JPMorgan’s interest in blockchain technology received a great deal of press back in February of this year, when we reported that it would be “the first major bank to embrace the crypto revolution in a significant way by issuing its own proprietary stablecoin to speed up cross-border payments and gain other operating efficiencies, as well”. At that time, the bank did not reveal that it had been working on a pilot since 2017 of it Interbank Information Network (IIN), the first scalable, peer-to-peer network powered by blockchain technology. It has signed 365 banks for this service and aims to sign 80 banks in Japan.
If all goes as planned, the IIN service would launch in Japan in January, as communicated to Bloomberg by Daizaburo Sanai. CoinDesk reported that:
Built on Quorum, a permissioned blockchain based on ethereum and developed by JPMorgan, IIN is designed to enable member banks to exchange information in real time, allowing them to verify a payment has been approved. This, the bank says, helps reduce friction in international payments and ultimately leads to faster processing times.
When JPMorgan acquired Chase Manhattan Bank, it also became the owner of the world’s premier global cash management network. The system is comprised of 80% of the participants in the Fortune 500, and within the boundaries of its internal its treasury division, it moves over $6 trillion a day around the world for its global clients. The bank has always been an innovator and experimenter with the latest moves in technology. It was not a surprise to see this operating unit embrace blockchain technology.
The IIN is but one component of the entire cash management system, but it will facilitate the immediate exchange and retrieval of key information items that will especially improve attempts to block global money laundering. Banks in Japan have been criticized for their lax measures when it comes to anti-money laundering procedures, both by regulators across the globe and by the Financial Action Task Force. This global body has found “numerous and serious deficiencies” as far back as 2014 and forward.
Despite attempts by banks to institute upgraded detection processes, incidents of money laundering still rose 40% in 2018. Critics attribute the problem to the fact that Japan’s economy is driven by many small to medium-sized firms that deal in frequent overseas transactions. Criminals see this environment as an easy one to disguise the movement of illicit funds between jurisdictions. One anecdotal story repeated in the press was of a Nigerian suspect that had conducted a scam in the U.S., transferred the funds to an account in Japan, and then withdrew $340,000 (37 million Yen) without an issue.
The IIN network will allow for immediate access to origination information by the receiving party, a necessity, if there is to be speedy follow up on suspicious transactions. An official at Sumitomo Mitsui Trust Bank, one of the 80 Japanese banks hoping to join the JPMorgan network, told Bloomberg:
IIN’s ability to reduce delays in the payments process would allow the member banks to quickly collaborate with law enforcement in suspected cases of money laundering.
The original plan for IIN was to aid member banks with their sanctions screening requirements, but developers soon found that they could provide more support at the point of settlement in the way of information sharing. If and when the 80 banks in Japan join the network, it will be the largest grouping of banks from a single nation. The other 365 signers are spread equally across other regions of the world and also include large banks, as well. Deutsche Bank, the major global clearing bank for euro-denominated payments, joined the system in September.