Current Affairs

PayPod Podcast: 2021 Financial Crime Trends With Charlie Delingpole

March 15, 2021 6 minute read

For a financial compliance officer, success requires mastery of risk management, particularly in highly fluid environments. While crime is a constant, the tactics criminals use to obtain and obscure ill-gotten gains are ever-changing. Further, in response, regulatory efforts have grown in both scale and complexity. To keep pace and help ensure bad actors aren’t taking advantage of the global financial system on their watch, compliance departments must learn to manage risk effectively.

But a glance through headlines confirms this is easier said than done. From Deutsche Bank’s failure to detect red flags related to Jeffrey Epstein to Apple’s accidental violation of US sanctions, the news is rife with stories detailing risk management failures.

 ComplyAdvantage’s founder, Charlie Delingpole, recently sat down with Scott Hawksworth of Soar Payments to discuss compliance and financial crime trends, how those relate to risk management, and how leveraging technology can help. We’ve edited, condensed, and highlighted just a few of those insights here.

On the most notable high-level financial trends in 2021

You can divide things up into different dimensions. There are the geopolitical dimensions — a new US president in Joe Biden, the ongoing splinternet division and, more broadly, a worldwide geopolitical fracturing. All create a very difficult-to-navigate body of regulations that companies must comply with to combat financial crime and abide by sanctions. 

Then, you have the regulatory environment. Financial institutions must be aware of which specific regulators are bringing in which particular regulations around the world.

Finally, you have trends around enforcement: which enforcement agencies are choosing to enforce which rules or which agencies are perhaps being more lenient?

That’s a general framework. Specifically, you’re seeing sanctions activity between the US and China, issues like the FinCEN files leak, trends around fraud, cybercrime and money laundering, legislation around cannabis or other forms of drugs and the rising importance of crypto.


On the most significant financial compliance pain points for companies

There are three key areas of cost and challenge. First, there are the regulatory fines and risks, including personal liability, corporate liability and existential risk.

Secondly, there is the cost of friction when onboarding. Because you must adhere to regulations, the process of onboarding clients moves more slowly. And you have to reject larger clients. Both affect your customer acquisition costs and marketing costs per client acquired. 

Finally, there’s the operational overhead. For some FinTech companies, the compliance team might have the most people, by far. That’s because if you’re onboarding many clients or looking at transactions, you need a big team to manage false positives and false negatives.

That’s where ComplyAdvantage comes in: we will allow you to understand which specific clients you’re onboarding, if they’re a terrorist or if they’re not a terrorist, and also look at behavioral patterns of analysis.

On the key areas of concern for companies

There are three key processes. When onboarding a new client, if there are mentions of that person terrorizing the defense and shooting a goal, that’s fine. But leading a terrorist attack and shooting a policeman is not.

Then, it’s monitoring the person. Say, for the first month of your life as a client, you’re fine. But then you go on a killing spree or are sanctioned by Joe Biden or by China. At that point, you have to be offboarded. 

Once you begin the transaction process , if your status behavior deviates significantly from your actual behavior, as in, you start sending money to North Korea, to Venezuela, to Syria, then you probably aren’t a local Colorado-based marijuana processor but a terrorist financing group.

The key data sets to be concerned about are sanctions, political exposure and adverse media. What we built at ComplyAdvantage are machine learning-driven data sets that can help reduce the number of people that financial companies need to manage their regulatory overhead.

On cryptocurrency and financial crime

Ultimately crypto is sculpted by the regulatory environment. You have to look at the people who are in there setting regulation, setting adoption and crafting the landscape. 

We do know that many terrorist groups are using Bitcoin as a payment method. I think various high-risk payment platforms, such as pornography or gaming online, have been shut out of Mastercard or Visa and are now migrating to Bitcoin. In terms of the super high-risk payment mechanisms, it is gaining lots of adoption, lots of traction.

The most obvious regulatory trend is banning unhosted wallets, which would destroy a lot of the anonymity around cryptocurrency. Also, in terms of enforcement, up until a couple of years ago, many crypto firms were against any identification. You saw very active enforcement from the FBI and other agencies around that. Now even those companies at the extremes in terms of refusing to identify their customers have capitulated.

I think, ultimately, this will all be driven by public opinion. Over time, people become less and less tolerant of moral transgressions, human trafficking and terrorism. 

On COVID-19’s continuing impact on financial crime

The number one issue for companies is the rise of fraud. The second is the change in risk appetites. And the third is organizational processes, in terms of having to adapt to remote-only, having to go entirely online. Therefore, every company overnight had to become tech-focused.

There have been problems with technologies, money laundering increases and increases in remediation time. So I think what you’ve seen is a huge rise in pressure across those different areas.

I think, in terms of online retail, in terms of people moving to processing merchant payments online, that saw a shift of 10 years in the space of 10 months. The changes that have been initiated aren’t going back to where they were before. It’s very exciting to see all the changes develop so soon.

On AI in financial compliance

I think the classic way of describing [machine learning, natural language processing, and blockchain] is it’s like electricity. It’s a technology that can apply to different verticals. And, therefore, systematically, companies are going through and seeing the different applications they can have in terms of lead generation, risk management, customer discovery and fraud detection.

There are endless ways of applying machine learning and AI, and that technology’s only evolving, improving every year. So that’s another really exciting avenue for opportunity. 

Our vision is to have a global map of every person and company in the world, spanning every form of risk — credit fraud, identity, AML, etc. Right now, we’re only covering a very small part of that. We’re only covering 10 million people, a half-million companies, and over time, we’re going to extend that. And we’ll be able to much more adequately cover every company in the world.

To hear more of Charlie’s insights on the world of compliance and financial crime in 2021 and beyond, listen to the full PayPod podcast with Scott Hawksworth of Soar Payments. And for even more information about the latest trends, click here to read ComplyAdvantage’s State of Financial Crime 2021 Report.