UK general election

Following the UK general election on July 4, 2024, the BBC called the result a win for Labour at 05:04 on July 5.

Less than 12 hours later, our team had already updated our PEP data to reflect the results from 644 declared constituencies. This update includes both re-elected and newly elected MPs.

France legislative elections

Just days after the UK elections, France held the final round of its legislative elections on July 7, 2024.

The results started coming in on the same day, and the final results were announced in the early hours of July 8, 2024. We promptly updated our PEP data, making it available to our clients within hours.

The importance

For businesses regulated under financial crime laws, the value of accurate and current PEP data cannot be overstated. Leveraging the latest intelligence from ComplyAdvantage enables companies to:

• Boost the effectiveness of AML/CFT due diligence.
• Sharpen the precision of risk assessments.
• Stay in line with regulatory mandates.
• Minimize financial and reputational risks.

Showcasing the excellence of our FinCrime intelligence

These updates are just a few examples of our dedication to delivering the best financial crime risk intelligence. With more global elections on the imminent horizon, we will continue to update our data promptly to ensure you always have the most current information.

We continuously strive to enhance our proprietary data ingestion processes to provide you with the highest-quality risk intelligence available on the market.

The post ComplyAdvantage provides near real-time updates to PEP data following general election results appeared first on ComplyAdvantage.

The G2 summer reports are out, and ComplyAdvantage has been placed in the Leader Quadrant for Anti-Money Laundering for a third consecutive quarter. Additionally, for the first time, the company has been placed in the Leader Quadrant for a new category: Governance Risk and Compliance.

G2 is the world’s largest and most trusted software marketplace. It continues to rate ComplyAdvantage as a leader due to its high customer satisfaction (based on user reviews) and substantial market presence scores (based on market share, seller size, and social impact).

G2 has more than 90 million users annually — including employees at all Fortune 500 companies — who make decisions about software to invest in using authentic peer reviews.

About ComplyAdvantage

ComplyAdvantage is the financial industry’s leading source of AI-driven financial crime risk data and fraud detection technology. ComplyAdvantage’s mission is to neutralize the risk of money laundering, terrorist financing, corruption, and other financial crime. More than 1000 enterprises in 75 countries rely on ComplyAdvantage to understand the risk of who they’re doing business with through the world’s only global, real-time database of people and companies. The company identifies thousands of risk events daily from millions of structured and unstructured data points.

ComplyAdvantage has five global hubs in New York, London, Lisbon, Singapore, and Cluj-Napoca and is backed by Goldman Sachs, Andreessen Horowitz, Ontario Teachers, Index Ventures, and Balderton Capital. Learn more at complyadvantage.com.

For information:

Rica Squires

rica.squires@complyadvantage.com

The post ComplyAdvantage Recognized by G2 as a Leader in AML and Governance, Risk & Compliance appeared first on ComplyAdvantage.

We’ve summarized the key developments:

• Changes to the grey list.
• Revised International Cooperation Review Group (ICRG) criteria.
• Assessment methodology revisions.
• Mutual evaluation preparations.
• Strategic initiatives.
• Priorities of the incoming Mexican presidency.

Changes to the grey list

Monaco and Venezuela added to the grey list

Monaco

Monaco, which has the highest concentration of millionaires and billionaires in the world, was added to the grey list due to insufficient progress in combating illicit financial flows. This decision comes after a review by MONEYVAL in December 2022, which revealed the following insufficiencies:

• A misalignment in Monaco’s investigative and prosecutorial practices concerning ML, especially a shortfall in tackling complex cases commensurate with its risk exposure.
• A need to amplify the country’s measures in prioritizing ML cases and enhance the effectiveness of seizing, confiscating, and recuperating proceeds derived from financial crimes.
• A lack of efficiency regarding beneficial ownership checks, specifically in ensuring the fitness of entities.
• An inadequate sanctions regime that lacks sufficient severity, deterrent impact, and is often enforced after unjustifiable delays.

While Monaco had made some progress since 2022 in identifying ML/TF threats – adopting nine laws to toughen its rules and boost its anti-money laundering (AML) body, the Autorité Monégasque de Sécurité Financière (AMSF) – there were still significant gaps flagged in the country’s AML regime. 

Monaco’s government has stated its commitment to being removed from the grey list, saying, “The principality confirms its determination to implement the latest FATF recommendations outlined in the declaration, in accordance with the planned deadlines.”

Venezuela

In early 2022, an assessment team visited Venezuela to prepare the country’s mutual evaluation report (MER). The team raised concerns about the ML risks associated with the nation’s large informal economy, which includes illegal mining. They also highlighted terrorist financing threats linked to the close economic alliance between Caracas and Tehran. Consequently, Venezuela has been added to the grey list and has agreed to implement its FATF action plan, which includes: 

• Strengthening its understanding of ML/TF risks, including in relation to terrorist financing and legal persons and arrangements.
• Ensuring the full range of financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) are subject to AML/CFT measures and risk-based supervision.
• Ensuring that adequate, accurate, and up-to-date beneficial ownership information is accessible promptly.
• Enhancing the resources of the financial intelligence unit (FIU) and improving competent authorities’ use of financial intelligence.
• Enhancing the investigation and prosecution of ML/TF.
• Ensuring that measures to prevent the abuse of non-profit organizations (NPOs) for terrorist financing are targeted, proportionate, and risk-based and do not disrupt or discourage legitimate activities within the NPO sector.
• Implementing targeted financial sanctions related to terrorism financing and proliferation financing without delay.

