Both money laundering and the financing of terrorism have become major concerns to financial institutions all over the world.
Even more concerning, nearly half of all global organisations admit to falling victim to fraud or economic crime. Here, Peter Forwood, Partner at PwC Australia, explains how conducting AML checks can quickly expose threats to your company and expose dangerous security gaps.
PwC’s 2018 Global Economic Crime and Fraud Survey discovered that nearly half of all organisations globally (49%) have fallen victim to fraud or economic crimes. What’s most interesting to Peter Forwood, Partner at PwC Australia, is that 52% of those crimes are conducted by people within the company.
“There’s been a rise of the ‘frenemy’ or the ‘insider threat’,” Forwood says. “Effectively, organisations have concentrated investing their money and resources into protecting themselves from external threats, but now there is a more pronounced insider threat who is involved in or facilitating – either deliberately or accidentally – a fraud or economic crime.”
Money laundering and terrorism financing: A growing threat
When it comes to money laundering and the financing of terrorism in particular – both increasingly major concerns to financial institutions globally – Forwood has seen organisations invest greatly in protecting themselves externally. However, it’s a constantly evolving problem. That means the investment must be continual, as well as the education around how, why and where those threats will arise.
“It’s become clearer and clearer that there are a lot of actors out there who are looking to misuse the financial services sector, whether in banking or elsewhere, to effectively commit money laundering and/or move funds to support terrorist organisations.
“So while the industry has made considerable investments in combating it, the incentive to commit those crimes is high, so the threat continues to grow and evolve.”
What are AML checks and are they necessary?
One of the best ways to combat this ever-changing threat is through proper due diligence. Step one is education – that involves adopting and abiding by the Anti-Money Laundering and Counter-Terrorism Financing Act, as well as training all staff on common tactics and ways to counter them.
Step two – conducting internal checks such as an Anti-Money Laundering (AML) check – is arguably the most important, as it can reveal threats immediately and unearth any security gaps that the company needs to plug. The simple check can be completed entirely online, and it will reveal any incidence of money laundering or financing of terrorism both nationally and abroad.
Forwood believes these checks are essential, namely because a company can throw any amount of money at protecting itself from external threats, but the investment from the other side – the criminal side – will remain just as high.
“Companies need continual monitoring, continual assurance that things are working, and continual testing. They must have an evolving understanding of the risks that are being posed, both internal and external.”
Consistency is key
“One of the key things for any organisation is that they have an approach to employee screening based on the risk each employee and their role poses,” Forwood continues.
This is particularly true when you consider how certain frontline positions and senior roles might carry a higher risk factor to the business, such as company directors, brokers, loan officers, and cash carriers.
However, arguably just as crucial to the ongoing security of a company is how it maintains that quality control. As Forwood suggests, money laundering and financing of terrorism tactics are constantly evolving, which means AML checks can’t simply be a one-and-done screening process. Instead, annual checks will ensure security buffers remain solid while also spotting any potential red flags that may have cropped up since the previous check.
“For high-risk positions, certainly you need to give consideration to annual checks,” Forwood says. “We’ve seen organisations get into trouble when they’ve only done the initial check. Then that person gets convicted of an offense and suddenly it’s news to the business because they never did any subsequent checks.
“For lower to medium-risk positions, you can work on different time frames. But for high-risk positions, annual checks aren’t an unreasonable burden.”
The right checks for the right industry
While it’s mostly in the finance and banking sectors where we’ve seen a growing threat of money laundering and terrorism financing, no specific industry is impervious to economic crime.
“Anything that involves the transfer of money or the handling of cash should certainly use screening like anti-money laundering checks. That includes real estate, gambling and any industry that has high cash turnover and the facilities to transfer large sums of money.
“But regardless of any individual sector, it’s the key positions within the organisation that must employ this kind of screening. Again, it all comes down to that analysis of the potential risk around individual roles.”
A concerted effort to reduce risk
The actual process of conducting AML checks – whether internally or through a third party – is only one piece of the puzzle. To truly reduce risk and maintain a secure, reputable organisation that is vigilant against financial crime, Forwood says there must be a concerted effort.
That involves two factors: timeliness and action.
“A critical role for HR staff and hiring managers is actually ensuring that the screening is occurring in a timely manner. Is the organisation that’s undertaking the screening doing what they said they would do? Do you have evidence that the screening process is up to scratch? Are they looking at the right information, and are they doing it within the time frame you agreed?”
The second factor is that when something is flagged from an AML check, appropriate action must be taken.
“In the event you do find something, what are you going to do with that information? We find there are organisations that say they’re going to search for X, Y and Z, but then they don’t really have a plan in the event that they actually find X, Y and Z.
“It’s critical that the HR policies, or the recruitment policies, have a clear plan. Because at the moment, we find organisations don’t always do what they said they were going to do in the event something is found.”
No organisation is immune to money laundering and other financial crime. With almost half of this all economic fraud committed internally, it’s integral you make AML checks an integral part of your internal screening and regular re-screening process.