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Money Laundering – The Cost, The Failings, The Regulations

The UNODC (United Nations Office on Drugs and Crime) estimate that the amount of money laundered annually is between 2% and 5% of global GDP, which equates to around USD $2 trillion1.

To put this into context, whether you are in the region of North America, Europe or Asia, there is a country local to you with a GDP almost identical to the amount of money laundered on an annual basis (2021 figures) 2

Italy – 2.1 trillion GDP

Canada – 1.9 trillion GDP

South Korea – 1.8 trillion GDP

If this much is laundered, how much of it is recovered?

According to Sir Rob Wainwright, a former director of EUROPOL (The European Union Agency for Law Enforcement Cooperation), the success rate in recovering these funds is only around 1% annually3, with 99% never being recouped. 

Although, of course, by its nature, money laundering is very secretive, so there are no accurate or exact figures.

What are the AML control failings?

Ineffective compliance programmes and weak governance drive the very large fines that banks have been experiencing. But in the larger volume of smaller but still significant fines, there is a common pattern of control failings. These include:

  • ineffective compliance monitoring and oversight
  • inadequate staffing levels in compliance operations
  • inadequate training and supervision

Another failing is issues with Suspicious Activity Reports (SAR) filed within the national Financial Intelligence Unit. SAR-filing is a critical element in the fight against money-laundering.

Typical failings include having insufficient staff to manage the SAR-filing backlog, staff with inadequate skills to prepare reports accurately, and lack of proper supervision.

With money laundering numbers so huge, what’s being done to try to reduce those figures?

Regulators have been on the case, and several initiatives have been implemented to reinforce the fight against this crime further. 

In the UK, a new watchdog OPBAS (Office for Professional Body Anti-Money Laundering), based within the FCA, was established in 2018 to try to drive improvements in the quality of AML supervision, working with law enforcement bodies to strengthen cooperation.

New EU authority to fight money laundering

In 2021, there were new proposals put forward by the European Commission to strengthen the EU’s AML and counter the financing of terrorism (CFT) rules. Part of these proposals was to create a new EU authority to fight money laundering. 

This new authority, AMLA, will have baseline alignment with the Financial Action Task Force (FATF), of which the European Commission is a member. FAFT itself was established by the 1989 G-7 Summit in an effort to fight financial crime. Implementation of AMLA is set for 2024.

In the USA, the anti-money laundering action of 2020 (AMLA 2020) has been hailed as some of the most consequential AML legislation to be enacted in decades.

Despite the acronym soup surrounding the industry and regulation around money laundering, new threats will stimulate regulators to react, particularly in the area of cryptocurrencies. 

The future of money laundering

Time will tell if the volume and value of money laundering will decrease and the recouping of monies and assets increase, and in the meantime, we will watch the regulators and industry continue to put in place new policies and initiatives to protect us against those that commit this crime.

Please get in touch with us at Corlytics to learn more about our solutions, including our FinCrime regulatory tracker, or have a demo.

References:

1 https://www.unodc.org/unodc/en/money-laundering/overview.html

2 https://statisticstimes.com/economy/projected-world-gdp-ranking.php

3 https://www.amlintelligence.com/2021/04/we-have-a-big-problem-a-very-big-problem-former-europol-chief-warns-that-illegal-profit-recovery-rate-is-staying-low-despite-efforts-to-improve-aml-systems/

elaine.mullan@corlytics.com

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