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Reporting compliance key to fighting financial crime

By DEREK SMITH

In the Bahamas, both supervised financial institutions (SFIs) and designated non-financial businesses and professions (DNFBPs) are required to appoint a Money Laundering Reporting Officer (MLRO). If the latter role is unfamiliar and you attempt to identify their universal responsibilities, the result may surprise you. Notwithstanding the ambiguity of the MLRO's role and responsibilities, what is constant throughout the laws and regulations of many jurisdictions is that thy are, at a minimum, accountable for ensuring the reporting of suspicious transactions/activities to their local Financial Intelligence Unit (FIU).

FinTech Future noted: “The role of anti-money laundering compliance officer, or as it is known in the UK, MLRO, is a defined senior management function under the senior managers and certification Regime (SMCR), which currently applies to UK banks. The MLRO must have a level of authority and independence within the firm, and access to resources and information sufficient to enable them to carry out that responsibility.”

The global money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF), in its recommendation 18 states that financial institutions must be required to implement programmes to combat these crimes. It is my submission, and the view of many senior anti-money laundering and compliance professionals, that the MLRO is not merely established to receive, assess and determine suspicious transactions filing but, instead, is a key player in the prevention of financial crimes.

Here are three reasons for my position.

Risk-Based Approach

With the risk-based approach being the gold standard for a financial crime risk mitigation programme, the MLRO should be inherently involved with risk assessment processes because they will need clarity regarding the risks of their business, the mitigating controls deployed, and the risk appetite of executive management. This foundation will direct the appropriate framework to manage the risk of financial crimes.

Robust anti-money laundering compliance framework

This framework exposes fraud, money laundering and terrorist financing risks. The MLRO should be intimately involved with the design of a thorough reporting system that would make reporting to the relevant authorities efficient. Additionally, the MLRO should ensure that staff are aware of their personal obligation, and the institution’s policies and procedures, while the basis for the institution’s risk-based approach is understood. Moreover, they have to develop and maintain the institution’s anti-money laundering and counter-terrorist financing policy in line with evolving statutory and regulatory obligations.

Liability

Administrative monetary penalties are a reality in The Bahamas. If the anti-money laundering compliance environment is mismanaged, even unintended fines and penalties are possible. Failure by a financial institution to submit a report to the Financial Intelligence Unit (FIU) under the Financial Transactions Reporting Act 2018, Section 25-26, carries up to a $200,000 penalty. Also, a person who “knowingly concurs in a financial institution’s failure to submit a report to the FIU” is subject up to a $50,000 penalty. If the MLRO is not involved with the ongoing management of their institution’s financial crime regime and only receives, assesses and determines suspicious transaction filing, their awareness and ability to sufficiently review internal filings could be delayed, or even a decision could be incorrectly made not to file with the FIU. This decision could result in penalties on institutional and personal level.

In short, the reality is that many supervised financial institutions in the Bahamas, who have been operating within the regulated space for decades, may consider this article common knowledge. For others, it may be a new perspective. Whether you are the former or the latter, institutions have a unique opportunity to redesign and establish anti-money laundering compliance frameworks that are more robust, and it is never too late to start. I encourage all at a minimum to reevaluate your current framework and ask yourself: Is this sufficiently designed to provide the best defense against money laundering and terrorist financing?

Locally, the role of the MLRO and other key compliance topics will be discussed by local and regional professionals during the Bahamas Association of Compliance Officers’ MLRO Day 2020 on Thursday, November 5, 2020.

NB: Derek Smith Jr is a compliance officer at a leading law firm in The Bahamas, and a former assistant vice-president, compliance and money laundering reporting officer (MLRO), at local private bank. His professional career started at a ‘Big Four’ accounting firm and has spanned over 15 years, including business risk management, compliance, internal audit, external audit and other accounting services. He is also a CAMS member of the Association of Certified Anti-Money Laundering Specialists (ACAMS).

Comments

JokeyJack 3 years, 8 months ago

I is always check the pockets of my pants before I trow dem in da washer. No money laundering for me. I needs my couple dollars.

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