Revealing the true cost of financial crime 2018 SURVEY REPORT

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INTRODUCTION Revealing the true cost of financial crime Financial crime is multi-faceted, multi-national and very often invisible, making it hard to identify, measure and combat. Its impact is felt in many ways.

For those forced into slave labor by At Refinitiv we are committed to criminals infiltrating supply chains, uncovering the true scale of the or the victims of sex trafficking challenge to raise awareness and gangs who launder their profits create the data and coalitions that will Phil Cotter through the financial system, the increase our ability to fight financial cost is catastrophic. For others, it is crime together, more effectively Managing Director, Risk, wrongly seen as a victimless crime, around the world. To this end, we have Refinitiv only impacting big businesses, and commissioned an independent survey even having benefits for some such of over 2,300 senior executives in as cheaper goods. Organizations large companies, across 19 countries, are paying a heavy financial cost, to identify the true cost of the problem. collectively spending billions trying to We also conducted interviews with prevent financial crime, yet they are leading NGOs (Education Endowment seeing ever greater amounts disappear Foundation, Transparency International from their businesses as a result of UK, Walk Free Foundation) and the money laundering, fraud, theft and European Union’s law enforcement corruption. At a national level, revenues agency to reveal the wider economic, lost through financial crime mean social and human impact. governments collect less tax revenues and fewer schools and hospitals are Finally, we identified ways in which built, causing disarray due to the business, governments and Refinitiv criminal and terrorist activities it funds. are working together to lead the fight against financial crime.

Join the conversation: #FightFinancialCrime

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What is financial crime?

The usual focus of financial crime is on the illicit money flows from crimes such as money laundering, bribery and corruption that support human abuses including modern slavery, drug trafficking and prostitution. For the purpose of this report we have taken a wide definition covering all financial crimes, which goes beyond those with which Refinitiv is traditionally involved, to provide as complete a picture as possible on the social and financial impact:

1 Fraud 2 Money laundering RESPONDENTS 3 Theft SPEND ON AVERAGE 4 Bribery & corruption 5 Cybercrime % 3.1OF ANNUAL TURNOVER 6 Slavery/human trafficking COMBATING FINANCIAL CRIME

About this survey

This report is based on research This research was conducted across 19 countries, but the research shows commissioned by Refinitiv that was that the survey respondents are global. Weighting was applied to each conducted online by an independent third country to ensure each was equally represented. Please note that the party in March 2018. A total of 2,373 senior standard convention for rounding has been applied, and consequently managers at large global organizations some totals do not add up to 100%. The country-specific breakdown of completed the survey. companies surveyed is as follows:

USA 240 France 120 2,373 100% Canada 120 Russia 120 RESPONDENTS SENIOR China 120 Poland 120 MANAGEMENT/ India 120 UAE 119 C SUITE Singapore 117 Saudi Arabia 120 Australia 119 South Africa 123 UK 120 Nigeria 107 $17.4BN 19 Germany 120 Brazil 119 AVERAGE COUNTRIES The Netherlands 109 Mexico 120 ANNUAL Spain 120 TURNOVER

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Highlights from the report The scale of the challenge OUT OF 2,373 RESPONDENTS It is too easy for perpetrators to slip through the net.

 of organizations have dealt with over 10,000 third party 9% vendors, suppliers or partners during the last 12 months. % of survey respondents have never screened their third party 47HAVE BEEN A VICTIM OF % vendors, suppliers or partners. FINANCIAL CRIME OVER THE 41 LAST 12 MONTHS  of all detected financial crime is reported internally and, 49% for the most part, reported externally.

Measuring the impact The cost is high for companies, governments and individuals.

is the estimated aggregate lost turnover as a result of financial $1.45 crimes, according to the organizations we surveyed around the TRILLION world, representing 3.5% of their global turnover. people are victims of modern day slavery according to 40.3 the Global Estimates of Modern Slavery MILLION (ILO and Walk Free Foundation).

Fighting back Working together is vital to winning the war against financial crime.

of companies are supportive of more initiatives to tackle 94% financial crime, ‘sharing intelligence’ being the most important. of annual turnover is spent combating financial crime, 3.1 % representing an aggregate of $1.28 trillion for organizations surveyed.

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“Forced prostitution, child slavery, drug trafficking and numerous environmental crimes are all made possible by our inability to disrupt and dismantle the crime networks that attack weaknesses in the international financial system every year.”