Jamaica and Türkiye removed from the grey list

Jamaica

In February 2020, Jamaica was placed on the grey list due to various deficiencies. These included the need to prevent legal persons and arrangements from being misused for criminal purposes, as well as the prompt implementation of targeted financial sanctions for terrorist financing. Since then, Jamaica has worked to implement its 13-point action plan by:

• Developing a more comprehensive understanding of its ML/TF risk, including all FIs and DNFBPs in its AML/CFT regime.
• Taking measures to prevent misuse of legal entities.
• Increasing the use of financial information.
• Implementing targeted financial sanctions for terrorist financing without delay. 

As a result of their progress, Jamaica has been removed from the grey list. Looking forward, Jamaica’s Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, has said that before the end of 2025, Jamaica will be focusing on amending or introducing new laws to:

• Regulate virtual assets and virtual asset providers.
• Make the registration of non-profit organizations mandatory.
• Promulgate regulations that address certain targeted financial sanctions related to proliferation.

Türkiye

In October 2021, Turkey was added to the grey list for failing to adequately supervise banking, real estate, and other sectors vulnerable to ML, including cryptocurrency. Since then, the country has committed to implementing its FATF action plan by enhancing AML/CFT supervision, imposing strong penalties for violations, and improving financial intelligence use. 

As part of its efforts to enhance the country’s AML regime, the Turkish parliament passed a new cryptocurrency law on June 26, 2024. The law mandates that crypto asset service providers must obtain permission from the Capital Markets Board (SPK) before they can begin operating. Existing service providers will need to apply for a license within one month of the law being enacted, or they must declare their decision to liquidate within three months. The bill also includes definitions relating to crypto assets and providing crypto asset-related services.

After being removed from the grey list, Turkish Vice President Cevdet Yilmaz highlighted the significant positive effects on the country’s financial and real estate sector. In particular, he hopes the development will substantially bolster international investors’ confidence in Türkiye’s economic infrastructure. Moreover, Yilmaz pointed out that the heightened interest in Turkish lira assets, spurred by increased national capital inflows, would further hasten the disinflation process.

Revised International Cooperation Review Group (ICRG) criteria

New criteria have been approved for selecting countries for examination by the International Cooperation Review Group (ICRG). This process aims to identify countries with deficiencies in their AML/CFT frameworks that pose risks to the global financial system. The FATF may list these countries as either “grey” or “black”, indicating different levels of concern. The revised criteria are set to be implemented in the forthcoming assessment cycle.

This update to the prioritization criteria is part of a series of measures intended to refine the FATF’s listing procedure and make it more equitable and transparent. The watchdog also recognized the unique challenges the least developed countries faced in meeting its standards. By considering these challenges, the FATF aims to provide a fairer assessment framework that acknowledges the varying capacities of countries to address AML/CFT deficiencies.

Methodology revisions

The global watchdog also agreed on how countries will be assessed for their adherence to the updated FATF Standards regarding asset recovery and international cooperation. These standards were revised and adopted in October 2023 to enhance the global fight against financial crimes. Moving forward, each country must demonstrate a commitment to several key practices to ensure compliance with these revised standards:

• First and foremost, countries are required to show they are making asset recovery a priority. This involves the competent authorities actively identifying and tracing properties involved in criminal activities. Moreover, these authorities must be successful in obtaining and enforcing confiscation orders. By doing so, they can effectively deprive criminals of their ill-gotten gains.
• Additionally, countries are expected to facilitate constructive and timely international cooperation. Given the often cross-border nature of financial crimes, this aspect is crucial for the efficient recovery of assets and the broader effort to combat such crimes.

These measures aim to fortify global financial security by ensuring countries are equipped and willing to tackle the challenges associated with asset recovery and international legal cooperation. Compliance with these revised standards will be assessed regularly to guarantee countries remain committed to these objectives.

Mutual evaluation preparations: India and Kuwait

Two MERs were discussed in detail at the plenary. Regarding India’s report, the watchdog praised its high technical compliance with FATF standards and acknowledged the effectiveness of its regime in areas like understanding ML/TF risks, international cooperation, and the use of financial intelligence. However, it was pointed out that India could enhance its efforts by:

• Supervising and implementing preventive measures in certain non-financial sectors.
• Improving the timeliness of ML/TF prosecutions.
• Tailoring CTF measures for the non-profit sector to better match a risk-based approach. 

On the other hand, Kuwait’s evaluation concluded that the country has a robust legal and supervisory framework to combat ML/TF/PF. Yet, there are significant weaknesses in achieving effective outcomes. Kuwait is advised to: 

• Deepen its understanding of ML/TF risks.
• Strengthen TF investigations and prosecutions.
• Ensure the quick legal freezing of terrorism or weapons of mass destruction-related assets.
• Enhance preventive measures against legal person misuse while protecting the non-profit sector from TF risks. 

