In Bitcoin, Compliance

Implementing Respectable Compliance Programs

With the creation and constant advancement of compliance regulations seen across the globe today, compliance programs have become a staple within financial institutions and other entities found in the financial services sector. These programs have been primarily developed to increase financial security while maintaining adherence to the statutes and codes that are currently in place, while also allowing banks to continue to identify possible new jurisdictions and profitable business lines. However, not all compliance programs are equal in scope and effectiveness, and in order to avoid compliance failures which may result in repercussions such as large monetary fines, criminal investigations, and severe reputational damage, the implementation of proper compliance customs are essential at each level of company infrastructure.

In his article “Culture of Compliance – Do You Walk the Walk?” cited in BSA News Now on October 26th, Thomas Hook, the Director of Risk, Compliance, & Onboarding for Pegasystems, examines the factors that contribute to effective, fully-functional compliance programs, as well as things to consider to ensure that the importance of compliance activities are evident at all levels of a business. Hook states that “Reviewing the culture of compliance, determining how involved senior management is in the program, and the message they send to the rest of the company about compliance has always been a priority for regulators and auditors”, and prominent financial regulators from the United States (FINRA) and the United Kingdom (FCA) have named these factors as “top priorities for examination and enforcement in 2016” (Hook, 2016). This top-to-bottom approach has emerged as the leading strategy for implementation of proper compliance practices in financial institutions across the U.S., with refined employee training and senior management involvement found at the forefront of the movement. Hook explains that undemanding, “check the box” exercises that have typically been seen in company training programs in years past no longer cut it due to the high stakes that are in play for non-compliance.

The writer also offers solutions on how to keep mundane employee training techniques effective, including refreshing training techniques yearly in response to regulation and risk changes, testing the subject knowledge of the employees to confirm absorption of the information discussed, and providing “customized supplemental training based on how AML or sanctions will manifest in an employee’s day to day activities” (Hook, 2016). To ensure the proper involvement of senior management, Hook advocates for “effective board reporting” including the highlighting of particular program risks, and the informing of board members on upcoming changes to compliance regulations. He also suggests that there should be open discussion channels between employees and senior management, which will increase the overall value of the compliance program for both parties involved.

Hook concludes his article by noting that these steps are a vital component in an effective compliance program that has total employee support, as employees are “the first line of defense against financial crime and one of the best sources of AML investigations through reports of unusual activity that they may see” (Hook, 2016). The message found within the article is simple for those in the finance industry:

Analyze and identify the issues within your compliance protocol and find solutions to these risk areas, rather than live to see your business become recognized as non-compliant.

Proposed Bitcoin Regulations “Down Under”

As the phenomena known as “bitcoin” sweeps through much of North America and Europe, it looks as though its reach has recently extended as far east geographically as Australia. On October 27th, it was reported that Australian government wants to begin drafting legislative proposals to update the country’s anti-money laundering laws to include bitcoin and other digital currencies by mid-2017. With the proposal in an early stage, the Australian Attorney General’s Department released a statement quoted in writer Stan Higgins article titled “Australia Will Regulate Bitcoin Exchanges Under AML Laws “, which was cited in BSA News Now this past Wednesday. The statement reads, “The AML/CTF Act should be amended to regulate activities relating to convertible digital currency, particularly activities undertaken by digital currency exchange providers” (Higgins, 2016).

The plan to implement these new regulations comes months after the Australian government released a separate statement in regards to their stance on “FinTech” which included “proposals to reduce the tax burden on bitcoin activity in the country and explore other legislative options related to the technology” (Higgins, 2016). Australia’s private sector has also explored several other blockchain applications relating to trade finance and digital identity services, including possible enhancements to the country’s passport system, and the basis for the digitalization of supply chains that can ward off potential fraud.

OVDP Efforts Increase Compliance

In other news, as automatic third-party account reporting has entered its second year under the Foreign Account Tax Compliance Act (FATCA) and the network of inter-governmental agreements between the United States and partner jurisdictions, the Internal Revenue Service is reminding U.S. taxpayers who have undisclosed offshore accounts that “they should use existing paths to come into full compliance with their federal tax obligations” (IRS, 2016). The article “Offshore Voluntary Compliance Efforts Top $10 Billion” cited in BSA News Now on October 25th, states that “updated data shows 55,800 taxpayers have come into the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties since 2009” (IRS, 2016).

These proceedings were developed by the IRS to “accommodate taxpayers with non-willful compliance issues” (IRS, 2016). The OVDP allows taxpayers that have undisclosed income from foreign accounts the ability to update their current tax return information to meet obligations. By doing so, these individuals can avoid the backlash (criminal prosecution, financial penalties, etc.) that may occur as a result of detection by the IRS at a later date.

 

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Mr. Christopher J. Pelaez is a Staff Writer and Operations Specialist for Global RADAR. His background consists of experience as both a BSA and marketing consultant, with an education based in law. Always on top of all the latest in the world of AML/BSA, Mr. Pelaez also curates the well-known Global RADAR news service, BSA News Now.
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