Following a series of high profile incidents in recent years, global regulators are acting in a more coordinated manner to hold the financial services sector to account when it acts to either process or transfer the proceeds of organised crime, political corruption or terrorism. In turn, this is leading to increased liability for our financial institution clients.
Money laundering is the process of taking ill-gotten gains and moving (washing) them through the global financial system in a series of transactions designed to disguise their origin. This illegal activity has gained increased attention primarily due to documents from the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) which were leaked and globally published on 20 September 2020, which has exposed sensitive financial information to the scrutiny of the world’s press. The leak suggests the global financial services industry continues to fall short when it comes to adequately addressing appropriate controls regarding money laundering, and thereby enabling the financing of crime, tax evasion and terrorism.
The 2,657 leaked documents included 2,121 Suspicious Activity Reports (SARS) routinely submitted by banks to FinCEN1. Banks use SARS as a matter of routine to report U.S. dollars transactions involving companies or individuals considered potentially suspicious. The leak raised the question of why between the year 1999 and 2017 global banks carried out nearly $2 trillion of transfers which they themselves had flagged as potentially suspicious2. The banking sector denies wrongdoing and points out that it followed regulatory protocol, simply filing SARS in an abundance of caution. However, the sheer volume of suspicious transactions has caused alarm, leading to allegations of wrongdoing and questions about the effectiveness of current Anti Money Laundering (AML) systems of governance and regulation.
Whether or not such allegations prove correct, the media coverage has provoked criticism of the industry and unsettled its stakeholders, including its regulators. That may in part explain the robust regulatory response seen thus far, which includes FinCEN publishing a new set of rules to govern the agency’s fight against financial crime3; the 2021 National Defence Authorization Act also makes comprehensive reforms to AML laws.
In Europe, the European Union has moved to beef up its money laundering oversight by creating a new agency to tackle financial crime and new rules for its members through the 6th Anti-Money Laundering Directive (6AMLD) removing prior ambiguity and harmonising rules across member states.
In fact, regulatory cooperation across the globe is now creating a shift to heighten the legislative reach in tackling AML, bringing increased penalties for individuals and organisations found to be responsible for aiding and abetting the act of money laundering, whether or not such act was intentional.
Increased AML regulation brings the spectre of enhanced personal liability for company Directors and Officers. In the changing environment, Directors and Officers should ensure that their policies adequately capture this evolving risk and address liability and related costs for persons who may be exposed to an accusation of misconduct. At WTW, we can guide Financial Institutions through the hurdles of this complex issue, using our vast range of risk and consulting services.
1 https://www.icij.org/investigations/fincen-files/fincen-files-investigation-named-pulitzer-prize-finalist
2 https://www.icij.org/investigations/fincen-files/global-banks-defy-u-s-crackdowns-by-serving-oligarchs-criminals-and-terrorists
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