External support for remediations: When is it right for you?

Remediation programmes are often complex, protracted, and not a lot of fun. Whether it’s due to a spike of alerts, remedying control failings, or fixing regulatory findings, managing it alongside the day-to-day can be tough.

Our recent paper, ‘Follow The Yellow Brick Road: A Pathway to Successful Remediation’ highlights that a crucial part of remediation planning is knowing when to seek external support. Often firms wait too long to engage external consultancy support; things have already gone wrong, deadlines have been missed, and the pressure to deliver is high.

How to determine whether you need support

There is no one size fits all approach to managing remediation programmes. Sometimes, your remediation programme may not need a consultancy firm to assist; you may have surplus resources to deploy or the scope is small. In our paper we shared some key questions you should consider when assessing if your remediation needs external support.

1. Can you realistically balance BAU with any remediation activity required?

2. Do you have the expertise to resolve the root cause which is prompting the remediation in the first place?

3. Did current operational processes cause the remediation, and does this need to be enhanced prior to commencing?

4. Do you have the internal skill-set to run or execute the remediation?

5. Do you need access to a flexible pool of resources? How quickly can they be deployed? 

6. If you hire contractors, do you have the internal team leadership resources to manage them? 

7. What level of resources do you need - analysts, project managers, etc.?

6 best practices for remediation programmes

At FINTRAIL, we believe there are some fundamental elements to managing remediation programmes which we outline below. Working with a trusted partner means you have access to the right resources, dedicated focus and support to deliver a sustainable and successful remediation programme.

1. Do it early 

If you are considering bringing in an external firm to support a remediation project, we advise doing it early. Getting your programme structure and plan right from the outset is needed to ensure you deliver on budget and on time. We have learnt that remediations can get very complicated very quickly. Having a trusted partner to manage and troubleshoot can avoid spiralling costs and deadlines.

2. Root it out

Recent regulatory enforcements have shown that poorly managed remediation or transformation programmes can compound the original issue and lead to even more costly programmes to resolve. Remediations are often more than hiring temporary workers to clear the backlog of alerts. What comes before that is understanding and fixing the root cause to ensure that the forward-looking process is fit for purpose and, more importantly, avoid issues down the line.

3. Project management

Many heads of compliance are not project managers. While much of the role is managing different deadlines, resources and budgets, the skillset needed to deliver a remediation project differs. And more often than not, business as usual (BAU) is managed alongside remediation. Navigating remediations requires experienced teams with proven processes and methodologies.

4. Manage the narrative

This is a key theme throughout. Working with external consultants can help you define the narrative in your remediation. What are you remediating? Why are you remediating it? How will you remediate it? When will you remediate it? These are all critical components of your remediation narrative, but it's often easy to lose sight of them. Working with an external consultant can help you stick to this narrative, deal with new workstreams as they arise (they often do!), and manage the communication flow to all stakeholders.

5. Think about the end game

The relief of clearing a backlog or fixing a control is immense. But doing it without appropriate oversight and governance could come back and bite you. Managing quality through the project and having independent assurance to sign off a remediation programme is crucial. The proper oversight, challenge, and sign-off of your remediation programme will mean that you don’t need to worry about the issue rearing its head again down the line.

6. Flex your resources

Knowing how many resources you need and how to manage them can be a complicated process. What you need in phase one, will not be the same in a later phase. Different skill sets will be required at different stages, and for varying lengths of time. Having access to pre-vetted flexible resources that can be deployed at pace, and with the right skills can make a big difference on both output quality and your bottom line.

Whether you need someone to manage the project end-to-end, provide specialist advice, deploy flexible resources or provide independent sign-off, FINTRAIL supports remediation activities of different types and scales.

Why FINTRAIL?

FINTRAIL have proven experience in leading and delivering remediation programmes across the anti-financial crime lifecycle. Whether you need to redesign your target operating model, remediate CDD files or deal with a spike in alerts, FINTRAIL can provide the expertise and resource to support your remediation.

Impressive credentials: FINTRAIL is an anti-financial crime consultancy focused exclusively on the needs of global financial institutions. Our unique team of experts is drawn from the industries we support and has deep hands-on experience from leadership roles with market-leading firms.

Proven track record: We have demonstrable experience in assisting regulated entities navigate complex regulatory issues relating to customer due diligence, transaction monitoring and other anti-financial crime processes. We are very aware of the challenges the industry currently faces. We will leverage this knowledge to help you successfully navigate any remediation activity.

Tailored approach: Our approach is customised to each client’s unique circumstances, is regulatory and technology-driven, and focuses on providing excellent customer outcomes. We offer our clients pragmatic solutions to the most complex challenges. Our goal is to ensure our clients can thrive, free from the negative impacts of financial crime.

Scale and flexibility: We can assign experienced subject matter experts quickly and can rapidly deploy cost-efficient and flexible resources on demand.

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“Collaboration, Collaboration, Collaboration” 🤝

We all agree that working collectively is the only way to make headway in the fight against financial crime. To that end, FINTRAIL and the FinTech FinCrime Exchange (FFE) have been proud to participate in several industry initiatives in 2022, working with a range of private and public sector organisations.

1. The FFE has participated in the National Crime Agency (NCA) SAR Reform Programme monthly sessions, and in a number of working cells of the National Economic Crime Centre (NECC) Public-Private Partnerships.

2. In partnership with the Royal United Service Institute (RUSI), FINTRAIL has formed a ‘FinTech Financial Crime Policy Group’ which brings senior members of the FinTech community together to discuss regulatory issues which prevent them from efficiently and effectively combating financial crime. We have hosted sessions with HM Treasury, the Home Office and the Payment Systems Regulator on amendments to the Money Laundering Regulations, AML regime effectiveness and authorised push payment (APP) fraud mandatory reimbursement.

3. Also alongside RUSI, we have provided training sessions on FinTech and terrorism financing as part of Project CRAAFT (Collaboration, Research and Analysis Against the Financing of Terrorism), an academic research and community-building initiative enhancing CTF capacity across the EU.

4. We have taken part in an APP Fraud TechSprint held by the Financial Conduct Authority (FCA), and have applied to be a rotating member of the FCA’s Innovation Advisory Group next year.

5. We participate in events organised by the Singapore Fintech Association (SFA) and the British Chamber of Commerce and UK Department of International Trade (DIT) in Singapore, which have included round table discussions with the Monetary Authority of Singapore (MAS) and the FCA.
   

We look forward to continuing these partnerships and forming others over the course of 2023 💪 

If you want to learn more about what we do or would like a chat with one of our team about any of our services, please get in touch.

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FINTRAIL New Year message

Happy New Year from everyone at FINTRAIL! 

We’re excited to jump back into action and get stuck into our plans for the year.  A LOT happened in the financial crime world in 2022, and 2023 is likely to be just as busy.  

While making predictions is a fool’s game, here are some key themes we think are likely to be on the agenda this year:

• Increasing efforts to tackle fraud in multiple jurisdictions, including the UK where the House of Lords issued a report on “Fighting Fraud” and the Payment Systems Regulator introduced a plan for mandatory reimbursement of authorised push payment fraud.

• Increasingly mature and rigorous regulatory frameworks for cryptocurrency, especially following the explosive collapse of FTX in November 2022

• Evolving discussions on transparency and beneficial ownership in Europe, following the European Court of Justice’s November ruling that unrestricted public access to beneficial ownership registers violates the Charter of Fundamental Rights of the European Union

• A growing focus by regulators and industry bodies on effectiveness and outcomes over tick-box compliance

What’s happening at FINTRAIL?

Closer to home, here’s a quick overview of what we are up to over the next few months, and where we plan to focus our efforts over the coming year.

1. We’re refining our key services for financial institutions including audits, remediations, regulatory enforcement assistance, and target operating models. As ever the focus will be on innovative tech-driven approaches that focus on demonstrable and effective outcomes as well as regulatory compliance.

2. We will continue to work with and offer services to RegTechs and other vendors servicing the financial sector, covering advisory support, regulatory and market research, and the production of financial crime thought leadership including white papers, blogs, multimedia content, and webinars.

