The Work Left Undone

Over the greater part of the past decade, anti-money laundering (AML) professionals have seen a parabolic rise in collaboration, via variations of public-private partnerships (PPP) to mitigate unique predicate offenses. Many of these offenses are not typically thought of when considering traditional financial crimes, but all of them impact the present-day communities in which financial institutions (FIs) operate.¹ In addition, the aforementioned predicate offenses tend to have a disproportionate impact on vulnerable individuals and can include drug trafficking (specifically fentanyl), romance scams, defrauding of the elderly and, arguably, the most explored predicate offenses of PPPs, human trafficking (HT) and online child exploitation.

According to the Royal United Services Institute’s Future of Financial Intelligence Sharing (FFIS) 2020 Survey Report, 20 leading national-level PPPs and three transnational information sharing partnerships are currently in operation across the world.² These partnerships operate in a variety of differing capacities, both to react to changing AML and financial crime threats as they are identified (such as the U.K.’s Joint Money Laundering Intelligence Taskforce) and to dedicate prolonged effort and resources toward specific initiatives (such as Canada’s “Project” initiatives to combat financial crimes through partnerships). These PPPs have been in existence since 2015, and while there were several partnerships that preceded those profiled by the FFIS, formalization and attention toward conveying the importance of such partnerships saw explosive growth in the mid-2010s.

The Work Done

According to the FFIS’ 2020 Survey report, countries having a public-private sharing framework to address financial crimes accounted for 41% of the world’s gross domestic product as of June 2020. This clearly highlights the awareness of the need for collaboration among the world’s most advanced economies. However, it also raises questions regarding the need for more of an even-keeled approach to coordinating and promoting partnerships with less economically developed nations.³ Examples of those making an impact on raising the awareness of PPPs—such as the United Nations University, the Knoble and the Pontifical Academy of Sciences—are also conveners in such jurisdictions.⁴

Touted success stories among those nations with an existing PPP include:

The U.K.’s Joint Money Laundering Intelligence Taskforce, having completed 750 cases, captured 56 million pounds (more than $70 million) in asset seizures or restraints, and participated in 210 arrests.
Australia’s Fintel Alliance, having completed 320 investigations through private sector members, aided in the arrest of 108 people of interest and closed accounts related to 90 high-risk customers.
In Hong Kong, from May 2017 to June 2020, 108 cases were presented to the Fraud and Money Laundering Intelligence Taskforce, leading to the identification of 8,162 accounts, 379 people and 513 companies that were relevant to investigations and previously unknown to police.⁵

The accomplishments achieved by some of the world’s leading PPPs are undoubtedly impressive and arguably unattainable without their existence

The accomplishments achieved by some of the world’s leading PPPs are undoubtedly impressive and arguably unattainable without their existence. Moreover, celebrated achievements can largely be viewed as one-off operations and typically are devoid of background context in terms of the breadth and depth of the size of the respective hosting nation’s financial services industry. They also tend to lack context regarding the overall impact the partnership is having on mitigating systemic financial crime risks against the industry on a macro-level.

The absence of context behind a given PPP has at times become singled out as a critique. Criticisms have included PPPs having too narrow of a scope or being overly resourced with limited impactful results. For example, the Vancouver Sun published an article in 2019 alleging that the Financial Transactions and Reports Analysis Centre of Canada prioritized flagging suspected links to terrorist financing, HT, child sexual exploitation and fentanyl, but not criminal money laundering, which can be interpreted as an indirect jab at the ongoing industry-led PPP series in Canada.⁶ While the critique discounts the scale of which the singled out predicate offenses contribute to overall money laundering activity, it does raise the possibility for potential enhancements concerning what more the Canadian Financial Intelligence Unit (FIU) and its partners can do to articulate the regime’s work to help contextualize the efforts undertaken. In addition, other national FIUs have received criticism, with Italy having been called out in 2010 for an extremely low rate of suspicious transaction reports (STRs) considered to be of high quality, with approximately 23 out of 37,000 STRs submitted to the FIU being considered useful to a criminal investigation.⁷ It is a problem that is not unique to Italy and can potentially improve through tabletop collaborative exercises on STR/suspicious activity report (SAR) writing among law enforcement (LE), reporting entities and the FIU. Finally, a more recent recommendation from a 2019 U.K. Law Commission legal reform report suggested that changes be made to suspicious activity reporting to curb the burgeoning number of low-quality reports that were also found to be prevalent in that jurisdiction.

