Governments look to private sector in fight against financial crime
07 Jul 2020

Private-sector institutions that facilitate the flow of money across the global financial system are often best placed to detect when the system is being abused by criminals. But the sheer volume of data banks collect can make screening for financial crime difficult.

Mariano Federici, the former head of Argentina’s Financial Intelligence Unit, says law enforcement officials must find ways to share information with banks in order to get the best information in return.

Mr. Federici in June joined investigations and compliance services firm K2 Intelligence Financial Integrity Network following a stint as head of the Egmont Group, an association of FIUs that works to promote the sharing of financial intelligence among governments.

Mr. Federici spoke about his role at the Egmont Group and how governments and the private sector can work together more effectively to fight money laundering and terrorist financing. Edited excerpts follow.

What is the Egmont Group and how does it help to fight money laundering and terrorism financing?

Mr. Federici: The Egmont Group is basically the international body focused on the sharing of financial intelligence, and on strengthening the operational aspects of the anti-money laundering and counterterrorism financing system. It’s the forum that brings together all the financial Intelligence units (FIUs)—there are 165 altogether in the world.

It manages the network through which the financial intelligence is actually effectively exchanged among jurisdictions. The organization places a heavy weight on the importance that building trust has. When we organize our meetings, it’s all about developing those relationships that can allow us to exchange more and better quality information to detect more and more suspicious activity in the financial system.

Why is the collaboration between the public and private sectors so important and why has it become such a focus of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and other anti-money laundering agencies?

Mr. Federici: This is an effort that cannot be conducted without support from the private sector because it is in the realm of the private sector where the transactions take place in the market. They are the ones that have the initial access to information and are the first defense that the system has.

The problem was that the system was designed in a way where the information flowed in a unilateral way. If you are a financial institution, you would try to know your customer, to conduct due diligence on your customer, gather information to detect unusual or suspicious activity in the conduct of your customer and then if you detected a suspicion you would report that to the authorities, to the financial intelligence unit and in the U.S. to FinCEN. But you got nothing in return—no information going in the other direction.

The efforts became very costly. On one side, a lot of money was invested into monitoring transactions and to trying to identify suspicious ones among all the transactions conducted. The results you got from all the money that was invested were not very high.

That’s where the idea of working in a more cooperative, in a more collaborative way with the private sector was born, and some jurisdictions started testing the public-private sector financial information sharing partnerships, where the information started to flow in both ways.

The private sector, particularly the large global financial institutions, have realized that they have a much greater opportunity to add value than what perhaps was originally thought. They have been trying to not just look at their customer, but their broader network.

What can governments do to incentivize banks to form more partnerships like this?

Mr. Federici: The FATF [Financial Action Task Force, an international organization that sets global policies to fight money laundering and evaluates member countries’ progress in implementing them] can do a lot more to generate the incentives for governments to promote this. For instance, they can weigh positively these types of approaches in the context of the mutual evaluation that the FATF conducts.

At the moment [these types of partnerships are] taken into consideration, but they are not explicitly a part of FATF’s international standards, [so] they are not factored into the outcomes of the mutual evaluations. If that were the case, you would have a very strong incentive already from governments all across the world to actually promote them in a more productive way.

The second level is governance. There is a lot that can be done differently by showing the results and the effectiveness that these models are already producing for the rest of the system.

By Dylan Tokar, The Wall Street Journal, 6 July 2020

Read more at The Wall Street Journal

RiskScreen: Eliminating Financial Crime with Smart Technology

You can claim CPD minutes for this content, by signing up to our CPD Wallet

FREE CPD Wallet