DEVELOPING AML POLICY AT THE ORGANIZATION

DEVELOPING AML POLICY AT THE ORGANIZATION

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Developing AML Policy at the Organization

Introduction

Money laundering is a practice that major financial institutions need to put so much effort to eradicate because it puts the company at great risks. A lot of money is laundered across the world each year, which makes it difficult to curb illicit acts such as drug trafficking, smuggling of weapons, and terror practices. The study focuses on a UAE-based organization that does not apply effective AML policies to curb money laundering that is a major problem in the financial sector. The inadequate and ineffective AML culture at the organizations deters it from developing effective policies, and derails the attempts to create appropriate measures that encourage CDD and other essential practices aimed at knowing the customer and validating their personal data. The company should adhere to the local and international AML regulations, follow the directives of the Central Bank of the UAE, as well as develop a leadership structure that advocates for stiffer guidelines. Evaluating the company’s AML culture, identifying its weaknesses, and implementing suitable intervention measures will help to change how the firm relates with customers whose intention is to indulge in money laundering.

Background Information

Money laundering is the illicit act of hiding the origins of the money acquired unlawfully by letting the money pass through intricate sequences of commercial transactions and/or banking processes. The primary goal of the scheme is to return the money to the true owner (launderer) in an indirect and obscure manner, while possibly benefitting those facilitating the scheme. The teams facilitating the movement of the money must be very careful to avoid raising any awareness or suspicion of law enforcement groups. Considerable effort and time are needed to promote the safe utilization of the proceeds without creating unwanted suspicions. Implementing the strategies to safeguard the processing and transfer of the money is often referred to as money laundering. Different jurisdictions have established several intricate financial and other surveillance systems to allow law enforcement groups to identify and act upon suspicious activities or transactions, and firms have developed international frameworks to help each in suppressing the practice. Estimations by the UN Office on Drugs and Crime estimates that the total amount of money laundered universally within a year is nearly 3-6% of the international GDP, or almost $900 billion – $2 trillion. Many states term money laundering as a business or financial crime, while some use the term generally to encompass misappropriation of financial structures and systems, entailing things such as currency, credit cards, and securities. Jurisdictions usually try to apply various anti-money laundering (AML) policies with the aim of curbing money laundering, which is unlawful and may sometimes have adverse repercussions.

The UAE is an example of a jurisdiction that tries to maintain a strong AML system in an attempt to safeguard the country and its institutions against the possibilities of money laundering and financing of terror practices. Despite the measures put in place to combat money laundering across UAE, the issue remains problematic and enough evidence indicate that more need to happen to save the jurisdiction from the adverse repercussions associated with the practices. The UAE government transformed its approach in the way it handles money laundering in 2001 with the motive of adhering to international regulations, and to suppress terrorist financing. The UAE introduced two legislations that act as the basis for the nation’s counterterrorist financing (CFT) and AML efforts; Law No. 1/2004 to counter CTF and Law no. 4/2002 to improve AML. Although the AML law prohibits money laundering, Regulation No. 24/2000 offers the framework for how financial groups are to assess and examine for money laundering practices. The regulation calls on all financial institutions, including finance companies, banks, and money exchange facilities operating within the UAE to adhere to the Know Your Customer (KYC) measures. The UAE made significant strides as it entered 2004 when the state improved its legal capacity to counter terrorist financing and related practices. The enactment of Law No. 1/2004 offered more opportunities to strengthen UAE legal capacity to deal with terrorism and terrorist financing. The regulation places stiffer consequences for the crimes related to money laundering, including death penalty and life imprisonment. The regulation even offers room for forfeiting or seizing assets when it emerges that some practices are unclear or flawed. The UAE continues to review its AML policies with the hope to preventing money laundering across all financial institutions, but organizations must improve how they adhere to the regulations to further suppress the practices that are likely to promote money laundering.

Assessment of the AML Culture within the Firm

It is apparent that the firm experiences some issues with its inadequate AML systems and controls, which require urgent attention. The group is expanding into offering intricate investment and tax-avoidance services for high-net-worth individuals (HNWIs) whose net worth is high and may have significant impact on the organization, especially with regard to investment and financial aid. The company should be worried about its AML culture because the board seems to have a high risk appetite for business, especially those in areas that are ranked on the Transparency International Corruption Perceptions Index as operating in jurisdictions where the levels of corruption are beyond acceptable levels. The company should be worried of its AML culture bearing in mind that the Chief Executive Officer (CEO) promotes selling approaches that may not be of the consumer’s best interest. The CEO who previously served as the sales director initiated significant staff bonus payments related to the business goals and objectives. The introduction has resulted in a business culture where customer due diligence (CDD) is performed, but the process appears to lack adequate enthusiasm that would help to ensure the customers who deposit large volumes of money identify their selves and source of money. The CEO who introduced the CDD appreciates that whereas the program must be completed and adhered to, seems to be reluctant in the way he discourages employees from derailing any transactions with new HNWI customers.

