Funke, head of Financial Crime at Featurespace, told PYMNTS’ Karen Webster that the sheer breadth of the schemes — reaching into the hundreds of millions of dollars — shows that financial institutions’ (FIs’) anti-money laundering defenses need to be updated, modernized and, above all, integrated.
The conversation came against a backdrop in which Credit Suisse became the first Swiss bank to stand trial in its home country on criminal charges, which stem from allegations that it didn’t take adequate measures to guard against financial crimes.
Specifically, the company has been cited for lax anti-money laundering (AML) efforts, as it let a Bulgarian drug gang launder millions of Swiss francs through the bank between 2004 and 2008, according to Swiss officials.
But it’s the relatively old-fashioned ways in which the financial crimes were committed that might grab the most attention. At least some of the money was allegedly stuffed into suitcases, and the thieves skirted AML alert thresholds (at $10,000) by keeping euro denominated bills in safe deposit boxes. In this case, at least, following the money would have meant following the cold, hard cash.
Read more: Credit Suisse’s Swiss AML Case Reminds Us That Fraud Is Old School
Elsewhere, at the end of last year, NatWest, a U.K. state-backed bank, was ordered to pay 265 million British pounds (about $358 million) after pleading guilty to failing to prevent money laundering. NatWest had not identified suspicious activity from a customer who put in around 365 million pounds (about $494 million) in accounts, with 264 million pounds (about $357 million) in cash.
See more: NatWest Faces $350M in Fines After Guilty Plea in Money Laundering Case
Overlooking the Blind Spots
The fact that such high-profile institutions are still falling victim to AML blind spots — where money stuffed into suitcases can evade detection — shows that money laundering can be quite effective when it goes old school, Funke said.
Depending on where you look, and particularly in Europe, said Funke (Switzerland is a prime example), the general level of transparency in the financial systems can be fairly low. That’s especially true where numbered bank accounts are permitted under bank secrecy laws and relationship managers are proving fallible.
“As a result, the bank’s level of knowledge about its customers is lower,” she told Webster. “The controls are failing.”
They’re failing in part because AML and know your customer (KYC) efforts at banks tend to be siloed, and alerts that might uncover collusion or insider activities do not tie in with “other” markers, she said. In the case of the aforementioned activities, combining the evidence from the safe deposit boxes with money movement is largely absent.
“Cash is still king in these cases,” she remarked, and cash-based money laundering still generates sensational headlines. “But the overall effectiveness of the AML regimes at the banks is still so low that many of the conversations we [at Featurespace] are having are still focused on reducing false positives for operational efficiencies, allowing teams to reallocate resource to innovations.”
The great digital shift is also exposing the key vulnerabilities in banks’ AML efforts. Digital payments may be relatively easier to track, at least theoretically. But the rise in cryptocurrency-related crimes indicates that the bad actors are seeking safe haven in bitcoin and exchanges and other high-tech fund flows, and even gravitating toward gift cards to hide their tracks.
Read more: Crypto Networks Connected to Increase in Reported Fraud
Where to Begin
To overhaul their AML efforts, banks must begin at the beginning, she said. Banks can do much to short-circuit money laundering schemes by focusing on the source of funds.
Funke noted that it is critical to be able to link customers — clearly identified customers — and the money they are holding at the beginning of the relationship. That basic level of identification has been stymied by the Swiss bank secrecy laws, which can keep firms from being able to identify clients at the initial stage of contact.
“The first place I would start is with an ‘overlay’ of several layers of controls,” she said, where different departments within the bank have the independence to raise AML concerns, beyond simply “ticking boxes” that are related to their internal processes.
With a holistic approach, she told Webster, there are incentives — and easier methods — across several departments within the FI to work collaboratively in the effort to stop money laundering and illicit transactions. The relationship managers are incentivized (as many gatekeepers are) by the revenues they bring to the banks.
She noted that the sheer scope of financial crime that is out there should steer FIs toward public-private partnerships because banks (like any other firm) are limited in the resources they can allocate to fraud management, and access to data may be limited.
With data sharing initiatives and collaboration in place, said Funke, FIs can piece together a better understanding of who their clients are and ways in which those clients are opening, closing and managing accounts and moving money.
“You have to get your data in order and realize what a treasure trove of information you are holding,” she said. “Banks, essentially, are data houses,” and third-party providers can help FIs make sense of that constant flow of information. Although there’s the need to collect personal identifiable information (PII), she said, security is enhanced with digital IDs and tokens.
What Will Change
No matter how the court rules in Switzerland in the ongoing Credit Suisse trial, Funke projected that the secrecy that has shrouded the banking system in that country will dissipate a bit and “catch up” to AML/KYC standards seen elsewhere.
“It’s the first step toward a more proactive enforcement regime,” she said. “So, it may be ‘bye-bye, numbered bank accounts.’”
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