Given the opportunities for money laundering, fraud and other financial crime that government responses to the pandemic presented, it is perhaps no surprise that AML regulations have tightened, and enforcement activity has significantly increased. We examine the emerging risks in this space, highlighting recent legislative and enforcement trends.

Exploiting the new normal

The rapid shift to remote and digital work, as well as government assistance measures implemented in response to the pandemic, provided opportunities for criminals to exploit, increasing AML and terrorist financing risks. Recent reports from the Financial Action Task Force and the UK National Crime Agency have identified a number of areas of AML operations that may be compromised, and identified the rise in suspicious activity reports. The unfolding events in Russia are also placing regulatory authorities in leading financial centres under increasing pressure to crack down on money laundering linked to the region. As countries around the world seek to build back better after the pandemic, we are seeing an increased effort from governments and regulators to tackle fraud, money laundering and other financial crime.

Increased regulation and tougher enforcement action

Around the world, we have seen significant overhauls of AML and CTF legislation in recent years:

Cryptocurrency AML risks

Cryptocurrencies are an increasingly pertinent factor in the rise of financial crime, with an estimated $14bn worth of cryptocurrency stolen in 2021$14 billion worth of cryptocurrency stolen in 2021. The de-centralised unregulated nature of crypto creates money laundering risks that can result in liability for corporations or banks linked to these activities. Liability can arise under money laundering offences that criminalise the handling of proceeds of criminal activity and the failure to disclose criminal funds to regulatory authorities. A dishonesty offence may also be triggered where there is a deliberate intent to mislead a regulatory authority on crypto crime. In addition, financial institutions may face liability for failing to have sufficiently strong systems and controls to counter the risks of crypto.

Criminalisation of systems and controls failings

As we predicted in our series on 2021 global enforcement trends, we have seen stricter rules implemented and enforced to prevent systems and controls failings that can facilitate money laundering:

As authorities are increasing their focus on addressing money laundering, it is therefore crucial that the business sector maintains adequate procedures in this field. RegTech may present solutions in this area, which has been endorsed by the FCA, following a recent City UK Report, and is also supported by the HKMA. It will be vital that these and other innovative tools are utilised to ensure that the world of commerce can respond to emerging money laundering risks in the post-pandemic era.

This is the eighth in our 2022 Global Enforcement Outlook blog series, which looks at key enforcement and investigations trends. All other blogs in the series will be made available here.