Anti-money laundering officer: Now you can be a corporate crime fighter! Kinda...?


Author’s Note

With so many nuts and bolts in the banking industry, it will take a while to cover all of them. However, in recent years, with the increased penalties dealt to banks for non-compliance specific to the money-laundering acts, the compliance function has gained prominence.

Not only is this an increasingly important function, the type of profile that was typically associated with the compliance function is changing.

With bigger banks, the compliance function can be extensive and has many levels of hierarchies. The spirit and existence of a compliance team, which was originally a spin-off from the legal team, is to be the independent and trusted voice to the bank. They have the responsibility to report even senior management leaders if they are not in compliance or does not act to propagate the culture of compliance.

Your role will often require you to put incoming business on hold because additional due diligence and checks are required. When this happens, the client-facing bankers will often have interests that are in conflict with yours. They want to on-board a client faster and you need to slow them down to make sure it is not a risky decision for the bank. Due to this conflict of interest in the short term, compliance officers are often associated with being a 'business prevention' function. In reality, looking at the long-term benefit of a well functioning and compliant financial industry far outweighs the risks taken to hasten the client on-boarding process.

What's expected of you as a compliance officer

As various banks has various compliance team structures, the following is in relation to a decentralised compliance function where roles are clearly defined; as opposed to a compliance manager/officer of a small asset firm who will be responsible for creating the compliance playbook to the actual monitoring and investigations.

  • Following the compliance Policies and Procedures (P&P is a common term)

  • Ensure that reports, reviews, meeting minutes in compliance related discussions are well documented and kept for inspection by the authorities: in Singapore, the Monetary Authority of Singapore will send officers down for inspection to ensure everything in well in order. Some compliance officers calls this “raids” but it always gives me a dramatic visual when I think of that word. It really isn't that dramatic.

  • Be able to keep secrets; you will be exposed to a lot of sensitive information. In addition to the Secrecy act, Banking Act and many other requirements, you will need to juggle how you comply and what your organisation's risk appetite is like.

  • Have a logical and rationale mind. You will need to understand how processes can create loophole that can be exploited and it is your responsibility to raise these issues.

Here, we examine what you need to know about the “front-line” of the monitoring part of the compliance team, the anti-money laundering (AML) officer, or sometimes known as the Know-your-customer (KYC) officer.

Understanding what anti-money laundering means in today's context

To “launder” money is to essentially clean the trace of money that was obtained illegally (a.k.a dirty money). This can range from human trafficking, terrorist funding, tax evasion, drugs peddling and many others. When dirty money is channelled into financial institutions, the money flows into the economy, to yours and my hands. When this happens, it is business as usual for illegal activities. Of course, we don't want that to happen as we can only imagine what terrible things have happened to contribute to this flow of money -- women sold into illegal prostitution, money from children being trafficked, or the plethora of access to illegal drugs that causes a myriad of social issues.

In addition to affecting the moral integrity of the financial system, having illegal money also impacts the way a normal economy would work. And when the economy becomes dysfunctional, it becomes -- according to economists -- difficult to predict, difficult to control, difficult to regulate, and chaos ensues. Without regulations in place, banks may charge high interests without consequences, money might be in abundance and inflation uncontrollable.

In today's times where technology is used in our daily lives, and the seamless borders for mature economies in commerce, it is more important than ever to ensure we are not facilitating money laundering with the boost in international commerce.

The process of money laundering

Most money laundering happens this way:

  1. Placement: This is the point where dirty money is placed in other assets. It could be purchasing foreign currency with dirty money or gambling with dirty money. Creative ways include money launderers buying tons of pre-paid cards, but the traditional way would be having a criminal check in a bag of cash and attempting to open a bank account with that cash.
  2. Layering: This is when the asset is being “moved”. It doesn't have to be moved physically but the aim for this stage is to confuse any audit trail and blur the lines that points to the source of funds. Moving funds can include regular “innocent-looking” transactions perhaps every other month to another account.
  3. Integration: This is the final stage where funds are now obtained and looks clean. Imagine transaction proceeds from a sale of a condominium -- that is clean money no doubt because the money came from a sale of a property and the source of funds are clear. This is when tracing the money becomes extremely difficult.

Now that you understand how money laundering happens, your role as a compliance officer would be to ensure that your bank does not become a facilitator for dirty money. Within the compliance role, there are different specialties as well. You can specialize in KYC, which is “know your customer”, and normally involved at the start of the relationship with the client. You are responsible for ensuring that no dirty money gets past the placement stage.

Types of situations you might encounter as a compliance officer

Having a new client whose name is a registered terrorist is extremely rare. Your job is important in identifying the risks surrounding terrorrists and high-risk known profiles. We call them persons of interest, and RCA: relatives and close associates

Another group of people you need to be concerned with are “PEP”s- which refers to politically exposed person. This requirement belongs to another act which is under the anti-corruption regulations. A PEP is important because people of power with bribes as a potential incentive for change will need to channel illicit funds somewhere -- that's why banks need to flag them as high-risk and not be an accessory to any corruptible behaviour.