Both countries’ reports are pending publication following the FATF’s final quality and consistency review.

The State of Compliance 2024

From developing a more strategic AML roadmap to a layered approach to sanctions compliance, this four-part webinar series provides compliance professionals with access to our Regulatory Affairs team and an array of industry experts ready to share the latest trends and best practices.

Register now

Strategic priorities

Existing initiatives

Being the final plenary under the FATF’s Singapore presidency, an update was given relating to each strategic priority that T. Raja Kumar initially set out in July 2022. 

• DNFBP compliance review: The FATF has completed its review of the measures that its members have in place to prevent gatekeepers (such as accountants, lawyers, real estate agents, and trust and company service providers) from being used to facilitate ML/TF. The FATF will publish the findings of this review in July 2024.
• Virtual assets standards update: The FATF will publish its fifth annual update on jurisdictions’ progress in implementing the FATF Standards on virtual assets and virtual asset service providers (VA/VASPs). While some progress has been made since the last update, most jurisdictions are only partially or not compliant with the standards, leaving VAs and VASPs vulnerable to misuse. The FATF is calling on all jurisdictions to swiftly and completely implement the requirements and will continue to monitor the situation. The fifth annual update will also be published in July 2024.
• Payment transparency revision: The FATF is updating its standards to reflect changes in cross-border payment systems, industry standards (especially ISO 20022), and ensure AML/CFT compliance. The plenary also discussed the results of a public consultation on draft amendments, aiming to make cross-border payments faster, cheaper, and more transparent. As a result, it was determined that further discussions with relevant experts are needed before finalizing the amendments.
• Global network cooperation: During the FATF-FSRB Annual High-Level Meeting, the representatives discussed progress in implementing the 2022 Strategic vision for the Global Network. As a result, they agreed on three priorities for the coming year:
  • Increasing FATF-Style Regional Bodies’ (FSRB) participation in FATF work.
  • Preparing for new mutual evaluations.
  • Strengthening regional AML/CFT expertise. 
• Women in FATF and the Global Network Initiative: As part of the Women in FATF and the Global Network (WFGN) initiative, Ms. Indranee Rajah, Minister in the Singapore Prime Minister’s Office and Second Minister for Finance and National Development, launched the e-book “Breaking Barriers: Inspiring the Next Generation of Women Leaders.” The e-book is part of the Singapore Presidency’s efforts to support women leaders and complements the multicultural mentoring program and other initiatives to strengthen the FATF and Global Network community.

Priorities of the incoming Mexican presidency

In February 2024, Ms Elisa de Anda Madrazo of Mexico was announced as the successor to T. Raja Kumar as president of the FATF. Ms de Anda will assume the FATF Presidency from July 1, 2024, to June 30, 2026. In addition to the three priorities mentioned above, Ms de Anda emphasized the following areas of focus for the Mexican presidency:

• Promoting financial inclusion by implementing risk-based standards with a proportional approach.
• Assisting in effectively implementing revised FATF standards, particularly focusing on asset recovery, beneficial ownership, and virtual assets.

Next steps

Compliance staff should ensure they are familiar with the outcomes of the June plenary – particularly relating to any upcoming MERs in countries they operate in. Regarding the changes to the grey list, firms must update the risk scores of relevant countries, with appropriate levels of due diligence being administered as required going forward. 

Dates related to forthcoming guidance issued by the FATF should also be noted. Such guidance will help shape and inform the future regulatory approach of national bodies.

The next FATF plenary is due to take place in October 2024.

Previous plenary coverage from ComplyAdvantage can be found here:

• FATF plenary February 2024
• FATF plenary October 2023
• FATF plenary June 2023
• FATF plenary February 2023
• FATF plenary October 2022
• FATF plenary June 2022

The post FATF plenary June 2024: Changes to the grey list and new priorities appeared first on ComplyAdvantage.

The Corporate Transparency Act (US)

The Corporate Transparency Act (CTA) introduces requirements around beneficial ownership transparency in the US and came into force on January 1, 2024. It requires firms to report their beneficial owners to the government, setting out requirements around how this information should be recorded and reported. Beneficial ownership information includes (BOI): full name, date of birth, current address, and a distinctive identification number.

The Act applies to US and foreign entities doing business in the US. Company directors who do not comply could pay up to $500 per day (up to $10,000) and face jail time of up to two years. Businesses will need to update FinCEN with any material changes. 

A new AML package for Europe (EU)

The EU’s latest AML package is anticipated to be agreed upon in Q1 2024, followed by a three-year transition period. It was introduced after a series of AML/CFT scandals that rocked members of the European Union and to harmonize AML/CFT measures across the EU. The package consists of four separate instruments: (1) A regulation to establish an AML Authority (AMLA), which is anticipated in 2024; (2) A new 6th Anti-Money Laundering Directive for countries to improve their domestic AML/CFT frameworks; (3) A new piece of regulation providing more clarity and guidance for obliged entities required to meet AML/CFT obligations, and (4) An updated Transfer of Funds Regulations (TFRs) clarifying requirements for information accompanying crypto asset transfers. The TFRs were adopted in June 2023. 

