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Anti-Money Laundering Violations and Failures: Key Lessons for Compliance Professionals

Recently, anti-money laundering compliance has become an even greater priority for regulatory governing bodies. This is evidenced in the many recent AML violations and failures experienced by major financial corporations. In fact, financial regulators delivered $2.2 billion in fines in 2020, up from $444 million the year before, and 2021 is continuing at a similar pace with already $994 million across only 17 infractions.  If AML compliance is a top priority for governing bodies, it needs to be a top priority for financial organizations, too. We’ll look at prime examples of recent AML compliance failures and analyze opportunities to use those examples to improve your compliance strategies.

What Are Anti-Money Laundering Violations?

The purpose of anti-money laundering regulations is to help financial governance organizations and the financial institutions they govern detect, report, and remediate suspicious activity. These activities include predicate offenses to money laundering, such as market manipulation and securities fraud.

Anti-money laundering and “countering the finance of terrorism” (AML/CFT) priorities have been undergoing frequent updates by the Financial Crimes Enforcement Network (FinCEN), as major financial governing bodies crack down on financial crimes. These “priorities” deemed by FinCEN are designed to directly address:

  • Corruption
  • Cybercrime, which includes related cybersecurity and virtual currency considerations
  • Foreign and domestic financial terrorism
  • Fraud
  • Transnational activity of criminal organizations
  • Drug and human trafficking organization activity
  • Proliferation financing

With these established priorities in place, financial institutions will need to stay on top of changes to regulations with even greater fervor. With adjustments happening constantly, it can be very easy for a banking institution to be labeled “non-compliant,” which can very quickly lead to lawsuits and significant fines.

Lessons Learned From Real AML Violations

AML Compliance Culture

The Deutsche Bank Problem: Deutsche Bank, among other major financial institutions, was recently fined $130 million for its involvement in a commodities fraud scheme. The bank’s culture was cited by authorities as lacking an emphasis on strong compliance. Turning a blind eye and downright neglecting criminal behavior in exchange for financial gain not only risks severe repercussions, but it implies that ignorance of potential criminal negligence is tolerable at all levels of the company.

The solution: Effective compliance culture starts at the very beginning and at the very top. For organizations to establish a tone of compliance principles and ethics throughout the entire company, it needs to be implemented as a guiding standard at the start. Senior leadership is responsible and accountable for integrating a compliance culture from the top down.

Shortcomings in AML policies

The Discovery Life problem: Discovery Life, ING, and others were recently fined for “shortcomings in AML policies.” These “shortcomings” attributed to Discovery Life and others included a wide range of deficiencies, including failure to:

    • Establish governance
    • Create policies easily understandable and implementable by staff
    • Adopt a risk-based approach rather than a reactive approach
    • Collect comprehensive and clear data on customers, beneficiaries, and transactions

The solution: Systemic deficiencies in AML compliance typically stem from not having clear and comprehensive protocols in place. To avoid anti-money laundering violations, organizations must develop thorough and easily understandable AML compliance protocols, ensure staff are trained in their purpose and execution, and update these protocols frequently to align with new regulations.

Failure to report SARs

The Capital One problem: Capital One was recently fined $390 million by FinCEN for failure to properly complete suspicious activity reports (SARs). Suspicious activity reports are disclosures to financial law enforcement agencies about known or suspected money laundering, terrorist financing, or other predicate offenses. SARs can come up frequently as they cover just about any unusual activity recorded by a banking organization. Failure to adequately complete eligible SARs can result in major fines, but many financial institutions continue to neglect them.

The solution: If you’re not part of the AML solution, you’re considered part of the problem. Completing suspicious activity reports is crucial to remaining AML compliant and engaging in the fight against financial terrorism. Step-by-step company reporting protocols are essential and should be communicated clearly to the team and updated with compliance regulations.

Inadequate risk assessment

The Robinhood Crypto problem: Online financial market player Robinhood and its cryptocurrency arm recently paid $30 million to settle a complaint involving AML violations associated with inadequate risk assessments. “Inadequate risk assessment” means that a financial organization failed to appropriately identify and assess their level of financial terrorism and money laundering risk through customer risk evaluation.

The solution: AML compliance is not a set-it-and-forget-it process — it requires frequent reevaluation, as many major financial organizations are bringing in numerous new customers daily. It is essential to have thorough know your customer (KYC) procedures in place and to run them consistently to assess new customers. Risk assessment protocols should also be applied to third-party affiliates since compliance not only applies to your organization but to those you partner with, as well.

Get Started with IntegrityRisk

AML compliance is constantly changing, violations and failures are becoming more frequent, and financial safety needs to become a top priority for all financial institutions. When evaluating compliance risks, organizations need to prioritize developing comprehensive AML protocols that include establishing a compliance culture throughout the enterprise, reporting procedures for all suspicious activity, and regular customer and third party risk assessments.

Although banking organizations may be eager to get started, it can be intimidating to know how to begin. Avoid AML violations and leave the complicated work to the experts at IntegrityRisk. IntegrityRisk offers extensive compliance services, including Third Party Screening, Wealth Intelligence, and more. If you’re ready to get started, work with IntegrityRisk today.