Hunting down hidden money: how governments are fighting illicit finance

By on 25/01/2023 | Updated on 25/01/2023
Around US$2 trillion is estimated to be laundered globally each year, with bribery and corruption thought to equate to around 5% of global GDP. Photo by Dima D via Pexels

Experts on the panel of a Global Government Forum webinar shone a spotlight on the scale of illicit finance and the crimes that benefit from it, and explained what governments around the world can do to get a grip on the problem

Fraud, corruption and money laundering are an increasing concern for governments around the world, which lose billions of dollars in public money each year to criminals. Cases of financial crime surged during the COVID-19 pandemic and have also proliferated as a result of Russia’s invasion of Ukraine, with experts warning that not only do criminals use illicit finance to hide the proceeds of heinous activities such as human trafficking and child sexual exploitation, but that it is also used increasingly by autocratic states to erode democracy abroad.

At a Global Government Forum webinar held last month, public and private sector experts from Canada, the UK, the Republic of Ireland, and Germany, discussed how governments can tackle financial crime – with examples of successful projects and programmes – including building the required capacity and capabilities, facilitating intelligence sharing, utilising digital technologies, crypto regulation, forging public-private partnerships, and the need for global cooperation.

Here, we present snippets of the conversation with accompanying clips from the webinar.  

In his opening remarks, Barry MacKillop, deputy director of intelligence at the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), highlighted that money laundering is a global problem that requires a global approach. Though “no single approach works for all” – not least because laws, priorities and the intelligence makeup of each country are different – he said it is imperative for governments to focus on the same goal, to learn from each other and to work together to tackle fraud. This can be done though groups such as the Global Coalition to Fight Financial Crime, for example, which enables governments to share examples of best practice and to apply components of what works in other countries at home.  

One of Canada’s approaches to confronting the issue of illicit finance is to make use of public-private partnerships. MacKillop gave the example of Project Protect – one of the country’s flagship initiatives in this area – which came about following a discussion with Timea Nagy, a human trafficking survivor and activist, who suggested the government use financial intelligence to address human trafficking. Working with Nagy, NGOs, law enforcement and major financial institutions, FINTRAC delved into its reporting capabilities and generated actionable financial indicators and algorithms that can be used by organisations to more easily uncover suspect internal transactions and human trafficking activity. As a result of the project, associated disclosures – to law enforcement bodies and others – have skyrocketed.

“Prior to 2016, when we launched Project Protect, we’d done 40 disclosures in 16 years,” MacKillop said. “Since 2016, we’ve done over 1,500 financial disclosures on human trafficking.”

He said the initiative had given rise to a number of other projects focusing on, for example, combatting fentanyl trafficking, romance scams, underground banking, child sexual exploitation on the internet, and the illicit cannabis market.  

What FINTRAC is exploring next, MacKillop said, is the opportunity for international public-private partnerships in which the banks of several countries work together on similar indicators with the goal of addressing a particular crime associated with money laundering.

Next, Chris Bostock, director of the financial crime team at Deloitte – the webinar’s knowledge partner – told the audience why he thinks money laundering and similar crimes are not being tackled as well as they might and what can be done to address this.   

He started by highlighting the scale of financial crime. Around US$2 trillion is estimated to be laundered globally each year, with bribery and corruption thought to equate to around 5% of global GDP. And it isn’t just the financial loss that is high – so too is the human cost, with illicit finance channels enabling criminals to profit from terrible crimes.

Despite the efforts of public and private sector organisations, which spend trillions of dollars trying to tackle the problem, he said “the outcomes at the moment sadly represent a collective failure”. A “generous assessment” estimates that only 1% of the proceeds of related crimes are recovered, whilst in the UK for example, only 3% of fraud cases result in conviction. Paraphrasing the academic Ronald Pol, he said the anti-money laundering (AML) system had been “the world’s least effective policy experiment”.  

Bostock identified five reasons that AML efforts are not effective:

  • Mirroring MacKillop’s point, he said that partnerships are “absolutely critical” but also “sadly underdeveloped globally”.
  • While criminals can move money in the blink of an eye, it can take law enforcement days, months or even years to track money flows – particularly those that cross borders – demanding greater agility.
  • A lack of information sharing between stakeholders. Criminals “actively and deliberately exploit the silos that exist between the stakeholders in the system,” he said.
  • Governments and law enforcement don’t have the capacity and capabilities to deal with the scale of the threat.
  • Regulatory frameworks, he said, “can lock some of the capacity that exists in the private sector into lower value activities that don’t necessarily deliver as many outcomes against criminals as we would like”.  

As well as addressing these shortcomings, what is also important, Bostock said, is for governments to lead the fight. “An effective financial crime framework requires a coherent approach across policymakers, law enforcement, regulators, supervisors, and the private sector. And without that clear system leader, who has a hand on the tiller, it’s too easy for all of those stakeholders to be working at odds with each other – and that only benefits the criminals.”

He promoted the development of national strategies, which focus on developing information sharing initiatives and formalising public-private partnerships.