3. We’ve been developing a suite of off-the-shelf products for smaller or scaling financial institutions. So far we have launched transaction monitoring keyword lists, merchant category codes list, standard industry classification list, and outline AML / CTF policy. Keep an eye out for new releases including an MLRO report template and board reporting pack.

4. And finally, come and join us at one of our upcoming events! We’re hard at work on the plans for our annual conference in May - FFECON23, as well as a webinar on regulatory enforcement trends in January, an FFE social event in February, and a bootcamp on financial crime investigations in February / March.

We look forward to engaging with our wonderful network of clients, partners and friends in the coming months and wish you all a very prosperous and successful 2023!

If you want to learn more or would like a chat with one of our team on what 2023 holds for your financial crime team, please get in touch.

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AML Challenges for FinTechs: Insights for the Future

Discover what AML challenges are currently at play, the trends that shaped 2022 and what to expect in 2023.

A new white paper from Refinitiv, produced in collaboration with FINTRAIL, unpacks some of the key AML challenges facing fintechs today, and explores how companies in this evolving sector can best manage AML compliance.

Based on exclusive interviews with experts in different fintech industries and geographical markets, this paper provides practical insights and advice for navigating the current and emerging challenges in the AML space.

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Why AML Needs AI: Debunking the Myths for FinTechs

Download the exciting new white paper, ‘Why AML Needs AI: Debunking the Myths for FinTechs’, co-authored by FINTRAIL and Resistant AI.

We debunk some of the common myths around AI adoption, discuss the benefits AI can bring to firms of all sizes and offer practical guidance for achieving concrete outcomes.

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Rapid Fire Remediation Q&A

Remediations are challenging, often pushing financial crime teams beyond their capacity and immediate capabilities. Many firms need additional resources, support and guidance throughout the process. And the same key questions are repeatedly asked.  

To tackle this, grab a cuppa and let’s chat about all things remediation in this rapid fire Q&A. In five questions, James Nurse, Managing Director at FINTRAIL and Ian Christie, Senior Resourcing Consultant, answer your most pressing remediation queries.

Q1. What types of remediation programmes can FINTRAIL support?

At FINTRAIL we cover the full spectrum of remediation issues, whether that be issues with controls and associated enhancements, backlogs, or adapting requirements across BAU processes and first line activities. This could be new customer due diligence backlogs but also existing customers’ periodic reviews, trigger files and EDD files. We also remediate activities associated with ongoing customer management such as transaction monitoring, suspicious activity investigations and reporting, and customer screening activities for sanctions, adverse media and PEPs.

Q2. What are the various stages of preparing for a remediation project?

Before you even dream of starting a remediation, the big question is ‘What caused the remediation in the first place?’ You want to conduct a thorough gap analysis on two main elements. Firstly, ‘Is the current operational process fit for purpose?’  Secondly, ‘Is the data that you're working with in a fit state that can actually be used?’  

Once you're done this you can then think about producing procedures, workflow and training materials, and putting together a test squad in order to run the process to make sure it works and you’re getting quality output from the start.

I guess for me, it's the planning piece - making sure you understand the root cause of the issue before you dive in, but also your plan of attack to resolve it. Without proportionate planning you don't set yourself up for success. Making sure you've understood the scale, timings, how long things take, and quantifying this into an actual plan in terms of how much resource you will need.

Q3. How do you take steps to ensure a remediation project is successful?

There are a few key aspects that you need to consider when approaching your remediation.

1. Open and clear communications with the team and keeping everyone updated on progress.

2. Setting process, procedures and goals from the start, which need to be well tested and robust.  

3. Ensuring that targets are achievable and are tracked throughout. 

4. Managing potential blockers quickly and effectively to stop bottlenecks. 

5. Having brainstorming sessions with the team to get feedback on any improvements and embed if possible.

Q4. How does FINTRAIL ensure clients are in the best place during a project?

During the project we allow an element of flexibility in the resourcing. We offer flexible resourcing that can be scaled up or down as needed. It allows spikes to be managed before they get too high. Sometimes you need more staff to manage the alerts or manage the output itself. 

Ultimately, it’s about working with the client to optimise processes, helping out on configuration activities to reduce false positives and be effective and efficient, whilst still identifying and managing the key controls and risks they need to look at.

Q5. Who manages the remediations projects and how do you ensure they are a good fit for your clients?

We have an experienced and pre-vetted bench of over 200 seasoned financial crime professionals ranging from operations managers and project managers, to analysts and investigators with FinTech, payments and banking backgrounds, across multiple jurisdictions and with a wide range of language capabilities. We maintain that bench on an ongoing basis with up-to-date CVs and targeted interviews to ensure everyone has the skills and experience that align to the project and the firm that we are working with.

Find out more about our remediation and flexible resource services and keep an eye out for more upcoming remediation guidance!

FINTRAIL has proven experience in leading and delivering remediation programmes and providing flexible resources across anti-financial crime programmes. Whether you need to redesign your target operating model, remediate due diligence files or deal with a spike in alerts, FINTRAIL can provide the expertise and resources to support your remediation.

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Black History Month: Reflections for Inclusion

Here in the UK, October is Black History Month. We at FINTRAIL are constantly reflecting on ways that the anti-financial crime industry can and should actively support diversity, inclusion, and social justice. As the gatekeepers of finance, we are responsible for upholding inclusive values and ensuring our practices work actively toward eliminating racism and discrimination.

A snapshot of the problem:

• Within FinCrime teams: according to an industry survey, two in three UK finance workers from black and minority ethnic backgrounds have suffered discrimination in the workplace.

• Accessing financial products and services: The proportion of black or ethnic minority UK consumers who don’t have a current account is twice as high as white consumers - 4% compared to 2% in 2020.  In the US, nearly half of black households are unbanked or underbanked.

• Treatment from financial institutions: In the UK, one study found that black victims of fraud were more than twice as likely to be denied a refund by their bank than white customers.

How we can work towards a solution:

There are many increasingly complex issues surrounding race and discrimination in the finance industry, and there are no easy solutions. However, we have identified the following areas in which the FinCrime sector can aim to make a difference.

• Diversity in hiring and inclusion within FinCrime teams. Actively hiring and recruiting diverse teams is an essential step in championing inclusion. It can reduce bias, as evidenced in data science teams, and overall makes teams stronger. Check out our blog post with actionable tips and insight on hiring diverse and inclusive FinCrime teams.

• Financial inclusion in anti-financial crime policies. When it comes to customer risk assessments, or reviewing and investigating screening hits or transaction monitoring alerts, ensure procedures and processes are free from prejudice and don’t inadvertently single out or impose restrictions on certain groups. Check out the FinCrime Principles of Inclusion designed in partnership with Tech Nation for practical guidance when designing or assuring your anti-financial crime framework.

• Recognising and mitigating biases within ID&V solutions. Facial recognition algorithms are not universal in their classification accuracy. In fact, the poorest accuracy is within Black female subjects between 18 to 30 years old. Recognising these biases and limitations, as gatekeepers to the financial system financial institutions must engage with ID&V solution providers to ensure they are working to ensure fairer outcomes.

• Amplifying diverse voices. When organising an event like a conference or webinar, consider the diversity of speakers. To whom are you giving a platform? Is there enough diversity in the representation of speakers? Sadly non-diverse panels and speaker rosters remain extremely common, though there are plenty of great speakers out there from a broad range of backgrounds, as well as groups dedicated to supporting these individuals who can provide recommendations and inspiration.

We are committed to continuously reflecting on how we as consultants support diversity and inclusion in the FinTech community. While there is unquestionably always more we can do, we hope the sector can use this opportunity of Black History Month to reflect on the inequalities that persist, successful initiatives already underway, and actions that we must take going forward to support a fairer industry.

Do you have any initiatives, suggestions, or ideas on how to champion anti-racism in the anti-financial crime industry? Please send us a note at contact@fintrail.com.

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Winter is Coming: How Financial Crime Thrives During a Recession

Economic recession.  An impossible living crisis.  Unprecedented inflation. 

Not just alarming media headlines, these forecasts carry severe consequences for the most vulnerable in society. More extreme economic conditions lead to more extreme behaviours, and so as the situation deteriorates, anti-financial crime teams are likely to see an uptick in criminal activity. Through analysing current trends and near-term predictions, financial institutions (FIs) can strategically prepare their compliance teams as the world gears up for an economic winter. 

