Breaking the Boundaries between Compliance and Business: Turning profit managers into AML allies

By Gaetana Ricotta, Contributor
Compliance manager in the private wealth division of a bank in Monaco
June 30, 2016
With light editing and additions by Brian Monroe
Director of Content and Business Development, ACFCS

The choice for a compliance officer to become a compliance manager for the business lines of a bank may seem unusual and can be a unique challenge as the anti-money laundering group must employ a range of disciplines, including political savvy, charisma, patience and understanding. It is also a rare opportunity to turn historical compliance foils into allies.

The success of such an initiative, however, depends mainly on the governance culture of the financial institution, which in many cases does not usually integrate its compliance department and business lines with the concept of a financial crime risk assessment – particularly going through the extra step of actual interaction and communication with the business division so that compliance can better understand what their colleagues can struggle with on any given day.

More broadly, financial crime compliance officers must be more creative, passionate and dedicated to their craft in the face of United States and other regulators having more expectations for advanced, senior-level AML programs that weave into every area of the bank.

At the same time, these agencies are more willing to penalize institutions for missteps and place that blame, or even fine, on the individual compliance officer.

In any institution, true alliances with all levels of the bank are critical as there is so much outside the power of an AML compliance officer in order to have a strong financial crime compliance program, including the training and expertise of staff, budgets and systems and, as was mentioned before, bank staff taking the training to heart and truly analyzing current and potential customers for criminal risk.

The necessity to implement a culture of awareness among the business lines is a relatively new concept and requires the ability to look beyond the boilerplate compliance obligations that only exist on paper.

This requires a financial crime compliance officer to dedicate sufficient time to observe and understand the human patterns of clients and staffers in order to set up the appropriate strategy to mitigate potential risks and uncover unexpected weaknesses in day-to-day operations.

More communication, better implementation

As a compliance manager in Monaco in charge of the Monte-Carlo branch, liaising with the Branch Director, the Group Director, Head of Compliance and managing a team of four business relationship managers, I had the opportunity to create a compliance managerial project based on achieving this goal.

My approach included communication, training, interaction, which would bring a greater awareness and analysis of current risk processes to identify procedural and technical gaps, to assist in defining the parameters of assigned procedures to facilitate policy decisions.

Very importantly, I had to monitor the implementation by business line staff of assessing clients, actions and transactions for AML compliance risk: “Starting by doing what is necessary, then doing what was possible, and suddenly doing what seems to be impossible” (Francis of Assisi).

But first, let me give you a bit of history on the region I work to better understand why getting business line staff on board and in a true partnership with the AML compliance department was so important.

The Principality of Monaco is the oldest Monarchy in Europe, starting from 1297 with the same name Grimaldi on the Throne, today it is a cultural melting-pot where more than 120 nationalities live together in a very small territory.

It is recognized as an international financial marketplace with retail banking, private banking, and various subsidiaries all subject to compliance procedures and policies based on local, European and International regulations.

The ‘Service d’Information de Contrôle sur les Circuits Financiers’ (SICCFIN ) is the Financial Intelligence Unit in charge of monitoring compliance by professionals with the provisions of Act 1332 of 3 August 2009 and its implementing measures.

Creating a financial crime instinct

The importance of a united front involving AML, top business line managers and front line staff was highlighted at a conference last year by a former federal government investigator.

The Principality Government Council, Monaco’s Finance Association (AMAF) with the contribution of US FBI special agent Gregory Coleman held a conference in November on threats to the financial services sector focused on prevention and detection, investigation and remediation for compliance officers.

Coleman, who recently retired and was portrayed in the movie “The Wolf of Street,” explained why dedicating sufficient time to observe and understand human patterns is necessary to detect, understand and succeed in prevention and in the investigation process.

“In most financial institutions, the front-line in the fight against money laundering and other financial crimes is the employee who has the initial, face-to-face contact with the potential client/criminal. Often times, an employee will say that the client made them feel ‘uneasy’ or that there was something that ‘just wasn’t right,’ but in most cases they can’t articulate why they feel the way that they do.”

