Collaboration is King: How FinTechs Can Thrive in the Face of Financial Crime

We all know the theoretical power of collaboration in enhancing effectiveness and improving quality. But in financial crime-fighting spaces, what does that really look like? The Wolfsberg Group has released a paper discussing this very topic, specifically focusing on the role of Public-Private Partnerships in strengthening anti-money laundering and counter-financing terrorism (AML/CFT) regimes. Meaningful collaboration has long been a coveted feature of any successful initiative and when it comes to financial crime-fighting capabilities, operating in isolation is a significant hindrance carrying huge potential risks.

Defining a successful Public-Private PartnershipThe Wolfsberg Group lists several essential features for a strong partnership. These include:

• Senior-level participation and sponsorship. Active involvement by high-up individuals from financial institutions, law enforcement, and other public sector participants lends an air of legitimacy, importance, and respect to the partnership, encouraging more meaningful information sharing.

• Regular meetups. A structure that brings participants together regularly fortifies better working relationships, more trust, and better collaboration. Whether in-person or virtual, regular meetups with a designated time slot ensures prioritisation of the initiative and helps create a better community.

• An inclusive group. Purposeful and fruitful discussions are more likely to emerge from a diverse group. A multidisciplinary membership encompassing a cross-section of actors like smaller financial institutions, FinTechs, national level law enforcement agencies, key regulators and supervisors, NGOs and academics will provide a more thorough understanding of emerging threats and typologies.

• Prioritise actionable information. Instead of high-level typologies that are vague and abstract, centring on the sharing of actionable information will create better results.

• A legal framework for information-sharing. National legislation needs to permit information sharing that allows actors to do their job better. While the Wolfsberg Group acknowledges the significant progress in many jurisdictions for such a framework, more work must be done.

• Multi-directional information sharing. Maximum collaboration includes allowing financial institutions to share information with each other.

• Impact tracking. With all initiatives, tracking impact and metrics are vital to identify any areas of improvement. This includes the maintenance of performance metrics, such as the number of suspicious transaction reports filed, arrests made, or funds seized.

The underlying fundamental truth, as highlighted by the Wolfsberg Group, is that “collaboration and dialogue lead to far better outcomes than initiatives pursued in a silo”. 

For FinTechs looking to thrive free from the threats of financial crime, how can they effectively move out of silos and into a supportive and collaborative space? 

The short answer is — to join a collaborative global community of FinTechs that concentrates on fostering and fortifying anti-financial crime strategies. Curated information and resource sharing are fundamentally game-changing, as FinTechs can leverage a worldwide network of partners to give them an advantage in fighting financial crime and focus on booming as a business. 

What is the FinTech FinCrime Exchange?

The FinTech FinCrime Exchange, or as we affectionately call it, the FFE, is a global network of FinTechs that regularly collaborate on best practices in financial crime risk management. Connecting over 200 FinTechs to share information on criminal typologies and controls, members help each other and, by extension, the entire sector’s ability to detect and counter the global threat of financial crime. 

The FFE was created by FINTRAIL and the Royal United Services Institute (RUSI) and has evolved from a small roundtable to an extensive global community with monthly meet-ups boasting informative presentations, expert working groups and white papers, a vibrant Slack community, and an annual in-person conference which is a staple of the FinTech FinCrime community. All FinTechs, big and small, are welcome! Join the community here.

The FFE ticks many of the boxes that the Wolfsberg Group lays out:

• Multidisciplinary in nature, involving presenters from academia, law enforcement, and non-profit groups sharing financial crime threats from their perspectives

• An engaging membership — meet-ups allow for question-asking and sharing experiences as part of the FFE’s architecture

• Presentations from members provide real-life case studies and typologies, practical advice, and actionable recommendations. 

FinTechs need meaningful collaboration to thrive and support their anti-financial crime strategies. As financial crime threats are global in nature, having access to a global network gives members a trusted place to exchange information and an increasingly far-reaching network of resources and perspectives to leverage.

Tom Keatinge,  Director, Centre for Financial Crime & Security Studies, RUSI

“The FFE has set the pace globally on developing PPP leadership for the FinTech sector since 2017.  Recognising the value of collaborative working, but also that FinTechs are generally excluded from government-led PPPs, the FFE provides a forum through which the FinTech community can collaborate as an industry as well as with invited guests from the public sector and other areas of the private sector to strengthen their collective response to financial crime.”

To join the growing community of FinCrime professionals click here.

The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022

HM Treasury’s response to last year’s consultation on proposed amendments to the Money Laundering Regulations (MLRs) is out. The response sets out the direction the government has taken on introducing time sensitive updates to the MLRs, to strengthen and clarify how the anti-money laundering (AML) regime operates. Subject to Parliamentary approval, most of the measures in the draft statutory instrument will come into force on 1 September 2022.

Key areas include removing Account Information Service Providers (AISPs) from the scope of the regulated sector, new provisions on crypto assets , access to suspicious activity reports (SARs) for supervisors, and an ongoing requirement to report discrepancies in ownership information at Companies House. We have summarised some of the keys updates below:

AISPs are no longer in scope of the regulated sector and subject to the MLRs:

• AISPs are information tools that only allow customers to view their data and link it to other services.

• They do not come into possession of funds and cannot access accounts to execute payments. 

• These factors indicate that AISPs would be of limited utility in any money laundering methodology.

Payments Information Service Providers (PISPs) remain within scope. Generally they seen as higher risk than AISPs:

• They are involved in payment chains so represent a higher risk of being used as a tool for economic crime more broadly (such as fraud).

• However, the ML/TF risk remains low as PISPs do not execute the payment transactions themselves and do not hold payment service users’ funds.

SARs: An explicit legal power to allow supervisors to access and view the content of SARs submitted by their supervised population will be introduced.

• This will help standardise how SARs are accessed and clarify access rights to support supervisors deliver their supervisory obligations under the MLRs. 

• The measure will allow supervisors to identify risks, assess their supervised populations’ understanding of risk, and determine the quality and consistency of reporting. 

• The measure will help grant supervisors a better understanding of sectoral risks to tailor guidance and improve the effectiveness of their risk-based approach to supervision. 

Proliferation financing (PF): The MLRs will be updated to implement the FATF standards in respect of Recommendation 1, requiring financial institutions to identify, assess and take effective action to mitigate PF risk.

• HM Treasury will be legislated to carry out a PF National Risk Assessment and financial institutions will need to complete a PF risk assessment. There will be flexibility to create a new risk assessment for this or incorporate PF into existing ML/TF risk assessments.

• A definition of PF will also be included in the MLRs.

Reporting of discrepancies: Expansion of Regulation 30A(1) to introduce an ongoing requirement to report beneficial ownership information discrepancies.

• Currently, regulated entities must report beneficial ownership information discrepancies to Companies House before onboarding a customer.

• From now on, obliged entities will also be required to report discrepancies when conducting ongoing customer due diligence.

• The requirement will be streamlined to include a list of ‘material’ discrepancies that need to be reported.

• The discrepancy reporting regime has also been extended to include entities on the new public ‘Register of Overseas Entities’.

• Subject to Parliamentary approval, this measure will not come into force until April 2023 once broader Companies House reform has taken place.

Transfers of cryptoassets: The new law sets out changes to comply with the expansion of FATF Recommendation 16 - the ‘Travel Rule’:

• A 12-month grace period for implementation to run from the point at which the amendments take effect until 1 September 2023, subject to Parliamentary approval.

• Only applies to intermediaries that are crypto-asset exchange providers or custodian wallet providers, not other firms like software providers.

• Fiat and crypto transfers are treated separately and are no longer both considered for the calculation of the de minimus threshold.

• Unhosted wallet transfers should not automatically be viewed as higher risk. Obliged firms are only expected to collect this information for transactions identified as posing an increased risk of illicit finance.

• An exemption for transfers which involve only UK based cryptoasset firms, to avoid the unnecessary transfer of personal data.

• The de minimis threshold will be set at €1,000.

• The government has decided to maintain the information sharing requirements as set out in the consultation, as outlined below:

We now await the response of the ‘Call for Evidence’ on the effectiveness of the UK’s AML regime and what the future of AML supervisory will look like. Look out for a FINTRAIL update once that response is released.