Economic Crime Plan 2 (UK)

The UK published an Economic Crime Plan 2 (ECP2) in 2023. It commits the government to decreasing money laundering and increasing asset recovery, tackling kleptocracy and combatting sanctions evasion, reducing fraud, and lowering the threat of international illicit finance to the UK and its interests. The ECP2 indicated it would increase resources for law enforcement, expand the National Crime Agency (NCA)’s capacity to fight corruption through its Combatting Klpetocracy Cell (CKC) and support the Crown Dependencies and British Overseas Territories in introducing beneficial ownership registries. It also detailed “cross-cutting system reforms” with a focus on information sharing, data, and technology, boosting law enforcement capacity via a public-private workforce strategy, reforming the criminal justice system, and providing additional funding to the tune of £400 million until the end of the 2025 financial year.

Tranche 2 reforms (Australia)

Australia is expected to introduce Tranche 2 reforms in 2024/2025 to avoid getting added to the FATF grey list. The Attorney General announced a consultation on AML/CFT reforms and indicated that the government had accepted recommendations included in the Senate’s Inquiry into the adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing regime.

Tranche 2 reforms have long been a point of contention in Australia. The Senate report included an overview of the regulation of Tranche 2 entities, current and emerging challenges in AML, and various recommendations for improvement. Tranche 2 entities include lawyers, real estate agents, casinos, other gambling service providers, auditors, and precious metal and stone dealers.

Recommendations include introducing gatekeeper regulation and improving the AML/CFT framework. It also advises simplifying AML/CFT rules, supporting the use of technologies to meet know your customer (KYC) obligations, applying a risk-based approach to regulation, pursuing a beneficial ownership register, increasing penalties for money laundering and terrorist financing, and boosting resourcing in AUSTRAC. The Australian government committed AUS$14.3 million over four years to support necessary legislative and regulatory reforms. 

AI regulations (G7)

In October 2023, the G7 issued a Statement on the Hiroshima AI Process, announcing the Hiroshima Process International Guiding Principles for Organizations Developing Advanced AI Systems and the Hiroshima Process International Code of Conduct for Organizations Developing Advanced AI Systems to address identified priorities. In November, the United Kingdom brought together government and technology leaders with twenty-eight governments, including the UK, US, EU, Australia, and China, aggregating to the Bletchley Declaration on AI safety. The declaration highlights the need for international cooperation to address risks associated with AI to harness the “transformative positive potential of AI” while ensuring the development of human-centric, trustworthy, and responsible AI. Companies also agreed to test new models with governments before they are released to manage risks. 

Crucially for AML/CFT professionals, regulators, and policymakers are beginning to sketch out how AI could be regulated nationally. Legislative proposals are at various stages of development across – amongst others – the EU, US, Canada, and UK, with more codified requirements likely to be published through 2024. 

The State of Financial Crime 2024

Download our roadmap for the year ahead, built on a survey of 600 financial crime leaders and insights from our regulatory affairs experts.

Download now

The post 5 AML regulations set to shape financial crime in 2024 appeared first on ComplyAdvantage.

With that in mind, I explore three hotspots compliance leaders should watch as 2024 unfolds. 

Russia

The war in Ukraine will likely continue within its current parameters, with further Russian offensive and Ukrainian counter-offensives in the spring and summer. 

The most substantial developments are likely to come off the battlefield, as Western countries will pressure Ukraine to start looking to some form of negotiation. Changing domestic political environments have started to have an effect – Western publics’ attentions shifting elsewhere – and the prospects of changing political leadership in the West have raised questions about the level of commitment to Ukraine in the long term. Indeed, it seems likely that European efforts to find a way to end the conflict on grounds relatively favorable to Ukraine will accelerate if it looks likely that Donald Trump – no great friend to Ukraine – will be re-elected as US President in November. 

Pressure to make a deal might also be brought to bear on Putin from both domestic allies and President Xi. It is notable how careful China has been not to aggravate the US by providing overt military support to Russia. Although there is evidence of some material being supplied through back channels, despite Xi’s promise of a “no limits partnership” in 2022. 

However, even if talks begin, progress is likely to be slow and tortuous, given the level of enmity between both sides. This suggests that any material reduction in Western sanctions against Russia will be extremely unlikely in 2024.

North Korea

There can be little doubt that the regime in Pyongyang will persist in its pattern of defiance and confrontation, emboldened by its growing ties to Russia. There is always the risk that North Korea will go a step too far, firing a ballistic missile through Japanese airspace, downing a Western surveillance flight, or conducting a new nuclear test. The emergence of a more comprehensive military and economic cooperation deal with Russia would also be another potential trigger for a severe response from the US – although, again, there is limited room for additional designations. 

