As noted in KPMG’s Global Anti-Money Laundering Survey 2014, regulatory fines are running into the billions of dollars, regulatory action is becoming license threatening and there are even threats of criminal prosecution. It’s clear that minimum compliance with regulatory obligations won’t keep you out of trouble.
While AML issues are quickly moving back up the agenda for boards and senior management, the survey shows that within the Asia Pacific active interest still lags behind global averages.
This is important for Australia’s financial services, as the rise of financial markets operating on a global basis and an increasingly international business environment makes money laundering easier than ever. This activity is bringing complex and far-reaching domestic and global AML regulations to combat it, most recently in Australia with the imminent introduction of new customer identification standards.
The AML burden on senior management continues to grow.
As compliance complexity rises, risk-based decisions intensify, and AML initiatives become more interconnected across operations and jurisdictions this is resulting in numerous issues:
- Regulators globally are increasingly vocal in their expectations. Asian regulators in particular are targeting the role of boards in the oversight of AML programs.
- Managing AML compliance increasingly requires multiple areas within an organisation, including legal, risk, operations and tax.
- AML compliance is more resource intensive and difficult to manage, resulting in higher costs. Overall, transaction monitoring systems remains the greatest area of AML spending.
- Respondents note that regulators primarily focus on three areas during site visits: due diligence, ongoing monitoring and Politically Exposed Persons (PEPs).
- PEPs, in particular, are gaining more attention from senior management as they continue to leave organisations exposed. Enhanced due diligence on these relationships is essential.
- Know Your Customer (KYC) remains a significant area of concern with 70 per cent of respondents stating they had received a regulator visit focusing on KYC. Ensuring due-diligence is carried out in obtaining relevant information of your customers cannot be underestimated.
- Sanctions compliance remains a challenge as new issues emerge. Financial institutions must increase funds and resources to comply with new regulations and legislation while dealing with ever-changing sanctions lists, foreign language screening, and more.
AML is here to stay and regulators are increasing their level of scrutiny.
With a risk-based approach to determine how to implement the legislation, targeted resourcing to attract the skills you need, and a rise in overall AML investment to better manage your compliance, you can go beyond just meeting your minimum obligations.
What then is money laundering and what are your minimal obligations regarding it?
A simple definition of money laundering is: the process of concealing the source of illegally-obtained money. This can be done through tax evasion, false accounting practices, shell companies, offshore accounts, etc. All with an end goal of having that money appear legitimately gained. Banks are a common ‘tool’ in this process.
Unsurprisingly, it’s an activity strongly favoured by drug dealers, terrorists and white collar criminals.
Australian law states that you must meet the minimum requirements as set out in the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006 and AML/CTF Rules.
Importantly, as noted by the Attorney-General’s Department, it’s up to each organisation to ‘assess the risks of potential money laundering or terrorism financing when providing a designated service to a customer.’
This broad statement is why minimum compliance isn’t enough and why; with only 40 percent of respondents indicating AML issues are regularly discussed at board level (compared to the global average of 66 percent); AML initiatives must be given higher priority.