Anti-money laundering legislation…Banks to fork out millions more to ensure compliance – survey

Jul 17, 2013 News

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Local financial institutions will have to fork out more cash to meet global requirements to fight money laundering.
According to a survey, The Global Cost of Anti-Money Laundering Compliance, by Washington D.C.’s Veris Consulting Inc, demands for compliance remain a significant cost factor for financial institutions globally.
A Veris survey said 284 entities responded to its survey covering 46 countries and with 89% being multi-national financial institutions.
The bulk of the survey’s respondents included regional and US banks across the operational spectrum of retail, corporate and business banking, private banking and wholesale banking, followed by broker-dealers, money service business (MSBs) and other types of financial institutions.
The findings of the survey will have only confirmed what the financial institutions in Guyana already know…that moneys will have to be spent to introduce systems and maybe hire more staffers to ensure critical reports are submitted to monitoring agencies.
Guyana is currently piloting amendments to the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) (Amendment) Bill 2013.
Guyana has until August 26 to submit documents pertaining to its readiness to the regional oversight body – the Caribbean Financial Action Task Force (CFATF). In November, this will be reviewed.
The Opposition refused to hurry up the proposed amended laws when it was presented to the National Assembly earlier this year. Rather, they sent it to a Special Parliament Select Committee. With the National Assembly scheduled to go on recess next month, the race will be on to have it ready in time for the August 26 deadline.
Guyana could face sanctions if it fails to pass certain AML laws and implement changes before the November date.

Costs
According to Veris’ survey, financial institutions have identified automated transaction monitoring systems as the biggest costs in the compliance efforts.
“Our work in this space suggests that the cost is not only in system implementation and maintenance, but also in the analysis of the output of those systems.
The majority of financial institutions are becoming increasingly dissatisfied with their current automated monitoring efforts, looking for software solutions that can actually lighten the workload of many AML and OFAC (Office of Foreign Assets Control) compliance departments, rather than adding to it.”
The survey indicated that costs to ensure compliance could see increases of between 15%-40% over the next 12 months.
It was pointed out that the situation proves harder as the operations of financial institutions become more complex and interconnected across jurisdictions – and as the rules, regulations and examination procedures of regulatory bodies continue to evolve.
“Financial institutions increasingly will be required to devote considerable resources to AML and OFAC compliance issues.”
In fact, there appears to be an industry-wide expectation that the overall cost for AML and OFAC compliance efforts will continue to increase for the foreseeable future, with a number of respondents forecasting cost increases of 15% – 40% over the next 12 months, the survey indicated.
The OFAC of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.
The OFAC acts under Presidential national emergency powers as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
Since the 2001 terrorist attacks on New York, the US has been moving to clampdown on dirty money and ensuring it does not in any way finance terrorism. Financial institutions are being asked to report suspicious transactions as part of the global efforts to stamp out money laundering.

Workload tripled
Veris said that the banks surveyed also expressed concern “about the effectiveness of their compliance programs and the return on investments made in their AML and OFAC systems and controls.
The survey also demonstrates a growing realization among financial services executives that what has worked in the past may not work in the future – ultimately leading to a re-thinking of AML and OFAC compliance strategies among participating institutions.”
Some 61% of the banks interviewed cited an increase in a Board of Directors involvement in the compliance effort, with 66% reporting a spending increase.
“Compliance costs are increasing and the expectation is that they will continue to increase for the foreseeable future. Despite these increases, adequacy of budgets and allocation of personnel remain a concern for compliance executives. The survey results show that financial institutions are spending significant amounts of their resources on automated transaction monitoring systems and customer due diligence and that additional regulations such as the FCPA and FATCA, are further taxing their compliance budgets.”
There were complaints too that compliance systems already set up for overseas financial companies have tripled workload. According to one respondent, “Since the deployment of our monitoring system, the workload within my department has tripled – however, despite looking at many more alerts, we did not see an increase in suspicious activity reports filed over the last 12 months”
Non-compliant entities can face sanctions of up to 30 percent withholding tax, penalties and interest, and reputational damage. In addition, foreign financial institutions (FFIs) that do not  comply with FATCA will find it increasingly difficult to conduct business with U.S. financial institutions as well as FATCA-participating FFIs.

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