Phil Cotter Managing Director, Risk, Refinitiv

40.3M MILLION PEOPLE ARE VICTIMS OF MODERN DAY SLAVERY Source: LLO and Walk Free Foundation

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The scale of the challenge Financial crime is difficult to measure and hard to combat. Rapid developments in financial Number of relationships information, technology and communication allow the movement One reason for the screening of money anywhere in the world with shortfall may be the sheer number of speed and ease. At the same time, relationships that businesses need globalization has increased the size, to monitor. The survey reveals that geographical reach and complexity just under 1 in 10 (9%) of respondents of supply chains. This makes it harder have dealt with over 10,000 third party than ever before for even the best vendors, suppliers or partners during resourced and most committed the last 12 months. organizations to identify and prevent Three quarters had under 1,000 financial crimes, which we classify for relationships. The number of the purposes of this report as money relationships differs by industry, with laundering, bribery and corruption, those companies involved in financial cybercrime, theft, slavery/human and insurance activities having twice trafficking and fraud. the number of relationships as those Screening shortfall in the construction sector. Those who have been a victim of ‘financial Adequately screening all business crime’ have 25% more relationships to relationships to uncover criminal monitor than those who have not. connections is vital in the fight against financial crime. Yet, according to the When asked how many clients or survey, 41% of global customers, third customers their company had directly party vendors, suppliers or partner transacted with over the last 12 months relationships were never screened for globally, the average was over five financial crime-related issues. million, reflecting the vast scale and size of the companies many of our respondents work within.

The screening challenge

The need to screen regularly, rather than just at the onboarding stage, is widely recognized as being an 41% 36% important tool in the continuing fight against financial crime. WERE NEVER ARE SCREENED Here, the survey revealed that 41% of relationships were SCREENED ANNUALLY never screened for financial crime risk and only 36% of these relationships are screened on an ongoing basis.

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Under pressure

Another way to understand the scale Returning to the global picture, 77% felt For example, bribery and corruption had of the challenge is by looking at the extreme or significant pressure from the highest incidence (69%) of internally multiple pressures businesses face. government regulators and 74% from perpetrated crime over the last 12 While 71% describe their organizations corporate boards to improve regulatory months, while cybercrime topped the as being under extreme or significant safeguards. There are some regional list for external involvement at 75%. pressure to improve regulatory nuances, such as in Nigeria, where 91% safeguards (Figure 1), this issue ranks claim the pressure from institutional below the 80% who feel a similar investors is extreme or significant. need to improve profit, or the 83% in connection with turnover. The survey One further challenge is the fact that found that regulatory pressure was organizations must protect themselves particularly high for organizations in India from both internal and external (88%), UAE (85%) and Nigeria (85%). perpetrators, and there are significant variations according to each aspect of financial crime (Figure 2).

The bigger picture in the EU

The survey reveals the scale of the challenge for individual organizations, but OUT OF according to the EU’s law enforcement agency, Europol, this is being magnified by systemic failure. Their research reveals that, despite tighter regulation and major investment in compliance procedures, on average only: 1,000 TRANSACTIONS FLAGGED 1% 0.5% of criminal proceeds of all transactions generated in the EU reviewed by bank 50 ARE REFERRED TO LAW ENFORCEMENT are confiscated by compliance officers lead authorities. to a criminal investigation. 5 LEAD TO AN INVESTIGATION

Rising to the challenge

Refinitiv helps businesses overcome the complex challenges identified by the survey. Our risk management solutions support customers from the initial screening and due diligence stage through to onboarding and training. We leverage our breadth of risk intelligence coverage, human expertise and sophisticated technology to help you identify risks when conducting business with your customers and third parties.

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FIGURE 1: BUSINESS VS REGULATORY PRESSURES

Q: How would you generally rate the pressure upon your company to achieve the following over the next 12 months? Those answering ‘Extreme or significant pressure’

Increase turnover 83%

Increase profits 80%

Develop new markets 73%

Increase market share 74%

Improve regulatory safeguards 71%

FIGURE 2: INTERNAL VS EXTERNAL PERPETRATORS

Q: Was this [financial crime experienced] from within your company or external?

69% Bribery & corruption 56% 4%

61% % 69BRIBERY AND CORRUPTION Money laundering 58% 9%

50% Fraud 69% 6%

59% Theft 57% 6%

41% % 75CYBERCRIME Cybercrime 75% 6%

58% Slave labor/ Internal 54% human trafficking External 14% Don’t know

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OUT OF 2,373 RESPONDENTS

47% HAVE BEEN A VICTIM OF FINANCIAL CRIME OVER THE LAST 12 MONTHS

92% THINK BRIBERY & CORRUPTION IS A COMMON PRACTICE

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Measuring the impact The damage done by financial crime extends well beyond companies to governments, national economies and individuals. A common experience

The survey revealed that 47% of Looking across sectors, the highest organizations participating in this incidence where bribery and corruption research have been a victim of at was strongly considered to be common least one type of financial crime in the practice was in the agriculture, forestry last 12 months, with 66% of German and fishing industry (73%). companies experiencing financial crime and 20% in Russia. Globally, fraud and Regionally, 72% of those operating cybercrime both had a 20% incidence, in Canada strongly agreed money closely followed by 19% of companies laundering was a common practice, who have been the victims of theft. followed by 67% of those in Latin America and the Caribbean. For This high level of incidence means that financial cybercrime, those operating financial crime is regarded as being a in southern Asia led the way, with depressingly common practice. Taking 56% strongly agreeing this was a bribery and corruption as an example, common practice. 59% strongly agree that it is a common practice in some of the regions that they operate in.

