AML – The New Reality February 2017
Reg egulat ulator ory y Ou Outl tline ine The Cost of AML Fines Soars to over US $45 Billion Correspondent According to a survey by world $32.14 Billion - Fines imposed on - AMLMaps ™ banking is core to the bank 75% of the large entities around the globe for AML business of over 3,700 international banks have related offences between 2001 - banking groups in 200 reported a decline in their 2016, interestingly Uganda’s A recent study revealed that 40% countries correspondent banking national GDP in 2013 was $22.6 FIs terminated or restricted - IMF relationships due to De-risking billion business relationships in 2015 with certain client categories due to perceived regulatory risk and compliance cost BDT 5.6 Million - Fine Major Impact of De-risking is on $50,000 per year per bank - Due levied by Regulators Embassies, Money Service diligence costs for a high-risk in Bangladesh Businesses & Foreign “ Some of the biggest banks have counterparty for a large bank - AMLMaps ™ Correspondent Banks (FCBs) halved, or more than halved, their – SWIFT white paper relationships, particularly in emerging markets. In some cases, 80% Authorities in US have indicated $1 Billion – a rough estimate of money send by they have exited countries that dollar wire transfer is the most migrants in the United States to other countries, completely.” - Steve Beck , Head of affected service in 2015 due to the every week Trade Finance, ADB cutbacks Slide 2
Reg egulat ulator ory y Acti tions ons 14000M 450 Year Wise Penalties (in million) & Actions 13,064 400 390 12000M The causes for increase in AML 356 350 343 actions are – 10000M 9,595 • enhanced global 300 8,541 291 Penelties In Millions cooperation & coordination No. of Records 8000M and pressure on tax havens 250 6,755 & equivalent regimens 200 6000M • on-ground activation of 166 150 laws by regulators & 143 4000M agencies 100 2,371 76 75 • 1,618 2000M technological 55 1193 50 1,101 1,092 advancements 25 37 531 22 17 8 144 404 6 6 45 46 K 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Penalties No. of Records Source Slide 3
Reg egulat ulator ory y Fi Fines es & Pen enalties alties Deficiency of AML Program and Deficiency of KYC Norms are the two most used methods for which penalties have been imposed globally Reason for Penalties Count of Penalties* Penalties (in millions) Money Laundering 640 2,187 Deficiency of AML Program 471 11,205 Deficiency of KYC Norms 292 409 International Sanctions Violation 18 13,119 Bank Fraud 37 18 Ponzi Schemes 31 1,100 Drug Trafficking 120 402 Investment Fraud 25 6,061 *Count since the year 2000 Source Slide 4
Indivi dividu dual al | Pen enalties alties & Impr prisonm sonmen ents ts 170 165 Records Involving Imprisonments 89 52 20 17 Imprisonments have increased post 2012, 11 8 6 5 2 2 2 1 reflecting the intent of regulators to establish 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 personal liabilities on individuals, even for organization centric AML actions President Owner Former USA has been the leader in convicting Chief Chief Compliance individuals for money laundering followed by Executive Officer Officer UK, Malaysia, Thailand & Hong Kong Former Chairman of Board Chief Former Chairman of Board along with Founders Founder Operating have been one of the most convicted Officer professionals amongst individuals. This trend is expected to continue & grow. Chief Former Executive Former President Prime Officer Source Minister Slide 5
Ba Banking, nking, Fi Financial nancial se service ices s and nd Insu suranc rance e : Analy nalysis sis & Compa parison rison BFSI BFSI Only vs Individuals $6,210 Mn vs Non-BFSI Banking, Financial services and Insurance (BFSI) entities (~70% 222 $807 Mn banks) by virtue of being at the $25,374 Mn center of AML norms & $8,685 Mn $263 Mn actions, have attracted more 67 $272 Mn 45 than 60% of the total penalties Count of 636 10 Count of Fines 35 521 Fines AML actions against Banks constitute 50% of all records $7,870 Mn but around 75% of all penalties. This clearly reaffirms 324 the status of Banks being most at risk, by AML regulators. BFSI Individuals $17,821 Mn Banks Financial Services Non BFSI Investment Banking Money Services Business Others Source Slide 6
De De-risking risking | Impa pact ct on Ba Banks ks Key Drivers Impact Undermines Affects Financial ► Decrease in profitability Financial Inclusion Transparency ► Lack of confidence in AML Adverse affect on procedures of the CB partner Lost Revenue & Regulatory Profit Compliance ► Reputational risk Migration of ► Pressure from other actors Overall impact on customers to global trade smaller banks ► Fear of regulatory scrutiny Slide 7
De De-Ris Riski king ng | Ef Effect ect in Ba Bangladesh ngladesh Global de-risking is leading to decline in correspondent banking relationships and stifling $15 billion payments industry in Bangladesh Increase in Fines & Penalties. Bangladesh has seen 80% increase in penalties on financial institution since 2012 - AMLMaps ™ 82% of the total penalties have been imposed due to Deficiency of AML program - AMLMaps ™ Deficiency of AML program has become the highest focus for Bangladesh Regulator for imposing penalties followed by money laundering - AMLMaps ™ Information & Compliance reporting requirements have increased in a major way Other country regulators are indirectly penalizing banks and their foreign branches - AMLMaps ™ Slide 8
Key Areas eas of of Con oncern cern Inadequate Due Diligence Lack of Continuous Monitoring Insufficient AML expertise Technology Slide 9
The he AML ML Di Diagn agnostic ostic AML Program Health Check for your organization Risk Based Framework Customer Industry Management Oversight KYC Geography Product Org Structure CDD/EDD Independence Renewals Policy & Review Global/Third Parties Reputation Transaction Monitoring Screening Scenarios & Optimization Coverage Technology Lists & Sources Alerts & STRs Thresholds & Disambiguation Investigations Training & Resources Regulatory Compliance Frequency Reporting Content Internal Controls Coverage Record Keeping Compliance Organization Monitoring Independent Testing Coverage Methodology Risk Based Slide 10
Thank You Sarabjeet Singh Partner Risk & Advisory Services +91 991 034 5454 sarabjeet.singh@bmradvisors.com
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