Despite increasing compliance efforts, money laundering remains the most frequent financial crime, with European countries like the United Kingdom, Austria, and the Netherlands* leading in money laundering incidents.
In addition, compliance failures account for 10% of all financial crime incidents worldwide.
Recent reports unveil banks' shortcomings in customer due diligence. Criminals use banks to finance crime. Companies worldwide need to step up their efforts to combat financial crime.
What is required for companies to close the gaps in their compliance work and thus contribute to more effective work against financial crime?
The European Union and other bodies are actively fighting money laundering and terrorist financing, and sanctions against those who fail to comply are increasing.
The EU's Anti-Money Laundering Authority (AMLA) is expected to be established in 2024.
Once the AMLA is in place, it will coordinate and review the member states' anti-money laundering and counter-terrorist financing efforts at the EU level and directly supervise some of the highest-risk companies.
This is an important signal from the EU, wanting to emphasise that this problem should be taken seriously.
Companies need to shift their focus from pure compliance to implementing a holistic approach to fighting financial crime.
The legal aspect has been central for a long time when it was enough to check the boxes to meet the requirements.
Today, things are different. Increased complexity and technological developments, combined with sophisticated criminal methods, are rapidly growing factors contributing to a need to address the issue differently.
In addition to avoiding heavy sanctions and protecting your company's reputation, fighting financial crime is about contributing to a safe and crime-free society.
The bigger picture has never been more critical than now. It will require time and resources, which companies need to plan for.
Risk exposure is increasing throughout society and for all types of industries.
Therefore, these four steps are necessary to achieve a holistic approach in the work against financial crime:
Supervised entities need to ensure excellent data quality and availability. Your company must regularly review, update, match, and validate customer data in your systems using the right technology.
You also need to be sure that your company's data is up-to-date and relevant for a specific purpose.
Establishing transparent and secure processes for your company's AML work has never been more essential.
The work begins with a risk-based approach where the risk models form the basis for further work. This is done through a thorough analysis of the business environment, focusing on your company's operations and the type of customers.
Different departments and functions must collaborate and share information and knowledge to prevent and detect potentially illegal behaviour. Multi-level approvals help enhance controls.
In the past, lawyers did most of the compliance work. Nowadays, the situation is different.
Of course, legal expertise is required to succeed, but it is only one piece of a large puzzle. Increasingly, companies need to see the fight against financial crime as something the whole organisation works on - where technology, data, law, and business go hand in hand.
This requires new constellations that can coordinate complex work. Knowledge of law, technology, data, behavioural science, and economics is needed to design and maintain a future-proof AML programme.
You need solid knowledge of your own business and a clear understanding of how criminals can exploit it.
Your company must use technology to protect itself and society from financial crime. Broad, effective, and in-depth customer knowledge should be on your priority list.
Dynamic and regular questionnaires should be sent to all potential and existing customers to match their responses with their actual behaviour.
This way, you can make more accurate risk assessments and avoid doing business with criminals. You need to monitor not only your customers' transactions but also their behaviour.
Daily screening against politically exposed persons (PEP) and sanctions lists should be a hygiene factor.
The fight against financial crime is becoming increasingly important, and companies worldwide must take it seriously.
The regulatory requirements are getting stricter, and the risk exposure is increasing for all industries.
Therefore, obtaining better data, establishing processes and collaboration, ensuring a holistic approach, and implementing technologies that promote customer knowledge are necessary.
It will require time, resources, and a shift in focus from pure compliance to a holistic approach to fighting financial crime.
Further reading:
The financial sector is looking for experts in anti-money laundering (AML), which is crucial for preventing and detecting illegal activities. Reports show that the demand for AML talent has risen by 58% since 2016.
As we enter a new year, we outline how three key AML areas will impact regulated businesses in 2024.
KYC information is crucial for an organisation's AML efforts, as it helps it meet regulatory requirements, reduce risk, and make better business decisions. In this article, we explore the importance of implementing KYC processes.