FIGURE 3: INCIDENCE OF FINANCIAL CRIME OVER LAST 12 MONTHS

Q: Has your company been the victim of the following ‘financial crimes’ throughout your global operations over the last 12 months?

4% 20% 20% 19% 16% 14% 53%

Fraud Cybercrime Theft Bribery & Money Slave labor/ No corruption laundering human trafficking

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FIGURE 4: FINANCIAL CRIME SEGMENTS BROKEN DOWN INTO REGIONS

Q: How would you divide the incidence of [the financial crimes experienced] by the following regions?

US 10% 10% 8% 8% Sub-Saharan Africa 2 2 4 4 2 2 % % 7% 7% 8 8 % % % % Asia Pacific 7 7 % % Latin America and the Caribbean 6 6

% % 7 7 Western Europe

BriberBribery & y & % % MoneyMoney

6 6 8 8 corruptiocorruption n launderinlaundering g Eastern Europe and % % % % Western/Central Asia 0 0 1 1 1 1 3 3 % % % % 0 0 Southern Asia 1 1 10 10 % % Canada 5% 5% 8 8 8% 8% 1 1 % % 14% 14% Middle East and Narth Africa

8% 8% % % 10 10 2 2 23 23 1% 1% 6% 6% % % % % 7 7 % % 6 6

% %

6 6

% %

8 8 % FraudFraud TheftTheft %

0 0 %

% % % 1 1

9 1 1 9 1 1

1 1 7 7 % % % % 15 15 2 2 % % % % 1 1 14 14 8% 8% 9% 9%

7% 7% 12% 12% 2 2 7% 7% 6 6 26 26 % % % % % % % % 8 8 7 7 SlavSlave e

% %

7 7

% % CybercrimeCybercrime

0 0

1 1

% % 7 7 7 7 % % % % 2 2 1 1 1 1 5 5 9 9 % % % % 4% 4% 1 1 % % 8% 8% 8% 8% 10 10

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Public companies suffer more

While 55% of publicly listed companies The standout was cybercrime, with 26% had experienced some form of financial of publicly listed companies having crime in their global operations over been the victim of financial cybercrime the last 12 months, this fell to 45% for over the last 12 months, compared to private companies (Figure 5). Looking 19% of private companies. This gap may % at the different types of financial crime, reflect the greater external scrutiny that 55PUBLICLY LISTED COMPANIES there was generally more incidence in public companies face, making them publicly listed companies. more transparent about the risks their organizations face and more likely to report incidents.

% 45PRIVATELY LISTED COMPANIES

FIGURE 5: INCIDENCE OF FINANCIAL CRIME OVER LAST 12 MONTHS

Q: Has your company been the victim of the following ‘financial crimes’ throughout your global operations over the last 12 months? Private Publicly Listed

4% 5% 19% 26% 19% 22% 18% 19% 15% 17% 14% 16%

Cybercrime Fraud Theft Bribery & Money Slave labor/ corruption laundering human trafficking

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Further costs Fear and de-risking

For many organizations, the costs This fear of financial and reputational do not stop there. Those found, damage due to regulatory breaches knowingly or unknowingly, to be is having another, unintended involved in money laundering or consequence. Fearing that other financial crimes risk regulatory prevention alone may not be able fines, reputational damage and even to limit exposure to financial crime, prosecution. The survey reflects organizations are deliberately avoiding this, showing that approximately half customers, suppliers, regions or of respondents believe that being industries that they perceive as being convicted of undertaking or facilitating most exposed to financial crime. The financial crimes would have a survey supports this view, with 72% significant negative impact on saying they de-risk by avoiding, rather their organization. than managing, heightened risk customers. The impact in Perhaps unsurprisingly, financial terms of lost opportunities at both loss was the biggest concern that organizational and national level is respondents considered likely to difficult to quantify, but it is likely to happen and that it would have a impact productivity and economic significant negative impact on their development. company at 31%, closely followed by damaged reputation and client churn/ loss at 29%. This latter figure rose to 35% for respondents in the information and communication services industry, possibly due to the premium placed on information integrity in this sector.

