The State of Financial Crime Today

Nasdaq and its subsidiary Verafin, just published their first Global Financial Crime Report. The report is making headlines for the size of its estimates of the amount of financial crime that exists globally (it estimates that there is $485 billion in fraud losses and over $3 trillion in money laundering annually). It is notable, though, because of its comprehensive research approach to illustrating the scope and impact of financial crime. It brings together three different types of information:

1. a quantification of the amount of global financial crime globally across fraud and money laundering
2. human-level stories of the impact of these crimes with spotlights on four individual victims
3. a point of view on what can be done to improve the situation

Quantification

This report quantifies financial crime globally across multiple different types of financial crime. The quantification is significant because it is a global view to encapsulate different types of fraud and all manners of money laundering. Taking this holistic view, the numbers are staggering. Every year individuals and business lose $485 billion — almost half a trillion dollars — to fraudsters. Additionally, the report estimates more than $3 trillion in illicit funds flow through the banking system each year. Despite the significant and ever-growing investment from banks and governments to combat money laundering, this still represents approximately 3% of global GDP.

Human Impact

One cannot appreciate the magnitude of this amount of crime without understanding the impact these crimes have on their victims, and the report provides this by telling deeply personal stories of the victims of four types of financial crime. One of these personal and moving stories is from Timea Nagy. She tells how her brave ambition to improve her financial situation was twisted by human traffickers into nightmare of forced sex work in Canada. She describes how she not only freed herself, but used her experience to powerfully advocate for victims of trafficking. Through these human perspectives, the trillions of dollars — that at first seem like just numbers on a page — become an urgent call to action.

Recommendations

Finally, the report goes deep into the challenges, priorities, and new threats faced by the people combatting financial crime, and frames these insights together with a point of view of what can be done to improve. The report stresses the need for industry collaboration and information sharing as an actionable and effective strategy to better fight financial crime. This change can be affected with regulatory guidance for public-private partnerships, as well as greater regulatory support for private-private information sharing between banks.

Celent and Oliver Wyman Contribution

I am proud to say that our Risk group at Celent along with our colleagues in the Anti-Financial Crime group at Oliver Wyman contributed substantially to this report. Nasdaq and Verafin asked us to build a custom model to determine global estimates of the annual amount of financial crime that were broken down by type of crime and by geography. Estimates were built using a bottom-up amalgamation of regional and country-level estimates from governments and law enforcement agencies. These bottom-up estimates were then compared with top-down estimates from international financial agencies and NGOs. Our team then used global indices and data sets to build regional and country-level estimates.

We also conducted an online survey of 200 anti-financial crime executives in the US and Canada to collect primary data on the new threats they are facing and approaches to fighting financial crime. There is a deeper explanation of the survey's and model's methodology and sources in the report.

Insights

This work has significantly deepened our understanding of the technologies and approaches our clients are using to better fight financial crime. Some of the more interesting insights we found were:

• 72% of the financial crime executives we surveyed will increase their use of AI in financial crime prevention next year with the biggest impact in Transaction Monitoring and Fraud detection. While AI holds much promise for improved prevention, right now AI technology is primarily focused on improving efficiency.
• Top emerging threats from the survey include, realtime faster payments (52%), money mule activity (47%) and terrorist financing (35%). Digital assets also came up as being widely used by criminal elements but banks have not caught up in terms of detection and prevention.
• Survey respondents said regulators could help most by encouraging bank-to-bank information sharing (68%), typology-specific priorities and guidance (also 68%), technology innovation (51%). It is particularly effective when regulators focus industry efforts on a single issue, like they have done with human trafficking in Netherlands and Canada.
• Top methods for identifying new threats alerts and reports from law enforcement (58%), industry-wide initiatives and working groups (53%), sharing information directly with other banks (51%), and analysis of internal data (35%). There was much support among the financial crime executives for improved internal organization where program owners for sanctions, fraud, AML are working together.

Nasdaq's Global Financial Crime Report is a groundbreaking analysis of the state of financial crime today. We are proud to be involved and hope this report serves as an urgent call to action and encourages the industry to work together to combat financial crime.