If there is one truism about financial crime, it’s that the perpetrators are ever-present and ever-evolving. Just as technology has revolutionized banking and finance, so too has it given criminals more sophisticated tools. Indeed, as financial institutions work to keep pace with exponential technology advances, criminals seem to be pulling even—and in some cases, maybe even pulling ahead.
Deloitte and the Institute of International Finance’s recently published report on financial crime, The global framework for fighting financial crime, outlines reforms that can bolster the efforts of law enforcement in this area. These reforms can enhance the legal and regulatory framework and, when taken together, have the power to transform how society combats financial crime.
Clearly, the private sector has an important role to play in achieving these reforms. And they certainly should commit themselves to engaging long-term with external stakeholders as well as investing the time and effort it will take to implement them. But what can a private organization do right now as an individual entity to fight financial crime?
As it turns out, a lot. While the report outlines seven enablers that need to be addressed globally and system-wide to better combat financial crime, there are actions within these reforms a financial institution (FI) can act on immediately and independently.
Advance public-private partnerships
Both the government and banks have an impetus to work together when it comes to fighting financial crime—frequently, the government’s victim is the FI’s customer. Law enforcement needs fast and efficient access to intelligence relevant to their casework, while banks need to understand how they are exposed to specific risks. With appropriate oversight and legislation, public-private partnerships (PPPs) are a safe space in which to share information and their advancement can be an especially effective tool in rooting out financial crime.
Improve the use and quality of data
What PPPs provide is one of an FI’s most critical weapons in the battle against financial crime—data. FIs already collect extensive data as part of “know your customer” and “customer due diligence” requirements. The problem is it’s often inconsistent or incomplete. Different FIs may have varying information on a customer enabling criminals to find gaps to exploit. Transaction data can sometimes be truncated or not include identifying information about a non-customer that presents problems for FIs.
Harmonizing and standardizing data is an ambitious and critical measure that can help shut off one key avenue of abuse now available. But it won’t happen overnight. For now, an FI can look to its own data to make sure the same kind of inconsistencies is not leaving them vulnerable to criminals.
Of top concern is to make sure data isn’t structured in a way that creates silos between units that flag criminal behaviour. If an FI is not pulling all that data together or collaborating in a meaningful way across risk silos, it may miss critical insights. Even worse, the gaps among silos are, again, just the type of cracks in the foundation criminals are looking for.
The quality of data also has an impact. Take the information you can get from a PPP. What better way to identify criminal activity than to base it on real criminal intel or behaviour? This information can reveal criminal networks, their modus operandi, the individuals involved, the products they abuse, and the jurisdictions within which they operate and are associated. With data like this that is richer and more diverse, FIs can start moving toward truly intelligence-based risk strategies.
Increase and improve the use of technology
Once you have the right data properly structured, today’s technology can take it to new heights. Network analytics, open-source technology, and open-source intelligence are just a few of the tools that can increase the effectiveness and efficiency of an FI’s response to financial crime.
A good example is the use of thresholds. In the fight against financial crime, rules and rules-based thresholds are essentially very blunt tools. They generate thousands of unproductive alerts with loads of time and effort put into investigating leads that essentially go nowhere.
But with the use of, say, network analytics, you can be a lot smarter about how you look for risk in your data. With PPP data, real criminal behavior—where they operate, what tools they use, who they interact with—can be used to build more predictive profiles and models that can then be used to identify potential bad actors. This is what the intelligence-based risk strategy looks like.
Fight crime exponentially
All the actions discussed above—PPP access, getting good data, improving technology—can be undertaken individually. But, taken together, they function on an exponential curve. With one action accelerating and enhancing the others, these steps collectively can have a massive impact within your institution.