31% believe financial loss would be likely and would have a significant negative impact should they be convicted of financial crime

FINANCIAL LOSS BEING BIGGEST CONCERN

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FIGURE 6: IMPLICATION IF CONVICTED OF FINANCIAL CRIME

Q: How likely and what sort of impact do you consider the following implications are on your company should it be convicted of undertaking or facilitating ‘financial crimes’ such as bribery, money laundering or fraud? Those answering ‘Likely and significant negative impact on organization’

31% 30% 29% 29% 27% 27% 26% 25% 24% 23%

Financial Political Damaged Client Loss of Decreased Fines Restrictions Personally Loss of IP loss pressure reputation churn/loss investor earnings on identifiable (intellectual confidence operations information property) (PII)

72% SAY THEY DE-RISK BY AVOIDING RISKY CUSTOMERS

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Counting the true cost Putting a cost on financial crime is By adding together the estimated notoriously difficult; historically, many turnover lost due to each type of organizations have been reluctant financial crime over the last 12 months, to publicize losses. To address this the aggregate figure is a staggering issue we asked anonymized survey USD1.45 trillion. respondents to estimate the impact of each type of financial crime on For a breakdown of individual crimes, their organization. please see the graphic below (Figure 7).

FIGURE 7: ESTIMATING THE BUSINESS COST OF FINANCIAL CRIME Bribery & Money Slave Labor/ Fraud Corruption Laundering Theft Cybercrime Human Tra
cking

Number of ESTIMATED 20% 19% 20% 16% 14% companies 4% TOTAL that have TURNOVER been victims 478 382 355 447 485 91 LOST TO (and percentage FINANCIAL incidence also shown) CRIME FROM 2,373 COMPANIES SURVEYED Average global $20 $25.3 $25.1 $20.3 $21.6 turnover of those BILLION BILLION BILLION BILLION BILLION $ impacted 54.5BILLION

Average 2.5% 3.2% 3% 2.3% 2.3% 3.8% turnover lost (percentage and amount) $ $ $ $ $ $ B0ILLIO.5N 0BILL.8ION1 0BILL.75ION 0BILL.47ION 0BILLI.5ON 2BILL.0ION7

Total lost $ (estimated turnover $ $ $ $ $ $ 1TRILLI.45ON OR lost due to each type 239BILLION 309BILLION 267BILLION 209BILLION 2BILLI4ON1 188BILLION of crime segment) 3.5% OF SUM GLOBAL TURNOVER

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“Ordinary people everywhere in the world unwittingly meet victims of modern slavery every day – we might walk past a young woman trapped in a forced marriage, a hotel cleaner that has had her passport confiscated, or touch this crime through clothes we wear that were made through illegal forced labor.”

Fiona David Executive Director of Global Research, Walk Free Foundation

Bribery & Money Slave Labor/ Fraud Corruption Laundering Theft Cybercrime Human Tra
cking

Number of ESTIMATED 20% 19% 20% 16% 14% companies 4% TOTAL that have TURNOVER been victims 478 382 355 447 485 91 LOST TO (and percentage FINANCIAL incidence also shown) CRIME FROM 2,373 COMPANIES SURVEYED Average global $20 $25.3 $25.1 $20.3 $21.6 turnover of those BILLION BILLION BILLION BILLION BILLION $ impacted 54.5BILLION

Average 2.5% 3.2% 3% 2.3% 2.3% 3.8% turnover lost (percentage and amount) $ $ $ $ $ $ B0ILLIO.5N 0BILL.8ION1 0BILL.75ION 0BILL.47ION 0BILLI.5ON 2BILL.0ION7

Total lost $ (estimated turnover $ $ $ $ $ $ 1TRILLI.45ON OR lost due to each type 239BILLION 309BILLION 267BILLION 209BILLION 2BILLI4ON1 188BILLION of crime segment) 3.5% OF SUM GLOBAL TURNOVER

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Awareness of the real Calculating the human victims cost

Organizations are all too aware that With an estimated 40 million people financial crime has a wider societal living in modern slavery, the human and impact and is not a victimless economic costs are enormous. A 2014 crime. Taking money laundering report by the ILO puts the cost at $150 as an example, 46% think that the billion. It is likely that the real numbers consequence of this is higher prices are far higher. for end users and 42% believe it leads to less government revenues. In the EU, a survey into the total Asked to identify the real victims of economic cost of organized crime put money laundering, 48% believed it the cost of slavery/ human trafficking at was the economy of that nation and €30 billion. If we assume that the EU 38% its people. represents approximately 20% of the global economy and that other areas of Overall, just 3% believed that there the world have a similar prevalence, this were no consequences from money puts the global cost at €150 billion. laundering and the same percentage considered that there were no victims. See page 24 for comment by the Walk Free Foundation.

