THE Sinaloa drug cartel was once the largest and most powerful in the world. The Mexican organised crime body at one point controlled so much of the illicit drug trade across Mexico and the United States that taking them down is a process that began in the 1980’s.
The key to their sinister “success”? Clothing and teddy bears from China.
Cash made from selling drugs is used to bulk purchase cheap toys and clothing from China, and then re-sold as legitimate products in other parts of the world. The cartel’s operatives resell them at a profit, and the profits are pocketed by the cartels’ warlords.
The money is now “cleansed”, disguised as legitimate trade transactions of buy and sell, import and export, hidden behind layers of false invoices and irregular documentation.
Trade-based money laundering is a massive, growing global problem. The United Nations Office on Drugs and Crime estimates that between US$800 billion and US$2 trillion in illicit money gets laundered annually.
The International Monetary Fund also estimated that money laundering comprises approximately 2 to 5 percent of the world’s gross domestic product each year, or about US$1.5 trillion to US$3.7 trillion in 2015.
And a lot of this money passes through banks and financial institutions daily, through trade activities, money mules, correspondent banking and more.
The importance of the role of a bank cannot be understated, but it is no longer enough to plug the gaps in risk – banks need to do more than just react.
Thus, the conundrum - can we prevent crimes before they happen? Do we need a superpower to ensure we never fail in our fiduciary duties to our regulators, our stakeholders, and our clients?
We ask ourselves, can we de-risk the inherently risky? Yes, we definitely can, but it takes a collaborative and cohesive effort within the financial services industry.
First, we need to de-risk through education, with a two-pronged approach of internal and external stakeholders. We need to be focusing on how we partner with clients who have the right intent, but not yet the right tools or experience to build robust controls for financial crime risks.
At the same time, education needs to happen within the organisation. A lapse in judgement by a single employee can reverberate across the entire bank and result in disastrous consequences. Yet when every staff is aware of the risks involved, the pay-off is incredible – every alert employee is another strong soldier in the fight against financial crime.
Second, the holistic regulatory frameworks which exist need to be implemented by all; public and private sectors alike must leave no stone unturned. From governance to anti-bribery and corruption, this framework is only as strong as the organisations which embrace it.
Third, financial intelligence is most robust when information flows between the public and private sectors. In the case of human trafficking, for example, presentations by leading non-governmental organisations and government enforcement agencies have improved the banks’ ability to detect potentially related financial transactions. In turn, they have helped law enforcement disrupt trafficking networks.
There is great pressure on banks to do more to prevent ill-gotten gains from passing through its doors and there is no easy way to do it. However, with concerted efforts, it is certainly possible to do so – no superhero powers needed.