NEW YORK — Heavy rain and snowfall, ominiously known as a Nor’easter, couldn’t keep attendees away from the first in a series of three Thomson Reuters Public-Private Partnerships Forums earlier this month.
Despite the winter storm blasting the Manhattan area, a large number of attendees came out March 7 to listen to a variety of speakers discuss the most pressing issues impacting the financial services industry today — blockchain’s disruptive emergence onto the scene, digital identity and its many facets, and the ongoing anti-money laundering (AML) battle against bad actors who launder money to fund their illegal activities.
The theme of this first forum was how financial institutions and governments can work together more effectively to better share information and collaborate to reach the ultimate end goal: stopping the terrorists, drug dealers, and human traffickers from conducting business as usual.
Blockchain & Bitcoin: A Promising Advancement, A Perilous Challenge
The first speaker was Thomson Reuters Technologist & Futurist Joe Raczynski, a self-proclaimed early adopter of cryptocurrency. Despite his enthusiasm over digital currencies, Raczynski immediately warned the audience that the impact of blockchain, the technology behind cryptocurrencies, on financial and regulatory industries “is going to be massive.”
While the future of blockchain is headed towards real estate transfers being conducted in bitcoin or how blockchain will be used in smart contracts or tracking food production from farm to table, one thing remains clear — money launders and terrorist organizations are looking for ways to exploit the anonymous nature of cryptocurrencies.
This isn’t just Raczynski’s view. Christine Lagarde, Managing Director at the International Monetary Fund (IMF), recently wrote about the effect of cryptocurrencies as “…a potentially major new vehicle for money laundering and the financing of terrorism.”
Raczynski explained to attendees that a person could set up an anonymous cryptocurrency in about 60 minutes. “Anyone who wants to create a currency which avoids detection and tracking can do so fairly easily,” he said.
While cryptocurrencies are revolutionizing the financial industry, the drawback is that a terrorist can also send large sums of money undetected to places like Iran or North Korea, bypassing government agencies.
Raczynski said he believes that the best way to handle some of these challenging problems is for private institutions such as banks to work with public entities and regulators to come up with ideas to track what is almost untraceable, particularly when it comes using decentralized and open-source cryptocurrencies like Zcash or Monero.
While the future for blockchain looks bright, clearly these are challenges that governments will need to address globally.
Digital Identity: A Complex and Fragmented Landscape
Next, Thomson Reuters Senior Director of Digital Identity, Jennifer Singh described her vision of how institutions can rethink identity solutions in a world that is seeing an explosion into digital channels.
We all have multiple identities — a personal identity, a work identity, sometimes we even have a social identity. But bad actors have a separate category: fake identities. And that presents challenges to banks and other institutions that need to verify their customers.
“As businesses shift to digital channels, they aren’t changing their approach to customer identity verification,” Singh said.
Having a document-centric approach — one that continues to rely on physical documents such as a driver’s license or passport — leaves the door open for bad actors to exploit the system, or worse, steal identities. Moreover, personal identifying information is extremely siloed and often in many different databases which aren’t updated in real time.
For example, think about the three main credit bureaus: Equifax, Transunion, and Experian. You could have different information across all three of these soucres at any given time. “How do I know the real source of truth when looking at all these different data points,” Singh asked the audience. “There is a true lack of trust in that data.”
Singh’s solution is based on a partnership between industries and government. She believes we need a universal identity verification system that balances security to protect individuals and institutions and also allows for convenience to continue to drive more business to digital channels.
This all starts with an open platform bringing together a holistic picture of a person’s identity through biographical information, global positioning system (GPS) location history, biometrics, and behavioral biometrics. Take that information and have it serve multiple use cases — “everything from opening a bank account through going through airport security,” Singh said, adding that this will need to be a powerful platform, both customizable and configurable to comply with the regulations and requirements of doing business.
Some governments are already beginning this journey. India is issuing digital identities in a more centralized way. Estonia has a more advanced digital signature system rooted in blockchain technology. And as they say, as the goes Estonia, so goes the world. At least, leaders like Singh can hope.
Our final panel brought together experts in banking, government and anti-money laundering (AML) sectors:
- Dennis Lormel, former FBI Financial Crimes Section Chief;
- Peter Vincent, General Counsel of Thomson Reuters Special Services (TRSS); and
- James Cummans, Executive Vice President and Director of BSA/AML and Corporate Compliance at TCF Bank.
Together with moderator Holly Sais Phillippi, Partner-Director in Governance, Risk & Compliance at Thomson Reuters, the panel examined the challenges and pitfalls in attempting to disrupt the money-flow to terrorist organizations and other bad actors.
“All crimes are financial,” Lormel said. “Unless they are murder or true violent crimes.” That means, follow the money — whether drug trafficking or counterfeiting, most fraud and financial crimes can lead back to the terrorists and other criminal syndicates.
Vincent said the biggest problem today is failing to know your enemy, cautioning the audience about underestimating the “bad guys.”
“There is a pernicious misperception out there that terrorist organizations are run by knuckle-dragging, mouth breathers. That is not the case at all,” he said. “The adversary is incredibly sophisticated and savvy.” These terrorist or criminal organizations run like multi-national corporations with a business model and a revenue stream based on criminal activity, he added.
All panelists agreed that one of biggest problems in the AML arena today include trade-based money laundering, which is incredibly hard to detect.
The future of fighting terrorist and human traffickers is still bright, despite the challenges, the panel suggested, noting that lawmakers and financial institutions must adapt quickly by working together and working smarter.
Join Us Live in Charlotte and Washington, DC
The public-private partnership conversation continues in both Charlotte (April 24) and Washington, D.C. (April 26) where our speakers will continue the focus on how the partnerships between law enforcement and the financial industry are critical to combating financing of criminal activity and terrorism. Register now!
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