Beyond Integrity: Thinking Twice About Financial Crime Risk

This summer the UK will host a major international summit to tackle the flows of dirty money around the world, which are making streets in the UK – and of those countries that attend – less safe. The Foreign Secretary has called out illicit finance as the ‘lifeblood of crime’ and promises to ‘take the fight to the corrupt’.

The Summit will focus on strengthening global enforcement efforts to prevent, disrupt and recover dirty money and brings a welcome focus on interdiction and defensive action to act as a meaningful deterrent. This event, along with the appointment of a UK President of the FATF (Financial Action Task Force) for a two-year term from July, presents a unique opportunity to refocus the global financial system towards a strategy of harm reduction and away from an integrity-based compliance regime that has proven ineffective.

The Quest for Integrity

In the late 1990s when the UK New Labour Government was ‘Tough on crime, tough on the causes of crime’, the international crackdown on ‘dirty money’ was in its infancy, with the Financial Action Task Force (FATF) having been formed just a few years earlier. The FATF was created in 1989 to protect financial systems and the broader economy from threats of money laundering and (later on) the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security.

The goal of integrity, a financial system that operated in a clean, transparent and accountable way, became a key focus of worldwide compliance programmes. The supplementary objective of safety and security received comparatively much less attention. If the bad actors could be kept out of the system, then surely these outcomes would follow?

Fast forward to today and across the world belief in the status quo persists. In Washington last week, ministers from across the global reiterated their commitment to tackling illicit finance and confirmed the FATF’s role in safeguarding the integrity of the international financial system.

Meanwhile, deputised into policing the system, and faced with the threat of substantial regulatory penalties for being found to harbour criminal funds within their financial walls, private sector institutions continue to spend vast compliance budgets implementing the desires and requirements of the FATF and the vision it has promoted for nearly four decades. Higher risk account holders have been expelled from their gates and bankers, retrained with strict instructions to know their customers, have been posted at every entrance. Monitoring systems have been deployed to alert at the merest whiff of impropriety.

Yet all this busy compliance work has not changed the criminal calculus. Recent research on professional money‑laundering services finds that intermediaries typically charge median commission fees of only around 8-9 %. Circumventing the financial system’s controls remains, at best, an inconvenience and a cost of doing business, not a deterrent. Crime still pays, even after accounting for anti-compliance costs. Worse still, the obligation for financial institutions to continuously scrutinise the behaviour of their clients has made the retention of many innocent customers, particularly those with unconventional profiles, simply uneconomic. In our pursuit of the intermediate goal of integrity, we have collectively lost sight of the good we are trying to achieve and the people we serve.

Deterrence not Compliance

Whilst the presence of the proceeds of crime can distort and destabilise markets, the greater societal harm arises from the original offenses (drug trafficking, people smuggling, etc.) that generate the illicit funds. For the financial system, as a downstream enabler, to make a tangible and lasting impact on reducing offenses means creating the conditions that deter the execution of these predicate crimes for financial reward. If illicit actors perceive a greatly increased risk that their criminal profits will be seized and prosecution is likely to follow, the deterrent effect is obvious.

The 2025 NCA (National Crime Agency) annual report shows that £360 million of assets were denied to suspected criminals in 2024-2025. The NCA also considers that there is a realistic possibility that the scale of money laundering impacting the UK annually is in the hundreds of billions of pounds. This suggests that, as yet, the threat of seizure of criminal funds is unlikely to present a credible deterrent. We can do better.

The chain of action that leads to a seizure of funds typically begins with a report of suspicious activity filed by a financial institution, however in less than 7% of these cases does the filing institution seek a defence against money laundering. This means that in the vast majority of cases the concern has only come to light long after fund transfers have already taken place and the money, along with the opportunity to interdict and ultimately deter, is long gone.

This failure isn’t due to a lack of private sector investment. Financial institutions are devoting vast resources to reporting after-the-fact. In 2024 UK financial services firms were estimated to be spending an astronomical £38.3 billion on compliance each year. Whilst there is undoubtedly investigative value in making financial intelligence available to law enforcement, the deterrent value of the current suspicion-based reporting industry appears relatively small. The implicit assumption that these after-the-fact reports will be investigated, and action taken whilst there are still funds to seize or individuals to prosecute, is flawed and the criminals know it.

Prioritised Harm Reduction

Whilst the recognition by FATF Ministers of harmful effects of illicit finance on national and global security and economic growth is welcome, the goal of safer streets can only be sustainably delivered through deterrence of the most serious offenses conducted for financial gain. This requires a transition from broad spectrum after-the-fact reporting to more targeted intervention. This means financial institutions will need to retain and monitor identified risk, foregoing the ‘quick fix’ offboarding of customers in the pursuit of integrity.

Internationally we should take the opportunity that the new UK FATF presidency presents to argue for an update – not continued confirmation – of the FATF mandate to focus explicitly on the goal of reducing criminal activity. Assessment of the contribution of financial interventions to the reduction of crime, both nationally and internationally, should be incorporated into the mutual evaluation process.

At the national level, priorities for the financial sector to contribute to the detection and interdiction of crime must be clearly articulated and backed up with matching law enforcement investigative effort. Regulatory policy needs to be updated to release the private sector from the obligation to report every suspicion, however minor, and instead encourage decisive and timely action in the presence of clear and convincing evidence of criminal activity. The retention of risk in the pursuit of intervention and deterrence must be incentivised in the regulatory framework.

These proposals offer a path to genuine and lasting harm reduction – to indeed be ‘tough on crime, tough on the causes of crime’ – and challenge the financial sector, their supervisors and the criminals themselves to think twice about serious crime.

© Michael Sherer, 2026, published by RUSI with permission of the author.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.

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