Global Financial Crimes: COVID-19 Typologies

By Wilma Arias

On August 4, 2021, the American Chamber of Commerce (AmCham) of the Philippines hosted a discussion entitled “Global Financial Crimes: COVID-19 Typologies,” with DeAnna O’Reilly as guest speaker. DeAnna is Bank of America’s Global Financial Crimes Executive for APAC, responsible for leading the implementation of global financial crimes policies and standards.

DeAnna’s started her presentation by discussing emerging risks in the current landscape:

Anti-Money Laundering Landscape Evolution

• Financial Institutions (FIs) are the first line of defense against money laundering, terrorism financing, and all types of illicit activities.
• Its regulatory environment is constantly changing.

DeAnna explained that for multinational companies, changes happen time and again in different jurisdictions.

• The regulatory focus is on technical compliance instead of effectiveness.

This boils down to how well FIs are complying with the law and how they are meeting regulatory expectations, particularly in Asia, where changes happen so often.

• Changes in the industry outrank regulatory compliance requirements, presenting challenges for implementation.

Industry evolution warrants changes and adaptation to changes. The creation of fintech companies and cryptocurrencies and the movement to digital payments are just some examples of how we are stirring and changing rapidly. These then create challenges for various financial institutions as they have to constantly review and adapt to the ever-changing environment.

• Criminal methodologies constantly adapt to circumvent the controls designed to prevent it, while the current financial risk compliance is focused on reactive prevention.

As methods of payment for products and services change, so do methods of criminal acts. Criminals adapt faster and come up with more innovative ways to commit offenses and FIs are turning out to be reactive rather than preventive.

Technical Compliance versus Effectiveness

DeAnna likewise discussed the need to shift from prioritizing technical compliance towards effectiveness. She explained that in order to prevent more crimes from happening, the financial task force has started to refocus their strategies towards effectiveness. She further pointed out that effectiveness should be judged based on outcomes rather than looking at the processes. The financial task force has also started engaging in mutual evaluation in different jurisdictions across the globe, looking at specific countries, and evaluating them based on effectiveness.

One question that DeAnna posted was — “How do we shift the discussion from technical compliance to effectiveness?” She then talked about how the Wolfsberg Group, a body of global financial institutions, has put out different statements by the end of 2019 to talk about how a bank or a financial institution might implement effectiveness.

3 Key Components of an Effective Program

• Comply with AML and counter-terrorism financing laws and regulations in jurisdictions that FIs operate in.
• The objective of this is to provide highly useful information to relevant government agencies in defined priority areas.
• This also aims to establish a reasonable and risk-based set of controls to mitigate risks of any FIs being used to facilitate illicit activities.

5 Steps That FIs Could Do to Focus Their Programs More on Outcomes Rather Than Technical Compliance

1. DeAnna stated that this has to be done in partnership with governments where FIs operate. She further explained that FIs should have a defined set of priorities, which will help them prioritize risks and come up with a risk-based approach. She shared that for the first time ever, the U.S. has released key priorities for the its government and financial institutions — corruption, cyber crime, domestic and international terrorism financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking, human smuggling, and proliferation financing.
2. Implement and enhance controls to identify risks. DeAnna shared that this boils down to an assessment of the organization’s risk, that each FI has a different footprint and client base and offers different products and services, so each assessment will inherently be different for each FI. However, DeAnna said that if FIs know that there are priorities to focus on, it would be easier to make assessments
3. Prioritize resources. DeAnna emphasized that if there are no priorities to focus on, an organization tends to stretch its resources across a very wide range of activities and report everything. And when an organization reports everything, activities that are suspicious — but not really indicative of any criminal activity — are looked into. This de-focuses investigative bodies and other resources.
4. Engage with law enforcement, in public-private partnerships. DeAnna shared that in the Philippines, there is a public-private partnership and the Bank of America is considering joining this. She explained that a partnership with law enforcement allows an organization to share information back and forth, which helps their program become more effective. Agility becomes part of their strategy and they become more aware of which information to take into consideration and which approach to take.
5. Demonstrate program effectiveness. DeAnna stated that this points to how organizations work with their senior executives, board of directors, and law enforcement agencies using quantitative factors, but not underestimating the importance of qualitative factors.

Challenges Ahead

• FIs with global operations face a patchwork of national laws and individual member state regulations, with various levels of sophistication and non-uniform AML supervision. DeAnna explained that the key element is that FIs have to comply with the laws within their jurisdictions. It will also be a good idea to work with the regulators to streamline and focus on priorities.
• Enforcement actions and fines can be expected to increase as FIs continue to be sanctioned for repeat or new failures.

Recommendations

• Senior management/board of directors should get ready to manage changing AML risk environments and prepare risk agenda for 2021 and beyond, with AML risk management in the front and center.
• Effectiveness should be based on agile AML risk management approaches that truly address the institution’s AML risks.
• FIs should consider and eliminate distinction between their AML and fraud programs and, instead, focus on criminal generation of illicit proceeds.
• Support public-private partnerships for engagement with government agencies/law enforcement agencies for information and intelligence sharing.

Emerging Financial Crime Risk

DeAnna also discussed some emerging threats and trends and shared that the Bank of America has been devoting time and effort to analyzing these. She shared that one of the cases that have been extremely increasing over the past few years is wildlife and environmental crimes. The reason for this is that it’s a highly profitable crime and punishments are not that severe when compared to drug trafficking or other illicit activities.

Apart from wildlife and environmental crimes, DeAnna spent time discussing the current COVID-19 scenario, which she said has been huge and groundbreaking, especially in the crime world. She stated that governments across the globe have already put out notices on which crimes to watch out for since they have noticed an explosion of all kinds of fraud in the industry. Some examples of which are cyber crimes, people offering fake vaccines and test kits, and misinformation on the current situation.

DeAnna shared that COVID-19 has helped shift and generally moved the work more to online commerce due to necessity, after the implementation of various lockdowns globally. This eradicated face to face interactions and, as a result, we have already started relying on remote documentation, video meets, and other online activities that help us get our businesses done. These create vulnerabilities for certain parts of the population.

Apart from these, DeAnna also mentioned other trends such as development and emerging of fintech companies and cryptocurrencies.

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About the author:

Wilma is a mother of a handsome, smart, too-old-for-his-age boy. She is an outdoors type of person and loves spending time with her son in the sun. She plays basketball, rides the bike, runs, swims and considers herself a lover of new adventures and sports. She is likewise into boxing and Muay Thai. She also loves traveling and, as a self-confessed hopeless romantic, one of her favorite places is the City of Love, Paris. She also loves preparing food for her growing boy, spending time and effort in its presentation. She plays a little guitar and one of her favorite things to do is jam with her son. Her latest goal is to learn how to play the drums. She believes that she’s an easy-going mom, whose passion is to never stop learning new things and experiencing new adventures with her son.