Report Roundup: Survey says compliance has more clout, update on WMD finance, and more

By Brian Monroe
bmonroe@acfcs.org
May 25, 2017

In this week’s Report Roundup, gain key insight into how corporate and financial crime compliance officers are handling the rising risks of individual liability and ever-present training challenges, how rogue regimes are trying to procure weapons of mass destruction, new guidance on politically-exposed persons, and more.


Increasing budgets and more compliance access to the board of directors indicate financial crime fighters have more prominence and independence, according to a just-released survey by law firm DLA Piper.

In its 2017 Compliance & Risk Report, respondents stated that the “compliance function is becoming more independent and prominent in large organizations worldwide – though there remains significant room for improvement, especially in compliance’s relationship with boards of directors.”

This year, 67 percent of chief compliance officers surveyed said they were at least somewhat concerned about their personal liability and that of their CEOs, down from 81 percent in 2016, according to the survey while 71 percent said they made changes to their compliance programs based on recent regulatory events – up from just 21 percent a year earlier.

Some other key takeaways from the survey include:

Training. In light of that perceived heightened liability exposure for directors, it is puzzling that 44 percent of director respondents said they hadn’t received any training on compliance issues. Given evolving compliance standards and regulations – such as new Securities and Exchange Commission guidance on conflict minerals and updated DOJ guidance on corporate fraud – it’s arguable that training is more important than ever. Failure to engage in training could amount to a breach of fiduciary duty.

Implementation. The survey found ongoing challenges in implementing training and professional development programs, for example finding that less than half of organizations penalized employees for failing to complete compliance training.

A nearly even split between organizations that use negative and positive reinforcement to incentivize training demonstrates how tricky the issue is, according to the report. Many companies are reluctant to come down hard on employees who don’t complete training, and some have tried creative incentives.

Primary Risks. CCOs reported that data security and privacy, cybersecurity and regulatory risk are the primary areas of concern, similar to last year’s findings. Those concerns mapped to areas where respondent’s compliance budgets are concentrated.

Monitoring. The challenges in monitoring compliance programs continue to bedevil compliance officers – 46 percent of our respondents chose monitoring as the weakest part of their compliance program (visit DLA Piper for more on the survey).


New report, ongoing survey seeks to detail the illicit networks supporting the creation of weapons of mass destruction

This interim report on the proliferation of weapons of mass destruction goes beyond guidance proffered by the FATF to uncover more nuanced red flags potentially tied to the financing of weapons of mass destruction (WMDs)

“The proliferation of WMDs is a major threat to international peace and security and many governments put enormous efforts into combating the threat,” according to the report’s author, Jonathan Brewer, who is working with the King’s College of London.

This Interim Report comprises analyses of 18 case studies on the financing of weapons proliferation (FOP), based on information supplied to the study to date, contained in reports of UN Panels on Iran and DPRK, and in documents relating to a small selection of US Department of Justice actions.

The King’s College London Study will continue to collect and analyse data on FOP from governments and the private sector, and will publish a final report in July 2017.

“WMD networks seek to purchase, usually by covert methods, goods and materials that proliferation programs cannot produce indigenously,” according to the report. “These goods and materials are usually industrial in nature and their procurement is often difficult to distinguish from legitimate global commerce.”

As with legitimate global commerce however, “such goods and materials need to be financed and paid for, so identification and disruption of the associated financial networks is an important potential counter-proliferation tool.” To read the full report, click here.


In risk ranking PEPs, focus more on those who are more senior, prominent and wield substantial authority: Wolfsberg

As banks are under more pressure than ever to uncover individuals, companies and entities at a greater risk for financial crime, one of the most challenging areas – and a key regulatory focal point – is how to onboard, monitor and report on politically-exposed persons (PEPs).

That persnickety populace can be a nightmare to manage as they come in so many risk flavors, foreign or domestic, and come entwined with entanglements in the form of relatives, friends and known associates that could be just as dangerous as they are.

That has prodded global banking thought leadership body the Wolfsberg Group to weigh in anew, updating several pieces of guidance put out in the 2000s.

At the heart of this latest guidance is a dose of common sense for banks looking for bedrock tenets to more accurately risk score this group, with the banking consortium exhorting institutions to take a more critical communal eye to ferret out the PEPs who truly are surrounded by temptation and could more quickly and fully succumb to graft and profitable influence peddling.

“At a time when standard setters are expanding the overall definition of who should be treated as ‘politically exposed,’ for example by including domestic as well as foreign PEPs, it is important that FIs still focus the greatest effort on those PEPs who pose the very highest corruption risk, i.e. those genuinely in senior or prominent public positions and who have substantial authority over policy, operations, funds and accounts which provide opportunities to facilitate money laundering,” according to the guidance.

Moreover, the definition of what constitutes a PEP “should not be diluted by the inclusion of persons who may be in public life, but are not in a position to enrich themselves improperly, as this leads to an inefficient allocation of resources, poor customer experience and, in extreme cases, to the denial of financial services to those in public life, their relatives or close associates.”

The analysis, ranking and potential de-risking should be done “specifically as part of a holistic customer risk assessment process,” according to the guidance, (via The Wolfsberg Group).


Regtech to the rescue as banks broadly say they must rely more on technology to handle rising geopolitical risks

Banks have not had an easy time in recent years on the financial crime compliance front: squeezing on all sides from rising exam pressures and penalties, more law enforcement scrutiny and liability and in many cases falling program budgets.

That could be why some 75 percent of anti-money laundering (AML) professionals believe they must rely more on technology to help them comply with complex and data heavy regulations in rising landscape of geopolitical risk, according to a new survey.

So while your ears may still be ringing from the buzzword fintech, get ready to hear, obey and adopt another moniker: regtech, as it might be coming to your rescue.

That is the catchall term for tech firms that, as it says, helps banks comply with federal regulations to counter financial crimes, fraudsters and terrorists and keep rogue regimes and their supporters out of the international financial system.

To address these risks, more than half (54%) of respondents are planning to increase their investment in RegTech in the next three to five years, as the majority (59%) say technology has improved their company’s ability to tackle AML, KYC and sanctions requirements.

The annual survey – comprised of responses from more than 500 compliance and anti-money laundering professionals around the world – assesses the current regulatory environment and the impact of new regulations on international and regional banks’ compliance departments, (via Dow Jones and SWIFT).