Workers removed Danske Bank signage from its Tallinn branch last year after Estonia ordered the bank out of the country following a money-laundering scandal.
Photo: Peti Kollanyi/Bloomberg NewsCountries have long fought financial crime by relying on banks to identify and report suspicious transactions. But the system is largely ineffective, financial crime experts say, because it rarely provides useful real-time feedback—a reality that is giving way to a more collaborative approach.
For around the past five years, governments and the financial sector have been teaming up to create information-sharing partnerships that facilitate a two-way dialogue on suspected financial crimes. When the two parties can share information on specific cases or on the types of potential criminal activity they’re seeing, the thinking goes, the industry can more effectively screen for suspicious activity.
A new survey shows the partnerships have produced some promising early results, and compliance officers say it could lead to a shift away from the current “tick-box” approach to anti-money-laundering regulation. Today, nearly 20 countries have created information-sharing partnerships, according to the Future of Financial Intelligence Sharing program, which carried out the survey. The program is a research project supported by the Royal United Services Institute, a U.K. think tank.
About a decade ago, the financial sector’s efforts to prevent financial crime came under intense scrutiny, leading to big fines that in turn led to big investments in compliance. Information-sharing partnerships are part of a recent push to examine just how effective those investments have been in preventing abuse of the financial system, compliance officers say.
The United Nations Office on Drugs and Crime and others have estimated that as little as 1% of the illicit money flowing through the financial system is seized or frozen by law enforcement.
“There is a question about how effective we are in the West at combating financial crime,” said Satnam Lehal, head of financial crime compliance at Danske Bank, which came under a spotlight when a massive money-laundering operation was uncovered at its tiny Estonian branch. “Public-private partnerships are part of the answer to that.”
Awash in Reports
The obligation to detect criminal activity, coupled with strict enforcement of anti-money-laundering laws, has driven financial institutions to file voluminous amounts of low-value, suspicious-activity reports, few of which ever lead to further investigation.
That is the problem the information-sharing partnerships are trying to address. How they go about it can vary, according to FFIS’s research.
Some partnerships focus on generalized strategic information, such as a pattern of transactions or indicators associated with certain crimes, to the financial sector. Others emphasize tactical information—including the names of individuals and companies and other sensitive information tied to specific transactions, bank accounts or law enforcement cases.
The most innovative programs, those of Australia and the Netherlands in particular, place analysts from the government and private sectors side-by-side in dedicated offices. The partnerships are voluntary, and financial institutions that participate must do so while continuing to meet their other, mandated anti-money-laundering obligations.
The Sydney Opera House, with the city’s financial district in the background.
Photo: COLE BENNETTS/BLOOMBERG NEWSThe U.K. was the first to set up an information-sharing partnership when it created the Joint Money Laundering Intelligence Taskforce in 2015. The initiative has closed at least 750 cases, secured more than £56 million ($73 million) in assets and contributed to 210 arrests, according to the FFIS report. Its success has made it a leading model for other countries.
Australia is one of them. The country’s Fintel Alliance is run by Austrac, the country’s financial intelligence agency and its chief anti-money-laundering regulator, whose brief encompasses terrorism financing, organized crime and more.
Within the alliance, law enforcement officials and members of Australia’s financial sector collaborate to identify types of criminal activity they should focus on. Analysts then team up to share tactical information on specific cases.
The collaboration allows financial institutions to do more targeted searches and flag suspicious activity on a much more immediate basis.
“Having that real-time feedback enables us to look a little bit deeper,” said Cassandra Hewett, a head of financial crime at Australia and New Zealand Banking Group Ltd., a member of the alliance.
Between July 2018 and June 2019, the Fintel Alliance completed 320 investigations and contributed to the arrest of 108 people, according to data provided to FFIS.
The New Hurdles
The difficulty now, even for the most successful partnerships, will be to scale up operations. To do so, they will need more financial help from the government. They will also have to navigate data-privacy laws and other legal hurdles. And they will need to convince more members of the private sector to participate in the partnerships.
While financial crime is often transnational, most information-sharing partnerships are circumscribed by national borders. Law enforcement agencies have been slow to develop ways of collaborating across borders.
One early obstacle to the partnerships were concerns around data privacy. In many countries, laws prevent financial institutions from sharing information with each other, forcing them to rely on law enforcement to piece together a bigger picture of transactions that span different banks.
Some countries are looking for ways to allow for more direct information-sharing between banks, including through technology that anonymizes customer information. Without more information, an individual bank can be left in the dark, unable to see the full web of dealings behind a single transaction, compliance officers say.
In other cases, legislation may be needed to give banks a safe harbor to share financial intelligence. In the U.S., the Patriot Act, passed in 2001 in response to the 9/11 terrorist attacks, gave banks the ability to share a limited amount of information.
In the meantime, the public-private partnership model still puts the onus on regulators, financial intelligence agencies and law enforcement to piece together the bigger picture and orchestrate intelligence-gathering done by the private sector.
“We need to live with these partnerships, show they work and start getting results,” Mr. Lehal said. “Then hopefully regulators will say, ‘OK, this other stuff is useful, but not as useful as this’.”
Write to Dylan Tokar at dylan.tokar@wsj.com
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