Financial Crime World

Banking Sector Vulnerability to Financial Crime in the United Kingdom Exposed

A recent survey has highlighted the vulnerability of the UK’s banking sector to financial crime, with respondents citing various concerns including tax evasion, Russian sanctions evasion, crypto and ransomware, investment scams, and environmental crime.

Top Concerns for Banking Sector

  • Tax evasion: 36% of respondents cited tax evasion as a significant predicate offence
  • Russian sanctions evasion
  • Crypto and ransomware
  • Investment scams
  • Environmental crime

Tax Evasion Concerns

  • Corporate tax abuse costs the UK £79 billion annually
  • Risk indicators highlighted by Malta in 2021 include:
    • Firms declaring zero income
    • Customers trying to discover whether earnings will be reported to regulators
    • Organisations with incomplete documentation affecting tax evaluations

Russian Sanctions Evasion Concerns

  • Attempts to exploit weaknesses in western sanctions regimes via methods such as:
    • Procuring goods through proxies
    • Obfuscating the origins of banned commodities
    • Recent changes to ownership and corporate structures
  • Importance of banks taking a proactive approach to detecting potential Russian sanctions exposure

Convergence of Ransomware and Cryptocurrencies

  • State-sponsored actors in Russia, DPR Korea, and Iran becoming more prominent
  • Red flags highlighted by FinCEN and AUSTRAC include:
    • Customers discussing assistance in cryptocurrency purchases
    • Rapid trading after receiving funds from external wallets
    • Submitting photographs of data on computer screens during onboarding

Investment Fraud Concerns

  • UK Finance reported £61.2 million in losses due to investment fraud in the first half of 2022 alone
  • Importance of banks considering best practices outlined by the Financial Conduct Authority (FCA) Handbook when screening for this fraud typology

Environmental Crime Concerns

  • Nearly one-third of firms surveyed reporting concerns about environmental crime
  • Importance of frequent enterprise-wide risk assessments and regularly updated training on typologies and risk indicators to combat the laundering of environmental crime proceeds

Effective Screening Against Typologies

  • Dependence on a sound underlying risk management system
  • Compliance frameworks must effectively:
    • Trace ultimate beneficial owners
    • Screen politically exposed persons (PEPs)
    • Enable robust enhanced due diligence practices
    • Implement reliable supply chain risk management and know your business (KYB)

Leveraging Innovative Technologies

  • Artificial intelligence overlays can help banks enhance existing processes and improve their ability to detect financial crime
  • Importance of taking a proactive approach to addressing vulnerabilities and leveraging innovative technologies to stay ahead of the evolving threat landscape.