Nonetheless, Pyongyang has become an expert at dancing on the edge of provocation, and it seems probable it will avoid taking actions that would make its life more difficult than it already is. Despite its closer ties with Russia, North Korea knows there are limits to what Russia can provide as long as it continues to claim to support UNSC sanctions. The main factor in what happens next will be China’s attitude. China has, for example, taken exception to Western surveillance flights tracking ship-to-ship transfers off the Korean coast, sometimes responding with dangerous aerial intercepts. But it still insists that it supports the UNSC sanctions. Responding to allegations of weak sanctions implementation from the G7 and EU in July, the Chinese government insisted that it implemented UN sanctions “strictly.” China will, therefore, probably not appreciate North Korea or Russia making moves that will put it in a more awkward position vis-à-vis the US.

China

At the start of 2023, after the Chinese spy balloon debacle, it would have been a brave analyst who would suggest that by year-end, Chinese-Western relations would be in a more stable condition – and yet, they are. 

Despite the current fair weather, several events could push in a negative direction. If the new Taiwanese President – likely the current VP Lai Ching-te – takes a robust approach toward China, Beijing may respond aggressively. Similarly, if Russia faces military defeat, China might feel driven to provide overt material support, which will almost certainly provoke a major Western sanctions response – even in the face of the economic anxieties of US allies in the Asia-Pacific region and Europe. This could, at last, trigger a major Chinese economic counter-response or possibly a blockade or military action against Taiwan.  

But while possible, these outcomes do not look probable. Despite his very public nationalism, President Xi has much to occupy him domestically. With the sacking of major military figures in 2023, it seems unlikely he intends to order the People’s Liberation Army (PLA) into action in 2024. 

The State of Financial Crime 2024

Download our roadmap for the year ahead, built on a survey of 600 financial crime leaders and insights from our regulatory affairs experts.

Download now

The post Sanctions 2024: Which hotspots should you be watching? appeared first on ComplyAdvantage.

Reasons to be fearful

The convergence of cybercrime and money laundering

Cybercrime is anticipated to cost $9.5 trillion in 2024, with our latest State of Financial Crime survey revealing that cybersecurity is now a major focus for financial institutions. 87 percent of firms are hiring new staff to handle the increasing number of cybersecurity threats, 86 percent are investing in new technology to combat rising cybersecurity threat instances, and 87 percent of organizations are reallocating resources to focus on cybersecurity. 

What’s more, privacy-enhancing technologies (encrypted messaging apps, dark web marketplaces, and digital assets) will continue to protect the identity of criminals and allow for increased collaboration. Data volumes continue to increase, with 100 zettabytes of data stored in the cloud worldwide by 2025. By 2027, the number of connection points across the Internet of Things will almost double to 29 billion, generating “almost unlimited” digital attack surfaces that criminals can use to launch ransomware, identity, or data theft strikes. By 2031, ransomware victims will lose $265 billion, with attacks expected every two seconds. 

The metaverse is another frontier that criminals could exploit with concerns around privacy and security being compromised, such as biometric data, manipulation through avatars, the theft of virtual property, and human-like interaction that could lead to fraud, scams, and radicalization.

A PEP avalanche is coming

More than 40 countries will hold elections in 2024, including the United States, India, and the United Kingdom. This will make the politically exposed person (PEP) environment even more complex, as allegations of corruption, money laundering, and judiciary intervention could emerge as part of political posturing. The electoral results could have implications for sanctions and, in some cases, either strengthen or weaken the resolve of countries to tackle illicit financial flows. Our survey showed firms are braced for a year of uncertainty. 61 percent of compliance leaders said they plan to become more risk-averse when managing PEPs over the next 12 months. 73 percent also said they would need to reduce their reliance on manual screening processes, indicating potential technological hurdles firms need to overcome before election season ramps up. 

Reasons to be cheerful 

Fighting financial crime with AI

While much has – rightly – been written about the risks of AI-based technologies, overall, we can be optimistic about their potential to make financial crime fighting more efficient and effective. AI is increasingly deployed in solutions such as customer onboarding, adverse media and sanctions screening, transaction monitoring, and automated reporting to regulators. AI-based solutions can reduce false positives, enrich customer data, and identify new risks. On a global basis, the AI market was anticipated to reach US$241.8 billion by the end of 2023. In areas where concerns remain, like explainability, regulators increasingly look to those using or providing AI models to have clear and understandable information on the AI model’s capabilities and limitations and transparent and traceable decision-making processes. With a wide range of legislation likely to be implemented in 2024, firms will also likely receive greater clarity on policymakers’ expectations. 

Real-time payments adoption is growing

One area where continued financial services innovation is most visible is real-time payments. Open banking, contactless payments, digital wallets, buy-now, pay later (BNPL) schemes, and digital currencies are all improving the customer experience. While these services create significant challenges for financial crime compliance, their net benefit for consumers is positive. Open banking continues to take the world by storm through application programming interfaces (APIs) to share data between financial institutions and third-party service providers to make instant (real-time) payments. Over 60 countries have introduced an instant payment system based on different models, such as centralized or decentralized APIs, with varying degrees of regulatory involvement. In our global survey, 46 percent of organizations shared that they were already part of a real-time payments program, with an additional 44 percent indicating that they have plans to join a real-time payments program. 

