INTRODUCTION
COMPLIANCE
What does the term 'compliance' describe?
Compliance describes the ability to act according to an order, set of rules or
request.
In the context of financial services businesses compliance operates at two
levels.
Level 1 - compliance with the external rules that are imposed upon an
organisation
as
a
whole
Level 2 - compliance with internal systems of control that are imposed to
achieve compliance with the externally imposed rules.
Obligations
Conduct ML/TF risk assessments
Reporting entities must understand and manage the ML/TF risks they are exposed to when
they provide different products and services, use different distribution channels, deal with
different customers, and operate in different jurisdictions.
Implement systems and governance to manage their ML/TF risks
Reporting entities must establish appropriate oversight of ML/TF risk by senior management,
ensure their staff are vetted and trained to detect ML/TF behaviour, and regularly review the
effectiveness of their systems and compliance with their obligations.
Know their customers
Reporting entities must verify the identity of their customers, monitor their customers’
behaviour, and keep appropriate records. Financial institutions must also know any other
financial institutions with which they do business.
What is Money Laundering?
•
When a criminal activity generates substantial profits, the individual or group
involved must find a way to use the funds without drawing attention to the
underlying activity or persons involved in generating such profits. Hence Money
laundering involves taking criminal proceeds and disguising their illegal sources
in order to use the funds to perform legal or illegal activities.
In Simple words, money laundering is the process of making dirty money look clean.
Stages in the Money Laundering Cycle
Money laundering and terrorist financing are often mentioned in the same
breath, without much consideration to the critically important differences
between the two. Many of the controls that businesses should implement are
meant to serve the dual purposes of combating both money laundering and
terrorist financing.
As per US survey reports, around 58% of the Terrorism related
investigations identified related Money Laundering linked to the actual
funding's that were involved.
The most basic differences between terrorist financing and money laundering
are: Terrorist financing uses funds for an illegal political purpose, but the
money is not necessarily derived from illicit proceeds. On the other hand,
money laundering always involves the proceeds of illegal activity.
 The purpose of funds in TF is to support terrorist activities. The purpose
of Money laundering is to enable the illicit money to be used legally.
 In TF The individuals responsible for raising the funds are not the
beneficiaries of the laundered funds. In ML on the other hand, The
individuals responsible for the illegal activity are usually the ultimate
beneficiaries of the laundered funds.
PEOPLE SMUGGLING
&
HUMAN TRAFFICKING
THREE MAIN
CONSEQUENCES OF ML/TF
 Operational Risk: The potential for loss resulting from inadequate
internal processes, personnel or systems. Such losses can occur when
institutions incur reduced or terminated banking partners or
correspondent banking services or an increased cost for these services.
 Legal Risk: The potential for lawsuits, adverse judgments, unenforceable
contracts, fines and penalties generating losses, increased expenses for an
organization, or even the closure of the organization.
 Reputational Risk: The potential that adverse publicity regarding an
organization’s business practices and associations, whether accurate or
not, will cause a loss of public confidence in the integrity of the
organization.
• DUTY - The Compliance Department has a duty to the employer to
work with management and staff to identify and manage regulatory
risk.
• OBJECTIVE - The objectives of a compliance department should be
to ensure that an organization has systems of internal control that
adequately measure and manage the risks that it faces.
• RESPONSIBILITY - The general responsibility of the Compliance
Department is to provide an in-house compliance service that
effectively supports business areas in their duty to comply with
relevant laws and regulations and internal procedures.