History repeating itself

Small-scale financial crimes appear to thrive during a downturn. Historically mortgage fraud, identity theft, and employee-related schemes have all increased during economic recessions, including the 2008 Great Recession, as have other smaller-scale frauds and scams. In the UK, the fraud prevention service Cifas has already noted the higher risk of criminals targeting loan products and deferred credit services, motivated by the economic downturn.

More recently, the economic decline at the start of the pandemic witnessed enormous amounts of fraud from robocalls, text and email phishing and smishing. It also saw huge volumes of online fraud, with a plethora of get-rich-quick schemes from cryptocurrency investment scams, non-fungible token (NFT) rug pulls, and multi-level marketing schemes (MLMs) abounding. Stuck at home, people turned to the internet in droves and became susceptible to too-good-to-be-true schemes to make money online. As the economic situation deteriorates, we can expect similar types of fraud to come to the fore again.

Consequences of economic hardship

Looking towards the end of 2022 offers a grim picture, with inflation skyrocketing across the globe. Impacted by the Russia-Ukraine war and the hangover from the COVID pandemic, inflation recently reached 10.1% in the UK and around 8.9% in the eurozone. The increased cost of living means people have more difficulty making ends meet. 

The consequences of economic hardship have two angles. On the one hand, individuals are more likely to fall victim to illegal lending services or other fraudulent schemes. On the other hand, they may be more drawn to commit financial crimes themselves to stay afloat, such as fraud or money muling. One way of understanding this is by using criminologist Donald R. Cressey’s fraud triangle which showcases the three components that lead to fraud. In times of recession, financial hardship provides the motivation pushing previously law-abiding people towards crime.

With that context, here are three financial crime predictions for the upcoming economic storm:

1. More fraud

Unsurprisingly, economically stretched individuals are more likely to turn to fast ways to make cash. Individuals looking for side hustles to supplement their income may be duped by scammers operating on popular freelancing platforms like Upwork or Freelancer.com, coaxing people to go off the platform and use peer-to-peer cash transfer apps instead. Another type of fraud likely to see an uptick is advance or loan fee fraud, where customers are instructed to pay a fee in order to access credit they will never receive. 

Money mule schemes disguised as legitimate jobs are also likely to spread through internet job sites, unregulated online forums, and Facebook groups. While reports posit that money mules victims are more likely to be under the age of 35, including children under 18, there has also been an increase in middle-aged mules, shifting assumptions about who will participate in these types of crimes. FIs should remain diligent in detecting money muling activity and be aware of changes to the demographics of potential mules.

2. More loan sharks

As individuals are pushed to their financial limits, illegal lenders that target the poorest and most vulnerable will increase their operations. These unlicensed lenders, which are illegal in the UK, charge extremely high-interest rates and use intimidation and other tactics to retrieve payments. Perpetrators can take many forms, from individuals to community-based lenders. On average, loan shark victims take nearly three years to come forward after borrowing, meaning it will take time to understand the impacts of the latest recession. However, a recent March 2022 study warned that one million people are estimated to be using illegal loan sharks in England. 

Since the financially excluded are more susceptible, FIs should assess how their policies impact financial exclusion.  They should also ensure they have channels available for people who are struggling to repay loans or credit cards, so that they can receive appropriate support rather than turning to illegal lenders.

FINTRAIL Highlights: FinCrime Principles of Inclusion

Financial exclusion affects countless individuals worldwide, with an estimated 2 billion persons being unbanked globally. As anti-financial crime professionals, how do we carefully consider our controls and understand how they impact those who vitally need access to the financial sector?

As anti-financial crime professionals, we must do more to proactively support financial inclusion and ensure the controls that we design do not inadvertently disadvantage those who need access to services the most.

To check out the FinCrime Principles of Inclusion, click here.

3. Possible increase in human trafficking

Drastic economic conditions can make people desperate, liable to take greater risks. The most recent global human trafficking report by the United Nations Office on Drugs and Crime posits that an economic downturn will increase the number of potential human trafficking victims as vulnerable people are targeted by criminals. A similar trend was observed during the last recession in 2009. From forced labour schemes to sex trafficking, FIs should be on alert for typologies related to human trafficking.

How to plan ahead

Winter is coming, and so is an economic downturn. Economic decline stokes uncertainty, fear, and desperation — all of which criminals prey on.  Sadly financial crime itself is recession-proof, and is likely to thrive in the near future. Since declining economic conditions in the UK are predicted to worsen at the end of the year, coinciding with holiday seasons that already put a financial strain on most households — factors contributing to fraud and other types of financial crime will become even more aggravated.

Here are some actions for FIs to plan ahead for the economic winter:

• Be aware of changing risk profiles and fortify your firm’s controls accordingly, particularly regarding money muling and fraud, and identifying and supporting vulnerable customers. 

• Plan ahead for additional compliance or anti-money laundering capacity during traditionally busy year periods. Interim support can help you efficiently respond to spikes or intense periods of activity.

• Review your customer monitoring and assess if the evolving economic conditions require changes. Now is a good time to do some targeted assurance on your systems and rules.

At FINTRAIL, we’re here to support you in planning for the changing conditions of the upcoming economic winter. We combine deep financial crime risk management with industry expertise to help you organise flexible capacity and provide interim support; conduct systems testing and targeted assurance or health checks; and provide context-based training to your teams. 

Get in touch to find out how we can help you weather the financial crime impacts of the economic downturn.

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From the Mouths of Babes: Are Young People Aware of Financial Crime?

At the start of a new academic year, we are asking ourselves a question - what can financial industry practitioners, educators and government authorities learn about teaching young people about financial crime? This topic has sparked a lot of interest in the FFE community when we’ve raised it before, most notably in one of our most popular FFECON sessions, with the VICE journalist Obi Juwah (available to watch on demand).

We’re revisiting this topic through the eyes of a student - Stefan Wlodarczyk, who recently completed a stint of work experience at FINTRAIL. We asked him to investigate what students his age know about financial crime, particularly money muling.

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Stefan:

Financial crime is an increasingly common problem, with younger generations becoming more and more at risk. As a 15-year-old secondary student doing work experience at FINTRAIL, I investigate whether my generation is even aware of these risks.

To provide some background:

• The UK’s 2020 National Risk Assessment of money laundering and terrorist financing states that there were 42,482 suspected cases of mule activity in 2019, a 32% increase since 2017. 📈

• The National Risk Assessment recorded cases of children as young as 13 and 14 being approached on the playground to carry out these operations. 🚸

Teenagers through to university students are being recruited to become mules via social media. 📱Social media has the greatest influence on younger generations since it has become such an ingrained part of society. This makes it so dangerous, and so easy for people to become accidentally involved in money laundering.

Furthermore, the recent COVID-19 pandemic exacerbated the number of financial crime cases due to more people being online. 

In 2020, the European Money Mule Action EMMA6 programme identified at least 227 money mule recruiters who recruited over 4,000 mules. According to Cifas, cases of under 21-year-olds being used as money mules fell by 12% in 2020 compared to the previous year, which is still a 27% higher number of cases than in 2017. The change may be due to lockdown restrictions which forced teenagers to stay indoors rather than being recruited to carry out mule work.

The survey: Are younger generations aware of money mules?

I interviewed ten people around my age (15) from four different schools to explore this further.

1. Have you received any education regarding financial crime?

Three out of ten students (30%) said they had received financial crime education, two of them went to the same school. 70% said they had not received any education about financial crime. This is despite Cifas and the PSHE Association (the national body for Personal, Social, Health and Economic education) creating an Anti-Fraud Education campaign targeted at 11-16 year olds.

2. Do you know what money muling is?

Four out of ten respondents said that they knew what money muling was. Out of the four who said yes, three had received education on financial crime.

3. Where did you learn about money muling and financial crime?

Out of the four respondents who knew about money muling and financial crime, three said they learnt about it at school, and one said they had learnt about money muling on YouTube. 

4. Have you ever seen an advertisement for money muling on social media?

All respondents said no. 

5. Have you ever been approached by someone asking you to use your bank account (if you have one)?

Again, all respondents said no.

6. Have you ever been a victim of fraud linked to social media (e.g. purchase of goods which never arrived, or arrived and did not match the description)?

