Is your firm a target for financial criminals? Almost certainly
BPP speaks with financial crime expert Vivienne Bannigan
There is a feeling among some business people that their firms will not be targeted by organised crime. They believe criminals only select large corporations and banks for their attentions, or high net-worth individuals, or that their customer and data bases are too limited to be of much value to fraudsters.
Sadly, criminals aren’t so choosy or predictable, says Vivienne Bannigan, a financial compliance expert and course consultant for BPP. “Money launderers want to ‘clean’ large quantities of dirty cash quickly and they aren’t fussy about which kind of companies they use, or even if they make a small loss.” Years ago, the American mafia rinsed the profits from illegal gambling and bootlegging through local laundromats, hence the term. But any type of company is potentially at risk.
According to the National Crime Agency, at least £90 billion in criminal proceeds is believed to be laundered through the UK each year. The country is estimated to be responsible for 40 per cent of the legal and accountancy ‘red flags’ in Europe, while approximately 1,000 professionals – mainly in the accountancy, legal and financial sectors – are fined for money laundering annually. Last year, the Financial Conduct Authority fined individuals and organisations over £200 million, a ten-fold increase on 2016. Terrorist financing, too, is a growing concern for government, with terrorists using much the same ways to store and move illicit money as other criminals, though of course their motives are ideological rather than financial.
Ms Bannigan says SMEs are prime targets “because they may not have regulatory foresight, their due diligence may be less comprehensive and they are often keen for investment”. Start-ups that are expanding rapidly are especially vulnerable. “Their systems are often straining to keep pace with expansion and the entrepreneurial spirit that made them successful in the first place isn’t primarily focused on compliance or criminal threats.”
That doesn’t mean large companies aren’t vulnerable. “One of the biggest mistakes businesses make is to meet the threat of financial crime with a tick box exercise – ‘Have we met requirement 7.12 of this EU regulation or that UK directive?’ That’s not the most effective way of dealing with the problem,” Ms Bannigan explains.
“What they should really be looking at is behaviours. Why is a client offering to invest large amounts of money from risky jurisdictions? Why are they being loudly insistent on the phone that we doing something or other immediately? Why are they claiming that they know the CEO personally? Do we really know much about the people we are dealing with? Can we back our knowledge up with documentary evidence?”
Never make the mistake of underestimating financial criminals, Ms Bannigan says, it’s not just a compliance issue. “Organised crime employs some very smart people. If a company’s training is poor, its staff inexperienced and its systems lax or infrequently reviewed it is at risk regardless of size.”
Criminals are adept at compromising company staff who are vulnerable. “If an employee has a gambling problem or severe money problems, they could become targets for financial criminals.”
Money launderers choose their victims by gleaning information from the same sources other investors use, Ms Bannigan says. “Profile pieces on up-and-coming entrepreneurs and firms, for instance, or by analysing market trends or being aware of imminent IPOs that could be vehicles for their investments. They have even been known to buy large quantities of luxury merchandise and sell it online – sometimes for a loss. It doesn’t matter to them as long as illegal money is ‘cleaned’”.
Terrorist financing is much harder to spot than money laundering, Ms Bannigan says, because the sums can be so small and it relies on the views of individuals that aren’t readily apparent. “Twenty years ago, terrorist organisations used illegal funds to purchase arms and whatever sophisticated weaponry they could lay their hands on. Today they realise that they don’t need much to create mayhem.”
Ten key points
All types and sizes of companies can be targets of financial criminals
The UK, as one of the biggest centres for financial transactions, is the focus for a lot of global money laundering
SMEs are vulnerable because they sometimes lack the resources and experience to detect illicit activity
Fast-growing companies eager for new investment are often targeted
Large companies can mistake ‘tick-boxing’ for deterrence – it isn’t
Learning to spot suspect behaviour is far more effective
Don’t underestimate money launderers – they use very smart people who are adept at exploiting the compliance weaknesses in firms
Employees with money or gambling problems can be particularly vulnerable
Criminals use the same sources of information as other investors – the press, market trends, IPOs
Terrorist financing is much harder to spot because the sums can be small and individual motivations harder to detect