58% OF MODERN SLAVERY COMES FROM ONLY 5 COUNTRIES: INDIA, CHINA, PAKISTAN, BANGLADESH, UZBEKISTAN Source: Walk Free Foundation, Global Slavery Index 2016

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€9 BN IN AGRICULTURE (INCL. FORESTRY & FISHING) 40.3M VICTIMS AT BN 9F9ROM €8 BN COMMERCIAL SEXUAL SAVED ANNUALLY EXPLOITATION BY PRIVATE BN HOUSEHOLDS 150 (EMPLOYING TOTAL ECONOMIC FORCED LABOR COST DOMESTIC WORKERS) 34 CONSTRUCTION, BN MANUFACTURING, MINING & UTILITIES

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The educational cost FOR EACH Criminals don’t pay tax, so every dollar lost to financial crime generally results in a loss of revenue to the public funds that pay for vital services. The $ Education Endowment Foundation IN MISSING1 TAXBILLION REVENUES calculates that each billion US dollars in missing tax revenues lost due to financial crime could pay for:

USA Poland Russia COULD EMPLOY COULD EMPLOY WOULD PAY FOR 21,000 64,000 180,000 TEACHERS TEACHERS TODDLERS Which would improve Which would improve To gain the foundation the school system the school system to acquire key profoundly profoundly learning skills

Mexico Spain India WOULD PAY FOR WOULD PAY FOR COULD BUILD

327,000 150,000 2,000 CHILDREN TODDLERS S CHOOLS To have a place in To have a high quality Giving hundreds of primary & secondary early years education thousands a good school learning space

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“Financial crime causes incalculable harm around the world. The proceeds of bribery, corruption, fraud, narcotics trafficking and other organized crime have all been USA Poland Russia implicated in the financing ofterrorism, human rights COULD EMPLOY COULD EMPLOY WOULD PAY FOR abuses such as slavery and child labor, and environmental 21,000 64,000 180,000 crime. This has serious economic and social costs in terms TEACHERS TEACHERS TODDLERS of the lost revenues to national exchequers that could be Which would improve Which would improve To gain the foundation the school system the school system to acquire key invested in social development, and in terms of the impact profoundly profoundly learning skills on individual lives.”

Che Sidanius Global Head of Financial Crime and Industry Affairs, Refinitiv

48% OF RESPONDENTS BELIEVE Mexico Spain India ECONOMY OF A NATION TO WOULD PAY FOR WOULD PAY FOR COULD BUILD BE REAL VICTIM OF MONEY LAUNDERING 327,000 150,000 2,000 CHILDREN TODDLERS S CHOOLS To have a place in To have a high quality Giving hundreds of primary & secondary early years education thousands a good school learning space

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LEADING NGO INTERVIEW The billion dollar education dividend Sir Kevan Collins Chief Executive, Education Endowment Foundation

One billion dollars may not sound like children in its primary and secondary much in comparison to the trillions schools. In India, the same amount that are lost to global fraud each could build 2,000 more schools, giving year. But when you look at how much hundreds of thousands of pupils the some countries spend on education right environment to learn.But access to each year, it’s immense. schools and early education is only part of the story. What matters most is great Schools and teachers know how to teaching, and one billion dollars could make a little go a long way, and one go a long way to recruiting and retaining billion dollars has the potential to teachers across the globe. In Poland, this make a real difference. If we took this much money could employ 64,000 more much cash back from the fraudster teachers, or 21,000 in the USA. and invested it in schools, we could drastically improve life chances for While the overall benefits of investing hundreds of thousands of young in education are almost impossible to people across the world. put a price on, the rewards that come from investing an extra one billion In Spain it could pay for high-quality dollars in a country’s schools benefit early years education for 150,000 not just the individual, but the country TRILLIONS toddlers – 180,000 in Russia – as a whole. An educated population providing them with the foundations ARE LOST TO GLOBAL FRAUD is wealthier, healthier and more law- EACH YEAR they need to become fluent learners abiding. Investing in education isn’t at school. If Mexico had another billion just good for children, it’s good for Endowment Foundation Estimate dollars it could pay for placing 327,000 economies and societies too.

“An educated population is wealthier, healthier and more law-abiding. Investing in education isn’t just good for children, it’s good for economies and societies too.”

