AML and banking institutions
Banking institutions across the globe are currently faced by various challenges emanating from money laundering and other related crimes. There are regulations that are provided by the regulatory bodies that have to be adopted by the banking institutions. The reputation that the bank will receive in a given society will be negatively affected by the number of irregularities that have been registered in the bank in relation to money laundering. As a result, most banking institutions have set aside a good fraction of their time and money in developing control mechanisms for the practice. The consequences of defying the regulations are adverse on the performance of the organization.
Anti-Money Laundering requirements
There are a number of requirements by the government on the AML procedures to be developed and adopted by the firms in the financial service in industry in an attempt to fight the illegal practice. Firstly, it is required that the organizations develop internal policies and procedures to be adopted by the employees of the organizations. The firms should develop and adopt Anti-Money Laundering programs within their organizations that are in accordance with the overall objective of the organization. Secondly, having put in place the control measures, there is need for the firms to establish the office of the Compliance Officer. This is charged with the responsibility of ensuring that the operations of the organization are in line with the provisions by the government and government control agencies on financial issues. There is also a need to have training programs aimed at equipping the employees with procedures that are appropriate in curbing the vice. The employees are supposed to be trained on ways of detecting suspicious transactions that may be linked to some unclean money in circulation within a financial institution. Finally, there is need to establish an audit team by the financial organization that regularly examines the effectiveness of the AML procedures and programs practiced in the organization and make necessary adjustments.
The Anti-Money Laundering process in our firm
In establishing a proper strategy to deal with the money laundering practice, there is need to understand the steps that are most commonly involved in the process. The criminals involved in the money laundering practice will not be at ease until the roots of the illegally obtained funds are cleansed. Thus, the preventive mechanisms can be applied if there are ways of determining probable irregularity right from the beginning. The first step involves the acquisition of a given property or cash and pumping it into the financial system of a given organization. This step is known as placement.1 The step is not applicable in cases where the cash is already in circulation within the system as is the case in banking institutions. The second phase will not involve performing various manipulations on the transactions details in order to make them appear to be genuine. This is actually the most sensitive part in money laundering as it involves measures to convince the outsiders that the cash or property was legally obtained. Having deceitfully established the legality, the next step is to integrate the acquired property into use and probably think of other ways of developing another scheme. To avoid complications, the effective money laundering procedures should be sensitive to irregularities at the very early stages.
The financial institutions like ours have been a good base for money laundering practices by many intelligent criminals for a long period. It has been observed that they ‘are the ideal markets to move large bulks of cash without attracting much suspicion’.2 However, this difficulty has been overcome by various government legislations like the 1970 Bank Sector Act in he United States. In developing the anti-money laundering strategies, there is a need to make certain considerations. Initially, there is need to identify the services that help in the money laundering in the financial institutions. After this, the first step is to impose currency transaction reporting requirements on the banking institutions. The banking institutions are required to provide a report on large cash transactions. There is also a requirement that any individual exporting or importing large valued products should issue a declaration on the anticipated flow of funds. It is also important that a financial institution understands well the costumers that it deals with. Proper screening of the customers of financial institutions will help in mitigating vices like terrorist activities on the institution by ill-minded customers.
Developing good relationship with the customers and other stakeholders of the firm has been one of our key steps in managing money laundering. It is important to understand the needs and ability of the customers, the employees, the partners and the stockholders of our organization. Developing such relationship has enabled us to monitor the various financial transactions that can lead to money laundering. Our management teams are able to access the premises of all the customers that are carrying out large transactions and verify the validity and credibility of the transaction. Our closeness to customers and the knowledge of the value of the premises of our customers has enabled us to realize, in good time, planned crimes by some of the customers.
We have also adopted training programs for our staff to equip them with the techniques of detecting the criminals. Our staffs have vast knowledge on practices in the banking sector that can raise suspicion of a possibility of a financial crime. With the adequate knowledge of the status of the customers, the staffs are able to raise alarms whenever an abnormal transaction is performed. A successive withdrawal of large sums of money that is not proportional to the nature of the business of our customers is a way through which we have managed to detect illegal transactions by some of our customers. We have also witnessed other cases where one of our customers had more than five accounts with our bank with no proper reasons for having so many accounts. It was also observed that there were frequent cash flows from one account to the other within an unjustifiable period. On little scrutiny, it later emerged that the customers was a long time drug dealer and was dealing with numerous illegally instituted business firms across the borders. Transfer of large cash from the accounts was a way of cleansing the illegally obtained funds. Another case that had been identified by our staff involved a casual laborer who deposited a sum of £200,000 twice within a given week. This is a customer whose details show that the average monthly wages total to about £1,049 and there are no other significant income generating projects that he owns. It later turned out that the customers had entered into deals with the others not clients to our firm and were trading on ivory to the neighboring countries. In general, our close knowledge of the customers and the training that we had provided to our staffs have taken as a stride in controlling the money laundering practices by criminals using our bank as a financial agent.