Only one out of ten respondents said yes. This student frequently uses eBay to buy and sell items, and has been a victim of authorised push payment fraud (being deceived into authorising a payment to a criminal).

7. Have you ever been encouraged on social media to invest in cryptocurrency or any other high-return investments?

Five out of ten respondents said yes to this question, having seen adverts on the internet rather than actually being approached directly on social media. However, I am fairly confident that at least one respondent was actively encouraged to invest.

8. What social media platform do you believe is the most likely to expose you to financial crime?

Five respondents said they believed that Instagram was the social media platform most likely to offer exposure to financial crime, and four said they thought it to be Facebook/Meta. 

The results

The results of my survey show that most (70%) of the respondents have not received any education on financial crime.  One respondent stated:

“To be honest, our school doesn't teach us anything on finance stuff.”

Interestingly, of two people interviewed from the same school, only one of them said they had received an education on this topic, which they had received the same day I conducted the survey. 

Consequently, all students who received an education on financial crime knew what money muling was, yet of those students that did not receive this education only one knew what money muling was. This is because they had seen a video on YouTube about the topic, demonstrating how effective social media can be at spreading information (or encouraging people to become mules).

Thankfully none of my respondents said that they had seen adverts encouraging money muling, or had been approached to become one. Unfortunately though, one respondent said they were a victim of fraud.

“I was dumb enough to send someone money, but the product never arrived. The bank said that I had been scammed, and they gave us our money back.”

The results of question six (on high-risk investments) may be skewed by legitimate online advertisements or social media influencers encouraging people to invest, rather than shady offerings. Although one respondent said,

“A lot of scammers on YouTube are promoting their apps for investment.”

Noting this, I would recommend more research into this area, and the impact of this.

My last question on which social media platforms are most likely to expose users to financial crime had interesting results with Instagram and Facebook/Meta being most commonly highlighted. During my interviews, Instagram came under fire for allegedly having “a lot of ads'' that were “really fake”.  Interestingly, one respondent said that they believed that YouTube is the riskiest regarding exposure to financial crime due to the large amount of adverts put out by influencers encouraging people to invest in their apps or programs.

Is enough being done?

Personally, I don’t think enough is being done to educate teenagers and younger children on financial crime risks. I cannot remember ever being taught about this at school, and I only first learned about it by watching a documentary on money muling and from my work experience at FINTRAIL. 

The UK government and some financial organisations have released educational resources such as the Don't Be Fooled programme, yet they do not appear to have reached their targeted audience. The reason seems to be because money muling and financial crime isn't exactly a topic that teenagers are interested in or actively seeking out information on.

School is an important educator in spreading awareness about financial crime.
One student I interviewed wasn't happy about the level of education he received. He said, “I did it [finance] at the start of Year 10, and I don't remember much of it. We’re getting weighed down by exams and tests; we need lessons that refresh consistently on that stuff”.

In my opinion, the logical solution would be to designate personal, social, health and economic (PSHE) sessions at schools in the UK to educate students on this hugely important matter. However, I think that it shouldn’t just be one-off lessons but, as suggested by one respondent, “repeat [these] important topics every year”.

Looking ahead: Beyond secondary school students

The problem goes beyond secondary students. A Nationwide Building Society poll found that 56% of university students (compared to 60% of secondary students) did not know what a money mule was. The high percentage illustrates a failure to properly educate students on financial crime issues. The same study states that 61% of the students believed they were susceptible to such advertisements, and 37% admitted that they would respond to or click on such advertisements. 🤯

I believe that in addition to more education, social media companies themselves should do more to prevent mule handlers from recruiting mules in the first place. They can do this by regularly screening users with suspicious hashtags or other indicators similar to “make money quick” in order to see if the user is actively attempting to contact potential victims. 

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FINTRAIL's Final Thoughts

• There is a real need for greater awareness of financial crime, along with a host of other financial topics, among young people. However, given the competing demands of the school curriculum, the logistics of how to deliver it are clearly a challenge.

• There have been educational campaigns for young people on the risks of money muling and fraud, but they do not seem to have had real impact. Without redesigning the wheel, educational bodies and government authorities should consider the best ways to reuse this material and more effectively raise awareness amongst young people. Static, text-based campaigns focused on the classroom may not be as effective as countering fraudsters and recruiters on their own turf, namely social media.

To read more about money mules and their use of social media and common typologies check out FINTRAIL’s blog posts here. 

If you want to get in touch for dedicated money mule training or create educational materials, give us a shout at contact@fintrail.com.

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Green Gold: How Mexican Drug Cartels are Profiting From Avocados

Earlier this year, a US health inspector at a Mexican avocado plant received a verbal threat over the phone. Mere days before the Super Bowl (where guacamole is an indisputable tradition), the US responded by temporarily suspending avocado imports from their biggest trading partner, Mexico. 🇲🇽

A ban on operations is no light matter. In 2020 Mexico’s avocado exports were valued at $3.2 billion, of which 79% went to their northern neighbour, the US. While the short-lived ban has since been lifted, the security incident is a sobering reminder of what and who is at play in the lucrative avocado industry. More specifically, multiple drug cartels have diversified their operations to infiltrate and profit from the iconic fruit known as ‘green gold’, creating a surprising link between avocados and organised criminal organisations and leading to one newspaper dubbing avocados “the world’s new conflict commodity”.

Why avocados? 🥑

Rising in global popularity, avocados have significantly benefited from positive marketing campaigns and favourable trade treaties. The game-changing 1994 North American Free Trade Agreement (NAFTA) allowed the avocado-hungry US to import Mexican-grown avocados, significantly increasing consumption. Subject to USDA sanitary regulations, the state of Michoacán became the primary exporter of the nutrient-dense fruit, with climate-ideal attributes like rich volcanic soil and high rainfall. These favourable conditions make Mitchoacán the avocado capital of the world.

Alongside its vibrant culture and beautiful varying landscapes, Mexico is known for its extremely violent drug cartels, emerging from a long, contentious history steeped in the war on drugs. As a result, the far-reach of Mexican cartels has permeated many aspects of society and industry, with the agricultural sector not being immune. As opportunistic cartel members have recognised the profitability of avocado growing, they have become more involved. Avocado producers, transporters, and packers are routinely subject to extortion. Cartels even use government databases to find, extort, and kidnap avocado farmers. In some instances, cartels directly take over the farming lands, becoming ‘informal owners’ of the fields or installing avocado orchards on protected woodlands. They ensure they get their share of a thriving industry using force, intimidation, and violence.

Diversity in Business 📈

Running like multinational corporations, cartels are profit-oriented businesses. While their activity is incredibly violent, Mexican cartels have sophisticated operations intertwined with different industries. Beyond avocados, cartels have been involved in several other agricultural sectors. For example, Mexico’s favourable climate makes it one of the largest producers and exporters of citrus fruit, and unsurprisingly drug cartels are keen to cash in. They exploit the rich industry by purposefully limiting the number of fruit produced to artificially manipulate prices and increase their market value, then demand a share from producers. Experts suggest that limes, berries, and other products have risen in price since Mexican cartels have become involved.

Business opportunists like the El Cartel de los Quesos, which moved contraband cheese between Honduras and El Salvador, and The Knights Templar, which has been involved in taxing the Mexican iron ore industry, all exemplify the diversification of gangs from the drug trade. More diversified cartel involvement means that extortion is an increasing daily reality across more and more sectors. From small-scale agricultural producers of high-demand fruits to high-end hotels and restaurants in tourist areas, evidence of routine shakedowns is noticed throughout the country.

FINTRAIL highlights: Narconomics: How to Run a Drug Cartel by Tom Wainwright

Exposing how cartels operate using a framework suited to a multinational corporation, Wainwright explores and investigates Central America’s drug cartels in a captivating narrative. An editor at The Economist, Wainwright combines journalistic flair with business analysis to innovatively apply principles such as supply management, human resourcing, franchising, and offshoring to understand some of the most notorious crime groups on earth.

To join FINTRAIL’s monthly FinCrime Book Club and discuss other great books with like-minded fincrime enthusiasts, click here or get details of the next meeting here.

