This is how to achieve a clean economic recovery that combats organized crime

Credit: Unsplash

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

Author: Nadja Long, Senior Specialist, European Financial and Economic Crime Centre, Europol & Nick Maxwell, Head of the Future of Financial Intelligence Sharing, (FFIS) research programme & Che Sidanius, Global Head of Financial Crime and Industry Affairs, Refinitiv & Sean Doyle, Project Lead, Cybersecurity Governance and Policy, Global Leadership Fellow, World Economic Forum

  • Criminals have adapted quickly to thrive in the economic environment created by the pandemic, exploiting the crisis to weave themselves into the legitimate economy.
  • Only 2% of criminal assets are recovered. The obstacles to recovering criminal assets need to be removed so that ill-gotten gains can be repurposed for the good of society. A starting point would be to improve public-private sharing of financial information to fight financial crime across-borders.

Criminals have adapted quickly to thrive in the economic environment created by the pandemic, exploiting the crisis to weave themselves into the legitimate economy. This undermines the economic recovery and can weaken public institutions. Given that money laundering is the engine of organized crime, if access to money laundering services was removed, criminals would not be able to make use of their profits. This offers a good lever to stamp out organized crime.

How to tackle organized financial crime: five recommendations from the World Economic Forum-supported coalition

The World Economic Forum-supported Global Coalition to Fight Financial Crime outlines five recommendations for the Great Reset to achieve a recovery that protects citizens from criminals.

1. Police have the capabilities to dismantle criminal groups, such as through the recent disruption of European criminals’ widely used encrypted telecoms service EncroChat. Despite this, more than 98% of criminal assets are not recovered. Obstacles to recovering criminal assets should be removed so they can be used for the good of society. A starting point would be to improve access to and sharing of financial and beneficial ownership information across borders. A multi-stakeholder initiative co-hosted by the Forum’s Partnering Against Corruption Initiative (PACI) has mapped various verification strategies currently being deployed around the world from manual to advanced technological approaches.

2. Public-private partnerships against financial crime are effective. Governments should build a policy and legal environment that facilitates innovative cooperation between law enforcement, financial intelligence units (FIUs), regulatory agencies and the private sector.

3. Keep the information flowing: fighting financial crime requires multi-disciplinary partnerships between law enforcement, public agencies (financial intelligence units, customs, tax authorities, judiciary) and the private sector, all working across borders. Data Protection laws must not be misused by criminals and should be adapted to create the legal and policy environment to allow for appropriate information sharing and the testing of innovative technological solutions to combat financial crime.

4. Financial crime has the potential to undermine financial stability and affects internal security interests.Therefore it should be part of regular risk assessments and integrated law enforcement response.

5. Financial services providers should move from reactive financial crime ‘compliance’ into proactive ‘risk management’ cultures that protect the societies that financial institutions serve. For this to happen, policy-makers should examine and realign the incentives they have placed on the private sector. This could focus on developing outcome-based metrics for the effectiveness of anti-money laundering programmes rather than concentrating on technical compliance and controls measures.

The EU has launched an Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing, to address the issue. The plan can support an economic recovery that works for citizens across the globe, rather than lining the pockets of international criminals.

The timing of this Action Plan is recognition that financial crime is pervasive and weaving its way into a larger number of EU sectors. At the start of the pandemic, Europol demonstrated in ‘Catching the virus: cybercrime, disinformation and the COVID-19 pandemic’ that cybercriminals were using the COVID-19 pandemic to target communities. Recent reports from Interpol show this trend is global. Analogue criminals are ruthlessly exploiting new industry needs created by the COVID -19 pandemic with devastating effects on the wellbeing of societies and individual citizens.

The fallout from the COVID-19 pandemic has weakened our economy and created new vulnerabilities from which crime can emerge. Economic and financial crime, such as various types of fraud, money laundering, intellectual property crime, and currency counterfeiting, is particularly threatening during times of economic crisis. Unfortunately, this is also when they become most prevalent.

— Catherine De Bolle, Executive Director, Europol

Illicit opportunities

Economic downturns create opportunities for crime. While a recession entails hardship for the legitimate economy, criminals are well placed to exploit others’ desperation. Lack of accessible loans and capital puts companies under financial pressure and can leave them vulnerable to infiltration or takeovers by criminals.

In times of crisis, personal and public finances need to be protected. The proceeds of bribery, corruption, fraud, narcotics trafficking and other organized crime have all been implicated in the financing of terrorism, human rights abuses such as slavery and child labour, and environmental crimes, such as wildlife trafficking, that have the potential to trigger another pandemic.

