Fraud vs Money Laundering: Interview with Charmian Simmons, financial crime & compliance expert at SymphonyAI NetReveal

By Puja Sharma

Charmian Simmons is a financial crime and compliance expert at SymphonyAI NetReveal. She has over 20 years of experience in the financial sector across risk management, financial crime, internal controls, and IT advisory.

She is responsible for providing practitioner expertise, thought leadership, and analysing key policy/regulatory/cultural/technology drivers transforming the compliance market. Charmian is CAMS, CRMA, CDPSE and CISA certified.

During the conversation with Simmons, IBS intelligence sought to understand the growing need for banks to combat financial crime and money laundering as it spreads globally.

What is the difference between fraud and money laundering?

Fraud and money laundering are two distinct yet related types of financial crimes. Fraud is a deliberate deception or misrepresentation to gain financial advantage through false pretences, such as theft, phishing, scams or embezzlement. Money laundering is the process of disguising the proceeds of illegal activity as legitimate funds by moving them through a series of transactions to conceal their source. Today the fusion of the two functional areas grows closer as the crime types intertwine, and the need for systems to detect suspicious patterns and behaviours grows more important in bringing the two functions together.

What are the implications the UK Economic Crime and Corporate Transparency Bill will have on banks and financial institutions (FIs)?

The proposed UK Economic Crime Bill 2.0 includes several important changes, of which three key areas include: Companies House (CH) reform, failure to prevent, and information sharing.

• The CH proposed changes will allow for more up-to-date and verified data to be collected and used by FIs in due diligence and persons with significant control (PSC) activities. Obligations to report material discrepancies would also extend beyond the start of a business relationship to the life of an entity and require hardcopy excerpts from registers be retained as proof.
• Corporate criminal failure to prevent model would extend to include fraud and expansion of identification principle to cover senior managers.
• Information sharing would be made easier for the purposes of preventing, investigating or detecting crime by disapplying civil liability for breaches of confidentiality for FIs who share information to combat financial crime.

How can banks and financial institutions ensure their anti-money laundering policies are compliant?

Currently the volume and frequency of money laundering regulatory change is high, especially in the UK and Europe. By keeping track of these proposals, reforms and properly understanding the impact on AML compliance and fraud processes, FIs are in a strong position to analyse policy, procedural and technology workflow gaps. A useful starting point is to liaise with industry bodies, peers, subject matters experts and technology providers to leverage knowledge and expertise in real-time and to plan ahead. Second is to apply these learnings within current operating jurisdictions to identify the strictest criteria to move forward with.

What are the challenges in AML adoption/fraud prevention within banks and FinTechs?

In order to truly ‘prevent’ financial crimes, FIs and FinTechs must simultaneous overcome several challenges largely associated with the ‘detection’ of financial crimes, including fraud. This is because it is difficult to stop something as it occurs if you can’t identify it in the first place. Further, the challenges for AML vs. fraud are not identical in how they present themselves or how they are solved.

Common challenges the industry is dealing with today include: efficiency and effectiveness in identifying suspicious patterns and behaviours of payments and money movements; connecting and relating entities and behaviours where money flows or circumstances demonstrate suspicious or confirmed criminal activity; legally being able to share information and intelligence about entities/suspicious activities with other FIs or intel-sharing utilities etc without breaching data and privacy protection laws; and being able to identity new suspected criminal behaviour in real-time.

What are considerations for policy reviews and alignment with the UK Economic Crime and Corporate Transparency Bill proposed regulations and guidelines?

Industry bodies, experts and working groups have scrutinized the draft bill to assess it if goes far enough to address the known gaps in the first UK Economic Crime Act in 2022, that was rushed through parliament at the onset of the Russian Ukraine invasion.

With this new proposed bill, considerations to date have focused on how accountancy firms are affected, expanded enforcement powers at various authorities, and how the financial sector can share information more effectively to prevent and detect economic crime. What remains unclear and requires further consideration, is how the private sector will execute against the many changes in the bill to fully comply with the bill once passed, and what the supervisory regime will entail and expect from FIs.

Firms should track key aspects of the proposed bill that apply to them, understand the reforms from the public and private sector sides, and thoroughly understand the draft regulation and what alignment is required from people-process-technology to inform policy changes and AML compliance and fraud practices.

Once the bill passes, actions against identified gaps should be work on and closed in a timely manner and tested by internal teams as an independent assurance review.  It is important to involve relevant stakeholders, such as legal and compliance teams, to ensure that policies are effective, practical and employees understand the regulatory and policy changes. Finally, regular reviews and updates should be conducted to ensure continued alignment with any changes to the regulations and guidelines.

How can financial services prevent fraud in the times of chatbots and AIs?

The sophistication of many fraudsters today means they too are intrigued by AI-based technologies as vehicles to help execute their money-making frauds! Unfortunately, the likes of generative AI is being used to craft emails, messages, videos and deep fakes for scams, phishing attacks and impersonations. FIs will be most effective in identifying such traits and repeat behaviour using advanced scenario detection, graph analytics that employ deep learning techniques and entity resolution to find the links on a grand scale that humans simply cannot.