Sanctions compliance must become a focus for Irish financial institutions – Deloitte

Sanctions compliance awareness and training is inadequate in many organisations

Irish financial institutions likely to come under scrutiny as regulation increases at home and abroad

Multinational financial services organisations are beginning to feel the business need and regulatory imperative to coordinate economic and trade sanctions compliance activities across borders accordingly to a new survey by Deloitte entitled Facing the Sanctions Challenge in Financial Services.

Forty-six percent of respondents consider sanctions compliance to be a growing concern, and 63 percent say it is consuming more time, money and personnel than ever, according to the 388 executives and managers from around the world who took part in the survey.

The findings highlight the need for sanctions compliance to be on Irish financial institutions’ agendas as a matter of priority. In Ireland, financial services organisations have worked in a more co-operative regulatory environment where sanctions were not seen as a tool or threat to these organisations. That is now changing - not only on a global basis but in Ireland too. Over the last 18 months there has been an increased focus on compliance issues. Boards of financial institutions must become more informed of their obligations and of their institution’s regulatory environment. Supporting this, the role of the Compliance Function will become increasingly important as organisations adjust to this new environment.

Despite this increasing regulatory rigor, at nearly one in four companies, compliance staff only receives training at best, just once every two years. In fact, some of the biggest challenges respondents’ companies face in implementing sanctions-related controls, is the complexity of screening all of the dimensions of financial transactions (56 percent) and meeting growing regulator expectations (41 percent).

According to the Deloitte survey, only 50 percent of companies have operationalised what sanctions policies they do have, creating the real possibility that the absence of a robust sanctions compliance program — or an inadequate one — could result in regulatory action by both local and foreign authorities.

Sinead Ovenden, Director of Regulatory Services, Deloitte commented on the findings of the report; “The concern for financial services organisations here in Ireland is that sanctions compliance may not have been a priority or may have been overlooked given the recent turmoil in the industry. This now needs to be addressed urgently. The reality is that regulators – be they in the US, Europe or beyond, in addition to the state regulator here in Ireland - are becoming more rigorous in their oversight of financial institutions. Therefore it is very likely that transactions carried out by Irish institutions either at home or through an overseas branch will at some stage come under scrutiny.”

Ovenden continued: “The perception may be that this is just a US phenomenon. This is simply not the case – a number of European countries have made it clear that sanctions are a very effective means of attaining foreign policy objectives. We are talking about huge numbers of multi-jurisdiction deals and transactions involving large amounts of money over the past number of years. Therefore the scope for non-compliance is considerable. The reputation of the Irish financial services industry has been damaged on an international basis over the past year. The last thing any organisation here needs now is to be found to be non-compliant, not to mention the huge fines associated with it. We would actively encourage all financial institutions in Ireland to review their compliance procedures to ensure that they have as robust a system as possible in place.”

The study also revealed some leading practices in sanctions compliance which should now be taken on board by Irish institutions, including:

• Using risk assessments. Companies increasingly are using risk-based approaches to sanctions compliance, especially since OFAC’s 2006 Interim Economic Sanctions Enforcement Procedures and the EU Third Money Laundering Directive required that compliance programs be tailored to a bank’s risk profile. Thus, sanctions programs including risk assessments — an essential first step to a risk-based approach — have become part of industry-leading practices. Of the 44 percent of survey respondents who reported their companies had a well-defined, sanctions-specific compliance program in place, 70 percent were either completing or had completed a formal sanctions risk assessment within the past two years.
• Leveraging information technology (IT). Financial services companies are at the forefront of industries endeavouring to use IT solutions to meet their expanding compliance obligations. In particular, most companies have been deploying IT solutions at the initial detection stage and then manually investigating the alerts generated by those systems. Just 19 percent of respondents work for firms that have fully automated this process, but more than twice as many (52 percent) expect to do so in three years’ time. As automation is expected to increase, the number of companies with largely manual processes (especially at the front end) is expected to drop from 37 percent to less than half that (17 percent) in the next three years.
• Taking a global approach. Elements of sanctions compliance — from setting strategy to overseeing lists — can be run at a global, regional or local level. However, a global approach to sanctions compliance seems most popular; 55 percent of respondents’ companies set sanctions compliance policy at the global level and 40 percent develop and oversee sanctions compliance and procedures at a global level. More than one-third (39 percent) of financial executives indicated their companies’ board and C-suite executives communicate on sanctions compliance, across all geographic regions, coordinating efforts globally.
• Set a zero-tolerance tone at the top. The growing nature and scope of sanctions imperatives highlights the need to create an appropriate culture of compliance.

“Despite a slowly shrinking global economy in recent months, the speed with which money is changing hands throughout the financial services industry and beyond has remained unchanged,” said Andrew Brown, Director of Forensic & Dispute Services at Deloitte. “Finding a needle the size of a few million laundered euros in a billion euro haystack of legitimate transactions can be a challenge for any multinational organisation, but it should remain a global priority for management, given the risks and costs associated with non-compliance.”

Ends
About the Survey
Deloitte contracted the Economist Intelligence Unit to conduct a survey of executives and managers around the world regarding anti–money laundering sanctions. The 388 survey respondents were drawn from the Economist Intelligence Unit's global executive survey panel. The survey was conducted online from August 20 to October 3, 2008.

Among the executives participating in the survey, 40 percent were board members, chief executive officers and other C-level executives. Fifty percent of respondents’ organisations had annual revenues greater than US$5 billion.
Respondents were geographically located in Asia-Pacific (32 percent), North America (24 percent), Western Europe, including Ireland, (28 percent), Middle East and Africa (7 percent), Latin America (5 percent) and Eastern Europe (4 percent).

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