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A G20-led push to speed up international payments risks enabling financial crime and hindering the enforcement of sanctions against Russia and other states, industry experts have warned.
The plans to make digital payment systems more efficient by 2027 do not take into account their increasing vulnerability to criminal networks and the heightened money laundering risks posed by a surge in war-related sanctions, according to the Future of Financial Intelligence Sharing, a UK-based research programme.
“A key institutional failure at the G20 level is the lack of responsibility among payments reform policymakers to consider fraud prevention and financial crime security,” said Nick Maxwell, head of FFIS, which on Sunday published a report on the issues.
The report urged increased public and private sector collaboration to “hardwire” financial crime prevention systems into cross-border payment infrastructure and harness national data to spot money laundering networks.
A failure to address these concerns could have “wide-ranging negative impacts [for] consumer financial safety, law enforcement effectiveness against organised crime and national security in terms of sanctions implementation”, he added.
The value of cross-border transactions, including wholesale payments between financial institutions, retail transfers and remittances, is forecast to hit $250tn by 2027 from $150tn a decade earlier, according to the Bank of England.
The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, has developed a road map for enhancing cross-border payments. The G20-led initiative is supported by the World Bank, the IMF and about 40 central banks.
The FSB published an update to the plan in October, focusing on practical measures that will enable G20 countries to fulfil a 2020 commitment to make international payments cheaper, faster and more transparent by 2027.
The “priority areas” in the financial watchdog’s road map include setting common data standards, improving settlement infrastructure and convening regulators, supervisors and lawmakers to address “regulatory friction” across the sector.
But while the road map plans to scrap the “very limited time period” required to screen transactions and recall funds before they are settled, it does not include mitigation plans for the “increased risk of cross-border fraud and associated money laundering”, the FFIS report warned.
Under the plan, cross-border payments, which are typically processed in a few hours or days, could be settled within seconds, leaving less time for counterparties to apply compliance checks and block suspicious payments.
“The faster the money moves the less time people have to react . . . speed does not have to compromise security but it can if you don’t embed security within the scheme,” said Chris Lewis, head of research at fraud prevention software group Synectics.
Alaina Gimbert, senior vice-president at US payments operator the Clearing House, said the G20 plan did not substantially address the need to enforce sanctions by blocking transactions in real time, a mandatory requirement of most US sanctions programmes.
“You can’t pretend that these compliance issues don’t exist. The G20 has not really given that risk the level of attention that it needs,” she said.
Western sanctions have greatly increased in number since Russia’s full-scale invasion of Ukraine nearly two years ago. Russian financial institutions have been hit hard by the restrictions. Some of its biggest lenders were removed from the Swift global payments system, which facilitates trillions of dollars worth of transactions every day.
Hundreds of executives close to President Vladimir Putin have been blacklisted from using western financial systems, while western companies are banned from importing a range of Russian commodities.
Gimbert urged governments to have “an honest conversation” about how to reconcile the goals of achieving faster international payments and enforcing economic sanctions.
“There’s going to need to be some form of compromise.”
The FSB did not respond to requests for comment on concerns relating to the progress report.
The FFIS published its report with the Centre for Financial Crime and Security Studies. They are both partnership programmes with the UK-based Royal United Services Institute, an independent defence and security think-tank.