The role of public-private partnerships in fighting financial crime

Money laundering, terrorism and financial crime are all growing threats globally that are impacting financial institutions. How can these challenges be combatted?

In a recent post by Alessa, the company highlighted that to successfully combat these risks, coordinated and collaborative efforts through arrangements known as public-private partnerships (PPPs) are vital.

PPPs are strategic arrangements made between private sector firms and government agencies, such as law enforcement and regulatory authorities. These partnerships can be contractual, corporate, or collaborative in nature, and the role played by public and private organisations can be flexible to meet specific requirements.

Alessa said, “PPPs provide opportunities for FIs to collaborate with public sector stakeholders in identifying and addressing financial crime risks. PPPs can improve analysis, investigation, and prosecution of financial crimes, thus benefiting both private parties and their governments.”

The company offered one example of where PPPs can be used to support AML/CFT efforts in the form of suspicious activity report filings. It said, “Financial institutions spend billions of dollars to file millions of SARs annually. However, only a small number of SARs provide useful information to law enforcement. Thus, the SAR process is costly, burdensome, and hugely inefficient. This is largely because FIs do not seek, and law enforcement does not provide, feedback on the value of the information contained in SAR filings.

“However, when designed to link strategy, approach, and execution, anti-financial crime public-private partnerships can be an integral part of an effective AML/CFT program, facilitating the exchange of relevant information and enhancing financial crime intelligence and analysis to combat financial crime. The bilateral relationships formed through PPPs facilitate knowledge-sharing for both sectors.”

Alessa remarked that FIs are in a ‘unique position’ to identify customers and activities that are likely to pose money laundering and terrorism financing risks.

Other benefits of PPPs, Alessa claims, include the ability to prioritise threats, more timely investigations, increased responsiveness, heightened risk awareness and better understanding of complex financial issues and their vulnerabilities to abuse. In addition, FIs that participate in PPPs may be able to minimise their risk of an enforcement action, increase their AML compliance cost efficiencies and avoid reputation damage associated with money laundering violations.

Alessa commented, “From a public sector perspective, public-private partnerships enable organisations to better understand what the private sector experiences and subsequently inform policy and the enactment of laws. From a private sector perspective, PPPs offer regulators an opportunity to explain the application and reasoning behind certain policies. By leveraging PPPs, the public sector can improve their understanding of complex financial issues or services and their respective vulnerabilities, enabling them to pre-empt criminal activity and introduce proactive measures to support the private sector.”

How can you build effective PPPs? The Wolfsberg Group has urged the public sector to prioritise the establishment and strengthening of PPPs and has encouraged FIs to participate actively in information sharing frameworks to foster a more effective AML/CFT regime. To reach this objective, the group has identified a number of keys for success.

These include active participation and sponsorship from public sector figured, inclusive and multi-disciplinary membership, established structure and membership with regular meetings, focus on sharing actionable information, mechanisms to track impact and identify areas for improvements and support by a legal framework for information sharing.

Even if a bank or FI cannot participate in a PPP, there are several measures it can implement to avail itself of the advantages a PPP provides and enhance the effectiveness of its AML/CFT program.

According to Alessa, FIs should stay on top of the latest anti-financial crime trends, practices and guidance, benchmark against peer institutions to assess and compare your organisation’s AML/CFT program, prioritise the most significant threats to your organisation and allocate resources accordingly, test and re-test frequently to identify gaps, issues of concern and opportunities for improvements, then deal with them promptly.

In addition, FIs should actively and routine communicate with their regulatory authority and understand regulatory expectations and share and solicit relevant information in a timely manner and as widely as appropriate.

Alessa concluded, “Raising awareness among political leaders, regulatory authorities, the private sector, other stakeholders, and even within an organisation, is a key element in the fight against financial crime and other illicit activities. Given the cross-border nature of financial crime, solutions need to be global.

“Financial intelligence sharing, including collaboration and dialogue, lead to far better outcomes than initiatives pursued in isolation. The sharing of specific risks and actionable information, as well as active communication between the private and public sectors enables a more targeted, and informed approach to risk-management and helps to protect the financial system and the public.

“Participation in a PPP can provide banks and other FIs with numerous benefits and significant advantages, including increasing efficiencies in its AML investigatory and reporting functions.”

Read the full post here.

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