The Tribune

Since The Wolfsberg Group’s original issuance of its anti-money laundering (AML) principles for private banking in October 2000, and its subsequent statements over the past decades - including more recently its statement of effectiveness in December 2019 - many jurisdictions have taken steps to enact more effective regimes to combat financial crime and terrorism financing.

Over the same period, financial institutions were confronted with increasingly complex compliance requirements, while simultaneously juggling the customer’s expectation for a better user experience. Financial institutions have had to develop, and attempt to perfect, a wide variety of complex yet crucial capabilities to remain compliant with jurisdictional and international requirements.

The Wolfsberg Group in its June 30, 2021, statement on demonstrating effectiveness, said: “The croup believes designing, assessing and measuring anti-money laundering/counter terror financing programmes based on performance against these defined outcomes would not only enable financial institutions to detect and deter criminal activity better, but also improve the effectiveness of the system to combat money laundering and terrorist financing overall.”

It is in this context that I would encourage you to ask: “How effective are my institution’s risk management regimes, and how effective are regimes worldwide?” This article will consider alternative views on current anti-money laundering/counter terror financing regimes and provide non-exhaustive suggestions on how to demonstrate an effective framework to counter these crimes.

Arguments against anti-money laundering/counter terror financing regime effectiveness

Louis de Koker published in the Journal of Money Laundering Control (17:3) that the Financial Action Task Force’s (FATF) identification guidelines and practices have resulted in a “largely bureaucratic” process that does not guarantee identity fraud will be prevented effectively. Additionally, academic Ronald R. Pol argued in a research paper the was published in 2020, via the Journal of Financial Crime, that the anti-money laundering/counter terror financing regime is virtually non-effective in disrupting illicit finances and serious crime. These positions promote that anti-money laundering/counter terror financing regimes are process driven with little profit (results).

Regime prescriptiveness versus regime agility

The current enterprise-wide risk assessment is too prescriptive and less agile than is required in the current business environment. Wait, I am not asserting that the current enterprise-wide risk assessment should be abolished. I am suggesting that compliance and risk professionals must ensure their regimes are “living creatures”, and accurately reflect the real threats to their company instead of employing rigid, out-of-the box, regimes.

Expectations versus law

A very intricate balance must be achieved between expectations and the parameters of the applicable laws and regulations. It is crucial that risk and compliance professionals seek clarity from their designated regulator on laws and circumstances where guidelines must be understood as binding. This can be difficult, as our formal training and international groups such as Wolfsberg appear to be of the view that guidance is non-binding. This circumstance is further exacerbated when there are multiple regulators of one entity.

Regulatory compliance and interaction

Surprise. The regulator should be your friend and not your perceived foe. Relationship building via open and fruitful communications provides all stakeholders with the required information needed to make the best-informed decisions. Financial institution control frameworks are enhanced or improved because of this approach.

Conclusion

From my experience, reading and compliance roundtables, it was made clear that there is always room for regime improvement, and a rethinking and reengineering of processes. For an anti-money laundering/counter terror financing programme to be effective, it should conform to applicable anti-money laundering/counter terror financing laws and regulations, and establish reasonable and risk-based controls to mitigate identified risks. The reputation and marketability of our financial services offering depends on our ability to demonstrate effectiveness.

NB: Mr Smith, a Top 40 Under 40 leader, has an extensive career in the Bahamas’ compliance and anti-money laundering space. A GRC professional for more than 20 years, his career has been fortified by holding strategic positions at a TerraLex member law firm, a Wolfsburg Group member bank and a major accounting firm. He is also a holder of the certified anti-money laundering specialists (CAMS) and certified risk and compliance management professional (CRCMP) designations.