Combating money laundering has become a world issue, especially since 9/11. Anyone operating in the financial services sector can feel its creeping impact, from having to produce client ID to receiving training on the principles and processes of anti-money laundering regulation.
Understandably, many of the intermediary firms we speak to view the recently tightened monitoring and reporting requirements as an added strain on already stretched resources and, therefore, an unwelcome diversion from their core business.
However, most also recognise the need to tackle money laundering and its very real consequences, from tax dodging to funding terrorism and supporting the drugs trade.
In the UK, anti-money-laundering regulation has largely been enforced by delegating the role of watchman to companies and their employees, so that millions of us have now been conscripted to the cause. We are guided in this endeavour by a new “officer corps” – the money-laundering reporting officers.
The FSA handbook requires all financial companies, from small IFA firms to multinational insurers, to appoint a money-laundering reporting officer responsible for co-ordinating the company's strategy across a range of areas.
Specifically, the role requires the officer to ensure an adequate client identity checking system is operating across the company, establish an ongoing staff training programme, report annually to senior management and keep up to date with best practice using national and international reports and findings.
Crucially, the MLRO is responsible for encouraging and monitoring internal reports of suspicious transactions and deciding whether to forward them to the National Criminal Intelligence Service for guidance or further action. There can be serious sums at stake and much bigger issues besides. Therefore, the MLRO operates in a highly exposed role.
But while many bigger firms have pumped significant resources into building up their anti-moneylaundering function and are well aware of the potential consequences of failing to comply with the FSA's requirements, our experience in speaking to smaller firms is that many do not fully appreciate their liability. For example, how many MLROs have mentioned to their other-half over dinner that they have taken on this new role, where they could be exposed to serious personal sanction and even a spell in prison?
How can smaller firms limit their exposure? Huntswood recently conducted a survey among MLROs in bigger financial companies which revealed that the two most important attributes for performing the role are sound technical knowledge of money-laundering issues and a good understanding of the employer's business model.
However, it is clearly difficult for someone carrying out this role in a smaller company to build up this level of technical knowledge and keep up with latest best practice while carrying out their various other roles within the company – which could, of course, include running it. Happily, there are a wide range of resources available to help the embattled practitioner carry out their anti-money-laundering duties more effectively. Some suggestions for action are given below.
Most important, make sure that anti-money-laundering procedures are on the agenda of the management team. The more you talk about this area, the more likely you are to do something about it.
Bigger companies face a different but equally high-risk issue. The FSA specifies the role as a controlled function, which, in theory, means that the MLRO must occupy a sufficient level of seniority and have enough resources, including time, to carry out the function.
However, Huntswood has helped a wide range of financial companies to review and implement their anti-money-laundering systems and our experience has shown us that very few MLROs in bigger firms are actually part of the decision-making management team. To confirm this impression, we recently carried out a survey of anti-money laundering professionals and found that less than a third report to a senior line manager or board director.
With the Government fully committed to cracking down on financial crime, the battle against money laundering is unlikely to slip down the FSA's agenda.
MLROs carry serious personal responsibilities while the impact on a firm's reputation if there is a significant money-laundering issue are potentially massive. Yet all too often, this vital role is carried out too far down a firm's food chain, with officers relatively unsupported in their work to avoid any such issues arising.