Laundromats, FinTech and Financial crime – Know Your Customers!

On 17 October 2017 Thomson Reuters held the first in a series of events on Financial Crime. This event explored the recent investigations conducted by the team at the Organised Crime & Corruption Reporting Project (OCCRP) into the global laundromats. The brave and fascinating work by the team at OCCRP exposed the complex and globally connected money laundering networks that via a web of hundreds of companies and associated financial institutions have laundered over $20 billion.

Although the laundromats are money laundering on a huge and global scale, and it may seem like a problem only big financial institutions may have to deal with, OCCRP Executive Director Paul Radu stated that every laundromat case he’s worked on has involved myriad UK companies. This means the issue is right here on our UK doorstep.

Although money laundering through complex laundromats can seem like a victimless crime, they are in fact part of networks taking huge sums via corruption of national pensions, financing groups involved in serious organised crime like human trafficking, funding terrorist organisations, and destroying lives.

So what does this mean for the FinTech community? There is real excitement about the commercial opportunities for challengers in the business and commercial customer segments and this is very much true, but this segment also brings with it a very different set of financial crime risks that really need to be understood and factored in to an effective and proportionate financial crime risk management framework. When you consider the factors that may impact on financial crime risk, the customer type (i.e. complex corporate ownerships), geographies (i.e dealing with suppliers/customers across a range of geographies), product type (i.e. high value transactions or products) and channel (i.e. often in a FinTech this is non face-to-face), can all have a material impact on the potential risks a FinTech targeting this segment may face.

So what can FinTechs targeting these new and exciting customer segments do to assist in the fight against these laundromats, comply with applicable regulations and do their bit to reduce money laundering? We have provided a few helpful hints below:

- Ensure you have a financial crime risk assessment that accurately reflects your unique circumstances. All companies and products will have their own unique factors to be considered and may impact on your risk profile. In many cases, it is not only a regulatory requirement to have a risk assessment but it is also a hugely powerful tool to help you define and navigate your compliance and risk frameworks.

- Understand your customers. Just because you are targeting customers who may be registered in the UK or other equally regulated markets, it does not mean they may not get involved in illicit activity. This goes beyond basic identification of your customers to ensure you understand the nature of your customer’s business and how they intend to use your product/s. Without that knowledge, it becomes very difficult to monitor effectively and can/will cause negative customer experience in the long-term.

- Understand the typologies and red flags that you and your team should be looking for. By staying current on evolving typologies allows you to keep pace or even out-pace the criminals and reduces the long term negative impacts criminals may have on your business.

Paul Radu said at the event "it takes a network to fight a network" and although he was referring to an international network of the likes of law enforcement and financial institutions working together to tackle it, the growth of alternative financial services further diversifies the pool. The FinTech FinCrime Exchange (FFE) is one such network, where FinTechs come together to effectively collaborate and combat financial crime such as money laundering.

If you would like to discuss money laundering, or any of the topics raised in this post please don’t hesitate to contact the team at FINTRAIL.