A Case for Stricter Anti-Money Laundering Compliance


Banks and regulators have to admit the hard truth that not even today’s complex anti-money laundering and compliance programmes are enough to stop criminals exploiting financial platforms, Adedayo Adejobi reports

The first major challenge of compliance is the continued rise or innovation in technology. There is still a long way to go here, as companies slowly adapt, and often-conservative businesses change the way they do things. Experts have enthused that, the industry should expect to see more companies moving to cloud technologies for tasks such as security analytics, KYC verifications, consumer payments and credit scoring. This expansion will be accompanied by a boom in cyber security.

Another major trend is Information sharing, which prepares to move beyond big banks. One of the most promising AML compliance trends for 2019 is the prospect of increased information sharing among financial institutions. Considered a cornerstone of an effective AML/CFT framework, information sharing is a key component of the recommendations set out by the Financial Action Task Force (FATF). Early initiatives bringing together the public and private sectors such as the regulatory agencies including  the Central Bank of Nigeria, Nigeria Financial Intelligence Unit, Banks, Designated Non-financial Institutions, for the forthcoming mutual evaluation in Nigeria later this year,  have all shown that bridging the gap between different players makes a big difference.

While information sharing has seen success among regulators and banks, in the coming months of 2019, it is expected that stakeholders start to see it become more prevalent amongst all concerned institutions. To make sure that this trend is a success, however, a culture of collaboration needs to be cultivated, and supported by timely guidance from regulators. Various obstacles stand in the way of information sharing, not least the inconsistency of territorial regulation and privacy legislation, all of which will need to be resolved.

Managing Director at DataPro, Adeseyoju Abimbola, said, “Information sharing is of crucial importance to combat financial crime effectively. We have traditionally seen challenges in being able to share and obtain information with financial institutions due to the fear of tipping off and privacy-related issues.” Looking to the future, he continued, “FinTech and emerging technologies will play a vital role in shaping the sharing of information.”

Secondly, stakeholders anticipate more information on Ultimate Beneficial Owners (UBOs), especially since the release of the Panama Papers, the many creative ways criminals use shell companies and offshore structures to hide their cash have become public knowledge. To counter this, in 2019 experts expect ultimate beneficial ownership legislation to become a prominent feature of the financial crime landscape. The need to increase transparency around UBOs has long been moving up the agenda of policymakers and in 2018 was a focus of the G20 Summit, where leaders made clear a desire to implement ‘international standards and the availability of ultimate beneficial ownership information’.

THISDAY predicts that the global focus on UBO transparency will ramp up in 2019 as a consequence of various legislative actions from the year that’s passed. For Instance, the United States of America has continued its pioneering work around Geographic Targeting Orders (GTO) till date, and likely to extend it till the end of the year. Should Nigerian financial institutions implement fully, its rule on customer due diligence, it would have shown that Nigeria is committed to increasing transparency of ownership. The European Union last year, published the Fifth Money Laundering Directive, which has made ownership registries, compiled under the Fourth Directive, publicly accessible. In the UK, steps have been taken to introduce ultimate beneficial ownership registers for companies in overseas territories by the end of 2020. Can same be said of Nigeria, and can we truly expect to see further progress in all of these jurisdictions in 2019?

A very useful tip Nigerian stakeholders might want to start adopting is to begin thinking about how UBO information which will become available in the next few years will impact the compliance process. Some of the questions to be answered are; how will financial institutions incorporate it into the risk rating of different clients, and how will this change their perception of their expected behaviour?

Third on the front burner, are anti-money laundering rules for crypto-businesses and virtual assets becoming a standard. The unevenness of the crypto currency landscape has prompted efforts by governments across territories like Japan, China, South Korea and Switzerland, to develop a global regulatory framework. The FATF answered this call and will release a set of international anti-money laundering standards in June 2019. Beyond intervention by these governments, experts suggest that crypto businesses themselves should be encouraging regulation in 2019, simply to “increase the addressable market for adoption.”

There is no gainsaying that governments across the world, until now, have wrestled with the anti-money laundering risk crypto poses for years, with the highlighted territories adopting a considered approach allowing for trade and investment, and opting for tight restrictions on exchanges and mining.  Nigeria and the rest of Africa seem to have taken a back seat on this major chance to regulate this new form of exchange.

At a national level, Nigerian regulators are expected to take progressive steps in the regulation of virtual assets and ramp up their engagement with the sector in 2019.

 With the European Union’s Fifth Anti-Money Laundering Directive (5AMLD) , geared towards introducing Anti-Money Laundering obligations for crypto currency exchanges operating within member states, which will have to be complied with by 2020, big moves are likely in the global regulation of crypto currencies – which will inevitably prompt the industry to adopt new monitoring and compliance tools.

With wider adoption and regulations taking centre stage in crypto currencies, the FATF guidance provides Nigeria’s crypto businesses with a clear framework of how to perform anti-money laundering compliance, prepare to use this to inform its risk assessment and procedures.

Given the rise and active participation of FinTechs in the financial service sector, there is indeed for a drive and increasing demand for automated anti-money laundering. 2019 will see a large number of firms move to automate their Anti-Money Laundering practices to scale even faster, especially with increasing consumer adoption and subsequent transaction volumes in a competitive FinTech climate.

The motivating factor here is the sheer amount of false positives generated by legacy data and technology, adverse effects of which are obvious: the greater the number of false positives, the more difficult it is to on-board customers and process payments, and the higher the operational overheads. Added to that, of course, is the increased likelihood of missing genuine money laundering activities amongst so many false alarms.

The Data Protection Officer at DataPro Limited, Matthew Jesse,  said: “High-quality data is the driving force of AI and machine learning tools and is the key to effective automation of AML risk management and reduction of false positives numbers. 2019 will be the year where an automated approach to AML will be mission critical if you want your FinTech to succeed.

“Banks and investment partners will increasingly expect to see FinTechs working with innovative compliance partners to not only reduce operational costs but also prove that they are catching illicit finance. 2019 will be the year that artificial intelligence and machine learning move from buzz terms to key ingredients for success.”

According to the President, Compliance Institute, Nigeria, Pattison Boleigha, the truth is that while Nigeria has made significant strides in the AML/CFT regime, it is largely on paper. In all my travels in Africa, I can say that Nigeria’s AML/CFT regime is about the best, but our problem is implementation.  “I am of the view that financial institutions and the supervisory authorities need to do more to ensure the effectiveness of our near perfect framework.  There is need to have the right governance and proper tone -at –the- top to give the AML/CFT regime the required bite it needs.  The surest way to achieve effectiveness is to get governance right from the macro and micro perspective and improve the provision of adequate resources to implement our AML/CFT frameworks.

“Compliance is not cheap because it takes more resources to check and correct anything than its costs when we do it very well initially. Government and the Financial Institutions should invest in compliance skills development and technology.  The government needs to encourage the establishment of compliance training as a profession same way they have done for accounting, banking, medicine, survey, architecture, etc.,” Boleigha added.

“We need to have a chartered institute for compliance officers to encourage the professionalism in the compliance field. In this regard a number of individual efforts have been made, for example the Compliance Institute, Nigeria.

“The Compliance Institute, Nigeria was established four years ago by the Association of Compliance officers of banks in Nigeria (ACCOBIN) and today they had trained over 1,200 designated compliance processionals from Nigeria and even other countries in West Africa. Such institutions need to be encouraged and should be supported by giving them chartered status,’’ he explained.