Submitted by ACFCS member Ravon Taylor III
partner at Taylor Griffin & Associates AML Solutions
January 28, 2016
As previously stated in “Digital Currency: The New Face of Money Laundering,” the landscape of money laundering has undergone a process of evolution where culprits have shifted from conducting face to face cash or wire transactions to a more digital age.
Traditional Banks Are Falling Behind
Traditionally, larger financial institutions view Anti-Money Laundering (AML) from an Operations standpoint. Mirroring the model of an assembly line, the focal point is centered upon production where metrics such as daily completion rate and error ratio are key components used in determining the success of an AML analyst in their investigations.
This archaic system ultimately penalizes an analyst that rolls up their sleeves to conduct a deep dive analysis on a customer’s transaction activity because that analyst would be forced to rush through their subsequent alerts in order to reach their productivity goals. When analysts cut corners during their investigations, they may expose the financial institution to regulatory fines by potentially overlooking signs of money laundering activity.
While old-fashioned, the system does make sense from an operational standpoint. AML Compliance is a department that costs a financial institution hundreds of millions of dollars annually and generates little to no revenue so the mindset is to get the most out of their spending.
The Organizational Structure of the Traditional Bank
If you were to look into the organizational structure of many of the larger financial institutions, the AML Compliance department is typically nestled under the umbrella of Operations.
The problem with this organizational placement is that upper management staffs their management teams with individuals that have operational backgrounds, such as branch managers or fraud department managers because upper management tends to have limited hands-on experience in the field of Anti-Money Laundering.
With an AML management team comprised of operational gurus, productivity and process improvement ride shotgun in the chariot of AML Compliance while the overall quality of AML reviews gets relegated to the back seat.
A management team with limited AML knowledge can create friction within a department comprised of seasoned AML analysts for three reasons:
- A new management regime is more likely to increase productivity metrics in an effort to impress upper management.
- Since Operations-minded managers have little to no front-line transaction monitoring experience, they base their productivity metrics on the average number of cases completed by the department as a whole and increasing that overall number by a certain percentage.
- Increasing caseloads open the door for cursory AML transactional reviews resulting in corners being cut in the analysis of information and documentation.
- The residual effect of increasing caseloads is that it becomes a burden to the quality assurance staff who takes on the additional duty of becoming copy editors, combined with their normal duties.
- Seasoned AML analysts have limited options for assistance with complex AML matters.
- While an inexperienced AML manager may be able to identify cash transactions that give the appearance of structuring, their limitation of AML knowledge may prevent them from detecting activity more intricate, such as terrorist financing.
- Seasoned analysts lose confidence in their management team because they have a greater degree of knowledge than their leadership.
- Operations-Minded management teams tend to make hiring decisions based on cost savings.
- Managers roll the dice by hiring from within (other departments) in order to staff their AML team.
- Although it saves the department money (in terms of salary), the learning curve can be significant for someone unfamiliar with AML to learn the craft
- In the long run, large-scale cost-cutting measures of this nature devalue the actual AML position and create angst among the staff. The seasoned analysts on the AML staff (who have a significantly higher salary than their AML neophyte counterparts) develop a sense that they may be expendable.
Where Does the Change Begin?
The key to changing the culture of compliance lies within the top of the organizational chart. Since AML is relatively a newer profession, there are few (if any) CEOs that used Anti-Money Laundering to catapult themselves through the ranks of their financial institution. Upper management needs to take the time and educate themselves on Anti-Money Laundering (outside of the annual webinar that every bank employee has to trudge through).
One of the most common misnomers in Anti-Money Laundering is that AML and Fraud are interchangeable. Since fraud is under the umbrella of Operations, AML Compliance is placed in the same category.
In fact, I recommend that Anti-Money Laundering Compliance and Operations divorce.
It appears to be a case of irreconcilable differences. Let’s face it. AML Compliance departments that are run with an Operational mindset are not built for long term success. AML Compliance departments that do not impose stringent productivity metrics actually have a more productive workforce. To be clear, productivity metrics do have value; however, they should not be the driving force behind the success of an AML analyst.
From my experience, AML Compliance departments where productivity metrics are not drilled into the heads of their analysts actually produce more productive teams because they actually foster team environments.
Production-driven environments foster individuality and analysts tend to develop the mindset where they can finish their caseloads early and then spend the rest of their time at work being unproductive.
To facelift the culture of compliance, we need to shift from the production-driven environment that is associated with an Operational mentality to an atmosphere where each AML analyst has a vested interest in the success of the overall team.