Laundering the ill-gotten gains 🧺

How do Mexican cartel members conceal these illicit gains? Much like any other predicate crime, the proceeds of extortion (a recognised predicate offence by the EU’s 6AMLD) or other dirty money can follow complex money laundering schemes and be commingled with legitimate business. Owning businesses like avocado or lime farms, restaurants, and export or trucking companies allows gang members to launder money and also smuggle illegal substances into other countries.

Historically, we know that the financial sector has been ineffective at tackling drug cartel activity through the application of proper anti-money laundering controls. As demonstrated by the infamous HSBC scandal and the more recent Wells Fargo involvement in aiding the Sinaloa cartel, negligence by financial institutions has undoubtedly helped facilitate brutal criminal gangs. Even for institutions trying to do the right thing, the gangs’ wide variety of economic activities confuse the picture, as does the use of sectors not generally seen as high risk.

Conclusion 📌

For financial institutions serving clients with a footprint in higher-risk jurisdictions or operating in higher-risk industries, awareness of jurisdictional nuances and transaction-related red flags, plus an understanding of trade-based money laundering, is paramount. It is also important to consider the potential ESG and reputational risks of servicing companies that source avocados and other ‘conflict commodities’ from high-risk areas.

At FINTRAIL, we combine deep financial crime risk management with industry expertise to help you optimise your anti-financial crime programmes. We’re here to support you in creating robust policies and procedures; refining, enhancing or testing your systems and processes; and providing context-based training to your teams. Get in touch to find out more.

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11 Tips to Make Sure Your Next Audit Goes Smoothly

‘Audit’ can be an intimidating word, and the process is one that people don't often look forward to - or proactively manage as best as they potentially could.

Anti-financial crime audits, whether they be external or internal, are an expected part of a firm’s three lines of defence - but more importantly, a key part of the assurance cycle.

They don't have to be an uphill struggle, though. FINTRAIL’s audit and assurance experts have shared some of their best practices and tips for getting the right auditor in and managing the process effectively.

1. Define scope
It may sound obvious, but make sure you have a defined scope with your auditors so you understand what FinCrime topics they are covering and how. This should also align to your local regulators’ and banking partners’ expectations.

2. Be aware of regulatory changes
Regulatory audit changes are a constant battle for everyone, but it’s important to stay on top of them. Knowing what has changed since your last audit and whether you have implemented it will certainly be a question for most auditors.

• Check out our Audit Regulations Guide to gain insight into key regulatory changes, emerging areas of regulatory focus and regulatory enforcement trends.

3. Be prepared
Much of the work we do in FinCrime is often reactive, but as you’ve organised the audit, you can be prepared for it. For instance:

• Does your senior manager know they are going to be interviewed?

• Are the team aware they will be involved in thematic sessions/testing?

The more planning you do, the better the outcome will likely be.

4. Honest self declarations
Within any kick-off session or self declaration session, try to be honest about the current situation. If you have a gap in your AFC framework, the likelihood is your auditors are going to find it. It is better to be honest with obvious gaps you are aware of and be able to demonstrate you are taking proactive measures to resolve them.

5. Collaborative, not combative
This point refers to both parties. There is no need for either side of the table to create a combative environment. Ultimately, a good auditor wants to provide you with useful information on where you need enhancements. This can be done in a considerate way without intimidating the life out of your analysts.

6. Practical recommendations
In our view at FINTRAIL, a good audit report will not only highlight areas of deficiencies, but also elaborate on expectations of how to resolve the issue. Just telling you that you do not meet line 1.3.11 of the AML Regulations or line 2.4.7 of the Bank Secrecy Act isn’t actually that helpful! Don’t by shy about asking for practical recommendations to resolve issues.

7. Auditor profiles matter
Do you actually know who is conducting the audit? Many regulators talk about fit and proper tests for those in regulated roles, but it’s reasonable to expect that your auditor is qualified for the job as well.

8. Be mindful of time
Make sure you have a full understanding of how long your FinCrime auditors are spending through the process. Whilst a short, light touch audit may sound good in principle, the likelihood is they are going to miss something.

9. Challenge findings
It is perfectly acceptable to challenge your findings or the rating of the findings. You should have a closing session with your auditors and make sure you come prepared with evidence why you disagree - just telling them you don’t agree is not going to be sufficient justification for closing a recommendation.

10. Opportunities for budget and project approvals
Audits are a perfect opportunity to provide justification to your management of where more budget is required for a new tool or more headcount.

11. Track your findings
Once your audit is complete, make sure you track your findings, allocate them to someone specific, and prioritise them against the ratings provided. Auditors know you won’t be able to do everything at once - but come the following year, you will need to be able to present sufficient progress against closing last year’s findings.

Selecting the Right Audit Partner

By following these tips, you’re likely to have a smoother, more efficient experience during your next audit. But of course, who you choose to work with will also determine the outcome.

FINTRAIL’s audit professionals come from the very industries we support - they have extensive experience in auditing the financial crime and compliance controls within electronic money, payment institutions, virtual asset providers and innovative financial service businesses.

To find out more about how we can support your audits and assurance requirements, get in touch with our team.

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Know Your Associates: The Need for Enhanced Due Diligence Investigations

FinTechs are used to conducting enhanced due diligence (EDD) on customers as a matter of course - to meet their KYC obligations and to identify red flags. But what about their own business operations? How confident are they that they know who they’re partnering with, where their money is coming from, and who’s getting involved in their business?

There are several scenarios in which FinTechs should seriously consider conducting EDD investigations into investors or business associates. These include:

Why are enhanced due diligence investigations important?

What do we mean by EDD investigations? The kind of research called for in these cases goes a long way beyond standard watchlist and adverse media screening. We have seen countless cases of subjects with chequered histories that raise serious red flags sail through screening. When managing high-risk customers, screening is generally the most appropriate option - you can’t conduct bespoke investigations on each customer. But when you are embarking on a one-off acquisition or conducting a funding round worth millions of pounds, there is the opportunity and the expectation to go further.

Cautionary Tales: The need for Enhanced Due Diligence

UK EMIs
Transparency International UK published a report in December 2021 which found that more than one in three UK registered electronic money institutions (EMIs) had money laundering red flags relating to their owners, directors or activities. These included:

• Individuals named in money laundering allegations and investigations
• Individuals with close links to high-risk firms in Russia and Ukraine
• Individuals with question marks over their suitability to run an FCA-authorised firm

Money Laundering Arrest
In 2020, UK peer-to-peer lender Zopa found itself in the news when board member Kapil Wadhawan was arrested as part of a $420m money laundering investigation. Wadhawan had co-led a £32m investment in Zopa which secured him a seat on the company’s board in 2017. He was arrested in January 2020 in connection with a money laundering probe in India, and subsequently had to resign his position at Zopa.

Kremlin Connections
Israeli-Russian billionaire Yuri Milner has invested in numerous FinTech companies in the US and UK, often through venture capital firm Digital Sky Technologies. In February 2020 he led a funding round worth tens of millions of pounds into the British start-up online mortgage broker Habito.

In 2017, media coverage of the so-called Paradise Papers reported that Milner’s investments in Facebook and Twitter used funds from two Kremlin-owned and now sanctioned Russian firms, VTB Bank and Gazprom. The origins of the money was reportedly obscured by shell companies.

Takeaway: In the thrill of securing financing, it can be tempting not to scrutinise potential backers too closely. However, as these case studies show, this is a potentially risky area and companies mustn’t be afraid to ask questions. Investors with poor reputations can affect portfolio companies’ credibility and their ability to raise capital in the future. And in the worst case scenario, target companies could even find their investors or directors are involved in criminal proceedings, or discover that an investment consisted of illicit funds.

What Does an Enhanced Due Diligence Investigation Include?

EDD investigations provide a full picture of a subject, allowing firms to really know their counterparties and to understand their backgrounds and source of funds.

• Background, track record, modus operandi and reputation of the counterparty

• Thorough review of corporate records, seeking to confirm information presented and even complex ownership structures, and to reveal any undisclosed beneficiaries or hidden interests.

