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11/01/23
From Global Regulation & Policy
Prioritising The Fight Against Illicit Finance To Tackle Serious Organised Crime
The world faces a barrage of daunting challenges. From the impact of the war in Ukraine on energy prices and inflation, climate change and the destruction of the environment, to increasing cyber-crime and a host of other vexing issues, governments are being forced to adapt and respond to a series of crises amid an increasingly gloomy global economic outlook. That is why, more than ever, it is vital for governments and international bodies to work together to support ambitious action that strengthens the sustainability of our societies and economies.
Part of that action needs to be focused on tackling illicit finance. Money laundering sustains illegal activity. It is estimated that two trillion dollars are laundered each year. Organised criminal syndicates, terrorists and corrupt officials launder their illicit profits and enjoy the fruit of their crimes. This cash fuels further serious crime and terrorism, undermines global financial systems, and makes societies less safe and economies less sustainable.
It is vital for national authorities to work together to target the financial flows that allow criminals to get away with their dirty money. By focusing on financial investigations, governments can go after the funds of drugs, weapons, and human traffickers, as well as the perpetrators of other illicit activities. This will weaken criminal syndicates, reduce the harm they cause and return illicit funds back into the legitimate economy.
The Financial Action Task Force (FATF) works towards these aims by leading global action in the fight against dirty money, terrorist and proliferation financing. The FATF sets global standards, which are essentially the international rulebook for combatting illicit finance. The FATF also assesses whether countries are taking appropriate actions against money laundering, terrorist and proliferation financing, identifies jurisdictions with significant systemic deficiencies, and monitors and provides guidance on emerging risks.
In terms of impact, many countries are now technically compliant, with the necessary laws and policies in place to combat financial crime. However, there is a significant gap between technical compliance and effectiveness. The truth is that too many governments are still struggling to come to grips with the scale and complexities of the problem. Many have only a limited understanding of their money laundering or terrorist financing risks and are failing to effectively implement the FATF standards. And many have only just started to develop meaningful public-private sector partnerships and are still taking early steps to improve cross-border information sharing. When countries fall behind in this way, it undermines the global fight against illicit finance, one of the greatest systemic challenges of our era.
Criminals are always looking for new opportunities to exploit. The development of new technologies, in particular the growth in popularity of crypto assets, is a major area of concern. The trend is clear: crypto assets are increasingly used to bypass the traditional financial system and anti-money laundering measures. Hundreds of cases of criminal misuse demonstrate the need to effectively regulate the nascent industry, which sees the near-daily introduction of new tokens and digital assets.
Having set the first global standards to regulate crypto assets for anti-money laundering in 2019, the FATF is now working to help countries develop prevention and disruption strategies to better tackle cyber-enabled crime, including cyber-enabled fraud and ransomware. We have noted progress. Some countries have created dedicated teams trained in tracing crypto transactions across blockchains, and put in place robust licensing and supervisory regimes to prevent shady crypto-currency firms from operating in their jurisdiction. Countries are also increasingly taking enforcement action. Last year, the US sanctioned the crypto mixer Tornado Cash for reportedly laundering more than US$7 billion worth of crypto assets, while authorities in the Netherlands arrested the man who allegedly developed it. In Spain, police detained one of Europe’s biggest suspected crypto fraudsters for several offences, including money laundering, and seized more than EUR 2.5 million in assets. While in Israel, three people were arrested in August on suspicion of using crypto assets to launder the money of criminals in France, totalling millions of euros.
Despite these advances, FATF reviews reveal that most countries, including many FATF members, have yet to put in place basic regulations to guard against misuse in this sector. This is simply not good enough. It is clear that criminals exploit crypto for their own purposes. The economic downturn, adoption of new technologies, and changes to the way we live and work have created ideal conditions for money launderers to expand their operations.
Furthermore, as new technologies develop, we can be certain that new threats will emerge. The creation of non-fungible tokens and the evolution of decentralised finance are two areas the FATF is monitoring closely. It is the responsibility of all governments to ensure crypto assets are regulated properly, and investors should welcome and even insist on this. Good regulation will prevent criminal activity within the crypto ecosystem. It would also support more stability in what has become a notoriously volatile marketplace. The FATF is working with countries to ensure these regulatory changes remain a priority.
