By Corey A. Reason, Head of Compliance, Clarien Bank Limited
What for you are the benefits of attending a conference like Fraud and Financial Crime and what can attendees expect to learn from your session?
- You pick up valuable industry and government insight in the ever-changing world of financial crime risk (which seems to change daily). But equally important is the ability to network with people that are trying to solve the same problems that you are; it doesn’t matter if you are a one office credit union to the largest global bank in the world, we are all trying to detect and deter financial crime in the global economy.
- I would also say that the chance to have a discussion with panelists in real time during a Q&A or separately after a presentation is a great reason to attend. Having an opportunity to discuss with market leaders solutions to common problems is a fantastic reason to attend.
How can risk professionals leverage global intelligence concepts to share information across the industry for mitigation of financial crime?
- For those who don’t already know, there are six steps in the Intelligence Lifecycle: Direction, Collection, Processing, Analysis and Production, Dissemination and Feedback. This lifecycle should work in two manners; internal and external. Internally the lifecycle should help drive risk-based approach and where to dedicate resources based on what your firm is seeing and the challenges arising. These are often associated with the geography, client type and product mix that make up your company’s risk profile.
- On a larger scale, externally some of the Intelligence Lifecycle can be used, even in markets where proper legislative information sharing hasn’t been implemented yet. I would encourage institutions to form peer groups and share thematic information on risks they are seeing, you never know if your neighbour already has addressed the issue and can share a solution that might work for you; or if you are the first case of a new and emerging risk that no one has built a defense for yet. In both cases, it helps make the financial system stronger when banks talk to one another.
Why is sharing names and information across institutions a key concern?
- The challenge and concern with sharing intelligence (names and transactions) is that although everyone says that would be very helpful in the fight against financial crime there have been few moves to provide regulatory cover for institutions to conduct information sharing.
- As you are aware, under Section 314(b) of the USA PATRIOT ACT there is a provision for information sharing with other financial institutions. At the beginning this sounds great, however, the scope is pretty limited; there are 3 questions one should ask prior to commencing a 314(b) request.
- Whether the financial institution suspects a specified unlawful activity has occurred;
- Whether a transaction involving the proceeds from that activity has taken place;
- Whether that transaction is part of a terrorist or money laundering scheme
- And after assessing that, two final components to the process; 1. Is the other institution a participating institution, they are not required to be and 2. they are not obligated to respond. This adds up to a useful but not fully developed information sharing model.
How can we combat criminals exploiting the inability of banks to share information?
- A strong first step recognizing that that criminal and terror organizations understand information sharing restrictions and how to exploit that to their advantage.
- As I alluded to earlier, the industry along with government partners need to forge strong relationships and share thematic issues. For example, if there is a particular industry that law enforcement has been observed to be utilized for money laundering in a specific jurisdiction, share that with financial institutions. We can train our tools and resources to these emerging risks. Conversely, the financial industry should provide insight on new risks to law enforcement where they can.
What do you see ahead for the sharing of information across companies in a permissible way?
- I think that governments world-wide will continue to see the value in information sharing in the financial industry; it took decades for them to crystalize tax treaties that share information. I foresee that the same level of maturity and time will be required. In the meantime bad actors will continue to exploit this weakness and mask illicit activity across many financial institutions in different geographies. This is perhaps one of the most challenging issues facing the industry globally.