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At FINTRAIL, we combine deep financial crime risk management with regulatory expertise to help keep your anti-financial crime programmes and governance structures in step with the latest official guidance.

Please get in touch if you would like support with reviewing, enhancing and formalising your anti-financial crime governance framework. Please email us at contact@fintrail.com

World Refugee Day: Reflections on Financial Inclusion

Today is World Refugee Day, an annual event organised by the UN to celebrate and honour refugees from around the world and to raise awareness of their plight and efforts to protect their human rights. In the past 12 months, the world has seen fresh flows of refugees from Afghanistan and Ukraine, adding to those continuing to flee from Syria, Venezuela, South Sudan and other conflict and crisis zones.

Access to financial services for refugees and asylum seekers is a well-recognised problem.  Most face barriers to opening accounts and accessing the products and services they need to find work and accommodation in order to rebuild their lives.  Some lack acceptable forms of identification or cannot provide documentation to prove their address or income.  In some countries in Europe, banks may even refuse to accept passports from certain refugee-producing countries, given the risk of fraud. There are also barriers which are not unique to refugees, such as language skills, the accessibility of branch locations, or familiarity with technology.  

Germany’s Passport Restrictions

Licensed banks in Germany are required to use a system run by the post office, Postbank, to check that potential clients meet KYC requirements. The Postbank has a list of nationalities for which it cannot process passports, including countries such as Syria, Afghanistan and Pakistan. This means that people from many of the top refugee-producing countries cannot access banking services with any licensed bank in Germany.  

This creates an odd situation for developing FinTechs, which may “outgrow” the refugee market.  EMIs without full banking licences can use alternative document-checking services which do not automatically preclude certain nationalities.  However, if they subsequently become a licensed bank they will have to use the Postbank system and decline high-risk passports.

The ongoing flux of refugees from Ukraine prompted the European Banking Authority (EBA) to instruct banks to make it easier for refugees to open accounts, and to state that both banks and supervisors must ensure refugees can access the EU’s financial system without having to zealously comply with AML rules.   (This follows a 2016 EBA paper in which it commented that a combination of country risk and uncertainty over ID documents means the ML/TF threat posed by refugees and asylum seekers is “unlikely to be low”, but that the risk could still be managed effectively.)

Some regulators have taken steps to address the problem. An EU regulation passed in 2015 requires banks to offer basic payment accounts to all customers legally residing in EU countries, including asylum seekers and refugees.    Banks need not insist on a passport or ID card, but should accept any official document containing a full name, nationality, date and place of birth and residence, such as a residency permit.  However, many EU national regulators have still not issued guidelines to implement this regulation. 

Provisions may also vary depending on refugees’ country of origin, with many institutions making exceptions for Ukrainian nationals.  A number of digital banks including Wise, Revolut, and bunq, are offering free accounts and simplified account opening processes for Ukrainians (or in the case of Revolut, anyone fleeing Ukraine whatever their nationality).  In the UK, HSBC was one of the first institutions to allow Ukrainian refugees to apply for an account, introducing a new account opening process in March.

Some examples of best practice:

Lloyds Bank and the Lloyds Foundation

Through the Lloyds Foundation, LLoyds Bank works with charities supporting refugees, homeless people and victims of domestic abuse to understand their needs and identify areas where the bank should change its processes to allow access to its services.  It is looking at how to support people who do not speak English, again by partnering with charities to share expertise.

The bank has launched a programme to allow refugees and other vulnerable groups to use alternative sources of ID to access its services, including biometric residence permits or letters of recommendation from charities verified by the foundation, confirming the identities of applicants.

BNP Paribas

BNP Paribas offers refugees and other frequently unbanked individuals easy access to financial services through its FinTech company Nickel, with no need for a fixed address.  Rather than working with partner organisations to verify individuals’ identities, thus limiting support to individuals already ‘in the system’ and receiving support, Nickel enables users to access services directly at their nearest tobacconist and to use the address of temporary migrant housing or nearby service providers such as a laundrette or post office.  BNP Paribas also offers training to refugees and migrants through a series of partnerships, and supports lending to early-stage refugee-led enterprises.

Interestingly, Nickel is not run as a charitable initiative - it charges €20 a year for its services and a 2% fee for each transaction.  BNP Paribas says this shows that social businesses with a for-good imperative can also make money, thus making them more sustainable and resilient.

HSBC

HSBC has introduced a new account opening process for Ukrainian refugees, following on from earlier programmes to provide services to vulnerable users including survivors of domestic abuse and the homeless.  It is not clear if it intends to extend these processes to all refugees and asylum seekers.

HSBC says it has already helped over 1,000 victims of modern slavery and human trafficking through its Survivor Bank service, which provides access to a basic bank account without the need for photo ID or proof of address.  It accepts applications from people who are supported by a caseworker from the Salvation Army or one of 18 other charities that can verify their identify.  

HSBC provides a similar service to those without a fixed address. In partnership with the housing charity Shelter, the bank’s No Fixed Address programme enables caseworkers to verify the identity of individuals who lack the necessary documentation.

Recommendations for financial institutions

• Consider how you can meet your regulatory requirements on KYC and customer due diligence while removing unnecessary hurdles for vulnerable users including asylum seekers.  There is clear support for this approach from regulators and industry bodies, and major banking groups such as HSBC have already started leading the way.

• Consider manual or in-person alternatives to your automated, digital onboarding process.  This will benefit both refugees and other marginalised groups (such as the elderly or others less familiar with technology, or people with certain disabilities).

• Review your customer risk assessment model.  Many models are heavily but often unhelpfully influenced by nationality.  The combination of nationality, refugee status, employment status, and thin credit files can all combine to make refugees high-risk customers.  This may place them outside a firm’s risk appetite and denied access products and services, or require them to undergo additional due diligence (which they may well fail), or may mean they are subject to additional ongoing scrutiny.  This in turn can result in payments being blocked or accounts being frozen pending investigation, which can have serious knock-on effects, unfairly disadvantaging refugees and other affected groups.

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At FINTRAIL, we strive to improve diversity, equity and inclusion (DE&I) in all aspects of anti-financial crime. We co-created the FinCrime Principles of Inclusion as part of Tech Nation’s Finclusion 2021 to increase awareness of this important area and to provide practical, implementable guidance. Find out more and download the principles here.  

If you would like to discuss any of the topics raised in this article, or how FINTRAIL can assist you review your existing controls and procedures to ensure inclusion for refugees and other vulnerable groups, please email us at contact@fintrail.com. 

Culture, Language, and Transaction Monitoring Keywords

Friskie powder. Flea market jeans. Bambalachacha. Tweezes.

Do you know what any of these are? 👀

Or, what about … Thorium-227? Tungsten alloys? Phosphorous pentachloride? 

🔔 Still not ringing any bells? Not to worry. 

The good news is you don’t need to know what all these actually are. What you need to know is how specialist terms and evolving language can help you identify and prevent financial crime.

Let me explain. (Starting with the obvious…)

Transaction monitoring

If you’re in the financial crime fighting business, you already know that transaction monitoring is an important part of an anti-money laundering and counter-terrorist financing strategy.  It allows firms like yours to detect suspicious activity by flagging instances of large cash deposits, wire transfers, or behaviours out of line with a customer profile. Transaction monitoring is a regulatory requirement in all jurisdictions. The Financial Action Task Force recommends that banks adjust their monitoring using a risk-based approach that tailors controls to higher or lower risk clients. 

One crucial component of transaction monitoring is screening payments (counterparties, payment descriptions, and other fields) against sanctions lists, blacklists, and designated names. But it’s not just for sanctions evasion. You can detect other types of crime by screening for keywords that could indicate drug dealing, weapons trafficking, wildlife trafficking, or right-wing terrorism.

Capturing the nuances and expressions of these crimes solidifies and enhances your financial institution’s transaction monitoring strategy — but it isn’t always easy!

Why lingo matters

We know that screening payments for keywords is important. But what do language peculiarities have to do with it? 

Let’s consider how diverse crime is — occurring within different cultures and subcultures. Each culture, group, or gang may have its own expressions to refer to the same thing. Sometimes designed to confuse authorities, the language of criminals is often specific and intentionally hidden from the mainstream. 

