Imagine you’re a financial institution, and you’ve been hard at work gathering up signs of money laundering or other illicit financial activity. Your compliance team has been burning the midnight oil, and now has suspicious activity reports (SARs) in need of filing. These reports need to reach law enforcement, but how are they going to get there? Calling 9-1-1 emergency response and saying “I have some SARs I’m about to file” probably isn’t the fastest way to get this important information in front of the right people.
Enter the Financial Intelligence Unit.
Understanding What an FIU Is and Does
Financial Intelligence Units (FIUs) were established to serve as the intermediary between financial institutions and law enforcement. FIUs handle the ingestion, organization, and distribution of SARs and other important reports, making sure that they get to where they need to go. But that’s not all they do. They also:
- Receive suspicious activity data from the private sector
- Assess and analyze this data
- Organize and manage databases of SARs and related documentation, with secure access for law enforcement and intelligence agencies
- Cooperate with other FIUs and national institutions
Why bother with an intermediary? It’s important to note that an FIU can look into reported financial activity without it necessarily turning into a law enforcement investigation. FIUs are normally not law enforcement agencies; their mission is instead to help process and analyze this sensitive information.
According to standards put forth by the Financial Action Task Force (FATF), every country should have an FIU. Specifically:
Countries should establish a financial intelligence unit (FIU) that serves as a national centre for the receipt and analysis of: (a) suspicious transaction reports; and (b) other information relevant to money laundering, associated predicate offenses and terrorist financing, and for the dissemination of the results of that analysis. The FIU should be able to obtain additional information from reporting entities, and should have access on a timely basis to the financial, administrative and law enforcement information that it requires to undertake its functions properly. —The FATF Recommendations 2012 (Updated March 2022).
But even though every country with a FIU is tackling the problem of money laundering in some capacity, different countries have different kinds of FIUs. Compliance is funny that way.
According to a 2004 report from the International Monetary Fund, there are four main types of FIU:
- Administrative FIUs
The classic definition of an FIU. An agency either affiliated with an existing governmental group (e.g. FinCEN and its affiliate, the U.S. Treasury) or independent of any pre-existing affiliation (i.e. the Belgian Financial Intelligence Processing Unit). This group is tasked with the receipt, analysis, and dissemination of suspicious activity and serves as a “buffer” between financial institutions and law enforcement.
- Law Enforcement-style FIUs
These hold the same function as the administrative model, but are built under the umbrella of a country’s law enforcement agency. This is done mostly in countries where there is an emphasis on financial crime investigations, and the FIU is usually closely tied to the country’s financial crimes unit (or similar group). Because of their proximity to law enforcement, they may implement anti-money laundering initiatives alongside existing law enforcement systems.
- Judicial or Prosecutorial FIUs
FIU groups created in countries with a continental law tradition, these agencies are part of the national judicial branch. They may disclose suspicious financial activity directly with agencies located in the judiciary for analysis and processing. With this information, the judiciary can leverage its powers (e.g., seize funds, freeze accounts, conduct interrogations, detain people, and conduct searches) without delay. In countries where public prosecutors guide investigations and direct law enforcement agencies, this type of FIU falls under the prosecutor’s purview.
- Hybrid FIUs
If you guessed this was a catch-all category for FIUs that combine elements of the three different types above, you’d be right. Say hello to the Prius of FIUs. Notable drivers of the hybrid model include Denmark and Norway.
One last thing!
Some organizations (usually larger financial institutions) call their own, internal compliance function a “financial intelligence unit.” So if it looks like there’s a regulatory intermediary working directly from within a bank, think again – it’s just a confusing bit of naming.
Putting Things in Context
Who or what is the Egmont Group?
Who organizes the organizers? In the world of FIUs, that responsibility is held by the Egmont Group.
An international coalition of over 150 FIU member-actors, the Egmont Group was established to help improve communication, information sharing, and training coordination amongst FIUs. The Egmont Group works to ensure that all FIUs adhere to several key standards in order to maximize cooperation.
The Egmont group recently laid out its 5-Year Strategic Plan. The plan focuses on the following four areas:
- Improvement information exchange between FIUs
- Improved cooperation between the Egmont Group and international partner organizations
- Publication and distribution of the latest best practices for anti-money laundering (AML) and countering the financing of terrorism (CFT) work
- Providing Egmont Group support to FIU member-actors
Get the latest from the Egmont group by visiting their website.
FinCEN is the Financial Intelligence Unit for the United States, right? What’s their deal?
Yep. The Financial Crimes Enforcement Network (FinCEN) is the FIU in the United States. A bureau of the U.S. Treasury and a member of the Egmont group, FinCEN is considered a leader in global FIU best practices.
According to FinCEN, their M-F to-do list looks something like this.
Evergreen FinCEN Responsibilities (as listed on their website)
- Issue and interpret regulations authorized by statute
- Support and enforce compliance with those regulations
- Support, coordinate, and analyze data regarding compliance examination functions delegated to other federal regulators
- Manage the collection, processing, storage, dissemination, and protection of data filed under FinCEN's reporting requirements
- Maintain a government-wide access service to FinCEN's data, and network users with overlapping interests
- Support law enforcement investigations and prosecutions
- Synthesize data to recommend internal and external allocation of resources to areas of greatest financial crime risk
- Share information and coordinate with foreign financial intelligence unit counterparts on AML/CFT efforts
- Conduct analysis to support policymakers, law enforcement, regulatory and intelligence agencies, FIUs, and the financial industry.
Serving as a bridge between private industry and law enforcement, FIUs play an essential role in compliance workflows, increasing transparency and enabling governments to successfully take action against illicit activity in their financial system. They help connect the dots of money laundering, stopping funds from reaching unlawful owners or criminal organizations. While the process has never been seamless, improved technology and advocacy on the part of organizations such as the Egmont Group has allowed FIUs to develop and grow in ways that optimize and advance their role in the fight against financial crime.