• Details of civil or criminal litigation or other regulatory or legal proceedings, which are often publicly available but not discoverable through standard screening searches

• Details of any business disputes, or improper or illegal conduct

• Any political exposure or relations with government officials, beyond that captured in PEP screening lists

Download our EDD Services Summary Sheet to learn more

A full enhanced due diligence investigation involves in-depth research of both the surface and deep web (gated, subscription-only and database sources) ideally using a mix of advanced AI tools, including sophisticated natural language processing, and expert human analysis. It may require research in multiple languages, the manual retrieval of records in jurisdictions where these are not available online, or consultation with vetted human sources.

Unlike routine customer due diligence, such investigations should be bespoke and allowed to develop based on the findings - there is no one-size-fits-all approach, as the information required and the research conducted will be different in each case. This calls for experienced investigators who know how to appraise findings critically and when to follow a lead, pursue a hunch, discount information or revise a theory.

Case Study: High-risk Investor

FINTRAIL conducted a series of EDD investigations on potential investors on behalf of a UK-based FinTech. One of these investors was a businessman from Zimbabwe who had built his career in the high-risk telecoms sector. Moreover, he was a former associate of a high-profile African billionaire with top-level business and political connections.

FINTRAIL confirmed that the subject had a credible track record in the telecoms sector and was likely to have the funds for investment due to his previous career. We identified no noteworthy allegations of corruption or criminal behaviour. The subject’s companies had undergone financial failures and civil lawsuits, but we assessed these were the result of mismanagement and poor commercial decisions at an early stage in the subject’s career, as well as bad fortune with macro-level economic issues. We also investigated the subject’s current relationship with the billionaire and the latter’s political status, and confirmed that he had a remarkably sound and unblemished track record and reputation.

FINTRAIL contextualised the high-risk nature of the telecoms sector and the African jurisdictions in which the subject operated, and analysed the negative media reports around his companies. With this information, the FinTech was able to be confident there were no credible reputational issues or indications of criminal or unethical behaviour, and that the subject was within its risk appetite as a potential investor.

Case Study: Russia-Related Red Flags

FINTRAIL conducted open source analysis of a Russian venture capitalist looking to invest in a UK FinTech, focusing on his background and reputation, political connections, and links to known high-level scandals, including the Russian and Azeri Laundromats.

Our experts uncovered concerns about the subject’s source of wealth and modus operandi: he had political connections to the Kremlin, held business interests in opaque jurisdictions through apparent shell companies, and had unexplainable UK corporate interests. We used our in-depth expertise of Russia to contextualise the findings and profile the individual concerned, navigating the fact his media profile was limited as his political connections likely shielded him from overtly negative scrutiny in the Russian-language press.

While there was no evidence to show the subject was directly involved in criminal activities, the various red flags and reputational concerns convinced the FinTech to reject the investment - a disappointment in the short term, but likely a prudent decision in the long run.

Case Study: Sanctions Investigation

A UK-based financial institution asked FINTRAIL to conduct an investigation into a group of high-risk customers named in an OFAC sanctions investigation. They needed additional information beyond their standard EDD process, and an independent assessment of their existing controls.

Working closely with the client, FINTRAIL provided:

• in-depth information on the state of the sanctions investigation and the customers’ role in the underlying transactions
• a review of the client’s existing due diligence measures, and suggestions for enhancements and additional measures
• a view on whether the firm could be comfortable continuing to do business with the customers.

FINTRAIL confirmed there was no reason the firm should have deduced that the customers were involved in illicit activity, specifically any complicity in sanctions evasion. We opined that the firm was taking appropriate measures to limit and manage its risks, but that it may ultimately decide the customers were outside its risk appetite given the threat of future investigations and the reputational risk and operational costs associated with these relationships.

How FINTRAIL Can Help

At FINTRAIL, we combine deep experience in financial crime risk management with proven due diligence capabilities to provide clear, actionable, risk-focused intelligence using advanced analytical skills and data discovery tools. We contextualise all findings using in-depth knowledge of the countries and sectors concerned, including geopolitical context. We keep you updated of our findings throughout, and deliver comprehensive final reports with network diagrams and visuals where appropriate.

What makes us unique and sets us apart from other intelligence and due diligence providers is that our team is drawn from the industries we support, and has extensive experience of risk management processes within financial institutions. We provide intelligence by compliance officers for compliance officers. We understand your needs and operational considerations, and can supply you with the targeted, relevant information you need alongside informed recommendations and advice to produce actionable outcomes, guided by your own risk appetite and decision-making framework.

To learn more about how we can help with your requirements - whether it’s a one-off report or outsourcing complex casework - please get in touch with our team.

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Read more: Investor Due Diligence - A Two Way Street

FFECON22: A New Reality for AFC Review

This year marked the fifth iteration of FFECON, bringing together a diverse set of speakers to share insights on the new landscape of financial crime in 2022.

The Business of War: Inside the Global Arms Trade

Andrew Feinstein, Executive Director of Shadow World Investigations, Investigative Writer, Broadcaster, Researcher and Campaigner, gave a captivating talk on the most corrupt of all trades. The arms trade accounts for 40% of corruption in all global trade. Casting light on the highly secretive industry that operates under national security and whose bribes play a crucial role in financing political systems, Andrew discussed some of the far-reaching and devastating socio-economic costs. In order to combat this corruption stemming from the weapon industry, accountability, transparency, and awareness is badly needed  — starting with exposure and simple legislation.

Friend or Foe: The Impact of Anti-Financial Crime on Human Rights

A riveting panel discussion led by Maya Braine, Managing Director, Head of Insights, FINTRAIL touched on the diverse ways anti-financial crime and anti-corruption measures impact human rights, with case-studies from Nigeria and Russia. From the exaggeration of terrorist financing risks in the non-profit sector and harsh applications of FATF’s Recommendation 8 to the problem of de-risking and its real-world consequences for humanitarian initiatives — panellists shared unique perspectives on the unintended consequences of anti-financial crime on human rights. Professional Evasion: The Impact of SWIFT Exclusion

Professional Evasion: The Impact of SWIFT Exclusion

Another panel discussion moderated by CEO of FINTRAIL Robert Evans looked at the hot topic of sanctions and SWIFT exclusion, focussing on Russia. Experts discussed the symbolic versus the real impact of the SWIFT ban and the legal frameworks versus the responsible business conduct approach. Speakers highlighted humanitarian challenges, the complexity of sanction avoidance and evasion, and the difficulties with implementing sectoral sanctions. Panellists also spoke about industry and operational impacts, with the unprecedented sanctions regimes diverting resources away from other areas of economic crime prevention and detection, the changing roles and responsibilities of transaction monitoring teams, staff burnout and broader industry collaboration.

The Tinder Swindler: A Victim Story

In a brave and compelling fireside chat with John-Paul Eaton, Global Community Director of FINTRAIL and Cecilie Fjellhøy, Fraud Victim of ‘The Tinder Swindler’ and Founder of action:reaction foundation, Cecile shared her touching story of being a victim of fraud and abuse. Recounting the different types of social engineering and manipulative tactics, including love bombing and fearmongering, Cecile shared how vital empathy is for financial institutions to detect this type of crime and help reveal the truth. All financial institutions should lead with empathy and compassion especially when investigating potential fraud. 

The Crypto Conundrum: The Use of Privacy-Enhancing Tools

In a dynamic and diverse discussion between panellists led by Greg Wlodarczyk, Managing Director, Virtual Assets and New Payment Methods at FINTRAIL, experts debated legitimate and illegitimate uses for privacy-enhancing tools such as virtual currency mixers and privacy coins. While there are some valid reasons for using such tools in dangerous jurisdictions or for high net worth individuals who want to protect their identity, privacy tools like virtual currency mixers are considered risky as they are favoured by criminals and hackers. Panellists discussed that while a global ban on these tools is unlikely, there is vast importance in increasing knowledge and education and strengthening public-private partnerships in this space. 

Does Identity Matter?

Moderated by Natasha Vernier, Co-founder and CEO of Cable, panellists discussed the concept and use of zero-proof identity and centralised versus decentralised solutions for digital IDs. In a context where consumers are becoming more conscious of the dangers of data breaches and awareness surrounding the types of personal information being shared, panellists emphasised the role of trust in the adoption of specific technologies and practices as well as the required legislative basis for reusable identities. Opportunities for financial inclusion were also discussed as digital identities may help the unbanked.

