Stock Money laundering
Sure, there is better understanding of how an account used for money laundering will look like. But is that enough? Image Credit: Shutterstock

Following the 2008 financial crisis, corporate culture became a hotly debated topic in the business of compliance. There were numerous commentators who blamed the culture of banking, in particular investment banking, for the market crash.

Regulators talked a great deal about the need for change and the relevance of culture, which plays a significant role in the success of the battle against money laundering in the Middle East. Many states have put in tremendous effort into educating concerned parties on the importance of cultural change in tackling money laundering - but there is more to be done here.

Culture is reliant upon people understanding why it matters and what the consequences are when, as individuals, they ignore the perceived cultural norms of a firm. At an individual level, people make decisions based upon multiple factors, most of which are influenced by personal gain and loss.

With nothing to lose, individuals are more inclined to make selfish decisions and take increased levels of risk because there are minimal downsides set against potentially huge upsides. So, what is the answer? More individual accountability?

That will help, but at a higher level, strategy is key. In the world of financial crime compliance, firms have spent huge sums of money and employed armies of financial crime operatives, only to continue to come up short.

A failure of priorities

We are trying to stop money laundering, but all too often our efforts do not reflect this fact. Some firms and banks seek to meet regulatory expectations, while others seek not to be caught. Some try to achieve too much and ultimately fail.

In the world of financial crime and specifically anti-money laundering (AML), there are numerous causes for this failure. The primary cause, to me, is a defect in the wider design of AML. Most countries started to draft and implement AML laws from the middle of the 1980s onwards, and in many instances, the legislation was rushed.

Almost all laws are based upon the '40 Recommendations' provided by the Financial Action Task Force. Law enforcement agencies all over the world have adopted and applied the mantra, 'To catch a thief, it is necessary to think like a thief'.

Dare I state, when the 40 Recommendations were made, no one really knew how a launderer thought, and many still do not. Thus, while law enforcement agencies have focused strategies to catch a thief, the AML community adheres to the thinking that all people are potential money launderers.

Fixate on the account

Notwithstanding our continued inability to determine what a money launderer actually looks like, we do now have a far better understanding of what a money laundering account looks like. The distinct advantage of this knowledge is the ability to identify and segregate accounts that do not have the characteristics of money laundering.

It’s a step in the right direction, but one too small to get a handle on the problem at large.

New thinking, new strategy

Collectively, it is time for a rethink and reset of AML strategy. One option: Make customers responsible for what is paid into their bank accounts. This approach would require the customer to notify the bank/firm of changes, including advanced notice of large deposits.

Failure to notify would allow the firm/bank to block the account and apply charges to the same. This strategy provides a much better focus of resources and will undoubtedly generate better outcomes, reduce failure, and drive success.

Assuming we all agree that we are failing, we must keep looking for ways to improve. The smart AML practitioner should be actively identifying low-risk accounts, whereas the bold AML practitioner should seek to identify new ways to reinvigorate the financial crime fight.

The same can be said for our approach to culture. To think the activities that led to the 2008 crash are behind us is to be naïve. We must continue to challenge individuals to do better—to think outside the box but within the rules. Only then might progress be actually made.