The Unbearable Ease of Laundering Money

By ThetaRay writer 4 years agoNo Comments
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With over 4000 leaked SARS that were involved with 2000 banks, turns out most of the SARs were related to cross border activity, a well-known “blind spot” in the banking world. 

Over the past several years, large schemes revealed the financial systems failure- with billions of dollars remaining undetected and unreported. 

The list of SARs also revealed the inadequacy of the system, banks and FIUs to fulfill their obligation of identifying, reporting, and making effective use of the SARs, which is standard procedure. If most activities remain undetected, and the ones detected and reported did not lead to an expected outcome, what is the purpose of this mechanism? Who will be held responsible to prevent financial crimes? 

Key questions are usually re-surfaced when large schemes are published: 

Most of these schemes go un-detected and unidentified while banks continue to cater to these customers. All regulators and large banking organizations such as the Wolfsburg group and the European Banking Federation call for the use of effective controls, EU commission response to the recent large schemes was a call for significant changes in the enforcement of AML. 

On September 16th FINCEN published a call for comments covering the new guidelines for effectiveness. 

All stake holders acknowledge the fact that the current methods proved unreliable and that the industry should shift from a rule-based approach to risk based. The FinCEN leak justified this decision. 

How is it that throughout the AML value chain, this requirement was not mentioned? 

 What is the meaning of effectiveness?

The guidelines for regular standards are vague and can be interpreted in various ways. The EBF document calls for urgent change and covers the following aspects: 

  • Redundant costly rule-based solutions
  • “Tick-the-box” approach 
  • Irrelevant controls 
  • “De-risking” challenge
  • “Risk-based approach”
  • Public-private partnership
  • Implementing new technologies

Effectiveness focuses on results.

The new published guidance by FinCEN is steering us in the right direction, although it attempts to combine old terms and methodologies that have failed in the past. A familiar bell rings, as Albert Einstein once said: “you can’t keep doing the same thing and expect different results” this is the definition for “Insanity”

 Banks- regulators sync

Interesting points of view regarding SARs can be learned by a report published by the Swiss regulator, with statistics around the quality of SARs reported.

This dramatic increase in number of SARs and consistent decrease in quality shows the negative impact of the relationship between regulatory expectations and the financial industry, only a few understand what works and what will be considered “compliant.” 

Haven for criminals and terrorists

The lack of ability to decide what to do and to bravely implement effective measures left a barrier for bad actors that has “more holes than bricks”, laundering money and moving illicit funds between jurisdictions is overall fairly easy.

Winning the war against the “dark side”

Finding lists of SARs that are over 4 years old is practically a wakeup call, reminding us to be one step ahead of criminals and to stop suspicious activity in both financial institutions and FIUs/ regulators. We must change the paradigm, bad actors use any available tool, learn from the past and change the way they operate. They move funds quickly between banks and countries.

There is a way to detect sophisticated schemes fast, including new typologies and new patterns. Even if they operate across banks and territories.

It must include a holistic view and multi-dimensional analysis. It is called AI and Unsupervised Machine Learning. It is called “ThetaRay”

 1MROS annual report, 2019

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