Tackling Money Launderers Means Shutting Down Financial Crime-as-a-Service

First comes fraud, then comes money laundering.

Ransomware, business email compromise (BEC), phishing and bitcoin as a vehicle to hide illicit gains — ferrying stolen funds across borders is no longer about stuffing money into suitcases.

Featurespace Founder Dave Excell told Karen Webster that the financial services industry is facing the rise of “Financial Crime-as-a-Service,” no different than going online, browsing, clicking and buying a pair of jeans or getting access to your favorite streaming media.

Criminal ecosystems are taking shape as a broad range of businesses support one another in the quest to gain scale and steal and launder money across the globe.

So nowadays, said Excell, “You can phone someone up and pay for a ransomware attack against a certain company. That’s something you would not have been able to do even 18 months ago.”

Ransomware attacks have become all too common as of late and lock a computer or network until the victim pays for a key or codeword to unlock their device/network, enriching the fraudster in the process.

The Criminals Are Brazen — With Cryptocurrency

“The fraud is not necessarily being hidden behind closed doors and in dark rooms,” Excell said. “It’s much more in the forefront. We may never know just how pervasive organized financial crime really is because many cases may go unreported as targeted enterprises are fearful of seeing their brands and reputations damaged.”

And it’s not just fraud; it’s also money laundering and sanctions violations. Recently, there was a criminal conviction of a crypto expert, Virgil Griffith, who helped North Korea evade U.S. sanctions by moving money into Ethereum. The expert showed North Korea how to convert fiat currency into Ethereum, despite the U.S. government’s warnings not to do so.

Read more: Crypto Developer Gets 5-Year Sentence for Helping N. Korea Skirt Sanctions

The conversation came against a backdrop in which the Financial Crimes Enforcement Network (FinCEN) imposed more than $600 million in fines for anti-money laundering (AML) violations in just 14 months (from January 2021 to March 2022).

See more: FinCEN Praised Automated AML Systems, Digital Identity Solutions

Yet, despite the fines, the problems persist because change takes time, Excell said.

“There is a lot of inertia surrounding how the industry can get ahead of the crime and the fraud that is out there,” he said.

Advanced Tech to the Rescue

Deploying advanced technologies can make it easier and more efficient to spot these criminals.

Beyond tech itself, internal education between departments within the financial institution (FI) is critical, Excell said. So is proactive outreach in keeping customers and vendors informed about anomalies in transactions.

But the current environment — where money is moving in and out of Russia and other sanctioned countries in order to avoid sanctions levied on a global stage — shows just how tough things can get for the FIs. Cryptocurrencies are of particular concern, he said, as they are being used by criminals in partnership with sanctioned nation states to get around screening efforts and sanctions — with the key attraction that these digital offerings exist outside the traditional financial system.

The Risk of Split Financial Systems

On the broader geopolitical stage, there’s the risk that the sanctions create a “split” financial system, where there’s the United States, the eurozone and any number of allied nations — and then there’s everyone else. Nations including Russia have been able to develop their own internal and local payments systems, providing alternative ways to transfer money (with crypto as a financial weapon).

In the bid to ferret out financial crime, we need to think outside the “traditional” debit and credit cards, ACH payments and wires, Excell said. That means keeping an eye on crypto, non-fungible tokens (NFTs) and the ways that different assets can be traded.

The challenge with sanctions is that the banks need to capture the “appropriate” individuals without generating too many false positives. These must be examined by already stretched teams that must add sanctions screening to their workloads. To guard against those false positives, to help get the tech-enabled lines of defense set up against the bad actors, FIs must test and retest new technologies (and reuse old technologies).

There needs to be an awareness within those FIs when money flows in from digital exchanges, Excell said. But more robust technologies are coming to market that enable firms to better monitor the wallets of sanctioned individuals and organizations.

“There’s more traceability of those funds as they move through different cryptos,” he said.

Traceability can act as a disincentive for crypto criminals because it can help expose the actual organization that is behind the money laundering itself.

Looking ahead, he said, the shifting regulatory regimes surrounding cryptocurrencies (tied in part to recent orders from the President Joe Biden administration) will tighten the net around bitcoin and its brethren being used as money laundering vehicles.

Read more: Biden’s Executive Order Set to Fast-Track Crypto Policy

As Excell told Webster: “[T]here are going to be more opportunities to create a more holistic monitoring of financial services and stop financial crime — even though there’s still some cleanup that needs to take place.”