Sir Kevan Collins Chief Executive, Education Endowment Foundation

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LEADING NGO INTERVIEW Matching the penalty to the crime Robert Barrington Executive Director, Transparency International UK

There are two key take-aways from For example, the benefit to an perpetrators. The usual defense of the this report. First, it lifts the lid on aerospace company that has paid ‘rogue employee’ somewhat neglects the fact that more work needs to a large bribe to win a contract will the concept of corporate accountability take place on the question of scale. obviously be the profit on the contract, and responsibility. Is it a coincidence Secondly, companies and the public but it will also be the free cash flow and that more of these rogue employees have very different views. enhanced enterprise value it generates, are apparently found in companies with raising the ability of the company to poor governance, weak compliance, Regarding scale, financial crime may be undertake R&D and M&A activity. If a culture of misaligned incentives and on the increase, but so is the legislative the contract and bribery extend over over-aggressive sales targets? framework and law enforcement action. decades, underpinning the company’s That is good news, but knowing the financial health, this can be a very scale is vital to knowing whether it is significant gain. an adequate response. This enables an assessment of whether resources Regarding impact, even at the most allocated to law enforcement agencies basic level, it is often difficult to are sufficient; and also helps corporates determine immediate victims. The “Regarding scale, to know what they are up against. They impact of corruption is often felt financial crime can assess how much their competitors at macro-level. For example, if a may be cheating, how much their construction company pays a bribe may be on the own staff may be contributing to the to a local politician to build a bridge, problem, and what internal resources the bridge may be not built or poorly increase, but so may need to be allocated to detect and built (impact obvious) or it may be a is the legislative deter financial crime. perfectly decent bridge. If it is a decent bridge, the question becomes what is framework and However, the better understanding the impact of the bribe on enriching a law enforcement that has developed about scale at the corrupt local politician - who might, for macro-level has not been matched by instance, use the bribe to fund a political action.” understanding company-level scale campaign and get elected as a national in calculating the impact and the gain. politician, still corrupt, and with control Robert Barrington When a case comes to settlement or over much larger budgets and many Executive Director, prosecution, the size of the benefit more lives. Transparency International UK and the size of the harm are critical factors in arriving at the penalty. These And what of the mis-match between are imprecise arts, with scope for both corporate and public views of this miscalculation and misinformation. problem? The key point is that This is the next frontier in discussions companies think of themselves as about scale. victims; the public think of them as

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LEADING NGO INTERVIEW Breaking the chains of slavery Fiona David Executive Director of Global Research, Walk Free Foundation

Ordinary people everywhere in That suggests a real need to focus the world unwittingly meet victims on global supply chains. While they of modern slavery every day – we create employment and opportunities might walk past a young woman for economic and social development, trapped in a forced marriage, a hotel when poorly managed the demand cleaner that has had her passport for cheap labor and the dynamics of confiscated, or touch this crime production in informal, unregulated through clothes we wear that were markets create a fertile territory for made through illegal forced labor. modern slavery to grow. Although many of these abuses occur in Yet, despite this prevalence, the supply chains of major global awareness of slavery is worryingly low. corporates, cases of blatant and This survey showed that four percent deliberate corporate abuse are rare. of companies surveyed knew they Most corporates do not even know had been victims of modern slavery what modern slavery looks like or in the last 12 months. The real figures just how susceptible their own supply are likely far higher. It is therefore chains are to it. very welcome that this survey commissioned by Refinitiv includes Much more work needs to be done slavery in its questions, and that the in this area, not only by companies accompanying report looks beyond improving their processes, but also the monetary impact of financial crime by the banks who unwittingly allow and towards its human cost. slave masters to launder their profits. But it would be wrong to focus all That cost is high, with the Global the attention on the private sector. Estimates of Modern Slavery - Governments are also implicated. At M produced by Walk Free Foundation one extreme, state-sanctioned forced 40.3PEOPLE ARE IN SOME FORM and the International Labour labor is still widespread in countries OF MODERN SLAVERY IN Organization, in partnership with that include North Korea, Eritrea, the International Organization for Burundi and Turkmenistan. At the Migration - estimating that 40.3 million other, even though many countries people are in some form of modern have legislation covering all forms of slavery. More than 25 million of these exploitation, stronger steps need to be 199COUNTRIES people are subject to forced labor in taken on implementation, collaboration the private economy. Behind these and research. Governments and numbers, are the individual stories business each have an important role of the men,women and children who to play to combat this heinous crime. are being forced, through threats and violence, to work on fishing vessels, construction sites or in agriculture.

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EUROPOL INTERVIEW How to get better at fighting financial crime Rob Wainwright Former Executive Director, Europol