Bostock pointed to the Canadian examples of public-private partnerships given earlier by MacKillop, as well as the UK’s Joint Money Laundering Intelligence Taskforce (JMLIT) and the Fintel Alliance Australia.

“Those public-private partnerships are different but they’re all tailored to local circumstances, local risk appetite, and they’re all a great start. They help to build trust, they will help to enable both tactical and strategic information sharing, and also to start collaborating on policy development as well,” he said.  

Bostock concluded his opening comments by emphasising the importance of digital and technology, highlighting automation, which could be used to bring stakeholders’ datasets together and to help identify patterns so that crime can be detected “more efficiently, more effectively”.

Brenda McVeigh, head of AML/sanctions at Ireland’s Department of Finance, explained at the beginning of her segment that as a central government department, traditionally, the main role of the finance department and associated agencies in the realm of anti-money laundering has been to provide the legislative framework underpinning supervision, regulation and compliance, as well as to gather the statistics needed to formulate policy proposals domestically and – in Ireland’s case as a European Union member state – to meet EU obligations.

However, she said that increasingly – in part due to the growing breadth of crimes needing to be addressed – governments are having to take the leadership role mentioned by Bostock and establish forums for discussion and collaboration between the public and private sector.

One of the things it is important for government to do, she said, is to invest in agencies tasked with asset tracing and asset seizure because “we’re very good at following the money [but] actually grabbing the proceeds of crime is a whole different ball game”.

To address this, the Irish government is exploring providing “a more appropriate punitive framework to make money laundering as unattractive and difficult as possible for criminals”. But McVeigh warned that because governments are not involved in day-to-day supervision and compliance measures, they are automatically on the ‘back foot’.  

“We can’t be quick enough sometimes to act because we’re not in the middle of the operations… we’re always coming out after the event and trying to plug holes as opposed to getting ahead of the money laundering problem,” she said.  

One of the ways the Irish government has “tried to get more agile about some of these macro issues” is to establish a government-led AML steering committee – a public-private partnership between government departments and agencies, the central bank, finance intelligence unit, self-regulatory bodies and the private sector – which delves into specific projects and recommend policy responses.

She said Ireland is “fully embracing the need to take a risk-based rather than rules-based approach to tackling money laundering”, and also that the Republic is “trying to do better” on statistics gathering and analysis, focusing on promoting public-private data sharing without falling foul of GDPR and privacy rights issues.

On GDPR, she said she has “long been of the view… that actually governments collectively need to consider whether GDPR rules need to bend around AML systems rather than what has been the case to date – that AML development and AML policy initiatives… work around GDPR. I just think that’s a little bit backward.”

She went on to talk about the European Union’s AML package. While she thinks much of it is to be welcomed, in her opinion certain aspects of it have been “very rushed” and would benefit from being drafted separately for more focused consideration. One of those areas is crypto, which she think merits a more in-depth exploration of the risks, of who the concerning players are, and of what assets might be attractive from a money laundering perspective.

One of her concerns is the demonisation of the crypto sector – “the tighter you squeeze that sector, in terms of supervision and regulation, actually, the more likely you are to drive a lot of this activity underground, which is what we really wanted to avoid”, she said.

Like Bostock, she also touched on digital technology and what governments can do to make citizens comfortable with more advanced technological systems – those utilising artificial intelligence related to customer ID, for example. “In my view, [that is] essential, alongside various policy initiatives, such as platforms for information sharing, more education and skills training, and higher penalties.”

Daniel Eriksson, CEO of Transparency International’s Secretariat, kicked off his comments with the Germany-based non-governmental organisation’s mantra: For the corrupt, there should be nothing to steal, nobody to help, and nowhere to hide.

One of the key things to come out of Transparency International’s recent International Anti-Corruption Conference, was the view that corruption has gone from being a topic of financial inefficiency and ethics to one of national security. “Corruption is being used as a tool by autocracies to erode and capture democracies. And they’ve gone beyond the trying – they’re achieving this not only in the global south but in the global north as well,” Eriksson said.  

He said that, as such, the need to address corruption is becoming much more urgent but that a ruling by the European Court of Justice late last year could inhibit progress. That ruling, he explained, blocked public access to beneficial ownership registers, sending the message that “privacy trumps the right to information”.

In Eriksson’s opinion – he has worked on GDPR and data protection issues for many years – the ruling “is a step too far” and “ensures privacy at the cost of democracy”.

“If citizens do not have access to beneficial ownership information, there is no way for civil society and the public at large to dig in and question and investigate transactions, public procurement, whatever it might be,” he said. “Democracies lose the important checks and balance element through civil society by knocking them out.”

Coming back to his point about financial crime perpetrated by certain states – ‘strategic corruption’ as Transparency International refers to it – he explained that it is “the use of corruption as a tool by Russia, China and other players to either buy up strategic infrastructure or fund subversive activity with dark money in democratic states, be that far right political parties, far left extremists, or QAnon-like organisations that work to build mistrust in the states where the operate”.

