Companies around the world are more focused on tackling the ongoing recession and other challenges than on implementing Anti-Money Laundering (AML) measures, according to the latest KPMG Global AML Survey.
The Survey, involving 197 Heads of Compliance and other senior executives in banks in 69 countries at the end of 2010, found a drop in nine percentage points in terms of AML measures.
It revealed a nine-percentage point drop in boards considering AML as a high profile issue (from 71% in 2007 to 62% in 2011).
The Survey included for the first time ‘anti-bribery and corruption activities,’ ranking it the third largest area of expenditure.
New Zealand did not feature in the Survey since the full enforcement of the relevant act would not occur until June 2013.
But it included Australian Banks such as ANZ, Commonwealth Bank of Australia and National Australia Bank, which respectively own three major New Zealand based banks, namely the ANZ Bank, ASB Bank and Bank of New Zealand.
KPMG Global Head of Anti-Money Laundering Brian Dilley said that while boards of directors of companies have been concentrating on survival strategies and on the regulatory changes, they must ensure that AML remains at the top table.
“Otherwise, they would risk massive fines and business disruption, particularly in relation to sanctions compliance,” he said.
Compliance costs up
According to the Survey, operational costs of AML had risen by about 45% since 2007, with a further 28% rise predicted over the next three years.
However, many AML professionals have a history of under-estimating future costs, it said.
Mr Dilley said that in 2007 less than one-fifth (17%) had predicted a rise of 51% or more in future costs, and that almost a third (31%) said their costs had actually risen by the amount forecast.
“In a cash-constrained environment, it is imperative that AML professionals forecast realistic costs to the board, not only because of the significant risks that need to be managed, but also because they should retain credibility with boards who do not take kindly to repeated requests for additional funding,” he said.
About 10% of the Survey respondents had either off-shored or outsourced part of their AML functions, while 80% had never exercised this option. Banks may be missing opportunities to save money on some of the lower risk aspects of their AML programme, the Survey said.
Focus on PEPs
Recent events in the Middle East and North Africa have intensified the focus on Politically Exposed Persons (PEPs).
The number of respondents with formal processes to identify and monitor PEPs increased from 71% in 2007 to 88% in 2011.
Banks have the obligation to monitor PEPs in terms of the ‘Third EU Money Laundering Directive,’ implemented in 2007.
This requirement has reportedly created an impact, with a rise in the number of European institutions implementing such procedures from 65% in 2007 to 94%.
According to Mr Dilley, financial institutions across the globe have had the foresight to adopt a risk-based approach to knowing their customers.
A majority (96%) of the institutions now use PEP status as a risk factor, he said.
“The challenge for banks is that, in some cases, PEPs have become sanctioned parties or persona non grata overnight and global authorities have scrutinised past transactions with PEPs with 
whom they had previously encouraged business. Banks must ensure that they can justify their relationships with PEPs, particularly with an eye to future changes in their political standing.
“They should always be asking where the PEP obtains the funds that are passing through the institution, and be ready to explain the purpose of transactions that they undertake,” Mr Dilley said.
Scenario at home
The Survey did not include reporting entities in New Zealand since the ‘Anti Money Laundering and Countering Financing of Terrorism Act 2009’ is still in its early stages of planning and implementation, with its full enforcement due only in June 2013.
KPMG New Zealand Head of Forensics Stephen Bell said that the country’s banking sector had the opportunity to learn from this Survey before the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 legislation comes into effect in June 2013.
“It is crucial that the sector remains focused on this issue and begins to plan and implement strategies to address it,” he said.
Mr Bell said KPMG has been engaging with clients through seminars, workshops, web conferences and one-to-one briefings to ensure that they have checks and balances in place by June 2013 to safeguard themselves and their customers.
Editor’s Note: KPMG New Zealand is a Sponsor of the Indian Newslink Indian Business Awards 2011 with a unique package. The Firm would host 12 Business Workshop Sessions for winners and a finalist in six categories.
