Doing business in the 21st century means plentiful opportunity — as well as heavy costs and complexities related to due diligence and compliance. Is your business positioned to overcome these costs and complexities to seize new opportunities? Do you know your customers?
Compliance is an especially relevant challenge for financial institutions. In the United States alone, the 1970 Bank Secrecy Act outlines a series of rules for financial institutions that legislators designed to prevent support for criminals and terrorists. These due diligence rules are known collective as Anti-Money Laundering (AML) regulations.
In the weeks after 9/11, the 2001 Patriot Act’s Title III included amendments to the Bank Secrecy Act that placed an even heavier burden on financial institutions. Countries around the world have since enacted similar laws, which means that financial institutions doing business internationally must conduct the due diligence needed to adhere to a world’s worth of rules and regulations.
It’s easy to understand the motivation behind these laws. And any legitimate company wants to conduct business by serving upstanding customers — not criminals or terrorists. But that doesn’t make following these laws any less of a challenge — a challenge accompanied by serious consequences for failure.
This post shares information about why AML regulations are in place, as well as the penalties associated with violations. Read on to learn more about how AML affects your business.
Creating a Money Trail
Many modern governments are hyper-focused on keeping consumers protected and citizens safe. That means a crackdown on criminals and terrorists. This crackdown can take many different shapes and forms, but it typically starts in one place — financing.
Take away terrorists’ and criminals’ financing, and it’s suddenly much more difficult for them to cause harm. That’s why the Bank Secrecy Act was first put into place, and that’s also why the Patriot Act attempted to strengthen it. These laws and regulations are designed to create money trails that governments can follow when they have probable cause to investigate a certain entity or individual.
When financial institutions follow AML regulations, they help create a money trail that is constantly updated, one that is reliable and accurate when it needs to be followed. A financial institution’s due diligence processes and tasks related to these rules and regulations are often referred to as Know Your Customer (KYC).
What exactly constitutes a financial institution? You may first think of banks when you hear the term, but financial institutions are a broad category that also includes: trust companies, investment companies, securities brokers and dealers, insurance companies, travel agents, pawnbrokers, precious metals dealers, check cashers and casinos.
Businesses in these categories are regulated by the Bank Secrecy and Patriot Acts. And all businesses in these categories face serious consequences if they fail to conduct due diligence.
The Consequences of Failure
Fail to comply with AML regulations and your organization is faced with heavy penalties, both direct and indirect.
The indirect penalties include damage to your brand. AML violations tend to make headlines, and these moments of negative media exposure can hurt your brand’s image in the eyes of your current and prospective customers. Your target market wants to work with service providers who are conscientious, meticulous, organized and vigilant. Nothing undermines that perception more quickly than regulatory failures.
The direct penalties include heavy fines. Between 2004 and 2010, 110 financial institutions faced financial penalties for compliance failures. More recent years have seen high-profile cases like the 2012 fines levied against Standard Chartered ($327 million) and HSBC ($1.92 billion), as well as the 2014 fining of BNP Paribas — a staggering $8.9 billion. Just in 2016, Raymond James was fined $17 million for AML failures.
That Raymond James case highlights another reason why compliance is so important — personal liability. As part of the case, its compliance officer was fined $25,000 and suspended for three months. When your business chooses a robust compliance program, not only is it shielding itself from large financial consequences, it’s also shielding its people from personal liability and career-altering consequences.
Compliance officers today are feeling the personal liability pressures. According to a Thompson Reuters survey, 60 percent of compliance officers expected their personal liability to increase in 2016 — with 16 percent of all respondents expecting that increase to be “significant.”
Strategies for KYC Success
Compliance officers aren’t the only ones growing concerned about AML regulations and the direct and indirect penalties associated with compliance failures. Many financial institutions and similar organizations are turning to KYC experts in search of third-party solutions.
There’s an added business benefit to seeking outside help with KYC implementation and AML regulation adherence. When you choose to go it alone in creating the right systems and procedures, the results are often haphazard and uneven. A lack of consistency in what you ask of your customers and partners can sometimes be misinterpreted as unnecessarily onerous or even as harassment — which certainly damages your brand.
But, by choosing an outside due diligence expert for your KYC processes, you can put into place a consistent system that provides the accurate, reliable and up-to-date information needed while making the smallest possible impact on your customers.
You stay in compliance with AML regulations, which means avoidance of possible damage to your brand, your bottom line and your people. And you also do as much as possible to insulate your customers from the KYC process and any frustration or customer service challenges it might create.
How Can CSBusinessScreen.com Help?
Don’t let AML regulations and KYC processes slow down your business. At CSBusinessScreen.com, we specialize in creating the right systems and securing the proper information to keep you within compliance while serving your customers. Think of our service as enhanced due diligence that protects your business.
We offer an affordable and easy-to-use interface that makes KYC processes simple. Place an order online, manage cases through a dashboard, conduct custom searches and much more with our convenient, cloud-based solution.
At CSBusinessScreen.com, we know that seeing is believing —which is why we offer free, no-obligation demos of our proven KYC system. Contact us now and schedule your CSBusinessScreen.com demo.