Great strides have been made over the last decade in the fight against money laundering and financial crime, but much more remains to be done. A new report from BAE Systems demonstrates just how far we have to go, exposing in stark detail firms’ financial crime vulnerabilities; vividly illustrating the worries and concerns of financial crime and compliance staff; and showing why there can be no room for complacency.
The report surveyed almost 500 compliance and risk professionals on their attitude and perspectives on financial crime within their organizations. It also grilled 6,000 consumers using financial services firms’ products. The responses were frank and eye-opening, most notably with regard to human trafficking.
An ethical imperative with reputational implications
BAE Systems’ report identified a string of significant findings:
- 36 percent of financial services professionals said they weren’t confident of spotting human trafficking red flags in customer transactions.
- 28 percent of respondents claimed financial crimes leading to human trafficking are responsible for significant financial loss to their firms.
- 75 percent of financial institutions admitted they weren’t confident in identifying human trafficking in customer transactions.
Such findings might be unsurprising to those working in financial services. But, in addition to the ethical imperative to combat human trafficking, what was perhaps most interesting about the report was the reputational aspect of such crimes. The report found 75 percent of customers would drop their bank or financial institution if it did not demonstrate a proactive attitude to fighting money laundering or the unethical practices that facilitate it.
The International Compliance Association (ICA) is a professional membership and awarding body. ICA is the leading global provider of professional, certificated qualifications in anti-money laundering; governance, risk, and compliance; and financial crime prevention. ICA members are recognized globally for their commitment to best compliance practice and an enhanced professional reputation. To find out more, visit the ICA website.
To their credit, financial services professionals recognized this. According to the report, impact on the industry and reputational damage were the top two concerns for those working within financial services. Worryingly, the human cost of the criminal activity came in at only No. 6. In terms of money laundering offenses that cause professionals to worry, human trafficking ranked low (eighth). There’s an obvious discrepancy here: More than a third of all staff in financial institutions aren’t confident at spotting human trafficking red flags, and yet it doesn’t rank highly on their list of concerns.
Obviously, this doesn’t mean financial services professionals don’t care about human trafficking—it’s just that some, most of the time, don’t feel they possess the tools to be able to detect it. The problem is that if this continues, as the report reveals, customers are overwhelmingly willing to find another institution with which to do business.
Overall, the report’s findings leave us with three issues to resolve in relation to human trafficking:
- Employees need knowledge on how to identify and report human trafficking;
- A proactive approach is required, demonstrating to customers that something is being done; and
- The profile of human trafficking needs raising as an area of concern for financial institution employees.
Human trafficking forms just one part of the bigger issue of ethical crime; wildlife trafficking, labor, and sexual exploitation and domestic servitude are among the other elements that fall under this unhappy umbrella. Illicit trafficking in stolen goods and sexual exploitation were both mentioned as being among those crimes having a big impact on financial institutions. If you consider the growing ethical stance taken by an increasing number of customers, one begins to see just how much of a threat such crimes pose.
Combined, ethical crimes represent an intimidating challenge to compliance professionals and those working within financial institutions. The International Labour Organization estimates, for example, that there are some 40 million individuals who have fallen victim to human trafficking worldwide. Given the size of the problem, and the reported lack of confidence of some employees in financial institutions to detect and prevent it, is it then fair to say human trafficking specifically is something of a blind spot for those in financial services?
What financial services staff can do
For staff at financial institutions, the obligation to report is of course a legal requirement. But if a sizeable number of staff admit they are not confident in spotting human trafficking red flags then this obligation is somewhat redundant. This brings us to the gist of this issue—how do we help financial services professionals spot red flags?
First, we should recognize it is not the sole responsibility of those in banks and financial institutions to tackle it. Members of the public, charities, law enforcement, governments, and international bodies each have within their power a number of things they can do to reduce it; those in financial institutions should not feel the burden is theirs alone in this fight. But what they must understand are their professional responsibilities, the legal requirements, and the knowledge and skills needed to be able to identify when it is potentially taking place.
The last of these three seems the most pertinent given the feedback from the BAE Systems report. The answers demonstrated staff know it is problem and recognize it may be costing their firms financially. If these employees are in possession of the tools, knowledge, and intelligence required to spot human trafficking red flags, then their confidence in spotting potential activity will be much higher.
As with many things, it appears education and training sit at the heart of making progress. There is a lot riding on us getting this right.
The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.