Why the new EU money laundering rules won’t work

By Charles Delingpole on Wednesday 9 December 2020

OpinionAlternative LendingDigital BankingSavings and Investment

When it comes to catching financial criminals, 6AMLD needs to go further, says Charles Delingpole, CEO and Founder of ComplyAdvantage.

Why the new EU money laundering rules won’t work
Image source: Pexels

Last week the European Union’s latest regulatory framework to combat money laundering - the sixth anti-money laundering directive (6AMLD) - came into law. The new legislation is a step forward, as it provides a new level of cohesion between EU member states; but it could go even further, especially in making life a lot harder for financial criminals.

The laws haven’t recognised the huge strides forward that have been made in artificial intelligence and machine learning, and how these technological advancements are a money launderer’s worst nightmare. These advances are more important now than ever, due to the impact of the Covid-19 pandemic.

Banks and financial institutions were hit hard by the pandemic, and have had to scramble to recalibrate tools and frameworks for the new risk landscape. Regulators need to support them in their battle against nefarious actors by updating requirements to reflect new technological capabilities.

But let’s start with the good news. The new directive harmonises the definitions of money laundering offences throughout member states, extends criminal liability to legal persons, establishes tougher punishments for offenders, and enhances cooperation between states for the prosecution of financial crime.

This is good progress. The previous legislation left the EU with a lack of legislative consistency on money laundering offences, which in turn made identification and punishment more difficult than need be. The new legislation also includes a unified list of predicate offences; additional money laundering offences of aiding and abetting, inciting and attempting.

But there are areas where the law could be extended as, at present, an untold number of bad actors are able to slip through the net. Current legislation requires financial institutions to run Sanctions and Politically Exposed Persons (PEPs) checks on clients - but these only capture a tiny proportion of potential risk and can’t measure ongoing changes. This is manifestly insufficient as the risk landscape continues to evolve, post-Covid.

For example, there are only 27,000 names on the global Sanctions list - at the PEP level, the number rises to a few million names. Sanctions and PEPs checks can only detect a tiny fraction of the potential risk facing business.

Sanctions and PEPs only consider risk from a limited perspective too. In real terms, money laundering is almost always linked to nefarious activities of other kinds: people trafficking, illegal animal exports, sex crimes, the drug trade and more. These behaviours wouldn’t necessarily land a person on a Sanctions or PEP list – but they definitely pose a risk to business.

But there is an answer to the question posed here: how can we ensure that banks and financial institutions perform better, smarter checks?

Thanks to advances in AI and ML, ‘adverse media screening’ is now more effective than ever.

Think about the pre-internet days, and about the analyst who used to pick up the national newspapers to perform background checks on customers. But now, this analyst speaks hundreds of languages, visits the farthest reaches of the internet, and compiles all adverse information into a comprehensive report on a particular potential customer. And that they could do this thousands of times in a minute.

This is what machine learning is offering companies – protection from facilitating financial crime, by offering investigatory power far beyond the average analyst and generic keyword searches.

If screening of this kind was mandatory, financial institutions would gather a much higher volume of valuable data as standard, and therefore defences against money laundering would be stronger across the board. We want this to be considered by The EU, as part of their next AML Directive, and by the UK government.

Clamping down on money laundering means clamping down on the crimes that precede it. It’s a more holistic approach to risk and security that increases protections for everyone. Making adverse media screening a regulatory requirement will make life cheaper and easier for banks and financial institutions in the long run, and help them build smarter, more resilient processes.


Charles Delingpole is CEO and founder of ComplyAdvantage. The views and opinions expressed are not necessarily those of AltFi.

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