Cleaning Up Money Laundering

Last year, financial institutions in the United States filed almost 5 million “suspicious activity” reports (SARs), identifying transactions with potential links to fraud or money laundering. That figure, already alarming, represents a shocking increase of 2,000 percent in just five years, in part because banks have gotten better at ferreting out illicit transactions, but mostly because money laundering, despite the best efforts of governments and financial institutions, is one of the great growth industries of our times. 

It’s also a remarkably innovative industry. Where a few years ago, a money launderer might do little more than break large piles of cash into smaller piles to escape reporting requirements (“smurfing”) or funnel illicit funds through cash-based businesses like car washes and casinos, today’s far more sophisticated criminal enterprises conceal the way they move their money by using online instruments, digital payments, and dizzying numbers of global transactions. And when banks block one strategy, the launderers devise another, staying one frustrating step ahead. For these reasons, financial institutions need to revamp their anti-money laundering methods. Most need to go much further than the first steps they’ve already taken. To stop money laundering, institutions need to adopt more strategic, end-to-end processes that take advantage of recent innovations in data analysis. Most important, they have to replace the familiar check-the-box compliance mindset in favor of full-on engagement.

Until recently, incremental improvement ruled the day. The tools already at banks’ disposal were acceptable to regulators, if not ideally effective, and few institutions saw the point of undertaking the expense, labor, and regulatory risk of creating a new system that no one had asked for.

About authors

Adrian Murphy, Stefano Boezio, and Allen Meyer are New York-based partners in Oliver Wyman’s Financial Services practice.