The Global Anti-Financial Crime System is Broken

For over 35 years, global standards have required countries around the world to put in place laws, regulations and structures to prevent and detect money laundering (and, more recently, terrorist financing and proliferation financing). The internationals standard-setter, the Financial Action Task Force (FATF) provides a framework of measures for countries to implement; every ten years or so, countries are reviewed for both their technical compliance with the recommendations and the effectiveness of the measures that they have put in place.

Since the establishment of the FATF in 1989, the global financial system has become infinitely more complex and fragmented; and the abuse of that system by criminals, the corrupt and kleptocrats has become likewise more creative and expansive leaving the response of the good guys in the dust.

One response to the growth of this threat is for ever-greater spending on compliance by those in the private sector who are on the frontline. In 2023, it was estimated that over $200 billion was spent on financial crime compliance globally. And yet, there is a lack of empirical evidence that decades of doing the same thing has had much of an impact. That was the conclusion of a recent paper by Mirko Nazzari and Peter Reuter which found that the global anti-money laundering (AML) system’s ‘failure to reduce either the predicate crimes that generate large criminal revenues or the volume of money laundering is uncontested’ but, despite this, there has been limited discussion of fundamental structural reform. The private sector are similarly frustrated, feeling that a collective ‘fear of failure’ is stymying innovation, driving the dreaded ‘tick box’ approach to compliance and preventing anyone from doing anything ‘unthinkable’.

Thinking the Unthinkable

That the global anti-financial crime system is broken was also a clear message from a recentLinkedIn campaign from the Centre for Finance and Security at RUSI, taking to the virtual town square this summer to ask people to ‘think the unthinkable’ and send ideas which challenge the orthodoxy underpinning current approaches to combatting financial crime. The LinkedIn posts reached close to 100,000 people, with more than 100 offering suggestions and the occasional rant on how the system could, and should, be reformed.

Comments generally fell into one of three buckets: disenchantment with the building blocks of the AML regime, in particular suspicious activity reporting and know your customer requirements; ways in which to advance greater international collaboration and cross-border information-sharing; and those advocating for more significant legal and/or systemic reform.

A Thousand SARs a Day Keeps Effectiveness Away

The requirement for regulated entities to report suspicious activity to a central authority, the country’s Financial Intelligence Unit (FIU), has traditionally be seen as a cornerstone of the anti-financial crime regime. The number of suspicious activity/transaction reports (SAR/STR) submitted globally continues to rise and has often been treated as a proxy for effectiveness. Many contributors to the LinkedIn posts, however, called into question their utility in combatting financial crime. The evidence from two recent academic papers appears to substantiate concerns about their value; a recent study of SARs made in Italy between 2009 and 2021 found that just one in 16 SARs submitted contributed relevant information to an ongoing criminal case and that just one in 99 led to a new criminal investigation. In fact, it found that ‘as STR [sic] filings have increased, their accuracy—or the ability of institu­tions to extract timely insights—appears to have declined’. Likewise, an analysis of the relationship between SARs and convictions for money laundering in the European Union found that the marginal effect of reports decreased as their volume increased.

None of which is to say that the fundamental concept of reporting suspicious activity is bad but the current system of doing so clearly does not seem to be working. The focus on submitting more and more SARs has not translated into better outcomes. Defensive filing of SARs has also long-been a concern with the perception that obliged entities, generally banks but not exclusively, are more concerned about the regulatory risk of not filing a SAR than anything else.

Is it time to pivot more of the resources currently focused on submitting or analysing low value reports towards the growing efforts at real-time information sharing between the private sector and law enforcement, such as the UK’s Data Fusion public-private partnership (PPP) or the cross-sector Anti-Scam Centres that have been in established in Singapore and Australia, amongst other countries? We are starting to see some exciting results from these initiatives and while these models may not replace SARs completely, they arguably provide better value for money than the current system of reporting.

Breaking Down Barriers and Borders

A full third of responses we received called for improvements to the current state of information sharing and collaboration, with contributors sharing thoughts on how to improve the detection, prevention, and prosecution of financial crime. It remains a stubborn fact that physical borders and other barriers to information sharing remain the best friend of kleptocrats, the corrupt and criminals. Proposals for action included mechanisms that enhance cross-border collaboration and pleas to establish public-private partnerships came close behind, with respondents citing the need for more data, more skills, and capacity to jointly monitor intelligence in real time – some even proposed collaborating with ex-criminals as consultants. In short, respondents called for solutions that reflect the state of the financial system today, not as it was in yester-year.

The Tools We Used Built the House We Live In: Systemic Deficiencies

It would be tempting to attribute the persistently poor results in economic crime prevention and enforcement to external forces undermining an otherwise well-built system. However, there are many cases where the regime operating exactly as intended has served as the impediment to progress in the fight against dirty money.

Take as example the central role of private sector firms in combatting financial crime. The increased compliance burden placed on financial institutions forms part of a larger 21st century shift in law enforcement in the Western world, whereby there is an increasing reliance on external partners to prevent and enforce a range of crime types. The phenomenon is referred to in academic literature as third-party policing. Shifting at least some of the responsibility in financial crime control and prevention has its merits; banks can easily keep bad actors out by screening new customers and are far better positioned to determine in real time what may be considered as anomalous or suspect activity. However, because private sector institutions are penalised for disclosing their own failures, they face the counterintuitive incentive to conceal economic crimes, rather than report them and accept the associated penalties.

The flawed outcomes of third-party policing in the finance sector are unpacked in the aforementioned Nazzari and Reuter article, which points out that all major Western banks have repeatedly paid fines for their compliance failures. The article also cites a 2022 Comply Advantage survey which found 79% of senior compliance decision-makers across North America, Europe, and Asia Pacific regularly choose to incur anti-money laundering fines. The desire to overhaul these perverse incentives was evident in many of the suggestions made by respondents to our campaign, many of whom attempted to devise strategies rethinking a system in which honesty has become a competitive disadvantage for firms in the regulated sector.

Feel the Fear and Just Do It

Status quo is comfortable and in the financial crime world, no one gets punished for effectively stewarding the status quo, even if it is evidently failing to deal with the ever-expanding threat. We are – as a forthcoming Suspicious Transaction Report guest said – not just behind the curve; the curve left town a long time ago.

We proposed our ‘think the unthinkable’ initiative as an experiment to see how the community of financial crime fighters might respond. The desire to experiment thoughtfully and try new ideas that are rooted in the financial system and criminality we have today is evident – what is needed is leadership and a willingness to accept risk taking if we are to make up any ground on those that abuse the financial system. The status quo does not work, so why do we insist on perpetuating what we know does not work.

It is way past time to think the unthinkable, which is what we will be doing in the weeks ahead. Stay tuned.

© RUSI, 2025.

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