ComplyAdvantage: Why the New EU Money Laundering Rules Won’t Work

Just this week, an updated Anti-Money Laundering Directive, known as the 6AMLD, has now come into effect around the world, which means that any organisations operating within the EU now need to comply with the new rules. The updated AMLD is designed to better counter cybercrime and the financing of terrorism, however, not everyone believes that the new directive goes far enough.

Here, Charles Delingpole, the founder and CEO of London-based RegTech ComplyAdvantage, which helps businesses around the world detect and counter financial crime, explains why he think the latest ruling simply won’t work.

Regulators’ appetite to toughen their systems has been sharpened by the series of recent money laundering scandals including the likes of Danske Bank and more recently the finCEN leaks.

This time around, the key changes include a unified list of predicate offences; additional money laundering offences of aiding and abetting, inciting and attempting; the extension of criminal liability to legal persons; increased international cooperation; and tougher punishments.

Advances in Artificial Intelligence and Machine Learning have pushed Adverse Media Screening (AMS) to new levels of effectiveness. AMS is now a money launderer’s worst nightmare, as it enables banks and big businesses to identify a much wider range of potential bad actors.

However, the AML regulatory framework is out of date, as it was written before technology leapt forward. At present, Adverse Media Screening is not mandatory. Current regulations only require financial institutions to run Sanctions and Politically Exposed Persons (PEPs) checks. This is manifestly insufficient as the risk landscape continues to evolve — this is particularly pronounced with Covid and Brexit in mind.

If AMS screening became a mandatory regulatory requirement, banks and financial institutions would gather a much higher volume of valuable data as standard, and therefore defences against money laundering would be stronger across the board.

And why does this matter? Because money laundering is almost always linked to the most wicked and nefarious of activities: people trafficking, illegal animal exports, sex crimes, the drug trade and more. It is time to alter the legislation and to make AMS a mandatory requirement. Especially because:

The regulatory bar is set too low

Anti-Money Laundering regulations require financial institutions to run Sanctions and Politically Exposed Persons (PEPs) checks on clients – but this only captures a tiny proportion of potential risk and can’t measure ongoing changes. This is manifestly insufficient as the risk landscape continues to evolve, post-Covid.

For example, there are only 27,000 names on the global Sanctions list – at the PEP level, the number rises to a few million names. Sanctions and PEPs checks can only detect a tiny fraction of the potential risk facing business.

What checks are conducted are done from a very limited perspective. Money laundering is almost always linked to nefarious activities of other kinds: people trafficking, illegal animal exports, sex crimes, the drug trade and more. However, these behaviours wouldn’t necessarily land a person on a Sanctions or PEP list but still pose a risk to business.

Technology is a money launder’s worst nightmare

The latest Adverse Media Screening (AMS) technology is the most effective tool to detect money laundering as it allows businesses to identify a much wider range of potential bad actors. Despite delivering clear benefits, AMS is barely being used due to a number of reasons:

it’s not a regulatory requirement
businesses typically look for the path of least resistance. If there’s a perception that AMS is a blocker to growth, they’re reluctant to add more time and expense for measures that aren’t strictly required by law
until recently, AMS hasn’t shone. Old AMS systems are keyword-based and create too many false positives, making the compliance system unmanageable. For example, an article about a footballer ‘terrorising’ the defences of the opposite team might show up

AML regulation is badly out of date

Time has moved on and the AML regulatory framework is badly out of date. It was written at a time before the advances in Artificial Intelligence and Machine Learning technology that the global economy has enthusiastically embraced.

If banks and financial institutions were forced to update their AMS systems, they’d be able to harvest a much higher volume of valuable data and make their money-laundering defences substantially more robust. They’ve been able to accurately search the farthest corners of the internet and glean information on people who enjoyed undetectable ties to money laundering.

There are better ways to prevent financial crime

Regulators must take a more modern approach and force companies to use the latest Artificial Intelligence and Machine Learning-based tools to make their process more efficient and robust. Mandatory AMS screening needs to be introduced at onboarding – it’s the only way to prevent financial crime, protect consumers and help businesses safely scale.

While it’s become a standard procedure at some banks and big financial institutions – primarily because their auditors have insisted they do so – the majority of other financial institutions view it as an optional extra, much to the enjoyment of money launderers.

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