We estimate that barely 1% of criminal investigation. That’s a very small way to go in the fight against financial proceeds generated in the European dividend from the multi-billion dollar crime. With support from the Institute Union are confiscated by relevant investment made and goes a long of International Finance, Europol is authorities. Yet global banks spend way to explaining why such a small working with major global banks and billions of dollars each year meeting amount of criminal proceeds are ever European law enforcement agencies stringent anti-money laundering confiscated. to improve the cross-border sharing of regulations. So why isn’t this level of financial intelligence and make the AML/ So what can be done about it? This investment yielding better results? CTF regime more efficient and effective. question has framed a new initiative, One major reason identified by global led by Europol and the Institute of banks, law enforcement agencies and International Finance (IIF), to bring some the Financial Action Task Force (FATF), of the world’s biggest banks closer which sets international standards for to the law enforcement community to anti-money laundering arrangements, improve the systemic impact of financial is that the regulatory regime is highly crime compliance efforts. inefficient. To be compliant, banks monitor millions of transactions, It found that the primary reason was producing high quantities of alerts for the general paucity of good-quality individual review by compliance officers. intelligence delivered by the system. According to a senior executive in one Redirecting the considerable resources global bank, only some 5% of those of the regime to a more targeted reviewed ever reach the standard of approach would almost certainly yield % 1OF CRIMINAL PROCEEDS being filed as a suspicious transaction greater benefits. GENERATED IN EU ARE report to law enforcement. The rest are Greater co-operation is also vital. CONFISCATED discarded. Where there have been cases of Europol estimate But it gets worse. Europol’s research systematic co-operation the outcome is has shown that, over a period stretching positive. The Joint Money Laundering back to 2006, an average of only 10% Intelligence Taskforce (JMLIT), launched of all suspicious transaction reports in the UK in 2016, has brought received by law enforcement agencies together law enforcement agencies across Europe ever lead to any and 20 major banks in an initiative meaningful investigation. to improve intelligence sharing and co-operation. The first results are It means that only some 0.5% of all good, with the project leading to over transactions reviewed by the huge 1,500 proactive investigations by the number of compliance officers in the banks in cases identified by law. This banking sector ever lead to a criminal is encouraging, but there is still a long

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IT’S ESTIMATED 3.1 % OF GLOBAL TURNOVER IS SPENT COMBATING FINANCIAL CRIME

$ 1.28 TRILLION

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Fighting back Organizations are committed to fighting financial crime, but there are gaps in training and resources. Putting resources to Closing the education work gap

It is a common misconception that To mitigate the risk of financial crime, high levels of financial crime are 6 out of 10 of survey respondents due to a lack of efforts in fighting say they operate formal training for it. The reality is very different, with their colleagues around the globe respondents estimating they spent an for briberyand corruption, money average 3.1% of global turnover over laundering, fraud, theft and cybercrime, the last 12 months to prevent such although less than half (46%) operate issues occurring around their global this training for slave labor/human operations. This adds up to a collective trafficking. This suggests more could spend of USD1.28 trillion and reflects be done, with approximately 4 in 10 the complex regulatory challenges strongly agreeing that they struggle they face, particularly in relation to KYC to educate and influence colleagues requirements. on bribery and corruption, money laundering, fraud, theft and cybercrime Identifying weaknesses in some regions; with 6 in 10 strongly agreeing that they are struggling to Bribery and corruption and cybercrime educate and influence colleagues are the two areas of financial crime about slave labor/human trafficking. that companies find most challenging to prevent throughout their global operations (60%), with approximately 9 in 10 recognizing the importance to their company of finding solutions to these issues.

“At Davos this year, the World Economic Forum, Refinitiv and Europol launched a coalition to improve awareness of the extent of financial crime, promote more effective information sharing and establish enhanced processes to share best practice.”

DAVID CRAIG President, Financial & Risk, Refinitiv

27 Refinitiv | Revealing the true cost of financial crime

Taking action The vital role of data, methodology and breadth and depth of information when selecting a financial The survey suggests that organizations intelligence and crime data partner. 4 in 10 of those who are well aware and highly supportive technology currently do not have this resource of a range of actions to tackle financial would consider using a vendor who When looking for solutions to identify crime. Two of these stood out, with could demonstrate these skills. and mitigate financial crime, advanced 94% supportive (of which 59% were technological capabilities are the most very supportive) of ‘sharing of financial Refinitiv strength in all these highlighted valuable area for companies, with 66% intelligence/information on specific areas has helped us establish ourselves saying they have this already and 31% cases by companies’, closely followed as the world’s trusted and accurate considering it. by 93% (58% very supportive) of source of risk intelligence, used by law enforcement agencies, regulators, ‘working with companies that follow Data plays a key role in fighting banks and corporations globally, best practices’. financial crime in terms of detection, regionally and locally, to help ensure the compliance and monitoring, with many world is safe from financial crime and recognizing the need for support in corruption, making it a better place in this area. Approximately half the survey which to live and do business. respondents cite the importance of subject matter expertise, research

FIGURE 8: TAKING ACTION AGAINST FINANCIAL CRIME

Q: How supportive are you of the following actions to tackle global financial crime?

