The importance of AML compliance

In the busi­ness world, com­pli­ance is a very impor­tant fac­tor as it is a vital ele­ment that pro­vides cred­i­bil­i­ty to the sec­tor and aids in build­ing trust.

Said com­pli­ance is a major func­tion of a com­pa­ny to its stake­hold­ers and when exe­cut­ed prop­er­ly, com­pli­ance forms the basis behind the why and how of a com­pa­ny and aug­ments con­sis­ten­cy whilst also reduc­ing any poten­tial mis­takes that can be avoid­ed.

When a com­pa­ny strives to sat­is­fy its legal require­ments, it gains a deep­er under­stand­ing and know-how for the var­i­ous rules, laws and reg­u­la­tions that gov­ern the finan­cial indus­try and paves the way to not only sat­is­fy the min­i­mum legal require­ments but most of all to ben­e­fit from the advan­tages of being with­in the realms of con­for­mi­ty.

When a per­son sees and thinks of the word ‘com­pli­ance’, the words tax­es, fines, penal­ties, anti-mon­ey laun­der­ing require­ments, coun­ter­ing the financ­ing of ter­ror­ism, law­suits and ter­mi­na­tion amongst oth­ers auto­mat­i­cal­ly come to mind.

The role of the FIAU and the monitoring process

The FIAU over­sees that com­pli­ance is under­tak­en with the oblig­a­tions set out accord­ing to the PMLA [Pre­ven­tion of Mon­ey Laun­der­ing Act] and the PMLFTR [Pre­ven­tion of Mon­ey Laun­der­ing and Fund­ing of Ter­ror­ism Reg­u­la­tions].

In order to car­ry out and sat­is­fy its super­vi­so­ry func­tion, a risk-based approach is encour­aged by the FIAU to be adopt­ed by all sub­ject-per­sons. In light of this, risk assess­ments are car­ried out on Sub­ject per­sons who are act­ing in the course of either (i) a rel­e­vant finan­cial busi­ness or (ii) rel­e­vant activ­i­ty in terms of the FIAU’s Imple­ment­ing Pro­ce­dures.

Mon­i­tor­ing can be done either remote­ly as well as in-situ. Remote mon­i­tor­ing is done by ver­i­fy­ing the infor­ma­tion sent by the sub­ject or as request­ed by the FIAU. (It is impor­tant to remem­ber that the func­tion of Mon­i­tor­ing and the MLRO can­not be out­sourced).

The infor­ma­tion and doc­u­men­ta­tion obtained may include amongst oth­ers, AML/CFT pro­ce­dure or pol­i­cy doc­u­ments, doc­u­men­ta­tion relat­ed to risk assess­ment and con­tin­u­ing mon­i­tor­ing method­olo­gies.

On the oth­er hand, in-situ mon­i­tor­ing is con­duct­ed via meet­ings and inter­views with key per­son­nel of the sub­ject per­son, which roles may include but are not restrict­ed to the MLRO as well as going through files and records, poli­cies and pro­ce­dures and any auto­mat­ed sys­tems that the sub­ject per­son makes recourse to in his line of work.

Consequences of ineffective compliance

Ensur­ing that legal and pro­fes­sion­al stan­dards are upheld is of the utmost impor­tance for the integri­ty of finan­cial mar­kets. Checks and bal­ances are in place to make sure that the finan­cial sys­tem is not mis­used in a way that allows earn­ings to be chan­nelled towards improp­er means.

Mon­ey laun­der­ing and Financ­ing Ter­ror­ism quick­ly come to mind, with mon­ey laun­der­ers con­stant­ly at the top of their game to attempt to con­tin­ue with their actions unim­ped­ed. The modus operan­di of mon­ey laun­der­ers evolves as the reg­u­la­tions evolve too so it is impor­tant that com­pli­ance and effec­tive poli­cies, con­trols, process­es and pro­ce­dures are always a step ahead.

The rep­u­ta­tion and invest­ment that firms, busi­ness­es and pro­fes­sion­als under­take over a long peri­od of time can be eas­i­ly undone if they are asso­ci­at­ed or are impli­cat­ed with any wrong­do­ing of sorts.

With the appro­pri­ate effec­tive imple­men­ta­tion of AML/CFT poli­cies and mea­sures, and with the time­ly detec­tion and inter­ven­tion in the case of sus­pi­cious trans­ac­tions, a sys­tem of defence can be estab­lished to coun­ter­act cas­es of mon­ey laun­der­ing and the fund­ing of ter­ror­ism.

Subject persons

Sub­ject per­sons are the first line of defence or attack, depend­ing from which side one sees it, for con­tact by crim­i­nals and it is they who are on the fore­front when it comes to report­ing sus­pi­cious trans­ac­tions whilst also aid­ing the author­i­ties as a line of defence for the finan­cial sys­tem.

