This article first appeared on BRINK.
Last year, financial institutions in the United States filed almost 5 million “suspicious activity” reports (SARs), identifying transactions with potential links to fraud or money laundering. That figure, already alarming, represents a shocking increase of 2,000 percent in just five years, in part because banks have gotten better at ferreting out illicit transactions, but mostly because money laundering, despite the best efforts of governments and financial institutions, is one of the great growth industries of our times.
Advanced analytical tools are familiar in many areas of risk management, but financial institutions have only recently started using them to detect money laundering.
It’s also a remarkably innovative industry. Where a few years ago, a money launderer might do little more than break large piles of cash into smaller piles to escape reporting requirements (“smurfing”) or funnel illicit funds through cash-based businesses like car washes and casinos, today’s far more sophisticated criminal enterprises conceal the way they move their money by using online instruments, digital payments, and dizzying numbers of global transactions. And when banks block one strategy, the launderers devise another, staying one frustrating step ahead. For these reasons, financial institutions need to revamp their anti-money laundering methods. Most need to go much further than the first steps they’ve already taken. To stop money laundering, institutions need to adopt more strategic, end-to-end processes that take advantage of recent innovations in data analysis. Most important, they have to replace the familiar check-the-box compliance mindset in favor of full-on engagement.
Until recently, incremental improvement ruled the day. The tools already at banks’ disposal were acceptable to regulators, if not ideally effective, and few institutions saw the point of undertaking the expense, labor, and regulatory risk of creating a new system that no one had asked for.
Sources: BIS Committee on Payments and Market Infrastructures. Statistics on payment, clearing and settlement systems in the CPMI countries. Figures for 2015. December 2016; FinCEN, FinCEN SAR Stats. Technical Bulletin. March 2017 – Data includes reports for Money Laundering, Fraud, Mortgage Fraud, Casinos, Identification Documentation, Insurance, Securities/Futures/Options, Structuring, Terrorist Financing, Other suspicious activities
Cleaning Up Money Laundering
Partners Adrian Murphy, Stefano Boezio, and Allan Meyer on why do financial institutions need to revamp their ant-money laundering methods
Adrian Murphy, Stefano Boezio, and Allen Meyer are New York-based partners in Oliver Wyman’s Financial Services practice.