Financial crime is a trillion-dollar business and growing rapidly. The UN estimates that the amount of money laundered globally in one year can be valued at 2 to 5% of global GDP—or $800b to $2t.
In the UK, authorised push payment fraud is the fastest growing crime. UK Finance said cases increased by 42% in 2021, with an estimated £583.2m in losses.
Last year, global AML and other financial crimes surged by 50%. Banks and other financial institutions were fined almost $5b.
As the number of financial crimes increases, there is a greater need for regtechs.
FinTech Intel spoke to Taavi Tamkivi, co-founder of regtech Salv, to discuss financial crime, how Salv is attempting to solve the problem, and what else needs to be done.
What can you tell us about Salv?
We are an Estonia-based company founded in 2018. The other co-founders and I have been working in the crime fighting space for 12 years—with Skype and ecommerce companies—and we saw the challenges banks face, including regulation, financial crime and money laundering.
Through these experiences, I learnt how to tackle the growing problem of financial crime more efficiently. We are focusing mainly on the European market because regulatory wise it is the most difficult and complex in terms of how much banks and fintechs are investing into compliance and AML.
How big of a problem is money laundering?
About $250b per year is spent fighting financial crime, and more than $150b of this is spent by Europe.
A quarter of the top banks are getting fined every year. Last year, global fines for AML and other financial crimes surged by 50%.
One interesting but sad number is that despite all of these fines and investments, the system stops only 1% of these crimes.
So, 99% of the drug trafficking money flows through the banking system without being noticed or stopped – this is an unacceptably low success rate, and something is really broken when it takes $250b to achieve only 1%.
When talking about other types of financial crime – such as authorised push payment fraud – the changes in the financial system, like further adoption of instant payments, the volumes are only going to grow—doubling to over £1.1b by 2026.
It’s a massive problem for the banks because their customers are getting hit. But the biggest problem is unseen.
Money laundering is not a victimless crime; the proceeds come from a wide array of terrible sources —human, and child trafficking, the drugs trade, the illegal wildlife trade, and cartels worldwide.
Someone is making a lot of money out of these terrible crimes, and 80% of these funds flow through our mainstream banking system.
What does Salv do differently to solve these problems?
Initially, we focused on building different anti-money laundering products. We were trying to improve banks’ existing legacy systems, but at some point, we realised this is not the main hurdle stopping banks from being effective.
Over the last two years, governments, regulators and banks have realised, in some countries at least, there is a need to exchange data points and information about possible crimes, suspicious customers and questionable transactions. This information needs to be exchanged in real-time across borders.
We are improving technology, and governments are creating laws to allow banks to exchange data on high-risk, suspicious people.
Salv’s solution to this challenge is our collaborative crime-fighting platform Bridge, proven to be effective against money laundering, APP fraud and sanctions screening.
Bridge is the only platform enabling financial institutions to send messages cross-border. If criminal organisations are working internationally – so should the banks.
Using Bridge, banks A, B and C can connect and exchange real-time information about events or entities – solving cases in minutes instead of several days.
How important is global collaboration?
So far, sharing information is the best solution we have. Progress isn’t happening linearly; it is happening in waves.
In Estonia, where the Bridge was launched, before banks exchanged information, the fraud rates were high.
As soon as banks started using Bridge, it was reported that they collectively detected 80% of the APP fraud and the percentage of successful money reclaimed increased.
However, once one country improves its efficiency against fraudsters, they can quickly move to a new region and slightly alter their methods – starting anew. This is why international collaboration is essential.
As the crack down on AML grows, will Salv grow with it?
Our mission is to end financial crime. Here, it’s important to understand that financial crime isn’t static – it’s constantly evolving, getting increasingly sophisticated and harder to fight.
Criminals are taking full advantage in the current gaps in knowledge on how to effectively monitor instant payments, ewallets and cryptocurrencies. The old technology no longer works, and there is no good system in place to monitor, let alone tackle the new type of financial crime.
Aren’t fines big enough incentives for banks to improve their measures?
Unfortunately, the fines are not working. The fines for banks are going up, but if you look at the profits that banks make, it is a tiny percentage. They are needed, but it really isn’t helping.
What is changing is the attitude and mentality. Younger people especially, who care more about ESG, as their awareness of financial crime increases and how it affects people, as newspapers change how they report on scandals, how banks share prices are affected, shows that people care about scandals. This is a much better lever than fines.
With this public pressure, governments need to come up with more innovative solutions, including data exchange.
It’s a long process to change the banking ecosystem, and these changes are triggered or helped by the government.
We need people, governments and countries to come together and share knowledge.