What is financial crime? (3 most common types)

Financial crime is an umbrella term which refers to any illicit act by which the perpetrator illegally acquires the property of the victim. There are several categories and multiple scales of financial crime, and both perpetrator and victim can be economies, governments, businesses, or individuals.

With sophisticated methods of criminal behaviour constantly evolving, an organisation’s exposure to fincrime risk has never been higher. 

‍

A 2009 United Nations Office on Drugs and Crime (UNODC) study estimated that the worldwide proceeds of financial crime amount to a staggering 3.6% of global GDP, of which 2.7% (or US$ 1.6 trillion) is laundered.  By 2019 global output calculations, this means that $1.7 to $4.3 trillion is obtained illegally in any given year.

Following on from this, a 2016 Europol study estimated that the first four years of the decade saw just 2.2% of illicit funds seized, only 1.1% of which was eventually confiscated.

Subsequently, a 2018 speech by a former FCA director cited an estimate of up to £90 billion being laundered per year in the UK alone. In the same year, a report by Refinitiv on the true cost of financial crime, Che Sidanius, Global Head of Financial Crime and Industry Affairs, summed up the worldwide impact of financial crime thus:‍

“Financial crime causes incalculable harm around the world. The proceeds of bribery, corruption, fraud, narcotics trafficking, and other organized crime have all been implicated in the financing of terrorism, human rights abuses such as slavery and child labour, and environmental crime. This has serious economic and social costs in terms of the lost revenues to national exchequers that could be invested in social development, and in terms of the impact on individual lives.”

Financial crime can be broadly categorised into three main action areas:‍

• ‍Fraud occurs when the perpetrator knowingly deceives the victim with false information to acquire funds, legal standing, or the property of the victim. One of the most prevalent forms of financial crime, it puts entire countries, organisations, and individuals at risk.‍
• Bribery is typically committed when an official in a position of power in an organisation solicits or is solicited illegally to favour a certain entity or individual in decision-making processes over which the recipient of the bribe has influence. The bribe itself can take various forms, including money, valuable goods, or promises of a future benefit for the official. ‍
• Money laundering is universally understood as being the act of hiding the source of illegally accrued money or goods, thereby generating a veneer of legitimacy for the illicit funds. Money laundering disguises the origins of the money or goods, and can be perpetrated by individuals, tax evaders, criminal organisations, corrupt government officials and even the financiers of terrorism.

While there are multiple methods of money laundering, central to all of them are three consecutive steps. These are:‍

1. ‍Placement. This stage is when the funds or goods generated by financial crime are initially entered or placed into the legitimate economic environment.‍
2. Layering. In this stage of money laundering, successive layers of legitimacy are gradually applied to the illicit funds, disguising the origins of the ill-gotten gains. The complex financial transactions include, but are not limited to, electronic transfers between countries, using shell companies as cover, and moving funds between multiple banks or between multiple accounts within an institution.‍
3. Integration. Once the layering stage is judged by criminals to have sufficiently covered the source of the funds, the money is extracted, and often used for high value purchases such as property or expensive goods. This serves to assimilate the proceeds of financial crime into the regulated banking framework.

‍

Anti-money laundering (AML) technology has never been more critical for the financial sector. 

On the one hand, money launderers and other bad actors exploit rapidly evolving technologies to invent new and innovative ways of committing financial crime. While law enforcement has had some recent notable successes, the war is ongoing. 

On the other hand, regulators globally are expanding and tightening the controls in place to fight financial crime. Financial institutions with inadequate AML measures face colossal fines and other sanctions if they are found to be lacking.

‍

The AML programmes which are currently employed in the financial sector vary, but all have the core elements below:

• ‍Know your customer compliance, or KYC, is inclusive of customer/client due diligence (CDD). It is the verification phase of onboarding clients. It includes establishing the client’s identity and assessing what level of financial crime risk is incurred. To aid onboarding, Napier uses a cutting-edge client screening process which is built around dashboard reporting, an integrated sandbox, and the intelligence data explorer. ‍
• Transaction monitoring refers to the ongoing study of a client’s financial activities. It is a critical component in the fight against financial crime and money laundering, since this is how illegal activity will be detected. Possible criminal transgressions are reviewed and analysed by AML teams and appropriate responses are decided upon. Napier utilises a leading transaction monitoring system based on a big data platform, a no-code rule building and integrated sandbox, and ongoing intelligent analysis. ‍
• Suspicious Activity Reports (SARs), also known as Suspicious Transaction Reports (STRs), are a legislative requirement (in the United Kingdom) of most financial institutions, which has been put in place to combat financial crime. Flagged financial transactions or suspicious customers must be reported to the regulatory body for investigation. Napier offers an STR Builder to help make the process of reporting faster and more efficient.

Napier’s Client Activity Review (CAR) features real-time comparative customer behaviour analysis, dashboard graphical renditions of customer activity, and a holistic view of all customer data and intelligence.

‍

Napier represents the next generation in AML compliance services for the financial sector. Our innovative Intelligent Compliance System is shaking up the AML environment, and is trusted by leading financial Institutions globally.

Our solution focuses on easing the jobs of compliance analysts, offering a user-friendly interface for our clients, and future-proofing our service with the ongoing application of technology, automation, and artificial intelligence (AI). Our transaction monitoring and screening technology integrates rules-based approaches with machine learning to reduce false positives and highlight genuinely suspicious behaviours. Our Client Activity Review and risk-based scorecard integrate data from KYC and transaction monitoring to provide a holistic view of each customer and their risk level. 

We believe technology is the future of solving financial crime. Our big data architecture can be scaled to organizations of all sizes, from start ups to global institutions, while AI and machine learning enable the automation of monitoring and screening, freeing up compliance teams to focus on investigating only truly suspicious activities. Additionally, we work with cyber security industry leaders, so clients can rest assured that their data is safe.

Our team offers over 100 years of collective experience and knowledge in the AML compliance, IT, and financial services sectors. Our expertise is second to none, and our testimonials endorse this. Additionally, our customer support services include a dedicated Customer Success Manager for each client, training on use of our platform, and access to constantly updated user guides and resources. Our technical services are upgraded biannually, free of charge.

‍