Managing new risks in AML, sanctions, corruption compliance

The challenges posed by money laundering, sanctions and corruption have reached new heights for financial institutions, particularly those that operate internationally, as geopolitical events and new legislation have substantially changed the risk environment.

Sanctions against Russia and Belarus related to the war in Ukraine have created wide-ranging new regulatory exposures. Meanwhile, regulatory developments for financial institutions include:

• Passage of the U.S. Anti-Money Laundering Act of 2020 (the AMLA), which was part of the National Defense Authorization Act for fiscal year 2021. This legislation has made numerous changes to the Bank Secrecy Act and existing anti-money laundering (AML) regulations. Penalties for violations have increased, and U.S. regulators have more authority to seek documents from foreign financial institutions related to AML issues.
• The U.S. Strategy on Countering Corruption. This strategy relies on five mutually reinforcing pillars to combat corruption. Pillars two (curbing illicit finance) and three (holding corrupt actors responsible) touch on many AML issues faced by financial institutions.
• The 2022 Strategy for Combatting Terrorist and Other Illicit Financing. The strategy encourages financial institutions to consider financial crime holistically instead of drawing a distinction between fraud and money laundering.

Sven Stumbauer, a Grant Thornton LLP Managing Director who serves as Anti-Money Laundering and Sanctions Practice Leader for the firm, described the challenges and strategies that banks can use to enable compliance in a recent International Banker article. In the article, Stumbauer explained that the AMLA might be the most significant AML legislation since the USA Patriot Act was enacted in 2001.

To facilitate compliance with these regulatory changes in a high-risk environment, Stumbauer suggests in the International Banker article that financial institutions look carefully at their financial crime frameworks and strategies and focus on:

Risk appetite. Financial institution leaders may wish to consider whether their risk appetite has changed, and whether they are operating within their risk tolerance levels.

Risk assessment. It’s important to ask if a financial institution’s risk assessment is dynamic enough to account for all legislative changes and strategies, and whether a “true up” exercise has recently been conducted.

Correspondent banking/agent relationships. Does a financial institution fully understand the AML, sanctions and corruption risks posed by its counterparties, and do its due diligence efforts reflect the new environment?

Customer due diligence. Financial institutions may need to assess their confidence in whether the true beneficial ownership/control persons and related parties are reflected in the results of due diligence efforts.

Monitoring systems. Detection scenarios need to address the new circumstances and potential changes in customer behavior relates to AML and sanctions.

For more information, read the International Banker article.