The State of Financial Crime 2024

Download our roadmap for the year ahead, built on a survey of 600 financial crime leaders and insights from our regulatory affairs experts.

Download now

The post Reasons to be fearful – and cheerful – about the state of financial crime in 2024 appeared first on ComplyAdvantage.

In this article, our regulatory affairs experts forecast three top issues that will shape compliance leaders’ in-trays in the year ahead:

1. Rooting out terrorist financing will drive greater scrutiny of transaction flows and alternative payment mechanisms

The war in Gaza, ongoing unrest in Nigeria, coups in West and Central Africa, and the military junta in Myanmar demonstrate that watchlists aren’t enough to cut off funding for terrorists and uprisings. More needs to be done to identify and stop the financing pipelines that are supporting violent and repressive regimes around the globe. The Financial Action Task Force (FATF) and the United Nations have identified cryptocurrencies and crowdfunding platforms as key sectors terrorists use to raise money, increasing the likelihood of regulatory oversight in the new year.

“The crowdfunding sector has created a fast and easy way for members of the public to raise money for everything from worthy causes to medical treatments and dream vacations. Unfortunately, these same platforms are also being used to channel money to some of the biggest terrorist organizations around the globe. Tech and financial services companies need to step up their efforts to accurately identify their customers and confirm where their money is really going,” said Alia Mahmud, Global Regulatory Affairs Practice Lead for ComplyAdvantage.

2. AI will move sanctions enforcement beyond watchlist screening to identify risk signals in the sanctioned individual’s network

Sanctions are one of the best tools governments have to deter financial bad actors, but enforcement needs to move beyond watchlist screening to implement enforcement based on connected risk signals. With ongoing conflicts in the Middle East and Ukraine, policymakers will re-examine the efficacy of their sanctions programs to increase the pressure on persons and entities connected to sanctioned officials who may be enabling them to evade restrictions. By looking at risk data points collectively – identity, business associations, transaction activity – banks and other financial institutions can identify a strong risk signal of suspicious activity. Solving financial crime isn’t just a screening problem; it is a network problem, and regulators will expect companies to leverage new technologies to treat it as such.

“With unlimited time and resources, financial institutions could uncover any and all risky connections a sanctioned person has. But that’s not realistic. Artificial intelligence (AI) combined with rich data, graph analytics, and oversight has the potential to create a defense network that would give sanctions the teeth to cut off the money that funds terrorists, wars, human trafficking, and other crimes,” continued Mahmud.

3. Discussion about AI will shift to managing bias, modeling, and transparency

The benefits AI brings to fraud and AML risk detection were such a focus in 2023 that adoption has grown significantly. As this continues through 2024, the conversation will shift to how and where these models are used, emphasizing training and transparency.   

“As we head into 2024, the question is no longer if companies invest in AI, but what kinds of skills their analysts need to ensure that the models they use are effective and that they can justify decisions that they make to auditors,” said Iain Armstrong, Regulatory Affairs Practice Lead for ComplyAdvantage. “Key skillsets such as data preprocessing, model performance monitoring and optimization, and experience in automated decision-making strategies will be in demand. Staff in existing anti-financial crime roles will benefit massively from gaining a base-level understanding of machine learning and AI. Companies that invest in staff training in this area will reap the dividends.”

The State of Financial Crime 2024

Download our roadmap for the year ahead, built on a survey of 600 financial crime leaders and insights from our regulatory affairs experts.

Download now

The post 2024 financial crime predictions: From international conflict to emerging technologies appeared first on ComplyAdvantage.

“Our research shows funds are being laundered faster than ever across multiple jurisdictions and sectors, leaving a trail of victims,” said FATF President T. Raja Kumar. “Left unchecked, this threat will only grow further in an increasingly digitalized world.”

The state of cyber-enabled fraud

While the global scale of CEF is difficult to ascertain, it is estimated that 80 percent of all fraud in the UK is cyber-enabled. The report notes that the growth of CEF can be attributed to the increasing use of new technologies, smartphones, and remote financial transactions, which have made users more vulnerable to fraudulent activities. Additionally, anonymity-enhancing technologies like virtual private networks (VPNs) have made it easier for criminals to carry out illicit activities while remaining anonymous.

When highlighting common tactics used in CEF, the FATF highlighted the use of shell companies and individual money mules. In many situations, criminals will recruit money mules via job offers and social media and sometimes instruct them to act as strawmen or open corporate accounts to hide criminal ownership. In cases of online trading fraud, criminals may also use these shell companies to create virtual point-of-sale accounts with merchant services companies to process payments and transfers from victims.

According to the FATF, the following typologies are considered types of CEF: 

• Business email compromise (BEC) fraud.
• Phishing fraud.
• Social media and telecommunication impersonation fraud.
• Online trading/ trading platform fraud.
• Online romance fraud.
• Employment scams.

While illicit financing related to ransomware and other malware-enabled crimes are considered cyber-enabled crimes, these typologies are not within the scope of this report. For more information on these areas, the FATF points to its March 2023 guide on Countering Ransomware Financing.

