Global AML Regimes – Tightening Reins on Money Launderers

  • Richard Marley
  • September 17, 2019
  • 6 minutes read
  • 3523

Money laundering is a global menace. Money laundering and terrorist financing are the major targets of global regulatory authorities like FATF, FCA, FINTRAC, FINMA, etc. Many countries like the UK, USA, and Canada are becoming more rigid in developing and implementing AML regulations on their reporting entities. It motivated businesses around the globe to invest more in advanced AML solutions to avoid any non-compliance penalties. 

Money laundering is a global crisis so, AML regimes are becoming global, through international businesses. As per the United Nations Office of Drugs and Crime estimates, the annual money laundering amount is 2% to 5% of global GDP. 

The loss does stop here but extends to the penalties that global financial institutions pay due to non-compliance. For instance, take the case of Swedbank and Danske bank that paid millions of dollars in penalties due to money laundering practiced in their Estonian branches. 

Both the banks were ignorant of their AML compliance and suffered huge losses due to these cases. The scandal wiped €7 billion off Swedbank’s market value and took a toll over its credit rating. As for Danske bank, it closed its Estonia branch as per the regulatory requirement. 

These shocking revelations affected the AML regulations, regulatory authorities are even more rigid towards AML compliance. Also, the financial institutions and businesses are paying more heed towards AML compliance due to rapid changes in global AML regimes.

Dutch Banks Joining Forces Against Money Launderers

Dutch banks have been exploited several times by the money launderers in the previous years. The largest Dutch bank paid $858 million to settle an investigation last year. It was the largest fine in Dutch corporate history. 

In order to mitigate the risk of further damage, five Dutch banks are exploring joint monitoring of transactions. The banks are aware of the technical and regulatory roadblocks that will hinder this collaboration because confidential data of clients will be shared among the collaborating banks. 

A group of Nordic banks, including Danske bank, are planning to establish a joint venture to develop a platform for handling due-diligence data of their customers. Also, they are working on developing complex algorithms to identify illegal fund transfers. 

The USA Expanding its Counter-Terrorism Powers to Hinder Terrorist Financing

The USA is also expanding its counter-terrorism powers to fight terrorist groups and money launderers. The Wall Street Journal, 11th Sept 2019, reported that Trump administration is expanding its counter-terrorism powers to a global level. The USA will target the international financial institutions that will assist the U.S.-designated terrorist groups and their affiliates. Also, it imposed sanctions on several individuals and entities involved in terrorist groups. 

In its wake to improve security in the state, the U.S. Treasury imposed sanctions on three Korean groups namely, Lazarus Group, Bluenoroff, and Andriel involved primarily in global cyberattacks on financial institutions and ransomware attacks. It is found that these groups are directly controlled by North Korea’s primary intelligence bureau, RGB. These measures are taken to reduce money laundering and terrorist financing in the USA. 

The UK MLA-2017 Amendments of 2019

The UK announced new regulations in AML group-wide policies of the Money Laundering Act (MLA-2017). These new regulations will be in action from 3 Sept. 2019 and will extend the scope of EU regulations to other states. The reporting entities will have to extend necessary EU AML practices to non-EEA states where they have local entities. 

The businesses are entitled to review the regulatory framework of AML/CFT regulations in other states. In case they are facing any hindrance from the authorities in other countries they must report to the FCA(Financial Services Authority) within 28 calendar days of the concerned country. 

If there are restrictions in practicing EU AML regulations in non-EEA states the businesses must take additional measures to mitigate the risk. In case additional measures are not fruitful the businesses are directed to terminate some or all of their operations in that country to mitigate the risk. These new regulations will change the overall AML compliance practices of the businesses.  

Canada – Amendments in PCMLTFA

The Canadian government amended the regulations of the Proceeds of Crime Money Laundering and Terrorist Financing Act (PCMLTFA). FINTRAC (Financial Transactions and Report Analysis Center) will implement new AML regulations. 

The major amendment in AML regulations is that the reporting entities are allowed to accept photocopies or scanned copies of identity documents for verification of the clients. In the past, only physical documents were allowed for verification of clients. 

Now the financial institutions and businesses can use identity and document verification software for due diligence. It will enhance the accuracy of their AML compliance practices. Also, online verification is less costly and time-efficient. 

The new Canadian regulations are designed to align the AML regulations of Canada with global AML regulations of FATF (Financial Action Task Force). Money Services Businesses (MSBs) are included in the Reporting entities (RE) list. 

The MSBs will have to follow the same AML regulations of due diligence, recording, and reporting just like the typical financial institutions. Financial institutions will not be allowed to conduct business with unregulated MSBs. The MSBs will have to run in-depth identity verification on all their clients. 

Virtual currency businesses will be registered just as MSBs and will have to follow rigid AML regulations. They are directed to report any cryptocurrency transaction above minimum transaction threshold of $10,000. 

The reporting time for MSBs and virtual currency businesses is also reduced to 3 days from 30 days, which is the global criteria.  

What Businesses Need to do About These Changes?

Global businesses will be affected by these changes. The businesses will have to rethink their AML practices. As most of the AML regimes require the verification of global clients so it is necessary to use feasible solutions for frictionless compliance. Manual compliance could only be helpful when the clients are local. 

Real-time AML compliance solutions will help financial institutions to mitigate the risk coming from international clients especially when the clients are from high-risk countries. Its high time to make smart decisions to stay one step ahead of fraudsters in the future.