When it comes to financial crime compliance, understanding the alphabet soup of regulations can be challenging to say the least. This was particularly evident in a recent sanctions webinar that featured experts from Dow Jones Risk & Compliance, law firm Womble Bond Dickinson and tech provider Bottomline Technologies.
Throughout her portion of the session Emma Radmore, legal director for Womble Bond Dickinson, endeavored to provide an overview of the overwhelming number of regulations that financial institutions are required to comply with in an attempt to reduce financial crime. The list she covered was imposing (12 in all) but she approached it with an admirably resigned sense of humor, at one point even referencing “the unhelpfully named ‘Money Laundering Terrorist Financing and Transfer of Funds Bracket Information on the Payer Regulations 2017’, which we obviously call the MLR because life is too short.”
In addition to covering the main regulations, Radmore also covered examples of the penalties that could be incurred by organizations who were charged with noncompliance. It’s a serious business, with companies racking up fines that can be limitless in some cases along with onerous prison terms of up to 14 years.
It goes without saying, of course, that financial institutions want to do the right thing regarding financial crime compliance. It’s just much easier said than done when you consider off of the complexity involved. A recent whitepaper by Dow Jones Risk & Compliance, “Navigating the Challenges Around AML and Sanctions,” does a good job of untangling the intricacies and provides broad guidelines in a variety of categories that banks can use to shape their compliance programs.
Simply checking the list of restricted companies and individuals is no longer enough to constitute compliance with the U.S. Treasury’s Office of Foreign Assets Control (OFAC) regulations on sanctions against foreign entities. You have to dig deeper, taking a company’s ownership percentages into consideration and having an understanding of other non-list based requirements that might affect compliance status.
To achieve just a basic level of compliance with OFAC regulations requires knowledge of six lists of sanctioned entities, plus two additional lists published and maintained by the U.S. State Department. Fortunately, up-to-date data on sanctions rules and associated entities, coupled with the right sanction screening technology that monitors inbound and outbound transactions, can provide organizations with a superior final layer of protection before transactions are executed on payment networks.
Having up-to-date data is one critical piece of the puzzle, but the quality of that data is equally important, factoring in the aspects of completeness and timeliness. Relevant information needs to be distilled to highlight whether a person is a risk, building a complete picture so that it can be acted upon. In order to avoid the inevitable gaps that exist between self-disclosed date and ad-hoc online searches, organizations may want to consider a trusted third-party data provider, coupled with the right technology, in order to paint a complete picture of risk levels.
Incomplete data has been commonly used to disguise sanctioned activities as well as money-laundering in cross-border payments, which is why the FATF 16 recommendation on wire transfers was issued in 2012. This requires the inclusion of first and last name, full address, date of birth and national and customer IDs on all incoming and outgoing transactions. Firms must also implement controls that detect missing and/or incomplete information.
Also, as transnational crime organizations launder the proceeds of their activities through the traditional financial system, it’s important that account behavior and transactions be scrutinized in detail. Compliance teams need to consider a variety of question, including:
- What is the customer's nature of business and source of funds?
- Does the value of transactions fit the business profile?
- Is the daily money transfer activity of an account abnormal when compared to the profile and history of transactions?
- What is the pattern of transactions? Are there multiple wire transfers over a short period of time? Are there large cash deposits, followed by distribution of the funds to other accounts?
- Are transactions quickly made to (or from) high-risk jurisdictions or offshore tax havens?
To get the full picture on financial crime compliance, with guidance on how to navigating the challenges around AML and sanctions, check out the full whitepaper.