Following the government provisions has also been our concern and a key AML procedure. The government has also established Anti-Money Laundering Compliance program that is to be adopted by each of the financial institutions in the country. It is in this view that we established the office of the Compliance Officer who has taken a good lead in ensuring that our control measures are in line with the legal provisions in our country. We have always ensured that we review AML programs regularly to check its effectiveness owing to the developments that are witnessed among the criminals involved here. A control program that was applicable a while ago may not necessarily fit today.
We are also sensitive to the provisions by the local financial regulatory bodies as well as the international bodies like the United Nations on the procedures of preventing Money Laundering. The United Nations has been in the forefront in the fight against the practice.3 The UN has developed various international conventions that deal with money laundering activities like drug dealing and terrorist activities. These conventional agreements apply to all the member countries of the UN and are thus our fundamental guiding principles. Similar provisions have also been provided by the European Union (EU) to its member states. The UK, being on of the founding members of the EU has struggled to help in implementing and enforcing the regulatory policies by the Union. In the Financial Service industry in the UK, there is the Financial Services Authority, a body concerned with regulating the financial activities in the country. One of its mandates is to prevent financial crimes in the country. Within the sector is also the Joint Money Laundering Steering Group (JSMLG) that is composed of various trade associations in the country. The group has developed guideline principles on how to manage money laundering within and outside the financial institutions. The Financial Services Authority recognizes that the firms that follow the guidelines provided by the JMLSG are the ones that are loyal to the government’s regulations and its fight against money laundering. Our financial institution has put in place programs such as employee training on ways of detecting and reporting abnormal transactions that can be linked to a criminal offence. Our loyalty to the FSA and its effort to end the vice is one of the reasons that underlie our establishment of such programmes.
Reasons for complying with AML requirements
We have every reason to comply with the AML requirements as required by the government regulatory agencies. Firstly, the government relies so much on our services to help in fighting the criminal activities associated with money laundering. It has been noted that with the nature of our services, we provide a good avenue for attempting to disguise the source of illegally obtained funds by criminals. In this way, we closely interact with the defaulters and an analysis of their financial proceeds through their accounts can provide good insight on the possibility of some irregular economic practices. In so developing programs that help in tracking down the practice, we help the government in its fight to reduce crimes in the country.
Secondly, now that this is a legal provision, our compliance to the requirements will ensure that we are not at loggerheads with the governing authority. The negative impacts leading to a fall out with the governments are likely to be prevented if we adopt the required procedures. Besides, as a business organization, we also have the responsibility of shaping the society that we operate in. By adopting the AML requirements, we will be promoting socio-economic and political developments in the society through eliminating crimes.
The adoption of AML requirements is also essential in reinforcing the organizational structure and in strengthening the ability of the organization towards achieving its objectives. Effective adoption of the AML requirements requires their incorporation into the entire supply chain of an organization.4 The know-your-customer (KOY) strategy required in the AML process is very crucial in developing effective supply chain in our organization. In this way, the adoption of the AML principles and procedures will enable the management of our organization to effectively coordinate all the departments in our institutions to work towards a common agenda. The regular training of employees on the emerging issues related to money laundering is in line with our objectives as an organization. We have always developed an organizational culture that aims at employee motivation. The employees are regularly updated not only on these new managerial techniques but also on the emerging technology applications in our institution and industry.
Besides, the money laundering practice has other direct and indirect negative impacts in our operations as a business organization. There are associated losses that are incurred by financial institutions following transactions that entail such illegally sourced funds. The costs that may be incurred at a later stage in reexamining a transaction that is suspected to be abnormal are high and could be cut down if the above requirement were adopted at the right time. It is better to deal with such irregularities from the onset rather attempting to make corrections later.
Potential consequences of not complying with the AML requirements
The consequences of non-compliance with the Anti-Money Laundering requirements are obvious and are adverse on the operations of financial institutions. It will definitely impede the process of eliminating the practice and this will encourage the vice. Consider terrorist financing as one of the money laundering practices. The terrorists can venture into the financial market and manipulate operations to suit their needs. They can engage in illicit businesses that may appear to be legitimate and solicit funds that can be used to purchase military equipment and promote terrorist attack on some targeted individuals, groups, or organization. Large organizations like ours often suffer great losses following such terrorist activities. It is therefore essential that we participate in the activities that are aimed at minimizing or completely eliminating the practice amongst us. Besides, if it emerges that a criminal successfully carried out unclean transaction through our firm as the financial agent, it might appear to the public that we were also involved in the scandal. The kind of image that this can create among the public is not friendly to our aim to excel in the banking industry.
The other important consequence of not complying with the AML requirements is the legislative measures that are likely to be taken against our firm. The requirements by the finance regulatory authorities are government provisions and non-compliance is punishable before the court of law. The firm is likely to suffer huge losses from lawsuits following irregularities that may result from such negligence.
