The U.K.’s Newest AML Watchdog
In weeks past, Global RADAR reported on the investigation into several significant AML breaches alleged against prominent British banking and financial services company HSBC. The Financial Conduct Authority (FCA), a regulatory body focused on regulation of conduct by both retail and wholesale financial services firms in the United Kingdom, was again forced to investigate the organization’s poor anti-money laundering (AML) controls recently. This coming only a few years after HSBC’s repeated failures to remain compliant with U.K. money laundering regulations and control requirements led to a £1.2 billion fine imposed against them in 2012 by U.S. authorities. The fine stemmed from allegations that HSBC had laundered money for Mexican drug cartels.
In recent years, the FCA has continued to run through a process to verify whether the controls in place for financial service providers in the U.K. are sufficient to handle the newly emerging, pervasive threats of illicit financial activity. In doing so, the FCA has handed down major fines for AML breaches, with the total cost of fines against banks and other firms reaching a £1.5 billion peak in 2014. That number has been on the decline however, as in 2015 the total fine sum was reduced to £905 million, and in 2016, only £22.2 million – the lowest total for penalties handed down since 2008. With these results, it is fair to say that the aggressive regulation strategy implemented by the FCA has been effective in creating a culture of compliance within the U.K.’s financial services sector.
The FCA’s long held stance on the grand importance of suppressing money laundering and terrorism financing activities within the U.K. was further cemented this week, as the creation of a new watchdog was announced to help shut down some of the loopholes that are used by financial criminals to launder money. Being coined the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), “the new group will sit within the Financial Conduct Authority by the start of next year” (Martin, 2017). According to the article “Government to set up new anti-money laundering watchdog” cited in BSA News Now on Friday, March 17th, 2017, “the aim is for OPBAS to iron out the inconsistencies and gaps between the myriad different guidelines that govern anti-money laundering (AML) efforts and other measures tackling financial crime” (Martin, 2017).
One of the key concerns held by the Treasury that ultimately led to the creation of this new group was the sheer amount of regulatory guidelines held between the 20+ trade bodies with the power to issue AML rules in the U.K. Many believe that this alone has opened far too many loopholes that are being taken advantage of by clever financial criminals. The primary role of the new watchdog will reportedly be to “simplify the anti-money laundering rules that apply to different industries”, limiting the avenues that can be exploited by criminals (Martin, 2017). Additionally, the new watchdog may also have the power to issue fines to supervisors for breaches in money laundering regulations, although this is still up for debate. Ultimately, the new group will seek to bring the U.K.’s AML authorities further up to date with international standards, making regulatory compliance within the U.K. even more potent and effective.
Corruption Rankings in Asia
This week, Forbes Magazine reported on the prevalence of corruption that has plagued multiple Asian countries in recent years. The article also revealed the findings of a survey from Transparency International regarding global corruption and bribery, which received input from over 20,000 individuals in 16 countries in Asia Pacific. The findings were eye-opening, and suggest that “corruption is deeply-rooted in everyday life” in Asia (Gupta, 2017).
The report found that more than 25% of the individuals surveyed have paid a bribe when using a public service at some point in their lives. The most corrupt Asian countries, in terms of bribery rates discovered in the survey, are as follows: 5. Myanmar (40%), 4. Pakistan (40%), Thailand (41%), Vietnam (65%), and India (69%).
A Different Approach to AML
Forbes Insights writer Hugo Moreno wrote an interesting piece this past Wednesday, which examined a new approach to anti-money laundering that can potentially revolutionize the way regulatory compliance is managed. The article “Follow The Money: A More Efficient Way To Catch Laundered Loot” notes that financial institutions (FI’s) are stuck in a difficult situation, as they face greater pressure than ever from federal regulators to remain compliant, but must also deal with the growing costs that implementing and maintaining proper compliance procedures entails. Moreno also explains that FI’s also use and essentially waste a profound amount of resources investigating potentially suspicious activity that more often than not ends up as a false positive.
Moreno then offers a solution to these issues that he believes will lead to a reduction in costs for FI’s, and will allow them to maintain their current transaction monitoring systems (TMS). That solution: A Relationship-Based Approach. The relationship-based approach works to reduce false positives and increase compliance by using technology to find & create links between data found on parties making transactions – even when the relationships are purposely hidden by said parties.
In the past, financial criminals have had success in exploiting TMS’s that are strictly rules-based and are not truly equipped to identify false names and the use of shell companies for facilitating illicit activity. A relationship-based approach works alongside current TMS’s to create greater transparency by revealing underlying relationships between transactions and accounts, and can make compliance simpler and more automated than ever before. Forbes will be issuing a follow-up post with more information on this new phenomenon that is sweeping through the financial services sector in the coming weeks.
Lack of AML Uniformity Leads to Crime
The article “This is how people do financial crimes and get away with them” published on March 13th looked into some of the legislative and ethical differences between the United States and the United Kingdom, and how financial criminals have benefited from these differences. Citing a study into bankruptcy fraud and money laundering performed by two University of Texas-Dallas graduates, the article states, “the lack of uniformity between the financial systems and their regulations makes a lot of room for criminals to participate in these illegal activities” (Ani, 2017). It seems that without a uniform or modified set of both compliance and financial regulations, negating the threats of financial crime will be nearly impossible at the international level.
The individuals conducting the survey also found a negative trend emerging within the financial sector that has lead to an increase in financial crime rates recently. “We found the tendency to look for short-term results sometimes pushes people in influential positions to commit crimes, either money laundering, bankruptcy fraud or the manipulation of financial statements”, said survey co-author Brenda Limon (Ani, 2017). This pressure for quick results is often the driving force behind the crimes, and with greater pressure being placed on financial institutions than ever before, it is difficult to believe that this trend will draw to a close any time soon.
Ani. “This Is How People Do Financial Crimes and Get Away with
Them.” Business Standard. 13 Mar. 2017. Web.
Gupta, Tanvi. “Asia’s Five Most Corrupt Countries.” Forbes. Forbes
Magazine, 13 Mar. 2017. Web.
Martin, Ben. “Government to Set up New Anti-money Laundering Watchdog.” The
Telegraph. 15 Mar. 2017. Web.
Moreno, Hugo. “Follow The Money: A More Efficient Way To Catch
Laundered Loot.” Forbes Insights. Forbes Magazine, 15 Mar. 2017. Web.