RiskConnect Virtual 2021: How to Follow the Money

RiskConnect Virtual panelists discussed the state of financial crime and the challenges of investigating wrongdoing in a dynamic digital environment. Watch their discussion here.

An intellectual property expert, cybercrime investigator, lawyer and journalist met at a conference. This sounds like the beginning to a joke, however the key takeaways from the RiskConnect ‘How to follow the money’ panel discussion were no laughing matter.

Money laundering is serious, organised crime. The perpetrators are, unsurprisingly, both serious and organised. They’re professional, clever and resourceful. So, what’s the state of financial crime? Is it getting better or worse? And what, can be done to improve the situation?

The global trade in fakes

Counterfeiting and pirating of pharmaceuticals, consumables, luxury goods and intellectual property is the biggest single trans-national criminal activity. It likely exceeds US$1 trillion in retail value, according to Global Financial Integrity, a US think tank. This makes it the #1 predicate offence for money laundering — bigger than illegal narcotics, human trafficking and cybercrime.

The problem is particularly acute in Europe. The EU imports twice as many fakes as the rest of the world, mostly from China. 6.8% of imports from non-EU countries are counterfeit compared to 3.3% globally, according to a 2019 report by the OECD and the EU Intellectual Property Office (EUIPO).

Nathan Wajsman, chief economist, at the EUIPO, took up the story: “Trading in counterfeit goods corresponds to 2.5% of global trade. That doesn’t sound very much. But a small percentage of a very large number is still a very large number.”

“As a European agency looking at this from a purely European perspective, we see imports of fake goods into the EU from third countries to be worth €120 billion a year. These are huge amounts and is not something done by amateurs. It’s not something done in a garage by a local guy dabbling in making fake football jerseys.”

Criminals raise the bar

Ken Gamble, executive director and chairman of international private intelligence and cyber investigationsfirm, IFW Global, agreed on the scale of financial crime today. It’s worse now than it’s ever been in history because it’s so much more sophisticated.

“We’ve busted a huge binary option syndicate with a thousand employees, making $1 million a day. The criminals have risen the bar so much. They’re almost on another plain, given the sophistication of how they operate,” he explained.

Criminals are buying into much of the infrastructure needed to operate their scams, said Gamble. He cited examples of telcos, crypto exchanges, banks and payments companies being under criminal control, with enormous levels of corruption behind some of these syndicates.

“No government in the world has got a strong hold on this sort of crime. This is cross-border fraud because it moves so quickly across multiple jurisdictions. I think I found in one case there were 25 jurisdictions being used in the commission of the crime.”

Abuse of the financial system

Whether it’s counterfeiting, piracy, binary options, kleptocracy or grand corruption, the mechanisms of legitimising ill-gotten gains are similar. Groups of criminals all over the world are using the global financial system to move the proceeds of crime around.

“Estimates of cash seized is below 1% of everything that’s stolen, which clearly shows we’re failing,” said investigative journalist and RiskConnect Virtual keynote speaker, Oliver Bullough. The reasons are many and various: a lack of joined-up thinking, lack of focus, lack of realisation of the urgency of the financial crime problem.

“Until there’s combined efforts around the world, public and private and law enforcement, and until there’s a very concentrated, combined effort, we’re going to see this problem getting worse over time,” maintained Bullough.

Fighting back against financial crime

However, it’s not all doom and gloom regarding financial crime, as asset recovery lawyer Martin Kenney, founder and managing partner of MartinKenney & Co, Solicitors, explained.

There are a few common characteristics of financial crime. There’s the controlling mind behind a well-orchestrated and executed business plan, a specialist involved in handling the proceeds of crime, and usually weakened or non-existent rule of law.

“However, the good news is that every wrongdoer who is operating on a grand scale faces a paradox. A thief knows not to give his money to another thief. The lawbreaker faces the paradox of having to be drawn to legal systems where the rule of law exists, where a contract is meaningful, where a judge will enforce it,” said Kenney.

Ill-gotten gains stolen in countries with weakened legal systems migrate to places with stronger legal systems, because lawbreakers need to rely on legal mechanisms to hold onto what they’ve stolen.

“But if you can compose a team that’s well led and resourced, you can investigate these matters and identify concealed pools of value to attack in places that do obey the rule of law. Or honour it by getting secret orders of disclosure of ownership of offshore company records,” said Kenney as he explained some of the techniques to recover assets.

Kenney also offered advice to delegates, universal in its application. This included placing a strong focus on customer due diligence, with the warning that customers sign up with legitimate credentials but are acting for criminal organisations, so-called clean skins.

Assess your risks by knowing who you’re onboarding, your counterparty and the transaction. Clearly, conduct enhanced due diligence on individuals who present higher risks and, if it’s a bigger risk, put real resources behind managing it.

No victimless crime

The panel agreed that fighting financial crime involved partnership between law enforcement, public and private sector organisations. “We need to work together symbiotically to be effective,” summarised Kenney.

It ended with a rallying cry to compliance professionals: “I always try and bring it back to who the victims of corruption and financial crime are,” said investigative journalist Oliver Bullough.

“It’s easy to get wrapped in the process of compliance. Yet some of the people being defrauded are the most vulnerable in the world – elderly people or the victims of corruption in the global south. Compliance officers are the front line keeping them safe.”

To view this panel discussion on ‘How to follow the money’, visit our Online Academy website. Share the RiskConnect Virtual with your peers, it's is free for everyone.