Board level interest in anti-money laundering (‘AML’) is being squeezed by other priorities, according to KPMG’s Global Anti-Money Laundering (AML) survey 2011. The survey revealed a 9 percentage point drop in boards considering AML to be a high profile issue (from 71 percent in 2007 to 62 percent in 2011). The KPMG study surveyed 197 Heads of Compliance and other senior executives in banks across 69 countries at the end of 2010.
Brian Dilley, Global Head of Anti-Money Laundering at KPMG comments: “Although it is understandable that boards have been focused on their survival and the wave of regulatory change, they need to ensure that AML remains at the top table, or else risk massive fines and business disruption, particularly in relation to sanctions compliance.”
The survey also found that the operational costs of AML had risen by an average of 45 percent since 2007, with a further 28 percent rise predicted over the next three years. However, many AML professionals have a history of under-estimating future costs. In 2007 less than one fifth (17 percent) predicted a rise of 51 percent or more, whereas almost a third (31 percent) said their costs had actually risen by that amount when looking back over the same period.
Brian Dilley comments: “In a cash-constrained environment, it is imperative that AML professionals forecast realistic costs to the board: not only because of the significant risks that need to be managed, but also so they continue to retain credibility with boards who do not take kindly to repeated requests for additional funding.”
Despite this rising expenditure, only 10 percent of respondents had off-shored or outsourced parts of their AML functions, with 80 percent having never considered this as an option. Banks may be missing opportunities to save money on some of the lower risk aspects of their AML programme.
The survey also included ‘anti-bribery and corruption activities’ for the first time and this was immediately ranked the third largest area of expenditure, indicating that the extra-territorial reach of, and heightened regulatory expectation associated with, the new U.K. Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA) is having an impact.
Kemal Özmen, Director, KPMG in Romania, and Head of Forensic Services in Romania, the Balkans and Serbia comments: “We are expecting repercussions of extraterritorial anti-bribery and corruption legislation such as the U.K. Bribery Act and the FCPA in Romania in the next couple of years. The effects of such legislation have already started to be felt in some industries. As money laundering is a consequence of crime, which may be bribery and corruption in some cases, we naturally expect tightening of AML controls and strengthening of capabilities by our financial institutions, partly as a result of increased U.K. Bribery Act and FCPA scrutiny on businesses and individuals.”
Intensified focus on Politically Exposed Persons
Recent events in the Middle East and North Africa have intensified the focus on Politically Exposed Persons (‘PEPs’). Since our 2007 survey, the number of respondents with formal processes to identify and monitor PEPs has increased from 71 percent to 88 percent. The Third EU Money Laundering Directive, which was implemented in 2007 and required banks to monitor PEPs, has had a clear impact, with the number of European institutions with such procedures rising from 65 per cent in 2007 to 94 per cent in 2011.
Brian Dilley comments: “As the Arab Spring of 2011 is prolonged into summer and beyond, it is interesting to see that financial institutions across the globe have had the foresight to up their game by adopting a risk-based approach to knowing your customers, as the majority (96 percent) now use PEP status as a risk factor.
“The challenge for banks is that, in some cases, PEPs have become sanctioned parties or persona non grata overnight and global authorities have scrutinized past transactions with PEPs with whom they had previously encouraged business.
“Banks need to ensure that they can justify their relationships with PEPs, particularly with an eye to future changes in their political standing. They should always be asking where the PEP obtains the funds that are passing through the institution, and be ready to explain the purpose of transactions that they undertake.”
Kemal Özmen comments: “We see a direct effect of this in our local market. We are being approached by more and more financial institutions that are asking for corporate intelligence services about Romanian and foreign companies and individuals. The last couple of years have shown us that we are more interconnected with the world economies than ever before, and it is important for our financial institutions to have the means to quickly access information available about companies and individuals from across the globe.”