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Friday, 5 July, 2002, 10:46 GMT 11:46 UK
Holes in dirty money armour exposed
A customer using an ATM machine
Knowing your customer can be difficult for banks these days
The most prized weapons in the fight against money laundering are nowhere near as effective as regulators might think, a report has suggested.

Moreover, the findings of the survey of British financial institutions indicates, some of them may even be getting in the way of stopping money launderers from operating.


The lack of clarity surrounding the use of suspicious transaction reports borders on the unbelievable

Professor Martin Gill
University of Leicester
The report, from the Scarman Centre for studying criminology at the University of Leicester, notes the heavy stress placed on "knowing your customer", or "KYC" as it is called.

KYC is widely seen as the key to stopping illegally earned money flowing unnoticed from one account to the next.

But the banks, building societies, insurers and investment companies which answered tended to feel that the measure was overrated.

"Worldwide, there's been an emphasis on KYC," Professor Martin Gill, the report's main author, told BBC News Online.

"But it has a fairly limited effect.

"It may be more difficult to just walk in off the street and start laundering money, but anyone who's serious can get around it fairly easily."

Before and after

The fieldwork for the survey was conducted before 11 September, and the upsurge of interest in both money laundering and the related field of terrorist funding instigated by the tragic events that day.

It is nonetheless the first large-scale, independent investigation of the practicalities of the fight against dirty money for the institutions at the sharp end to be published since then.

Survey responses
Overall response rate:
344 out of 1337 (25.7%)
Within which:
Banks: 65.2%
Building societies: 76.5%
Insurance companies: 9.9%
Investment companies: 27.8%

Governments worldwide, particularly US and UK administrations, have ratcheted up the rhetoric, while groups specialising in dirty money such as the Paris-based Financial Action Task Force have seen their remit expand.

The pressure on other nations, particularly those involved in offshore finance, to introduce tougher rules has also been intense.

KYC has traditionally been at the forefront of this initiative, so the view that the time-consuming, onerous and expensive process may not be producing results "has certainly come as a surprise", Mr Gill said.

There also needs to be a rethink of suspicious transaction reports (STRs) - the other mainstay of efforts to counter money laundering.

Traditionally, banks and other institutions must file an STR for any transaction that shows any signs of being suspect.

But they get little if any feedback from the authorities, the report found.

"The lack of clarity surrounding the use of STRs borders on the unbelievable," it said.

Magic bullet?

The heavy pressure on financial institutions to become the front line for fighting flows of illegally earned cash means many are looking for a "magic bullet" - a single solution to their new responsibilities.

Many, the report found, are considering software which claims to check all an institution's transactions, spotting suspicious patterns such as a sudden upsurge in activity or an oddly repetitive movement of money.

Those who had yet to fit the software were seeing it as a "panacea", Mr Gill said.

But the 6.2% of respondents who were using such systems were doubtful of their effectiveness.

"The general line was 'this is not doing me a great deal of good'," Mr Gill said.

"Obviously, this software is new. But those who have dedicated software still have to be persuaded that it's going to make a big difference. The jury is still out."

See also:

21 Jun 02 | Business
17 Jun 02 | Business
09 Apr 02 | Business
19 Mar 02 | Business
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