ACAMS Today spoke with Erik Barnett, regional head of Europe for Financial Crime Threat Mitigation (FCTM) at HSBC, on money laundering risks in Europe, counterterrorism and virtual currencies. In this role, he leads professionals investigating financial crime, preventing fraud, and developing intelligence and analytics capabilities to proactively identify risk in 21 countries in HSBC’s Europe region. FCTM is responsible for investigation, analytics and intelligence, as well as many of the systems engaged in fighting financial crime.
Prior to this role, Barnett was the attaché to the EU for the U.S. Department of Homeland Security and engaged extensively with European law enforcement and Europol on anti-money laundering (AML) and counterterrorism as well as emerging risks.
Formerly, Barnett was the assistant deputy director of U.S. Immigration and Customs Enforcement, where his portfolio included the criminal investigative function of Homeland Security Investigations, a federal law enforcement agency combating illicit trade, travel and finance.
For fifteen years, Barnett was a criminal prosecutor, working ultimately at the U.S. Department of Justice where he led units investigating narcotics trafficking and transnational violent crime. Barnett also worked for over five years in the U.S. Congress and was an adjunct faculty member at two law schools, teaching legal writing and trial advocacy.
ACAMS Today: Part of your responsibilities at HSBC include identifying risks in the European region. At this time, what are the biggest money laundering risks facing the area?
Erik Barnett: The risks are many and varied and include transnational, regional and global threats. Transnational crime groups and other bad actors are drawn to global banks such as HSBC due to our size, product offerings and their need to legitimize criminal finances. In terms of criminal monetary loss or gain, fraud, tax evasion, market abuse and trade-based money laundering are still the largest crime areas across the region, but also significant is the distribution of illegal drugs, terrorist finance, human trafficking and smuggling, as well as the commission of large-scale fraud and movement of those proceeds. It remains a complicated landscape.
AT: How is your institution mitigating those risks and has law enforcement played a role in assisting to mitigate those risks?
EB: At HSBC, we have a fundamental responsibility to help protect the integrity of the financial system on which we all depend. We’re using our knowledge and global reach to lead the fight against financial crime, which will benefit the bank, our customers and society at large. Consistent with privacy laws, we have the ability to look across borders and within our accounts and transactions for crime typologies that we’ve developed, often in consultation with law enforcement. HSBC believes that we can tackle financial crime most effectively if we do it collaboratively. We are strong believers in public-private partnerships and the wider information sharing initiatives. We need to help one another to align our understanding and reporting to assist law enforcement, including sharing of intelligence and understanding to help us use our data better and to report back clearer suspicion.
AT: Are there legislative issues on the horizon you believe will impact the banking industry’s fight against financial crime?
EB: The information exchange mechanisms within the U.K. Joint Money Laundering Intelligence Taskforce (JMLIT), of which HSBC is a founding member, have brought concrete results in helping the public sector to respond to operational priorities such as human trafficking and serious security threats, including terror financing. They have also improved the private sector’s financial crime risk-management programs. However, to build on this success in the U.K. and wider, countries should consider the provisions for information sharing in three key areas: between the private sector and governments, between banks and within banking groups. We have seen progress at the international level through the Financial Action Task Force (FATF). Nevertheless, more could still be done to ensure that the benefits of public-private partnerships are truly delivered. We already have good language in the Fourth AML Directive in the EU, on information sharing among government and financial institutions. We would like to see that thoroughly implemented, and executed.
AT: Recent terrorist attacks in Europe and elsewhere have involved lone, rogue actors (or only two or three perpetrators) utilizing a small amount of funds and resources to conduct attacks. What kind of due diligence can financial institutions implement to catch or prevent these kinds of funds from flowing through their institutions?
EB: Clearly, the most effective way for financial institutions to identify potential terrorist activity is through collaboration with law enforcement and security services. Increased intelligence sharing and using structures such as the JMLIT in the U.K. can act as a force multiplier in proactively identifying individuals planning an attack. In the aftermath of an attack, it can also point to a wider network that may have been involved and prevent a “second wave” event. This increased intelligence sharing must be predicated on mutual trust and understanding of respective legal and regulatory obligations. The emergence of public-private partnerships is definitely helping to shape this.
AT: What measures have financial institutions and law enforcement taken to work together in thwarting future terrorist attacks?
EB: HSBC was a founding member of both the JMLIT and Europol’s Financial Intelligence Public Private Partnership and we advocate for these mechanisms in other parts of the world. The real power we have against financial crime and transnational criminals is the collective ability to assist one another in a proportionate and lawful manner to ensure we protect the integrity of the financial system and better serve our customers and communities.
AT: You have had an extensive career in criminal investigations, what is the most exciting or interesting case you have worked on?
EB: Because the criminal cases have been so varied and had so many fascinating angles, it’s not possible or fair to select one as the most exciting or interesting. The most important thing—what made it such an amazing career—was working through the challenges of the law and the facts, as a team of prosecutors and police, to achieve the right result. In addition, that’s fortunately what I’ve also found at HSBC, where the approach and overall objective is very similar.
AT: Let us talk about virtual currencies (VCs) and your thoughts on their global emergence.
EB: HSBC is monitoring the development of virtual and digital currencies such as bitcoin as well as regulations governing their use. With the global emergence of VCs, it is recognized that mainstream companies, such as Amazon, Expedia, Microsoft and local “mom and pop” shops are beginning to accept VC as a form of payment. Investors will seek high returns with VCs. In countries where use of VCs is permitted by the authorities, we expect any customer transacting in them to comply with all applicable laws and regulations, just as they would for transactions denominated in traditional legal tender.
AT: At this given time in AML history, what is the most important thing an institution can do to combat money laundering and terrorist financing?
EB: The only way for financial institutions to effectively combat money laundering and terrorist financing, as well as a range of other economic crimes, is through working collaboratively with partners in law enforcement and industry. The positive impact of public-private partnerships in providing a forum for the timely sharing of financial crime intelligence has been highlighted by recent FATF papers as well as nongovernmental organizations. Initiatives established in the U.K., U.S., Hong Kong, Australia, Canada and Singapore have already produced significant results in terms of disruption of criminal organizations and seizure of criminal funds. The next step is exploring mechanisms that allow the transnational sharing of financial and law enforcement intelligence through a centralized body, making it even more difficult for criminal networks to operate across borders.
Further, financial institutions must be encouraged to be more creative and agile when it comes to effectively analyzing the vast amounts of data held within various systems. By being more proactive and data analytics-led, HSBC and other financial institutions will be better able to identify customers and transactions of concern.
AT: What do you like to do when you are not saving the world from financial criminals?
EB: The challenge in combating financial crime is so geopolitical, many events have an impact across various levels (the bank, national security, society). So even on a weekend I might have to consider the potential risk created by an incident, whether it’s a terrorist attack or a political election/scandal. But, spending time with family and enjoying my hobbies—reading, exercising and just walking the dog—that’s what you would find me doing and they are definitely key to ensuring a healthy work-life balance.