Final thoughts on the AML activities
Thus, it is important to acknowledge the fact that despite the difficulties that are involved in fight against money laundering, we, the financial services firms are better placed than the law-enforcers in detecting and raising alarms on transactions that may indicate an underlying criminal activity. By knowing our customers well, we re able to track down abnormal transactions that are not in line with the customer’s daily operations or the average income. The participation in the anti-money laundering activities is of great significance to our organization. There are often associated losses when the criminals are allowed to successfully carry the day in their bid to hide their dirty transactions. The effects are always felt by the financial institutions and this becomes a key reason as to why we have to actively be involved in the control measures. The kind of reputation that we may receive among the public if some illegal transaction is carried out by a criminal client to our organization is a poor one that is likely to reduce our operations in the region.
Financial Crimes
Financial crimes are those that involve change of ownership of property through illegal means. The financial crimes can take different forms and one that is common especially in the banking institutions is money laundering. Other crimes include theft, frauds including bank or mortgage frauds, forgery, manufacture of counterfeit products as well as tax evasion. These criminal activities can be conducted by individuals or groups of people. They could also be organized by large organizations. As financial institutions, we are likely to be the agents through which much of the financial crimes can be committed. We are also likely to be victims of such criminal activities. Money laundering and frauds are the financial crimes mostly encountered in banking industry. We are thus concerned with developing and adopting various mechanisms for preventing the crimes.
Money Laundering
This is the most common financial crime that we encounter in the banking institution. Money laundering is the process of covering the origins of cash or some property and claiming that the proceeds that follow from such illegally obtained funds/property are actually legitimate. It involves the remodeling of the source of some large illegally obtained sums of money to appear to have a legitimate source. The issue of money laundering has not attracted the public interest as compared to other crimes such as robbery with violence, drug dealing, or mere shoplifting. It remains a silent and unnoticed threat to the public in that, unlike the other crimes that involve dramatic events that attract attention of the public and affect them psychologically, most money laundering processes occur silently after the above crimes have been carried out. It is important to note that money laundering, in most cases, follow crimes like drug trafficking, theft, violent robbery, or a terrorist activity.
Money laundering has been of serious concern to the management of financial institutions, the governments, and the international agencies. It is very common among ‘mainstream banks, as opposed to finance houses, currency exchange services and other non-bank venues’.5 The amount of money laundered each year is enormous prompting the governments and international agencies to enact policies that regulate the vice. Again, if the vice is practiced successfully in a given situation, the money launderers get full control over the proceeds of the illegally obtained wealth. This leads to increase in the practice alongside other related vices like corruption. The government regulations on the wealth acquisition procedures will then have poor grounds making the fight against the vice difficult. The problem that the governments and international regulatory bodies find in developing the procedures to prevent the vice is the little knowledge that the public have concerning money laundering. The money laundering processes and the forms that it takes are not well known to the public.
Money laundering can take different forms depending on the type of the institutions and the level of the individuals involved. Structuring transactions is the most common money laundering practice. The practice, also referred to as “smurfing”, involves breaking down large cash transactions into smaller sub units to avoid raising eyebrows about a probable irregularity. It aims to avoid the reporting requirements established in the anti-money laundering policies.6 Another common approach involves where an organization has ghost workers that are paid. The concerned personnel fix transactions based on wages paid to imaginary workers. Money laundering can also be inform of raising or lowering significantly the value of the invoices of a transaction in order to hide the flow of cash in an institution that can expose the irregularities involved. It could also involve the purchasing and reselling of real estate to let the public have a perception that the real estate was obtained legally. We have developed sufficient strategies that enable us to fight this vice in our institution
Fraud
This is another financial crime that is common in the banking industry. Fraud can take different forms including presentation of false documents, forging signatures, manufacturing fake currencies, false billing and even tax evasion. Just as money laundering, these fraudulent practices are aimed at obtaining some property in an illegal way and the banking institutions are more liable as they can facilitate transfer of large amounts of money by a mere mouse click or stroke of a pen. We have adopted modern technology in fighting frauds like fake signatures, documents or currencies. We have set up anti-fraud training programs that are intended to equip our staff with the appropriate measures for controlling the vice.
Concluding remarks
The financial crimes continue to be a threat to our operations as business institution. There are crimes that are not directly related to our operations but that can have serious impacts on these operations. As a partisan in the society, we need to help the government in the fight to end these crimes in whichever way we can.
Bibliography
Gallant, M, Money laundering and the proceeds of crime: economic crime and civil remedies, Edward Elgar Publishing, Cheltenham, 2005.
Mills, A, Essential Strategies for Financial Services Compliance, John Wiley and Sons, New Jersey, 2011.
Pricewater House Coopers, Anti-Money Laundering a global financial services issue, N.d. Web.
Purkey, H, “The Art Of Money Laundering,” Florida Journal of International Law, 22(1), Apr2010, 111-144. Web.
Footnotes
- H Purkey, The Art Of Money Laundering, Florida Journal of International Law, 22(1), 2010, 111-144, p. 115.
- H Purkey Ibid, 115.
- A Mills, Essential Strategies for Financial Services Compliance, John Wiley and Sons, New Jersey, 2011.
- Pricewater House Coopers, Anti-Money Laundering a global financial services issue, p2. Web.
- M Gallant, Money laundering and the proceeds of crime: economic crime and civil remedies, Edward Elgar Publishing, Cheltenham, 2005, p.79.
- M Gallant Ibid, p.79.