What Can We Expect in the World of Financial Crime in 2023?

In light of new sanctions against Russia, the threat of money laundering fines increasing, and a recession in full force, it's more important than ever to have solid anti-money laundering processes in place. Businesses simply cannot afford to leave themselves vulnerable to being targeted by money launderers, and thus expose themselves to breaches of the Money Laundering Regulations.

Let’s take a look at how the past year is reflective of what AML trends to look out for in 2023.

  • Policy push for tighter regulation of Companies House could be delayed.

There are massive overhauls across the globe in the public registers for companies. The UK and several other nations are campaigning to make identifying ultimate beneficial owners (UBOs) clearer and more transparent.

While this is happening in some countries, in others there is an increasing appetite for more privacy, such as with the European Union Court of Justice’s recent ruling in Luxembourg with regards to beneficial ownership of companies. The recession and this time of low economic growth may distract the policy push for tighter regulation of Companies House as the government wants to incentivise inward investment.

  • The Real Estate sector will remain a hub for money laundering.

Real estate remains one of the faster-growing sectors for money laundering across the board, and the trend is expected to continue into 2023. Real estate is an attractive method of money laundering in many ways. It’s a great way to clean significant sums of money, it can be leveraged at a later date, and plenty of firms that operate in the sector have notoriously poor structures which prioritise faster transactions over compliance. We see significant amounts of cash in the form of ‘donations’ from other parties being used as home deposits across the UK that are difficult to verify and trace, and that trend is only increasing.

  • Technology will continue to make AML processes quicker and more efficient.

Technology has the ability to speed up the time it takes to verify entities and individuals and will exponentially increase productivity across the AML sector over the next few years.

The best thing about regulation is that it affects not only your business, but all of your competitors in the same way. This means that if you can streamline your businesses by processing tasks quicker, cheaper, and more effectively, it will lead to more satisfied customers and happier staff (who hate doing manual AML). Businesses have the opportunity to use compliance as a competitive advantage.

  •  The recession could increase money laundering, with companies less likely to scrutinise transactions and more likely to deprioritise compliance staff.

The biggest problem with money laundering is that it is inadvertently highly profitable for reporting entities. Because of this, firms may be more willing to deal with higher-risk transactions and scrutinise these transactions less. This is especially true if they are high-value, which money laundering transactions usually are. Recessions could also lead to firms de-prioritising compliance staff, who are already overworked at the best of times, exposing them to worse compliance processes.

  • Money laundering will be easy in the Metaverse.

Money laundering in the Metaverse could become a real issue if it actually takes off. Although its user base is currently small, digital assets are a fantastic tool for laundering money. Since the Metaverse is essentially a space populated by virtual businesses selling virtual goods, money launderers can use the same real-world tactics of placement, layering and extraction to clean their money. They will be able to repeat this step over and over again using different amounts each time, making transactions extremely difficult to trace.

  • Money launderers will exploit web3 as it develops.

As web3 starts to develop and mature, we’ll see more creative ways for money launderers to exploit this space. And, as new regulations come in about government UBO databases, we’d expect to see a rise in even more opaque structures to try and hide beneficial ownership.

  • Specialist AML partners will increasingly be relied upon.

Companies will continue to grapple with balancing cost, speed and transparency of business transactions in a competitive and volatile economy. As such, they will have no choice but to rely on specialist partners to keep them up to date with relevant AML legislation and ecosystem changes.

  • Regulatory authorities’ thirst for intelligence will continue to increase.

We expect to see an increase in the use of the data collected when companies file Suspicious Activity Reports (SARs). Data collected from SARs can be used by up to 80 law enforcement agencies who conduct their own checks as a means for investigating and preventing criminal activity. This information is currently interrogated as a dataset thousands of times a year for keywords and names to help identify and direct an investigation.

Particularly with the improvements being made to the SARs portal, we expect agencies will better utilise structured data and will allow better quality data into the system to be triaged, analysed and used more effectively across different departments.

The bottom line

The year ahead is full of new opportunities, especially with the further development of the Metaverse and web3. This, along with the economic downturn, could lead to a rise in fraudulent activity.

Businesses must stay alert and ensure that they are taking all the measures possible to avoid falling victim to money launderers. Thanks to new developments in AML technology, 2023 looks bright for compliance. Now’s the time to take advantage of new tech, so businesses – from real estate, and accounting to law – can stay on the right side of history, avoid hefty fines and come out of the recession shining.

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