The Financial Action Task Force (FATF) has released a Report on Money Laundering and Terrorist Financing in the Securities Sector.
Summary
The securities industry plays a key role in the global economy. Participants range from multinational financial conglomerates that employ tens of thousands of people to single-person offices offering stock brokerage or financial advisory services.
New products and services are developed constantly, in reaction to investor demand, market conditions, and advances in technology. Product offerings are vast, and many are complex, with some devised for sale to the general public and others tailored to the needs of a single purchaser. Many transactions are effected electronically and across international borders.
Some of the features that have long characterised the industry, including its speed in executing transactions, its global reach, and its adaptability, can make it attractive to those who would abuse it for illicit purposes, including money laundering and terrorist financing. Moreover, the securities sector is perhaps unique among industries in that it can be used both to launder illicit funds obtained elsewhere, and to generate illicit funds within the industry itself through fraudulent activities. Transactions and techniques associated with money laundering and the specific predicate securities offences are often difficult to distinguish, which is why specific indicators and case studies for insider trading, market manipulation and securities fraud are relevant and included in this study.
The case studies presented in this report illustrate the risks associated with the various types of intermediaries, products, payment methods and clients involved in the securities industry. Unlike other sectors, the risks lie mainly not in respect of the placement stage of money laundering, but rather in the layering and integration stages. Typical securities-related laundering schemes often involve a series of transactions that do not match the investor’s profile and do not appear designed to provide a return on investment.
Some areas of vulnerability (for example, rogue employees) are not peculiar to the securities industry, and thus this study is of relevance to the wider financial services sector. In particular, some money laundering schemes involve products and transaction types that exist in the banking and insurance sectors as well.
Suspicious transaction reporting in the sector remains relatively low, which can be explained by a number of possible factors, including a lack of awareness and insufficient securities-specific indicators and case studies; issues that this report attempts to address. Consultations with the private sector conducted for this project outlined the need for enhanced securities-specific guidance by international organisations and national authorities.
The reported incidents of money laundering in the securities industry far outweigh those relating to terrorist financing. However, the sector remains vulnerable to both money laundering and terrorist financing.
Money Laundering & Terrorist Financing