Boards of directors at financial institutions play a crucial role in the adoption and implementation of effective enterprise-wide Anti-Money Laundering (AML) and sanctions compliance programs.
It’s up to them and senior management to set the strategy, ensure there are adequate resources, and empower leaders to promote an effective AML compliance program and monitor the organization’s risk profile.
Based on findings from our 2017 Global Anti-Money Laundering and Sanctions Compliance survey, however, many boards appear to be falling short in meeting this important requirement. Out of 361 financial institutions that participated in AlixPartners’ survey, 20 percent of the institutions indicated that they “do not provide AML and sanctions compliance training for their boards of directors or are unaware whether their boards are being briefed on AML and sanctions matters.”
Several regulatory enforcement actions in recent years have called for the establishment of AML/sanctions compliance committees composed of outside directors. Actions have also held board members personally accountable for financial institutions’ lack of compliance, and in some cases, resulted in exposure to shareholder litigation risk.
Tone at the top. This remains as vital as ever in preventing and detecting wrongdoing. It’s still one of the main ingredients that can make or break an AML/sanctions compliance program. Ultimately, the responsibility for establishing a financial institution’s strategic vision rests with the board of directors and senior management. As part of that vision, it is important that financial institutions establish AML/sanctions compliance tolerance. And that includes establishing proper incentives — including compensation measures — to meet needed goals.
Boards should be trained periodically on legal and regulatory requirements, the penalties for noncompliance, and their financial institutions’ overall AML and sanctions risks. Similarly, senior management outside of the AML and sanctions compliance function should take an active approach in managing risks.
Compliance efforts must go beyond just meeting technical regulatory requirements. The efforts should be embedded within the business, and AML and sanctions compliance should be aligned with overall business objectives. Until all stakeholders are aligned, financial institutions’ AML/sanctions compliance costs will continue to rise despite ongoing investments in this area.
Sven Stumbauer, pictured above, is a Managing Director of Alix Partners based in New York. He serves financial institutions globally in the areas of anti–money laundering (AML) and sanctions. He has advised clients and regulatory bodies in more than 40 countries, including the DOJ, SEC, FINRA, the Federal Reserve, the OCC, and the FDIC. He can be contacted here.