Youth culture also influences slang, sparking the invention of vocabulary and stylistic practices like shortening words or phrases. Social media is the perfect environment to showcase this, with an enormous impact on shaping language and culture, including in areas of financial crime. For example, money mules are often recruited through social media channels like Instagram and Snapchat, with recruiters using particular language to conceal their meaning, either intentionally or inadvertently.

To complicate matters, the language and slang words used to describe illegal substances or activities are fluid and evolve over time. For example, “dope” no longer really refers to “cannabis”, despite iconic though dated references. This concoction of factors means outsiders unexposed to the cultural peculiarities of a given group, which include law enforcement and financial crime analysts like us 👋, may have a difficult time understanding the language codes that could indicate criminal activity. 

If you’ve seen the critically acclaimed TV series The Wire (we’re big fans at FINTRAIL and recently chatted about the show here), you’ll note it cleverly demonstrates how criminals use specific language to avoid detection. It also explores how dialect and social class interact. 

Let’s look at a quick case study here…

According to the algorithm behind the website Urban Thesaurus, the top 5 slang words for "weapon" are: “pretzel”, “dick cheney”, “llama”, “quad laser” and “pack” (no, me neither).

Here’s another example…

Surprising, right? 

At FINTRAIL, we’ve previously looked into the issue of money muling (aka “squaring”) in the UK, where again, we see a whole new set of terms emerge.  A bank card is a “square”, a bank account is an “AC”,  an accomplice working in a bank is a “striker”.

So in short, financial crime fighters may find themselves a tad out of touch with the language used by criminals. And understandably so. 

But for a transaction monitoring system to be effective, keyword searches must account for this complex interplay of factors and reflect on-the-ground reality. Otherwise you’ll never know what a “tickler” is and miss catching that shady transaction involving “hooch”.

How FINTRAIL can help

Just because you struggle to keep on top of the nuances of the lingo of criminals, doesn’t mean your transaction monitoring system has to.

FINTRAIL’s Transaction Monitoring Keywords product contains hundreds of hand-selected words expertly compiled by our Consult team, drawing on extensive research and on-the-ground experience reviewing real-world transactions. Using authoritative government and industry group sources to provide maximum coverage, these keywords cover the following categories:

• Controlled dual-use items

• Controlled military items

• Torture goods

• Radioactive sources

• Drugs

• Weapons

• Wildlife-trafficking

• Right-wing terrorism

The keyword list can be updated to add words to cover your financial institution’s exact needs and risk concerns. Where primary and relevant sources of open source research have informed specific lists, these have been noted for your reference to enable further research.

If you’d like to find out more and start fortifying your transaction monitoring programme ASAP — give us a shout here. 

How to Survive the Great Resignation

In 2021, the US Bureau of Labor Statistics reported that 47.8 million Americans had voluntarily quit their jobs, the highest number since tracking began 20 years earlier. It’s a similar picture in the UK, where the Office for National Statistics reports that in Q1 2022, ‘job–to–job’ moves, primarily driven by resignations, increased to a record high of almost 1 million. Widely referred to as ‘the Great Resignation’, this trend shows no sign of slowing down.  Research by Slack indicates that a third of UK workers are considering moving jobs this year.  

We know that skilled financial crime employees are in demand. A recent study evidenced that recruitment in financial crime was up a whopping 92% in 2021, and was 49.4% higher than pre-pandemic levels.  There is a particularly fierce battle for talent in FinTech given the ongoing expansion of the sector and an annual global growth rate of 20% a year. 

All this begs the question: what are you doing to retain your staff and enhance your organisation's culture? Specifically:

• Are you doing enough to motivate and engage your staff?

• Are you investing enough in retaining your top people?

To combat the Great Resignation and attract and retain talent, employers need to look to the future. By introducing new practices and ways of working, employers can demonstrate they value their employees and their needs.  Below, we outline some of the ways you can take meaningful action to survive the Great Resignation.

It’s not all about the money

The Spring 2022 Labour Market Outlook from the Chartered Institute of Personnel and Development highlights a difference between what employers have done in the past and what they plan to do in the future. Only 36% say they will raise pay in response to retention difficulties. 40% of employers with retention difficulties have put a greater focus on employee wellbeing, and 39% have improved flexible working arrangements. 

Employer responses to retention difficulties, past responses and future plans (%)

Increasing pay or bonuses alone won’t cut it. With a greater emphasis on work–life balance and health and wellness post-pandemic, employees are looking at additional ‘benefits’ in addition to the take-home pay.

Employees also want an interaction-based relationship, not just a transactional one — the impact of feeling valued by an organisation can go a long way in retaining staff. 

Removing barriers to work

The pandemic has changed the way we work; no longer is the 9–5 or an hour-long commute the norm. Demands for flexibility have increased. And if not supported can have a detrimental impact on employee motivation and satisfaction. 

Slack’s Future Form Pulse survey says employees of companies that do not support flexible working are 20% more likely to look for a job in the next year. Flexible working promotes inclusion, work–life balance, wellbeing, job satisfaction and loyalty.  It is no longer only for working mothers; working dads, caregivers, those who want to run in the evening or practice yoga in the morning (or avoid the 6am alarm clock!) thrive without traditional constraints.  For many, COVID has resulted in shifting priorities and a greater understanding of the value of our time. Employees are questioning what they want from work and how much they will commit in return.

Understanding how flexible working best fits your organisation and meets the expectations of your employees can be a difficult path to navigate. The key thing to note is that a one-size-fits-all approach does not work. However, where possible employers should consider:

• Part time or compressed hours for those balancing external demands

• Creating an agile working environment, with the flexibility to adjust working hours 

• Implementing a minimum number of ‘collaboration hours’ where teams meet face–to-face, e.g. a day a week for teams, or a day a quarter for whole departments

• Hybrid or remote working, where this works for the team and the individual

Focus on health and wellbeing

The 2022 Microsoft Work Index Trend Report highlights that 53% of employees are now more likely to prioritise health and wellbeing over work than before the pandemic. Whilst flexible and remote/hybrid working can go a long way to facilitating a supportive environment, employers should look at other ways to support employees’ mental health and wellbeing:

• Give employees purpose — fighting financial crime has true social and economic benefits. Ensuring your team understands the ‘why’ and the impact their role has can increase their engagement and passion.

• Reduce the number and length of meetings to allow your team time to reset, stretch their legs and come back fresh to the next call.  FinCrime compliance requires alertness and engagement, which need some mental breathing space!

• Introduce screen free hours — e.g. an hour a day at lunchtime when employees can power off and step away from their screens. This will increase productivity and focus in the long run.

• Support employee–led initiatives and provide access to wellness hubs which provide information and resources to support employees

• Invest in mental health platforms, and show a clear commitment to this important issue. In a digital environment, many people hide their problems behind a screen — do not let this become a barrier to identifying issues and supporting people.

• Celebrate the small things. Let’s be real — working in financial crime can be hectic and, at times, stressful. We often forget to celebrate successes (even if it’s just completing a small task, or a day when nothing goes wrong!). Facilitate recognition for colleagues to appreciate the support and work of others.

Walk the talk

Shiny new policies that say great things are all well and good, but any disconnect with what business leaders actually do may lead to more harm than good. 

Investing in leadership development sends a message that you care about your people, and can inspire them to meet and exceed performance expectations. Leaders must be able to connect with their teams, something that can be more difficult remotely. Investing in development that focuses on emotional intelligence, and training managers to be empathetic leaders will equip them to spot morale issues and contribute to a positive culture where people feel valued and better connected. Most importantly, leaders need to enact the behaviour they wish to see and make themselves accountable by modelling the behaviours and values that are important to the company. 

While policy is set at the top, leaders need to empower line managers to help meet employees’ individual needs. Team leads should feel confident making decisions that are right for their teams, rather than being obliged to follow a group wide approach. Agility and flexibility is core to success. 

The importance of training

Investing in developing skills helps organisations maintain a robust talent pipeline, and increase employee retention. One study has shown that 70% of employees are more likely to move to an organisation known for investing in training and development.

Investing in training makes good commercial sense. It makes people more effective in their role, and can make them ’sticky’ - for  those working in financial crime there is always the lure of more money and new opportunities elsewhere, but career progression and the opportunity to learn can be an effective counterweight. 

