 Good afternoon everybody. My name is Barry Kulf from the Director of Research here at the Institute. It's a real pleasure to welcome those of you who have made the trip to join us here in our headquarters in Norfolk, Georgia Street and hello to those online. Really pleased to welcome Dr. Alexander Chance who feels like a new friend here at the Institute. We're delighted to have you here Alex and really looking forward to your presentation on elicit finance implications for national security and the need for a new strategic response. The event is going to be chaired by the great Mary Whelan, retired of the Department of Foreign Affairs. May I further do Mary? Very happy to hand over to you. Thank you very much. I like that. You're all very welcome here this afternoon and both of you who have joined us online. We have a very interesting topic today elicit finance implications for national security and the need for a new strategic response. Before formally introducing our guest speaker today Dr. Alexander Chance, just a few the presentation will last 20-25 minutes or is open to those who are here in the room. Those online can send in their questions or comments using the Q and A and the Q and A are on the record. I should do so using the handle. I've got rid of the housekeeping part. So it's a great pleasure now that I formally introduce Dr. Alexander Chance. Alex, head of Policy and Research at Transparency International which is the Irish chapter of Transparency International which you probably know better as TI. A global organization working against 100 countries. At Transparency Ireland Alex runs its program on political integrity, anti-corruption and anti-money laundering which was funded by the EU Internal Security Fund and the Global Anti-Corruption Consortium. In addition to his role at Transparency International Alex is a senior fellow at the Azure Forum for Contemporary Security Strategy and an associate fellow at RUSI within the organized crime and policing group. He previously served in the UK National Crime Agency in operational strategy and management positions focused on tackling transnational organized crime and in that capacity he spent five years in South America and you've also understand consulted with various UN and other international bodies. Alex obtained his epidemiology, examined the relationship between organized crime, high-level corrupt in post-war Mozambique. He also holds an M Phil in international peace studies from Trinity College and a BA in law and politics from Durham University in Irish and UK National. Without further ado I'll give you the floor Alex so we very much look forward to what you have to tell us today. Thank you very much Mary. Thank you to Keirne and thank you to Barry for your very very warm welcome to the Institute. It's a real pleasure and a privilege to be here and to be addressing such an illustrious and diverse audience both here in the room and online. Funny enough when I first came to study in Ireland nearly 25 years ago showing my age here I spent a year living just around the corner in Garden of Place and although some of my fellow students at Trinity were rather curiously to my mind alarmed at this floppy head Englishman yeah there was hair living here at one point I actually had the most wonderful time living in this community and and have huge affection for it so it's great to be back. One of my enduring memories from that period nearly a quarter of a century ago was right going for long training runs along the Liffey and through what was then a largely undeveloped largely deserted and in some cases derelict Docklands area. Today of course those same areas are completely transformed almost unrecognizable with these vast glass and steel fronted offices not only of the expanded IFSC but also various multinationals from the world of tech finance banking law accounting consulting and so on together of course with the central bank the convention center and the three arena on the site of the old point depot. Now whatever you think about the merits or lack thereof of the architecture it seems fair to say that the opening up of Ireland's economy has brought immense benefits not only to Dublin but also to the prosperity of the country as a whole and I'm sure you don't need me to tell you and to spell out the innumerable ways in which Ireland's role as an international financial center has played an important part in bringing investment jobs and economic growth to the country over the past couple of decades but the world is changing and it's changing fast and those of you at the IIEA don't need me to tell you that global shocks such as covid and the invasion of Ukraine have forced policymakers to reevaluate long-held assumptions and orthodoxies in a whole range of fields from the wisdom of just-in-time supply chains for example to the reliance on certain energy sources and the more open a system is the more pressing are those evaluations today I want to suggest that here in Ireland we're well overdue a fundamental reevaluation of our response to illicit financial flows and that failing to do so poses serious risks to our national security but first some definitions what do I mean by illicit financial flows I'm going to use the definition that we've adopted in transparency international which is similar to the UN definition whereby illicit financial flows refer to money or assets that are illegally acquired transferred or spent across borders and when I refer to national security I'm going to use a broad definition which understands national security to mean the protection and safety of the political economic and other interests and values of the state in terms of structure let's see if I can get this get this working and I'm going to split my remarks into two sections the first half is going to look at illicit finance in its global context we'll examine the main threats from illicit finance common deficiencies that exacerbate those threats and emerging responses to them the second half will look specifically at illicit finance in the irish context including both our own there we go including both our own uh vulnerabilities and our strengths and I don't want to I want to show that there are some qualified grounds for optimism in this respect but ultimately I want to show you that in a very rapidly changing world a globally connected country needs to get on to the front foot on this issue and fast and for that to happen I will argue we need a whole new strategic response to the threat posed by illicit finance by way of conclusion I'm going to sketch out a vision for what that response