28 March 2023
The United Nations Office on Drugs and Crime (UNODC) estimates that 2-5% of global GDP, or $800 billion-$2 trillion, is laundered each year. However, only 1% of these proceeds are successfully caught or intercepted, a figure that is far too low for us to ignore, given the scale of the crime.
Our mission at Themis is to reduce the global impacts of financial crime. We want to stop criminals and serious organised crime networks from profiting from their illicit activities, practices that have very real harm on people, businesses, and the environment.
How do we do this? By democratising due diligence to the point where it becomes part of our everyday working and home lives. In this way, it will become near impossible for criminals to profit, undetected, from their illicit activity.
However, we cannot do this alone. This fight against financial crime is just one part of a whole system response. The responsibility also falls on governments, law enforcement authorities, regulators, NGOs, and the private sector to work collectively to stamp out the existence of financial crime globally.
To combat this issue, it is vital that firms foster a culture of cross-organisational transparency and openness that equips staff with the confidence to report suspicions of financial crime. It is important not only to develop effective reporting processes, but for this to also be met with working conditions that are conducive to internal reporting. To achieve this, it rests initially on the management team to establish an explicit ‘tone from the top’ that clearly demonstrates the importance of mitigating financial crime across the organisation. As this culture is embedded, staff are likely to become increasingly aware of signs of financial crime and feel confident in reporting these suspicions without fears of negative repercussions.
A 2022 study by the Association of Certified Fraud Examiners (ACFE) examined fraud cases across 23 industries globally, finding that just 16% of cases were detected by internal auditors and only 4% by external ones, despite their high level of access to internal data and resources. As auditors often analyse financial statements for discrepancies in relative isolation rather than taking a more holistic, end-to-end approach, it is difficult to get a wider perspective on activities of a firm that could indicate hidden fraudulent practices. On the other hand, 42% of fraud cases were identified through tip-offs, 55% of which came from employees, highlighting the importance of employees raising concerns of malpractice or bad governance within an organisation. This trend will likely persist as cultures of transparency that are favourable to internal reporting are increasingly prioritised.
The implications of organised crime and its underpinning financial flows go beyond just financial damages, causing real damage to people, businesses, the environment, and the rule of law more generally. The private sector plays an important part in identifying and reporting cases of suspicious activity linked to financial crime through suspicious activity reports, known as SARs. The more information that is provided to financial intelligence units and law enforcement bodies, the more opportunity these bodies have to hold perpetrators to account and shut down their schemes related to financial crime.
The UK Financial Intelligence Unit (FIU) reported that in 2021 alone, accounts totalling £305.7 million were frozen as the result of Defence against Money Laundering (DAML) requests, a 120% increase on the year before. This marked increase in the amount of money denied as a result of DAML requests is evidence of the monetary value associated with suspicious reports. Included in this update was a reported 21% increase in the total number of SARs received by the UK FIU, indicating the greater frequency of reporting.
SARs are also an important tool to identify gaps or loopholes that might exist within a business’ due diligence process. If reports of suspicious activity reveal continuous violations of certain aspects of the process, they can act as useful indicators of vulnerabilities that allow financial crime to persist unabated, as well as indicate where measures can be taken to close these loopholes. When gaps are not known, firms risk unwittingly abetting perpetrators of financial crime and compromising their reputational and ethical standards.
It is crucial that financial institutions recognise the important part they play in establishing an environment conducive to SARs, both from a legal, regulatory standpoint and an ethical perspective given the criminal activity that fuels money laundering. To ground these regulatory requirements in actionable recommendations, we spoke to compliance expert and professional, Nora Amin. Ms Amin has held a number of senior compliance officer roles at high profile banks and organisations, such as the National Bank of Egypt and First Abu Dhabi Bank. Her professional experience has granted her numerous opportunities to improve the reporting process for SARs and she ultimately distilled this wealth of expertise into two practical actions. Both recommendations acknowledge, and strive to overcome, the emotional response that comes with loyalties employees may feel towards their organisation or long-term clients that might make them hesitant to raise concerns.
1. SARs Hotline
Ms Amin highlighted the value of establishing a dedicated hotline for employees to anonymously submit SARs through. Throughout her career, she has found the greatest uptake in individuals submitting SARs was when they have access to an anonymous number they can contact to raise their concerns. Though legally speaking, financial institutions are meant to insulate employees from reprisals for submitting SARs, it is sometimes difficult to convince employees to entirely overcome concerns of retaliation. An anonymous hotline eases these worries, likely contributing to a growth in the number of SARs submitted across a firm.