Sharing of financial intelligence/information on specific cases by companies 59% 35% 6%

Prioritize working with companies that follow best practices 58% 36% 7%

Sharing compliance best practice by companies 55% 40% 6%

Improving public-private partnerships 54% 39% 7%

Media campaigns exposing specific cases 50% 40% 10%

Stronger global sanctions as 49% 41% 10% punishment by governments

Boycott of those facilitating or perpetrating it 49% 40% 12%

Disinvestment in companies 44% 41% 15% by investment community

Disinvestment in countries by companies 42% 42% 17%

Very supportive Slightly supportive Not supportive

28 Refinitiv | Revealing the true cost of financial crime

Why is it that despite our best efforts, In Hong Kong, in the first four months businesses successfully detect and of activity alone, 65 people were “Collaboration is recover so little of the estimated amount arrested and HK$2m seized. In the UK, key to fighting of criminal and terrorist funds assessed there were over 60 arrests and more to be flowing through the international than £7m in suspected criminal funds financial crime.” financial system? seized. There is a human side too. Senior members of a human trafficking Part of the problem is that organizations, Che Sidanius gang were convicted after information governments and law enforcement Global Head of Financial Crime and was shared and analyzed collectively agencies have failed to share the Industry Affairs, Refinitiv through the UK FISP. information and data needed to combat crime. Refinitiv is also playing a key role in a new partnership in the fight against To address this problem new public- financial crime. Launched at Davos private financial information-sharing 2018, it is a powerful public/private partnerships (FISPs) are being created. coalition comprising Europol, Refinitiv FISPs now exist in Hong Kong, and the World Economic Forum. Singapore, Canada, the USA and Australia, as well as the UK – and the partnerships are paying dividends.

TOOLS TO FIGHT FINANCIAL CRIME Refinitiv offers a holistic Screening Enhanced due diligence (EDD) World-Check Risk Intelligence database EDD reports deliver detailed background approach to help – comprising millions of records of information on any entity or individual to businesses identify, individuals, entities and vessels – help organizations protect themselves mitigate and act upon reveals risks that may be hiding in against regulatory and reputational business networks. damage. the risk associated with Screening as a managed service Appliance planning interface (API) financial crime. Our Screening and remediation can be to partners broad range of solutions outsourced to Refinitiv, reducing the We partner with market-leading third includes: overall costs and time associated with party software providers that can risk mitigation. integrate with our suite of products and services. Geopolitical risk ranking Our solution reveals the geopolitical, Transaction monitoring social and economic risks associated Screen for suspicious financial activity, with any country in which customers and while supporting KYC and onboarding third parties are based. processes, all on a single transaction monitoring platform.

29 Refinitiv | Revealing the true cost of financial crime

Conclusion Our survey reveals that, despite ever tightening regulation and significant spending on preventative measures, the impact of financial crime across the globe remains huge.

From the IMF to the WEF to FATF, To be truly effective, anti-corruption global organizations have made strategies may require broader fighting financial crime a priority. We regulatory and institutional reforms. already know that financial crime As Christine Lagarde, Managing blights individual lives and undermines Director of the IMF, puts it, “The the ability of governments to provide most durable ‘cure’ for corruption is key services such as education strong, transparent, and accountable and health. The IMF has shown that institutions”. Weak governance goes it reduces economic growth and hand in hand with corruption. Only social cohesion. For the first time our by working together with renewed research has put a price on financial determination at a global, national crime: three and a half percent of and individual level, in both public corporate turnover. For the 2,373 large and private sectors, can we create an companies in our survey alone, that environment in which there is nowhere adds up to a staggering $1.45 trillion. for criminals abusing the financial system to hide. Right now, according So what can be done? The positive to our survey, it is hidden even from news is that awareness is being the very companies which are victims improved slowly but surely and of it, with a quarter of our survey regulators, police forces and respondents reporting less than half of businesses are increasingly coming detected financial crimes internally. together to fight back more effectively. New technology offers new solutions, At Refinitiv, we are firmly committed with machine learning and artificial to the fight against financial crime, intelligence already being deployed working with businesses, financial to highlight and predict suspicious institutions, governments and in activity. The potential is there for these strategic partnerships to shine a light technologies to play a much bigger on hidden practices. As a trusted and part in the fight against financial crime. accurate source of risk intelligence,

Better data and smarter techniques are Refinitiv continues to work across making it easier to form a complete borders to help prevent businesses picture of risk across global supply and financial institutions falling prey chains. But with 10% of the companies to financial crime and by doing so, in our survey having more than 10,000 inadvertently contributing to the human third party relationships, the challenges cost paid by its victims. remain huge.

Join the movement to fight financial crime #FightFinancialCrime

30 Enhanced due diligence Enhance. Simplify. Protect.

Advanced background and integrity checks on any entity or individual, anywhere in the world. Protect your reputation, meet regulatory obligations and understand exactly who you are doing business with. refinitiv.com/edd Visit refinitiv.com

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