might look like in practice which I hope might provoke some interesting conversation in our Q&A afterwards so illicit finance in the global context in looking at the threat landscape around illicit finance it's perhaps worth bearing a couple of points in mind the first is that almost any security threat one cares to think about has a financial element even if the threat itself is ideologically motivated so most terrorist attacks for example will require financing to a greater or lesser degree and of course on the other hand almost any investigation into a security threat is likely to have a significant financial component the second point is that traditionally illicit finance was thought of as referring only to different forms of organized crime and terrorism and indeed the whole machinery of anti-money laundering has been built around those threats a point I'll come back to in a few minutes now those threats are very real and in fact one could argue that certainly in some parts of the world criminal wealth has grown to such an extent that organized crime groups can threaten the stability and the integrity of entire states societies or huge global financial institutions it wasn't so long ago for example that the banking giant HSBC was found by the US authorities to have laundered at least at least eight hundred million dollars worth of drug money on behalf of the Sinaloa Cartel in Mexico and the Norte del Valle Cartel in Colombia so we can't certainly can't afford to lose sight of the threat posed by criminal and terrorist finances but in more recent years there's been increasing acknowledgement that the threat from illicit finance is considerably wider and more insidious than solely the laundering of proceeds of drug sales human trafficking arms dealing and so on because dirty money is also being used to intentionally undermine our political systems through what are sometimes referred to as active financial measures or strategic corruption now these measures assume different forms in different contexts but they all deploy corrupt or illicit finance as a tool to increase influence or to shape the political environment in a targeted country or institution and thereby to achieve certain strategic objectives one form might use money to build long-term relationships for example through donations to research institutions cultural or sporting organizations which in turn provides donors with access to policymakers or other prominent individuals soccer fans amongst you might recall that until 2022 the UEFA Champions League was sponsored by Gazprom or it might take the form of more direct financing to those with influence such as bribes paid to MPs or political parties to advance the interests of another country as is alleged to have taken place in the Katar Gate scandal in the European Parliament in its most serious form the weaponization of finance constitutes one part of hybrid warfare alongside cyber attacks disinformation the use of proxies and other forms of economic manipulation left unchecked the threats from both criminal and politically motivated illicit finance can have very real and very serious implications economically they can undermine entire financial systems and organizations as we saw with the danska bank scandal for example dirty money can also distort entire sections of the sectors of the economy it's been argued for instance that toronto's entire property market has been significantly elevated by the volume of criminal profits being laundered through ontario's real estate sector politically the cumulative cumulative effect of such scandals helped to foster growing cynicism towards democracy and the institutions that under that underpin democracy so having sketch out the threats from illicit finance globally i want to briefly mention some common deficiencies or vulnerabilities that in many countries exacerbate those threats as i mentioned earlier the entire edifice of global anti-money laundering or AML as it's known has been built around the prevention and detection of criminal finances and to be blunt it doesn't perform this role very well the financial action task force or fattaf is the body responsible for setting global anti-money laundering standards and it's come under increasing criticism for its emphasis on procedure over outcomes and for presiding over a system that causes let's be honest huge inconvenience and cost to legitimate businesses and customers without seeming to have a massive impact on criminals moving their money it's also been slow to respond to calls to broaden its scope to include less obvious forms of illicit finance such as strategic corruption but many of the deficiencies in tackling illicit finance are to be found at nation state level countries have become adept at implementing fatter for other AML standards whilst in practice taking very little effective enforcement action in a lot of places policy efforts to prevent or detect dirty money are very much subservient to the interests of free flowing global capital representing a form of what we in ti call regulatory capture in many contexts there's also a severe disparity between the burden of compliance and liability carried by regulated sectors such as traditional banks and non-regulated sectors law enforcement agencies and regulators are often woefully under resourced including the financial intelligence units that analyze suspicious transactions the keeping of an access to company ownership and property registers remains patchy despite these being absolutely key tools for financial investigations and globally rates of asset recovery remains stubbornly low run one reason being that the eye watering cost of pursuing such cases against well-funded legal teams acts as a powerful disincentive leaving authorities to instead focus on the low hanging fruit and where states have taken action it's often against the most visible and ostentatious markers of illicit illicit wealth the bling one might call it of yacht sports cars and so on rather than the invested wealth which is much harder to pin down but despite all these challenges recent years and the last two years in particular have seen a flurry of activity against illicit finance at the political level throughout the western world there's been increasing recognition that illicit finance represents a serious threat to national security for all the reasons i outlined a few moments ago the european commission president in her state of the union address about 18 months ago highlighted the threat from corrupt finance including as a vector for foreign influence operations the white house has named