FATF is taking notes on Digital ID, SARs prove they’re worth it in a report from the UKFIU and Japan is facing potential regulatory concerns ahead of the 2020 Olympics.
We share our financial crime highlights from the week of 4 October 2019.
FATF Explores Digital ID
The 77-page document summarizes the key features of digital ID systems and the main FATF requirements for customer identification and verification as well as ongoing due diligence processes.
It details the benefits of implementation, like the potential for increased financial inclusion of unserved or underserved populations. But it doesn’t ignore the risks of implementing a system that incorporates biometric data, mobile device data and other sensitive information, such as data protection and privacy issues.
The move comes as the number of digital transactions continues to increase rapidly. Citing reports by Capgemini & BNP Paribas and the International Data Corporation, the FATF states in its draft that digital payments are expected to comprise 726 billion transactions annually — nearly 2 billion transactions each day — by next year.
By 2022, digital transactions could represent 60% of the world’s GDP. These guidelines are meant to provide financial institutions and other concerned parties a framework they can use to adjust their customer identification, verification and ongoing monitoring processes to the new reality.
Before issuing official guidance, the FATF has asked those in the private sector to weigh in and help shape its policies.
It has specified four main areas of focus for providing input: specific money laundering or terrorist financing risks to using digital ID systems, the role of these types of systems in ongoing CDD or transaction monitoring, ways in which these systems can support financial inclusion, and possible areas of conflict between the use of these systems and FATF record-keeping requirements or other AML/CFT measures.
The draft guidance will be available to the public for feedback until November 29.
SARs Strike Back
SARs filing is proving its importance across the UK this week as it’s been revealed that £131.7 million has been prevented from going to criminals.
The figures come from the UK Financial Intelligence Unit (UKFIU) with a heavy focus on the impact of defense against money laundering (DAML) requests being responsible for most of the stopped money.
Reports have increased overall with SARs reporting hitting a record of 478,437 across the year and HMRC has increased its use of SARs in both civil and criminal investigations. An action that should bolster morale for those AML officers who file reports and feel as though there’s no followup to what can feel like interminable filing.
Ian Mynot, Head of the UKFIU, commented: ‘The UKFIU does not control the increases in SAR volume and with these volumes come increased risks that require effective mitigation.
It’s a strong indicator that the UK is stepping up its approach to tackling financial crime. However, criticisms have been made that all SARs are being treated equally, so low-value ones are being considered due to businesses overreporting to avoid missing any issues.
Hopefully, the Home Office’s SARs’ reform program, which was announced in July this year, will be able to reduce the impact of low-value SARs and potentially give guidance to businesses so they’re no longer overreporting.
FATF Examines Japan
Last Monday saw the start of Japan’s review by FATF – historically not something that goes well for the country.
The archipelago ranked 18th out of 27 during the third examination of FATF countries in 2008 and was rated the 53rd least risky country in the world by Basel Organization for Governance.
Public bodies in Japan have already been reviewed and this week sees several private companies across each business category selected for review. A major difficulty facing Japan for this review, which might be quite embarrassing internationally, is that the results are due to be released in June 2020, right before the Tokyo Olympics.
Given the nation’s poor track record it’s possible that it will once again be shown to be a financial safe haven for illicit actors. However, businesses have taken steps to tighten up security. Banks in the region have improved identity checks, suspended remittances for first-time customers without accounts and bigger banks are holding knowledge-sharing events for smaller banks that lack expertise in the area.
Cryptocurrency exchanges are likely to show the most risk for Japan as the review uses a template, one that includes requirements exchanges may not have taken seriously for some time. This is especially true for exchanges focused on anonymity as a feature of cryptocurrency.
Japan must hope that it can address more than half of FATF’s 40 Recommendations and that at least six of the 11 items that measure effectiveness are not judged to be at a low level. If the nation fails to achieve either metric then it will be labeled a high-risk country to be monitored.
Not a great look when you’re about to welcome the world to compete in the biggest international sporting event worldwide.