Risks for Companies Failing to Implement a Compliant AML Process

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 In the recent years, there has been a surge of investigations for AML requirements violations from relevant national authorities. Consequently, firms which failed to implement a robust AML program and did not demonstrate sufficient monitoring were subsequently fined. Depending on the authority, their scope and prerogatives may differ.

As an example, the French institution Autorité de Contrôle Prudentiel et de Résolution (ACPR) in charge of monitoring the activity of banks and insurances, has the power to impose the following sanctions:

·          Up to EUR 100 million fine, or 10% of the turnover;

·         Withdraw financial license, allowing the company to operate on the French market;

·         Impose to an individual an interdiction to operate in the financial sector;

·         Appoints a non-permanent administrator for monitoring purposes.

Other examples may illustrate how serious fines can be for failing to comply to AML requirements. In June 2020, the British regulator Financial Conduct Authority (FCA), fined the London branch of the German Commerzbank a GBP 37 million fine, “for failing to put adequate anti-money laundering (AML) systems and controls in place between October 2012 and September 2017.” 


In 2017, the U.S. FIU Financial Crimes enforcement Network (FinCen) imposed a USD 184 million civil money penalty to Western Union Financial Services for violating “the Bank Secrecy Act’s anti-money laundering (AML) requirements by failing to implement and maintain an effective, risk-based AML program and by failing to file timely suspicious activity reports (SARs)”.

Cases led bythe Financial Conduct Authority, or FCA, against NatWest Group PLC, Credit Suisse AG and HSBC Holdings PLC helped to drive the value of U.K. anti-money laundering fines to $672 million in 2021, more than tripling from $206 million in 2020, according to research by regulatory technology company Fenergo.

Thus financial institutions that don't comply with AML/CFT (anti-money laundering and counter-terrorism financing) regulations can face a range of risks, including: 

 

·         Legal and regulatory penalties

These can include monetary fines, criminal proceedings, and sanctioning. Sanctioned entities may be placed on blacklists or greylists, which can mark them as high-risk. 

·         Reputational damage

A serious investigation into money laundering, often involving clients or business dealings, can negatively impact a financial institution's reputation. 

·         Loss of business opportunities

Non-compliance can limit a financial institution's ability to participate in international transactions or form partnerships with other financial entities. It can also prevent them from operating in certain sectors or jurisdictions. 


 

To help manage compliance risks, financial institutions can regularly monitor compliance activities and conduct audits. This can help them identify areas of vulnerability, assess the effectiveness of their compliance program, and make adjustments to ensure ongoing compliance.


Happy Reading,


Those who read this, also read:


1. Impacts of Money Laundering

2. Impacts of Money Laundering on Banks-General

3. Impact of Money Laundering on Banks- India

4. Impact of Money Laundering on Banks-Global



Formerly Faculty for Finance & Associate Dean, IBS-Kochi MBA (Banking & Finance – CUSAT);CFA. Accredited Management Teacher from CME of AIMA, Delhi has been in Management Education from 1988. Exposure is in the field of Mutual Funds, Market Research, Project Report preparation & evaluation, Advertising & NGO Activities. This Chief Manager, UTI Asset Management Co Pvt. Ltd(1992-2003), Mumbai. Undergone training in Case Study method of teaching under Mr. Trevor Williams and Mr. Scott M Andrews conducted by the ECCH, UK . Published Books & Book Review, Series of academic articles and maintains a column on MFs under "Fund scan" in Business Manorama since January 2007,Contributes "Portfolio Doctor" column for 'Sampadyam' a wealth mgt publication in Malayalam from manorama group since February 2007, Listed her case studies at asiacase.com.Presented papers in national & international conferences on Mutual Funds. Faculty Member @ ASIET, Kalady from 2010 to June 2019. Dean @ SNGIST, N Paravur, Ernakulam from Sep 2019 -Jan 2021, I continue my efforts to spread the knowledge in area of Finance and contribute to Management Education

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