The KPMG Global Anti-Money Laundering Survey for 2011 reveals a nine percentage point drop in Boards considering the subject to be a high profile issue. That represents a fall from 71% of those surveyed in 2007 to 62% this time around).
To complete the study, KPMG interviewed 197 heads of compliance and other senior executives in banks across 69 countries at the tail end of last year.
Speaking about the survey, Brian Dilley (global head of anti-money laundering at KPMG) commented: “Although it’s understandable that Boards have been focused on their survival and the wave of regulatory change, they need to ensure that anti-money laundering remains at the top table or else risk massive fines and business disruption, particularly in relation to sanctions compliance.”
The survey also finds that the operational costs of anti-money laundering have risen by an average of 45% since 2007, with a further 28% rise predicted over the next three years.
However, many anti-money laundering professionals have a history of underestimating future costs. In 2007, less than one fifth (17%) predicted a rise of 51% or more, whereas almost a third (31%) said their costs had actually risen by that amount when looking back over the same period.
Dilley continued: “In a cash-constrained environment, it’s imperative that anti-money laundering professionals forecast realistic costs to the Board, not only because of the significant risks that need to be managed, but also so they continue to retain credibility with Boards who do not take kindly to repeated requests for additional funding.”
Outsourcing parts of the anti-money laundering function
Despite this rising expenditure, only 10% of respondents had off-shored or outsourced parts of their anti-money laundering functions, with 80% having never considered this as an option.
Banks may be missing opportunities to save money on some of the lower risk aspects of their anti-money laundering programmes.
For the first time, the KPMG survey also included ‘anti-bribery and corruption activities’, and these were immediately ranked the third largest area of expenditure (indicating that the extra-territorial reach of, and heightened regulatory expectation associated with, the new UK Bribery Act and the US Foreign Corrupt Practices Act is having an impact).
Recent events in the Middle East and North Africa, meanwhile, have intensified the focus on Politically Exposed Persons (‘PEPs’).
Since the 2007 survey, the number of respondents with formal processes to identify and monitor PEPs has increased from 71% to 88%.
The Third EU Money Laundering Directive – which was implemented in 2007 and required banks to monitor PEPs – has had a clear impact, with the number of European institutions with such procedures in place rising from 65% in 2007 to 94% come 2011.
On this point, Brian Dilley explained: “As the Arab Spring of 2011 is prolonged into summer and beyond, it’s interesting to see that financial institutions across the globe have had the foresight to ‘up their game’ by adopting a risk-based approach to knowing their customers. The majority (96%) now use PEP status as a risk factor.”
He added: “The challenge for banks is that, in some cases, PEPs have become sanctioned parties or persona non grata overnight and global authorities have scrutinised past transactions with PEPs with whom they had previously encouraged business.”
In conclusion, Dilley told SMT Online: “Banks need to ensure that they can justify their relationships with PEPs, particularly with an eye to future changes in their political standing. They should always be asking where the PEP obtains the funds that are passing through the institution, and be ready to explain the purpose of transactions that they undertake.”
