Countering the rise of money laundering in the UK: Open Banking has some of the answers, but could we do more?
According to the National Crime Agency, money laundering has the potential to threaten the UK’s national security, national prosperity and international reputation. It is for this reason that, before writing this article, we undertook a short survey to gain some insights into the Open Banking Excellence (OBE) community’s experiences with and perceptions of money laundering. The answers we received were fascinating.
In a nutshell:
- 95% of respondents believed that risk from this issue is increasing both in the UK and around the world
- 75% stated that money laundering is indeed a key issue to solve
- 76% reported they believed the current COVID-19 pandemic boosted numbers of incidents
We also asked the community what the most common form of money laundering in the UK is. Respondents considered the most prevalent causes to be drugs, false invoicing, money mules and property.
The dirty truth
At the 2016 Hay Festival, Italian investigative journalist Roberto Saviano said of the international drugs trade: “Mexico is its heart and London is its head”. What’s behind this claim?
Whilst undertaking our survey, news broke that The Financial Conduct Authority (FCA) had begun criminal proceedings against NatWest in respect of offences under the 2007 Money Laundering Regulations. The case arises from the handling of funds deposited into accounts operated by a UK incorporated customer of NatWest. It is alleged that £365 million was paid into the customer’s accounts, of which £264 million was in cash.
It is the first time that the FCA has made a criminal prosecution under these regulations and the first prosecution against a bank. Just think about this for a minute: the regulations entered into force 14 years ago and this is the very first prosecution. Additionally, no individuals are being charged as part of these proceedings. Yes, you read that correctly: 14 years of legislation and not one person has been prosecuted yet, despite the latter working as the biggest and best deterrent of this behaviour.
Also on the rise is another dark side of money laundering – the use of both children and vulnerable people as ‘money mules’. In December 2020 the Financial Times reported on such a case, whereby criminals approached their targets at the school gates or over social media, pushing children to share their bank details so that cash could be deposited into their accounts and then transferred directly to the criminals’. Fraudsters often target people who don’t have a history of criminal activity to make these transactions seem less suspicious to banks. The ‘mules’ have no idea where the money is coming from or where it is going, but one thing is for sure: it’s yet another form of money laundering and it tends to be UK-specific.
What about Open Banking?
We asked our community how Open Banking can help tackle money laundering. Whilst only 28% of respondents believe that the risk of money laundering in Open Banking compared to mainstream banking is higher; 85% of the OBE community that took part in the survey argued that Open Banking could do more to prevent money laundering. For example, several respondants find it confusing that – as of today – there is conflict between the EBA mandate that PISPs are required to perform AML checks on PSUs and the PSR limitations upon the data gathered by a PISP. Others suggest better education and training as a way to help staff better understand financial crime in an Open Banking world.
Open Banking does offer innovative methods to support the fight against money laundering as it creates great theoretical opportunities for banks. Banks and third-party providers can potentially have access to much more data – and this can give banks a better understanding of how customers typically behave and therefore better able to spot ‘atypical’ behaviour. However, as a 2017 Deloitte study reported, opening banks’ infrastructure and increasing competition within financial services can also create a new range of opportunities for money launderers and fraudsters who are becoming increasingly sophisticated, as the well-known ‘Global Laundromat case’ reminds us.
Hope, but no pats on the back anytime soon
When asked to compare the UK with the rest of Europe, 90% of our survey respondents considered Britain to be on par with EU countries on this matter. However, the UK has been ranked 11th in the world according to the latest 2020 Transparency International’s Perception Corruption Index. The only EU countries that rank higher than Britain are Switzerland, the Netherlands and Germany.
Thus, despite UK’s problems with money laundering, as one of the rotating Presidents of the G7, we still have the opportunity to educate and work with other Western countries in regard to dirty flows of money, as well as share lessons learned. Last year in the UK alone, new bank security systems prevented a further £1.8bn of scam attempts. This, combined with a concerted effort to up the ante on prosecutions and more rigorous work from those in the Open Banking field, will put us in a better position to tackle this growing challenge.
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