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  • Writer's pictureDavid Walker

2023 Financial Crime Report


 

Pallas Consultants analyzed global data from 200 senior leaders across three continents to gain insights into the current financial crime landscape and learn how technology might stop the threat of economic, crypto and ESG crimes.



Foreword


Pallas Consultant’s 2023 Financial Crime Report shares the findings from a survey of 200 executives across the globe conducted in Q1 2023. This report navigates the complex, innovative and ever-changing landscape of financial crime and technology and shines light on the more than USD 400 billion laundered every year.


We began 2023 with ongoing economic pressures, geopolitical tensions, an increasingly diverse regulatory environment and exciting advancements in AI. International headlines were dominated by revelations of Ponzi schemes, government scandals, public corruption, greenwashing, sanctions evasion and other economic crimes. Behind these headlines were passionate prosecutors, attorneys, law enforcement officials, regulators, compliance officers and risk analysts working together to combat the rising tide of financial crime. A better understanding of the state of the fight against financial crime has become more important as new technology unfolds.


Our survey found that most companies anticipate an increase in financial crime risks over the next 12 months and have doubts about the capacity of governments to keep pace with technological change and the increase of criminal activity. To close this gap, more than two-thirds of respondents said they were prioritizing their own technology investments. Questions remain regarding how these investments should be made and what else can be done to combat financial crime. This year’s report approaches these questions through a combination of survey results and expert commentary from Pallas Consultant's global risk experts, focusing on anti-money laundering (AML), anti-bribery and corruption (ABC), sanctions, cryptocurrency and environmental, social and governance (ESG).


This year’s respondents represent eight countries including the U.S., the UK, France, Germany, Brazil, Mexico, Singapore and the UAE, with the vast majority working in highly regulated industries. Based on respondent insights, this report individually analyzes results at macro and micro levels and demonstrates a broad spectrum of geographies, challenges and Pallas Consultants expertise.


Thank you for spending time to review these results, and as always, Pallas Consultants is available to further discuss the details of these findings and to partner with you in improving your financial crime compliance, readiness and program objectives.




Key Findings

 

> Financial Crime Continues to Be a Leading Threat Globally

Sixty-nine percent of global executives and risk professionals surveyed expect financial crime risks to increase over the next 12 months with cybersecurity and data breaches as the primary drivers, followed by financial pressures on organizations. In the face of this dynamically evolving landscape, the role of the compliance function remains more crucial than ever.


> Organizations Are Keen to Prepare Themselves for New and Evolving Risk

Investments in technology, increase in cybersecurity budgets and undertaking more frequent business risk assessments have been cited by respondents as the three main steps that firms intend to take during the next year to combat the increase in financial crime.


> Responding to Risk by Investing in Advanced Technologies is a Priority

To counter a potential uptick in financial crime risks, two-thirds of respondents globally are planning to invest more in technology, with nearly half of respondents citing data integrity as the biggest challenge when implementing new technologies.


> Governments Are Stepping in With Increased Measures Against Financial Crime

Globally, the anticipation of increased enforcement actions is on the rise, with over 60% of survey respondents predicting an escalation in the next 12 months. Many speculate that regulatory visits will start looking more closely at the use of technology as part of firms’ AML compliance programs. Respondents agree that rapidly evolving technology is the top struggle governments face against financial crime, indicating that governments may face an uphill battle.


> AML and ABC Functions Need to Work Hand-in-hand

AML and ABC functions are distinct specializations within most financial crime compliance programs; however, they travel in the same direction and utilize similar tools, methodologies and trainings. Efficiencies can be gained when organizations intentionally seek integration by leveraging shared resources for investigations, audits and risk assessments.


> Corporations That Are Non-compliant Face Immense Financial and Reputational Consequences

Navigating the complex world of sanctions compliance is a significant challenge for multinational corporations. Forty-four percent of respondents identified geographic consistency as the top challenge for sanctions compliance programs, followed by privacy protections (39%), keeping current with changing regulations (34%) and accessibility of technological solutions to support sanctions screening (33%).


> Organizations Believe That ESG and Transparency is Crucial but Face Procedural Challenges

The recurrent theme of balancing transparency and privacy, notably in beneficial ownership, calls for cautious navigation. Likewise, in environmental, social and governance (ESG) reporting, businesses must align with evolving standards to avoid the pitfalls of greenwashing and financial crime.






How Technology is Transforming AML


The incredible pace of innovation in new technology comes at a time of uncertainty caused by war, geopolitical tensions, the crypto roller-coaster, speculation in financial markets and the related increase in cyber-crime and cybersecurity risks. Pallas Consultant’s 2023 Financial Crime Report survey results show that to cut costs and improve systems and controls, companies are rushing to embrace anti-money laundering (AML) technology. This creates risks as well as opportunities.





Unraveling the Global Impact of Corruption and Bribery


As the global landscape becomes increasingly fraught with risk, anti-bribery and corruption (ABC), enforcement is emerging as a salient concern among executives and risk management professionals within financial institutions and multinational corporations. Sixty-four percent of our survey participants anticipate an increase in ABC enforcement actions within the upcoming year, with a majority citing third-party gatekeepers as a significant contributory factor to escalating financial crime risk.


These concerns call for a nuanced examination, delving into the societal and economic ramifications of corruption, and the proliferating risk of economic crimes.



The Future of Sanctions Compliance Programs


Pallas Consultant’s 2023 Risk Report notes 44% of global survey respondents cite consistent compliance across geographies as the top challenge. Sanctions compliance and rapidly evolving sanctions programs continue to strain multinational corporations and banks. Russia's war on Ukraine and evolving geopolitical landscapes have led to a massive expansion of sanctions programs and risks, prompting organizations to enhance their supply chain controls and risk management strategies. It is critical to adopt best practices, invest in technology and collaborate with peers and government regulators.





Data as the Critical Factor in Fighting Financial Crime


Pallas Consultant’s 2023 Financial Crimes Report provides a stark reminder that financial crime risk remains as potent as ever with 69% of respondents expecting financial crime threat to increase over the next 12 months. Delving deeper into this data, at least 33% of respondents expect specific risks posed by cybersecurity and data breaches to crystallize, suggesting a third of respondents’ entities will suffer some kind of adverse event.





The Use and Abuse of Carbon Credits


Nearly half of Pallas Consultant’s Financial Report survey respondents agree or strongly agree that carbon credits are an effective solution for fighting climate change. That raises some concerns in the current environment. Given the lack of clear rules for carbon credit generation or definitive best practices around their proper use, companies should be especially vigilant when purchasing and utilizing them in broader climate reduction strategies and activities.





Path Forward


In a global environment of evolving economic pressures, geopolitical tensions and cutting-edge technological advancements, the significance of an adaptive, tech-driven strategy in combating financial crime is more critical than ever. Our findings spotlight the importance of technological adoption in anti-money laundering efforts, alongside the complexities of customer on-boarding and monitoring.


The recurrent theme of balancing transparency and privacy, notably in beneficial ownership, calls for cautious navigation. Likewise, in environmental, social and governance reporting, businesses must align with evolving standards to avoid the pitfalls of greenwashing and financial crime.


 

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