One of the issues that Transparency International has investigated since Russia’s invasion of Ukraine is the extent to which task forces set up by the G7 have been successful in overseeing the sanctions placed on oligarchs and individuals. Its report on this shows that the task forces require more resources and a clearer, stronger mandate to do their work. “There’s a lot of talk and less walk amongst governments when it actually comes to implementing these sanctions effectively.”

Eriksson concluded by saying: “All in all, from our point of view – as an organisation with a global perspective; we have offices in about 140 countries – what we’re seeing is that the world is waking up to the situation that corruption is not an issue only of the global south, but it’s actually facilitated, enabled and exported by the global north. And the global north has woken up to this situation because we in the democratic or liberal democracies of the world are starting to realise that letting corruption get a foothold means that we get corruption into our democracies… and it can be a threat to our very existence.”

The final panellist to give her opening comments was Laura Eshelby, deputy director for practice, standards and capability at the Public Sector Fraud Authority – an organisation that was set up last year and is based in the UK Cabinet Office.

Eshelby highlighted that the losses resulting from financial crime in the public sector “means the most vulnerable don’t get access to the services they need, and that’s what drives us”.

It is estimated that the UK loses £33bn (US$41bn) annually at minimum as a result of fraud, with COVID-related losses alone thought to be in excess of £13bn (US$16bn) – a figure that, while huge, could have been higher still had it not been for certain crisis measures that were implemented pre-pandemic.

Shortly before COVID hit, Eshelby explained, the UK government produced a toolkit – available on GOV.UK – for managing fraud in emergency situations that was informed by crises such as the bushfires in Australia and hurricanes in the US.

During the pandemic, criminals moved fast, creating phishing emails on subjects such as PPE, testing and the vaccine – and often carrying government branding – to trick people into handing over financial details and identifying information.

To try and tackle this, the UK established an intelligence sharing platform with other Five Eyes countries, enabling them to interact daily on emerging threats.

Among the challenges posed by the pandemic was the exploitation of schemes rolled out by the less mature organisations, whose staff were not used to being responsible for and spending such huge sums at pace, nor with reacting quickly when fraud began to skyrocket.  

Here, and more generally, Eshelby advocates fraud risk assessment, whereby specialists assess risk at the scheme design stage “not once the money has gone out the door or once the policy is in place”. Over the past 18 months, 150 civil servants have been trained to carry out fraud risk assessments – Eshelby hopes it will become a destination career choice – and such assessments are now baked into UK government operations through mandate, which she described as a “massive shift forward”.

Moving on to talk specifically about the Public Sector Fraud Authority (PSFA), which was set up in August last year as part of a £24m (US$30m) investment in counter-fraud over the next three years.

The PSFA’s core mission is to modernise the UK’s approach through capability building in part through the creation of a dedicated counter-fraud function – and a focus on fraud prevention. “We can’t investigate our way out of this problem, whether it’s money laundering, corruption or fraud… there isn’t the capacity in law enforcement to deal with it. Criminal prosecutions [in this area] are very, very low in the UK. So we really need to look at a new approach – putting risk at the heart of it and focusing on prevention,” Eshelby said.

The PSFA is focusing on data and intelligence sharing, and building centralised services that departments and agencies can draw on in the fight against fraud.

One of the things it is working on currently is using network analytics to target organised crime groups and the setting up of a dedicated enforcement unit, on which it is out for consultation. The PSFA is, Eshelby said “trying to build structures for the future” which will be “underpinned by legislative reform”.   

Following the opening presentations, panellists took questions live from the webinar audience. This led to discussion about the specific areas through which dark money is being channelled – housing markets, for example; what controls could be applied to international transaction companies like Apple Pay and PayPal to limit scams; crypto currencies; how you facilitate cross-border data sharing when some countries may not have the technological infrastructure in place to facilitate it; and what the legacy of COVID-19 and the war in Ukraine could be, in terms of money laundering and governments’ response to it.  

Ending on a positive note, Canada’s MacKillop said he believed governments are going to start placing greater emphasis on challenging illicit finance and “see how far they can push the envelope so that the good guys might have a chance to win”.

To learn all this and more, you can watch the 75-minute webinar, Shedding light on dark money: how governments can tackle illicit finance via our dedicated event page. The webinar – hosted by Global Government Forum and supported by knowledge partner Deloitte – was held on 13 December 2022.

About Mia Hunt

Mia is a journalist and editor with a background in covering commercial property, having been market reports and supplements editor at trade title Property Week and deputy editor of Shopping Centre magazine, now known as Retail Destination. She has also undertaken freelance work for several publications including the preview magazine of international trade show, MAPIC, and TES Global (formerly the Times Educational Supplement) and has produced a white paper on energy efficiency in business for E.ON. Between 2014 and 2016, she was a member of the Revo Customer Experience Committee and an ACE Awards judge. Mia graduated from Kingston University with a first-class degree in journalism and was part of the team that produced The River newspaper, which won Publication of the Year at the Guardian Student Media Awards in 2010.

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