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Every $1 in $50 in the banks is laundered money (and maybe more)

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I’ve made the comment many times that it is astounding that around $2 trillion is laundered through the banks of the world each year, up from $1.6 trillion in 2009. It’s about 2.7% of global GDP and $1 in every $50 traded through our banks is criminally driven, getting washed through the complex structures of the global financial system. We have all these AML guys – Anti-Money Laundering bank officials – but they’re not doing their job. If they were, then a foreign investor with a sackful of notes wouldn’t be able to buy a house in London over-the-counter through an offshore entity.

According to PA Consulting, while AML is a global problem, “the UK is front and centre. Criminals launder an estimated £80 billion through the UK every year. And more than 760 UK-registered companies have allegedly been involved in financial crime from countries. Therefore, the UK has a key role to play in helping reduce financial crime globally.”

In fact, I just stumbled across an interesting PDF of their thoughts on AML called Partners Against Crime.

The background is as follows:

Criminals use financial services to launder the proceeds of counterfeiting, fraud, human trafficking, bribery and corruption and more. And the cost is human as well as financial. For example, estimates say 40 million people are trapped in modern slavery as a result of organised crime, costing the global economy €150 billion.

There are a number of ways criminals engage in financial crime. They use technology to control funnel and mule accounts, depositing money in one country and withdrawing it moments later in another. They use compromised individuals, from politicians to professionals like lawyers or accountants, to move money for them. And they target banks’ customers for ‘cash-outs’, or cyber theft.

And their solution is as follows:

Real progress against financial crime requires the following:

  • a change in mindset to start seeing the effort against financial crime not only as a compliance exercise, but as a commitment to overcome one of the biggest challenges to global economies
  • leadership that understands how to overcome technological hurdles and break down organisational silos, as well as invest in technology and change existing systems.

Businesses will need to see the change as an investment in innovation with concrete rewards including:

  • lower cost and more efficiency – businesses will be able to redeploy resources currently devoted to costly manual systems. And they’ll be spending less on compliance
  • stronger reputation – tackling financial crime more actively will boost public trust in the financial system
  • lower risk – businesses with more sophisticated financial crime systems are less likely to face fines for not complying with regulations or losses as a direct result of financial crime.

Partners will also have to solve practical issues including:

  • reaching consensus on what kind of data to share, in what form and at which intervals
  • balancing how to adhere to current data protection laws while identifying new ways to exploit the data
  • agreeing on a common technology platform.

This means coming together with a shared purpose to overcome the barriers, agree what data to share and how, and decide the funding and structures behind the new system.

Hmmm. Methinks AML won’t go away, will continue to grow and is a systemic issue that is not being effectively tackled by financial institutions, governments or corporations, because it is often in their company or national interests to keep it going. After all, the biggest tax avoiding nations in the world are the UK and USA. Why is that going to change?

Meantime, let’s all go and pick on cryptocurrencies, where hardly any money is laundered, but bash that to pieces as our flagellation mantra whilst we all continue to wash money through the system.

Whoops! I think I’ve just turned into a cynic.

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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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