Looking back at 2021

Another year, mostly influenced by COVID, is coming to an end. I still recall that as soon as the clock turned to 12:00 and we entered 2021 people wished the COVID scare may be gone in the new year. Unfortunately, as we realize now, this is far from over. I am not going to bore you with another COVID related story, but instead want to summarise what has happened in the ML/TF space and how far are we now.

Criminals adapt, do we?

One of the major revelations (or I should say reconfirmation) was the fact that criminals are much faster in adapting their modus operandi with changing situations. While the whole world was dealing with COVID, irrespective of the country, there were several fraud and associated money laundering crimes around COVID relief systems deployed by various governments. For example there were several cases in the Netherlands, one of them for abuse of subsidy given to companies. In another instance, the Dutch and Belgium police tracked and convicted several people related to sale of protective medical equipments. In US a person pleaded guilty for theft of over $2million and then laundering them. These are just a few examples to give an idea how criminals did not leave a single opportunity to catch hold of vulnerabilities. Another important thing which we observed is how connected/similar all these crimes were, even though they were committed far apart! I hope you got a chance to read my piece on the COVID impact - the good, bad and ugly.

In all of this, one of the good things which came to the fore, was the fact that regulators/governing bodies kept up to speed and released several guidances along the way. FATF was very prompt and updated their May 2020 guidelines, including risks which emerged during the pandemic. UAE authorities released a report on typologies to consider. Just recently, in December, AUSTRAC released a set of guidelines for the same.

Emerging threats

I assume you have already noticed the meteoric rise of Bitcoin and other crypto currencies in 2021. As much as they claim to change the world, criminals have jumped to this new found way of laundering (not just this year but for long!) and this year it was on an increase! For example a person in Netherlands acted as a currency exchange (using crypto currency), assisting criminal organisations. Same activity was observed all the way in US where a person was found laundering over $13 million in bitcoin. Australian authorities arrested three for using crypto currencies which was used to sell drugs on dark web. I wrote a couple of articles myself (considering TM scenarios as well as source of funds) to highlight the risks of exposure to crypto currencies. The good news is that more and more people consider this form of payments as the next big thing to consider. We ran a poll and over 94% respondent consider crypto currency (over cash) to watch out for in future!

The regulators have taken such threats seriously and we observed several of them came up with either guidance or launched targeted groups to tackle this crime. For example Brazil launched a program earlier this year. US setup a "National Crypto Currency Enforcement" team. Europol and Eurojust did a co-ordinated operation seized over $30 million and arrested over 150 people.

Fines

How can we miss this major part in the ML/TF space. 2021 was no different than any other year. We noticed several Financial Institutions (including banks, MSB etc.) fined by their respective local regulators for not doing enough around ML/TF controls. This is not just shocking but surprising that such basic vulnerabilities exist in this day and age!

1. Central Bank of Cyprus levies a fine of $893,781 on Bank of Cyprus Public Company Ltd

2. FIAU Malta takes administrative action against Pilatus Bank Plc and fines over $5 million

3. High Court of New Zealand levies a penalty of $770,000 on CLSA Premium New Zealand Limited

4. TSB Bank, New Zealand paid $3.5 million in penalties

5. PwC Netherlands deposits penalty of $356,505 for supplying incorrect information to tax authorities

6. BitMEX in US paid a civil penalty of $100 million

7. Securities and Futures Commission of Hong Kong imposes a fine of $400,000 on Raymond Leung Tak Shing

8. Bank Julius Baer paid over $79 million in penalties

9. Cayman Islands’ Monetary Authority imposes a fine of over $5.08m on Intertrust Corporate Services

10. Financial Supervisory Authority of Norway levies an administrative fine of $48.66 million on DNB

11. ABN AMRO paid $577.60 (€480) million in fines

12. Monetary Authority of Singapore levies a composition penalty of $750k on Bank J. Safra Sarasin Ltd

13. Central Bank of the UAE imposed financial sanctions worth $12.5m on 11 banks

14. UK’s Gambling Commission launched regulatory action against five land-based casinos

I can go on and on, but it gives you a fair idea that it not just a handful of regulators but almost every other regulator, located far and wide, is upping their game and are having a close watch on you. As part of our product offering, Alexis, we assessed more than 50 fines which were imposed in 2021 alone! This is not a small number. Another startling fact we noticed is that in most cases there were so many common factors. As a financial industry we seem to like working in silos and never worry too much about learning from each other.

What have we achieved?

This brings back to our existence as Regxsa. This year has proven, yet again, that we are going in the right direction. Our ultimate goal is to break ML/TF investigation silos because as an industry, we just don't have enough time/resources to learn from one another and the result is criminals harm each one of us (as also pointed out earlier in this article). Having said that, the journey is not an easy one, something we already knew early on. Imagine Steve Jobs trying to sell the concept of a touch pad based phone to people enjoying a blackberry or Nokia with their super efficient keyboards! It's relatively easy to sell a replacement but if you want to introduce something new, there is a lot more hesitation! Same in our case - we want to connect ML/TF investigators across the globe and build a community who works and acts together. After having discussions with over 80 potential clients, we noticed a wide acceptance to this vision and our product, but at the same time there is a reluctance to be the first one (because there is nothing to be replaced).

Being in this ML/TF space for more than 17 years now, it would have been easy for me to tread an easy path and come up with an easy/fancy "next-gen" Transaction Monitoring solution but what I have noticed is a problem all of us are going to face anytime in the near future - our reluctance as an industry to break silos. We need to empower our work force, learn from one another, have the right tools - all this to outsmart criminals. It's never too late! We are closing this year with a high note on how our product has evolved and the potential it has to bring a bigger change in the industry. Looking forward to an even ambitious 2022...

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