2019 Trends For Anti-Money Laundering And Terrorist Financing

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Maureen Mutua

Maureen Mutua

AML Compliance Manager
Maureen Mutua has over eight years’ experience in AML and KYC compliance. She possesses extensive knowledge of laws and regulations relating to compliance such as The Bank Secrecy Act, FinCEN, Council of the EU, FATF, and OFAC with oversight for monitoring, reporting and analyzing compliance risk and creating strategies for risk mitigation. Her technical skills enable her to help financial institutions in risk identification, risk assessment, controls and development, her experience and understanding of regulatory requirements, allows her to train and provide advisory services to financial institutions to adhere to regulatory laws and supervisory requirements. Maureen is a published author of an AML/CFT book titled “Mastering Anti- Money Laundering, What I Have Learned About Dirty Money and What You Need to Know”. In 324 pages, the book covers topics such as; the role of artificial intelligence and regulatory technology in preventing ML, the risk-based approach, trade-based money laundering, suspicious transaction reporting and the Wolfsberg group standards, EU, GIABA, UN regulations with respect to KYC and AML.

Because of the increasing burden of interpreting the high number of regulatory laws, Regtech is growing in stature and becoming an integral part of the compliance ecosystem. To prevent breaches and financial penalties, financial institutions (FIs) will be forced to increase their budgets to implement Regtech solutions. Monetary penalties for non – compliance will remain in place; therefore, FIs will need to ensure compliance. Further, professionals who understand Regtech will be essential in guiding FIs towards compliance and advisory. The regulatory environment will continue to change as this will be necessitated by the global connectivity of financial systems, the rise of complex methods of conducting a financial crime and the expanding use of technology to commit other kinds of predicate crimes.

The ineffectiveness of current AML systems is leaving institutions vulnerable to being used for ML/TF. The historical approach of the onboarding process is not pleasant for customers either and 2018 industry research shows that there has been a rise in customer complaints.

ML/TF schemes are becoming more sophisticated, therefore for their quick identification of such schemes, FIs will need to be swift in incorporating real-time intelligent automation to help them spot, stop and report irregularities. Automation will prevent the loss of revenues  and save time that all the above factors have led to.  The identification of beneficial ownership will have much more emphasis in 2019 as evidenced by FinCEN’s revision of its UBO requirements in Jan 2018 and the amendment of 5th EU directive . FIs will be obligated to perform extensive due diligence and to document the process according to the new rules and to monitor clients for arising risks.

De-risking will continue, as FIs will try to evade the monetary and reputational risks that come with correspondent banking relationships. FIs located in vulnerable jurisdictions can reduce de-risking and avoid being de-banked by strengthening their AML/CFT programs and increasing financial resources needed to adapt to global AML regulations. Additionally, they can refine legislative frameworks and adopt best practice strategies such as conducting yearly national/country risk assessments. Since most monetary penalties seen between 2016-2018 were because of providing services to sanctioned entities and individuals in high-risk jurisdictions, an increase in sanction compliance monitoring will be seen. Additionally, in 2017 and 2018 new countries were added to the sanctions lists such as Venezuela, Iran, and Russia.

This addition represents an increased risk for FIs with or without a presence in these countries because individuals and entities will try to use them to circumvent sanctions. Sanction risks will rise as the global financial system tries to adjust to the restoration of the Iranian sanctions by the U.S.

Moreover, because of the extraterritoriality nature of the U.S sanctions that is brought about by the use of U.S dollars, Iranian and Iranian related institutions will be isolated as FIs try to curb the potentiality of monetary penalties. The re-imposition of sanctions might increase perceived terrorist activity and terrorist financing (through sympathizers) as Iran might consider accelerating its nuclear weapon program.  Additionally, as part of their institutional sanction regime monitoring programs, FIs will need to update their sanctions lists to include new countries, entities and individuals.  As more and more countries adopt cryptocurrencies and because of its anonymity, it can be predicted that digital currencies will continue to be used by money launderers in 2019. There has been a notable rise of adoption of cryptocurrencies by sanctioned countries such as Iran, Russia, and North Korea to circumvent economic sanctions. The decentralization of cryptocurrencies and their operating software blockchain will enable transactions to go unnoticed and identification of individuals/ entities behind a transaction will be difficult.

The threat of terrorist will remain a cause of concern globally but more so, the risk of terrorism/ terrorist financing will be high in western Africa because of Boko Haram, eastern Africa because of Al Shabab, the growth of ISIS in the Sahel and its spread to sub-Sahara Africa.  The risk will be heightened due to the transnational nature of these groups and as their crime networks traverse the whole continent. These violent extremist groups will pose a large geopolitical risk for Africa by increasing human trafficking, kidnapping for extortion, and therefore using ransom pay-outs to fund their activities. They will undermine Africa’s stability and affect its investment climate negatively.

Depending on the size and scale of their attacks, terrorist cells use different monetary practices to fund each activity. For smaller attacks, they use to access funds using informal banking systems such as the traditional system of hawala, through illegal oil sales, the sale of goods traded in the black market and mobile money.  For big attacks, they try to use the mainstream financial system. The onus will be on governments and FIs to remain vigilant so as to disrupt their private financing sources and to prevent them from accessing other forms of financing for their operations. Because of the large amounts of money these groups manage to receive, (Hezbollah – USD 1.1 billion annually) it is imperative to note that they have morphed into global criminal syndicates and can no longer be classified as mere terrorist groups. As a result, government policy needs to evolve quicker to reflect and address this upsurge. 

Government task force committees and working groups comprising of AML and CFT experts, members of the judiciary, law enforcement officials and relevant state representatives should be established to conduct joint investigations. Their sole objective should be to outline measures to combat terrorist networks, to expose their operations and to prosecute. A task force can yield good results. In 2012, Barack Obama set up a fraud enforcement task force to hold banks responsible for their misconduct in the 2008 financial crisis . As a result of the task force, Credit Suisse and Deutsche Bank were fined $5.2 billion and $7.2 billion respectively, Bank of America $16.65 billion and JP Morgan Chase & Co $13 billion.

There will be an increase in the use of both the dark and the deep web by terrorist networks to access funding, recruit and radicalize for their activities. Other than terrorist financing, the online black market will continue to be used to mask illegal gains. Much like the underground silk road website that was closed in 2013, similar digital underworld websites still exist, their opacity and hard inaccessibility by law enforcement will make it difficult to prevent money laundering.

Featured image: Pexels

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Maureen Mutua

Maureen Mutua

Maureen Mutua has over eight years’ experience in AML and KYC compliance. She possesses extensive knowledge of laws and regulations relating to compliance such as The Bank Secrecy Act, FinCEN, Council of the EU, FATF, and OFAC with oversight for monitoring, reporting and analyzing compliance risk and creating strategies for risk mitigation. Her technical skills enable her to help financial institutions in risk identification, risk assessment, controls and development, her experience and understanding of regulatory requirements, allows her to train and provide advisory services to financial institutions to adhere to regulatory laws and supervisory requirements. Maureen is a published author of an AML/CFT book titled “Mastering Anti- Money Laundering, What I Have Learned About Dirty Money and What You Need to Know”. In 324 pages, the book covers topics such as; the role of artificial intelligence and regulatory technology in preventing ML, the risk-based approach, trade-based money laundering, suspicious transaction reporting and the Wolfsberg group standards, EU, GIABA, UN regulations with respect to KYC and AML.

2019 Trends For Anti-Mone…

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