Another gut punch in the fight against anti money laundering
I walk into the room and look around — there is an elephant sitting comfortably in the corner. Actually, the elephant has always been there. It’s just that no one put a magnifying glass on his face before. Now more than ever, supervisory officials and the media are drawing attention to the elephant in the room. In this context, processes for combating money laundering and terrorist financing are the elephant in the corner of the room. And we need to talk about them.
Last week, on 19.03.2020, the Swedish Financial Supervisory Authority announced that they have issued Swedbank AB with a warning and a 4 billion Swedish kronor fine which is approximately 360 million (sic!) euros. Additionally, The Estonian Financial Supervisory Authority issued a ruling to Swedbank AS, the market leader in Estonia, to take measures to improve its anti money laundering systems. If the ruling is not followed, penalty payment will be enforced (for starters, 32 000 euros per day).
Banks are experiencing direct monetary and reputation loss
The mentioned factual events are concerning and what’s even worse, this isn’t an exceptional case. Over the last year, almost every bank in the Nordic-Baltic region has been associated (whether it’s justified or not — a different topic entirely) with deficiencies in their obligation to fight money laundering. Banks take a toll due to those issues, the amount of fines are growing and supervisory authorities are keen to impose fines if adequate proof of deficiencies exists. Furthermore, for example, Swedbank’s stock has plummeted by a third over the last year due to the proceedings by the supervisory authorities. One thing to note is the reputation loss that comes together with such news. The thing with reputation loss is that it is very hard to put a price tag on it and in some cases, it can be irreparable.
Prevention of money laundering is a global issue
According to the data by the UN, the estimated amount of globally laundered money in one year is up to 2 trillion in current US dollars. The discovered amount is a fraction of that sum. Money laundering is one of the hardest crimes to discover. Obligated entities should turn their eyes to modern technology and incorporate them in their AML processes. Effective anti money laundering processes help to identify and mitigate risks and to discover potential crimes that are related to money laundering. In Estonia, many new digital solutions have been developed that help combat money laundering. Entify provides a solution for obligated entities enabling them to effectively verify business partners and customers. Entify provides a full overview of the companies that you want to do business with in order to ensure transparency so that your decision can be made with thorough information. Entify was created exactly to provide modern solutions in a changing world where automation is the key ingredient to ensure smooth and compliant business processes.
Swedish Financial Supervisory Authority concluded that Swedbank AB had deficiencies in its risk classification of customers and in assessment of customers’ background. Authorities concentrated on the process of determining risk levels of customers and on the files gathered while doing the background checks. The Estonian Financial Supervisory Authority also assessed the fulfillment of due diligence measures before and during the customer relationship. Based on the decisions by both supervisory authorities, there were grave deficiencies in bank processes.
Manual processes are time consuming and prone to errors
Obligated entities have an obligation to “know their customers” meaning that they have to conduct a sufficient background check on their potential business customer, then based on the results, set a risk level for each particular customer and apply due diligence measures. Checking the background is usually a manual process — using outdated databases and search engines, manually going through the results. As with every manual process, human errors are widespread and they lead to bigger problems as the Swedbank case clearly shows. We should all move towards automation and backlog manual processes as they are clearly outdated and not a match against effective and trustworthy automatic processes. Entify solution provides automated legal entity verification where results are clear within minutes, compliance professionals can then assess the results (and highlighted risks) and set a risk level. Using automated solutions, businesses will receive a competitive advantage — the system is not prone to human errors and the results are delivered faster which makes the whole onboarding process for customers smoother and more enjoyable.
Finally, it is important to note down that the requirements to combat money laundering aren’t only for big financial institutions. The law has set forth a wide range of obligated entities — e.g credit institutions, accountants, pawn shops, virtual currency service providers. Over time, more and more activities will be added to the circle of obligated entities. Therefore, it is very important to look through anti money laundering and terrorist financing processes and to use modern technology and automation. Stepping into the digital era by using effective tools, companies save time and money while helping to combat money laundering.
