Financial crime trends in 2023

By Christine Duhaime | January 12th, 2023

Predictions for 2023 in financial crime

Where is financial crime heading? Where will enforcement be focused?

With financial crime costs rising for law enforcement, investigations, compliance and reporting, and the number of predicate criminal offenses and sanctions lists increasing, the ability of financial crime sector organizations and governments to respond is shrinking.

2022 changed the financial crime space

2022 ushered in new geo-political realities which will shift the entire financial crime space. For example:

  • The Russian invasion of Ukraine is causing significant increases in sanctions compliance and investigations into Oligarch source of funds.
  • The US focus on China as a geo-political risk with Russia, shifted the focus of Western nations and their resources from addressing external terrorism threats, and correspondingly, away from counter-terrorist financing. Terrorism is increasing in several African countries so the threat remains but geo-political shifts have caused shifts away from terrorism.
  • The pervasive fraud in the crypto sector finally trickled down after several years, overburdening law enforcement and investigations teams worldwide, as well as financial crime experts, pulling them away from other financial crime work. Banks went back to blanket de-risking crypto companies as too high-risk and expensive from a compliance view. The explosion of international payments fraud, generally, has overwhelmed financial crime sector participants.
  • The US-driven initiative to “shore-up” rare earth elements and critical metal supplies, and the supply-chain for the US market in anticipation of the energy transition (what the US calls “friend-shoring”), means that the corruption-infused mining industry will become a big focus.
  • This will cause a focus on securities fraud outside the US (and on to Canada and Africa), because the mining sector will become too important to tolerate systemic fraud. Investor trust will have to be assured for the US policy of friend-shoring in Canada and other countries to succeed.
  • Climate change is going to result in global food insecurity in conjunction with climate-driven mass migration, which will impact the sourcing of food resources, especially fishing.
  • This in turn will cause Western enforcement agencies and policy agencies to tackle the shipping industry and insurance from a financial crime and beneficial ownership perspective to stop IUU fishing and fish laundering (see here about laundering fish).

National crypto systems

In the back drop of the above, the plans of Islamic countries (Shia and Sunni alike) to complete their previously-announced shared crypto systems to enable them to operate outside of the US dollar financial system, may take shape in 2023, but even if it does not, countries subject to US sanctions, or at risk of US sanctions, will likely continue to cooperate together to develop their own crypto solutions at national levels to eradicate those risks.

We knew this was coming since 2014, but it has never been determined to be a national security risk of the US or its allies.

A worse-case scenario would be if the Islamic countries’ crypto plans, and the crypto plans of heavily sanctioned countries converge into a shared new financial system bubble, with most of the world’s growing populations opting-into their own system. There’s always a danger of over-using sanctions and its a delicate balance that the US Treasury considers when it makes its designations. Not all nations align on sanctions and its not realistic to expect that they will, given national sovereignty.

Singapore, which has the FATF presidency for the next two years, has declared that its focus will be on asset recovery but its day has come and gone. Five years ago, movement on asset recovery for financial crimes was really needed – now there are greater priorities. Unfortunately, the FATF and some FIUs that issue risk assessments have wholesale not addressed IUU fishing or shipping vessel flagging and regulation gaps that allow blue crimes to grow, threatening global food security.

Decrease focus on other areas

With resources that are limited, governments and law enforcement agencies cannot possibly tackle all the financial crime that arises and choices will be made to prioritize areas that correspond with new geo-political risks and climate change, above all else, and to de-prioritize others.

Areas that will gradually decrease in terms of small to mid-sized money laundering investigations, enforcement and cases in 2023 and beyond will include organized crime, real estate laundering, human trafficking, drug trafficking, money laundering in the gambling sector, corruption (except in the mining sector tied to Africa) and terrorist financing.

2023 will be a year of greater visibility on the new hot button items, leading into 2024 where we will being to see the reporting of predicate offenses and large financial crime investigations of IUU fishing (deforestation as well), mining corruption, securities fraud, fraudulent flagging of vessels, and climate-related crimes. A few of these areas are tied to state actor conduct, which is inconsistent with how anti-money laundering compliance works so changes will likely be made to enable the refocusing of risks on such actors and the reporting thereof.

The global nature of these areas of investigation mean that FIUs will improve the quality and quantity of information sharing. The move to revealing the identity of shareholders of private companies (the so-called beneficial ownership initiative) will undergo a significant shift to the shipping sector for investigations into IUU fishing. The reality is that with food security causing global hardship, governments will care less about who controls the bank account of a shell entity of a drug trafficker and more about who controls ships engaged in IUU fishing.

None of these changes to the financial crime sector will happen overnight, but they are happening.

Shoring up for a different financial crime future

In the interim, shoring up for a different financial crime future by understanding the following will prepare one for financial crime policy shifts: IUU fishing and its risk areas; the difference between rare earth minerals and critical minerals and where they are mined, and processed, as well as their financial crime risks; corruption tied to the mining sector and its risks; securities fraud in the mining sector and its risks; and how the flagging and registration of ships occurs and the gaps that exist.

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