A new report by the European police agency Europol examines why so much suspect financial activity results in so few money laundering prosecutions, and offers recommendations to improve the success rate that contain important lessons for Latin America's anti-money laundering frameworks and investigative bodies.
The report, "From Suspicion to Action – Converting financial information into greater operational impact," details how between 2006 and 2014 the European Union (EU) saw a 70 percent increase in suspicious transaction reports (STRs), the filings of suspicious activity that financial institutions and certain commercial actors are obliged to make to their country's Financial Investigation Unit (FIU).
The STRs, of which there were nearly 1 million across the EU in 2014, form the building blocks of money laundering investigations. Europol acknowledges the impossibility of accurately assessing data that is compiled and used in different ways in different countries. Nevertheless, the police body estimates that an average of just 10 percent of STRs are put to use each year.
The rate of success for investigations that begin with an STR was even lower. From 2010 to 2014, Europol found that just 2.2 percent of the estimated proceeds of crime were provisionally seized or frozen, and only 1.1 percent of criminal profits were ultimately confiscated at the EU level.
Europol highlights two key areas that are largely to blame for these low conversion rates.
The first is the growing number of STRs, which is a challenge not only in terms of the capacity to analyze such large quantities of data, but also because much of that data is of limited quality as it is a product of defensive or over-reporting.
The second is the exchange of information between national and international agencies that are not FIUs. As most information is only exchangeed internationally between FIUs, critical data needed to confirm or develop STRs often does not reach the agency that needs it.
The result of this is a lot of data collection and not enough analysis and action, Europol says.
"While considerable efforts are put into generating, handling and processing one million reports annually, these efforts achieve few outcomes and energy may be misdirected," the report states.
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The report describes two approaches that could help remedy this.
First, it argues that there should be broader and better data sharing practices that take anti-money laundering regimes from the domestic to the international level, reflecting the reality of money laundering itself. Whereas in the past, efforts have focused on cooperation between FIUs, this should be expanded to include different law enforcement agencies and and the private sector, as well as bodies like tax and customs authorities.
Second, enforcement agencies should apply an "intelligence-led" approaching to reporting, shifting from the current "brute force" approach of analyzing high volumes of information to a more targeted approach focused on relevance rather than quantity of data. This could be achieved with better data sharing and cooperation to help authorities allocate resources more efficiently and to give feedback to the private sector on what is useful.
Europol offers numerous specific recommendations as to how the continent's FIUs could bring this about. These include calling for the EU's own FIU and clearing house for STRs, an EU-wide standardization of statistical data and breaking down legal barriers at the domestic level that prevent interagency cooperation and hamper the flow of information.
InSight Crime Analysis
Since the formation in 2000 of Latin America's own transnational anti-money laundering watchdog, the Latin America Financial Action Group (Grupo de Acción Financiera de Latinoamérica - GAFILAT), most of the countries that host the region's largest criminal economies have taken important strides towards establishing anti-money laundering frameworks that meet international standards. However, these new regimes and new volumes of data have not led to a new flood of successful money laundering investigations.
As laid out for country after country in the US State Department's most recent annual report on global money laundering, the primary reason for this is an inability to investigate and prosecute, whether that takes the form of a lack of resources, a lack of expertise, or the lack of a functioning justice system to prosecute money launderers.
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In general, European countries are not plagued to the same extent as their Latin American counterparts by weak institutions and and resource constraints. Nevertheless, Europol's report shows that developing mechanisms to better sort, analyze and share information could have a huge impact on the results obtained from the resources allocated.
In addition, Europol's report highlights the necessity of regional cooperation in order to target money laundering at the transnational level, where much of the activity takes place.
The deep rooted issues at the heart of Latin America's shortcomings in terms of turning rules into results are unlikely to be resolved any time soon. However, if countries around the region take Europol's advice, they may well be able to improve results by working smarter not harder.
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