The Next Wave of Global Anti-Money Laundering Enforcement, 1st ed. 2024 From Strict Compliance to Intelligent Risk Management that Creates Value

The financial-services industry has been disrupted and roiled by a perfect storm of forces. Complex regulatory-compliance requirements, aging legacy systems, dated operating models, digital innovation and fintech have rapidly changed the environment for many financial institutions worldwide. To further amplify the challenges for financial institutions globally, various regulatory bodies across the globe have enacted major legislative changes, increasing the pressure on boards and C-level executives significantly. Unlike previous years, this new regulatory focus on anti-money laundering (AML) can be seen globally as various regulatory regimes converge closer to a global standard as promulgated by the Financial Action Task Force (FATF). Increasing regulatory enforcement, geopolitical changes and record-setting monetary fines have made adequate AML risk management a significant challenge for financial institutions globally. In this environment, financial institutions need to become more risk agile and move from backwards looking compliance measures to proactive risk management.

This book will showcase how to transform current AML compliance efforts into more dynamic risk management solutions that help protect financial institutions against bad actors and manage regulatory risk and exposure.  Based on the author?s global experience in helping financial institutions to manage their AML risks in 60+ jurisdictions, this book calls for greater urgency from boards and senior management, policymakers and AML risk practitioners to address looming risks. From corporate governance structures, tone at the top, to more efficient ways to quantify and manage risks, this book addresses key changes financial institutions must make to evolve from strict compliance to an agile risk management framework that actually addresses their AML risks in practical ways and shift the mind set from a cost center to a value creation center.

Part I – The Perfect Storm[ 1] 

1.     The Past 20 Years of Anti-Money Laundering Enforcement and Billions in Fines Later

-        a brief introduction/synopsis of the biggest fines against financial institutions across the globe, identifying the key trends of what went wrong,key lessons learned and how to practically apply those to protect your financial institution.

3.     US – Turbocharging Enforcement Powers

-        the passage of the US Anti-Money Laundering Act of 2020 (AMLA) (part of the National Defense Authorization Act for Fiscal Year 2021) will bring a new era of AML enforcement and regulatory exposure for financial institutions both in the US across the globe. This chapter will provide an in-depth analysis of the increased regulatory exposure financial institutions are bound to experience soon and what action items need to be put in place immediately.

5.     BREXIT – Leaving the EU Patchwork

-        the 5AMLD came into effect in January 2020, yet despite its impending exit from the EU, the United Kingdom (UK) implemented the directive into its national law. The UK has decided to opt out of complying with 6MLD on the basis that its domestic legislation is already largely compliant with the directive’s measures and in many cases “the UK already goes much further.”Brexit for the UK also eliminates the practice of some financial institutions establishing themselves in regulatory “light touch” member countries of the EU, while the majority of their business was conducted in the UK.

6.       latin america – internationa banks instill greater fear than local regulatory bodies

-        while most countries in Latin America have passed laws and standards to address concerns raised by the FATF, enforcement by regulatory bodies is generally weak. Most financial institutions in Latin America “fear” their global counterparts, and with it access to the global financial system more, than their primary regulators.

7.     Asia – the Economic Engine of the World but Still Playing Catch Up with Anti-Money Laundering

-        the Asia Pacific (APAC) region has seen a significant uptick in regulatory focus on AML and correspondent enforcement actions. This is most likely a result of the mutual evaluations conducted by the FATF starting at the end of 2018. As the largest economy in the region, China has responded to increased criticism by making ongoing improvements to its AML-regulatory framework, but the PBOC appeared to be more concerned with controlling the outflow of money from the Chinese financial system. Meanwhile, the broader issue of money laundering through Chinese financial institutions remains an international concern.

Part II – How to Bulletproof an AML Compliance Program[ 2] 

8.     Barbarians at the Gates – Responding to Regulatory Enforcement Actions and Crisis Management

- like in previous years, we have seen increasing regulatory enforcement, changing legislation, geopolitical changes, and record-setting monetary fines making adequate anti-money laundering and sanctions risk management a significant challenge for financial institutions globally. This chapter will look at various approaches to avoid formal regulatory actions, and how to adequately respond to regulatory actions and/or the installation of an independent monitor and overall crisis management and pitfalls to avoid.