Perhaps no statistics are more motivating to continue on the work left undone than that of the Financial Crimes Enforcement Network’s 2021 SAR Filing Trend Data, which highlights that in spite of the numerous efforts to raise awareness across the financial services industry in the U.S., particularly deposit-taking institutions (i.e., banks), and the inclusion of a stand-alone check box on the SAR for HT, only approximately 2,000 SARs were filed in 2021 across well more than 10,000 reporting entities in this classification. Furthermore, it should be noted that reporting on HT has slightly decreased but remained relatively stagnant every year since its check box inception in 2018 and that there are no records prior to 2018. While it can be argued that the global pandemic may have played a role in this stagnation of SAR filing, the reported uptick in trafficking and exploitation-related activity from LE during the pandemic could lead one to assume SAR reporting should have increased. Finally, when compared to reporting rates of money services businesses, they are almost on par with that of the banks. These statistics do raise a lot of questions. Answers can arguably only be obtained at this point through a reform in the approach to PPP work that has been undertaken.

The Work to Be Done

PPP work has been, and continues to be, extremely important to address predicate offenses that disproportionately affect vulnerable people and undermine AML efforts. However, it has been less than 10 years since its contemporary inception, and more work needs to be done to ensure its goals are met. In taking the topic of HT and exploitation—and the relatively low rate of reporting in the U.S. via SAR—as an example of a much-focused upon predicate offense by PPPs across the country, one can begin to see that the end goal must be as much of a focus as the awareness and coordination stage by senior officials. For this to happen, AML investigators must be put front and center in the conversation. Additional steps to ensure that PPPs receive significant boosts that could lead to an increased rate of STR/SAR reporting and ultimate disclosure to LE include:

Expand beyond “project-based” work
— Explore ways to integrate PPP objectives within the day-to-day operations.
— Highlight, where possible, the overall effectiveness of a PPP, alongside specific examples of targeted investigations.
— Ensure investigator training and intelligence are refreshed regularly (i.e., annually).
Incorporate a communication strategy
— Take into consideration how the goals of the PPP are being communicated to operational members of an AML team.
— Look for inclusion of PPP work within annual environment, social and governance (ESG) reporting, as many times the efforts align under the social and/or governance categories.
— Issue strategic press releases to accompany PPP efforts to help mitigate future reputational risks due to a lack of context or awareness being available to the public.
Double down on red flag indicators and typologies
— Red flags and typologies related to the predicate offenses focused on within PPPs are typically how and why PPPs get started. Sustained effort in their development and communication are integral to a PPP’s success in the long term.
— Review STR/SARs reported for a previous year under a PPP to extract new red flags and typologies, as well as catalog which existing indicators have a high degree of success.
Keep the investigators in mind
— This means red flags, typologies and easy-to-use training, as well as including investigators in domestic and international discussion forums so they can have exposure to the higher-level dialogue and background context. In addition, they can also provide valuable information on what the job looks like on a day-to-day basis. Inclusion of investigators in largely historical senior-level forums is also crucial to build the next generation of leaders.

PPPs do not end after their creation. Rather, they begin at that point. They are meant to be built upon, expanded and enhanced so that they evolve alongside the criminality they seek to combat. Criminality is not static, and PPPs cannot be either. As a PPP becomes more mature, it requires champions at both a senior level of an institution and a junior operational level to ensure that challenges—as well as wins—are acknowledged by the broader audience. Finally, employing a long-term approach to PPPs will help in the management and deployment of the tool so that they are successful in their objectives and have the foresight to evoke systemic changes.

Stuart Davis, CAMS, executive vice president, global head, financial crimes risk management and chief anti-money laundering officer, Scotiabank, Toronto, Ontario, Canada, sdavis@scotiabank.com

Joseph Mari, CAMS, director, financial intelligence unit and external partnerships, Scotiabank, Toronto, Ontario, Canada, joseph.mari@scotiabank.com