Other several features show that the company has inadequate AML regulations to meet the expectations and guidelines put by the International Compliance Association (ICA). The company’s AML policies seem to be inadequate because based on the examination of files at the organization reveals that information regarding the source of wealth and funds is usually basic and is hardly verified independently. It is worrying that the members in charge of compliance at the organization lack adequate training to help them apply effective measures of dealing with the risks of money laundering. A previous interview with the regulatory compliance officer about the AML practices at the firm showed that the employee had little time to attend to her responsibilities, and did not have adequate training to help her deploy effective strategies to improve the group’s AML policies and practices. Whereas ICA advocates for advanced training of employees handling AML in an organization, the firm does not seem to put enough resources and focus into this area. The group as it appears through the regulatory compliance officer lacks proper leadership in the way the CEO takes an aggressive approach and wants everyone to follow what he says. The organizational leadership does not seem to see the urgency of addressing the loopholes that could allow money laundering to prevail unless it is urgent. The regulatory compliance officer, for example, informs that had it not been for the regulatory report to be submitted to the ICA, the organization would not have appointed the MLRO to appraise its AML culture and capacity. Also important to note is that the organization does not put strict measures on new HNWs who apply to become customers thereby increasing the risks of becoming a victim of money laundering or harboring the illicit practice. The internal procedure at the organization is that when a new HNWI applies to become a customer, the CEO must authenticate the request. No HNWIs have been declined to date, regardless of the fact that many applicants come from high-risk areas and usually have connections with the government or the military.

AML and CDD Risks Inherent in the way the Firm is operated

The AML practices and policies at the organization that seem to be ineffective and inadequate put the company at a considerable risk of experiencing AML-related issues that may be difficult to address. Scholars concur that a company’s AML and CFT regulations and controls can be easily be affected by a poor culture of adherence to the required measures. Researchers also concur that a stable and effective AML culture within an organization can help mitigate the shortcomings and help address the concerns before they become difficult to handle.

Creating loopholes that would permit money laundering to advance and failing to take appropriate measures to stop the act exposes the firm to other AML risks that could cost the company dearly if nothing happens to salvage the situation. The company is likely to become associated with all manners of other illicit practices or could harbor or encourage these actions unknowingly. The firm, for instance, may become an accomplice to criminal acts such as extortion, robbery, graft, tax evasion, kidnapping, terror-related acts, and bribery. The failure to develop and promote the growth of an effective AML policy may expose the company to legal issues that may take time to resolve or may as well be costly if investigations reveal that the institution was part of the scheme trying to harbor the money. The company should work towards strengthening its AML structure that serves a vital function in lowering the risks that could emanate from the organization’s shortcomings. Furthermore, creating an AML framework that is effective enough will improve the process of identifying compliance concerns early enough, and contribute to more effective compliance remedies.

The situation at the organization cannot allow it to perform effective CDD, which is so risky for the company’s present and future operations. Obstructing the members of staff to assess the data of HNWIs and to ensure that each applicant or account holder is really who they claim they are threatens the attempts to know each customer, which is a vital requirement when managing financial institutions. Accepting the applications of wealthy customers without really looking at or knowing their activities is dangerous because some clients may have ill intentions such as propagating drug smuggling, facilitating terror acts, or engaging in corrupt dealings. The company with the current AML culture cannot acquire adequate proof to validate personal data such as the customer’s full name, gender, marital status, occupation, tax identification number, original or authentic signature, place of birth and residence, active contact numbers, nationality, and residential address among other vital information about each customers, especially those from areas regarded by the Transparency International Corruption Perceptions Index as recording high levels of unclear financial dealings, including money laundering. The situation presents other impediments towards conducting other practices such as enhanced due diligence (EDD), which happens where the client is evaluated to be at an elevated risk to the firm. The organization depending on its AML culture requires a high level of EDD to mitigate the risks that are so much evident.

Recommendations to Lower AML and Financial Risk

The group stands a chance of increasing its AML and CFT culture by improving its leadership and how it engages other members of staff in curbing money laundering. It is apparent that for a firm to form and nurture stable AML culture, it is essential to achieve proper management as well as foster the engagement of others. The group should acknowledge that the ultimate responsibility lies with the organization’s leadership approaches. The leaders should not only develop structures purporting to be addressing or fighting the problem of money laundering, but should demonstrate great ability and mastery in the way they handle the illicit practice. The firm should understand that the ultimate responsibility and decision lies with the organizational leadership, and should identify and comprehend CFT and money laundering risks. The leaders should be competent enough to create effective structures for adherence to the set laws and regulations. The group should also know that the board members serve a vital role in inquiring and assessing whether the management is doing enough to develop intervention mechanisms. It is encouraging that the board at the firm already understands the threats and risks the company is likely to experience and has ordered that a MLRO undertakes a through appraisal of the AML procedures, policies, and culture prevalent in the organization. Nonetheless, increasing the involvement of leaders who set stringent guidelines and offer the right direction will significantly contribute towards the attempts to improve the AML policy.

