This is the concluding blog of the three-part series. The first two explored the significance of combining Fraud and Anti-Money Laundering (FRAML) functions and adopting a unified tech platform against financial crime. The third blog delves into how a unified investigation hub can transform financial crime compliance reporting.

The growing trend of convergence, FRAML, offers a more effective way to combat financial crime by integrating the AML compliance and fraud functions. This approach leverages shared data and resources across both areas, delivering several benefits:

• Quicker investigation times due to unified systems
• More comprehensive and accurate investigations
• Cost savings through resource consolidation
• Deeper insights and enhanced data analysis into financial crime patterns

Notably, implementing FRAML doesn't require major organizational overhauls, and regulators are increasingly endorsing this holistic approach.

Growing Regulatory Support for Convergence

Regulatory bodies acknowledge the value of convergence in combating financial crimes. The Financial Crimes Enforcement Network’s (FinCEN) list of national priorities for AML and Countering the Financing of Terrorism (CFT) emphasizes the connection between fraud and money laundering, noting that fraud accounts for the most significant portion of illicit proceeds in the US. It ranks alongside other priorities such as corruption, cybercrime, terrorism and human trafficking.

With nationwide fraud losses totaling USD 10 Billion in 2023 in the US, fraud has become a major white-collar crime frequently orchestrated by organized criminal groups. These entities use fraudulently obtained funds to finance further criminal activity, influence political campaigns and even engage in espionage. Including fraud in FinCEN’s priorities demonstrates a regulatory understanding of the importance of a holistic approach to financial crime prevention, guiding the allocation of resources and enforcement efforts.

Implementing a Holistic Investigation Approach

A holistic approach to financial crime prevention requires a multi-level strategy that coordinates efforts at the enterprise, industry and international levels.

Enterprise-level

This agile approach breaks down operational, business and data silos, enabling a coordinated view of customer activities across all investigation teams. It fosters collaboration between compliance and fraud teams, providing a unified response to financial crime risks.

Industry-level

This approach encourages collaboration among banks and financial institutions to share data on bad actors and fraudulent / suspicious activities, enhancing collective defenses against financial crime.

International-level

This approach promotes cooperation between law enforcement agencies, policymakers and regulatory authorities across borders. This global collaboration helps track and apprehend criminals operating beyond national jurisdictions.

Although a combined FRAML strategy improves detection, compliance and enforcement coordination, it’s essential to recognize that varying reporting requirements for AML and fraud can present challenges.

Navigating Reporting Challenges

From a reporting perspective, fraud typically triggers obligations for businesses once a confirmed financial crime has been identified. However, many instances of fraud may go unreported. For example, the Federal Trade Commission (FTC) received 2.6 million fraud reports in 2023, but the actual number is expected to be much higher due to underreporting. Fraud can be committed by existing customers or external entities like cybercriminals, and businesses must implement controls to prevent such incidents.

On the other hand, money laundering involves an existing customer and requires financial institutions to report all suspicious activities within a specific timeframe once identified. By unifying fraud and AML efforts, enterprises can ensure that fraud cases are promptly reported to regulatory and investigative bodies, alleviating the burden of conducting investigations solely at the enterprise level.

From Silos to Synergy: Establishing a Financial Crime Investigation Hub

A potential solution to improving financial crime investigations is the creation of a Financial Crime Investigation Hub (FC-IH) within enterprises.

This hub would integrate fraud and money laundering investigation teams, leveraging their combined expertise and resources to create a concerted and desired response to financial crime. It can also expedite fraud investigations and streamline the processing of Suspicious Activity Reports (SAR), offering economic benefits while ensuring more accurate and timely communication with regulators.

By embracing convergence through a holistic approach, businesses can improve their investigative, compliance and enforcement activities while enhancing their ability to combat financial crime on a larger scale. With regulatory bodies like FinCEN signaling their support for this unified approach, the industry must follow suit to stay ahead of emerging threats.

Talk to our experts to understand how an integrated fraud and anti-money laundering approach can bolster financial crime compliance.