The Laundromat Movie: Meryl Streep discusses Anti Money Laundering & Counter-Terrorism Financing

Few realise just how corrosive the effects of Money laundering and the financing of terrorism are on society. That’s why, when we have the opportunity to assist our clients with their Anti Money Laundering (AML) and Counter-Terrorism Financing (CTF) initiatives, I find it exciting and rewarding.

I recently watched a Hollywood movie on the subject. I was curious to see how they’d deal with it and, if you ever doubted that Hollywood could turn a smart nonfiction bestseller (Secrecy World) into a disappointing movie, then watching this will set you straight.

The Laundromat, with a multi-star cast, directed by Steven Soderbergh (2019)

The Laundromat is a movie with a multi-star cast based on a fictional scenario spun off from the very real stories revealed in the Panama Papers. It is a disappointing movie, however, it features a few great lines.

Quote from The Laundromat (2019)

Movies, disappointing or otherwise, have a way of making a subject real in the collective consciousness. The Laundromat succeeds in ‘socialising’ the all-important issue of money laundering at a time when we can expect sweeping changes in the European Union.

Expect sweeping Changes in AML and CTF in the European Union

On 5 December 2019, the Finance Ministers of all Member States of the European Union (EU) issued the conclusions on strategic priorities on AML and CTF [Source: here], as adopted by the Council (ECOFIN). Among the many relevant issues the Council raised, allow me to single out this reference to technology and a centralised Anti Money Laundering supervisory authority in the EU:

• Technology to combat money laundering and counter the financing of terrorism: The Council invited the European Commission to further explore actions to enhance the EU’s AML and CTF framework, including exploring the opportunities and challenges in using technological innovation in combatting money laundering and countering the financing of terrorism; and
• A European Central Supervisor: The also Council invited the European Commission to explore conferring certain responsibilities and powers for AML supervision to an EU institution with an independent structure and direct powers vis-à-vis regulated firms (the scope has yet to be determined).

Interestingly, the December ECOFIN conclusions followed a joint position paper issued in November 2019 by the Ministers of Finance of France, Germany, Italy, Latvia, The Netherlands and Spain. This short position paper titled Towards a European Supervisory Mechanism for ML/FT provides fascinating insights as to the current thinking that will, in all likelihood, influence the proposals released by the European Commission later this year. I have listed below the top three elements that struck me:

• A European Central Supervisor: It recommends organising an ML/FT supervision function at the European level. This will enable a consistent and effective approach to addressing the weaknesses we observe today in the EU’s fight against money laundering and the financing of terrorism. Whilst the position paper does say that the European Banking Authority (EBA) could – if given a proper mandate – exercise such direct supervision, it recommends in no uncertain terms that the option of a new and dedicated ML/FT supervisory body be further explored.
• A harmonised regulatory Framework: It recommends a harmonised regulatory framework enshrined in directly applicable rules, i.e. not another AML Directive (which would require transposition into national law by each Member State and typically provides leeway and opportunities for national differences) but an AML Regulation (i.e., an EU legal instrument applicable across the EU without the need for transposition into national law).
• A comprehensive Scope: It recommends a supervision mechanism that covers the entire internal market and all financial sector operators, i.e. non-banking financial institutions too!

It is clear to me that there is an obvious parallel between the request from ECOFIN (referred to above) and the message delivered by the joint position paper by the six Ministers of Finance and what we observed in 2012. On 29 June of that year, a Euro Area Summit issued a Statement that started as follows: “[w]e affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly.”

By 12 September of that year, the Commission had proposed new ECB powers for banking supervision, and the rest is history: Direct supervision by the ECB of the largest banks in the Eurozone started in late 2014!

Technology to combat Money Laundering and counter the Financing of Terrorism

Returning to the Council’s reference to technology, this is a striking comment. Amongst the 8,000+ employees at Reply, many assist our clients in Belgium, France, Germany, Italy, Luxembourg, The Netherlands, and the United Kingdom with the implementation or the development of technology-enabled capabilities to combat money laundering and counter the financing of terrorism.

A recent example I find quite fascinating is the work done by Karine Marechal, Associate Partner, and her team. Karine focuses her efforts on client lifecycle management, working with asset managers, large and neo-banks, electronic money institutions, and insurers. She assists them in revamping the way they manage their clients from initial onboarding, by taking a lifetime view of the client, be they retail or institutional.

Karine Marechal, Partner at Reply

The end result is about achieving outstanding customer experience and improving time to revenue whilst ensuring compliance with an evolving patchwork of regulatory requirements. In an ideal world, Karine assists clients in putting in place these technology-enabled enhancements to improve both the revenue side and the cost side of the cost-to-income ratio.

Unfortunately, for financial institutions, there have been some much publicised sanctions against them due to AML and CTF shortcomings. On the back of this, Karine and her team also assist clients in remediating issues raised by regulators. There, rather than ‘simply’ throwing an army of foot-soldiers to re-do AML checks and deal with ‘red flags’ raised by poorly calibrated rule-based models, Karine and her team join forces with our Data Scientists and Machine Learning teams lead by Julien Recan, Associate Partner.

Julien Recan, Partner at Reply

Hybrid teams, comprising AML/CTF subject matter experts and Data Scientists, apply technology-enabled solutions that include:

• RPA (robotics process automation) combined with Natural Language Processing (NLP) technology;
• Behavioural models (instead of mere rule-based models, for example);
• Machine learning techniques, drawing on extensive use of internal and external data to reduce the number of ‘false positives’;
• …

This is definitely another topic that we will feature in our Annual Risk Symposium. More on that coming soon.