The sensitivity of financial regulators and international anti-financial crime watchdogs to the risks of financial crime has never been higher. Effective anti-money laundering processes need to be robust for financial institutions to avoid incurring punitive sanctions that are meant to discourage slack management of the processes aimed at preventing financial crime.
The Financial Intelligence Analysis Unit (FIAU) has fined Lombard Bank €340,058 because the bank breached five separate anti-money laundering provisions.
In one case the bank failed to properly ascertain the source of funds of a politically exposed client. The inadequate information held on file about the origin of wealth of three other clients convinced the FIAU that it needed to penalise Lombard on inadequate enforcement of anti-financial crime directives.
Lombard informed its stakeholders that it has always been and remains committed to preventing financial crime contemplated by its clients.
Like many other local banks, Lombard does not take on business from economic activities that are perceived to have a high-risk profile. Yet, it seems that the nets used by this bank are not sufficient enough to inspire confidence in regulators.
The anti-financial crime processes need to focus sharply on the granular data that pass through the financial systems. This focus may seem too onerous when compared to the way money flowed in and out of customers’ accounts up to a few years ago. But experience has shown that those with an intent to launder dirty money will find ways and means of manoeuvring their way around inadequate controls.
Banks, for instance, are expected to delve deeply into who are the ultimate beneficial owners of money that flows through their accounts. Documented evidence of the source of wealth is also needed before money can be declared as clean.
In the case of politically exposed persons, banks need to ask even more intrusive questions about the origin of money meant to be deposited with them.
Lombard publicly stated that “the FIAU report conclusions in no way suggest the existence of a suspicion nor the presence of money laundering”.
This statement may be correct. But it glosses over the fact that banks should not only avoid being involved in money laundering. They must show that they have the right systems in place to convince regulators and anti-financial crime institutions that they can nip in the bud any attempts to launder dirty money.
All banks need to hardwire into their corporate culture a commitment to fight financial crime. This is more than just making laudable statements to their stakeholders. The leaders of financial institutions need to set the tone from the top that they will do all it takes to prevent people from laundering dirty money.
This commitment then needs to be reinforced with adequate training and investment in IT systems that help in the analysis of hundreds of millions of granular data that exist in their databases.
Malta is facing a formidable challenge to convince the international financial community that it genuinely wants to clean up its reputation. That reputation is one of a jurisdiction that often fails to implement and enforce anti-financial crime regulations. We have already seen a local bank losing all its international banking correspondents in the US, with all the implications that has for Malta’s financial system.
The regulatory reforms underway are going in the right direction. Malta’s reputation will only be enhanced if all financial services providers, and anti-financial crime institutions, keep a sharp focus on compliance with anti-money laundering processes.