@ the IERP® Global Conference, August 2024
The views and opinions expressed in this article are solely those of the featured speakers and do not necessarily reflect the official view or stance of the IERP®. The content is provided for informational purposes only.
Julia Chin, Chief Regulatory Affairs Officer, xcube, has worn many hats in her career, from banking and advising on the building of a Know Your Customer (KYC) system, to running her own company, consulting and training in compliance on anti-money laundering matters. Her crusade against financial crime is a response to the financial inclusion aspect of ESG and the UN Sustainable Development Goals (SDGs), and how this impacts the Asia Pacific region, particularly in the eradication of poverty and hunger.
Noting that there was a strong connection between ESG, SDGs and fighting financial crime, she said that when people are financially disadvantaged, they are vulnerable to being exploited. Citing the post-pandemic environment, which saw the growth of bogus online job and investment scams, and even instances of modern slavery, she attributed this to people resorting to desperate measures which, unfortunately, saw them sometimes even being kidnapped and trafficked to other countries. In most cases, financial and human losses have been frighteningly high.
“Humans are the weakest link but we can also be the strongest protection if everyone has the right level of awareness,” she said. “But it really doesn’t matter what the systems are, at the end of the day it’s about human beings.” She emphasised the need for customer due diligence, stressing that it was imperative for preventing malicious actors from abusing an organisation’s infrastructure, including laundering money. She explained the various processes that could be applied towards effective client life cycle management.
With customer onboarding, proper identification is done, including name comparisons, and facial recognition. Checks are also done for any black-listing. Risk assessment and risk rating are done to determine whether the customer is high-, medium- or low-risk; they will be managed based on this assessment. “A lot is automated by the system,” Chin said. “Companies which do not have many customers may be doing it manually.” She noted, however, that there was starting to be a lot of emphasis on third-party management, especially vendors.
This was to ensure they complied with requirements, including ESG. With third-party risk management, it wasn’t just the customers that an organisation had to think of. “We have to think of the people we are onboarding as our partners and vendors,” she said. “Do we want to be associated with someone who may be connected with bribery or corruption?” Periodic reviews were very important. There was also a new concept of perpetual KYC, and a combination of fraud and anti-money laundering, FRAML.
While she did not personally agree with the FRAML trend, she said that perpetual KYC was important because partnerships with vendors needed to be documented properly. Documenting and due diligence may be a tedious process, but doing them diligently may produce business opportunities. She cited the case of a customer, a bakery, whose account suddenly showed a significant increase in transactions in the bank’s system. On investigation, the relationship manager found out that a new product introduced by the bakery had vastly improved business.
The baker expressed her wish to expand the bakery; the relationship manager, having done due diligence, saw a business opportunity – and offered to reprocess her loan so that she could do that. Transaction monitoring is not all negative; sometimes it can be beneficial for both parties concerned. “When you do transaction monitoring, it is common to have a lot of alerts,” Chin said. “AI or Gen AI can give a lot of false positives. At the end of the day, it depends on how good or accurate your data is. It’s not about the system, it’s about the people.”
Scamming is now an organised crime, she said, and it was difficult to indicate its red flags to the public as this was likely to also tip off malicious actors. But there was one thing to be certain of: money laundering never happens on its own. It is inevitably connected to something else, as was the case of an old lady living on the border of Thailand and Cambodia, who was scammed. This turned out to be a case of child labour, human trafficking and illegal wildlife trading. In Syria, it turned out to be corruption concerning the issuance of certificates of fitness for occupation, for construction projects.
The International Labour Organisation (ILO) has estimated that modern slavery reaps US$236 billion annually, in illegal profits from forced labour of people being exploited. “This is common in the fishery industry, construction and manufacturing,” Chin said. “People are trafficked and forced to work through violence and intimidation.” In the majority of cases, poverty is the reason many people fall victim to exploitation. In some instances, the transfer of funds for child pornography and grooming was even effected under the cover of payment of school fees and stationery expenses.
However, it is difficult to launder money without raising suspicion, she stressed, particularly when systems turn up details that don’t match, such as in the case of a Chinese national who was onboarded in Singapore on a Cambodian passport. Onboarding tools and ongoing monitoring and reporting are the tools generally used, in a continuous cycle. Regardless of the kind of scam being perpetrated – blockchain or traditional finance – the principles remain. “Tools may change and there will be new terminology but the principles will be the same,” she said.
The oft-quoted industry saying, “Compliance does not stop financial crime but people do” rings true. “It’s always about engaging with people,” she added, pointing out that there were challenges aplenty with KYC, including regulatory issues, cost-benefit ratio, and the lack of accurate information due to fraud. The B40 sector, refugees, and the undocumented population also presented challenges, she said. The screening of a video which demonstrated the convenience of cryptocurrency underscored its importance in the business environment today as a new payment method.
“Is crypto real? Yes, it is real. Is it dangerous? I don’t think so. You have to understand it better,” she said. “For those people who were scammed using cryptocurrency, it’s not because crypto was the problem. It is about people misusing it. There is no ‘crypto’ crime.” Better financial literacy will lead to better management of financial crime-related risk. There will always be risks, but with improved understanding, we will be able to affect the people around us and help underserved and underprivileged communities.
“Whether we are tech people or IT people or with an IT background, understanding a higher landscape will help us to manage it better,” she advised. “Be curious, understand how it behaves…Know the technology, know the product so that we can manage the risk and continue with the technology and innovation. One of the key things that NGOs say is that when the payments stop, so will the abuse. We want to stop money laundering because there is a lot of crime behind it. When we stop it, the crime will stop.”
