COMPLIANCE
their source of wealth and funds.” 2 Furthermore, Canada’s Proceeds of Crime
(Money Laundering) and Terrorist Financing Act 3 was also amended to
expand the concept of PEPs to include domestic PEPs and heads of interna-
tional organizations (HIOs), in addition to foreign PEPs. As a result of these
changes, which came into effect on June 17, 2017, financial firms will be
required to take “reasonable measures” to determine whether a customer is
a domestic or foreign PEP or an HIO, or a “close associate” or family member
of these types of persons. BSA officers will want to reevaluate current con-
trols involving PEP identification and monitoring to get ahead of impending
regulatory change to include domestic PEPs and/or HIO’s in their programs.
Another example is the New York State Department of Financial Services
(DFS) change. The DFS recently issued Part 504, Banking Division Transac-
tion Monitoring and Filtering Program Requirements and Certifications, 4
which became effective on January 1, 2017. The rule’s beginnings lie in NY’s
DFS examination work, which identified problems with financial institu-
tions’ transaction monitoring and filtering systems and processes. The rule
imposes governance type measures over transaction monitoring tools, rang-
ing from periodic reviews, testing, supporting documentation for detection
scenarios/thresholds, oversight and an annual board resolution tantamount
to certifying compliance to the new 504 rule. The monitoring and filtering
progra m must be based on an enterprise-wide BSA/AML risk assessment.
While this is a NY state law, other states are closely watching the implementa-
tion and may intend to pass similar laws.
One final example is the renewed emphasis on reporting fraud-related money
laundering offenses. With the expectation that financial institutions will be
monitoring for elder financial exploitation, cybercrimes, grandparent
schemes, romance schemes, lottery scams and tax return frauds, suspicious
activity monitoring requirements have rapidly increased. Manual reports,
automated transaction monitoring systems and investigator training must be
enhanced to support the “FRAML” (fraud + AML) BSA environment. Gone
are the days when an AML program could
get by with monitoring solely for excessive
cash or unusual international wire activity
indicative of drug offenses or tax evasion.
Change in staff
The dirty little secret in the financial ser-
vices industry is that AML programs oper-
ate under a budget. If they did not, the
financial institution could not survive.
“With the increased intensity of regulation,
and the threat of fines and sanctions con-
stantly looming over businesses, some
institutions have been hindered in terms of
their potential growth outside of the com-
pliance department. Financial institutions
must now attempt to find a way to optimize
their efficiency and cost-effectiveness at
the same time.” 5 Staffing models may (and
should) change when processes are made
efficient; however, the BSA officer must
ensure no control gaps are created as a
result of staff movement or downsizing.
Change in staff that supports an institu-
tion’s AML program introduces risk to a
program previously deemed satisfactory. It
does not need to be changes in “key posi-
tions” that lead to risk. Consider losing the
person most experienced in Office of For-
eign Assets Control (OFAC) sanctions in a
wire transfer department.
The dirty little secret in the
financial services industry
is that AML programs
operate under a budget
2 Nina Kerkez, “Fourth Anti-Money Laundering Directive—How does it affect you?,” Accuity, March 21, 2016,
https://accuity.com/accuity-insights-blog/4th-money-laundering-directive-how-does-it-affect-you/
3 “Politically Exposed Persons and Heads of International Organizations—Life Insurance Companies, Brokers and Agents,” FINTRAC,
June 2017, http://www.fintrac-canafe.gc.ca/guidance-directives/client-clientele/Guide15/15-eng.asp
4 “Part 504,” Department of Financial Services, http://www.dfs.ny.gov/legal/regulations/adoptions/dfsp504t.pdf
5 Christopher J. Pelaez, “AML Compliance Costs—How much is enough?,” Global Radar, August 25, 2016,
https://www.globalradar.com/aml-compliance-costs-how-much-is-enough/
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