Refresh and rethink your approach to training, and look for innovative and creative ways to bring it to life:

• Shake up your traditional training model — introduce scenario-based training and make it immersive. Give your team scenarios, data and tasks that they deal with daily, and ask them to make decisions on how they would tackle them.

• Make it impactful — remind people of ‘why’ we do what we do. Understanding the importance of fighting financial crime and the impact it can have is a powerful motivator. Look at stories of criminal activity and get your team to identify where anti-financial crime controls could be effective in stopping it.

• Make it flexible – provide on-demand, flexible training that allows employees to participate when they want. Distilling it into ‘bite-size’ modules that can be accessed in various formats will drive engagement.

• Map out individual learning paths — work with your teams to understand the various available training options. This can be in the form of supporting formal training such as ACAMS or ICA certifications, or highlighting webinars, industry events or reading material that is relevant to their current or potential future roles. 

• Make it continuous — in addition to having a defined training plan, look at how you can come together as a team or use other resources to support training on a more frequent basis. Arrange lunch-and-learn sessions with either internal or external guest speakers or carve out time in team meetings for training.

Career development matters

Many people leave companies as they cannot see a clear path for development. It is incumbent on you as a leader to provide support in identifying that path for your employees. Many financial crime teams, particularly those in larger organisations, are siloed by activity, yet many of the skills needed are similar. This opens up a variety of possibilities for career advancement.  There are a number of ways that you can support this:

• Job rotations: this is an excellent way to provide training and transfer knowledge and skills between teams and individuals. It can also provide flexibility and options to redeploy people based on operational needs

• Stretch assignments: these allow employees to develop skills outside their current roles and comfort zones, giving them a chance to learn and develop and boosting their confidence in applying for more senior roles.

• Mentoring: either a formal or informal programme to allow more experienced employees to assist with supporting career development.

• Skills mapping: identifying individual skills that map across to other roles e.g. AML investigator to fraud roles, or opportunities between the first and second lines of defence. Career paths do not need to be linear, and mapping out options based on skills and areas of focus can open people’s eyes to new opportunities within your organisation.

Future proofing

All financial crime teams need to respond to ever-changing threats  — from fraud to cybercrime and human trafficking to terrorism. A more agile and forward-thinking approach makes teams more effective at fighting crime. The same skills need to be applied to managing teams — the environment, needs and priorities of our people will evolve in the same way as external factors. Anticipating this can strengthen and develop your talent planning and retention. 

Finally, don't plan in isolation — seek your employees’ view. They are the ones best equipped to tell you what would make them stay or make them leave.  Consider running ‘stay' interviews — asking what employees like most about their role and the organisation and what they would change. This presents an opportunity — own it, listen and make changes!

The best leaders foster a culture that embraces flexibility, values its employees’ wellbeing and recognises the competitive advantage in investing in its people through training and development.

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FINTRAIL believes that a motivated, passionate and engaged financial crime team is a powerful asset in combating financial crime. Valuing and taking care of your people will promote a positive working environment, increase productivity and drive efficiencies. Furthermore, having a diverse and inclusive team and culture will support attracting and retaining talent. To explore how you can create a more equal and inclusive workplace check out our blog post on ‘Hiring a Diverse and Inclusive FinCrime Team’.

Art & Antiquities: The AML Risks of the Booming Smuggling Trade

As the war in Ukraine continues, Russian invaders have taken to stealing important cultural property from Ukrainian museums. Among the losses are Christian icons, fourth-century Sycithian gold, 300-year old silver coins, special medals, and more. One less discussed but immensely damaging feature of war is the attack on culture and national identity through art and antiquities looting. Conduits of culture, history, and national identity, stolen art and antiquities also fetch a pretty penny in the black market. 

Art and antiquities smuggling has been around for centuries. From the British Empire’s looting of artefacts during the imperial era, to the pillaging of ancient sites during recent Middle Eastern conflicts, to more recent art theft from war-torn Ukraine — the illicit art and antiquity trade continues to boom. No institution, no matter how respectable, is unaffected, as evidenced by charges laid against the former head of the prestigious Louvre in May 2022 for turning a blind eye to antiquities trafficking. Believed to make up roughly 5% of the entire art industry, the illegal art and antiquities trade exploits vulnerable conflict zones, effectively fueling war and enriching organised crime groups while destroying cultural property. One report by the United Nations Educational, Scientific and Cultural Organization (UNESCO) posits that the illicit flow of cultural goods is the third-largest in terms of volume, after drugs and arms. Indeed, cultural racketeering has funded drug cartels, mafia syndicates and historical villains like the Nazis and the Khmer Rouge. More recently, and gaining significant international attention, was the looting of Syrian and Iraqi sites on an industrial scale by the terrorist organisation ISIS. This reality has highlighted the need for financial institutions to detect and manage risks associated with a market worth roughly $50.1 billion globally.

Art is in the eye of the beholder 

As evidenced by recent reports that Russian soldiers have stolen over 2,000 pieces of art from the Ukrainian port city of Mariupol, art is an easy target for crime during conflict and disorder. Refugees of war may also loot cultural property as a means of survival and better their chances at reaching safety. Once stolen, art and antiquities follow trafficking routes carved out by organised crime groups — ultimately destined for the biggest art and antiquities markets in Europe, China, and the US. London, in particular, hosts one of the largest antiquities markets in the world and has been the site of undercover investigations demonstrating the vast extent of ‘conflict antiquities’ openly sold by dealers.

Unsurprisingly, the online world is also a popular place for buying and selling looted goods, emboldened by lax regulations on online marketplaces, forums, and messaging services. Even during the early days of the COVID-19 pandemic, illicit trade in the art and antiquities sector flourished in the face of lockdown. Online sellers are outward and unsecretive, boldly making sales on platforms like Skype, WhatsApp, eBay and Kik. An investigation by the ATHAR Project (see text box) into the illicit trade on Facebook, called it a “one-stop-shop black market”, which boasts convenient features for criminals to advertise their goods, such as disappearing ‘stories’, uploading capabilities for videos and photos, and payment mechanisms. While officially such nefarious activity is banned from Facebook, it is difficult to enforce in practice. The buyers in these online marketplaces are seldom the end-market purchasers but rather represent a point in a long transaction chain that can last a decade or more.

FINTRAIL Highlights: The ATHAR Project

Investigating the antiquities black market on social media, Antiquities Trafficking and Heritage Anthropology Research (“ATHAR”, the Arabic word for “antiquities”) is an organisation dedicated to tackling the illicit antiquities trade. Spearheaded by archaeologist Amr Al-Azm and anthropologist Katie A. Paul, ATHAR has produced an in-depth report examining Facebook’s black market for stolen Middle Eastern antiquities complete with interactive graphs and maps, and social network data. ATHAR keeps an up-to-date Twitter page here.

Money laundering and tax evasion

Using art and antiquities to launder money is favourable for many reasons. For one, these high-value objects are portable, making them ideal for smuggling over borders and tucking away for extended periods of time. Additionally, art and antiquities tend to appreciate in value, minimising the money lost during the laundering process. They are also highly subjective assets with prices that are easy to inflate and manipulate. Perhaps most importantly is the opaque and anonymous nature of the art world, where the use of intermediaries and emphasis on privacy are commonplace. In fact, 50% of art transactions are estimated to be entirely private, and many artworks are sold between offshore companies, where the beneficial owners are obscured. According to a 2018 European study, transactions with cash are also standard practice. This secretive nature renders the art market rife with money laundering and tax evasion risks.

A defining feature of the art and antiquities world is freeports or warehouses in tax-free zones. These vaults can be rented under a shell company name and often store cultural goods for many years, usually six years and upwards, waiting for opportune moments to release them into the market once the heat has died down from conflict zones. The infamous Geneva freeport has been the site of numerous investigations and seizures, including the recent recovery of three looted Palmyra sculptures, the contested Modigliani piece revealed by the Panama Papers, and thousands of stolen Roman and Ertuscan antiquities hidden inside the vault of an Italian art dealer. Items within the vaults can be sold and purchased many times or moved from dealer to dealer, which can purposely blur their origins or help create a fake paper trail. Ownership history can also be fabricated with old typewriters used to forge backdated ownership certificates. A common practice is claiming an antiquity has been within a family for a long time, inferring it could not have been recently smuggled from a conflict zone.

