Money laundering is a massive global problem that’s reached epic proportions here in the UK. Worryingly, financial crime shows little sign of slowing down despite increasingly complex and costly efforts to contain it.
While it’s difficult to establish exact figures, the United Nations Office on Drugs and Crime (UNODC) estimates that between 2 and 5 per cent of global gross domestic product is laundered each year.
The UK is the second highest offender after the US, and the National Crime Agency believes that the amount of money laundered could be up to £100bn pounds annually.
To put these big picture numbers in context for the average British citizen, money laundering costs every British household an estimated £255 a year.
Having worked in the finance industry for 30 years, dirty money has always been a topic of concern.
However, I’d never delved into the issue deeply until we hosted an event with the investigative journalist and author Oliver Bullough, who wrote the financial crime exposés Moneyland and Butler to the World.
One of the aspects we discussed, which interested me the most, was why our multi-billion pound compliance industry can’t meaningfully combat the problem, even with such robust policies.
In fact, there has been very little dent in the volume of money laundered since the 1990s.
What is the answer?
I believe the barrier lies in the nature of financial compliance.
To be clear, I don’t doubt the hard work of compliance officers themselves, but how the system is designed.
Compliance relies on humans reporting suspicious activity, and suspicions will always be subjective; therefore, it is an intrinsically grey area with few hard and fast rules. Individuals will naturally assess the repercussions of getting it wrong or making false accusations.
In a risk-versus-reward scenario, they may decide it is not worth pursuing and choose to let it go, especially when there are hefty fees at stake for their business and these behaviours have become so embedded in our broader culture.
Perhaps then incentivising compliance officers is the answer?
In this scenario, we could turn compliance into a market itself with big money rewards for whistle-blowers who find the criminals and no risk of losing their jobs if they get it wrong.
In the United States, whistle-blower programs are standard in many companies and federal agencies, but while there is some appetite for this approach in the UK, it’s a big logistical step, with its own inherent risks.
It’s possible that whistle-blowing could become weaponised and used as a way to boycott certain individuals, lead authorities in the wrong direction, or cause major disruption to an organisation.
Realistically, the only way to remove the human element in compliance would be to facilitate the widespread, mandatory use of AI for AML surveillance.
