Chapter 1: Global Compliance the "Why" of Things

#AML #CTF #KYC #Compliance#why#monitrail

The MoniTrail - A journey into Financial Crime learning

As I wrote earlier, I was introduced to Ted Talk by Simon Sinek while working with Santander UK. The talk was from his famous book “Why”, and it has become the core of my reasoning. It is best to know the “Why” of things before we reach the what and how of things. We must know “Why” do we do what we do? And with that in mind I started to look for the why of ML & CFT: and here is my synopsis. Criminal activities generate profit, the ability to conceal the true origin of such illicit gains and to lose the trail of the ownership to make them appear legitimate is Money Laundering. AML/CFT initiative is to recognize, report, track and confiscate; preventing the criminal’s ability to launder the proceeds of crime, the foundations of a successful criminal enterprise. Key: Disguise the source, change the form, and retain control. Global Money Laundering & Terrorist The FATF Recommendations Financing Threat Assessment July 2010 According to UNDOC 2-5% of global GDP is laundered every year. Money laundering weakens the socio-economic fabric, manipulates free-market competition, encourages corruption, result in law-and-order failure, weakens economic growth etc. In today’s times, the term Money laundering is misleading. As Money laundry includes/involves all forms of tangible and intangible assets derived wholly or partly from proceeds of crime. Criminals use all products and aspects of the financial market, which can be complex or simple across jurisdictions involving various banks/mediums and financial institutions eg: banks, Money exchange, insurance, prepaid cards etc. AML/CFT requires global efforts considering the global nature of the world financial systems. which provides unlimited opportunities for criminals to launder their proceeds. It is said that global efforts are as strong as the weakest nation. (FATF) Financial Institutions: are expected of high legal, professional, and ethical standards. Bribery and collusion can damage the most valuable asset of integrity and moral turpitude. Failure to prevent AML/CFT would lead to reputational damage, regulatory fines, or cancellation of license preventing doing business. Regulatory agencies have attempted to protect investors from fraud and provide frameworks for fair and orderly market operations. Regulators have provided three attributes for a compliant framework which are assessment, a mechanism to track, measure and record and lastly to allocate adequate resources. We will discuss these further in detail in RBA (Risk-Based Approach) In today’s globalised world, money launderers and other criminal elements have ingenious ways to cover their tracks. It is a common practice among such groups to use everyday transactions with genuine entities in the financial service

business to have their dubious earnings “cleaned”. On the other hand, to counter such activities, financial institutions rely on KYC, monitoring and regular reviews of rules and procedures in line with the market risks. The biggest challenge the government face in track and punishing these criminals is the absence of any supranational regulator or lack of international cooperation. Which could result in substantial penalties even if the financial institutions are caught facilitating ML & CFT even

unintentionally. It is of utmost importance for financial institutions to establish a reliable system of controls, allowing them to identify unusual money flows and transactions even when criminal elements are using the best of their ability to circumvent the rules.

Chapter 1- the why of things .pdf

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