Failing to recognise the importance of anti-money laundering/counter-terrorism financing (AML/CTF) compliance and not dedicating sufficient resources of the type and quality necessary to ensure full compliance with the AML/CTF Act obligations are the two most common pitfalls facing companies in this area, according to an international law firm.
While most organisations which are reporting entities under the AML/CTF Act are complying reasonably well, Stephen Watts, a partner at Baker & McKenzie, said those with adequate manpower and more money are usually more likely to be fully compliant than those organisations without dedicated resources.
"The requirement for those resources is scaleable, in that large organisations which are either providing many different designated services or providing many different forms of a select number of designated services need more of such resources and are more likely to have dedicated AML/CTF teams concentrating on AML/CTF compliance," he said.
"Other regulated organisations do not perhaps need a particular dedicated team (although they still need the required compliance officer)," said Watts, who added that required dedication of the organisation and its officers and employees to compliance is particularly important in such cases.
"It's not an easy road for the compliance professional to travel"
Stephen Watts, partner, Baker & McKenzie
The International Monetary Fund has estimated the money available each year for laundering to be between two and five per cent of global GDP. In Australia, it has been estimated that up to $4.5 billion is laundered each year.
Watts also said that another common AML/CTF pitfall is that compliance professionals rely on preconceived ideas about the business and the services it provides.
Where large corporate groups are involved, for example, he said it's important that the services provided by each entity are dealt with systematically as either designated services or not.
"This analysis must be applied to the dealings with the customer over the term of that relationship," he said.
"To do that means that all services provided by those entities must be fully identified, including those which perhaps are still in the new product or incubation stage, and this in turn requires particularly effective interaction and frank discussion between the compliance team and the business team, and the appropriate time and resources to do that. It's not an easy road for the compliance professional to travel."
Another common pitfall is recognising and dealing with change in products or services where it has a potential impact on compliance.
"Business is all about increasing sales by product development - and AML/CTF compliance needs to be part of the new product approval process, without which that new product simply can't be contemplated," he said.
This is probably more of a problem in smaller rather than larger organisations, where Watts said individuals have a greater freedom to develop products or delivery processes which may have adverse AML/CTF implications.
>> This article was first published in Risk Management Magazine. For daily risk updates, visit www.riskmanagementmagazine.com.au