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Tackling Financial Crime

The COVID-19 pandemic has triggered unprecedented change globally. Criminals and terrorists are taking advantage of loopholes and failings in the global financial system, in part due to the disruption caused by COVID-19, but also due to a lack of compliance, and it’s our priority to protect our economies and communities. While financial institutions are providing essential services, they must consider the impact on operations, employees and customers while remaining compliant with key KYC, AML and Sanctions obligations.

According to EY, since 2008, the fines imposed for money laundering and sanctions violations have reached – and even surpassed – a staggering $ 28 billion. However, that figure does not justify the impact of financial crime globally, which is estimated to cost the global economy as much as USD2.1 trillion a year.

Tackling financial crime, and ensuring compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations remains one of the biggest overall challenges for the financial services community. The financial services industry must make greater use of the AML rules and regulations that are available to us and in order to improve our supervision, surveillance, and due diligence.

Financial services organisation must pay attention to the vital AML failings that are consistently identified by regulators globally in their significant enforcement actions. According to consultancy Duff & Phelps, in a review of global authorities’ enforcement actions, it was found that AML fines in the initial six months of 2020 reached a total of $706m, compared with last year’s aggregate of $444m. However, despite a raise in penalties, regulators wire fining companies for exactly the same shortcomings since 2015: due diligence on new customers, management of AML measures, monitoring of suspicious activity and ensuring compliance with the rules. It is clear that despite the repeated messages in these enforcement cases, market participants are continuing to struggle with their obligations concerning client due diligence, transaction monitoring and AML Management and oversight.

The number of regulators imposing AML fines is expanding beyond just Europe and the USA. For example, in the Middle East, the United Arab Emirates is taking proactive steps to combat financial crime. In line with the Financial Action Task Force’s (FATF) directives, the National Committee for Combating Money Laundering and the Financing of Terrorism and Illegal Organisations, chaired by the governor of Central Bank of the UAE, has adopted several initiatives to mitigate financial crimes, such as smart platform “FAWRI TICK” smart platform in September that supports communication and coordination between relevant government authorities and facilitates rapid detection of financial risks, and increasing legislation and the introduction of specialist courts to combat financial crime. These measures are critical to the wider fight against financial crime.

These new measures reflect the reality that financial crime regulations constantly evolving, and new ones are being implemented, requiring financial institutions and organisations such as law firms to remain in compliance. It is clear that financial institutions are struggling to meet compliance obligations in the face of increasing regulatory demands, increasing cost pressure and a legacy of inefficient technology and operations, which leads to significant compliance risk and the threat of regulatory censure/fines, but also increased focus on administrative tasks rather than risk management. Globally more needs to be done, and training and awareness of the tools, procedures and international compliance regulations, alongside measures such as AML, KYC needs to be increased.

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