According to the latest evidence, The US Treasury estimates that over $300 billion in money laundering flows through casinos annually. The two leading sources of funds, fraud or drug trafficking, account for just over $64 billion alone. Recently, officials at the federal Financial Crimes Enforcement Network (FinCEN) – the agency responsible for monitoring casino operator compliance with the Bank Secrecy Act of 1970- have stepped up their AML compliance rhetoric and activity. And they’re not alone.
Occasioned by the announcement of a consent order with Florida bank Gibraltar Private Bank and Trust, the Office of the Comptroller of the Currency (or, OCC) announced two significant updates to its policies and procedures for calculating civil money penalties for non-compliance or persistent, uncorrected BSA/AML compliance. The OCC took the opportunity to call-out failures in the Gibraltar response to earlier orders - setting clearly tougher expectations for under-performing or unresponsive compliance programs.
The challenges you face as a risk and compliance professional reflect forces beyond your control. You’re between an accelerating expansion in technology – which offers new avenues for misbehavior - and a rising tide of regulatory expectations. It’s a classic problem of supply and demand.
Start with the supply-side. Combine the human resources, known information resources, and the technology solutions you deploy for risk and compliance (R&C), and you essentially determine your supply of time to monitor, investigate, and react. Finding qualified R&C professionals has never been more difficult. Information has never grown faster. And solutions have never been more difficult to replace.
Effectively Documenting Transactions to Avoid Penalties
Reporters Woodward and Bernstein were famously advised to “Follow the money” as a way to navigate through the complicated web called Watergate. Last week, U.S. regulators fired their latest warning shot across the bow of another transaction-focused business – daily fantasy sports – signaling their expectation that these businesses abide by the same regulations that bind banks, gambling casinos, and (shortly) investment advisory firms. With their international counterparts, U.S. regulators are starting a boa-like squeeze to choke off the placement, layering, and integration of criminally obtained funds.
My last two posts highlighted both a recent change and a long-standing challenge. That no fewer than ten thousand Investment advisory firms face AML regulation – where the costs of compliance have increased by more than 50% over the last three years – suggests the potential for a messy regulatory train-wreck. Why are costs spiraling out-of-control? And can anything be done about it?
Between 2011 and 2014, banking respondents to KPMG’s Global Anti-Money Laundering Survey reported an average increase in AML compliance costs of 53%. That average exceeded both their 2011 prediction (40%) and the previous (2007-2011) average of 45%. In seven years, institutions seem to have made very modest headway in cost-efficiently complying with regulatory changes. Are there reasons and solutions? Read on.
Digging deeper into the survey, three areas of heaviest AML investment emerge – transaction monitoring systems, Know Your Customer (KYC) systems, and recruitment/retention systems for AML staff. Across all areas of AML investment, fully 28% of respondents predict an increase in compliance costs of more than 25% over the next three years.
SEC-registered investment advisors would have to comply
Banks, mutual fund, insurance and security dealers share an affirmative obligation to comply with anti-laundering regulations by identifying their customers and reporting significant (over $10,000) transactions. In a proposed rule change announced yesterday, Treasury would extend monitoring and reporting requirements to all investment advisors, including hedge fund and private equity advisors, as well. For an estimated 10,900-registered advisory firms, the proposed regulation will mean, at a minimum, two things… read on.