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When it comes to AML, doing better means seeing better

Once again, AML failures are shaking up the headlines. If the Danske Bank scandal wasn’t enough, at the beginning of March, the Organized Crime and Corruption Reporting Project showed how a series of offshore shell companies were used to move billions of dollars of private wealth from Russia to the West. Named the Troika Laundromat, after the Russian investment bank it was allegedly operated by, the scandal rocked the banking world.

A few weeks later, Swedbank forced Trokia aside with a scandal of their own. Raided by Sweden’s Economic Crime Authority, and investigated by financial supervisors in Sweden, Estonia, and the United States, the bank faces allegations that billions of illicit funds have passed through fifty or so accounts.

A continued trend for 2019, a new month now means a new scandal as Standard Chartered reappears on the front covers, fined again for sanction violations for allowing somewhere between $400 million to $600 million in illegal transactions to flow through.

With four scandals in four months, the problem is serious. It is estimated that there is at least $2 trillion being laundered each year across the world. In an interview with Bloomberg, Danish Business Minister Rasmus Jarlov highlighted that the biggest issue is that confidence in doing business across borders suffers when efforts to police suspicious money flows fall short.

But what does this mean for individual businesses? The reality of the sheer volume of illicit money flows in Danske, Troika, Swedbank, and Standard Chartered shows that banks and other financial institutions are at huge risk of reputational damage and in some jurisdictions of course, liable to fines and criminal proceedings, including individual directors.

AML compliance just needs to get smarter. But how?

Having the right information at the right time is the linchpin. Financial institutions spend an estimated $25.3 billion on AML compliance across the U.S. Technology aside, they are crazy to think that their compliance team is working properly if they do not have data that is up-to-date and can provide a fuller view. Organizations should look towards data providers that update their information in a matter of minutes versus weeks, as well as data providers that curate and consolidate a complete view to facilitate making risks decisions faster.

If organizations can nail that, making additional information available like data on Ultimate Beneficial Owners should then be prioritized. Shell accounts passing money through to offshore structures to hide cash is not new, but legislation on sharing information like Ultimate Beneficial Ownership is. At the last G20 Summit, clear desires were made apparent to implement international standards.

Organizations should also look towards increasing and or sharing their information between financial institutions. Considered a cornerstone of an effective AML/CFT framework, information sharing is a key component of the recommendations set out by the Financial Action Task Force (FATF). Early initiatives bringing together the public and private sectors such as the FinCEN Exchange in the United States and the Joint Money Laundering Intelligence Taskforce in the UK have all shown that bridging the gap between different players makes a big difference.   

Focusing on the obvious, often organizations get stuck using legacy technology. This year we are seeing a large number of firms move to automate their AML practices to scale even faster. The motivating factor is the sheer number of false positives generated by existing data and technology. The adverse effects of which are obvious: the greater the number of false positives, the more difficult it is to onboard customers and process payments, and the higher the operational overheads. Added to that, of course, is the increased likelihood of missing genuine money laundering activities amongst so many false alarms. 

Finally, if organizations are to safeguard their reputation and increase efficiencies across their compliance department, they should look to empower their compliance team. Often viewed as a box to check rather than a team to build, compliance teams get stuck using stale data and outdated technology while the risk of doing business and effectively managing compliance tasks mount. Their job is on the line, compliance officers should have a seat at the table.

There is no silver bullet, but there is certainly a need for smarter data, not just faster tech. Challenger Banks may be speeding up transactions and simplify banking for users, but solving the problem of the stringent AML compliance that governments expect requires the use of developing technology and powerful data to be applied in a more intelligent way. Compliance professionals are trying to hit a moving target while blindfolded. It might not be possible to stop the target moving yet, but it is time to remove the blindfold.


Elsa Chan, pictured above, is the Head of Americas at ComplyAdvantage, a Regtech company. She helps companies comply with regulations more intelligently while reducing reputational and financial risks. She co-founded Jetlun, an Internet-of-Things (IoT) management platform, and Asoka USA Corporation, a powerline networking technology company. Elsa earned a B.A. degree in Organizational Communications from San Francisco State University and holds four network technology patents.

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1 Comment

  1. Excellent article! Elsa! The Non-Bank Financial Institutions – NBFIs (MSBs in the US) have worked very hard on these Compliance matters and we have been arguing on and on with CEOs in the industry: "compliance officers should have a seat at the table". COs need to learn how the business runs in order to understand and pinpoint the red flags.

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