Bank employees easiest path to financial crimes

Fees make up a large part of any bank’s profits. And when it comes to correspondent banking, such as when money is wired across borders from one bank to another, this includes service fees that create an important aspect of banking incomes.

That aspect of a bank’s returns is hurting which could make a bad situation worse, especially with government spending and private sector lending  slowing as a result of an anemic oil price situation.

To start with, look at what some bank employees are doing to undermine these types of transactions:

 Employee crime categories

According to PriceWaterhouseCoopers 2017 study and survey of businesses, 40 per cent of respondents indicated that their organisations had never performed a fraud risk assessment and that 65 per cent cited opportunity as the biggest factor driving crimes that are committed by employees.

The survey said that 49 per cent of the time, the crime involved asset misappropriation, 12 per cent of the time cybercrime, 15 per cent bribery and corruption and 16 per cent procurement fraud.

“74 per cent of all economic crimes reported in the last two years were committed by staff,” said PWC.

It said that global spending on anti-money laundering compliance could top $8bn by 2017.

According to the Committee on Payments and Market Infrastructures (CPMI), an international financial organization that promotes the safety of payments, correspondent banking is “an arrangement under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks.”

Unless well regulated, these types of transactions are fraught with dangers, including tax transparency issues, money laundering and terrorism funding.

According to an IMF 2017 report, correspondent banking relationships (CBRs), which facilitate global trade and economic activities, have been under pressure in several countries.

“Factors leading to global banks’ withdrawal of CBRs are multiple, generally reflecting correspondent banks’ assessment of the profitability and risk of the relationships. In particular, decisions to terminate CBRs often relate to the correspondent bank’s lack of confidence in the respondent bank’s capacity to effectively manage risk,” said the report.

Swift action

In September 2017, SWIFT, the global provider of secure financial messaging services, announced that Saudi Arabia’s National Commercial Bank (NCB) signed up for its global payments innovation (gpi) service.

“The bank is the first in the country to join forces with over 100 leading banks globally. SWIFT gpi dramatically improves the customer experience in cross-border payments by increasing the speed, transparency and end-to-end tracking of transactions,” SWIFT said in a statement.

SWIFT gpi banks are able to log in to instantly check the status of the payments that they have sent, of those in progress and of those that have been received.

The IMF says that communication between correspondent and respondent banks needs to be robust, and financial institutions are to implement regulatory and supervisory frameworks, particularly those geared for anti-money laundering and terrorism funding.

According to SWIFT data, between beginning-2011 and end-2016, the number of active corridors decreased by 6.3 per cent and the number of active correspondents went down

For both the U.S. Dollar (USD) and Euro (EUR), the number of active correspondents decreased over that same period by around -15 per cent.

“While these two currencies make up about a third of the number correspondent accounts, they represent the vast majority of the value of payments made through SWIFT messages (82 per cent in December 2016), against 5 per cent for the next most used currency, the British pound (GBP),” said Swift in a 2017 report.

Drop in remittances

According to a recent article by the Economist, remittances to developing countries fell in 2015 and 2016 (to $429bn). It said that charities had also experienced financial issues, such as delayed transfers or account closures, for fear of involvement in illicit activities.

Qatar’s banking system was accused of being tolerant of fund-raising for terrorist groups, and was partly responsible for the current isolation of the GCC member.

The Middle East challenge

According to a 2016 PWC report, the Middle East region faces special challenges, including very high level of money service businesses and cash transactions.

The report said that 1 in 6 financial services respondents experienced enforcement actions by a regulator and 35 per cent of correspondents cited challenges with data quality.

“Only 52 per cent of money laundering transactions were detected by system alerts, while 35 per cent of respondents say the ability to hire (expertise in the area) is the biggest challenge,” PWC said.

Finally, PWC says that 18 per cent of surveyed businesses feel that they are struggling with upgrading or implementing systems and that 34 per cent have systems that generate large numbers of false positive alerts, which is high compared to 23 per cent globally.