Risk indicators 

Drawing from experience and data received from jurisdictions across the FATF Global Network, the Egmont Group, and the private sector, the report highlights several risk indicators of CEF, including:

• Transactions that are rapid or high-value, soon after the account opening, which are not consistent with the account’s purpose.
• Large and frequent transactions that do not match the economic profile of the account holder.
• Small initial payments to a beneficiary, followed by larger payments to the same beneficiary in quick succession.
• Transaction requests marked as “Urgent”, “Secret”, or “Confidential”.
• Transactions directed to known beneficiaries but with different account information to what was previously used.
• Transactions with device time zone mismatches.
• Online behavior anomalies such as delays in entering data, hesitation, multiple failed login attempts, and signs of automation.
• Presence of negative news on customers or counterparties, such as being a known or suspected victim of a scam, mule, or identity theft.
• Abnormal activity of virtual assets from peer-to-peer platform-associated wallets with no logical business explanation.

While an indicator may be discovered in relation to a customer account or transaction, the FATF notes that a single red flag may not warrant suspicion of cyber-enabled fraud on its own. Nor will a single indicator necessarily provide a clear indication of such activity. However, should compliance staff identify any additional indicators, teams should undertake further monitoring and examination as appropriate.

Anti-fraud requirements and controls

In light of these risk indicators, the FATF also provided examples of how anti-fraud measures can be adopted in parallel with anti-money laundering and combatting the financing of terrorism (AML/CFT) controls. Useful for financial institutions (FIs), virtual asset service providers (VASPs), and other financial and payment institutions, the ten measures listed by the FATF include:

1. Robust know your customer (KYC) and know your business (KYB) processes: This may include utilizing biometric features during onboarding and identifying a single mobile or secure device for authenticating online banking transactions.
2. Cooling-off periods: By introducing a cooling-off period for first-time enrolment of online banking services or secure devices, the full suite of banking services will not be immediately available on opening, and the number or value of financial transactions for the customer will be limited.
3. Definition of expected transactions: This could include the number of transactions, amounts, types of counterparties, and countries involved. This will help detect suspicious transactions and tighten fraud detection rules and triggers to block illicit transactions pre-emptively.
4. Verification of payee services: These services allow the originator/payer/debtor of a transfer order to check that the beneficiary/payee/creditor mentioned in the payment messages matches the name of the account holder.
5. Reducing communication: By reducing communication via email and social media with clients to general information only, customers should be better equipped to spot fraudulent communications and scam attempts.
6. Voice recognition and artificial intelligence: This could include adding voice recognition software and artificial intelligence support in communication with clients to ensure their true identity.
7. Multi-factor authentication mechanisms: These mechanisms could be used for customer verification and for performing financial transactions.
8. Client identification processes: Improving the reliability of the client identification process through methods like liveness tests can play a vital role in verifying the user’s identity during remote setup. It can also prevent criminals from accessing multiple accounts using the account information of money mules or victims. 
9. Expanding customer data: Additional information may include mobile phone numbers, IP addresses, GPS coordinates, device IDs, etc. As a result, analysts have more data to work from if and when anomalous behavior is detected.
10. Real-time transaction monitoring: By implementing a risk-based real-time transaction monitoring system, firms can ensure that any abnormal activity is swiftly detected, investigated, and, where relevant, reported through the filing of a suspicious transaction report. The sophistication of the monitoring system should be commensurate with the volume and nature of transactions handled by the FI.

Key takeaways: What should compliance staff prioritize?

With cyber-enabled crimes expected to grow, the FATF concludes its report with three strategies to enhance risk mitigation efforts:

• Break down silos within compliance teams.
• Promote collaboration across the public and private sectors on a domestic and international level.
• Enhance detection and prevention measures by promoting awareness and vigilance and facilitating reporting of such crimes. 

To this end, firms should ensure their compliance teams are well-trained in recognizing the risk indicators highlighted in the FATF’s report. Organizations may also consider reviewing their ongoing monitoring measures to ensure their system can detect and prevent fraudulent transactions within specific cybercrime scenarios. This may include creating bespoke rulesets in their transaction monitoring and fraud detection solutions to better detect common patterns of fraudulent behavior they might be particularly exposed to. 

To learn more about the key takeaways from October’s plenary session, read our coverage here.

The post FATF publishes report on illicit financial flows from cyber-enabled fraud appeared first on ComplyAdvantage.

“Fraudulent health care billing drives up the cost of medical services for all those who need it. We will continue to aggressively investigate and prosecute those who take advantage of health care plans,” said US Attorney Breon Peace.

The international telemedicine scheme

Over a period of five years, Sutton and his co-conspirators operated from call centers in Utah before relocating to Russia. They targeted beneficiaries by offering prescription medications without required medical examinations. Sutton’s network, operating under aliases and utilizing encrypted communications, extended its influence by acquiring brick-and-mortar pharmacies in various states. To obscure their involvement, the group employed intricate money laundering tactics, funneling millions of dollars through shell companies and straw owners.

Upon securing the pharmacies, the fraudsters implemented pharmacy management software for remote reimbursement requests. Their team of “billers” submitted over $500 million in reimbursement requests for more than 50 pharmacies, leading to private insurers paying out over $280 million. 

