A Pandora’s Box of Money Laundering Crime

A Pandora’s Box of Money Laundering Crime

The publication of the Pandora Papers highlighted the legal loopholes and weak anti-money laundering (AML) regimes that organized criminals take advantage of across the globe. Fourteen months ago, the Financial Crimes Enforcement Network (FinCEN) Files were published, which demonstrated the systemic problems in how financial crime professionals address financial crime, the Pandora Papers suggest a much more broken system, where regulators are barely tipping the iceberg in the fight against financial crime. With reactive, not preventative, action taken, the system’s accountability standards leave much room for improvement.

While progress is being made, the industry as a whole is still struggling to stop criminals from exploiting the same loopholes as those mentioned in the Pandora Papers and from continuing to cause serious social and economic harm by allowing them to hide illicit proceeds of crime in high-value assets and the property market. However, the papers point to a much higher power at play here; governments are the real custodians of the financial system with the authority and responsibility to drive change from the top. Incremental developments from some governments across the globe have started; however, perhaps not in the proactive way financial crime professionals would have wanted, and certainly not at the necessary pace.

The industry must also look at law firms, accountants and professional services firms that facilitate criminals to exploit the same tax loopholes as the prominent figures named in the Pandora Papers. The regulatory landscape is evolving to hold such firms accountable, but will they have the necessary expertise, systems and controls to detect and prevent financial crime effectively?

Many people in these papers are not acting illegally. There are often legitimate reasons to use offshore vehicles, not least in relation to privacy. However, criminals also use such vehicles to hide ill-gotten gains and separating the good from the bad is the big challenge for financial institutions(FIs).While these structures and offshore activity can be legal, it creates a significant burden for FIs that must separate activity involving legitimate wealth from the illicit proceeds of crime to comply with their AML obligations.

Different countries, jurisdictions and regulators have implemented anti-money laundering/counter-terrorist financing (AML/CTF) regimes with varying levels of effectiveness, with some countries seen as having strategic deficiencies when addressing financial crime risk.

To combat these issues, more must be done by holding governments, politicians and firms accountable for facilitating money laundering and financial crime. By introducing consistent definitions, legislation and deterrents across the board to ensure the application of enhanced customer due diligence, anti-bribery and anti-corruption measures, the industry will have better oversight to intercept where needed. For example, when high-net-worth individuals and politically exposed persons, as well as the enablers of illicit activity, are behind offshore firms purchasing property and high-value assets.

Without accountability, there is no incentive to stop financial crime, especially where mature economies benefit from financial gains. If governments and legislators fail to act now and drive change from the top down, the wider repercussions will impact everyone. Criminals will continue to launder proceeds made from serious crimes, such as human trafficking and cybercrime.

The Pandora Papers have highlighted the need to intercept crime at the source and act with preventative methods rather than reactive.Until these actions aretaken,criminal organizations will continue to exploit weak AML/CTFregimesto channel the proceeds of crime across the world.

Rachel Woolley, global director of financial crime, Fenergo

Leave a Reply