Key takeaways: AML Summit in Stockholm
Advisense joined the two-day AML Summit (Penningtvättsdagarna) in Stockholm this week, with a broad host of key government bodies and market leading consultancies and software providers. In an excellently arranged public-private sector mix, the conference program included thought-leading speakers and gave eye-opening insight into both progress and challenges that remain.
Terrorism financing
Government bodies possess important intelligence which could be used by financial institutes much more than today. For the information to become effectively conveyed and useful for financial institutions, the format and level of detail need to be improved, which in itself requires additional competencies.
Terrorism financing has in the past been largely discussed based from the perspective of financing of terrorist organizations abroad. This is today not the case. Clearly, the focus now needs to be just as much or more on the counter terrorism financing within Sweden. A large part of the summit program was dedicated to inbound terrorism financing, and the aspect of money-laundering as a national security issue. Awareness is still lacking, and it may be argued that other measures than traditional AML procedures will be needed, given that the type of transactions involved in terrorist financing tend to pass below thresholds and look fully legit, among millions of transactions daily. This poses great challenges for banks at large. It may also be argued that it would be significantly more effective to manage CFT risk through better interaction and information-sharing involving key government bodies and private sector actors, where the recent proposal to change regulations limiting information sharing due to secrecy requirements will be decisive.
Financing of terrorism in the Swedish context is according to experts at e.g. Center for Societal Security (CTSS) Swedish Defence University increasingly involving organized financial crime, welfare and VAT fraud, noting in particular financing to and from various types of non-profit, non-governmental organizations. This makes it a broader financial crime issue, challenging to address both for financial institutions and government bodies and which requires deep understanding of how these organizations operate and how to assess risks.
National security
Experts with police and military background addressed money laundering in relation to national security threats. The Russian Laundromat could be clearly linked to the Russian government and the Russian intelligence agency. Placing and layering Russian assets in Europe and tax havens play an important role in financing the Russian military capacity for hybrid warfare and the war in Ukraine.
Jonas Karlsson, Director at FCG Financial Crime Prevention Unit who attended the summit comments:
”This is really an important eye-opener to many people, including myself. Large scale ML needs to be understood in the context of national security. It should really be evident, but we note that this is perhaps a new perspective to some stakeholders. Hence, AML is not limited to an issue of financing of organized crime, reputational risk or ethics. It is a national security issue and must be evaluated and understood in relation to integrity and non-disclosure requirements. Also in this area, interaction and information exchange needs should be further considered.”
Potential for automation
Several participants at the summit discussed the potential for automation of manual processes for KYC, screening and transaction monitoring. There is a huge potential for automation of simple manual work, not in the least considering that 50% of AML compliance costs is deemed to be manual work. 35% of financial institutes today across Europe use at least one AI-application for KYC, sanctions- and transaction monitoring. Organizations today are struggling with IT-dept and false positives, seeking to achieve a better ROI. However, this needs to be put in the context of risk framework and the ability to establish appropriate KRI indicators. Basics need to be in place in order to move to the next level, as Machine Learning applications will reinforce and potentially magnify false positives.
FCG was invited with Louise Brown, Director Financial Crime Prevention-team, as speaker on the stage, to present the results from the AML-State of Play report and discuss from the perspective of AML risk appetite, key indicators and the potential for automation and machine learning.
“We are seeing more and more systems and screening products coming into the market now, which is good. At the same time, vendors and systems need to be evaluated in order that expected benefits can be achieved. The alternative is “pay and pray”,
comments Louise Brown.
For more information about the 2022 AML Summit, click here
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