With Governments increasingly aware of the moral and fiscal costs of white-collar crime, the Dutch crime authority’s decision to hit ING, the Netherlands largest financial services provider, with fines totalling €775 million is of little surprise.

Tackling money laundering is currently high on the national and international agenda of many countries; the EU recently proposed providing the European Banking Authority with greater powers to sanction banks of member states that may be implicated in such activity.

In the case of ING, the bank has been forced to pay out the substantial fine for failing to flag abnormal transactions, and financing terrorism “structurally” by not verifying the beneficiaries of client accounts. The Dutch public prosecution service said that it found “clients were able to use accounts held with ING for criminal activities for many years, virtually undisturbed” from 2010 to 2016. The settlement, which is the largest ever imposed on a company by the Dutch prosecution service, is made up of €675 million in fines, and €100 million as the return of illicit gains intended to deter future violations.

The bank’s CFO has since announced his decision to step down following growing backlash. In addition, measures against ten employees were taken, ranging from dismissals to clawing back bonuses, with the prosecutor accusing the bank of “culpable money laundering”.

This is not a stand-alone case either; watchdogs have clamped down on Credit Suisse and Danske Bank this month over similar money laundering concerns. With authorities prepared to take a hard-line stance against money laundering, there will be severe reputational and financial consequences for organisations which – however unintentionally – enable this offence.

The focus is not simply on the culprits of money laundering, but on ensuring perpetrators have fewer tools to commit such crimes. The relevant authorities will increasingly take a punitive approach to financial institutions with lax crime prevention strategies. Financial institutions, whatever their size, must ensure their tools are inaccessible to those seeking to commit financial crime, or otherwise face extensive fines comparable to ING’s.

This is no easy task and requires a significant investment of time and resource. Banks must ensure they have robust financial crime compliance strategies and programmes in place with appropriate training to reduce risk and mitigate the consequences. This was a point that was not lost on Ralph Hamers, ING’s CEO, who stated that “although [ING’s] investment … [has] been increasing since 2013, they have clearly not been to a sufficient level”.

However, matters should not stop there; processes require frequent review given that criminals adopt increasingly sophisticated strategies to commit offences. Banks, therefore, must remain proactive and vigilant. To this end, the Dutch prosecutor noted that ING’s compliance department “was understaffed and inadequately trained”. In the case of ING, compliance failures were exploited by clients for years for money laundering practices before it was detected.

Effective streamlined processes, such as customer screening and alert processing, informed by risk assessments and financial crime regulations should leave little room for error during due diligence activities.

Iskander Fernandez, White Collar Crime Expert and Partner at commercial law firm BLM

Here Laura Hutton, Executive Director at Quantexa, explains the money laundering phenomenon, describing the typical profile of a money laundering ring, the added variety some display, and the challenges banking systems currently face in identifying money laundering systems.

Global money laundering transactions are currently estimated at 2 to 5% of global GDP, or up to US$2 trillion, funding crimes such as terrorism, corruption, tax evasion, drug and human trafficking. By 2020, experts predict that there will be more than 50 billion connected devices across the world. This is a cause for concern for banks and financial institutions alike, as criminals will be attracted to fresh ways to communicate and partake in criminal activity.

Shockingly, over 25% of financial services firms have not conducted AML/CFT risk assessments across their global footprint (PWC) – so it is no surprise that criminals are still finding loop holes. However, according to Wealth Insight, global AML spending is predicted to rise from US$5.9 billion in 2013 to US$8.2 billion in 2017 – promising a stronger barrier to money laundering activities. In part, this has been driven by the increasingly strict regulatory landscape and some eyewatering fines, but organisations are also keen to tackle the problem for both moral and reputational reasons.

The profile of a money laundering ring

The vast majority of money laundering is committed by organised criminal gangs and involves a complex web of individuals, businesses, domestic payments, overseas wires and increasingly trades and settlements. These gangs will need many low-level individuals who deposit cash into the banking system, typically in low volumes to avoid detection. The gangs will then need to move the aggregated funds around in larger volumes and overseas. This is a complex structure and designed to avoid raising suspicion.

One size doesn’t fit all

All banks will have AML systems in place, but this doesn’t mean they are correctly suited. At first, financial institutions put in place systems to detect money laundering within their retail book, looking for simple patterns like large cash deposits in short time periods or transactions which are unexpectedly large for a standard domestic customer. This may flag some of the low-level criminals, but the modern organised criminal is choosing to hide the activity elsewhere, for example, cash-heavy businesses and financial markets where the transaction volumes are significantly bigger and where overseas transactions are the norm.

Banks and regulators realised that these non-retail products had money laundering risk, but no tailored AML systems existed for these complex products. As a result, many organisations have simply repurposed existing retail and market abuse systems that inevitably aren’t suited to the product line that they are trying to protect. A pre-configured AML system for retail banking will focus on finding individual high-risk transactions without the context of corporate structures, geographical money flows and the complex behaviour of that product type. Consequently, these systems are less able to identity suspicious behaviour and do not effectively prevent money laundering.

Time for a new approach

To address the more pressing money laundering risks, and greatly reduce their vulnerability, banks need to take a different approach that can interpret and risk assess these complex webs of activity and present them assembled and ready for investigation. Money launderers are not transactions, they are individuals, and they need to be modelled as such.

The contextual monitoring approach uses entity and network analysis techniques, in combination with advanced analytical methods to uncover the hidden web of criminal activity and highlight these holistically as an aggregated view of risk across multiple products and data sources.

This eliminates the vast number of alerts generated at the transactional level and focusses the attention on the high-risk people, businesses and networks that underpin these criminal gangs.

Money laundering remains a great issue for banks and financial institutions alike. As the criminals get smarter, current AML systems are falling behind. To beat the criminals at their own game, banks must adopt new compliance technologies to make constructive use of the infinite data accessible, join the dots in their customer network, and then become more efficient when acting against illegal money laundering activity.