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Banks losing fight against money laundering

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It must be that time of year, e.g. it’s quiet in the summer so let’s release our research and get the headlines. 

After IBM’s report yesterday, I then got KPMG’s report on Anti-Money Laundering (AML) today. 

This
report proves interesting in that it makes it clear that for all the
money banks are being forced to spend on Financial Action Task Force
(FATF) and Wolfsberg procedures, along with Know Your Client (KYC)
operations, they are losing the battle to keep money laundering in
check.

The report estimates money laundering flows to be in excess of $1 trillion a year

Banks
have been the primary target to stem this flow of monies from drug
dealers, arms traffikers and other criminals.  As a result, banks have
increased their spending on AML operations by over 58% in the last
three years, since the last report was produced when banks only
expected spend to increase by 43%.

Some of the highlights of the report include: 

  • 85% of international banks now have a global AML policy in place.
  • 71%
    of those surveyed say their senior management and board of directors
    take an active interest in AML, compared to 61% in 2004
  • 93% of banks saying the burden of regulation is either acceptable or should be increased, although half of them say that AML regulation should be focused more effectively
  • 4
    out of 5 banks now perform detailed due diligence on Politically
    Exposed Persons (PEPs) during account opening, compared to only half of
    the bnaks in 2004

The downside of all of this however is
that 41% of the respondents said they weren't capable of tracking AML
across borders, and 26% were only partly capable. 

In other
words, two-thirds of the world's banks are restricted in their AML
focus to containment within countries, with no way to track across
borders and countries.

This is why internet crime is run from
Country A with targets in Country B to move funds to Country C and
spend the funds in Country D. 

This is why card skimmers steal
card details from Country A to harvest the cards in Country B and
distribute the cards to people in Country C to spend in Country D.

As
with all of these things, the banks cannot be held culpable on their
own, and it requires massive investment and support from all influences
– governmental, legal, enforcement, financial and even societal – if
the poison of crime on the network is to be expunged.  That is why the
report states that “despite good intent and strong commitment, many
banks continue to struggle to design and implement an effective AML
strategy, and they believe that much more needs to be done
internationally to combat money laundering more effectively”.

So, there you have it. 

Banks
are spending a fortune on something that cannot be solved, and only
spend that money because they have to under the regulatory regime.
Governments are trying to work together to sort it out, and introduce
more and more regulation that is ineffective because it only works on a
domestic or regionalised basis.  And law enforcers are streteched,
under-staffed and under-invested.

That’s my take on it anyway.

My solution?

Well,
as all drug dealers seem to deal in cash and most money laundering is
in cash, I'd just get rid of cash.  Cash is anonymous.  That is why
money launderers like it.  That is why we see examples such as this one from Mexico, where a drug dealer was caught with $207 million in cash in their house.

GET RID OF CASH.

There you go.  Problem solved.

If all money were identifiable electronically then launderers and paedophiles would be out of business.

However, cash is still the winning form of payment ... for this very reason.

That's why the last time I laundered any cash was when I left twenty quid in my jeans and bunged them in the washing machine.


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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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