Fostering information sharing across public and private Sectors: Empowering the battle against money laundering, terrorism financing and proliferation financing
Financial crimes such as money laundering, terrorism financing and proliferation financing present a significant challenge to both developing and developed countries. Perpetrators of transnational and organized crime heavily rely on these crimes to advance their activities. In the same vein, these crimes have massive ramifications on a country’s economic and social health.
From an economic perspective, these crimes not only erode the legitimacy of the private sector and dilute the integrity of financial markets, but they also lead to a loss of control of economic policy, create distortions and instability, result in loss of revenue, curtail privatization efforts and pose reputational risks for countries. Consequently, such risks discourage investors from considering investments in the affected countries. From a social standpoint, these crimes provide a base for expansion of criminal activity, cause transfer of economic power from governments, the market, and citizens to criminals. To the extreme, complete takeovers of legitimately elected governments may occur, precipitated by gangs thriving on financial crime schemes.
Consequently, anti-money laundering efforts and countering terrorism and proliferation financing are key. Nations need to take charge of their financial space domestically and work collaboratively amongst each other in tackling these crimes that have cross-border characteristics.
As evinced above, financial crimes in the form of money laundering, terrorism financing and proliferation financing pose a complex and dynamic challenge globally. The sheer global nature of money laundering requires working and effective global standards buttressed by meaningful and increased international cooperation to reduce the ability of criminals to launder their proceeds and carry out criminal activities.
The Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2023
Currently before the National Assembly are the proposed amendments to the Anti-Money Laundering and Financing of Terrorism regime. The Bill aims to tighten the noose in the battle against money laundering, terrorism financing and proliferation financing. Salient among the new proposals is the power of regulatory bodies to supervise and regulate their licensees on financial crimes. Whilst doing so, these supervisory bodies are required to give timely reports to the Financial Reporting Centre (FRC). The Bill also outlines the risk-based approach upon which all supervisory bodies are to be bound and gives a detailed outline upon which the approach is premised.
While the Bill recognizes the central place of information sharing in the anti-money laundering and combating financing of terrorism course, it does not entirely appreciate the ambit of public-private partnerships, more so through sharing of information in this battle. Financial crimes deprive the economy of its health and stability, and the battle against them should ideally be a shared effort. Cooperation between public and private sectors remains critical to that effect.
Information sharing
Cooperation could take various forms but at the core of every model or scheme of cooperation is information sharing. It remains crucial that information touching on financial activity with possible links to crime and terrorism is shared in a timely and effective manner between stakeholders. Stakeholders should be drawn from both the public and private sectors. The sharing of information allows financial institutions, supervisory and law authorities to prudently use the available resources, exploit new technological advancements and business models to come up with innovative techniques to effectively tackle money laundering and terrorist financing. Essentially, information sharing helps in the effective identification, management and mitigation of money-laundering and terrorism financing by key players within the space.
However, legal constraints and operational challenges that are likely to curtail the effective sharing of information between stakeholders may arise. Obstacles around confidentiality, privacy and data protection come into play, but these can be handled with clear and continuous dialogue mechanisms between the private and public sectors. With clear and continuous dialogue mechanisms, the quality of information exchanged and its usefulness to authorities will improve.