A suitable way to improve the organization’s AML policy would be to increase adherence to the Law No. 1/2004 and Law no. 4/2002 that combat CFT and money laundering. The group can begin with familiarizing all employees with the requirements of both legislations and to ensure that everyone abides by the directives. Once the sensitization is complete and everyone understands the requirements of these laws, the group should move forward to verify the identity of all customers and safeguard transaction details, such as the name and address of the source and beneficiary for every transaction beyond $545 and for every non-account holder transactions beyond $10,900 as demanded by law. The organization should not give in to the demands and influence of new HNWI customers even if it means missing great business deals and opportunities because such reluctance could have devastating effects. The organization should always adhere to the regulations which outline the procedures to be adhered while identifying the judicial and natural individuals, the types of papers to be issued, and directives on what consumer records must be put on record at the organization. The company should observe the directives of Regulation 24/2000 that encourage the regular review and maintenance of customer records, as well as to periodically update the information as long as the accounts remain open and operational.

Adhering to the international laws defining how to curb money laundering may have significant impact on how the firm deals with the practice that is illegal and puts the company at a considerable risk of damaging its reputation. The organization, for example, may adhere to the regulations of the 2012 FATF 40 Recommendations that form the global regulations for AML and CFT. Since the development of FATF in 1989, member states have made considerable strides in combating money laundering mainly because of the stringent measures issued by the Recommendations. The FATF, for example, demands for the freezing of terrorist assets and confiscating the proceeds of crime. The organization should abide by the directive of FATF, which advocates for the establishment of a financial intelligence section to gather, examine, evaluate and distribute apprehensive business reports from financial organizations. More fundamentally, the firm should strive to perform its operations in line with the highest ethical regulations by adhering to all applicable regulations and laws aimed at enhancing AML policies and suppressing terrorist financing. Taking all these measures into consideration, as well as others will help the firm overcome the AML weaknesses it currently displays.

The group may lower AML and financial crime risks and improve how it protects the firm against the risks of money laundering by adhering to the provisions and supervision of the Central Bank of the UAE that supervises operations in the country’s banking and financial sector. Other than issuing licenses to financial groups under its control, it has the capacity to impose sanctions for violating the set rules and regulations. The organization increases its chances of developing effective AML policies if it follows the supervision of the Central Bank of the UAE that gives directives and recommendations as it finds suitable. The Central Bank that takes measures to establish the integrity of the financial system in the UAE may help the company improve its AML policies through its release and distribution of circulars describing the need for buyer identification and its provision of a structure to report suspicious cases. The group may have to make some sacrifices to adhere to the requirement issued by the Central Bank, some of which may interfere with its relationship with some of the new and old HNWI customers, but the outcome of these adjustments will have beneficial impact on the company’s general outcome and reputation.

Conclusion

The study highlights the importance of embracing effective measures to combat money laundering practices at the organization that seems to have inadequate AML systems and controls. Even as UAE sets guidelines to combat money laundering, some financial institutions still lack proper measures to curb the practice because of the benefits that they get from the illicit act. The organization in this case is an example of a firm that has a long way to go in the way it handles its AML culture because the group still relates with customers from high risk jurisdictions, and in the way the company does not put adequate focus on CDD. Unfortunately, the ineffective AML culture costs the group dearly and exposes it to a great risk of becoming a victim of money laundering. The group is also likely to put inadequate emphasis on how it performs its CDD thereby being at a great risk of relating with customers whose main objective is to launder money. The study shows that the organization is likely to develop an effective mitigation strategy if the organizational leaders mean what they say, and if they understand the risks associated with indulging in money laundering. The leaders need to be bold in their decisions, and should not relent in the tough decisions that they make. The company should improve how it reacts to the risks exposing the organization to money laundering by increasing adherence to the legislations that prevent the practice in the UAE. Legislations such as Law No. 1/2004, Regulation 24/2000 and Law no. 4/2002 try to cover various aspects relating to money laundering and understanding and applying their requirements could help the organization make significant strides towards containing the problem. The firm may also acquire guidance from some of the international regulations on how to combat money laundering, as well as adhere to the directives of the Central Bank of the UAE that is instrumental in directing the operations of local financial institutions.