Moreover, Coleman, continued: “My suspicion is that the employee was utilizing two very powerful tools without even knowing it: the observation of body language and the subliminal analysis of verbal statements. The employee actually saw and/or heard something that made them uneasy, but those observations weren’t overtly recognized by the employee which often leads to them being dismissed as ‘nothing.’ In a world of interconnected financial systems, missing such clues and allowing entry to the criminal element could be a very costly mistake.”

It is those unspoken, instinctual reactions front line staff should not dismiss, he said.

“Most people have heard about how body language can be used to detect deception, but in reality body language can convey a full range of emotions from anxiety and sadness to joy and excitement. In addition, words, when listened to carefully in the context of a statement, may say something other than what they appear to convey on the surface,” Coleman said.

“During my tenure as an FBI agent I had the opportunity to interact with thousands of individuals – victims, witnesses, prosecutors, judges, jurors, and in particular, defendants – which allowed me to fine tune my body language and listening skills and as a result to be able to immediately interpret and understand the meaning of events like those involving the employee discussed above,” he said.

Walking in the shoes of bank staff

Once learned and understood, those same skills could also benefit the front-line employee who is involved the fight against financial crimes and money laundering.

In order to foster a culture of accountability so the business line understands the importance of responsibility for their actions, the compliance manager has to modify his or her approach, creating interactivity and along the way share insights divined from the examination of a particular individual’s workday.

The compliance manager will encourage individuals to share their practices in order to identify the vulnerabilities inside the process with practical ideas about strengthening the compliance program and positioning it for improvement.

This exercise could also benefit the business line manager beyond being more adept at spotting potential fraudsters, criminals and money launderers.

Their interest also lies in what the AML compliance officer can bring to them that will improve their work, while increasing the quality of the risk assessment, and opening more lines of communication with businesses in that area of the institution.

Not an ‘adversarial process’

Business employees should recognize and accept that compliance implementation is not an adversarial process but an opportunity for dialogue that can result in improvement of risk prevention and identification, providing greater risk assessment awareness and understanding.

The relationship compliance manager should focus on giving an opinion or some information to the business team but never the solution, so the team will have the collective ability to alert spontaneously on financial crime issues that might arise during the KYC (Know Your Customer) process and the KYT (Know Your Transactions) monitoring practice and contribute to the overall compliance mission based on prevention, detection and alert scenarios.

The commitment between business lines and the compliance division requires both sides to invest time to build a KYE process (Know Your Employee) and to develop the collaboration needed to prevent risks may not identified while implementing and liaising with external authorities on new agreements and regulations.

The Financial Services sector analysis of PwC’s 2014 Global Economic Crime Survey highlighted the correlation between economic crime, corporate culture and individual behavior in Financial Services sector (45% of Financial Services organizations suffered economic crime during the survey period, compared to only 34% across all other industries).

Participating in the branch’s workday more closely, and stepping outside of my compliance bubble, allows me to have a clear overview on how the business is done, understand the customer patterns and habits and its relationship with the business manager.

More facts, greater understanding

All of those details will help me, during the investigating phase to gather real facts to complete my understanding of the overall financial crime purpose in order to collaborate efficiently with security services and law enforcement agencies.

My particular concern will be to identify the clear weaknesses and implement risk assessment strategies and awareness of pervasive and sustained threats and insure the information remains in compliance with Monaco law based on the protection of nominative information and the obligations based on professional secrecy.

For compliance professionals, the new challenge resides in acquiring emotional intelligence skills in order to be able to leave the administrative and legal comfort zone and face human psychology and patterns with the consciousness that financial crimes represent.

The means not only the convergence of mechanisms like fraud, corruption, money laundering..but also the convergence of habits, culture and emotions that should be taken in consideration while implementing rules, policies and procedures.