AML regulations

Regulators have reacted to curb the financial crime risk posed by the art and antiquity market, and the trade has come under more scrutiny since the Financial Action Task Force (FATF) and the Wolfsberg Group identified art and antique dealers as higher risk for money laundering. FATF has launched a project to help countries, competent authorities and the private sector counter art, antiquities and cultural property abuse by issuing best practices and recommendations, with a report due to be issued in June 2022. 

In Europe, the EU’s Fifth and Sixth Money Laundering Directives brought art market participants into the scope of anti-money laundering regulations and demanded increased transparency through enhanced due diligence measures. In 2020, the US adopted a new Anti-Money Laundering Act (AMLA 2020) which amended the definition of “financial institution” to include “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” This definition is designed to be broad enough to include not only antiquities dealers themselves but also intermediaries involved in sales and purchases.  The Financial Crimes Enforcement Network (FinCEN) released guidance on SAR filing and the new AML Act measures in March 2021. 

In the UK, the government released guidance in 2020 on AML for UK art market participants, including red flags and customer due diligence requirements. However, following its withdrawal from the EU it has repealed the EU Regulation on the Introduction and the Import of Cultural Goods (EU 2019/880).  The Antiquities Coalition, a think tank focused on the illicit trade in art and antiquities, has issued a policy brief advising the UK government to impose tighter measures of its own following this repeal, arguing the current situation may create a gateway to Europe for illicit cultural property through Northern Ireland.  Recommendations made in the brief include creating dedicated points of entry for antiquities and cultural goods,; greater requirements to provide information on import documents; and the inclusion of antiquities in AML regulations.

Conclusion

For financial institutions with clients involved in the art and antiquities market, it is important to scrutinise transactions in greater detail, looking out for funds that have a footprint in high-risk jurisdictions or may indicate an unusual transaction or fire sale. Examining supportive documentation for possible inconsistencies and red flags is also paramount. Since intermediaries and obscured beneficial owners are commonplace in this industry, and as discussions surrounding the possibility of bypassing Russia-related sanctions through art abound, financial institutions must be proactive when dealing with the art and antiquities sector. 

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At FINTRAIL, we combine deep financial crime risk management with industry expertise to help you optimise your anti-financial crime, transaction monitoring and sanctions programmes. We’re here to support you in refining, enhancing, or testing your systems and providing context-based training to your teams. Please email us at contact@fintrail.com

Debunking Financial Crime Risks in the Non-Profit Sector

Non–profit organisations (NPOs) are often regarded as high–risk by financial institutions. There is a gap between the extent of the perceived and actual risks present in the NPO sector, and that financial services should bear some key factors in mind when working with the sector.

How to Manage Financial Crime Investigations

SOME KEY TAKEAWAYS FROM OUR HOW TO MANAGE FINANCIAL CRIME INVESTIGATIONS WEBINAR, 26 APRIL 2022

Our key insights cover:

• Best practice for managing and conducting financial crime investigations

• Engaging with law enforcement

• Finding the right talent

Making the Most of RegTech for Financial Crime Compliance

Some key takeaways from the IBF Singapore / FINTRAIL masterclass, 25 April 2022

What is Regulatory Technology (“RegTech”)?

RegTech is a subset of financial technology (“FinTech”) centred on technologies that effectively facilitate the delivery of regulatory requirements. There are many different types of RegTechs on the market that serve an expansive ecosystem of services, not limited to financial crime.

Risks involved in adopting RegTech

While there is no doubt adopting RegTech solutions can improve the efficiency and effectiveness of your financial crime-fighting functionalities, there are multiple risk factors to consider throughout the various phases of engagement:

• Technical risks including any technical issues from integration to BAU operations

• Business continuity risks including core risks that may impact your firm’s ability to operate

• Vendor management risks including any service level agreement issues, contractual risks, and obligations around change management…

FINTRAIL’s thoughts: The FCA review of challenger banks’ FinCrime programmes

The Financial Conduct Authority has conducted a review of “Financial crime controls at challenger banks”.  The basis of the review was a statement in the 2020 UK National Risk Assessments that criminals may be attracted to faster/streamlined onboarding processes.

The FINTRAIL team have been discussing the report and associated media coverage, and as you might expect, had a number of thoughts!

• Media coverage somewhat obscures the fact the FCA declares, “we remain of the view that there are limited differences in the inherent financial crime risks faced by challenger banks, compared with traditional retail banks.”  This is borne out by the fact the findings largely align with the topics raised in the FCA’s previous “Dear CEO Letter” to traditional retail banks, indicating there isn't a significant difference between challenger and traditional institutions.

• This chimes with assessments within the industry of the risks associated with challenger vs. incumbent banks, which some of our team have been involved.  They found that the way challenger banks were used by criminals differed to the way the same criminals used incumbent banks -  challenger banks were typically used for high volume low value movements, whereas incumbent banks were used for low volume, high value crimes.  In other words, neither type of financial institution was necessarily riskier than the other; it was how they were used by criminals that was the clear separator.

• The FCA criticises lenders for failing to take details of customers’ income and occupation.  Strong views on this one - there is absolutely no regulatory requirement to do so, and it’s questionable what value such self-declared, unverified information would provide.  This ‘failing’ has been highlighted in the media (e.g. the Financial Times), with no mention of the fact banks are not actually obliged to collect this information.

• The FCA cites a 'substantial' increase in the number of SARs filed last year, but this could either mean an increase in suspicious activity, OR that firms are getting better at identifying it, making it hard to draw conclusions from this statistic in isolation.

• Many of the areas of weakness are key components of a good financial crime programme, requiring a ‘back to basics’ review by banks:

  • Lack of / poor customer risk assessment frameworks

  • Inadequate resources to manage alerts

  • Inconsistent or undocumented enhanced due diligence (EDD) procedures, including for PEPs

  • Weakness management of FinCrime change programmes, meaning control frameworks are not keeping up with rapid levels of growth and changes to business models.

• The FCA is reportedly struggling with high levels of job vacancies.  This is a common theme across every organisation involved in fighting financial crime (and crime more broadly) - from Companies House to regulators and supervisory bodies and all branches of law enforcement.  This must be addressed at the government level - adequate resources must be given to institutions involved in the fight against financial crime.

Why Financial Institutions Must Keep on Top of Fraud

An ever-present threat, fraud has been rising sharply in recent years, exacerbated by the pandemic which disrupted standard behaviour and moved financial services further online. In the UK alone, fraud offences have increased by 36% since 2021.  Against this backdrop, the UK’s Financial Conduct Authority (FCA) recently launched its three-year strategy to protect consumers, with a heavy focus on fraud. It plans to develop a new approach for supervising anti-fraud systems and controls of regulated firms as well as undertaking assessments to understand and evaluate firms’ ability to protect consumers from fraud.  

Given this increased regulatory focus, financial institutions must be agile in responding to emerging fraud threats, adopting a proactive rather than reactive approach, and be able to demonstrate that they have taken steps to actively assess and mitigate the risks they face.

Exploiting crisis

The last few years have seen a myriad of international crises ushering in change and uncertainty. Within this chaotic climate, fraudsters have been able to thrive and exploit human and technological vulnerabilities. Frauds take different shapes and sizes, from manipulative romance scams to lucrative push payment frauds — leaning on social engineering and impersonation techniques. Online investment scams, particularly in the realm of cryptocurrency, are also booming as people look for quick ways to make money online. Criminal networks often recruit money mules with changing demographics to move the money before it can be frozen, increasingly targeting middle-aged individuals less likely to be detected.

What financial institutions need to know

In light of the whirlwind of frauds and increased regulatory focus, financial institutions need to be proactive and prepared. Moments of particular vulnerability include the launch of new products or features, which entice fraudsters to exploit potentially immature controls. However, due to the rapidly evolving world of fraud, businesses should also continuously reassess their controls to ensure they are developing along with their offerings and firmly secure detective controls and preventative measures.  

