Transparency, intelligence sharing and Brexit: trends in AFC for 2021

With The Dark Money Files’ Graham Barrow and Ray Blake

From Brexit to Covid-19, the financial services sector has been through some upheavals in the last year. We talked to Ray Blake and Graham Barrow of the Dark Money Files to find out what we should expect in 2021 and beyond.

Greater registry transparency in the UK and abroad

After multiple recent news stories about the UK’s involvement in facilitating financial crime, Ray and Graham believe that registry transparency is improving and that the widely discussed reforms to Companies House will go ahead. Graham says that the Dark Money Files are considered stakeholders in the reform programme, and that the extra insight he’s received through stakeholder meetings has convinced him of Companies House’s commitment to reform. The only potential barrier, he suggests, is dependence on government funding, which is perhaps less reliable in a post-Covid-19 world. 

At the same time, Graham notes that there are other positive initiatives going on in Companies House – including usability enhancements. Ray adds that the UK’s overseas and crown dependencies have now committed to increasing transparency – and that, following Brexit, they’re no longer protected from appearing on the EU’s blacklists. In theory, this should motivate them to work harder to tackle financial crime. 

Outside of the UK and its dependencies, other nations are following suit, with Luxembourg, Kenya and Nigeria now all offering registries for viewing. However, Ray doesn’t believe that the USA’s recent Corporate Transparency Act offers much real insight into company structure, describing measures there as “more polarised than transparent”. 

Overall, Graham says, “They (Companies House) are amazingly committed to the reform. Given the tools I think they’ll implement it extremely well.” UK registries should end up being more transparent with much better underlying data.which will in turn enhance the quality of investigative tools and technologies that make  use of this data. 

Intelligence sharing needs to increase – but tech will be key in light of data privacy concerns

Intelligence sharing is needed to bridge the gap between AML and AFC departments in banks and law enforcement but, according to Ray, it isn’t set to become widespread yet. He describes the current situation as an ‘internal battle’ where the voices of those who are concerned with prevention and detection of AML are overpowered by those with a ‘privacy has primacy’ approach – where the focus is on GDPR compliance. This, he says, “is a concern for people like us who believe that financial crime is a battle you can’t win without much freer flow of data.”

However, Graham suggests that there is some hope of improvement in the shape of technological innovation. He cites solutions that allow people to share forms of data that do not contain personal identifiable information, the development of which was also encouraged by the FCA in their recent sandbox programme. 

Graham also makes the point that different technologies working together is key. For example, manual analysis of the large amounts of data that might be shared is time-consuming and important connections between data can be hard to identify, so analysis and visualisation tools like Videris to accelerate these processes can be useful.  As Ray says, “information is only information. It’s not useful until you actually analyse it – and we need technologies that do this, too”. 

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Brexit: increased flexibility or lower standards?

The impact of Brexit on the UK’s anti-financial crime efforts has long been a topic of discussion – but Ray’s take on it is somewhat refreshing. While the rest of Europe is scrambling to implement 6AMLD by the end of June this year, the UK is no longer required to engage in what he describes as ‘the implementation struggle’ (although the UK believes that its existing measures at least meet the directive’s requirements). More broadly, as a lone nation, we no longer have to consider the vested interests of EU member nations in our decisions – for example, those where corporate transparency is not a priority. Instead, Ray argues, we are free to be more responsive to emerging threats and to match our AFC policies more closely to the risk landscape as it affects the UK. 

However, Graham has some concerns, suggesting that we may need to offer additional incentives to secure trade deals now we are no longer part of the huge trading block that is the EU. Against the background of our recovery from Covid-19 – where the economy will be looking for growth – there may be more room for criminal activity.

Ray agrees that there is some risk but argues that “regulatory rigour doesn’t have to be the opposite of growth – a great example of this is the procurement of the Covid-19 vaccination – we did it quickly and got it right!”. Ultimately, the pair agree that regulatory standards can be maintained whilst moving quickly if there is the correct motivation and focus. “People say we’re setting the bar lower to try and get a competitive advantage over us” he says “and to be honest that doesn’t have to be true. It’s not a foregone conclusion.”

Regulatory reform isn’t here yet

According to both Ray and Graham, the increasing emphasis on prioritising outcomes over process doesn’t reflect the reality on the ground. Ray makes the point that regulators have historically been reluctant to engage with black-box AI due to its lack of transparency – even though it can provide better, more reliable outcomes. As a result, AI companies are taking notice and making sure that there’s logical reasoned output from their products, so more explicable artificial intelligence is becoming available. Ray believes that these technologies could open up opportunities for reform.

Graham also highlights that outcomes and outputs are sometimes conflated, when regulators in fact need to be very clear about what they are trying to achieve. “80% of the protagonists generate 20% of the money, but they’re easy to catch”, he says, “whilst the other 20% generate the rest of the money but are harder to catch”, so, he asks “is the outcome lots of arrests or lots of constraint of money?” He believes that the real challenge is deciding where resources should be concentrated: on multiple easy targets, or on a single high-value one? The answer to this debate could lie in technology solutions that facilitate more efficient and effective investigations. Technologies that use intelligent automation, such as Videris, enhance the investigator’s skills by accelerating manual tasks and allowing them to spend more time on analysing the data in front of them. Ultimately, technology has the potential to remove this dilemma by allowing investigators enough time to investigate both the easy targets and those of higher value.

Positive trends – and a word of caution

Overall, then, where are things headed in the world of anti-financial crime? Graham says that he sees cause for encouragement in the “shift away from looking at individual data points and towards connecting dots – Videris is very good at doing that!”. He cites DMF’s recent part in the investigation into the Beirut blast as an example of the fact that nothing can be looked at in isolation. 

Ray, on the other hand, offers words of warning. “It’s quite a dangerous period now” he says “when the world moves from a time that was all about constraint and nervousness to one where people feel…freshly emboldened.” Likening our post-Covid era to the roaring twenties that followed WW1, he highlights the reliability of the societal ‘boom and bust cycle’.On the one hand, financial institutions are beginning to invest more heavily in people and tools like Videris that can facilitate an intelligence-led approach to tackling financial crime. On the other, coming out of a pandemic offers great opportunities to the innocent and criminals alike. “If we aren’t very careful about how we use these opportunities, says Ray, “we are going to find ourselves in trouble”.