Another major area of concern is the ongoing failure to prevent anonymous shell companies and trusts from being used to launder money. Over the past decade, it has become clear that regulatory loopholes allow criminals to continue to use shell companies to launder their illicit proceeds. FATF assessments have revealed part of the reason why – many countries do not have strong laws to promote transparency of beneficial owners, and when they do, frequently do not effectively implement the rules.
That is why the FATF has acted by revamping the global rules on beneficial ownership. Earlier this year, the FATF agreed on the need for beneficial ownership registries or similar alternative mechanisms to give authorities timely access to adequate, accurate and up-to-date information on the true owners, which will make it easier to trace criminals and their money. The FATF has also banned new bearer shares, strengthened disclosure requirements for those that already exist, and made nominee arrangements more transparent. Collectively, these measures are a major step forward to eliminating the corporate secrecy that facilitates money laundering.
Building on this, the FATF is considering changes to the beneficial ownership rules for trusts and other legal arrangements. We aim to finalise these changes by 2023, thereby further strengthening efforts to tackle cross-border financial crime.
Much of this work is tied to one of the FATF’s key priorities: to help countries deprive criminals of their dirty money. Under the Singapore Presidency, the FATF is strengthening its partnership with INTERPOL to ensure that national authorities make asset recovery a key pillar of their anti-money laundering and counter-terrorist financing strategies. At the moment, countries intercept and recover less than one per cent of global illicit financial flows, according to estimates by the United Nations Office on Drugs and Crime. There is clearly much room for improvement globally.
It is vital for countries to develop effective systems to trace, seize, confiscate and return stolen funds and assets. The FATF is working to facilitate the secure exchange of sensitive information between different enforcement and asset-recovery agencies. Successful asset recovery also depends on thorough and credible investigations, along with a willingness to share investigative findings through both formal and informal channels. The FATF will continue to promote policies and actions that enhance operational co-operation at all levels and improve information sharing between the public and private sectors.
A failure to meet this objective will only embolden criminals involved in terrorism, drug trafficking, fraud and other crimes. No government wants to see that. But the stark reality is that there is much work to do. The magnitude of illicit profits, the velocity at which billions are moving across borders, and the sharp increase in financial crime, are deeply worrying. If we are going to put a real dent in criminal activity, we need to go after the money.
By conducting financial investigations, national authorities can not only solve financial crime but also take the profit motive out of crime. This will only happen if countries prioritise anti-money laundering initiatives, put in the investment and build capability and capacity to achieve real, tangible results. If governments want to build safer societies and stronger, fairer economies, then they must go after the money that drives organised crime, confiscate illicit assets, and cut off funding for crime and terrorism. It will make a big difference.
T. Raja Kumar
T. Raja Kumar began a two-year term as President of the Financial Action Task Force (FATF) on 1 July 2022. He succeeded Dr. Marcus Pleyer.
Mr. Raja Kumar has rich leadership and operational experience, having held a wide range of senior leadership roles in the Ministry of Home Affairs in Singapore and the Singapore Police Force for over 35 years. He currently serves as the Senior Advisor (International) in the Ministry of Home Affairs, advising on international policy development, partnerships and engagement. Prior to this, he was Deputy Secretary (International) at the Ministry from January 2015 to July 2021 and was concurrently the Chief Executive of the Home Team Academy between 2014 to 2018. As Deputy Secretary (International), Mr. Raja Kumar forged stronger collaborative relationships with key counterparts in the safety and security arena, including with strategic partners such as INTERPOL and the UN.
Mr. Raja Kumar is a passionate advocate for the FATF and firmly believes in FATF’s mission and ability to make a global difference. He has led Singapore’s delegation at the FATF since 2015 and is the co-lead for Singapore’s national Inter-Agency Committee on AML/CFT. He co-led Singapore’s efforts for its Mutual Evaluation in 2015-2016 and has driven Singapore’s high level of involvement at FATF, including serving as a FATF Steering Group member for the last four years.
