Measuring the uncountable

One of the hardest aspects of any AML regime is measuring its effectiveness.  A bit like insurance, it’s trying to quantify what might have happened if you hadn’t had it.  (That sounds like a nightmare sentence from the translation paper of my French “O” level!)  The FATF has struggled with this, and in 2013 it brought in a revised mutual evaluation methodology to include an effectiveness element which focuses on “the extent to which the legal and institutional framework is producing the expected results”.  And one of the outcomes that it measures is the use of financial intelligence, for instance by gathering “information on STRs (e.g., number of STRs/cases analysed; perception of quality of information disclosed in STRs…”  To those tasked with hosting an FATF (or FATF-style) mutual evaluation in their jurisdiction, this must come as a blessed relief: at last, something that can actually be counted – although “perception of quality” opens another can of AML worms…

Nonetheless, in recent years we have seen much more openness from FIUs about their work – at least at this statistical end of things.  And the Italians are the latest.  In a widely-reported presentation, Claudio Clemente – Director of the UIFI, Italy’s FIU – announced that there has been a “trend of exceptional growth in the influx of reports which, in 2016, reached 101,065 overall, a level eight times higher than was reported when the FIU was established [ten years ago]”.  Now this sounds good – or does it?  If more reports are made, does that mean that more money laundering is being spotted?  Or that more money laundering is happening, and actually the proportion of it being spotted is the same?  Or – if there’s a spike in reporting in one year, for instance – could the heightened vigilance be attributed to something like a tax amnesty, or a local banker going to prison, or even something as pedestrian as the improvement of the reporting mechanism or form?

“Perception of quality” is just as hard to pin down.  Signor Clemente tells us that 60,000 of the reports made in 2016 – 70% of them – were deemed by the Financial Guard’s Special Unit of the Monetary Police to be “of investigatory interest”, which suggests that there was something in them.  When I read annual reports put out by FIUs, there is rarely any mention of the quality of the SARs that they receive, beyond the bald fact of how many are passed on for investigation.  Anecdotally, I am told that things are improving all the time: MLROs are learning what FIUs will need to know in order to launch an investigation, and FIUs are learning what MLROs can and cannot be expected to know about their clients.  But, as with almost everything in the AML world, the improvement is hard to measure.

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5 Responses to Measuring the uncountable

  1. Alex Erskine says:

    Too right- FIUs must all want the Goldilocks outcome (not too many or too few). But the data will be interesting to crime and economics analysts.

  2. CDWOS says:

    Susan,
    Very interesting, or maybe as we have seen in the past out here the number of reports increased dramatically and simultaneously the quality of the reporting dropped so much so that FIU comment was eventually as to the extremely poor quality of the bulk of the reports received. The other thought that immediately comes to mind when you see statements such as Italy’s is “defensive reporting” in bulk!!

    • Ah yes: the dreaded defensive reporting. I wonder if people realise quite how dangerous that is… Not only does a defensive report not count as a report (so you can still be prosecuted for not reporting), but it lays the reporting institution open to being sued by the client for sharing their information not in accordance with the law. Defensive reporting is far from the safe option that people imagine – “just report and then we’re covered whatever happens”.

      • CDWOS says:

        Susan, How true seems to be one of those maxims that the industry believes it can live by and is according to many a “get out of jail free” card!!

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