AFC CHALLENGES
Banks are facing increased levels of financial crime threats from cyber criminals , fraudsters and sanctions evaders who want to bypass firms ’ defenses to move dirty money . It is known that crime thrives in an economic downturn caused by pandemics , war , national security concerns , supply chain issues and inflationary pressures . These factors have created pressure that can lead to mistakes and compliance failures . This is a precarious position and places firms in a defensive posture , especially when they also need resources to manage business-as-usual flows while adapting their programs to new and emerging threats .
To deal with increased volumes , banks strive to hire and retain skilled financial crime professionals or turn to third parties to provide managed services in lower-cost economies , given the finite talent pool they are all fishing in . Oftentimes , bad compliance culture , inadequate governance , poorly designed and executed controls , as well as insufficient financial crime expertise , can lead to compliance missteps and regulatory scrutiny , culminating in regulatory fines .
But banks cannot do everything on their own . Other enablers of financial crime need to stand up and be held accountable . You only need to read the Pandora Papers 1 to get a sense of the role that these other enablers play . However , not all of them are legally required to comply with anti-money laundering / counter-terrorist financing ( AML / CTF ) regulations , at least not yet in certain jurisdictions such as the U . S . and Australia . Until we reach a point where all enablers globally are legally required to play their part and comply , crime will continue to pay .
The global AML / CTF framework is like a block of Emmenthal cheese
The global Financial Action Task Force ( FATF ) framework 2 for combating money laundering and terrorist financing , while conceptually sound , is not implemented effectively or fully around the world . That renders the current AML / CTF regime like a block of Emmenthal cheese — while delicious in parts , it is still full of holes . Criminals will always know where to find the holes . They know which jurisdictions or industries have the weakest controls that they can exploit to enjoy their ill-gotten gains . While some holes are in the banking sector — holes exist in all sectors and across all parts of the criminal value chain . According to FATF , these “ enablers ” have a role to play in strengthening the global AML framework .
There is no question that banks should be held to high AML standards as gatekeepers of the financial system , but other enablers are not held to the higher standards recommended by FATF for designated non-financial businesses and professions ( DNFBPs ) in Recommendations 22 and 23 . 3 Specifically , five of 200 countries , including Australia and the U . S ., have not implemented FATF recommendations covering all DNFBPs . 4
To address the threat that financial crimes such as corruption , environmental crimes and forced labor presents to humanity and the world , enablers must be held accountable for having an effective AML program . Consider the role that real estate agents , lawyers , accountants , art dealers , trust and corporate service providers as well as payment service providers could play in enabling financial crime around the world — there would be enough material for several Netflix movies ! If all DNFBPs were required by law to conduct customer due diligence and report suspicious activity in major market economies such as the U . S ., at that point , the global AML framework might stand a chance of doing what it was designed to do . Without it , the system is too porous and financial crime flourishes . Prioritizing how banks can stay ahead of shifting regulations and compensating for these regulatory gaps will be critical to combating financial crime globally .
Anti-financial crime regulations continue to evolve to plug gaps . For example , the Economic Crime and Corporate Transparency Bill 2022 is progressing with much-needed reform through Parliament in the U . K . with a new “ failure to prevent ” fraud offense . This will likely be similar to the existing “ failure to prevent ” offenses under the U . K . Bribery Act 2010 and the Criminal Finances Act 2017 . The bill also aims to create long-awaited reforms to the U . K .’ s company registrar , Companies House , to make it a more effective and reliable source of corporate records , to prevent abuse of U . K . corporate vehicles by criminals by verifying ultimate beneficial ownership data and to give businesses tools to enable them to share information to tackle money laundering and other economic crime .
The U . S . attempted to expand the scope of existing AML regulations with the enactment of the Anti-Money Laundering Act of 2020 , which aims to introduce important changes around information sharing and creating a corporate beneficial ownership register . The Establishing New Authorities for Businesses Laundering and Enabling Risks to Security ( ENABLERS ) Act is another piece of legislation that is not yet in force but is designed to impose stricter AML obligations for due diligence and suspicious activity reporting on enablers such as trusts and corporate services providers , investment advisers , art dealers , lawyers , accountants , etc . Until all enablers that could be used to facilitate financial crime are fully covered by AML / CTF requirements to “ know their customer ” and report suspicious activity , they will represent holes in the Swiss cheese that makes up the U . S . AML / CTF framework . While this law is much needed , if it continues to be amended and scaled back , it may end up not delivering the improvements suggested in the FATF mutual evaluation of the U . S . back in 2016 . 5
20 acamstoday . org