Just before the closing of the year 2018, news broke out that:

  • JPMorgan Chase Bank Hong Kong fined HK$12.5 million ($1.6 million) by the Hong Kong Monetary Authority (“HKMA”).
  • Morgan Stanley Smith Barney LLC fined $10 million by FINRA.
  • UBS Financial Services (“UBSFS”) agreed to pay $14.5 million in penalties to the U.S. regulators.
  • Societe Generale (“SocGen”) fined $420 million by the New York Department of Financial Services (“DFS”).

History reveals from 2009 to 2012; the following banks paid substantial fines for similar violations of sanctions laws, anti-money laundering laws and compliance deficiencies:

  • 2009, Credit Suisse paid $536 million to the U.S. Department of Justice and the Manhattan District Attorney’s Office related to transactions with clients in Libya, Sudan, Myanmar and Cuba.
  • 2009, Lloyds TSP Group Plc paid $567 million in two settlements, one with the U.S. Department of Justice and the Manhattan District Attorney’s Office and the other with the U.S. Treasury for alleged prohibited transactions with Iran and Sudan.
  • 2009, ABN AMRO paid $500 million to the U.S. Department of Justice and the Manhattan District Attorney’s Office for alleged improper transactions with Iran and Sudan.
  • 2010, Barclays paid $298 million to the U.S. Department of Justice and the Manhattan District Attorney’s Office associated with individuals account transactions from Cuba, Sudan and other countries subject to U.S. sanctions.
  • 2012, ING Bank paid $619 million to the U.S. Department of Justice and the Manhattan District Attorney’s Office involving billions of dollars in transactions involving account holders of Cuban and Iranian.
  • 2012, Standard Chartered Bank paid $340 million to the New York Department of Financial Service (“DFS”) for violations of anti-money laws. The $340 million is part of the $667 million fines.

What was the problem?  Research reveals that there was no AML/CFT Policy or AML/CFT Operations Manual available or if available, the AML/CFT Operations Manual is ineffective.  It is a matter for the management of an organisation to make available the AML/CFT Operations Manual to aid and guide Compliance Officers to discharge AML/CFT functions.

In the banking industry, the financial services provided by a commercial bank are numerous, for example, opening a savings account, opening a checking account, opening a term deposit account, remittance inwards and remittance outwards services, establishing and receiving irrevocable letters of credit, issuance of credit and debit cards, forex trading, wealth management, and correspondent banking and so forth.  Daily transactions for each of these financial services may run into hundreds depending on the size of the commercial bank.  Engagement of Compliance Officers to carry out CDD measures or to detect suspicious transactions could not provide a guaranty or satisfactory discharge of the AML/CFT compliance duty unless there is an adequate AML/CFT Operations Manual for each of the financial services offered.  The AML/CFT Operations Manual comes in the form of a computer programmed software.  Is the programmed software useful that could assist to discharge AML/CFT compliance effectively?  Unfortunately, software programmers alone may not satisfy the AML/CFT compliance requirement.

Similar issues that resulted lacking in AML/CFT CDD compliance measures are the lawyers and accountants.  Lawyers and accountants are vulnerable to money laundering too.  For lawyers, the client trust accounts required an understanding of how client trust accounts operated or functioned.  Lawyers and accountants must understand what AML/CFT regulators want and the AML/CFT rules for compliance.

Whether the organisation (big or small) is a financial institution or a designated non-financial business and professions (“DNFBP”), having an AML/CFT Policy is vital.  Often, management overemphasis on compliance cost weakening the corporate governance, the risk management usually takes, and that is a poor decision.  Compliance management fails.  See Chapter 10.12, Compliance Management, IPPC and Independent Audit, First Edition, Money Laundering, A Handbook for CDD Compliance.  In reality, the cost to produce an AML/CFT Operations Manual can tailor to the service requirement.

Big organisations may have in-house counsel or external consultant but doing business without a proper and effective AML/CFT Policy.  Small organisations are relying on “Self-Diligence.”  Again, the risk potentially exists.  It is like a journey travelled without a map relying on a compass alone.

AML/CFT Compliance is a broad subject covering many facets of money laundering, corruptions and bribery, and terrorist financing.  Internal control too is a high term.  In the absence of an understanding of what is internal control, it is unlikely establishment of policies and procedures can achieve for a particular service. In practice, it is unlikely the Compliance Officer or computer software programmer possessed the knowledge of the entire AML facets and the elements of internal control.

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Categories: UNODC, UNCAC, FATF, AML/CFT Compliance, Money Laundering, Risk Assessment, AML/CFT Audit Assessment