While Sutton remains at large, his co-conspirators, Dela Saidazim and David Gary Bishoff, pleaded guilty in February 2023 and March 2023 respectively to health care fraud conspiracy. Both await sentencing. Three other defendants have been charged, and two more await arraigning. 

Health care fraud: Scenarios and red flags

According to the DOJ, health care fraud results in over one billion dollars in estimated losses each year from Medicare, Medicaid, and private insurance programs. In addition to this case of fraudulent marketing of services and misrepresenting charges, examples of health care fraud include:

• Billing for services or equipment that were never provided.
• Falsifying certificates of medical necessity.
• Billing for individual services that should be included in a single fee.
• Falsifying plans of treatment or medical records to justify payments.
• Misrepresenting diagnoses or procedures to maximize payments.
• Forgery of prescriptions and diverting prescription medication.
• Soliciting kickbacks for the provision of various services or goods.

To effectively prevent and detect these activities, compliance teams should familiarize themselves with the following transactional red flag indicators:

• Unusual cash deposits and withdrawals.
• The principal receiving payment from unrelated medical providers.
• Providers conducting business transactions that are not comparable to other similar businesses in terms of types, volumes, or velocity.
• Providers receiving payments from out-of-state insurers while allegedly treating local patients or local providers treating out-of-state patients.
• Transferring insurance payments through multiple accounts to avoid detection.
• False documentation to support transactions, such as sequential invoices or dates of service on holidays.

Key takeaways

When filing a suspicious activity report (SAR) relating to potential health care fraud, the Financial Crimes Enforcement Network’s (FinCEN) Health Care-Related Fraud Advisory asks compliance staff to reference the guidance by including the key term “FIN-2021-A001” and select SAR field 34g (health care – public or private health insurance). 

While the advisory includes a lot of information specific to COVID-19 health insurance fraud, the guidance also includes two case studies that highlight the variety of methods criminals use to launder fraudulent funds. As these methods continue to evolve, compliance teams should ensure they keep up with emerging trends and calibrate their fraud detection software accordingly, taking a risk-based approach. 

The post Health care fraud and money laundering conspiracy members charged in international telemedicine scheme appeared first on ComplyAdvantage.

“Close coordination and early information sharing are crucial ingredients in the successful fight against [terrorism],… and this is precisely what we expect to achieve by reinforcing the Counter-Terrorism Register,” said Eurojust President Ladislav Hamran.

Improving the digital exchange of information

Launched in September 2019 in light of the 2015 terrorist attacks in Paris and Saint-Denis, the CTR is an operational tool that helps identify links between suspects and terrorist networks previously unknown to national authorities. Historically, information on judicial proceedings against suspects of terrorist offenses was transmitted to Eurojust on the basis of Council Decision 2005/671/JHA.

However, in December 2021, the European Commission proposed an amendment to the Eurojust Regulation to improve the digital exchange of information. The Commission proposed removing the Council Decision provision so information could be transmitted to the agency as soon as a case is referred to judicial authorities.

Specifically, the amendment sought to achieve the following objectives:

• Enhance Eurojust’s ability to identify links between prior and ongoing cross-border terrorism cases and other forms of serious cross-border crimes. 
• Establish a modern case management system (CMS) that provides a secure digital communication channel between Member States and Eurojust.
• Simplify cooperation with third countries by granting Liaison Prosecutors direct access to the CMS.

Following its formal adoption by the European Parliament and the Council, the legislative amendment of the Eurojust Regulation was published in the Official Journal of the European Union on October 4, 2023.

To further improve the EU’s information-sharing procedures, Eurojust is also setting up a new digital infrastructure that will include a CMS that integrates and enables the functionalities of the CTR. The system will be connected to national authorities through secure communication channels in accordance with the European Commission’s plan to modernize the EU justice systems.

FATF recommendations for responsible information-sharing

The Financial Action Task Force (FATF) emphasizes the importance of effective information sharing in its 2022 report on Data Protection, Technology, and Private Sector Information Sharing. In the report, the FATF outlines how timely information sharing can help financial institutions (FIs) develop innovative techniques to tackle money laundering and terrorist financing more effectively.

In light of the focus on enhanced information sharing to fight financial crime, compliance teams may consider exploring and assessing their own information-sharing protocols to help combat complex modern crimes. When doing this, the FATF recommends: 

• Conduct privacy risk assessments, data protection impact assessments (DPIAs), and human rights impact assessments (HRIAs).
• Ensure AML/CFT experts and technology providers are engaged in any discussions on information-sharing initiatives to help ensure the technical design and output of the initiative are in line with objectives.
• Make use of existing available data prepared in structured format (e.g., data fields used in SWIFT).
• Set clear performance indicators or metrics to assess results and measure success to ensure the information-sharing initiatives reach their goals. 
• Take into account local regulation and context.
• Take a phased approach.
• Introduce data cleansing initiatives prior to sharing.

The post EU authorities step up efforts to combat terrorism through information sharing appeared first on ComplyAdvantage.