COSMIC Will Yield Significant and Far Reaching Benefits

Singapore is taking a leap forward in how its financial services industry detects and combats financial crime, says Jamil Ahmed.

The global pandemic has brought about significant changes in the way societies live, work and interact with each other. Financial institutions have also adapted their methods in how they interact with prospective and existing clients and rapidly accelerated plans for the digitisation of various client journeys.

Criminals too, have the advantage of the changing environment and sentiments and have rapidly altered their methods for cybercrime and money laundering. The resulting impact is that losses due to cybercrime and fraud have risen sharply, a phenomenon observed in many jurisdictions globally.

In a 2020 report titled ‘The Hidden Costs of Cybercrime’, global security software company, McAfee estimated that the total cost of cybercrime to the global economy was USD 945 billion, up 50% from 2018. In Singapore, the Singapore Police Force (SPF) reported losses from scams in the first half of 2021 at approximately USD 148 million, an increase of over 20% from the prior full year.

Modus operandi 2.0

Cybercrime is often conducted across borders where organised crime syndicates can extend their focus to target individuals, institutions, and jurisdictions internationally. In the US, where ransomware payments were USD 590 million in H1 2021 (up 42% from full year 2020), the Office of Foreign Assets Control (OFAC) sanctioned a virtual currency exchange with operations in multiple countries for facilitating transactions for ransomware operators. Two other ransomware operators domiciled outside of the US were also designated and highlighted as being part of a cybercriminal group for receiving USD 200 million in ransomware payments.

Concocting a convincing scheme to dupe victims into transferring funds from their accounts is just one element of the bigger picture. These illicit funds also have to be laundered and remitted to their intended destinations and recipients, often through a network of ‘mule accounts’ to obscure the flow of funds.

Whilst unsuspecting individuals may be engaged by illicit actors and their accounts unwittingly used as ‘mules’, others can be directly recruited for this purpose; such persons will proceed to open fresh accounts remotely often using digital methods across various banks. Recruited ‘mules’ may also use legitimate identity documents whilst concealing the true purpose for the account during the account opening process to avoid detection or suspicion.

In these instances, accounts may only be detected as dubious when transactions are identified as both anomalous and inconsistent with the client profile after onboarding. Even when accounts are identified as ‘mules’ and closed at one bank, there is usually nothing preventing individuals from establishing new accounts at other institutions. Current customer confidentiality and data protection laws can prohibit banks from sharing financial crime concerns with other unsuspecting banks.

Banks have responded to the persistent threat of cybercrime through deploying additional technology systems that monitor digital application channels to detect changes in behavioural biometrics and have increased efforts to warn their clients on the risks of fraud.

Additionally and crucially, in jurisdictions such as Singapore, co-operation through Public-Private Partnerships (PPPs) has strengthened and enabled the deployment of various tactical initiatives.

A unified public-private defence 

In 2020, HSBC and several other domestic and international banks joined an Anti-Scam Taskforce (ASTF) launched by the Association of Banks in Singapore (ABS) to help tackle rising cases of consumer fraud.

The SPF’s Anti-Scam Centre and the collaborative efforts of financial institutions through various initiatives, including those through ASTF and Singapore’s PPP, have resulted in the freezing of over 5,400 bank accounts and recovery of approximately USD 49 million (32%) of losses in the first six months of 2021 – a significant increase from 2020 total recoveries, which amounted to approximately USD 43 million for the full year.

In addition, several case-sharing initiatives have been launched through Singapore’s PPP where banks, the Monetary Authority of Singapore (MAS), and SPF, have rapidly collaborated to identify potential networks of mule accounts and shell companies.

Whilst these efforts continue and evolve, it is really the launch of COSMIC, short for Collaborative Sharing of ML/TF Information & Cases, in 2023 that will create a paradigm shift in how the Singapore financial services industry detects and combats financial crime.

A huge leap forward

At its core, COSMIC establishes a framework underpinned by legislative changes which will collectively enable HSBC and five other major banks who are the initial participants to request and provide customer information in a secure manner when certain risk thresholds have been triggered. Whilst COSMIC was not specifically designed to tackle the cybercrime phenomenon, its broader coverage of financial crime risks holds significant promise to improve financial crime risk mitigation outcomes across a range of money laundering risks. It is expected that COSMIC will include additional participating banks in subsequent phases.

The benefits from such a framework are significant and far reaching.

Through COSMIC, an industry ‘watchlist’ will be made securely available to participating banks, highlighting those who have had a Suspicious Transaction Report (STR) filing and/or where relationships have been exited for financial crime purposes at other institutions. New client relationships during on-boarding can then be screened against the ‘watchlist’ to help inform risk assessments and promote better on-boarding decisions, particularly if serious financial crime concerns have been identified elsewhere.

Whilst COSMIC establishes safeguards to prevent unintended consequences of financial exclusion and to ensure prospective clients are engaged in risk assessment processes, the ‘watchlist’ has the potential to prevent illicit actors from hopping or engaging in a form of arbitrage between financial institutions.

Moreover, with access to broader data points through COSMIC, banks can conduct more comprehensive reviews and reach better informed conclusions on whether activity is sufficiently egregious to warrant a STR. With improved quality and more comprehensive STRs, law enforcement officers in turn will have improved intelligence from which to conduct investigations and can better direct resources to where concerns are greatest.

Taken together, these initiatives have the potential for accelerating the detection and disruption of networks of mule accounts/shell companies that may have infiltrated a financial system.

The global nature of financial crime and the seamless connectivity of the global financial system underlines the need for improved data sharing amongst private institutions, financial supervisors and financial intelligence units to disrupt international criminal activity. And there is broad recognition of the benefits of improved information sharing too – the Financial Action Task Force’s (FATF) guidance on ‘Private-Sector Information Sharing’ outlined these as far back as in 2017.

Improving data sharing in jurisdictions remains a key public policy objective for HSBC for financial crime risk mitigation. We have strongly supported the development of COSMIC in Singapore, whilst supporting similar initiatives and discussions in the many PPPs we are involved in globally.

Singapore has taken a huge leap forward with COSMIC, there is hope others will follow.

Jamil Ahmed is Chief Compliance Officer at HSBC Singapore, and a member of various industry taskforces and initiatives across Singapore focusing on AML/CTF, sanctions and fraud.


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