2. Visibility of the MLRO
In addition, increasing the visibility of a company’s Money Laundering Reporting Officer (MLRO) across the board is vital in establishing an effective SARs process. It is important that the MLRO is a known and visible face of the company, making them an approachable person for employees to call on when they have concerns related to a customer or business activity.
The MLRO must play an important part in educating the company on SARs themselves, both the importance of submitting concerns, as well as how to identify suspicious activity. Increasing the awareness of SARs and the importance of submitting them due to their role in mitigating financial crime, is necessary to expand both the number and quality of reports that are submitted.
Firms must ensure as well that MLROs are an independent entity, untainted by financial incentives that might impact decisions about which clients to onboard. It is important that there is a balance struck between the pressures to bring in clients and the role of the MLRO in asking questions and drawing out concerns. This challenge is faced on a daily basis and so it is necessary that there is a culture built around the merit of SARs and the value of MLROs in addressing concerns.
Themis’ Anonymous Whistleblower Function
In view of legitimate concerns of employer backlash for speaking out as a whistleblower, Themis Search includes a ‘whistleblower function,’ which enables users of our due diligence platform to submit a claim entirely separate from their company. Though there are legal protections for employees, an anonymous portal like this can help to ease the worries that come with whistleblowing. An employee can submit an anonymous claim, which is then reviewed by the Themis team and, if necessary, is referred to an authoritative regulatory body.
The arrest and imprisonment of Martin Heaney, a notorious sex trafficker in Northern Ireland, exemplifies the value of SARs in stopping organised crime. This case was the “largest successful prosecution to date of sexual exploitation in Northern Ireland under the Modern Slavery (NI) Act 2015,” as noted by Gavin Miller, a former Detective Inspector with the Police Service Northern Ireland. Between 2011 and 2019, Heaney coerced women into having unwanted sexual encounters with dozens of men, including himself, across Ireland and Northern Ireland.
Police were alerted to Heaney’s operation when a SAR relating to unusual transactional activity was raised. The level of income flowing into Heaney’s bank account was inconsistent with his profile as a retired individual and, when combined with the large number of payments made for online sex adverts and for petrol in locations all over Ireland and Northern Ireland (which betrayed his movements driving trafficked women around both countries for sexual exploitation), raised a red flag.
Investigations of modern slavery are some of the harder cases that law enforcement agencies are faced with. They therefore use a variety of tools, including adult service websites, financial statements, and the Home Office to assist in their investigations. Miller emphasises the value of financial tools as often modern slavery investigations are conducted in parallel to a money laundering investigation as the “suspects' payment of flights, brothels, adverts, and money transfer… are at times critical to the success.”
As a result, the financial sector can play a crucial role in the identification and flagging of suspicious transactions that might link to nefarious activities. With this comes a responsibility of the management team to foster a transparent working environment that is conducive to the filing of SARs. It is important that banks equip their employees with the knowledge and confidence to report suspicions as this assists law enforcement agencies in identifying operations that should be further looked into. In the Heaney case, SARs were crucial in the investigation and prosecution of the trafficker, as they showed him living a lifestyle far beyond the means of his legitimate income.
In November 2021, Heaney pleaded guilty to 29 charges relating to 10 female victims, as the Themis Search risk map below illustrates. He was sentenced to five years imprisonment and subjected to a seven year Slavery and Trafficking Prevention Order (STPO).
Gavin Miller sat down with Themis in a newly released podcast, Modern Slavery and Human Trafficking: Notes from a former detective, to discuss the MSHT crime landscape and his experience on real life MSHT cases, including the Martin Heaney case.
Ultimately, it is essential that companies implement a robust and effective procedure for employees to report suspicions and for subsequent submission of SARs by nominated officers. As it is a legal requirement that firms report suspicious activity to the relevant financial intelligence unit or law enforcement body, it is important that there is an official process that insulates whistleblowers from punishments from their employer - a reason many might be hesitant to report odd behaviour or transactions. Alongside this, the firm’s senior managers must actively work to develop a ‘tone from the top’ that values the reporting of suspicions of financial crime.
It’s important to remember that many organised crime gangs are poly-criminal and so the timely and precise reporting of suspicious activity can have a significant impact on disrupting the operation of a variety of criminal networks. SARs are a crucial means of dismantling organised crime and one that law enforcement relies on for investigations, emphasising, further, the importance of establishing an environment that supports the reporting of incidents or behaviours that smell suspicious.
Written by Olivia Baker, Financial Crime Researcher, Themis