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At FINTRAIL, we are experts in developing and deploying counter-fraud, anti-financial crime, and risk management controls.  If you would like support with building, refining or auditing your fraud controls, please get in touch; see our full range of fraud services here. We’re also here to support you in assessing and testing customer and product risk, offering remediation support, and providing context-based training to your teams. Please email us at contact@fintrail.com 

Russia Sanctions: Unprecedented, Creative … Effective?

The unparalleled onslaught of sanctions imposed on Russia in the past month has by some measures created its desired effect. The so-called ‘economic blitzkrieg’ against the Russian state has pushed the economy into free-fall with the ruble collapsing dramatically, leading to panic buying and stringent capital controls. To maximise economic impacts and dissuade Russia from continuing its brutal attack on Ukraine, the international community has gone beyond adding yet more names to sanctions lists to come up with more creative, targeted, and (it is hoped) effective ways to sanction the country. It has targeted strategic sectors and areas of financial activity to push Russia’s economy to the brink, in the hope of forcing a change in behaviour and reaching a political solution. 

Financial mechanisms

The once hotly-debated ban from SWIFT was partially implemented on 12 March 2022, effectively eliminating seven designated Russian entities and their Russia-based subsidiaries from the important international messaging system used between financial institutions. The sanctioned institutions were strategically selected for their involvement with Russian industry, foreign investments, security and defence, while attempting to prevent the harshest negative impact on business and energy-reliant European countries. Russia’s biggest bank Sberbank and third-largest lender Gazprombank are notably missing from the list. 

In principle, excluding these key institutions will make dealings burdensome and slower as financial institutions will be forced to use less secure and outdated methods of interbank communication or Russia’s own domestic system, which has noted significant challenges. While some analysts allege the ban’s impact will ultimately be minimal, estimates from 2014 claimed that a SWIFT ban could lead to a 5% drop in Russian GDP. 

Sanctions have also been placed on Russia’s Central Bank by the EU, US, UK and others. By effectively freezing Russia’s access to its foreign exchange reserves, international payments are made more difficult, as is the ability to keep the ruble stable. Expanding on measures taken in 2014 that strategically targeted entities in specific sectors, Western governments have imposed new and extended capital market sanctions. 70% of the Russian banking system and vital government and state-owned companies will no longer be able to refinance in EU capital markets, and the issue of trading in Russian sovereign bonds has been suspended in key financial centres, including the US and the UK. 

Trade restrictions 

In an effort to constrain Russia’s technological and military capabilities, sanctions have been placed on targeted strategic sectors including export bans on technologies that support oil refining, defence and security, aviation and space.  Airbus and Boeing have even halted maintenance supplies and support to Russian airlines, which is expected to lead to long-term operational issues across the country. 

Other dual-use goods such as computers, telecoms, and semiconductors have also been subject to export bans. Semiconductor chips, which are used in everything from mobile phones and computers to military drones and supersonic jets, are prohibited from sale to Russia if they contain US inputs (which includes chips made in Taiwan and elsewhere). The US is the dominant player in chip design, research, and development, and holds many patents for high-end chips. The government believes banning their export will have “massive consequences” for Russia’s military-industrial complex, given the increasingly technological nature of modern warfare.  Putin himself said in 2017 that the leader in artificial intelligence will ultimately become “the ruler of the world”, and so the hope is that stymying Russian access to crucial technology will be a significant blow that will thwart his ambitions.

Travel and shipping

In an attempt to physically isolate Russia, measures have been imposed to restrict the movement of goods and people.  The Russian national carrier Aeroflot has been barred from EU and UK airspace, and Russian registered ships are prohibited from entering UK ports. Some ports are also refusing to unload Russian cargoes, even where this is not actually prohibited under current restrictions.  To further curtail operations in this strategic sector, the UK has also blocked Russian aviation and space companies from accessing its distinguished insurance sector, likely leaving Russia’s commercial airlines to turn to China.

Energy

Despite general unity on the new sanctions approach, the energy sector remains an important exception. Less-dependant states have taken action: the US (which relies on Russia for only about 3% of its oil) has banned the import of Russian oil, liquified natural gas, and coal, and the UK has initiated a plan to phase out Russian oil imports by the end of 2022. However, the EU’s heavy though unevenly distributed reliance on Russian energy makes for a fragmented response. While the Baltic states have halted the import of Russian gas and turned to reserves stored in Latvia, countries like Germany, which imports 55% of its gas from Russia, are resistant to an all-out embargo. In addition, heavily discounted Russian oil is still being purchased by countries including India and China, which would limit the effect of a total Western embargo. 

The energy sector is a significant vulnerability for the Russian economy; oil accounts for a striking 44% of Russia’s exports and contributed 40% of last year’s budget revenue. Oil and gas exports bring in hard currency and will complement the Central Bank’s efforts to control the ruble, with signs that the banking system may be gradually stabilising. However, as the atrocities of war crimes in Ukraine unravel further, intensifying pressure on key EU decision-makers may result in the imposition of harsher energy sanctions.

“Self Sanctions”

Driven by pressure from public opinion and shareholders, many Western companies have gone beyond complying with obligatory sanctions to divest or pull out of Russian markets. Visa,  Mastercard and PayPal services have been suspended, and energy companies including BP and Shell have divested or withdrawn their operations. The German pharmaceutical and life sciences company Bayer has even threatened to suspend crop supply sales for next year’s harvest. Unsurprisingly, iconic Western fast-food brands like McDonalds, Coca-Cola, and Starbucks have followed suit in closing their doors, leading to significant job losses. French luxury house Chanel has closed its stores in Russia and even stopped selling goods elsewhere to people who intend to take them to Russia, which it claims is to comply with EU sanctions banning the sale of luxury goods to the country.  Globally, many shops in the West have voluntarily removed Russian vodka from their shelves in an expression of solidarity, though inflicting little economic impact. 

Culturally, Russia has also been banned from multiple international cultural and sporting events including football, hockey, ice skating and even the Eurovision song contest. While these measures mainly carry cultural weight, they signal collective disapproval that will isolate Russia further. 

Will the sanctions work?

The international community has been swift in implementing a range of sanctions, taking a broad approach and identifying innovative and strategic ways to hurt Russia's economy while bracing for the inevitable impacts on their own. Yet Russia shows no sign of abandoning its attack on Ukraine — bringing to question the reality that sanctions may not have their intended effect on Putin and the war, but instead impact everyday citizens the most.  Moreover, analysts warn that Western governments must be clear about what the sanctions are expected to achieve.  The aim is to convince Putin that de-escalation is preferable to continuing aggression, which means it must be clear under what circumstances the sanctions will be lifted.  Permanently crippling the Russian economy may satisfy ‘righteous’ punitive instincts, but is ineffective as a bargaining tool.

What does this mean for compliance?

Evidently the vast array of measures outlined above pose a challenge for compliance professionals.  The first stage has to be ensuring that their firms have a robust sanctions screening process in place.  Any organisations still using manual processes need to urgently look at switching to automated, ongoing screening.  Firms that do use screening tools need to interrogate the lists on which the tools are based to ensure they are up-to-date and fully comprehensive.  They should obtain granular details on how associated parties, e.g. subsidiaries of designated institutions, are identified.  All firms should ensure they understand how aggregated ownership is calculated by the relevant regulators (the UK, US and EU all take a different approach).  

In many ways, ensuring compliance with sanctions against designated entities is the easy part.  The second thing to consider is how to ensure compliance with the broader range of measures discussed in this article against specific types of financial transactions, goods and services, sectors etc. Here compliance professionals must engage with the business teams to fully understand the nature of services being offered or goods forming the subject of transactions, and should be prepared to ask for additional information, conduct their own enhanced research, or seek external advice where necessary.  There can be no one-size-fits-all approach, as every firm will have a different level of exposure based on its individual products and services, and its customer base.   

Finally, it is also clear that financial institutions should consider the reputational impact of any Russia-associated business as well as their regulatory obligations.  Certain types of business or certain Russian customers or counterparties may remain permissible, but the risk of any business activity undermining sanctions measures or causing reputational damage to the firm should be considered.  This must be weighed up carefully against heavy-handed ostracising of all Russian-related companies and individuals, which could amount to deliberate and potentially even unlawful exclusion.  

