Are AML/CFT obligations being taken seriously?

Published by: * Asia Pacific AML

Notwithstanding the best efforts by banks, financial institutions, and gate keepers (or those professions considered capable of providing authenticity to activities that hide money laundering and terrorism financing), the ability to conduct money laundering and terrorism financing is still ‘extensively available’. The evidence for what some may consider to be a bold statement, is outlined in a single document: Basel Anti-Money Laundering Index for 2018 – the so-called ‘AML Index’.

What the Basel Anti-Money Laundering Index for 2018 measures – through its own critical and historically proven ‘empirical’ assessment – is the risk exposure to money laundering and terrorist financing of each country. In doing so, the AML Index describes there is still no country that can be regarded as having zero risk and that many low-risk countries still have issues that need addressing.

Through a series of ‘key trends’, the report outlines some significant issues still persistent in the global approach to preventing money laundering and terrorism financing. They are:

Little measurable progress in countering money laundering:

According to analysis of the seven years the report was first completed, “the AML Index has consistently indicated slow progress among most countries in improving their ML/TF risk scores”. This is determined by the fact less than 17% of countries have improved their scores by 1 or more points over the period 2012 to 2018 with 37% of countries having worsened their risk scores between when initially assessed in 2012.

Effectiveness lags behind technical compliance:

The AML Index illustrated an apparent “low level of effective enforcement of AML/CFT measures” citing the FATF Mutual Evaluation Reports, a key indicator on the assessment of a country’s legal and institutional AML/CFT framework and its implementation of AML/CFT measures in line with the revised 2013 series of 40 FATF Recommendations.

The 2018 AML Index described how most countries assessed by FATF against the update methodology received dramatically lower scores for effectiveness than for technical compliance. It found:

• 77% of countries assessed had not achieved outcomes for investigating ML activities and prosecuting offenders.
• 47% have achieved a low level of effectiveness in investigating and prosecuting ML offences.
• 40% have not achieved outcomes in confiscating the proceeds of crime.
ML/TF is not a standalone risk:
The AML Index also illustrated how countries with a high risk of money laundering and terrorism financing can be noted through an analysis of the last seven years of assessments to share some or all these features:
• Weak public institutions, political rights and rule of law
• Low levels of financial/political transparency
• Restrictions on press freedom
• Lack of resources to control the financial system
• Predominantly cash-based economies
• High levels of smuggling activity and illegal trafficking (in drugs, humans, wildlife products, etc.)

This series of consistently noted features suggests several deeper issues remain. The most prominent is the lack of consistency to the programme of AML and CFT. As the AML Index found, many countries in the latest assessment saw improvements in one or two areas alongside a deterioration in others.

Reviewers of such a report, despite it having an empirical foundation and the meta data from seven years of assessments, may suggest this is simply not enough evidence. Perhaps they are correct, and perhaps the Basel AML Index is not technically strong in its evidence to support the overly bold claim made at the start of this article – that the ability to conduct money laundering and terrorism financing are still ‘widely available’.

So, in defence and to encourage thought on the statement as to whether we are taking AML/CFT efforts seriously, this article looks to highlight two widely published recent events. Whilst these events could equally be argued as not necessarily occurring as a direct result of specific recent failings within these organisations (say in 2018 and 2019), they represent failures which occurred despite the wealth of knowledge available to those holding responsibility for regulatory compliance linked with preventing and detecting money laundering and terrorism financing.

• The Danske Bank scandal appears to confirm there remain issues with the effectiveness of money laundering supervision in countries generally regarded as low-risk. The failures identified in the investigation showed that from 2007 and 2015 reprehensible conditions at our Estonian branch and at Group level allowed Danske Bank’s branch in Estonia to be misused for suspicious transactions, and they also showed that we reacted too late and too slowly.
• For a period of three years, the Commonwealth Bank failed to correctly monitor transactions on 778,370 accounts to check for money-laundering red flags. The bank was found to have breached its obligations to perform checks on 80 suspicious customers. It was also found to not be operating transaction monitoring on a number of accounts between October 2012 and October 2015. 149 suspicious matter reports were found to have been filed late, or not filed at all.

It seems that a low-risk score in the Basel AML Index should by no means lessen the AML/CFT vigilance that must continue to remain high across all financial and business sectors. Nor should an assumption or belief that it is someone else’s responsibility to maintain AML/CFT controls. Criminals and financers of terrorism are technically and practically resourceful – meaning they will continue to find new methods, as well as new means of exploiting older perhaps now ignored methods through which to launder money and finance terrorism.

So perhaps now is the right time for Governments to consider taking a multi-faceted approach to determining the seriousness and adequacy of the approaches being taken to prevent and detect money laundering and terrorism financing. This may in turn force adjustments in legal, institutional and policy responses – not just in accordance with the principles aligned to historically perceived risks but more importantly, the new challenges – including those that have not yet been fully recognised. But then it could be argued that it is not solely down to Governments to prevent money laundering and terrorism financing, even with growing improvements in areas such as regulatory technology (RegTech) and supervisory technology (SupTech).

Businesses, professional bodies, and individuals therefore also need to take equal responsibility. Since until this materialises, reality is already quite clearly determining that opportunities to conduct money laundering and terrorism financing remain ‘widely available’ and businesses and professional will continue to be drawn into the processes which criminals utilise daily.

About the Author: * Dr Nicholas Gilmour is an Executive Consultant at AML360 and frequent author on diverse topics relating to AML/CFT compliance. Having worked with businesses around the world, Nicholas is passionate about strengthening AML/CFT controls to increase safety and wellbeing for all.

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