In light of all this, who are the sub­ject per­sons? They car­ry a lot of respon­si­bil­i­ty and can be described as nat­ur­al or legal per­sons who car­ry out per­ti­nent activ­i­ties or busi­ness relat­ed to finances.  They are con­sid­ered as sub­ject per­sons sole­ly when engag­ing in relat­ed and rel­e­vant busi­ness and finan­cial activ­i­ties.

These activ­i­ties are quite vast and are relat­ed to every­day life and trans­ac­tions, be it relat­ed to the buy­ing and or sale of prop­er­ty, bank relat­ed activ­i­ties, tax issues, iGam­ing, trad­ing, insur­ance, invest­ment and admin­is­tra­tion ser­vices.

Invest­ment as well as retire­ment schemes or funds and activ­i­ties relat­ed to VFA amongst a host of oth­er relat­ed and rel­e­vant activ­i­ties.

The effects of modern technology

Mod­ern tech­nol­o­gy has giv­en rise to diverse pay­ment solu­tions and inverse­ly has also aid­ed the inter­na­tion­al flow of funds. Regret­tably it has also led to a strong cre­ation of more intri­cate tech­niques used by crim­i­nals to aid their illic­it activ­i­ties.

Tra­di­tion­al mon­ey laun­der­ing approach­es are there to stay but as time pass­es are increas­ing­ly com­ple­ment­ed with a con­stant flow of new ones, which there­by rep­re­sents not only a threat to the finan­cial sys­tems for the fore­see­able future but is also tes­ti­mo­ny of a gen­er­al glob­al shift indica­tive of an econ­o­my that becomes ever more reliant on advances in the dig­i­tal sphere.

Updates

Anti-mon­ey laun­der­ing leg­is­la­tion is being con­stant­ly reviewed and updat­ed to keep up with the risk nov­el­ties that crop up. The 4th EU Anti-Mon­ey Laun­der­ing Direc­tive was adopt­ed in 2017 and sig­ni­fied a con­sid­er­able shift towards a risk-based approach in deal­ing with the pre­ven­tion and deter­rence of mon­ey laun­der­ing.

The 5th and 6th Anti-Mon­ey Laun­der­ing direc­tives have already been approved by the Euro­pean Union and should both be trans­posed by 2020 which shows that the Euro­pean Union is mak­ing a con­cen­trat­ed push in the fight against mon­ey laun­der­ing and the finance of ter­ror­ism.

Conclusion

As time goes by reg­u­la­tion against mon­ey laun­der­ing and finance of ter­ror­ism is being all the more strength­ened and with it the risk of falling into the non-com­pli­ance sphere.

For busi­ness­es that deal with a big num­ber of finan­cial trans­ac­tions it has become imper­a­tive that risk iden­ti­fi­ca­tion process­es and the time­ly detec­tion of sus­pi­cious activ­i­ty are effec­tive through con­tin­u­ous mon­i­tor­ing to ensure that com­pli­ance is main­tained in all its facets.

Dis­claimer*

The above-men­tioned arti­cle is sim­ply based on inde­pen­dent research car­ried out by Dr. Wern­er and Part­ner and can­not con­sti­tute any form of legal advice. If you would like to meet with up with any of our rep­re­sen­ta­tives to seek fur­ther infor­ma­tion, please con­tact us for an appoint­ment.

 

 

 

 

About Dr. Jörg Werner

Dr. jur. Jörg Wern­er, born 27 May 1971, attend­ed the law school of the Uni­ver­si­ty of Leipzig and passed his first state exam­i­na­tion in the State of Sax­ony in 1996. After suc­cess­ful­ly com­plet­ing his manda­to­ry legal intern­ship, he suc­cess­ful­ly passed the sec­ond state exam­i­na­tion of the State of Sax­ony-Anhalt in 1998 and was admit­ted to the bar and began to prac­tice as a Ger­man attor­ney (Recht­san­walt) before the court of Magde­burg the same year. He worked as an attor­ney at the Law Offices of Prof. Dr. Fre­und & Kol­le­gen until he formed the firm of Wrede & Wern­er. He was also admit­ted to prac­tice before the Supe­ri­or Court of Naum­burg. In 2001, he moved the firm’s offices to Cen­tral Berlin, where he was admit­ted to prac­tice before the Courts of Berlin. Dr. jur. Jörg Wern­er then com­plet­ed his doc­tor­al stud­ies at the Uni­ver­si­ty of Ham­burg and grad­u­at­ed as a Dok­tor der Rechtswis­senschaften (Doc­tor of Laws).

View All Posts

Leave a Reply

Your email address will not be published.