Cross-border efforts and guidelines key to combating financial crime

GLOBAL efforts to close the spigots for illicit money flows intensified in the aftermath of the 2001 terrorist attack on New York's World Trade Centre.

Over the past decade alone, the Monetary Authority of Singapore (MAS) has issued a slew of guidelines for financial institutions, including banks, asset managers and insurers, prescribing a set of practices and governance structures, and strengthening the anti-money laundering legislation.

The latest leak of documents filed at the United States' FinCEN (Financial Crimes Enforcement Network), reveals more than US$2 trillion in suspicious transactions between 2000 and 2017. This is likely just the tip of the proverbial iceberg. It is based on a review by the International Consortium of Investigative Journalists (ICIJ) of documents - so-called suspicious activity reports (SARs) - filed by institutions to FinCEN. It is estimated that as many as 12 million SARs were filed in the period, and journalists reviewed just a fraction or 0.02 per cent.

What is particularly egregious about the revelations is that it appears that some financial institutions, despite having filed SARs, continued to allow the flows. Technically SARs are to be filed with FinCEN within 60 days, but the median filing time was reportedly 166 days.

HSBC, for example, allegedly allowed fraudsters for a Ponzi scheme to move US$80 million from the US to Hong Kong in 2013 and 2014, even after having learnt of the scam.

Singapore does not come out unscathed. Data compiled by the ICIJ flags some 1,781 transactions, money flows of an estimated US$4.6 billion, flagged as "potentially suspicious", which flowed from numerous banks in Singapore to nine institutions in the US, which subsequently filed SARs. To be sure, experts say that SARs are not in themselves evidence of illicit transactions. However, they serve among the first lines of defence, and are reported for regulators to follow up on. The MAS has said it is examining the data.

The FinCEN files are only the latest in a series of damning investigations by ICIJ. In 2017 there was the "Paradise Papers" showing the offshore dealings of politicians and business leaders. The "Panama Papers" made headlines in 2016, casting light on how the wealthy used offshore tax regimes.

All these beg the question: Are regulators making any headway at all in the fight against money laundering and terrorism financing? In Singapore, the MAS already spells out a process for institutions, which have to, for instance, file a report to the Suspicious Transactions Reporting Office, under the Commercial Affairs Department (CAD). In 2018 the CAD received over 32,000 STRs, down from over 35,000 in 2017.

In the aftermath of the revelations, global institutions are likely to embark on internal reviews of their systems and oversight, as they should. The ICIJ study reveals lapses in global banks' practices. These include banks continuing to process transactions, even after red flags are raised and SARs filed. Other banks apparently fail even the most basic customer due diligence, such as allowing shell companies and failing to verify customer addresses. The imposition of more compliance requirements may not be the answer.

But cross-border sharing of data and best practice guidelines should be a key plank, particularly as new instruments of financial crime emerge, such as the use of virtual assets. While banks are on the frontlines, policing money flows requires a concerted cross-border effort. Without this, another scandal is only a matter of time.

READ MORE: The bigger picture behind illicit money flows