9.     The Role of the Board of Director – More Than Only “Tone” at the Top!

- given the sweeping changes in legislation and the increasing level of AML enforcement globally, the risks facing financial institutions are likely to intensify. Boards of directors should help their institutions get ready to manage the changing AML risk environment. Boards of directors will have to become more involved holistically across all jurisdictions to prevent further regulatory-enforcement actions and bring meaningful change to AML-risk-management efforts. While legal and cultural differences exist between the various regulatory systems worldwide, a globally operating financial institution needs to adapt to global standards and local legal and regulatory requirements.

10.  Raising the Bar on AML risk assessments

-        financial institutions around the globe are largely realizing that risk assessments, as conducted in the past, are not as useful as they once were, if conducted with a “checklist” approach or by completing a simple matrix. Rather a more agile and dynamic risk assessment model is needed to allow boards and senior management to deploy often limited resources across areas of highest risk in their particular financial institution.Rather than creating static matrixes of AML risks, financial institutions need a systematic way to resolve what risks to take and which ones to avoid. Currently, many financial institutions think about their risk appetite in purely static terms rather than adopting a more agile risk management approach. If a risk assessment becomes a pure check-the-box exercise summarizing statistics accumulated over the past 12 months, a financial institution will make decisions based on past information rather than forward-looking information.

11.  Your Customer - Your Friend or Enemy within?

-        One key pillar of robust AML and sanctions risk management is customer and counterparty due diligence (customer due diligence/CDD). However, besides risk assessments and AML monitoring systems, CDD is still a significant challenge for financial institutions globally.

12.  De-risking – the Process of “Risk Reduction” that Actually Increased Risk

-        While de-risking – eliminating or significantly limiting – business lines, products, geographies, and/or clients that pose an increased risk to AML-compliance efforts may seem prudent, it also poses significant growth challenges for financial institutions. Over the past several years, institutions have sought to reduce risk by eliminating portfolios, counterparties, or entire lines of business. In the past, de-risking was a quick fix whereby some financial institutions addressed regulatory noncompliance by exiting customers. De-risking, however, introduced a significant level of opacity into the global financial system because terminations of account relationships forced entities and persons into less-regulated or even unregulated channels or into financial institutions whose levels of AML compliance were not top-of-mind among senior management and their boards of directors.

13.  Transaction Monitoring - Finding the Needle in the Haystack, but are We looking at the right haystack?

-        There is no silver bullet for a robust transaction monitoring system, and that is why financial institutions can – and should – tailor automated systems to their AML and risk profiles. To ensure that AML systems will meet expectations and regulatory requirements, there are certain basic areas that should be considered when enhancing automated transaction monitoring solutions. The saying “garbage in/garbage out” continues to apply. While monitoring solutions have significantly evolved, the “input” seems to be lacking. This has led to a new reality of firms not fully utilizing the technical capabilities of available solutions, thereby exposing themselves to further criticism by regulatory authorities.

14.  Looking Ahead

-        Overall, the financial services industry is in the early stages of a journey to move beyond strict regulatory compliance, emphasizing instead the effectiveness and efficiency of compliance and risk management processes. The industry recognizes that investments in check-the-box AML and sanctions compliance cannot be sustained in the long term. Rather than simply seeking to meet today's regulatory compliance standards, financial institutions are beginning to realize the importance of more agile approaches to managing their AML and sanctions exposure.

Sven Stumbauer is a globally recognized financial crimes expert and forensic investigations professional with over 20 years of experience around the globe. He is a highly sought after business leader, global risk expert, and advisor to leaders and organizations across the world. Sven's industry experience includes: domestic and international banks; broker/dealers; insurance companies; trust companies; and hedge funds and payment providers, focusing on corporate governance, regulatory compliance, fraud issues, Anti-Money Laundering (AML), Office of Foreign Assets (OFAC), Foreign Corrupt Practices Act (FCPA), the UK Bribery Act (UKBA) and Foreign Account Tax Compliance Act (FATCA) compliance. He has assisted major financial institutions throughout the world and has a wealth of experience leading complex, high-profile global projects, providing services to clients in over 60 countries. Sven frequently publishes and is quoted in well‐known publications such as: The Financial Times, The Wall Street Journal, Bloomberg, International Financial Law Review, China Business Law Journal, International Banker, Law360, Reuters, Securities Industry News, The Deal and more.

Showcases how to transform current AML compliance efforts into more dynamic risk management solutions

Provides hands on, practical guidance and solutions

Outlines how financial institutions can manage their compliance obligations more effectively and efficiently