This has serious economic and social costs in terms of the lost revenues to national exchequers that could be invested in social development, and in terms of the impact on individual lives.

Thankfully, governments are responding to this threat. In June Europol created the new European Financial and Economic Crime Centre (EFECC). EFECC will enhance Europol’s operational support to EU Member States and EU bodies and operational partners to forge alliances with public and private entities for tracing, seizing and confiscating criminal assets in the EU and beyond. The EFECC will, in particular, rely strongly on effective initiatives such as the Europol Financial Intelligence Public Private Partnership (EFIPPP).

What can we build on?

The latest Future of Financial Intelligence Sharing (FFIS) research paper charts the global growth of public-private partnership to fight financial crime. In recent years, there has been considerable growth of such partnership; particularly in Europe.

Public-private partnerships between law enforcement, regulated financial institutions, data-providers and civil society organizations help identify criminal assets. They accelerate the speed of asset seizure, preventing criminal funds from infiltrating the legal economy and damaging our societies.

However, these partnerships are currently too small – relative to the threats – and partnership models in Europe, while advanced, do not generally benefit from dedicated public sector resourcing, nor investment in technology to support analytical processes. Most partnerships are still national in scope, while criminals can operate internationally with ease.

We know that cross-border partnerships of police forces, financial intelligence units, and other government agencies can thwart criminals. Europol’s Financial Intelligence Public Private Partnership is a world leading example of this.

National and cross-border partnerships need to be adequately resourced, data protection and AML supervisors should work together to resolve uncertainties and Europe should take steps to improve the effectiveness of cross border information-sharing; including through the use of privacy preserving analysis.

A response to the current crisis needs the public and private sectors to work together seamlessly and at a large scale to deprive criminal groups of their illicit gains.

Keep the information flowing

According to a survey conducted by Refinitiv of 3,138 managers, 81% said that data privacy restricts their ability to collaborate against financial crime. The fight against financial crime should be considered a Data Space as defined by the European Data Protection Supervisor’s opinion on the European Strategy for Data and we encourage other regions to act similarly.

While the EU data strategy also points to the importance of deploying privacy preserving analysis, governments globally can be more ambitious in applying these technologies to fight financial crime. In particular, these technologies could facilitate cross-border information sharing between public agencies and among the subsidiaries of multinational private sector firms.

Europe can set an example of how to tackle cross-border financial crime if there is clear legal and supervisory support for innovation and space to explore new ways of cooperation through emerging technologies such as privacy enhancing technology to support data sharing.

Information sharing has value beyond data. It can foster better discussion and understanding of risks by all involved and result in a real pro-active and joint work on cases that protect citizens. All jurisdictions should provide a legal space for the exchange of strategic information between private and public sectors entities and there is also benefit to harmonising the exchange of tactical data so that it can be shared and acted upon at speed.

Recognize the problem

The European Commission’s Action Plan addresses a number of barriers to fighting financial crime and might serve as an example to other regions.

First, it recognises that the complexity of the financial system has opened the door to new financial crime risks. The digitization of retail banking, for example, has created new vectors for fraud. The success of Fintech services have further fragmented the information space.

Second, the EU rightfully focusses on effectiveness as it delivers on better enforcement of existing rules and strengthens its role as a world leader in the fight against financial crime. In this context, the creation of an FIU Coordination and Support Mechanism and a European supervisory authority should improve coordination and supervision while ensuring cooperation with law enforcement authorities, in particular Europol.

Importantly, the Action Plan recognizes the threat that financial crime poses to individual banks and the wider financial system. This includes, for example, the implications of how money laundering can trigger the winding-up of a bank under the Bank Recovery and Resolution Directive, and the uncertainty about the application of data-protection rules in sharing information between public and private sectors internationally.

Next steps

To improve efficiency, organizations should increase organizational agility, deploy new technology, ensure the use of existing channels of communication, and improve partnerships with other obligated entities, and the public sector.

This entails expanding the legal and technical frameworks for fostering intelligence sharing; aligning incentives on the objective of reducing financial crime; and identifying and sharing best practice in integrating financial crime risk into risk management governance structures.

Finally, as per today’s statement from the Global Coalition to Fight Financial Crime, financial crime knows no borders, therefore, we support the EU’s ambition to play a stronger role in the fight against money laundering and terrorist financing globally.

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