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How FINTRAIL can help

At FINTRAIL, we combine deep financial crime risk management with geopolitical expertise to help you keep your anti-financial crime and sanction programmes in step with current events.  Please get in touch if you would like support with refining, enhancing or testing your sanctions or transaction monitoring programmes. We’re here  to  support  you  in  conducting  due  diligence  on  higher-risk  situations,  providing  context-based  training  to  your  analytical  team,  and helping you navigate the situation as it unfolds. Please email us at contact@fintrail.com.

Advisory Notice: Russian Asset Flight

Ongoing tensions between Russia and Ukraine mean that financial institutions (“FIs”) need to be adequately prepared for potential new sanctions measures. The uncertainty caused by the conflict has likely resulted in funds flowing out of Russia, which FIs should be actively monitoring. FINTRAIL has compiled the following overview of typologies and red flags to assist with identifying cases of asset flight from Russian state-owned enterprises, oligarchs, and senior officials

The Optimal Path to AI Implementation for Financial Crime Compliance

Implementing AI is not as simple as flipping a switch, and in the initial stages it can be difficult to identify where to start.

Together with Napier we developed a 12-step path that guides you through AI implementation and provides answers to some of the most common challenges you might face in this process.

Anti-Money Laundering Essentials for Startups

For many early-stage, fast-growing fintechs, implementing anti-money laundering compliance tools and processes can be a challenge. We’ve produced this guide with ComplyAdvantage to provide practical tips on building a compliance function that can scale with your business.

Download the guide to explore questions including:

• What are KYC and Digital ID processes, and why do they matter?

• What is the latest on the regulatory landscape in the UK, US and European Union?

• How should firms look to appoint an MLRO?

Hiring a Diverse and Inclusive FinCrime Team

At FINTRAIL, we strive to improve diversity, equity and inclusion (DE&I) in all aspects of anti-financial crime. We co-created the FinCrime Principles of Inclusion to increase awareness of this important area and to provide practical, implementable guidance. One of the fundamental places to address this topic is hiring — DE&I considerations need to be front and centre when building and scaling financial crime teams.

Why does having a diverse group of anti-financial crime professionals matter?
Many organisations do not have a formal strategy for improving diversity and inclusion. Yet studies show companies with a more diverse workforce outperform their peers financially. They attract stronger talent, support better decision making, and improve risk management. A Forbes Insight survey found that diversity fosters creativity and innovation, and more than 75% of job seekers state that diversity is a key factor when considering companies and job offers. 

With regards to financial crime teams in particular, a diverse and innovative team will bring different perspectives to better identify and manage risk, and to build onboarding and risk assessment processes that are not discriminatory.  More diverse teams can better spot unintentional bias in both your manual and automated control frameworks, ensuring more effective risk mitigation.  They can also play an important role in minimising financial exclusion, reaping commercial benefits and ensuring you provide fair access and treatment for all customers. 

The benefits of a diverse team are thus all-encompassing and well established. Here are some questions you can ask yourself to kick start the conversation on creating a more equal and inclusive workforce, and make sure you’re reaping the benefits:

Are all your requirements necessary? Stipulating unnecessary requirements will limit the pool of potential candidates. To open up a more diverse pool and promote a multidisciplinary and thriving environment, focus on hiring for skills, aptitude and a passion for financial crime.

• Do you need to have formal tertiary education for your role profiles? Not everyone follows traditional educational paths, but this does not mean they are not as passionate, determined or capable as those that do.  

• Do you specify local regulatory experience? This can alienate those from other countries, who may have a wealth of transferable knowledge.  

• Is industry experience truly essential? For certain roles, candidates from other industries may be able to demonstrate transferable skills and knowledge, while also bringing additional insights to the table.

How do you source candidates? Specify your diversity requirements to recruitment firms and ask for evidence of how they incorporate DE&I into their process. Explore new recruitment channels that attract diverse candidates. Use diversity-focused networking events, job fairs or job sites. Consider how you use social media to promote roles - LinkedIn is often used as a primary platform, but this can limit the profile and demographic of candidates to people already in your personal network. There is a large pool of diverse candidates out there – you can find them with a bit of effort and change in approach.

How can you address unconscious bias?  It is important to understand how bias can manifest itself, and how easy it can be to overlook qualified diverse candidates. A US study found that ‘applicants with Black-sounding names received 14% fewer interview offers than their otherwise identical white counterparts’. Consider removing unnecessary identifiers like names, gender, or other personal information and photographs from applications and CVs, to reduce biased first impressions. 

• Train your staff to identify bias and support a more inclusive interview process.

• Have a diverse group of decision-makers involved in the hiring process.

• Decision-making criteria must be clear and evidence-based against relevant competencies.

Is your language inclusive? The language used in role profiles and interviews is powerful – a window into your company's culture. Each role profile is an opportunity to hook in new talent and demonstrate your company’s values.

• Are you inclusive in how you frame your roles?  Studies show that gender-coded words can significantly reduce the number of female candidates, and that “aggressive” language can put off both women and mature applicants. The use of words like ‘expert’ can also alienate many underrepresented groups. 

• Are you using pronouns correctly in the process? 

• Be clear about how you can support candidates with different personal setups. Flexible, hybrid or remote roles can attract new pools of people.

• Include a diversity statement in role profiles that aligns to your company values.

Are you stigmatising career breaks? A recent survey highlighted that 62% of people globally have taken a career break, yet 20% of hiring managers would reject such candidates. Career breaks come in many different forms; they may mean full-time parenting, caregiving, travelling or other life events. These life experiences can create valuable skills and experiences for the workplace. Those restarting a career after a break should not find it as challenging as they do. Reframe your hiring criteria and interview questions to explore how experience from a career break can add value to your team.

Are you using data?  Data analytics can inform where barriers may exist for candidates in the recruitment process and allow you to address it. Start by establishing the target goals and metrics you will use to track your progress. Making data-driven hiring decisions helps companies transform their recruiting processes and build truly diverse teams. The FCA and PRA have indicated they are planning to include diversity criteria in how they regulate, and to look at the effective use of data to track progress and enhance DE&I strategies.  Understanding the data behind your hiring choices can inform and educate your future strategy. 

Does culture matter? Yes! Having an employer brand that celebrates diversity at all levels of the organisation is an important factor for many. This translates to a diverse workforce from C–level to entry level that supports growth and development for all.  Put your strategy into action. Showcase it to potential employees – hearing from their peers via your careers materials or website is a powerful way to reflect your commitment.

How to look at DE&I beyond hiring
DE&I must not be a one-off focus at hiring – it needs to be in the DNA and values of the organisation. Crucial to this is making people feel supported and included across the employee lifecycle.  Factors to consider include:

• Ensuring your HR policies such as flexible working and parental leave are as supportive as possible for all employees

• Access to development, mentoring or networking for all

• Creating networks and forums that collaborate to amplify everyone’s voices 

• Creating events and activities to promote and celebrate diversity

An effective strategy needs a clear purpose linked to an organsiational and people strategy to avoid it being tokenistic. The goal is to achieve a strong culture of inclusivity. 

We want to inspire change through financial crime hiring best practices. Gender, race, family circumstances, religion, sexual orientation, disability and other factors must not disadvantage anyone.

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How else are the FINTRAIL team exploring diversity issues?  Each team member has personal accountability in raising awareness and promoting diversity, and we have a company-wide dedicated Diversity Equality and Inclusion (DEI) strategy. 

A few of our activities include partnering with ACAMS to promote financial crime internships for BAME professionals, widening our candidate pool when hiring, and the creation of an internal DEI forum for team members to openly discuss adversity and share best practice. 

We’d love to hear what you are doing either individually or as a firm to enable a diverse and inclusive workplace. If you are interested in speaking to the FINTRAIL team about the topics discussed here or any other anti-financial crime topics, please email us at: contact@fintrail.com

Human Trafficking in Relation to the Ukraine Crisis

The refugee crisis caused by the Russia-Ukraine war has seen more than 2.8 million refugees fleeing war-torn Ukraine. Many Ukrainians are seeking asylum in bordering nations or moving onwards to stay with relatives elsewhere in Europe. These individuals, mainly women and children, are extremely vulnerable to exploitative actors. In light of this ongoing risk, financial institutions (“FIs”) should review common typologies associated with human trafficking, particularly for activity in jurisdictions neighbouring Ukraine and elsewhere in Europe. FINTRAIL has compiled the following advisory guide and overview of red flags to assist FIs in identifying instances of human trafficking.

