For regulators, money laundering remains a pivotal issue. Indeed, as money launderers become exposed to new technologies and acquire sophisticated ways to move illegally obtained money, governments and regulators are tightening the noose around obligated entities. Over the years, the European Union has passed a series of stringent anti-money laundering directives; the United States, too, is cracking the whip, given the spate of recent changes to the country’s existing anti-money laundering regulations. Consider FinCEN’s new customer due diligence rules which require financial institutions and other regulated entities to not only identity beneficial owners of business entities, but also verify their identity.
These changes to Anti-Money Laundering (AML) regulations are certainly a step in the right direction; however, as the seventh annual Basel AML Index finds, governments today are still not doing enough to combat money laundering. While regulations might be sufficiently stringent, in practice, AML measures have much room for improvement. This becomes manifestly clear given the hefty fines that have been levied on financial institutions for their compliance-related lapses.
To some extent, the wheels are already turning, with the United States government announcing new measures to help financial institutions adopt more effective solutions to fight fraud, and keep bad actors from exploiting their services. A few months ago, United States Justice Department announced that it would take a special interest in fighting terrorist organizations and criminal syndicates by undermining their efforts and blocking the flow of money to fund their illegal activities.
AML compliance, here, is a key factor, and the Justice Department realizes this. It has launched new AML compliance training programs to ensure that regulated institutions operate within the bounds of the law. It also updated policies on the selection of corporate monitors for large-scale compliance failures to ensure they are selected ethically and not as political favors. The goal is to further refine the components that determine whether a monitor, or a corporate compliance enforcement officer, is needed to observe a company, as well as clarify the monitor selection process.
The authorities have also taken cognizance of how smaller community banks struggle to keep up with changing regulations due to their lack of expertise in compliance. As part of a broader effort to strengthen anti-money laundering defenses across the U.S. financial system, the federal depository institutions regulators and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a statement, allowing community banks and credit unions to collaborate on certain anti-money laundering resources. Sharing resources allows banks and credit unions to increase operational efficiencies, reduce costs and leverage specialized expertise.
In the highly competitive financial industry, banks can’t afford to be careless about compliance. To stay plugged into newly released regulations and eliminate the risk of compliance fines, many financial institutions have looked into leveraging AML compliance processes to help better manage their customer relationships. In today’s strict regulatory environment, it has become evident that implementing a layered approach to AML compliance is no longer necessary, but crucial to improve AML compliance processes.