FinCrime Book Club

Author of Very Bad People: The Inside Story of the Fight Against the World’s Network of Corruption and founder of Global Witness, Patrick Alley, was interviewed by Ciara Aitchison, Director, Insights and Research at FINTRAIL. In a fascinating discussion, Patrick shared his story of how he first started his international NGO, emerging from exposing the funding of the war in Cambodia from the illegal forestry trade. Among riveting personal stories, Patrick emphasised how corruption erodes democracy and the importance of naming and shaming the ‘very bad people’ who cause suffering — highlighting that every single person can make an impact. As London is the centre of many of the enablers of corruption, there is a huge opportunity to turn things around and make system-wide change. Patrick also shared more recent work that Global Witness is doing to combat climate change and assist in the Ukraine war. Patrick’s book is a must-read for every anti-financial crime professional, undoubtedly igniting a passion for why anti-financial crime professionals do what they do. 

With Great AI Power Comes Great FinCrime Responsibility!

Last but certainly not least was the engaging and jam-packed panellist discussion on artificial intelligence (AI) solutions in financial crime moderated by James Nurse, Managing Director of FINTRAIL. Panellists illuminated the different challenges and opportunities in AI and machine learning’s application, especially concerning bias. All speakers agreed that before implementing AI, organisations need to have their house in order — the data architecture, rule system, and overcoming data silos. Particular challenges for fintechs are working with sparse data sets that inevitably create biases and detrimental impacts on financial inclusion. Experts advocated for anti-financial crime professionals to work with data scientists, being involved in the model design process and asking critical questions. Explainability is not just important for regulators — being able to explain technology in layman’s terms is a marker of a good data culture. Additionally, having diverse teams encourages diversity of thought and better solutions throughout organisations!

This year’s conference highlighted:

• An unsurprising but important recurring theme of partnerships between private and public and industry in more general terms. From unprecedented sanctions to new technologies in the crypto sector, creating channels for education and information sharing is vital to fight financial crime effectively.

• Financial institutions must lead with empathy in all areas of their work, including the way teams deal with potential victims of fraud.

• Exposure and awareness are vital. From naming and shaming corrupt leaders and behaviour, to openly discussing industries that are in the shadows like the global arms trade — each individual, especially anti-financial crime professionals, can make an impact on the fight against corruption and democracy.

• Unintended consequences for human rights and artificial intelligence are essential to bringing to the fore in order to mitigate. From bias in machine learning systems that impact financial inclusion to de-risking of important humanitarian initiatives — we all have a duty to critically think about the ways in which anti-financial crime measures impact the most vulnerable.

All in all, the conference was a hit! We already can’t wait for the next one!  

Canada’s Emergencies Act: Lessons Learned

Often revered as a peaceful and largely untroubled nation, Canada made international headlines earlier this year. The government’s adoption of the Emergencies Act, announced by Prime Minister Justin Trudeau on 15 February 2022 and subsequently revoked eight days later, was a response to ongoing disruptive protests in the nation’s capital Ottawa. The controversial use of the Act, which encompasses the Emergency Economic Measures Order, gave financial institutions (“FIs”) new obligations under broad action to ‘follow the money’ and stop funding flowing to the newly-illegal protests.

Given time to reflect on such a broad sweeping move, and while awaiting the findings from the official Rouleau Commission’s inquiry, FINTRAIL examines Canada as a case study to extract valuable lessons for FIs. Looking forward and in the face of another potential emergency, how can compliance staff logistically implement such urgent measures? And what lessons can be learned for the wider international compliance community?

Change of Rules

In the case of Canada, the never-before-invoked Emergencies Act demanded that FIs, including payment platforms, funding platforms and digital currency exchanges, assess whether they control or are in possession of property by a designated person. In essence, these organisations were to cease business with anyone directly or indirectly associated with the newly-illegal activities of the protest.

The following measures were adopted:

• The scope of Canada’s AML/CTF rules was expanded to cover crowdfunding platforms and the payment processors they use. They are obliged to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and report suspicious or large transactions.

• FIs could immediately freeze or suspend accounts suspected of financing the demonstrations without a court order. This covers all forms of transactions, including digital assets.

• FIs were to review their relationships with anyone involved in the blockades.

• FIs were required to report any relevant relationships or activity to the Royal Canadian Mounted Police (“RCMP”) or Canadian Security Intelligence Service (“CSIS”).

Unlike typical sanction scenarios where institutions are given a list of individuals and businesses by law enforcement, the broad application of anyone who is “engaged, directly or indirectly” in prohibited public assemblies as a ‘designated person’ leaves much up to the discretion of FIs.

Though one week after the measures were announced, on 22 February 2022, the Canadian federal police gave FIs a list of both “influencers in the illegal protest” and “owners and drivers of vehicles who did not leave the protest zone” — this non-exhaustive list is just a piece of the puzzle. FIs had to continue to use their own judgement when determining who falls under the category of ‘designated person’ and what is effectively considered ‘suspicious activity’. In practical and logistic terms, this can prove to be difficult.

FI’s Discretion

Left to their discretion in determining which individuals and businesses are associated with the illegal blockades, FIs were undoubtedly informed by publicly available information like media reports. However, the looseness in definition led to some critiques and questions about what exactly qualifies as suspicious and what type of recourse customers would have once their accounts were frozen.

One particular difficulty is the sheer number of those potentially involved, with leaked donor lists showing more than 92,400 donations made on fundraising websites. Despite government officials dismissing the likelihood of small-scale donors being affected, unsubstantiated claims of those who had their accounts frozen despite donating prior to the 15 February state of emergency emerged. The official inquiry examining the use of the Emergencies Act, which will produce a final report in February 2023, notably does not grant standing to a number of individuals who had their bank accounts frozen.

Best Practices

While Canada’s use of a state of emergency to target protestors is largely unprecedented in a Western democracy, some experts have argued that it is part of a larger pattern of using anti-money laundering and counter-terrorist controls beyond their initially intended purpose — suggesting an event like this, stoked by rising global political uncertainties, could occur in other jurisdictions. Other governments have also reacted with firm responses to recent public protests, such as the Black Lives Matter protests in the US, Extinction Rebellion actions in the UK, and the Gilets Jaunes movement in France. It is, therefore, possible to imagine scenarios in other countries where similar actions could be taken to cut off protestors’ funding. After examining the situation in Canada, we recommend the following best practices for compliance teams.

• Clear internal communication. For FIs, clear and distilled internal instruction on what and who constitutes a designated person needs to be consistent, proportional, and well-communicated among compliance teams. Since a broad and poorly understood legal definition can easily lead to inconsistencies and a heavily subjective approach, clear communication and protocols should be widely distributed.

• Work closely with law enforcement. Clear communication between law enforcement and FIs are paramount. In the case of Canada, the RCMP began working closely with FIs to unfreeze accounts after giving lists of crypto wallets to exchanges, and the names of certain individuals involved to FIs.

• Work closely with peers. When it comes to responding immediately to such rapidly evolving situations, everyone is in the same boat. Rather than each FI devoting resources to identifying details of fundraising activities and linked names individually, such information could be pooled and shared to make the industry response more effective and efficient. Similar actions were taken by a number of banks in 2016, when the US and EU imposed “sanctions by extension” on all corporate entities owned 50% by sanctioned people or entities.

• Awareness of financial exclusion. While in Canada, the FIs themselves were given protection from civil liabilities for any actions taken to comply with the orders, the potential consequences for customers are enormous. As gatekeepers of the financial system, understanding those individuals who have their assets frozen may be at risk of financial exclusion in the future is another factor to consider, and encourages the need for thorough due diligence and informed action.

When reflecting on the situation in Canada and any similar situations which may emerge in the future, FIs and their often thinly-spread compliance teams may find themselves walking a tightrope between proportionate action and obeying the law. The aftermath of Canada's Emergencies Act provides valuable analysis, serving as a case study for other countries that may see this type of broad application of AML/CFT controls.

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In rapidly evolving situations, sharing information with peers can be extremely valuable. The FinTech FinCrime Exchange provides a unique network for FinTech compliance professionals to do exactly that, and leverage the collective efforts of a community. Click here to find out more and join the community, or email us at ffe_admin@fintrail.com.