Essentially, as a compliance person, the most important thing that surrounds your life is risk

A RCA to a known terrorist presents a much higher risk than a PEP as a PEP does not mean he/she is a bad person with access to corrupted funds.

Apart from ensuring that new clients do not fall under the various risk categories, most KYC officers/compliance officers are involved in transaction monitoring which forms part of the prevention of money-laundering.

Banks spend millions (rising compliance cost is also an increasing concern) on the latest transaction monitoring tools to help track any dubious activity. For example, the system may raise a red flag when multiple customers conduct international funds transfers through another individual (use of third party authorized transfer) or account activity that is inconsistent with customer profile that is recorded.

An example of account activity that is inconsistent would be this: Customer A profile: low risk salaried employee according to the on-boarding documents

  • 1st month: no transaction
  • 2nd month: middle of the month comes a deposit of $5,000 (still reasonable as this could be salary)
  • 3rd month: comes in a deposit of $100,000 (red flag is raised)

New risks that evolve every day

Criminals are survivors and they get smarter every day. Some stories of new money laundering methods include paying retiring folks to create accounts on the behalf of money launders as they have a low risk profile to the banks. A career as a compliance officer presents a deep meaning to the purpose of your job, but the day-to-day could well be a check and balance game until you stumble across a real red-flag situation.

Checklist on what you need to know before being an AML Officer:

□ Be personable; you will need to manage stakeholders from all sides and with different interests and agendas.

□ Be firm and persuasive to help your stakeholders understand why some decisions are made. Be ready to stand-up for what you think is right. If you feel that on-boarding a high-risk client is not beneficial for the business, don't be afraid to present your case but remember that you are there to help and advise. Be empathetic and be conscious to reduce any tension between the business and compliance.

□ You need to be a learner because you need to keep abreast on the changes to regulations and also be a step ahead to keep your bank safe.

□ You should be prepared to be detail-orientated. Know that it's very easy to make mistakes when you are faced with the business demand of on-boarding a new customer for the bank. For example, a known terrorist may be called “Hon Kiong Ti” and your client's name is “Hoon Tiong”. Do you raise it as a potential match of profile? You will then need to investigate to see if the other factors like place of birth, year of birth, location would match. Make sure your due diligence work has covered any doubt before proceeding. Other examples of being detailed include understanding that with over 800 regulatory black lists around, you may need to clear out “false positives” in your system. What this means is that the system may pull out matches due to the huge data points, but they are not true matches. That's the kind detailed work needed in volume.

□ Know what regulations your bank is exposed to. Even if you're doing business in Singapore, be knowledgeable enough to understand regulations around the region especially when your bank is doing business with those countries. For example, the AML act in Hong Kong is much more comprehensive compared to similar financial markets.

□ Your working hours are tied to the business you support. Be prepared to work late (even if it means till midnight especially if this new client is worth a lot of money to your bank) if you need to complete your due diligence assessment for an important client to the bank. Your goal is to please your internal stakeholders who are your relationship managers (sales people for the bank) amongst others.

□ There are many banks with varying readiness in their compliance culture. Some are more advanced and there is a true partnership between the business and the compliance team. Others view compliance as a hindrance to the business as it delays the process of on boarding clients that sales teams fought hard to win. For example, if a customer is won over by your banker from another bank, but you know that this customer is related to a known high risk match, you need to stand firm to your decision to not take this client on. Your banker may plead with you (their targets may be on the line) or they may turn around and get mad at you. Some may go above you and try to get the business through.

□ Your advancement depends on how hungry you are to understand the full spectrum of the compliance team: tax evasion, security risks, internal compliance, trade finance. The more you know, the more options and career paths you can create for yourself.

You are part of a team that does an important job. Accepting and taking risk is part of the job. Be ready to defend your decisions whatever they may be.

Concluding thoughts

No longer back-end office nerds

There is an old-world perception that compliance officers are back-office nerds who plough through bank documents all day long. As we see more and more focus on compliance issues by the senior management within the banks, the need to be the face of the compliance teams increases, and the need to influence stakeholders does so too. If you are able to be technically competent in your role as a compliance officer, the way forward is to be able to be a thought leader in this space, and be able to educate and perpetuate the compliance culture within your organisation.

Talent shortage leads to competitive salary package

With the increased focus and attention, this also means that there is a lack of talent in this space. Salary expectations increase when there are talent shortages so expect a decent remuneration compared to compliance officers in the past. You are still in the back-office but hey, remember if you can prevent even one illegal suspicious individual from having access to the banking systems today, you might have prevented crime some way or another

Isn't that motivation enough to be a compliance officer?