Using public-private partnerships (PPP) to beat criminal networks

When is financial crime “victimless”? Is it a situation when someone has managed to “beat the system” and make some money on the side? Or when someone circumnavigates the rules without anyone getting hurt, apart from the big corporates, but that’s okay.

The reality is – financial crime is never victimless. Those who truly suffer are often the most vulnerable people in society. Those targeted by ruthless, highly organized criminal gangs seeking to exploit them in whatever way will further their operation.

The proceeds of these crimes are subsequently legitimized by the financial services industry before being enjoyed by the criminal. The figures surrounding financial crime, in its various forms, are staggering:

• 800,000 people are trafficked in slavery every year
• 40 million people are estimated to currently live under some form of modern slavery
• $1.6 trillion of illicit money generated through drug trafficking, human trafficking and illegal wildlife trade is laundered through the global system (2-5% of global GDP)
• Less than 1% of these criminals are caught due to inadequate predominantly rules-based AML systems

It takes a network to fight a criminal network

To keep pace with evolving criminal operations, it’s clear a step change is needed. Investments in new financial crime technologies and training are fundamental, but these tactics only impact and benefit the institutions who invest directly.

Disruption occurs only when global criminal networks are tackled using a similar networked approach. Organizations involved in fighting financial crime are rapidly recognizing that this is possible through public-private partnerships and collaboration, information-intelligence sharing and technical innovation.

Historically, the main public-private approach to dealing with money laundering suspicion was through national Suspicious Activity Reporting regimes. However, this approach uses a one-way direction of information into Government and Law Enforcement agencies, with very little coming back to the private sector that may help identify and respond to emerging threats.

However, the public-private model is evolving. Partnerships, such as the National Crime Agency’s JMLIT (Joint Money Laundering Intelligence Taskforce) and AUSTRAC’s FinTel Alliance, have successfully brought together key stakeholders from law enforcement, regulators and financial institutions. These taskforces share information, generate a comprehensive view of how criminals are exploiting the financial system and, most importantly, how these criminal activities can be disrupted.

Similarly, the Hong Kong Monetary Authority’s FMLIT (Fraud and intelligence Laundering Intelligence Taskforce) was launched in 2017. Carmen Chun, Executive Director, stated that”a central pillar of FMLIT is the Alerts Function which disseminates typologies and sanitized intelligence to the wider banking sector”.

Recently, five major Dutch banks collaborated to transform how they collectively identify and manage suspicious transaction activity. ABN Amro, ING, Rabobank, Triodos Bank and Volksbank will create a standalone operation to consolidate their respective transaction data and monitor their collective transactions. This partnership aims to improve how they spot and stop potential money laundering.

Collectively I think we have to be ambitious, to aim for the exponential rather than the incremental. Why shouldn’t we? We cannot accept the status quo. Criminal networks are benefitting from collaboration and the use of exponential technologies – we need to do the same.

Nick Cook, Director of Innovation, UK Financial Conduct Authority.

How to combat financial crime with an alert sharing model

Building on key themes from the 2019 FCA AML TechSprint, collaboration and information sharing currently rely on the ability to share and use meaningful information without compromising privacy and data protection legislation.

For example, using privacy-enhancing technologies (PETs), banks can share alert and SAR data from their organization into a central Financial Intelligence Unit (public-private or private-private). With personally identifiable information for customers removed or masked, the records can be analysed across companies and even jurisdictions without breaking any laws.

Should the analysis reveal or indicate suspicion, numerous activities can follow, including the generation and submission of a “super SAR”, or local law enforcement and government agencies initiating steps that reveal the underlying counterparties. Equally, with access to cross-institution data sets, money flows can be effectively tracked from institution to institution and financial crime typologies can be identified, tested and shared amongst contributors to the platform. Contributors can receive an automatic notification when one of their customers becomes linked to a cross-bank financial crime.

Entity resolution is the key to successful public-private partnerships

Given the potential complexity and inconsistency of data being shared in these initiatives, entity resolution will be key to uncover new or hidden suspicious patterns, context and deeper understanding.

Dynamic entity resolution is more than linking records through a simple process of name and date of birth matching. Within an intelligence-information sharing platform, it would incorporate a wide variety of internal and commercial data sources and references to an individual or company, taking into account data inconsistencies, errors, abbreviations, incomplete records and determine whether they relate to the same entity.

If they do refer to the same entity, a single unique client record can be created for analysis and investigative purposes. Without entity resolution, information-intelligence capabilities will be negatively and even severely impacted by the lack of a contextualised customer view.

Let’s not forget that at the heart of the discussion around financial crime sit two vastly important issues – societal harm and economic prosperity. The rise of technology threatens both when exploited to criminal ends… Experimentation with new technologies will bring about new ideas and new ways of tackling the challenges. It might not succeed the first time, but our experiences will inform the next generation of experiments and ultimately deliver change.

Megan Butler, FCA (speech delivered at the Royal United Services Institute)

The time to be innovative in the fight against financial crime is now. To find out more about how Quantexa’s technology could help your organization beat criminal network, visit our website or book a demo.