Review of the UK’s AML/CFT regulatory and supervisory regime

The UK government has issued its much anticipated response to the call for evidence on the UK’s AML/ CTF regulatory and supervisory regime. It’s well considered, detailed … and perhaps a little safe.

Does it provide ground breaking changes? No.

Is it moving us forward? Slowly.

But realistically, this was never going to offer speedy and simple solutions. What it does do is recognise the importance of the fight against economic crime, and the vulnerabilities that exist, both at board level and on the streets. The report mostly serves to tell readers to ‘watch this space’, as this is “only the start of [the] reform agenda”, with further legislative measures to come this year via the second Economic Crime Bill and Companies House reform.

The foreword by Economic Secretary to the Treasury John Glen, highlights the need to continue to enhance efforts at home while working with the international community to influence and shape global standards. The report also recognises that in order to make a difference globally, the UK needs to strengthen and “harness the capabilities, expertise and information of both public and private sectors”.

This review is seen as only one part of the UK’s efforts. Along with the Economic Crime Plan Part II and reforms to Companies House, the UK is seeking to go beyond tick box compliance and “build a thorough and dynamic system of controls which responds to the real risks we face”.

The review has been structured around 3 key themes:

1. Systematic Effectiveness – what effectiveness looks like and how to measure it

2. Regulatory Effectiveness – equipping firms with a strong risk understanding and effective risk-based controls targeting areas of highest risk

3. Supervisory Effectiveness – reform of the supervision regime

The report builds on the work under the parallel updates to the Money Laundering Regulations (MLRs) and sets out the intention to develop an improved range of metrics to measure and evaluate the effectiveness of the MLRs in future.

The highlights:

• The National Risk Assessment (NRA) and existing public-private dialogue will be used to assess emerging risks and potential future changes to the MLRs.

• Post-Brexit, some areas of regulatory changes to support a risk-based approach have been identified, but other areas such as Suspicious Activity Reporting (SARs) and gatekeeping show limited need for regulatory change.

• The use of new technology and improving the AML guidance regime are potential areas for the government to support the private sector. Incremental improvements in collaboration with partners is the favoured approach

• Possible reforms of supervisory structure are considered with the aim of ensuring effective and consistent supervision across all sectors.

So how does this translate into action and what are the next steps? Below we summarise some of the key aspects of the review.

Defining Effectiveness

a. Objectives of the MLRs

The government has decided to refine the objectives for the MLRs, linked to the FATF methodology, by amending the following areas:

• Explicitly including the ‘provision of valuable intelligence’, aligning with the principle that effective prevention is more than just technical compliance

• Clarification of supervision - monitoring and enforcing compliance as part of a risk-based approach

• Collation of accurate information on beneficial ownership is not a primary objective but a means to identify and report suspicious activity.

b. Measuring Effectiveness

Many respondents questioned whether the specific requirements in the MLRs are having a direct impact on the scale and nature of disrupting ML/TF. The government will set out ‘outcomes focused’ metrics as part of the Economic Crime Plan to provide direct and clear feedback on the effectiveness of the MLRs.

c. High/low impact activity

Unsurprisingly, the regulated sector is in favour of reducing the number of mandatory requirements in the MLRs. Themes raised included:

• ‘High impact’ activity - consistent compliance with due diligence requirements and good quality suspicious activity reporting

• A disproportionate burden on ‘low impact’ areas of routine due diligence and transaction monitoring driven by mandatory requirements, and the inability to move resource to ‘higher impact’ areas

The government view is that firms have some discretion when adopting a risk-based approach, but resources and policies must be in place to meet the objectives of the MLRs. While there is scope to “dial down” less impactful activity, there is “insufficient evidence” to overhaul the MLRs.

d. Strategic national priorities

The UK will not publish standalone National Priorities such as exist in the US - the focus will be on developing the upcoming Economic Crime Plan and NRA to provide more strategic direction.

Regulated firms demanded more granular sharing of public-private intelligence, including in response to live threats and emerging risks. The government will explore how law enforcement agencies can provide more coordinated and timely communications. The NRA will be the primary vehicle for assessing emerging risks and identifying changes needed to the MLRs going forward.

Driving Effectiveness

a. Risk-based approach

Respondents felt that the MLRs contain too many prescriptive requirements, which goes against the premise of a risk-based approach. The government will not fundamentally shift the balance of mandatory requirements, but will consider the following factors:

• Small / new firms: Supervisors and the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) will assess the support that can be offered to these firms to fulfill their obligations under a risk-based approach

• Guidance / information sharing: Law enforcement and supervisors will assess how information is currently shared and enhancements that could be made

• Supervisory approach: Supervisors will review how to ensure a risk-based approach is incorporated into supervision

• Enhanced due diligence (EDD): There are no plans to amend the mandatory requirement to perform EDD as listed in Regulation 33. However further work will be done on assessing the risk profile of domestic PEPs, removing the list of required checks for high-risk third countries, changing the wording of ‘complex or unusually large transactions’, and evaluating the effectiveness of EDD.

• Simplified Due Diligence (SDD): respondents highlighted that the time and effort to conduct SDD is the same as standard CDD, thus it is not useful. However, the government does not plan to change the components or description of SDD, with the exception of Pooled Client Accounts, where the government will consult on options to allow easier application.

b. New technologies

The government believes that inefficiencies and resource-intensive compliance processes are partly driven by failures to maximise the use of technology. Three workstreams will be established to find solutions and explore more effective models of engagement. As the MLRs are intended to be technology neutral, no specific changes will be made except for digital identity products., where the government is considering amendments to ensure greater clarity on electronic identity processes.

c. Supervisors’ role in SARs regime

Focus in this area should be on improvements to SAR technology and IT, an increased feedback loop, and better information and intelligence sharing. With a number of initiatives already underway, the government will keep a watching brief.

d. Gatekeeping function

There was broad agreement about the effectiveness of the gatekeeping function of supervisors surrounding the ‘approvals’ and ‘fit and proper’ test, with some consensus about enhancing this in higher-risk sectors such as crypto assets. The government will uphold the status quo and consult on specific feedback.

e. Guidance

Sector specific feedback is crucial, but it is too long, complex and inconsistent. Striking the right balance is difficult - there needs to be room for a risk-based approach. The result is we won’t see radical overhauls, but reform along the lines of three key principles:

• Sector specific guidance drafted by experts, including industry

• Improved approval process to streamline and speed up updates

• Improved quality control to ensure consistency, clarity and conciseness

AML/CFT supervision

The UK has 25 supervisors: three statutory supervisors (the Financial Conduct Authority (FCA), HMRC and the Gambling Commission) and 22 legal and accountancy Professional Body Supervisors (PBSs) who supervise the legal and accountancy sectors. This section considered potential structural reforms.

a. Enforcement

Respondents highlighted inconsistencies across different sectors. They noted the level of fines brought against financial institutions is higher than other sectors, which has led to high levels of AML investment but has made banks risk-averse. There is a call for greater transparency and consistency of approach.

b. Supervisory gaps

Some supervisory gaps exist in the legal sector where practitioners are not members of one of the legal Professional Body Supervisors (PBSs) with a general consensus on creating a default supervisor for the sector.

c. Supervisory reform

With FATF identifying major deficiencies in the UK regime in its last evaluation report, it’s not surprising this is an area of focus. And it is still a work in progress. With some high-profile enforcement actions and steps taken to improve a risk-based approach, there is room for further reform.

The shortlisted options for reform include additional powers for OPBAS, consolidating and reducing the number of PBSs, or establishing a single supervisory body for professional services. A formal consultation will be issued to further understand the pros and cons of each.

So what next?

Well, the review has provided greater understanding on the barriers to effectiveness but some of the solutions are unclear, meaning further work and engagement is needed. The key areas of focus for the next phase of development of the MLRs and wider AML regime are:

• Potential supervisory reform

• Further evidence and understanding needed on MLRs

• New objectives to the MLRs with measurable metrics

• A focus through tools such as the NRA to improve risk understanding

• Further engagement on new technologies

• Case by case updates to guidance

So as we said at the start, watch this space - the second Economic Crime Plan is now the next much anticipated document!

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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 designing, reviewing or enhancing your anti-financial crime framework.

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’.