Five predictions for financial crime


Financier Worldwide Magazine

April 2017 Issue

April 2017 Issue

Politically and economically, 2017 has had an altogether unpredictable start. The inauguration of Donald Trump, the beginning of the Brexit process, wider strain on the eurozone and several high-profile terrorist attacks have set businesses and individuals on edge. The prospect of further revolution and upheaval in the Middle East also looms large over global politics.

All these events have important implications for compliance in 2017, because political and economic turbulence tend to provoke a rise in levels of corruption and financial crime. Set in this context, what trends can we expect to see shaping the compliance landscape this year?

The influence of analytics in detecting cyber security breaches will grow. It goes without saying that banks and other financial institutions cannot fight threats unless they can accurately identify them. The latest analytic technologies will enable banks to spot these threats more quickly than before. A recent IDC report picked up this trend. Bill Fearnley, research director at IDC Financial Insights, advises: “Firms should be investing in new sources of data and data aggregation tools to help improve know your customer (KYC) compliance, onboarding and customer risk profile monitoring”.

Analytics also addresses another important challenge in helping banks to prioritise the greatest threats that require the fastest response. Currently, it is predominantly only Tier 1 banks that use analytics across anti-money laundering (AML), KYC and tax compliance. As a consequence, many banks are overwhelmed by the number of security alerts they receive, and cannot prioritise their responses. This is set to change as analytics take centre stage.

In fact, AML represents one of the newer applications of artificial intelligence (AI). There are two main benefits of using AI for AML. First, AI can detect patterns you are not looking for. Detection of (thus far) unknown behavioural patterns will lead to the identification of more complex money-laundering patterns. Improving effectiveness will lower the risk of fines and will help banks remain competitive for legitimate customers’ business. Second, AI promises to reduce the number of false positives. This will lower compliance costs and improve the quality of the alerts, while speeding up the handling of alerts and allowing compliance officers and investigators to focus on the most relevant, high-risk cases.

Uncovering terrorist money laundering schemes will be a top compliance challenge. We expect compliance officers to focus not only on stopping the flow of illegitimate funds, but also to work on boosting anti-terrorism efforts more broadly.

One bank, a European offshoot of a North African banking group, has recently had a direct experience with both terrorism and money laundering, in relation to the November 2015 terror attacks in Paris. Shortly before the attack, one of the IS militants responsible attempted to transfer money to an associate also involved in the attacks. The Parisian branch of the bank, using an AML solution, was able to block the transfer of the laundered money as a suspicious transaction. However, when the individual in Paris subsequently complained about his failed transaction to the bank’s North African headquarters, that team was led to authorise the transaction. How? The bank’s headquarters used a transaction screening system which failed to detect the sanction list match, leading to the money being transferred essentially unchecked.

This case illustrates the potentially fatal consequences of errors which banks across the globe are working to prevent every day. To address the compliance challenges currently facing the finance industry, deploying the latest analytics technology is a must.

Larger criminal networks will take over illicit migration. Kumar C. Kibble, Homeland Security Investigations regional attaché to the Netherlands for the US Department of Homeland Security, recently reported that illicit migration is a problem that is being worsened by Brexit and uncertainty in the eurozone. He predicts that criminal networks will continue to exploit the high demand for facilitation services, and that “small smuggling networks will gradually be taken over by larger criminal networks”.

The compliance challenges that lie behind this problem are twofold. On the one hand, the large-scale movement of people from one place to another creates additional uncertainty that investigators need to factor into their AML and anti-terrorism efforts. But there is also the reality that illicit migration and human trafficking require a large network of collaborators, with criminal funds fuelling the activity. This will become an increasing priority for financial crime investigators.

There will be further revelations from the Panama Papers scandal and the likelihood of continued leaks. Not content with bringing down a prime minister in early 2016, new leaks in September exposed the individuals connected to 175,000 Bahamian companies registered between 1990 and 2016. The explosive public reaction to last year’s leaks demonstrated the potential political rewards of exposing politicians who use tax havens, and the prospect of provoking similar scandals in future is likely to drive further investigations and revelations. Last year’s leaks also showed how political and economic turmoil can create compliance challenges by calling into question the legitimacy of the established institutions that form the bedrock of accepted rules and regulations.

Doing business in a tax haven is not, in itself, illegal, but some of the geographies involved are well-known hotspots for money laundering. The revelation of such money laundering operations is likely to cause more disruption in the KYC space, as banks update their procedures and technologies to reflect new information about what their applicants and existing customers are doing.

Compliance systems will break through the ‘cloud ceiling’. Given these ominous and growing trends, it is perhaps understandable that compliance officers have been reluctant to move data and systems into the cloud. There is a perception that moving data into the cloud will mean that companies have to protect not just their own environment, but also the cloud supplier’s and communications between the two.

2017 will, however, set the stage for compliance to break through the ‘cloud ceiling’. Cloud security has dramatically improved, and cloud deployment will help compliance operations large and small to focus on doing their jobs, rather than maintaining software. There could even be an opportunity for cloud-based consortia of companies, which share their data and experiences in the same way as credit bureaus, to improve risk management for all participants.

2017 promises to test compliance procedures and technologies. Above all, compliance regulations thrive in times when the political and economic status quo is being upheld. When this is questioned by leaders and their populations, disruption inevitably follows. But, as the opportunities created by the cloud show, chaos also opens the door to greater innovation and creativity.


Frank Holzenthal is a managing director at FICO TONBELLER. He can be contacted by email at:


Frank Holzenthal


©2001-2019 Financier Worldwide Ltd. All rights reserved.