Approaches to enhance public private collaboration in the fight against fraud and financial crime

Nick Lewis, Managing Director, High Risk Client Unit, Conduct, Financial Crime & ComplianceStandard Chartered Bank

Below is an insight into what can be expected from Nick’s participation at CeFPro’s Fraud and Financial Crime Europe Summit

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

What are the key roles of the serious fraud office?

I have never worked directly for the SFO, but I have worked on cases with them a number of times. The SFO is unique in UK law enforcement terms – it is both a law enforcement and investigation agency and a prosecuting authority. Traditionally, in other areas of the UK criminal justice system, the law enforcement authority (Police, NCA, HMRC, etc) conducts the investigation, and decisions relating to the prosecution are made independently by the Crown Prosecution Service.

The SFO can investigate any suspected criminal offense which involves serious or complex fraud, bribery or corruption, or corporate failure to prevent tax evasion. They are not, however, the only agency that can investigate these categories of offenses, so they tend to concentrate on the high-profile cases, often involving large corporates, which need extended periods of investigation (cases can often take years to bring to court) and the specific skills of the SFO.

The SFO is aligned with the Attorney General’s office and has wide-ranging powers to compel the production of documents and material to support its investigations.

In my experience of working with the SFO, the cases have been overseen and managed by lawyers rather than Senior Investigating Officers. However, the SFO also employs investigators, who are more like traditional police detectives.

What are the main benefits and crossovers of collaboration between financial institutions?

Suppose you think about fraud or a financial crime as a continuum of activity, starting with the commission of the offense at one end and the spending of the laundered profits at the other. In that case, you will realize that there are many parts of the “ecosystem” which touch the money involved at different stages. Usually, some of those are banks or financial institutions. But the way that money moves through the system means that each bank or institution will only have a very limited view of that money or that transaction – typically relating to the originator of the funds, anything that that bank does with the money, and some information about where the money was sent on to, or the beneficiary. In a complex or organized criminal operation, this can happen several times to facilitate layering (for example), and no one bank or institution can see the whole picture. Each bank just sees its small piece of the puzzle.

Of course, if the transaction is deemed suspicious at any point along that continuum, a SAR is filed, and we have the opportunity to break the chain. But if the fraudsters or criminals are clever enough, the transaction can pass right through the system without raising any red flags or generating sufficient suspicion to file a SAR.

In the UK, we have developed some excellent practices for sharing information about fraud through CIFAS and ActionFraud when fraud is confirmed or suspected. This means that the industry has a chance to prevent fraud or to prevent the proceeds of the fraud from being laundered. The are other initiatives with UK Finance and other industry bodies that do great work in identifying and stopping financial crime in its tracks, and together they have prevented and detected literally millions of pounds worth of criminal activity.

But for some reason, we haven’t enjoyed the same facility for non-fraud economic crimes. We have had very little information-sharing on the activities of known and suspected money launderers, and this has been a gap in our defenses. Thankfully, the Government is seeking to put this right with the provisions of the Economic Crime and Corporate Transparency Bill, which we hope will receive Royal Assent later this year. This, together with equally exciting new legislation in the Data Privacy and Digital Information (No2) Bill, will enable banks and financial institutions to start sharing information about bad actors in a much more constructive fashion, giving the industry a great opportunity to identify criminals exploiting the financial system and stop them in their tracks.

How can financial institutions effectively utilize partnerships to mitigate fraud and financial crime?

Remembering that fraud and financial crime don’t occur in a vacuum is important. Crimes are increasingly committed through the medium of cyber or via the internet, introducing service providers, mobile phone providers, and other intermediaries into the equation. Although there is an increasingly popular view that banks should reimburse clients who are the victims of financial crime, they are not the only institutions or firms that can help tackle the problem.

Similarly, law enforcement is stretched to breaking point, and only cases with a high chance of detection are likely to get investigated.

So, partnerships offer an opportunity to learn what each of the stakeholders can contribute to the solution – law enforcement needs private sector information and data to identify bad actors, follow the proceeds of crime and understand how the crime was committed; the private sector needs the insight of law enforcement, an up to date intelligence picture and information which helps us to manage risk.

Partnerships have been successful in the UK – JMLIT is recognized across the world as a great example of public-private partnerships working. But we mustn’t be complacent – as technology changes and criminals adapt and take advantage of new opportunities – we must recognize the opportunities for new partnerships and new opportunities for collaboration.

Why is there an increased appetite to adopt the UK model with fraud and financial crime?

For many years fraud and other types of financial crime were treated differently. Still, recently all involved have come to recognize the value of treating them as individual parts of a much bigger problem. Returning to my earlier comment about treating the different elements of the crime as points along a continuum, it makes perfect sense to adapt how we investigate and respond to fraud.

Executing an investigative model which seeks to identify and expose criminal networks, joining the dots which confirm how the crimes are committed, what happens to the proceeds, and identify possible victims, provides a proper service to protect citizens and clients. They are, after all, the same people.

How can financial institutions ensure they effectively utilize public sector knowledge and experience to combat fraud and financial crime?

The best way private sector institutions can get timely public sector assistance is through partnership working. This takes trust on both sides – trust which doesn’t always come naturally.

A decade ago, there was almost no collaboration between the public and private sectors beyond the law mandated. Still, through trust-building on both sides, with huge efforts from the government, law enforcement, and from the financial sector, we now enjoy really close operating relationships, where strategic and tactical intelligence are routinely shared for the benefit of both.