Our anti-money laundering efforts have failed

Using big data as ammunition against international money laundering

By John A. Cassara, Industry Adviser to SAS Federal LLC

By conventional standards, President Richard Nixon’s “war on drugs” has failed. In fact, the Justice Department’s 2011 National Drug Threat Assessment found that “the overall availability of illicit drugs in the United States is increasing.”

During the Nixon era, the importance of “following the money” was made apparent. Congress started passing a series of laws known as the Bank Secrecy Act designed to give criminal investigators better tools to identify the proceeds of the sales of illicit narcotics.

Yet, while the war on drugs continues to receive recognition and scrutiny, the asymmetric financial battles have received surprisingly little. Two generations of history show us that it is time to declare that our cumulative efforts to combat drug money laundering have also failed.

... the UNODC believes that less than one percent of global illicit financial flows are being seized and frozen.

Feeding greed

Why does it matter? Simply put, criminals and criminal organizations are motivated by greed. Criminals traffic in narcotics as a means to an end; money.

Unfortunately, our collective record (federal, state, local and international) in following dirty money, identifying and taking away illicit proceeds, and punishing money launderers is abysmal.

Gauging failure

Data has been notoriously imprecise or lacking, but the government’s accepted metrics are startling and fully demonstrate our failure.

The United Nations Office on Drugs and Crime (UNODC) estimates that $1.6 trillion or 2.7 percent of global GDP was laundered in 2009. It is believed financial flows related to drug trafficking and other related transnational organized crime was approximately $580 billion.

Conservatively the Office of National Drug Control Policy (ONDCP) estimates that Americans spend approximately $65 billion per year on illegal drugs. Other observers believe the number is in excess of $100 billion. Because of this insatiable appetite for narcotics coupled with the size of our economy, the US is the most prolific money laundering country in the world.

Convincing data

From a law enforcement perspective, bottom line metrics that best measure success or failure in our war against drug money laundering are the number of convictions and amount of dirty money seized and forfeited. While there is a paucity of reliable numbers (the government doesn’t like to advertise its shortcomings), the ONDCP estimates that US law enforcement seizes approximately $1 billion per year. That’s a success rate of only 1.5 percent! Additionally, the UNODC believes that less than one percent of global illicit financial flows are being seized and frozen.

In a study by the GAO, buttressed by independent press research, an estimated $39 billion in drug money is smuggled annually across our southern border. Out of every $100 that goes south, US law enforcement intercepts only 25 cents! What is particularly shocking is that smuggling illicit proceeds into another country or jurisdiction is probably the simplest and most straight forward of all laundering methodologies.

Our failure has consequences. In addition to the human and societal devastation caused by drugs, the tens of billions of dollars of smuggled cash helps fuel’s Mexico’s drug war.

Another law enforcement metric of success is the number of convictions. The numbers are not straight forward or easy to obtain, but the 2007 National Money Laundering Strategy notes that in fiscal year 2004, there were only 1,575 money laundering convictions at the federal level. (This encompasses money laundering related prosecutions from all serious crimes – not just drug trafficking.) Another study found that money launderers in the US face a less than five percent risk of conviction!

The overseas metrics are equally depressing. According to the Department of State, “far too many countries that boast solid [anti-money laundering] standards and infrastructures do not enforce their laws. This is true in all corners of the world and for both developed and developing countries alike. In many instances, the lack of enforcement is due to lack of capacity, but in some cases it is due to a lack of political will.”

Talking aimlessly

Some believe that recent eye-catching actions against major banks may create change. For example, HSBC was fined $1.9 billion for failing to pursue anti-money laundering within its branches. However, this is a regulatory action. The $1.9 billion is not going to be taken from drug traffickers but from the shareholders of HSBC. And not one individual will be prosecuted!

In 2005, I wrote Hide & Seek: Intelligence, Law Enforcement and the Stalled War on Terror Finance. I was very concerned that the US might be moving away from effective anti-money laundering and financial crimes enforcement. I felt our war on terror finance was “stalled.” I suggested that a new emphasis be placed on enforcing the laws, rules and regulations that are already on the books. I urged Congress and regulatory agencies to step up oversight. Most important, I argued that real progress requires a different philosophical and bureaucratic emphasis. Simply put, we have to get back to the basics of enforcement.

Despite the disappointments, there are some ready countermeasures.

Moving forward

The 2007 National Money Laundering Strategy provides an excellent road map for moving forward. This report, signed by the Secretaries of Homeland Security, Justice and Treasury, identifies threats and lays out comprehensive action plans. Unfortunately, little progress has been made since it was published.

I urge the appropriate Congressional oversight committees to call hearings or send letters of inquiry to agencies and departments involved. They should ask for an honest accounting of their actions and ask for a renewed commitment.

In November 2012, Under Secretary of the Treasury for Terrorism and Financial Intelligence David Cohen announced that the Obama administration will conduct an assessment of our anti-money laundering efforts – including the effectiveness of our current regulations. The Senate Drug Caucus is similarly engaged.

Concurrently, there have been tremendous advances in the amount and variety of data collected. Financial intelligence, travel and trade data are just a few examples of the big data available. Advanced analytic capabilities, data warehousing, predictive analytics, financial fraud frameworks and social network analytics, are new capabilities that can help law enforcement derive meaningful operational intelligence.

We will never have enough criminal investigators to successfully combat international money laundering; however, we can better utilize data and technology. Take a look at this modern day force multiplier.


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We'll never have enough investigators to successfully combat international money laundering, but we can make better use of data and technology. Take a look at this modern-day force multiplier.

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