Clean sweep needed across the board on money laundering

Stamping out such illegal practices an obligation in the current climate.
According to estimates by KPMG, more than US$500 billion is laundered worldwide annually by organised criminals. Given the staggering figure, there is a growing political will to combat this disturbing trend. Governments, law enforcement and regulators across the world have increased their scrutiny of anti-money laundering (AML) processes and controls, investing more in forensic practices and taking direct action involving fines or even imprisonment against individuals and firms who fail to comply with minimum standards.

This is in stark contrast to the situation during the financial crisis, when senior management interest in AML compliance dropped down the agenda at board meetings.

The Federal National Council has recently made amendments to its money laundering legislation and has changed the name of the draft legislation to the "anti-money-laundering and combating the financing of terrorism" law. These amendments would not only help the UAE enhance its framework but would also help to combat illegal practices.

An increasing number of organisations worldwide are convinced that money laundering is a high- risk area within their business risk assessment. Regions with more developing countries such as the Middle East and Africa, Asia Pacific and Central and South America are judged to be among the countries that need to take a more proactive approach to reduce their vulnerability to financial crime and on cue, the UAE has announced amendments to its money laundering legislation.

KPMG recently released an anti-money laundering survey for 2014, which revealed that most respondents in Central and South America, Asia Pacific, the Middle East and Africa found that AML legislation would shape the way businesses were run in the future.

In a period of heightened regulatory scrutiny and continuing globalisation of AML regulation, organisations are faced with greater challenges to achieving and maintaining AML compliance. Although the number of fines has declined in several regions, the amount of each fine has increased significantly, highlighting the regulators' continued determination to prevent illicit activity and placing real pressure on compliance executives to prevent further failings.

At the senior management level, there has been a noticeable increase in boards of directors taking an active interest in AML issues, given the effect that compliance can have on the reputation, share price and economic viability of a financial institution. While AML issues are discussed formally at the board - with the majority stating that this was done on a quarterly basis or as required, the greater involvement of the board is due to increasing pressures. Board members have a responsibility to maintain effective AML controls, and in some jurisdictions the prospect of individuals being criminally prosecuted has become a reality.

In an environment that has continued to be affected by the financial crisis, senior management needs to be asking some pressing questions. With large sums of money being spent on improving transaction monitoring, a thorough assessment of whether this is yielding the expected return needs to be established. We believe that senior management will continue to underestimate AML expenditure unless lessons are learnt from past mistakes.

The political and civil unrest in the Middle East and North Africa continues to pose challenges for screening systems in terms of responding to rapid changes to sanctions lists and increased volumes.

Foreign language screening remains a challenge, particularity for banks operating in Asia. Multiple systems are often needed to cope with different spelling and characters. Financial institutions are allocating increased funds and resources to increase transparency of customer and payment information to comply with new regulation and legislation.

However, more needs to be done to implement programmes offering assurance that systems and processes are working effectively. For efficient testing of AML systems, regulators across the region are less likely to accept one-off checks.

The AML burden placed on senior management's time will continue to increase, making it more challenging to meet regulatory requirements. Board members will need to consider how they will manage the additional pressures on their time while still fulfilling their duties with skill and diligence.

Appointing a board member with responsibility for AML is no longer just a possibility; it is priority. Senior management needs to concentrate on establishing strong AML assurance mechanisms and globally consistent procedures to avoid censure and possible prosecution. Considering the increasing and evolving regulatory pressures and expectations, board members should understand that they have a responsibility to maintain effective AML controls. Senior management is responsible for setting the risk appetite of the organisation and regulators expect management to set the tone from the top when it comes to compliance.

Ian Gomes is partner and head of advisory and markets, KPMG Lower Gulf

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Published: May 13, 2014 04:00 AM


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