corruption as a core national security issue facing the us with a corruption portfolio added to the u.s national security council and curbing illicit finance set as a strategic priority the uk's review of security defense development and foreign policy identified illicit finance as a key transnational challenge for that country so this acknowledgement of illicit finance as a national security threat has had several important practical effects one has been an increased willingness to devote legislative time and political attention to closing loopholes at the eu level we can see this in the robust anti-money laundering package that was recently agreed between the european parliament and council in the u.s we're seeing evermore robust approach towards illicit finance for example the treasuries recently adopted recently proposed rule to combat money laundering in the investment advisory sector similarly in the uk last year's economic crime and corporate transparency act was an important and very much overdue attempt to close loopholes around illicit finance and we've also seen growing recognition of the impact that dirty money can have on overseas development on conflicts on peace building and the incorporation of asset recovery into tax reform and overseas aid policies for their parts lower and middle income countries are quite understandably increasingly less willing to be lectured by western countries on corruption and governance when illicit finance flows and flows to and is invested and spent in those very same countries so we've looked at illicit finance in the global context the threat it poses common deficiencies and the way in which states are stepping up their responses but what about illicit finance in the irish context is this simply a case of much ado about nothing or perhaps just another front in the shifting sands of great power rivalry in which island has little interest in getting sucked in well aside from the fact that there are both criminal as well as political elements to illicit finance and the lines between the two are increasingly blurred having set ourselves up as an international financial center i would argue that we simply don't have the luxury of pretending that this challenge doesn't concern us or to coin a phrase you might not be interested in illicit in dirty money but dirty money is definitely interested in you or your financial system let's just consider for a moment the numbers involved it's actually it's hard to overstate the pace and the scale of increase in the volume of assets flowing through island over the past 15 or so years in particular via the investment funds industry so between 2006 and 2021 net assets held in irish domiciled funds leapt from 650 billion euros to over 4 trillion euros over the same period assets under administration here grew from 965 billion euros to over 5 trillion euros between 2017 and 2020 alone cross border payments tripled in 2020 island became the largest hedge fund administration center in the world servicing 40 percent of all hedge fund assets globally by 2022 island was the domicile for nearly six percent of global investment fund assets and 19 percent of european fund assets making it the third largest fund center in the world and the second largest and fastest growing center in europe and while i don't for a moment want to tire the whole funds industry i do suggest that it's inconceivable that a proportion of those funds are not from elusive sources and that the failure to tackle them poses serious risks to our economic diplomatic and political interests in other words to our national security economic in terms of the risk to the credibility and integrity of our financial system and institutions a risk that will only grow as other economies target harden political in terms of feeding cynicism towards democracy if citizens feel that the system is loaded in favor of global capital and against the average joe and diplomatic both in terms of island being left behind as other states take this more seriously as well as our soft power including our overseas development agenda being undermined if we're seen as a soft touch for dirty money but don't just take my word for it in 2020 the fbi warned how private equity and hedge funds were being used in support of fraud organized crime sanctions evasion and highlighted funds with accounts in island island and the cayman islands in 2022 the imf warned that island is facing a substantial money laundering threat from foreign proceeds of crime due to the prominence of its financial sector and that the rapid growth in the size of the irish financial sector had further increased the risk from non-resident and cross-border activity with investment funds particularly vulnerable to money laundering now i don't want to paint as i said earlier an overly pessimistic picture here in some respects island is actually quite well placed to rise to this challenge one of the key strengths here is a strong heritage of innovation and tenacity in terms of going after domestic criminal finances both the creation of the criminal assets bureau and the civil forfeiture regime that was created around it in 1996 were in many ways groundbreaking and for years have been looked to by other countries as something of a gold standard in terms of clawing back the proceeds of crime in the intervening years the guards the dpp and the judiciary have all become quite familiar with the use of civil powers against criminal assets and it seems that these powers enjoy quite widespread popular support at a more strategic level we have various structures and initiatives that should be capable of taking on illicit finance from overseas there's the advisory council on economic crime and corruption created in 2022 to bring together various experts in financial crime from across government there's the national security and analysis centre from which we should should soon see the long-awaited national security strategy which is likely to include consideration of hybrid threats and there's an ongoing public conversation at times heated around national security and defence which again has prompted discussion of hybrid forms of aggression in Ireland's private sector we have huge expertise in fields relevant to tackling illicit finance including AML other forms of financial compliance cyber security law accounting fintech and so on so we're certainly not bereft of people with relevant skills but at the same time we do have certain systemic weaknesses and vulnerabilities the first is successive government's willingness to allow specific loopholes to persist until they're forced