AML lessons: 6 ways to stay compliant

A crackdown against failings in anti-money laundering controls in Singapore highlights six areas for firms to consider in order to stay compliant.

Singapore’s central bank has ordered a Zurich-based private bank’s Singapore branch to cease operating because of “a persistent and severe lack of understanding” of the city-state’s money laundering controls.

The Swiss bank is the second to lose its license in connection with Singapore’s probe into Malaysia’s 1MDB fund, in which authorities have frozen millions of dollars in bank accounts, fined banks and charged several private bankers.

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In May, another Swiss-based bank’s Singapore branch was ordered to be closed for failing to control money laundering activities connected with 1MDB. It was the first time in 32 years Singapore had shut down a bank.

Multiple red flags

The Monetary Authority of Singapore (MAS) also imposed financial penalties on two other banks in October this year. MAS found in the case of these two banks that appropriate controls were in place but staff failed to use their judgment in allowing certain transactions. On December 2nd, Singapore’s Central Bank imposed penalties on two other banks, the local units of a UK-based bank and a private bank for lapses of AML controls in relation to customer due diligence measures for politically exposed persons as well as controls for ongoing monitoring.

With the Zurich-based private bank, MAS said it had failed to guard against conflict of interests when managing a customer account associated with the bank’s former board chairman.

The compliance procedures were inadequate and Singapore branch staff processed large transactions despite multiple red flags.

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Risk culture

A notable theme from these cases has been one of “human error”, ignoring legal AML requirements for the sake of profit.

Other issues raised by MAS include:

  • Shortcomings in the onboarding of new accounts and general enhanced customer due diligence, including weaknesses in corroborating the source of funds
  • Failures related to the continuous monitoring and reporting of suspicious customer transactions
  • Lack of risk culture and instances of gross misconduct, including the misleading and pressurizing of staff to perform illegal transactions
  • Poor and ineffective oversight by senior management along with a disregard for MAS regulations

MAS managing director Ravi Menon said that there was a shared responsibility to keep Singapore a clean and trusted financial center.

He added that robust mechanisms were vital to detect suspicious activities, promote strong risk awareness and to empower compliance and risk management staff.

Most of all, he said board and senior management must set the tone from the top — that profits do not come before right conduct.

Download the full infographic — A Culture of Compliance

In light of this, what can all firms learn from the AML failings of these banks?

  • Tone from the top
    Senior managers should provide a note to compliance and bank staff generally not to conduct illegal transactions, even if they are put under pressure. This applies to any information showing money laundering or terror financing “red flags” that have not been properly dealt with or where concerns have been raised.
  • Keep staff informed 
    Develop up-to-date AML training courses, using the Singapore banks as case studies, in order to provide insight and to strengthen the knowledge of staff, including on their ethical requirements.
  • Regulatory change management
    Ensure staff who work in compliance and their senior managers understand and revisit responsibilities under AML law and regulations and assess what “red flags” mean in relation to transactions in the context of the MAS investigation.
  • Conflict of interests
    Consider reviewing senior management and customer conflict of interest policies and approaches. Are senior executives and non-executives associated with customers or corporate accounts? Are there adequate disclosure procedures? Are there proper safeguards for these procedures and their reporting? It may be appropriate to run training courses for senior managers.
  • Transaction monitoring
    Are there effective procedures to report suspicious transactions? Do these reports contain sufficient information? Is there any feedback from the financial intelligence units?
  • Due diligence
    Banks should review any “concerning” transactions that have raised red flags and have not been dealt with appropriately in terms of AML compliance procedures.

There are a number of ways in which Thomson Reuters can help provide solutions to the above issues, including through the use of training courses, risk intelligence and transaction monitoring.

Our IBF-accredited eLearning courses ensure that your employees are trained and up-to-date in order to make compliant decisions and protect your business from risk.

In addition, our compliance management offering ensures your organization can demonstrate supervision of employee conduct and create a more visible culture of compliance.

World-Check provides specialist research on areas including sanctions, Politically Exposed Persons (PEPs) and State Owned Enterprises (SOEs), to name a few.

This means you are able to satisfy demands for KYC, AML, CFT, and PEP due diligence. Meanwhile, our Enhanced Due Diligence reports provide advance background checks when you need to know more on any entity or individual, no matter where they are located in the world.

Additionally, a flexible transaction monitoring solution is designed to identify suspicious behavior. Our Transaction Monitoring System has two main variants for Financial Crime (AML, Fraud) and Market Abuse. We can also provide a single source of Regulatory Intelligence with global coverage of regulatory developments tracked with meaningful expert-level interpretation.

Thomson Reuters KYC as a Service is an end-to-end client identity and verification service that provides a complete legal entity due diligence and document management service through which financial institutions and their end clients (asset managers, hedge funds, correspondent banks and corporates) can more effectively manage their response to new KYC regulatory requirements.

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