AML The New Reality February 2017 Reg egulat ulator ory y Ou - - PowerPoint PPT Presentation

AML – The New Reality

February 2017

Slide 2

Reg egulat ulator

• ry

y Ou Outl tline ine

According to a survey by world bank 75% of the large international banks have reported a decline in their correspondent banking relationships due to De-risking 80% Authorities in US have indicated that dollar wire transfer is the most affected service in 2015 due to the cutbacks $32.14 Billion - Fines imposed on entities around the globe for AML related offences between 2001 - 2016, interestingly Uganda’s national GDP in 2013 was $22.6 billion BDT 5.6 Million - Fine levied by Regulators in Bangladesh

• AMLMaps™

Correspondent banking is core to the business of over 3,700 banking groups in 200 countries

• IMF

The Cost of AML Fines Soars to

• ver US $45 Billion
• AMLMaps™

A recent study revealed that 40% FIs terminated or restricted business relationships in 2015 with certain client categories due to perceived regulatory risk and compliance cost $50,000 per year per bank - Due diligence costs for a high-risk counterparty for a large bank – SWIFT white paper Major Impact of De-risking is on Embassies, Money Service Businesses & Foreign Correspondent Banks (FCBs) “Some of the biggest banks have halved, or more than halved, their relationships, particularly in emerging markets. In some cases, they have exited countries completely.” - Steve Beck , Head of Trade Finance, ADB $1 Billion – a rough estimate of money send by migrants in the United States to other countries, every week

Slide 3

Reg egulat ulator

• ry

y Acti tions

• ns

The causes for increase in AML actions are –

• enhanced global

cooperation & coordination and pressure on tax havens & equivalent regimens

• n-ground activation of

laws by regulators & agencies

• technological

advancements

Source

6 46 45 1193 531 8,541 404 1,101 1,092 144 9,595 2,371 6,755 13,064 1,618

6 8 17 76 55 22 25 37 75 166 143 291 343 390 356

50 100 150 200 250 300 350 400 450 K 2000M 4000M 6000M 8000M 10000M 12000M 14000M

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

• No. of Records

Penelties In Millions

Year Wise Penalties (in million) & Actions

Total Penalties

• No. of Records

Slide 4

Reason for Penalties Count of Penalties* Penalties (in millions)

Money Laundering 640 2,187 Deficiency of AML Program 471 11,205 Deficiency of KYC Norms 292 409 International Sanctions Violation 18 13,119 Bank Fraud 37 18 Ponzi Schemes 31 1,100 Drug Trafficking 120 402 Investment Fraud 25 6,061 Deficiency of AML Program and Deficiency of KYC Norms are the two most used methods for which penalties have been imposed globally

Reg egulat ulator

• ry

y Fi Fines es & Pen enalties alties

*Count since the year 2000

Source

Slide 5

USA has been the leader in convicting individuals for money laundering followed by UK, Malaysia, Thailand & Hong Kong Former Chairman of Board along with Founders have been one of the most convicted professionals amongst individuals. This trend is expected to continue & grow. Imprisonments have increased post 2012, reflecting the intent of regulators to establish personal liabilities on individuals, even for

• rganization centric AML actions

2 1 2 2 5 6 8 11 17 20 52 170 165 89

2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Records Involving Imprisonments

Former Chairman of Board

Chief Compliance Officer

Founder

Chief Operating Officer Owner Former President

Former Prime Minister Former Chief Executive Officer

President

Chief Executive Officer

Indivi dividu dual al | Pen enalties alties & Impr prisonm sonmen ents ts

Source

Slide 6

Ba Banking, nking, Fi Financial nancial se service ices s and nd Insu suranc rance e : Analy nalysis sis & Compa parison rison

636 521 67 $25,374 Mn $7,870 Mn $8,685 Mn BFSI Individuals Non BFSI 324 35 10 45 222 $17,821 Mn $6,210 Mn $807 Mn $263 Mn $272 Mn Banks Financial Services Investment Banking Money Services Business Others

Count of Fines Count of Fines

BFSI vs Individuals vs Non-BFSI BFSI Only Banking, Financial services and Insurance (BFSI) entities (~70% banks) by virtue of being at the center of AML norms & actions, have attracted more than 60% of the total penalties AML actions against Banks constitute 50% of all records but around 75% of all

• penalties. This clearly reaffirms

the status of Banks being most at risk, by AML regulators.

Source

Slide 7

De De-risking risking | Impa pact ct on Ba Banks ks

Key Drivers

► Decrease in profitability ► Lack of confidence in AML

procedures of the CB partner

► Reputational risk ► Pressure from other actors ► Fear of regulatory scrutiny

Undermines Financial Inclusion Affects Financial Transparency Adverse affect on Regulatory Compliance Overall impact on global trade Lost Revenue & Profit Migration of customers to smaller banks Impact

Slide 8

Global de-risking is leading to decline in correspondent banking relationships and stifling $15 billion payments industry in Bangladesh Increase in Fines & Penalties. Bangladesh has seen 80% increase in penalties

• n financial institution since 2012 - AMLMaps™

82% of the total penalties have been imposed due to Deficiency of AML program - AMLMaps™ Deficiency of AML program has become the highest focus for Bangladesh Regulator for imposing penalties followed by money laundering - AMLMaps™ Information & Compliance reporting requirements have increased in a major way Other country regulators are indirectly penalizing banks and their foreign branches - AMLMaps™

De De-Ris Riski king ng | Ef Effect ect in Ba Bangladesh ngladesh

Slide 9

Key Areas eas of

• f Con
• ncern

cern

Inadequate Due Diligence Lack of Continuous Monitoring Technology Insufficient AML expertise

Slide 10

Management Oversight Transaction Monitoring Training & Resources

• Org Structure
• Independence
• Policy & Review
• Reputation
• Scenarios & Optimization
• Technology
• Alerts & STRs
• Investigations
• Frequency
• Content
• Coverage
• Compliance Organization
• Monitoring

KYC Screening Regulatory Compliance

• CDD/EDD
• Renewals
• Global/Third Parties

Independent Testing

• Coverage 

Methodology

• Risk Based

Risk Based Framework

• Customer
• Industry
• Product
• Geography
• Coverage
• Lists & Sources
• Thresholds & Disambiguation
• Reporting
• Internal Controls
• Record Keeping

The he AML ML Di Diagn agnostic

• stic

AML Program Health Check for your organization

Thank You

Sarabjeet Singh

Partner Risk & Advisory Services +91 991 034 5454 sarabjeet.singh@bmradvisors.com