into taking some remedial action we've seen for example that only now is the government introducing legislation to tighten the law around limited partnerships seven years after similar structures in Scotland were shown to be vulnerable to criminal use and three years after journalists warned that two-thirds of general partners in Irish limited partnerships were based in offshore secrecy jurisdictions such as Belize the British Virgin Islands the Caylan Islands Panama and the Seychelles similarly since 2017 academics at Trinity Business School have been warning that Irish special purpose vehicles have been used for shadow banking and round-tripping in other words recirculating capital out of and back to Russia made possible by minimal regulation and opaque ownership structures to date though here in 2024 there's been little movement to remedy these loopholes second there's a very pronounced dislocation between the steady and I have to say impressive stream of prosecutions and asset forfeiture cases against domestic criminal finance and the relative lack of cases targeting the proceeds of overseas crime and corruption that have been laundered through Ireland I'd love to be proven wrong I stand to be proven wrong on this but to my knowledge of the handful of overseas corruption cases that have come before the Irish courts all of them were instigated by foreign typically US law enforcement rather than by Irish authorities and this isn't a dig at the guards when set against the scale of assets flowing through Ireland the resourcing of key bodies including the financial intelligence unit and the international corruption unit is tiny and I would argue wholly inadequate but this speaks to a far more deep-seated and important weakness in the existing framework which essentially comes down to a lack of genuine political interest in tackling illicit finance from overseas we saw this at play last year when in one breath the government launched its bid to host the EU's new AML authority and in another it adopted the most restrictive possible interpretation of an EU court of justice ruling which essentially prevented journalists and civil society from accessing company ownership information if I was being provocative I might characterize this to use a Brexit phrase as having your cake and eating it approach we'll take all the benefits of free-flowing international capital and we'll ignore the risks so whilst the rest of the western world is hurriedly and in many cases belatedly putting in place the resources the legislation and the policies to prevent and detect illicit financial flows here we're sticking dogmatically to the mantra of light touch regulation and there was a great illustration of this a couple of years ago when after a newspaper investigation showed how the company registration system was being abused to create hundreds of fake companies the government insisted that it had no role to play in verifying details of new companies and directors since it was long-standing government policy to maintain a good faith approach to corporate registrations now even if such an approach was appropriate to more innocent times and I would argue it never was it's certainly not appropriate for the global environment that we're now entering so in conclusion and I will conclude shortly I want to suggest that here in Ireland we have a choice either we maintain the status quo in which the focus remains overwhelmingly on the short to medium-term benefits of a highly open and highly exposed financial system and a light touch regulatory approach and we leave the fall out for future governments and future populations to deal with we might tinker around the edges improve a few laws here and there perhaps when embarrassed into action by some revelations in the media or forced to do so by the EU or in anticipation of fat of coming to town but essentially we remain largely passive in terms of dealing with illicit finance an approach which I have to say having worked in UK law enforcement is not unlike that adopted by the UK governments for for many many years until it was finally shaken out of it slumber by the Ukraine war or we can build on Ireland's legacy of dealing robustly with criminal finance domestic criminal finances and get ahead of this threat before it's too late and possibly even take a leadership role in showing how to tackle illicit finance with it whilst remaining an attractive centre for legitimate international business as I said we have the people we have the expertise we have the international connectivity but to make this shift would require political will and a genuinely whole of government and whole of society response so what would such an approach look like in practice a few headline thoughts that I'll close with first we need to urgently review and close outstanding loopholes that enable or allow illicit finance including for example special purpose vehicles trusts and shelf companies second we need a complete overhaul of the corporate registration regime the company's registration office should have a statutory mandate to ensure the integrity and the transparency of its registers and it needs the powers and the resources to fulfill that mandate third we need an impartial strategic assessment of the threat to Ireland from illicit finance in its broadest sense so that we know exactly what we're up against fourth fourth we need the national security strategy to include illicit finance alongside other hybrid threats and to set the strategic framework for an integrated response fifth we need substantial investment in enforcement bodies so that they're adequately resourced and incentivised to detect and pursue illicit financial flows from overseas crucially this must include ring fence funding for lengthy complex multi-jurisdictional and very costly court cases sixth we need to identify how we're going to sustainably fund this more robust approach across the irish sea the uk have introduced a specific economic crime levy and their next month increasing the fees to register new companies we might need to think along similar lines and seventh and finally we need a genuinely whole of government and whole of society response to illicit finance a response that sits above the interests of any one individual government department which is open to private sector and civil society input and which holds all these all all of those involved accountable for playing their part in the response to this threat so i'm going to wrap up there thank you for listening and i hope that some of what i've said leads to an interesting and productive discussion thank you