, financial crime
Today feels quite significant to me. Not only has it been a week since I took up my role within the Research and Development team at International Compliance Training, but also very importantly, it’s International Anti-Corruption Day.
Events such as this remind me of why I love my career in anti-money laundering so much. Despite the fact that I may only have a small part to play, it’s important to remind ourselves of the impact we have, however big or small, in tackling the global issue of money laundering and the crimes associated with it such as corruption.
The United Nations Development Programme (UNDP) and the United Nations Office on Drugs and Crime (UNODC) are at the forefront of the 2015 campaign and aim to break the corruption chain by focusing on “on how corruption undermines democracy and the rule of law, leads to human rights violations, distorts markets, erodes quality of life and allows organized crime, terrorism and other threats to human security to flourish.”
The campaign provides a number of examples of the ways in which each individual can help say ‘no’ to corruption, one of the key messages being “report incidents of corruption”. But in order to be in a position to report, the corruption risk must first be identified and assessed.
Assessing Corruption Risk
A key area of any AML framework and especially relevant when talking about corruption is the Politically Exposed Person regime. The risks posed by PEPs are well known and well documented, but the assessment of corruption risk should not be limited only to PEPs.
Over the weekend we heard of the FBI FIFA investigation into the “$100 million paid in bribes”. This further emphasises the importance of ensuring that corruption risk is recognised across the entire customer base.
Looking at the Source
In my mind, it would be increasingly difficult for corrupt individuals to be in a position to launder the proceeds of corruption if more questions were asked around source of wealth (how a person has acquired their total wealth) and source of funds (the origin of the funds being used in the business relationship, both the activity generating the funds and the means of transfer). The additional scrutiny could be the initial barrier in ensuring that corrupt individuals aren’t able to easily place their money in the financial system.
But we do not live in an ideal world and establishing source of funds is challenging, especially when relationships are of a higher risk and when operating in a competitive market. FATF recommendations state that “reasonable measures” are required to establish source of funds and wealth for PEP relationships. And “reasonable” can be hard to define.
It’s often all too easy to take a simple answer from a client, but with the complicated ways in which those wishing to launder money try to conceal the origin, is enough being done? Whilst JMLSG Guidance provides a list of the documents to be used when verifying identity, there is no such equivalent when establishing the source of funds.
The FCA’s Financial Crime Guide briefly discusses source of funds and wealth, stating that it is good practice when “The firm establishes the legitimacy of, and documents, the source of wealth and source of funds used in high-risk business relationships.”
The Big Questions
My concern is that in the absence of additional guidance, there may be a big difference in the level of checks carried out across the industry. So I’d like to ask your views, is the risk based approach working? Would more prescriptive guidance assist financial institutions or is there enough guidance and regulation as it is?
Let me know what you think – and please support International Anti-Corruption Day.
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