To also navigate these potential challenges, the type of information and for what purpose also needs to form part of the dialogue between public and private sectors. Figure 1 highlights the types of information and purposes of sharing such information:
| Types of Information | Elements of Information | Purpose of Information Sharing |
| Customer Information | Customer identification and contact information (name and identifier), in case of legal persons and arrangements: information on nature of its business and its ownership and control structure; legal form and proof of existence; address of registered office and principal place of business; Legal Entity Identifier (LEI) information, financial assets records, tax records, real estate holdings, information on source of funds and wealth, economic/professional activity, and account files, whether the customer is a PEP (including close associates or family members) or not and other relevant elements from documents collected while on-boarding the customer or updating records, targeted financial sanction information and any other information, whether identified from public sources or through internal investigation relating to money laundering and terrorism financing (ML/TF), risk categorization of customer etc. | Manage customer and geographical risks, identify global risk exposure because of on-boarding of the same customer by multiple entities,
More efficient recordkeeping of customer information. |
| Beneficial Ownership Information | Beneficial owner identification and contact information, real estate holdings, information on source of funds and wealth, economic/professional activity, and account files, whether the beneficial owner is a PEP or not and other relevant elements from documents collected while on-boarding a customer or updating records. | Manage beneficial owner and geographical risks, identify the same beneficial owner for multiple entities within the group, more efficient record-keeping of beneficial owner information. |
| Account Information, where relevant | Bank/other account details, including the intended purpose of the account, expected location of transactions/activity as expressed by the customer and business correspondence etc. | Effective due diligence and transaction monitoring at group level, justification of transaction pattern vis à vis financial profile, follow-up on any alerts or abnormal trading patterns. |
| Transaction Information, where relevant. | Transaction records, credit and debit card records and usage, past credit history, digital footprints (IP address, ATM usage information etc.), attempted/failed transaction information, currency transaction reports, information on closure of account or termination of business relationship due to suspicion, analysis made to detect unusual or suspicious transactions etc. | Global transaction monitoring, alert processing and identifying suspicious transactions, flagging, and checking the existence of similar behavior across business lines. |
Figure 1: FATF Guidelines on Private Sector Information Sharing, 2017
Information sharing can take different forms and models. The cross-cutting aim of these models is to entrench a culture of voluntary sharing of information between stakeholders. They include:
- Shared Know Your Client (KYC) utilities and/or centralised data repositories, which capture key elements of customer and transaction information and disseminate such information to participating institutions with appropriate protocols and access controls.
- Information sharing arrangements to facilitate information sharing among parties to the arrangement for anti-money laundering and combating terrorism financing. This has occurred more so between financial institutions as well as between different jurisdictions.
- Public private partnerships for information sharing are also being developed in several jurisdictions and have achieved positive outcomes. Through such partnerships, information is shared across law enforcement, financial institutions, vetted participants from the private sector as well as international partners in some cases, to facilitate a more comprehensive view of transactions and customers’ behavior. This though has to be done in a regulated structure, to facilitate further data mining, operational analysis and scanning by the private sector to fill potential intelligence gaps.
- Industry forums or platforms which have largely been utilized by financial institutions to share information on recent crime trends, modus operandi, and typologies across participants.
Comparative Analysis
Information sharing between the private and public sectors has been implemented in Australia, Hong Kong/China, and Switzerland with successful returns.
Switzerland: Swiss authorities in 2010 established a working group with private sector bodies based on the FATF recommendations to serve as a platform for mutual exchange of information in relation to the development of the regulatory framework in the field of AML/CFT.
Hong Kong, China: Hong-Kong’s Fraud and Money Laundering Intelligence Taskforce is a public-private intelligence sharing mechanism involving the Hong Kong Police, the Hong Kong Monetary Authority, and the banking industry with the aim of improving the detection, prevention and disruption of fraud, money laundering and other types of financial crimes relevant to Hong Kong’s economy. The taskforce was launched in 2017 as a pilot project to build on the existing levels of informal cooperation and information sharing.
Australia: The Australian Transaction Reports and Analysis Centre (AUSTRAC) in 2017 launched the Fintel Alliance, which brings together government, industry, academia and international partners in collaborative and secure information sharing environment, thereby constituting a holistic approach to discovering, understanding and disrupting serious and organized crime, bribery and corruption and terrorism through the analysis of financial intelligence. The Alliance has an established Operations Hub where the government and industry intelligence analysts work jointly in operational projects and exchange information in near real-time, as part of the wider efforts to combat financial crimes. One of the major highlights of this hub was the expose on the Panama Papers.
Conclusion
Information sharing remains fundamental in tackling money laundering, terrorism financing and proliferation financing. Moreover, due to the cross-border nature of economic crimes, information sharing between and with both the public and private sectors is important.
To that effect, The Financial Action Task Force (FATF), based on the Risk-based approach, formulated guidelines on Private Sector Information Sharing. The Guidelines recommend innovation around the issue of information sharing but puts a caveat that the same needs to be done within the legal confines to avoid abuse, public policy, and operational concerns.
Further, information sharing will enhance the private sector’s compliance with ‘Know Your Customer’ requirements which are increasingly becoming stringent in the integrated global marketplace. Access to such information will help facilitate foreign investment as it will boost investor confidence by ensuring verification of the legitimacy of potential business partners and investors. Similarly, access to such information can attract more investments, leading to economic growth, job creation, and increased tax revenue. This will enhance Kenya’s integration in the global marketplace and improve its ranking on the ease of doing business index.