PETALING JAYA: It is not easy to totally fight money laundering (ML) and counter-terrorist financing (CTF) activities simply because there is always someone willing to give in or take a bribe to let it happen.
But there has been a dramatic rise in enforcement activities and regulation globally, which has brought to light many high profile cases.
The recent Danske Bank ML expose brings to light how its tiny branch in Estonia was the central pipeline for channelling Euro#230bil of illegal funds across Europe from Russia, Moldova and Azerbaijan.
Canada has also been in the spotlight for having weak anti-money laundering (AML) laws as US$47bil flew into the country in 2018, with a lot going into the real estate sector.
The 1MDB corruption scandal has shocked the financial world as it involves high profile personalities and the money trail spreads across several countries including Singapore, the Middle East and the US.
These are cases that have come to light but there are hundreds across the world that have remained undetected for years for various reasons.
“You find in most countries there are corrupt activities that go on but one pretend otherwise. There are checks and balances often and if an entire system is corrupt, then you might not be able to expect an effective outcome in such a system,’’ Rick McDonell said.
McDonell is the executive director of the Association of Certified Anti-Money Laundering Specialists (ACAMS) and former executive secretary for the Financial Action Task Force. He was one of the speakers at the recent ACAMS 11th AML and Financial Crime Conference in Singapore.
Many financial institutions have also been fined for aiding corruption and money laundering-sanctions globally and breaching compliance rules. But many are also beefing up their compliance, risks, legal and internal audit systems and teams.
Even as this is being done, criminals have equally been creative. They find new and complex ways to legalise ‘’dirty” money from drug crime, political bribery or theft. They disguise it and legalise it.
ML is simply a process of converting cash or property derived from criminal activities to give it a legitimate appearance.
With the rise in enforcement activities, some criminals have even resorted to the old fashioned way of using mules to carry large sums of money cross borders.
“ML/CTF are often “very complex transactions. From my experience following ML trails, it is not easy. If there is no knowledge initially of what you are looking at, or any party confessing or there is a whistle blower, it can take years just to discover or finalise,’’ McDonell said.
The United Nations Office on Drugs and Crime estimates that between US$800bil and US$2 trillion, or 2% to 5% of global GDP, is laundered worldwide annually. Another report suggests it could even be US$3 trillion now.
There are various guidelines for AML that financial institutions are subject to. Raising red flags when a transaction is “suspicious’’ is vital, so is further investigations. But all this takes time and most often it involves checking details on various platforms.
“Money travels across the globe, it changes into other currencies used to buy or invest in other things across borders. But with greater awareness of AML, the chances of other countries’ systems raising red flags increases.
“There is room for optimism that large-scale serious money laundering including on a corrupt basis will be detected ultimately. Sometimes these things are slow, but that is the nature of the system we have in many countries,’’ McDonell said.
He added that information flow was vital as information is the lifeblood of any investigation. Speed and reaction is also extremely important. However, sometimes that does not happen. Most of the time, it is not as speedy as desired.
He said when he first started work, there were only two financial intelligence units in the world. Now, there are more than 150 and they all interact and exchange information with each other on a regular basis about suspected financial crime, and that is a huge improvement.
“I tend to look at all these things in an incremental fashion. When I was younger I would get very frustrated why I cannot get evidence against a criminal whom I really know has done it but can’t prove it, especially across the border,’’ he said.
At the two-day conference, there was much debate on how much more regulation and supervision was needed and if artificial intelligence (AI) would help track criminal activities. Among other things, it was said that “AI cannot replace, it can only augment, but further testing was required for a conclusive outcome.’’
A report pointed out that financial crime is not a 9-to-5 or process-orientation job. It needs critical thinking, an open mind and treating every investigation on its own merits are key, and there is no one-size-fits-all approach to financial crime.
Experts also talked about the continuous need to review regulations in view of the changing financial landscape with technological evolution as fintech, cryptocurrency, blockchain, digital and virtual assets and other new online payment methods changing the way people transact and pay.
“Regulators and enforcement agencies need to understand what these technologies can do, the risk affinity and disclosure. At this moment, they are mostly seen to be risky and that is a safe cause of action. In the case of blockchain technology, one thing for sure is that the transactor is immutable. It can be traced and that is a good thing,’’ McDonell.
He added that “what governments, regulators and enforcement agencies need to do is to understand what these technologies are. Banning them is not the answer as it will only reduce the evolution of efficient systems.’’
Turning to the 1MDB case, he said “it was not confined to Malaysia alone. The story came out and the case is globally notorious. The good part of it is that it has been identified, and the authorities around the world are dealing with it.’’
“It is like the old saying with free press, sunlight is the best disinfectant. Once people know something is amiss, they will begin to think about how to fix it.
“So, the way I look at these things is that, not from the narrow point of view – are all the components of the justice system working, and I hope they are.
“Even if they are not, such cases can be brought to light by external identification and internal political and social reactions,’’ McDonnel said.
The 1MDB scandal is nothing unique as McDonell said there are numerous cases in Nigeria, South American and some in Europe.
“If you are someone in great authority and allegedly allow corrupt activities to occur, that is not a small thing. Irrespective of the size, that leaves corruption not just at personal level but at the systematic level. That is a far more serious problem and not just one of financial crimes. So the red flags should have been up,’’ he added.
To avoid or minimise such happenings, he said governments, institutions and organisations need to be more vigilant and have good skill sets and knowledge.
“They need, if possible, to have the backing of free and fair internal systems of decision making that are capable, and that decision making is not undermined by some people in authority,’’ he added.
He believes the governance mechanism across Malaysia, Singapore and Hong Kong are quite good in general.
“There is a democratic system and layers of experience in judiciary, prosecution and other supervision agencies. But there is a way to go in some countries in South-East Asia as they need in-depth level of legislation to combat ML,’’ he said.