A SHORT HISTORY IN FINANCIAL COMPLIANCE
In the 1970’s the world experienced a big increase in terrorist activities. As a result, globally, efforts began to focus attention on possible legal mechanisms to address these terrorist events. This focus led to international laws being adopted to address the different forms of terrorist activities of hijackings, kidnappings and bombings. However, it wasn’t until the 9/11 terrorist attacks in New York, that countries started to really focus intently on terrorism; and as a result of these attacks, the response was to address terrorism by adopting measures to stop terrorist financing. The United Nations adopted Security Council Resolution 1373 on 28 September 2001 which condemned the acts of 9/11 and called upon countries to work together to prevent and suppress terrorist acts, noting the link between money laundering, transnational organized crime, and international terrorism.
The birth of the Financial Action Task Force - FATF - in 1989 was however the first positive step towards the creation of global laws to counter money laundering and the spread of transnational crime and terrorism. The FATF went on to formulate the Anti–Money Laundering (AML) and Counter-Funding Terrorism (CFT) laws – which were put in place to help protect both the global financial system and consumers against criminal activities. Their first target being the global drug smuggling rings.
After the 9/11 attacks the UN and FATF (and other national and international crime prevention groups) got together to advise and direct countries to prevent and suppress terrorist financing, to criminalize funds used for terrorism, and to freeze terrorist assets. Sanctions were monitored and countries agreed to impose severe punishments on individuals and groups supporting terrorist financing that reflected the harm to society of terrorist activities and to exchange information in respect of terrorist financing and money laundering.
Since 9/11, the FATF and its partners have gone onto incorporate more and more stringent counter-terrorist financing obligations in the FATF AML recommendations, effectively creating a combined AML-CFT compliance regime, and countries around the world then correspondingly adopted the AML-CFT recommendations into their national laws.
THE COMPLIANCE LAWS
Meeting AML-CFT and Sanctions Compliance regulations may be a pain for large enterprises, though it is at least manageable; however, for Small-to-Medium-Sized-Enterprises (SME’s) without the luxury of significant compliance departments, meeting these stringent Compliance requirements is almost un-workable – and most certainly, these compliance costs are becoming prohibitive.
Additionally, the use of manual or other very slow, human-resource-intensive processes, present major problems in our rapid, on-demand economy, where the Financial, Legal and DNFBP (Designated Non-Financial Business and Professions such as in for example: Casinos and Gaming, Jewelers and Real Estate) industries and compliance departments are being inundated with complex and ever-changing AML-CFT and Sanctions Compliance regulations.
The list of AML-CFT and Sanctions regulations has not ceased and is increasing each year – and yet - the cost of non-compliance has become prohibitive;
and the fines that companies have had to pay over the past three to five years suggests that setting aside provisions cannot and won’t suffice: non-compliance hits the top line and the bottom line directly; it’s therefore little wonder it is being reported by some industry analysists that up to 70% of management’s time is spent on managing compliance, which in anyone’s understanding is unacceptable.
Some of the key challenges faced by businesses in managing AML-CFT and Sanctions compliance are the following:
- Ever-increasing volume: While new and updated money-laundering, terrorism and sanctions compliance regulations just keep on coming; in addition, is the more recent regulatory focus on personal privacy data laws such as the European GDPR – while new data protection legislation from the USA, Thailand, Brazil. South Korea and India are due to come into force in 2020.
- Rising business and personal liability: There seems to be a direct correlation between the rise in regulations and the potential for not only business, but personal liability for compliance managers and company directors.
- Growing staffing and cost challenges: The immediate reaction to the rise of regulations was to hire more people to deal with them. However, the costs and complexity of compliance in this fashion makes this a short-term fix at best; and, skilled compliance personnel are always in short supply.