Over 10 years ago, one statement got international attention, another statement didn’t even get national attention. Still both statements echo’s today, although differently.
The then Head of United Nations on Drugs and Crime (UNODC), Antonio Maria Costa said the following based on that UNODC had found evidence that some banks were funded by illicit money:
- “In many instances, drug money is currently the only liquid investment capital, in the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor, interbank loans were funded
by money that originated from drug trade and other illegal activities, signs that some banks were rescued in that way.”
In the Northern part of Europe, in Norway, another statement from one very visible and public person at that time working in the Norwegian FSA, said the following:
- "Bank systems all over the world have detection systems that shall disclose if money comes from organized crime"
Some of what Mr. Costa stated, was later revealed by Bill Browder and other investigations and failure of banks that came after.
However, the statements from the Norwegian FSA person, was and is still far from correct.
First, the statement itself sets a level of expectations that at the time was not possible for financial institutions to live up to, and today financial institutions struggle to really be able to identify where the money comes from, even harder to establish
if it’s from organized crime. But to say and assume that banks systems can disclose if money comes from organized crime, that’s asking a lot.
Second, it's not only the banks and other financial institutions fault that it went the way it went with all the "laundromats" and money laundering scandals. A naive and passive FSA in several countries that was not paying attention in class have a responsibility.
But do they pay attention today? Are they proactive? Do they ask the right questions?
Do they control the answers they receive?
And what competence do the FSA´s really need to have to be able to assess if a KYC/AML transaction monitoring and sanction screening system does what it´s supposed to? or that the enhanced customer due diligence work is performed properly in accordance to
RBA and the real risk of a customer.
I don´t think I´m to bold when I say that there is still a long way to go when it comes to the FSA´s. But it´s not only their fault, as they have been historically understaffed and will be in the future be understaffed with all the new fintech companies
that they also need to supervise, and employing staff that knows anti-money laundering legislation is more important for them than employing somebody that can really scrutinize a KYC/AML transaction monitoring and sanction screening system.
As long as the bank has a system, any system that detects some money laundering, terrorist financing and or sanctions violations, right?
No of course not!
The criminals always look for the weakest links, and most likely they know more about the weaknesses of a financial institutions KYC/AML transaction monitoring and sanctions system than both the financial institution and the supervisor does.
Maybe it’s time then to look outside for help? I assume that many working in the industry would gladly support the FSA with their work to assess KYC/AML transaction monitoring and sanction screening systems.
If the FSA wants to score goals, they need players that can score, you don´t win without scoring.