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Prioritising AML: mitigating reputational risk

Recent high-profile AML failures and increased regulatory scrutiny have highlighted the need for CFOs to prioritise AML compliance in 2023 to protect their companies from financial and reputational damage

When Huawei CFO Wanzhuo Meng was arrested in Canada on behalf of the US government in 2018, it sent shockwaves throughout the CFO community.

Meng, who oversaw the finances at one of the largest technology businesses in the world, was accused of bank and wire fraud, as well as breaching US sanctions by conducting financial transactions with Huawei’s Iran-based subsidiary Skycom.

She was released in September 2021 after striking a deal with the US Department of Justice. In exchange for US authorities dropping charges, Meng admitted to making false statements about Huawei’s business dealings with Iran.

The incident, while largely seen as an escalation of tensions between the US and China, highlighted the importance for CFOs to stay abreast of anti-money laundering and combatting the financing of terrorism (AML/CFT) regulation.

AML/CFT controls, when effectively implemented, mitigate the adverse effects of criminal economic activity and promote integrity and stability in financial markets. For CFOs, these controls also ensure the financial integrity and reputation of their organisation.

If not properly implemented and adhered to, businesses can face regulatory fines and penalties, reputational damage, financial losses, and litigation in some instances.

In breaching US sanctions,  Huawei’s revenue declined year-on-year in 2021, from $139.9 billion to $99.9 billion.

Growing regulatory burden

For many CFOs, the AML/CFT environment has become increasingly more complex to navigate.

The globalisation of financial markets has increased cross-border transactions, making it more challenging to detect and prevent money laundering and other financial crimes.

Similarly, AML/CFT regulations are continuously evolving to keep pace with changing risks and criminal activities, making it difficult for CFOs to keep up.

For example, the rise of new technologies, such as virtual currencies and digital assets, has introduced new money laundering risks and made it more challenging for CFOs to implement effective AML/CFT controls.

This week, Fenergo, the leading provider of digital solutions for client lifecycle management, revealed that global crypto AML and regulatory fines surged in 2022.

According to Fernego, fines to crypto financial institutions and their employees reached $193 million, rising by 92% when compared to 2021, highlighting the importance of regulatory governance and solid procedures and processes for AML compliance.

Rory Doyle, who is the financial crime policy manager at Fenergo, says their data highlights interesting patterns emerging from the crypto industry, which is attracting mounting regulatory scrutiny.

“Recent scandals such as the fall of FTX and the Coinbase fine reinforce the value of regulatory governance and a prudent financial system, which help deter illicit behaviour that in the long term negatively impacts society,” says Doyle.

“While we are seeing a higher standard of compliance across established financial institutions, the crypto industry has a lot of catching up to do,” he adds.

Setting the right AML/CFT strategy

One approach CFOs can use to stay on top of AML is to ensure they have a clear understanding of the specific AML regulations that apply to their organisation.

This includes understanding the various types of transactions that must be monitored and reported, as well as the specific reporting requirements for their jurisdiction.

For example, the rise of cryptocurrencies and digital assets has lead to the introduction of new AML/CFT regulations for digital assets and crypto exchanges. Furthermore, the use of cryptocurrencies for illicit activities has led to a shift in the regulatory approach with regulators focusing more on risk-based regulation.

Regular training, conferences, and information sharing with other financial professionals is one way to go about this and ensure CFOs remain up to date.

Use of technology

While the rise of new technology has muddied the AML environment for CFOs, it also poses an opportunity for finance functions to elevate their compliance.

Using technology to establish and maintain an effective AML compliance program, including regularly assessing the organisation’s AML risks and implementing controls to mitigate those risks, could be the key to ensuring regulatory compliance.

A large share of businesses have already implemented sanction screening software, to automate the sanctions screening process and stay up-to-date with the latest sanctions lists and changes.

CFOs can also utilise technology to apply robust know-your-customer (KYC) processes to identify any suspicious activity and promptly report such to the appropriate authorities.

One of the core elements of a robust AML strategy is proper  know-your-customer governance. Technology has improved the accuracy of KYC processes by using data analytics and machine learning algorithms to identify and verify customer information.

This has not only increased the speed of the KYC process but has also enhanced the customer experience, allowing customers to provide their information electronically and reducing the time and effort required.

These advancements in technology have transformed the KYC process into a more efficient, effective, and customer-friendly experience, while also helping organisations better manage their AML compliance risk.

Coinbase, a cryptocurrency exchange and digital wallet provider, uses a combination of machine learning algorithms and manual reviews to monitor its customers’ transactions for suspicious activity.

The company has also implemented real-time identity verification using government-issued identification, as well as enhanced due diligence for high-risk customers and transactions.

The company also uses blockchain analytics tools to track and monitor cryptocurrency transfers, helping to detect and prevent illicit activities such as money laundering and terrorism financing.


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