Banks can fight financial crime. But we can’t do it alone

(Unsplash, 2018)

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Erik Barnett Head of Financial Crime Threat Mitigation, Europe, HSBC

A young woman walks into a bank branch in London. She is soon noticed by a teller, who sees that she is closely followed by a man, who never leaves her side. The woman seems quite nervous, almost physically shaking. And rather than go to one of the open teller windows, she starts to deposit money into a cash machine, which will take far longer. The man seems to be closely checking this process.

The teller suspects that the young woman is a victim of sex trafficking. Her suspicions are the result of information provided to the bank by law enforcement, which recently advised on some features of human trafficking and how illicit proceeds of crime are laundered through banks. Consistent with the training she has received from the bank, the teller doesn’t confront the woman, but raises her concerns to her supervisor.

An internal bank investigation reveals that the account into which the money was deposited comes back to an address shared by many other account holders. The information is turned over to police and, as a result, three individuals are arrested for human trafficking. The victim is rescued.

I wish I could tell you there are hundreds more stories like this: when information exchanged between banks and law enforcement resulted in bad guys being arrested and victims rescued. My hope is one day I can.

We well know that the global financial system is still attractive for criminals attempting to launder illicit funds across borders. The United Nations Office on Drugs and Crime estimates the amount of money laundered globally in one year is 2%-5% of global GDP, or $800 billion – $2 trillion.

These are huge numbers. But behind them lies a level of human misery that simply cannot be measured. Money laundering is closely linked to a variety of society’s ills. Drug traffickers, human traffickers and wildlife traffickers profit from the harm they cause victims and our society. And to further their criminal activity, they need to be able to move profits around.

For a global bank like HSBC, at the heart of world trade, this presents significant challenges. We have a fundamental responsibility to help protect the integrity of the financial system on which we all depend.

We recognise we cannot do it alone. And that is why we are strong proponents of an approach based on public-private partnerships that allow information to be shared between and among banks, and with law enforcement.

Our current system to protect against banks from being exploited by criminals was designed during a time when international transactions could take days or weeks. With a few exceptions, a lot of criminal activity did not cross borders 20 or 30 years ago.

In today’s world, where transactions take seconds and crime is as international as any legitimate big business, we would be complacent if we did not adopt a more responsive system; a system that allows greater sharing of information between banks, or between banks and public bodies, and is therefore better able to disrupt attempts by criminals to move their ill-gotten monies.

For a bank, finding indicators of financial crime amongst the millions of legitimate customer transactions carried out every day is like looking for a needle in a haystack. Any one transaction, by itself, may provide little evidence of illegal activity. But when we put together a range of information – such as details of those carrying out transactions and with whom they transact – we can start to build a clearer picture of possible financial crime.

Sharing information helps us build that picture. As a bank, we can see payments flow through the financial system around the world. But we may lack the information that enables us to focus on particular customers or payments.

Law enforcement may have specific information about criminals but lack the ability to see the transactions they are carrying out. Criminals take advantage of gaps when this type of information is not shared.

The development of public-private partnerships is helping address these gaps. These are forums established between the public sector and banks. They have now been established in the UK, Hong Kong, Singapore, Canada, Australia and the US. The partnerships enable banks to share information with other banks and with law enforcement more easily. They also allow public bodies to provide information to banks that helps us to focus our searches in the right areas.

These partnerships are delivering results. The UK’s partnership, the Joint Money Laundering Intelligence Taskforce, has reported arrests and seizures of suspected criminal cash as a result of shared information.

But there is still more that can be done.

There are still only six partnerships in place around the world. Simply put, we need more. The sharing of bank information is subject to regulatory and privacy requirements in many countries. This can make it hard to share information even within one bank, and more so with other partners. We have seen progress in tackling this at the international level through the multilateral Financial Action Task Force. But more could still be done to ensure that the benefits of public-private partnerships are truly delivered.

We will continue to support the development of partnerships and to make the case for wider sharing of data. It is one of the keys to improving the ability of banks to tackle the flow of laundered money. More importantly, as discovered by a young woman who visited the bank in London, it can actually save lives.