Trends in global Financial Crime 2024

• Financial crime affects individuals, corporates, financial institutions and governments.
• The problem is massive, USD 3.1tn in money laundering and USD 476bn in fraud in 2023.
• Financial crime is growing due to organised crime and technology.
• The burden of prevention largely falls on banks and PSPs, gatekeepers like accountants and lawyers lack capability.
• Technology is a cure, but effective integration is required across diverse systems and processes.

How big is global money laundering?

According to NASDAQ, USD 3.1tn in illicit flows and money laundering activity flowed through the global financial system in 2023.

The most prevalent money laundering crimes were USD 783bn in drug trafficking, USD 347bn in human trafficking and USD 12bn in terrorist financing.

Money laundering estimates are the money flowing in/out of the banking systems but exclude transactions in cryptocurrencies.

How big is global fraud?

According to NASDAQ, USD 485.6bn was lost to fraud scams in 2023. The losses are likely to be significantly higher as the true number and value of crimes are not reported.

Fraud estimates do not include tax evasion, corruption, bribery, embezzlement, business lost to counterfeit goods, or industrial espionage.

Financial crime by region?

Of the USD 3.1tn imoney laundering activity in 2023, NASDAQ report a relatively even distribution:

Likewise, of the USD 485.6bn in fraud scams there was relatively even distribution:

Americas USD 151,1bn

EMEA USD 113.1bn

Asia-Pacific USD 221.4bn

Who pays for financial crime?

According to NASDAQ, financial institutions lost USD 442bn to payments, cheque and credit card fraud in 2023. These losses directly reduce the funds available to investors, result in increased charges to clients, and lower investment in service.

Individuals lost USD 43.6bn to scams, reducing the potential to consume, invest or afford essential items. While measured in dollars, the impact is immeasurable in terms of victim well-being, economic prosperity, and trust in financial systems.

What is driving financial crime?

According to the Interpol, several drivers exist for the rapid growth in financial crime:

Technology, in particular Artificial Intelligence (AI) such as deepfakes, enables criminals to conceal their identity, deceive victims, and impersonate others. Fraud becomes real-time in nature and transnational in scale, increasing the incentives for criminals and risks to others. 

Cryptocurrency has emerged as a payment method to bypass the controls in banking. it is prevalent in investment fraud such as “rug pulls” and “pig-butchering”

Organised crime at scale, where criminals gain access to expertise, infrastructure and financial services, in some cases sharing this with other bad actors. Evidence of state–sponsored crime increases. 

Use of synthetic names, corporations, and documentation to circumvent AML, sanctions, PEP and CTF checks during onboarding. 

Use of complex payment structures to spoof the controls in banking and payments systems.

How do regulators fight financial crime?

Criminals seek gaps and grey areas, operating for a short time then adapting to avoid being caught. Regulators face a long cycle of drafting and implementing laws, while enforcement agencies must resource and act carefully. This timing mismatch, and transnational crime, put governments on the back foot.

The current financial crime toolkit of governments includes:

• Sanctions lists.
• PEP lists.
• Anti-money laundering (AML) rules.
• Counter-terrorism finance (CTF) rules.
• Increased data sharing and common blacklists.
• Expanding regulatory scope to cover gatekeeper industries like accountancy to legal.
• Tougher standards for banks, payment, crypto, and investment firms when applying for licenses (MICA, PI, EMI, etc).
• More enforcements, and higher penalties for non-compliance.

Recent developments suggest the basis of regulation is changing. Compliance is no longer enough; liability for fraud can be transferred from the victim to the financial institution (UK Authorised Push Payments (APPs)). 

How do financial institutions fight financial crime?

Approaches vary significantly but usually blend technical and GRC features to create a multi-layer approach. The current toolkit of financial institutions includes:

• Increased AML/CTF checks at the point of onboarding.
• AI-powered regulatory technology solutions such as document and user verification using scans and facial live matches.
• Cybersecurity to prevent phishing, penetration, etc.
• Warning payment initiators if an outbound payment looks suspicious (AI analyses prior patterns).
• Asking payment initiators for Confirmation of Payee (CoP) checks.
• Asking payment initiators for two-factor authentication (2FA).
• Transaction screening of in/outbound payments and velocity checks on card processing (ML analyses prior patterns).
• Implementing additional controls across operations, compliance, risk, and internal audit.
• Reviewing risk more frequently, including special projects.
• Increased co-operation with regulators
• Increased data sharing and common blacklists.
• Exiting high-risk products and business lines.

Financial institutions must meet higher demands at a time when their technological and financial capabilities are stretched. Humans and processes matter, but only technology will create the ability to defend at scale and be agile as crime and regulation evolve.

Unsurprisingly NASDAQ and Kroll believe most financial institutions will invest in artificial intelligence and machine learning in the next one-to-two years. 

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