Your Ultimate Guide to Hiring Financial Crime Analysts

Building an effective financial crime workforce is a critical component for every financial organisation.  However, there is no ‘one size fits all’ approach to determining what the ideal team looks like in terms of structure and people. Your operational analysts are the grassroots of your financial crime team, yet often there is little structured thinking of what constitutes the right skill set for this role. 

When building and scaling your team you’ll probably aim for a mix of experience and talent across different aspects of the industry and financial crime ecosystem. Nevertheless, it is important to recognise that often the right talent for analyst roles may not be in the obvious and usual places. Embracing a diverse pool of candidates for the cornerstone of your operational activities will broaden the insights and outputs that you achieve from these teams. 

This guide serves as an outline, based on our experiences at FINTRAIL, of what we see as the key considerations for organisations looking to build or scale at the financial crime analyst level.

Fit and Proper: Football’s ‘See No Evil, Hear No Evil’ Approach to Investment

Football is not the national sport of Russia (that accolade goes to ‘bandy’, a form of ice hockey), but it is the most watched sport in that country. As such, it should come as no surprise that since the creation of the Premier League in 1992, and the huge TV and sponsorship deals that went hand in hand with it, club ownership has become an attractive proposition for those who can afford it, including Russian oligarchs.

In 2003, Roman Abramovich bought Chelsea Football Club from Ken Bates for a sum of £140m and, arguably, changed English football forever. In the 19 years since he took over, and under his patronage, he has seen Chelsea FC win multiple trophies, including five Premier League titles and two Champions League trophies (arguably the biggest competition in club football).  Nevertheless, success has come at a cost, with Abramovich reportedly having loaned the club around £1.5bn over the years.

However, Abramovich’s tenure in West London appears to have come to an abrupt end. With the conflict in Ukraine raging, Abramovich’s ties to the Russian state (he was elected to the State Duma in 1999, served as Governor of Chukotka between 2000 and 2008, and most crucially is said to have a very close personal relationship with Vladimir Putin) have seen him fall under worldwide scrutiny .  In particular, the UK Government announced on 10 March 2022 that it was imposing sanctions on Abramovich and freezing his UK assets, including Chelsea FC.  

Russian-Uzbek billionaire Alisher Usmanov, a close ally of Putin’s, who previously owned a 30% share in Arsenal FC (2007-2018) and now holds a financial interest in Everton FC, was also sanctioned by the UK government earlier this month. Everton FC announced that they have cut all ties with him.

Abramovich’s takeover in 2003 started an arms race of spending amongst clubs, with many consequently opening their doors to any ‘benevolent’ billionaire looking to invest. Technically, this should not have been a problem. The ‘fit-and-proper-person test’ or director's test, introduced into UK football in 2004 after Abramovich’s takeover, was supposed to prevent corrupt or untrustworthy people from becoming owners and directors of major British football clubs. It is safe to say its success has been limited.

Just Russian money?
Whilst the Russian invasion of Ukraine has crystallised the issue of foreign investment in football clubs, owning a football club is not just the preserve of oligarchs. 

In 2007, despite a history of human rights violations during the brutal drugs war in Thailand and allegations of corruption, Thai politician and businessman Thaksin Shinawatra was allowed to buy Manchester City FC. 

Similarly, Carson Yeung, who had been convicted of financial crimes in Hong Kong in 2004, was allowed to buy Birmingham City FC in 2009 after it was decided that the offences for which he had been convicted, namely 14 counts of failing to disclose shares he owned in a stock exchange-listed company, were not criminal offences in the UK. He was subsequently convicted of money laundering and sentenced to six years in prison in 2014. Some of the laundered funds were identified as having been used to purchase the club in 2009.

Most recently, the protracted takeover of Newcastle United FC by the Saudi Arabian Public Investment Fund (PIF), the national sovereign wealth fund, was finally completed in October 2021. Despite Newcastle United providing legally binding assurances that the Kingdom of Saudi Arabia will not control the club, the takeover has seen public condemnation due to the involvement of the controversial Mohammed bin Salman, who is the Crown Prince of Saudi Arabia and the chairman of PIF.

‘Sportswashing’
The purchase of Newcastle United led to many claims that the Saudi state was attempting to engage in ‘sportswashing’, effectively diverting attention away from its human rights record by association with a more positive brand.  Its image has been severely tarnished by its actions in the vicious civil war in Yemen since 2014, in which it has been accused of leading an indiscriminate bombing campaign targeting civilian areas, and by the murder of Saudi journalist Jamal Khashoggi in 2018.

Club ownership is not the only way for individuals to ‘launder’ their reputations. Ever since Germany hosted the 1936 Olympics, nation states have entertained ways to improve their global standing by sponsoring or hosting major sporting events. Gazprom, a Russian majority state owned energy company whose chairman is a close ally of Putin’s, has sponsored German club FC Schalke since 2007 and the UEFA Champions League since 2012 (both deals now having ended following the invasion of Ukraine).  

In 2010, Russia and Qatar were chosen to host the 2018 and 2022 football World Cups respectively. Russia’s winning bid followed the assassination of Alexander Litvinenko in 2006 and the invasion of Georgia in 2008, neither of which seemed to negatively influence the judges’ decision. In Qatar, neither a history of human rights abuses or the safety of LGBT fans or players appear to have been taken into consideration before awarding the tournament.

In 2010, Lord Triesman, the head of England’s bid to host the 2018 World Cup, resigned after being secretly recorded making allegations that rival countries had engaged in bribery attempts to secure the tournament. Lord Triesman specifically named Russia and Qatar.  Whilst the allegations were not proven, his predictions of which countries would be successful at the bidding process were accurate. 

Where does football go from here?
Football undoubtedly has a money problem. When Roman Abramovich walked into Chelsea in 2003, there were cries from many quarters - fans and journalists alike - that he ‘bought’ the club’s success and that his money had ruined the game. Whilst this is hugely simplistic (and rooted mostly in a classist ‘old v new money’ paradigm), it does beg the question of whether football is intrinsically greedy. Are the owners, directors, players and even the fans so enamoured with the thought of success that they are willing to turn a blind eye to the origins of the wealth?

Investor due diligence is a key tenet of anti-financial crime work. Identifying a potential investor’s source of wealth and funds is a prerequisite for running a regulatory compliant financial institution.  So why, for years, has football been given a free pass?  

The Premier League’s chief executive has said the organisation is reviewing the owners’ and directors’ test and looking at whether more tests need to be added and whether independent scrutiny needs to be included.  Some remain sceptical about how much will actually change, given Abramovich’s links to the Kremlin and the concerns around his source of wealth were clear to all from the start.  But ultimately, if this moment is to represent a turning point, momentum and change must come from the top.  It is unrealistic to expect clubs to apply too much scrutiny and turn away investment, thereby making themselves uncompetitive, when their peers are not and when no one is compelling them to do so. So the onus must be on the governing bodies to strengthen the regime and give it real teeth.

However, while recognising that it is likely naive to expect clubs to turn down money, the Chelsea saga does show how a permissive approach can backfire.  Like financial institutions, football clubs need to actively consider their risk appetite and what risks they are prepared to accept, and then carry out adequate due diligence to determine where funds are coming from and what the legal and reputational implications may be.  And financial institutions who bank football clubs, professional bodies and other related parties need to be aware of the sector’s vulnerabilities, and know how to interrogate and assess their clients so they can take a nuanced, risk-based approach and identify good and bad actors.

FINTRAIL Pioneer: FinCrime Guidance for Small Businesses and Start-Ups

FINTRAIL launched Pioneer in November last year to ensure all businesses, no matter how small, had access to the right support in the fight against financial crime.  Its aim is to focus on how to create a fincrime compliance programme from scratch, embed it in the company’s operations, and establish the right culture on a limited budget.  Also, it often isn’t appropriate to fixate on “best in class” or aspirational solutions if they are not achievable, proportionate or suitable.  So what do small businesses need to know about fincrime compliance, and how can they get it right from the start?