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2012 Trends in AML and ABC: Lessons Learned for Companies Doing Business Around the Globe

In an era of enhanced scrutiny, larger fines and the ongoing internationalisation of anti-money laundering (AML) and anti-bribery and corruption (ABC) regulation, corporates and financial institutions alike are faced with increased risk and greater challenges to achieving and maintaining compliance. At the same time, high-profile enforcement actions following violations of the United States Foreign Corrupt Practices ACT (FCPA), the Bank Secrecy Act (BSA) and other mandates have highlighted regulators’ determination to heighten oversight and combat illicit activity.

During the past year, a number of key events have come to the fore and developing trends have coalesced, offering insight and important lessons for firms seeking to avoid participation in illicit financial transactions. Lessons learned from the past year of AML and ABC regulatory activity and global trends include:

  • The fight against money laundering is turning international and regulators are stepping up their game. High-profile fines in 2012, such as $219 million against Japanese construction firm JGC Corp. for bribing Nigerian officials and a $15 million settlement earlier this year by pharmaceutical giant Pfizer for improper payments to gain regulatory approval in multiple countries, means the fight against money-laundering and corruption is taking on an increasingly global focus.
  • Being a large multinational corporation offers little or no additional protection from scrutiny. Wal-Mart, Johnson & Johnson and British sprits giant Diageo either recently paid substantial fines or are currently involved in ongoing investigations over bribery violations, indicating that even firms with complex internal governance operations and high public profiles can run afoul of FCPA regulations.
  • Increasingly, the enforcement focus for financial institutions is on lax compliance standards and systems. The U.S. Department of Justice is emphasising compliance with the Bank Secrecy Act, or BSA, the law requiring employees of financial institutions to take steps to combat money laundering. High profile cases involving HSBC and Standard Charter Plc involving transactions with sanctioned countries like Iran are based, at least in part, on banks' weak compliance systems.
  • Political upheaval increases the need for effective KYC due diligence. With the Libyan conflict culminating in the death of Muammar Gaddafi, an estimated $168 billion of state Libyan assets will suddenly become more accessible. Coupled with the political upheavals of the Arab Spring, assets across the banks in North Africa and the Middle East represent heightened risk for global financial institutions. Proper Know Your Customer (KYC) due diligence is required to identify high-risk entities and jurisdictions.
  • The role of the Chief Compliance Officer is becoming increasingly important. For firms of all types, the role of the Compliance Officer (CO) or Chief Compliance Officer (CCO) will continue to widen, deepen and become more externally focused.

Without a doubt, regulators around the world are casting a more watchful eye of late. For regulated institutions, developing an effective screening and compliance program means gaining a thorough understanding of the risks throughout the enterprise and across a range of sanction and corrupt practice provisions. Certainly, technology can play a key role by automating and expanding screening and reporting. However, by gaining a better understanding of the entire compliance landscape and applying that understanding to the AML data and technology systems they deploy, companies and financial institutions alike can take great strides in winning the battle against bribery and corruption.