Increasingly, regulators are holding financial institutions responsible for their compliance failures. According to Joshua Fruth, the current industry detection logic is flawed and inefficient at detecting financial crime. There is currently too much focus on simple transactional behaviour. The cost of this failure includes a significant amount of false positives, wasted money on compliance, and increased risk. Today, money laundering and terrorist financing actors are defeating rules-based detection scenarios.
Most illicit financing actors, if they’re at all serious about their activities, are well-versed in the AML/CFT rules in place in the jurisdictions in which they’re operating. (In other instances, they simply operate below reporting thresholds, or in such low volumes as to be difficult to detect.) Those rules are not difficult to circumvent. In order to detect illicit financing (and to seriously reduce legal, regulatory, and reputational risk), financial institutions need to adopt a more nimble and evolving compliance regime based on current trends, methods, and actors in the illicit financing space, rather than simply based on the most recent guidelines or regulatory requirements in the jurisdictions in which they operate (which are often divorced from the actual reality of illicit financing activities).