Cyber crime

Moving towards electronic verification

Martin Cheek considers the new EU roadmap to combat cybercrime, including a greater reliance on digital solutions and electronic verification.

Martin Cheek Managing Director, SmartSearch

Accountants are on the front line of defence against money laundering and have an obligation to do more to preventit.

Bank robberies and diamond heists may make for great movie nights but, in reality, organised crime is increasingly going digital with criminals swapping balaclavas for laptops as tools of the trade. An estimated 80% of crimes now have a digital component, and the cleaning of the illicitly acquired gains almost always has some digital elements.

To combat this cyber-crime wave, the European Union recently set out a roadmap to help stop the 99% of criminal assets that are currently going undetected. This is a long-term, five-year plan and it will require buy-in from a number of sectors. Key amongst these are accountants.

Accountants are on the front line of defence against money laundering and, alongside other professions, have an obligation to do more to prevent it.

Alongside the review of guidance on data retention and proposals for law enforcement authorities to gain access to encrypted information set out by the EU, the head of the Financial Action Task Force, Dr Marcus Pleyer, expressed his desire for the sector to do more. He commented that it’s time to shift from approaching anti-money laundering processes as a tick box exercise, and instead to adopt a much more risk-led approach.

To achieve this, according to Dr Pleyer, there needs to be a shift in attitudes amongst those responsible for preventing financial crime, including accountants. Anti-money laundering needs to be looked at as an opportunity.

Know your customer One clear opportunity for accountants is to make anti-money laundering processes more efficient. Accountants deal with hundreds of clients every day and thousands across the year. The process of verifying the identity of new and even existing clients can be cumbersome and take up valuable time. Once you’ve added in the need to check sanctions and politically exposed persons lists, accountants can spend a lot of time ensuring that someone is who they claim to be, and that they are legitimate.

Due to the time it takes to review every passport, every selfie and every utility bill, it’s understandable if accountants don’t have the time to meticulously scan these documents for irregularities – particularly as forgeries are incredibly accurate now. Those with skills in photoediting software can easily manipulate passport details to create a completely new identity. It would take a lot of time to inspect these images in microscopic detail to find any irregularities. The future is electronic verification To speed this process up, accountants should look to make the shift to electronic verification. As part of the EU’s plan, digital solutions are suggested to combat the increasingly online threats. The UK government has also made it clear that it supports the use of electronic verification, and that it is high time digital processes were adopted. Not only is this more effective at flagging potential risks, it also saves accountants valuable time and effort.

Preventing money laundering from the kitchen table This shift will also allow accountants to effectively prevent money laundering, wherever they work. The coronavirus pandemic has led to sectors such as accountancy and financial services moving to more non-contact, digital ways of working as faceto-face meetings are no longer an option. These

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changes may become permanent for a significant number. According to research by the BBC, 43 of the top 50 employers in the UK said they would embrace a mix of home and office working beyond the pandemic. With a significant proportion of accountants working from home for the foreseeable future, remote working will certainly need to be factored into any plans for preventing money laundering. However, there are fears that the switch will leave some accountants exposed.

FICO senior director for fraud Toby Carlin said recently: “Just as the pandemic put huge stresses on the health care system, it put huge stresses on fraud and financial crime management teams.”

These concerns should be unfounded. While the pandemic has certainly seen a rise in attempted fraud and money laundering, working from home should not prevent accountants from properly vetting customers. The issues lie with outmoded methods of ID verification when onboarding customers. That is where the change needs to come.

With the increase in forgeries of hard copy documents, such as passports and driving licences – and the level of sophistication of these fakes – electronic verification should be the standard for preventing money laundering and fraud. It’s entirely secure and as it is an online solution, it can be carried out anywhere, including at home.

To properly onboard a new customer, or an existing one, just a name, address and a date of birth is needed. From only these simple details, the latest technology can combine credit reference data, biometric facial recognition and digital fraud checks, as well as electoral roll data and other reliable public sources to establish identity.

By triple checking these different sources of information, a unique “composite digital identity” is produced. This digital identity is virtually impossible to fake. All this can be done online, with no need for in-person meetings, face coverings or hard copies of documents.

HMRC to close loopholes In addition to working with individuals, there are also money laundering concerns when dealing with businesses. The chancellor announced in his March Budget that HMRC would be getting new powers and resources to tackle money laundering. This is a positive step, but there needs to be a strategy in place which is based on co-operation with governments around the world, including the EU, to tackle the issue.

There are currently a number of loopholes that need urgent attention, such as the lack of verification for registering a business at Companies House. There are addresses all over London that are being used by criminals to register their fake businesses, with one revealed recently to be host to more than 1,000 firms.

These loopholes are being exploited, with the pandemic causing more issues. The recent bounce back loans for businesses impacted by the pandemic is a prime example. The National Audit Office predicts that the UK taxpayer could lose up to £26 billion of the £46 billion paid out to companies, and a prime reason for this is the lack due diligence involved. Companies are “self-assessing” that they are eligible for the scheme, and while this has undoubtedly helped businesses to get much needed finance quickly, it has left the scheme wide open for fraud.

Accountants need to ensure they are conducting the due diligence required. If not, there could be serious consequences. The Financial Conduct Authority (FCA) has said it has increased surveillance over the past 12 months in response to the rise in the threat of money laundering. The executive director Mark Steward, speaking at the AML & ABC Forum 2021, said that two of the FCA’s biggest sanctions in the last year related to failures to address financial crime and anti-money laundering risks.

Criminals are using all the technology available to them, so those trying to stop them need to make sure they are also using the best available tools to prevent money laundering. Accountants can be up and running with a full one-stop-shop electronic anti-money laundering platform that partners with the world’s best data suppliers in 24 hours, and it is easy for those working from home to access and use the platform. ●

Author bio

Martin Cheek is the managing director of SmartSearch, providing anti-money laundering and fraud prevention services.