Finance Focus

BSA/AML manual, and FinCEN releases), firms are advised to review public enforcement activity to understand current regulatory expectations.

Finally, firms doing business internationally must abide by local laws and regulations, and all firms are advised to take note of international guidance issued by international bodies such as FATF and Basal.

Understanding the Risks Financial institutions doing business in the US are expected to undertake enterprise wide AML risk assessments tailored to their specific businesses. Generally, firms are expected to, and should assess their money laundering risks in each discrete line of business, and then roll the line of business risk assessments up to the jurisdictional (if applicable) and enterprise level. Understanding where risk is greatest assists firms in dedicating appropriate resources to those potentially exposed pockets. To conduct a risk assessment, firms should generally first seek to understand their inherent risk – e.g. what is the risk in the customer base; what is the risk in the products offered; what is the risk in the geographies where business is conducted; what is the risk in the channels through which products are offered? Firms then should understand the current controls in place to mitigate the identified risk, taking into account past audit and enforcement issues. Finally, firms should understand what their residual risk is after considering controls against inherent risk. Risk assessment should be both qualitative and quantitative, allowing firms to understand where changes may be needed or resources should be spent.

Responding to Exposure

Firms are required to monitor for and report suspected money laundering in the ordinary

course, so plainly any such activity detected should be the subject of a Suspicious Activity Report (SAR) filed with the appropriate authorities. If a firm discovers what appears to be more concerning activity – for example, something more than just an unexplainable transaction that might appear indicative of true criminal activity or terrorist financing – the firm should contact the relevant law enforcement authorities in addition to filing the SAR. Firms should have a designated point of contact for such outreach.

If the activity appears to be more problematic, perhaps something that is concerning and has gone undetected for some time, firms should consider taking several steps, some of which may require time, effort and resources. Firms should report the activity; assess the root cause for failure to timely detect such activity; determine if there is additional activity that should have been detected and was not; report such missed activity; remediate the root cause of the problem with sustainable repairs; and have an open an honest dialogue about the miss with their primary regulators.

Firms are advised to keep regulators apprised

of issues as they arise so that the regulatory relationship that develops is one of trust. Proactively detecting and reporting program issues will enhance a firm’s compliance profile and may mitigate and ensuing enforcement activity. Firms should consider implementing compliance testing programs, in addition to traditional independent testing, to identify issues timely.

These are very challenging times for BSA/AML officers. Regulatory authorities have enhanced expectations, and thus to meet those expectations firms must deploy a tailored and targeted program staffed with able, knowledgeable professionals. As a result, firms are competing for talent in a sellers’ market. To meet program demands firms may be advised not only to hire able people, but to train from within. Smart and talented individuals who understand financial products can make outstanding compliance officers if they are trained in and understand money laundering and terrorist financing, the threats associated with such illicit activity, and the methods for combating financial crime.

About the Author Teresa Pesce is Head of AML Services for the Americas Region at KPMG LLP. Prior to joining KPMG, she was executive vice president and headed the North American anti-money laundering unit for the global financial services company HSBC. In this position, Teresa created new compliance programs, policies and procedures and led the formation of an anti- money laundering function across North America, and was part of a global team that included work in London, Hong Kong, Brazil, Mexico and the Middle East. Pesce also spent eleven years with the U.S. Attorney’s office in New York City, where she became chief of the office’s Major Crimes Unit and prosecuted white collar, bank fraud, money laundering, wire fraud, tax fraud, investment fraud and computer crimes. During the last four years of her tenure, Teresa was the supervising attorney on all anti-money laundering matters.

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