How diversity can help bolster your financial crime defenses

Financial crimes, such as money laundering, fraud, and corruption, pose a serious threat to the stability and integrity of the global financial system. Indeed, the estimated amount of money laundered globally in one year is roughly between 2% and 5% of global GDP, or about US$800 billion to US$2 trillion.

Combating these criminal activities necessitates the deployment of robust and effective systems and controls by financial institutions, financial technology (fintech) companies, and other customer-facing financial organizations. This involves undertaking risk evaluations, executing due diligence on clients, scrutinizing transactional activities, and ensuring comprehensive reporting protocols are adhered to. While regulatory requirements offer a solid foundation, these measures alone are not enough. It’s equally important to have a diverse and inclusive team to bring a range of perspectives, expertise, and insights to the fight.

How diversity can help prevent and detect financial crimes

Neil Sternthal, the CEO of ACAMS, a membership organization dedicated to fighting financial crime, explains that diversity enhances financial institutions’ capacity to tackle financial crime in several ways, including by:

• • • Providing stronger controls— A diverse team designs more targeted and effective preventive and detective controls, anticipating and addressing the evolving tactics of criminals.
    • Enhancing detection— Varied experiences enable anti-fraud teams to recognize subtle red flags and anomalies, allowing for early intervention and loss mitigation.
    • Strengthening customer relationships— A diverse team is reflective of the organization’s diverse membership and builds stronger relationships with a diverse customer base, fostering trust and open communication that’s crucial for early detection.
    • Improving adaptability— Anticipating and adapting to emerging criminal trends, while ensuring the teams’ investigative techniques and controls remain cutting-edge is critical.
    • Fostering a culture of integrity — A diverse and inclusive environment promotes a culture of integrity, ethical conduct, and belonging, which are all fundamental in preventing internal fraud and misconduct.
    • Offering a global perspective — Understanding the nuances of financial crime across different cultures and regulatory landscapes enables the development of globally relevant solutions.

In managing financial crimes, it is essential to improve cultural awareness and sensitivity. “Diversity is foundational to a truly resilient defense against financial crime,” Sternthal says. “A diverse team isn’t just a collection of individuals — it’s a dynamic network of perspectives, experiences, and cultural insights. This richness empowers us to craft more targeted and effective controls, both preventive and detective, anticipating and addressing the ever-evolving tactics of fraudsters and money launderers.”

Further, featuring a diverse team enables financial companies to better comprehend the cultural beliefs, values, concerns and actions of their clients, particularly those that may come from other countries or regions. This enhanced understanding aids in pinpointing and evaluating the potential risks posed by various customer groups, while also allowing for adaptations in products and services to match their needs and preferences.

“Our diverse backgrounds also enable us to recognize subtle red flags and anomalies that might otherwise go unnoticed, allowing us to intervene early and mitigate potential losses,” Sternthal adds. “In essence, diversity fuels the design and implementation of robust controls that protect organizations and their stakeholders.”

Providing diverse solutions

Enhancing the problem-solving and decision-making processes is a benefit of having a diverse financial crime team as well. Such diversity helps banks and other institutions come up with a wider variety of ideas, viewpoints, and solutions for the intricate and ever-changing issues related to financial crime. A diverse team can also assist in circumventing groupthink, cognitive biases, or oversights that could negatively influence their discernment or efficacy.

Sternthal points out that “a diverse team amplifies its effectiveness in fighting financial crime. It empowers organizations to build stronger relationships with a diverse customer base, fostering trust and open communication that is crucial for early detection.

Moreover, diverse views enhance teams’ ability to discern “between the signal and the noise,” he says, adding that varied experiences enable anti-fraud agents to anticipate and adapt to emerging criminal trends, ensuring their investigative techniques and controls remain cutting edge. In fact, a diverse and inclusive environment promotes a culture of integrity and ethical conduct, which is fundamental in preventing an organization’s own internal fraud and misconduct, he explains.

“By embracing diversity at all levels, including leadership, organizations can create a strategic advantage that yields more effective controls, probative investigations, and greater resilience.”

Robust diversity within a program also enhances innovation and competitiveness. When financial institutions incorporate diverse teams, they are better equipped to foster innovation and respond to shifts in consumer demands, market trends, and compliance with regulations. Such teams provide these institutions with a distinct advantage in the marketplace by drawing upon and maintaining a varied pool of employees, clients, and collaborators. For instance, teams with diverse perspectives can aid financial firms in designing more inclusive and accessible offerings, such as mobile banking solutions, small-scale loans, or money transfer services specifically tailored to communities that have historically lacked adequate banking services.

“A diverse team isn’t just a collection of individuals — it’s a dynamic network of perspectives, experiences, and cultural insights. This richness empowers us to craft more targeted and effective controls, both preventive and detective, anticipating and addressing the ever-evolving tactics of fraudsters and money launderers.”

A varied pool of candidates not only offers cultural perspective but also broadens the access to talent for many organizations. In fact, almost 80% of financial services industry leaders said they seek a wider variety of skills in candidates than they used to, according to a recent survey by PricewaterhouseCoopers. And promoting increased diversity and inclusion is essential for addressing these evolving talent requirements.

Another advantage of having a diverse financial crime team is that it can help prevent sanction issues by helping to look for transactional patterns or anomalies that could indicate violations of international sanctions regimes. A diverse team can offer insights into the political, economic, and cultural contexts of different regions and countries, as well as the potential risks or opportunities associated with them. For example, a team with diverse backgrounds and languages could help identify and flag transactions involving sanctioned entities or jurisdictions, such as Iran, North Korea, or Venezuela, and ensure compliance with the relevant laws and regulations.

A diverse team also could help monitor and respond to the dynamic and complex nature of sanctions, which often change in response to geopolitical events or policy shifts. By having a diverse and informed perspective on sanctions issues in this way, financial institutions can better protect themselves from legal penalties, reputational damage, or loss of business.

Conclusion

Diversity can help bolster an institution’s financial crime defenses by enhancing its cultural awareness and sensitivity, improving its problem-solving and decision-making while increasing innovation and competitiveness. By having a diverse and inclusive workforce, internal financial fraud teams can not only comply with their regulatory expectations and social responsibilities, but also create value and opportunities for their overall business and society. As cultural interactions become more complex, financial institutions need to protect their reputation and customers by taking additional precautions to be balanced and vigilant.

Diversity is a key asset for financial crime prevention, as it enables financial institutions to access a wider range of skills, perspectives, and insights that can help them detect, prevent, and respond to illicit finance risks. A diverse and inclusive workforce can also help financial institutions meet regulatory and social expectations, as well as create value and opportunities for their own business and society.

As the world becomes more interconnected and diverse, financial institutions need to embrace and leverage diversity to better safeguard their reputations and customers from the risks of financial crime.

You can find more about the challenges faced by Compliance Professionals here.