To counter the threat of money laundering and terrorist financing, governments around the world continue to introduce new regulations and sanctions. To circumvent these rules, criminals continue to innovate. Financial institutions are often the first line of defence when it comes to detecting, preventing and suppressing money laundering.
Financial institutions must continually adapt their anti-money laundering regimes. This requires input from industry peers. That’s why Deloitte’s Anti-Money Laundering Strategic Leadership Group hosted its first Canadian roundtable on February 25, 2009. At this closed-door session, a group of leading compliance professionals and financial institution executives discussed strategies for complying with the Office of the Superintendent of Financial Institutions’ (OSFI) B-8 Guideline and with tightening global economic and trade sanctions. These are their strategies for ensuring compliance:
Money laundering and terrorist financing are global crimes that need a global response. Governments around the world must take coordinated action to comply with the recommendations set out by the Financial Action Task Force (FATF). They must also get support from the private sector. Given the number of players involved in fighting money laundering, this can be daunting. The only way to combat today’s sophisticated schemes is by collaborating internationally to identify how illicit funds penetrate the monetary system.
Learn to share
Organizations with operations in multiple jurisdictions often have challenges sharing information. Sometimes this is due to weak enterprise systems. Other times it is due to privacy law constraints. Either way, this restricted flow of data compromises anti-money laundering compliance programs. Attention must be paid to shared information in order to ensure foreign privacy or disclosure laws are complied with. Organizations should require subsidiaries to advise them when a suspicious transaction report (STR) is filed, but not necessarily share the STR itself.
Rate your risks
OSFI’s B-8 Guideline requires federally regulated financial institutions to bolster their anti-money laundering and counter-terrorist financing programs by rating the risk levels of their clients, products, services and delivery channels. The challenge? Many institutions struggle with determining how to integrate these risk ratings into the design of their programs. Participants at Deloitte’s roundtable agreed that they can resolve this challenge and improve the quality of their policies and procedures by seeking regulator input.
Here are some ways financial institutions can strengthen their risk assessment processes:
- Measure client risk across jurisdictions to ensure clients are assigned the same risk rating no matter where their accounts are opened or where they conduct business
- Use automated tools to monitor high-risk business units
- Ensure that your controls reflect the level of risk assigned to each unit
- Rely on standard operational reviews and reporting to identify anomalies in lower-risk areas
- Get transaction data to speak for itself, identify and rank risk via analytics
Financial institutions are required to monitor politically exposed foreign persons (PEFPs). The associated costs of PEFP monitoring are mounting and can become a significant operational expense. Underlying the risk of PEFPs are the clients’ actions, not necessarily their designation as a PEFP. In some cases, closing PEFP accounts upon identification as a PEFP may not be the best course of action. Instead, investigators may benefit more by continuously monitoring accounts that are identified as suspicious, to track the flow of funds through the system.
Beware of workarounds
When it comes to economic and trade sanctions, financial institutions must avoid business relationships with prohibited parties or countries. Clients and employees should avoid restructuring transactions that violate sanctions because they don’t recognize that the substance of the transaction itself is not permitted. To enforce these sanctions, customer and employee education is key. Financial institutions involved in trade financing struggle with identifying those material goods which are prohibited under certain trade sanctions. Canadian organizations feel greater regulatory guidance is necessary, particularly when dealing with trade embargos and import-export restrictions.
Remember Uncle Sam
In the United States, the Office of Foreign Asset Control (OFAC) administers and enforces economic and trade sanctions on transactions under U.S. jurisdiction – even if those transactions don’t take place on U.S. soil. For instance, Canadian financial institutions that conduct business in Cuba may be penalized by OFAC if the transaction is processed in U.S. currency. To avoid penalties, Canadian organizations must take steps to ensure awareness of and compliance with economic trade sanction regimes which have extra-territorial reach. This may also include consideration of foreign mandates by the European Union and the United Nations.
Don’t be caught unaware
As the complexity and impact of anti-money laundering regimes proliferate, financial institutions will face increased compliance challenges. If you’re ready to step up your compliance activities or simply need an unbiased third-party review of your existing anti-money laundering or economic trade sanctions programs, contact Deloitte.