The Finnish financial sector spends as much as €100 million in the prevention of money laundering each year. Last year, Finnish banks reported more than 10,000 suspicious transactions. Only rarely do these reports lead to pre-trial investigation or charges, however. The prevention of money laundering could be made more effective by improving information exchange between individual banks as well as banks and authorities. There is also need for more law enforcement resources and clearer legislation.
Money laundering means masking the origins of illegal funds by passing them through banks or commercial transactions. Prevention of money laundering is in the best interest of the banks and the society alike and to achieve this, the law imposes stringent requirements on banks and other regulated entities to stop the movement of illicit funds. The financial services sector sees no need to relax these regulations but does think there is an urgent need for their further clarification and simplification as well as for strengthening the risk-based approach.
Inquiries annoy customers
The overall aim and approach of anti-money laundering should be more clearly defined by the legislator. On one hand, it is said to be risk-based – the resources are focused where the risk is the highest – but on the other hand, banks are legally bound to ask questions about the customer’s identity, political influence, ultimate beneficiaries, anticipated activities and use of services, and financial standing, and these questions must be answered whether the customer behind the desk is a pensioner, seasoned investor, or a multi-national company.
Inquiries after the origins of the €100 sent to a grandchild will irritate customers, cause unnecessary work for the bank, and aim valuable anti-money laundering resources in the wrong direction.
The Finnish anti-money laundering act provides a detailed bucket list of know-your-customer obligations which leaves banks with little room for manoeuvre. Unlike some public comments have recently suggested, a prudent mode of operations cannot be based on the expectation that banks show ‘flexibility’ by neglecting their legally prescribed obligations.
Information exchange for the big picture
International experience proves that mutual information exchange helps prevent money laundering. Instead of, or in parallel with, the routine Suspicious Transaction Reports, more extensive exchange of information should be permitted both within the sector and between the banks and authorities. The way things are now, each bank only sees a narrow part of the bigger picture. Information exchange would provide an overall view of where, and to whom, the suspicious funds are accumulating.
Banks should also be permitted to alert other banks of suspicious money flows. This would enable banks to intercept these funds and return them to their rightful owner.
The authorities also need more resources to investigate the cases of suspected money laundering and to conduct full criminal investigations. Last year, only a marginal number of the 10,000 reported cases of suspected money laundering led to pre-trial investigation or charges being filed. The prevention of money laundering takes up hundreds of full-time-equivalent work years and as much as 100 million euros in Finnish financial institutions each year. Such an investment should also bring results.