Regulatory pressures and market forces are pushing the world's financial institutions (FIs) to ramp up their anti-money laundering (AML) strategies. As this month's PYMNTS Digital Banking Tracker noted, while the challenge of AML compliance is nothing new for financial institutions, the enormous scale of the burden is — for many FIs — unfamiliar territory.
In an interview with PYMNTS, Synchrony Financial Executive Vice President and Chief Customer Engagement Officer Michael Bopp pointed to the importance of understanding customer behavior, and of strategically combining the growing number of options for AML technologies, as important pieces of banks' AML compliance puzzle.
"If we have a better understanding of how our customers use our cards for their everyday needs, the new [info] can direct our AML strategies and activities accordingly," he noted, adding that while there are a growing number of AML tools available, "it's the combination of these technologies that becomes powerful."
Indeed, technology is a growing part of understanding customer behavior, and thus being able to identify when behavior might be abnormal, suspicious or fraudulent. However, the AML burden reaches far beyond banks' consumer financial services operations, and beyond the banks themselves.
With corporates finding it easier than ever to expand across borders, businesses expose themselves to more risks, particularly as they operate in new, unfamiliar markets with unknown business partners — including vendors and unknown parties further down the supply chain.
For corporates, AML fines are a major part of those risks. According to encompass corporation, between May and August of this year, regulators issued $352.5 million worth of AML fines, resulting from 20 penalties. While that's only about half of the monetary value of AML fines issued during the same period last year, regulators issued sanctions against five times as many companies (four fines issued in 2018, compared to the 20 issued during the same period in 2019).
As analysts pointed out, in one case, regulators chose not to issue a monetary fine against a company, but shut it down entirely.
In a statement, encompass corporation Co-founder and CEO Wayne Johnson said the issuance of multimillion-dollar fines is likely to grow, noting that the data reveals the growing importance of corporates addressing money laundering risks "at a global level," as regulators' AML actions similarly expand across borders.
Just as Bopp highlighted the importance of understanding customer behavior, FIs must also promote visibility into corporate behavior. For corporates, that means facilitating the movement of crucial information to their banking partners and business partners to address AML risks and promote compliance.
"Transparency is the best weapon we have against the misuse of our financial system by those who would harm the United States and our allies," said Senator Mark R. Warner (D-VA) in a statement late last month, announcing legislation aimed at boosting corporate transparency to combat AML.
The bill, introduced by Senate Banking Committee members, would require shell companies to disclose their ownership to the U.S. Department of Treasury. Not only does the legislation highlight the AML burden on the corporate banking arena, but it points to the opportunities in transparency and data sharing between corporates, banks and regulators to combat money laundering and other financial crimes.
As solution providers introduce new AML compliance technologies for FIs to adopt, those tools will increasingly focus on bank-corporate connectivity to understand corporate behavior, mitigate client risk and remain AML-compliant. Corporates have their own roles to play in promoting data sharing with FIs, and promoting transparency within their own supply chains to ensure their business partners are AML-compliant, too.