GLEIF - Fighting Crime with Transparency in Cross-border Payments: The Need for Universal Entity Identification

Posted on Jan 26, 2024 by Clare Rowley, Head of Business Operations, GLEIF

How the Legal Entity Identifier (LEI) Can Revolutionize Cross-border Payments and Combat Financial Crime

Cross-border payments are on the rise. According to the Bank of England, the value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just ten years. However, the lack of transparency in cross-border data flows poses significant challenges, particularly in identifying and monitoring the parties involved. Missing harmonization within cross-border data flows inhibits the identification of suspicious activity and exposure of criminal networks. This contributes to a cross-border payments ecosystem that can be broadly characterized by limited trust, high costs, low speed, and insufficient transparency. Fragmentation largely inhibits a coherent and common response to this challenge.

The Financial Action Task Force (FATF) has identified data-sharing and data standardization as key approaches to addressing this lack of transparency. Together, these enable the advanced analytics needed to support effective anti-money laundering (AML) and counter terrorist financing (CFT) initiatives across borders.

Project Aurora — an analysis by the Bank for International Settlements’ (BIS) Innovation Hub — also identifies “data quality and standardization of the data identifiers and fields” contained within the payment messages as important factors to improve data consistency and usability. Specifically, this includes greater use of the Legal Entity Identifier in data sets associated to legal entities.”

What is Needed to Enable Transparent Party Identification in Cross-border Payments?

The review of Financial Action Task Force (FATF) Recommendation 16 represents a significant and compelling opportunity to embed both trust and transparency into cross-border payments.

Currently, the legal entity creditor and debtor involved in cross-border data flows are described in text (name, address, and local business number). This approach makes it difficult to exchange and efficiently integrate data in a global and digital environment. Furthermore, the intricate webs spun by fraudsters and criminals to evade detection take advantage of this antiquated approach to entity identification.

The LEI: A Solution for Transparent Party Identification in Cross-border Payments

The Legal Entity Identifier — as a unique global identifier — can solve the critical problem of insufficient transparency in counterparty identification in cross-border payments ecosystems. Why? Adding the LEI as a data attribute in payment messages allows any originator or beneficiary legal entity to be precisely, instantly, and automatically identified across borders and legal jurisdictions, globally.

The inclusion of the LEI in Recommendation 16 ensures that the basic information on the legal entity originator and beneficiary of payments is immediately available for more timely analysis in all legs of the payment chain.

The LEI addresses many of the challenges that prevent transparent party identification in cross-border payment flows today:

  • Globally Unique Identifier, Locally Supplied Identity: Commonly used identifiers, such as the Business Identifier Code (BIC), can be assigned to entities other than legal entities within the same organizational structure, creating both ambiguity and complexity in cross-border scenarios. One LEI represents one legal entity. The 38 LEI Issuers (LOUs), located in various jurisdictions around the world, have already issued ...

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