UK fraud investigators have realised that banks are well placed to identify illicit financial activity and have set up a partnership with major European financial institutions to share information about money laundering and terrorist financing. But how motivated are the banks to participate? Nick Kochan reports.

Banks engage in AML fight

UK law enforcement agencies are looking to bind the private sector more closely into the national fight against money laundering and terrorist finance. They want to do more talking to the banks and they want better access to their sensitive information on criminals and laundering techniques.

Donald Toon, the head of the economic crime directorate at the UK's National Crime Agency (NCA), says: “The financial sector knows that its own best interests are served by driving illicit money out of the system. The banks are better placed than others to identify that which looks abnormal. I am very eager to establish much closer relationships between public and private sectors.” Mr Toon dismisses much criticism of banks’ willingness to play by the rules in the wake of the financial crisis, saying: “Banks are more sinned against than sinning.”

The first part of what Mr Toon calls a "public, private partnership" involved the creation of a regular forum to share secure information between the NCA and a group of leading banks in London. The second part involves refining the system of suspicious activity reports by which banks send details of account movements to the Financial Intelligence Unit.

The new forum

The vehicle for discussion of specific cases is the Joint Money Laundering Intelligence Taskforce (JMLIT), which is composed of BNP Paribas, Barclays, Citigroup, HSBC, Lloyds, Nationwide, the UK Post Office, RBS, Santander and Standard Chartered. The group meets weekly with the NCA, HM Revenue and Customs and the Financial Conduct Authority to discuss specific cases or evidence.

Mr Toon says: “The operations group of the JMLIT is focused on specific data and specific identified individuals and companies. That is about delivering operational results. Law enforcement has found that JMLIT assists law enforcement to improve its cases and identify targets. It is about being able to go to the banks and demonstrate where it has risk in its system to enable them to make better decisions about which banking services it should withdraw.” 

A number of bank accounts have been closed as a result of information received from the JMLIT process. “We are not talking about thousands of accounts, [it is] quite small numbers. It is about being in the position to get the best possible intelligence picture,” says Mr Toon. Banks have discovered through the JMLIT forum that organised crime was operating similar schemes across a number of banks, he adds, and have devised a joint response.

Bank concerns

Banks were initially wary of participating in the scheme, according to Mr Toon, in part because it gives the authorities a chance to see behind their anti-money-laundering systems. Mr Toon, who founded the JMLIT in April 2015, says it has taken “quite a lot of work and time to get that group to a position where it works. Unsurprisingly, the banks approached this with concerns about where the public sector was coming from. The public and private sectors are not entirely trusting of each other’s motives or behaviours. It takes time to develop a relationship where you actually understand where each side is and know how the other side works.” 

The disclosure of sensitive information to the authorities can open up banks’ systems to scrutiny. This discloses some critical weaknesses, according to Mr Toon. “The typical view in the generally cash-strapped public sector is that the banks have loads of money, therefore, they must have the best systems on earth and they must be able to know everything about every customer that they have," he says. "In fact, many banks have grown by acquisition and they may have a thin veneer of corporate systems across what is a whole list of pre-existing organisations and companies that they have bought.

“The banks that we have worked with try really hard to get this right and they spend a lot of money getting it right. Is that because they want to be good corporate citizens and live up to their professional expectations or are they terrified that the regulator will fine them… [so] they do it? I don’t care what the reason is as long as their systems are in place.” 

No easy ride

While law enforcement authorities are seeking to bring banks more closely within their sphere, Mr Toon is adamant that he offers no mitigation to banks that are accused of wrongdoing. “This system is about a two-way partnership but it does not give anyone immunity from being investigated or prosecuted. If we are working with a bank [through the JMLIT] and it comes to our attention that there is a problem that is potentially criminal, there will be nothing preventing us investigating that behaviour simply because we have been working in partnership with the bank.

“We have to get it right. We will work with you – you play straight with us and we’ll play straight with you. But it is not a way of covering up your criminal activity, by playing with law enforcement. I have no knowledge that the banks we are sitting down with and sharing information with are using that knowledge to gain commercial advantage or enable them to do anything illicit. It is a careful balancing point about how close that relationship has to be.”

All parties to the JMLIT are governed by a confidentiality agreement drawn up by lawyers at its launch. Mr Toon says this may be strengthened through a further financial crime statute, expected to be introduced later in 2016.

The strategy group

Less sensitive information is discussed at a strategy group that also operates under the JMLIT umbrella. This group discusses longer term threats and is composed of a wider group of banks. Experts are invited to advise the group.

“The strategy group focuses on money-laundering threats we are seeing and where we need to be concerned," says Mr Toon. "For example, it has looked at links between money laundering and people trafficking or international corruption. We work together to develop a better understanding of the indicators of risk: what should the banks be putting into their transaction monitoring system as flags to raise concern about behaviour in accounts or behaviour in companies. This is about trends, typologies, risk flags… the banks look at their internal systems, but we are developing from that alerts for the industry. So we have produced alerts on indicators that might show people trafficking or human slavery.”

Law enforcement agencies are also pushing for a shake-up of the system of suspicious transaction reporting (SAR) to get better access to bank databases on suspicious clients and data. They say this will strengthen their investigation of money laundering and terrorist financing. Numbers of SARs sent by the banks to law enforcement have shot up from 9000 when the system was launched in 2002 to 380,000 today. Yet the NCA says the information has become increasingly less useful to investigators.

Mr Toon says: “We would like to see better targeted SARs reporting. This needs to focus more on the entity than on the transaction to give us a much clearer picture of the behaviour of this company or individual, rather than the snapshot of one transaction. We want see something that has more substantive content. It might mean you are linking a number of transactions or it might be simply if you have suspicions about a transaction. The transaction may be suspicious because it is linked to this individual or company and the difference from their standard behaviour.

“There needs to be a greater level of added value from the reporter. At the moment it feels as if there is a very mechanical process that involves putting some basic flags on a transaction monitoring system and then you report everything that makes one of those flags."

Defensive reporting

One source of friction is the use of the reporting system by banks to protect themselves from the claim that they handled criminal money and thus were parties to money laundering. Nigel Kirby, chief of the unit at the NCA responsible for the system, describes this as "defensive reporting" and says it is of no value to investigators, let alone to the fight against crime.

“There needs to be some alternatives to the consent system,” says Mr Kirby. “It is pointing the authorities in the wrong directions yet we have to come up with answers. Some [financial institutions] have a genuine belief, they have suspicions and they are meeting their requirements. Some members of the industry are using it for their due diligence purposes. You need a system to explore the underlying data that is indicative of money laundering and then work with the industry and say these are the areas that we need to look at. It is not serving anybody as effectively as it should because the system is outdated.” 

The shake-up of the SARs system is likely to place a minimal baseline on the transactions that banks are required to report to the authorities. But some question whether the banks are quite such willing participants in this process as law enforcement would like. Sam Sittlington, a former police investigator from Northern Ireland and now a director of the Fraud Company, says: “The police say they do not get enough information and they constantly have to ask the banks for more. They say the banks are not using their initiative to give them sufficient information. The banks have not the time to do that. It is also a question of whether they have the motivation to assist the authorities.”


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