The U.S. Department of the Treasury’s Financial
Crimes Enforcement Net work (FinCEN) issued an advisory on this topic in August 2014. One observation from
the FinCEN advisory is that it has become particularly
important that senior management and board members
at financial institutions of all sizes maintain strong
cultures of compliance. The FinCEN advisory outlines
several deficiencies that were identified in recent BSA
(Bank Secrecy Act)/AML enforcement actions that offer
insights for financial institutions and their management
and boards. In particular, the advisory regurgitates
the notion that a financial institution can improve its
BSA/AML compliance culture by ensuring the following
• Leadership is engaged.
• Compliance is not compromised by revenue interests.
• Information is shared throughout the organization.
• Leadership provides adequate human and
• The compliance program is effective and has been
tested by an independent and experienced party.
• Both leadership and staff understand how their
compliance reports are used.
Another important step that financial institutions should
take is to broaden the scope and depth of their risk
assessments. Several regulatory bodies have mandated
risk assessments that should be tailored not only to a
company’s operations but also to its third-party relationships. That means a financial institution should
assess its potential risk exposure across the entire organization, across its counterparties, across its affiliates,
and with regard to the products its affiliates use.
For example, recent enforcement actions suggest
that some financial institutions may still be treating
their affiliates as part of the same organization, and
they’re not giving much consideration to potential AML
Over the past few years, billions of dollars in fines have been levied against financial institutions for failure to comply with anti-money laundering
(AML) requirements. Still more has been spent on AML
compliance controls, systems and personnel. Despite
those efforts, regulatory enforcement actions continue,
and financial institutions would be well served to revisit
and potentially refocus their AML compliance efforts in
order to avoid running the risk of enforcement actions.
In terms of enterprise value, this approach also holds
true, given that most financial institutions do not want
Rooted in the Financial Institution’s Culture
To be successful, AML compliance should be aligned
with the overall business objectives. Compliance should
be embedded within a financial institution’s culture.
Until all stakeholders are aligned, financial institutions
will continue to see rising costs of AML compliance and
regulatory enforcement actions, despite their ongoing
investments into compliance efforts.
Board members and senior management must
set the tone for the financial institution by creating a
culture of compliance. Rather than manage short-term
financial goals, the focus should be on reducing regulatory and shareholder risk through active involvement in
compliance and preventing “bad business.”
Separating Good Business from Bad Business:
Managing Your Exposure to Money Laundering
BY SVEN STUMBAUER
Money laundering is the process of making illegally obtained money appear legal. These funds may be
used by drug cartels or to fund terrorist activity. The U.S. has instituted strict regulations against money
laundering and billions of dollars in fines have been levied against financial institutions that have failed to
comply. Sven Stumbauer offers guidelines to help companies abide by the regulations and be more aware
of the potential for illegal activity.
To be successful, AML compliance should be aligned with the
overall business objectives. Compliance should be embedded within
a financial institution’s culture. Until all stakeholders are aligned,
financial institutions will continue to see rising costs of AML
compliance and regulatory enforcement actions, despite their ongoing
investments into compliance efforts.