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Money laundering controls in a large bank

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A compliance officer has just been hired in a large bank. He discovers that there are:

1. a number of clients flagged as PEPs, however, cannot find any trail of investigating their status or any record of
the level of CDD applied to these PEPs.
2. Inconsistencies in the way suspicious activity has been dealt with. He cannot find no record of any further
action having been taken
3. In some cases after a SARS has been filed with the Financial Intelligence Authority, the bank continued
transacting business with these clients and in other cases the bank has prevented any further activity on the
account pending the outcome of the Suspicious Activity Reports.
4. There are some accounts which are involved in trade financing and have been flagged. These accounts are
connected with shipment of high value, low volume goods including consumer electronics. He has recently
given a presentation on the implications of the FATF 2020 Trade based Money Laundering report and feels this
presents a significant risk to the bank.

a) Explain the potential implications arising from each of the above.
b) What should the appropriate Anti-Money Laundering procedure have been?
c) Given the above what conclusions can be drawn as to the culture prevalent in the firm?
d) What measures might be taken to remedy any perceived deficiencies?

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Four questions relating to money laundering controls in a large bank are discussed in a structured manner in this response. The related reference is also provided.

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1. The compliance officer in a large bank has found that many of the clients have been flagged as PEPs. The officer cannot find the record of the level of customer due diligence applied to these politically exposed persons. Customer due diligence must be applied to politically exposed persons The politically exposed persons are persons who hold important public positions and because of their position are more likely to accept bribery, money laundering crimes, and corruption. These customers because of their nature are more likely to represent a high risk to financial institutions (1). A financial institution must precautions because they represent a higher risk to financial institutions. The fact that there is no investigation record about their status leaves the large bank vulnerable to losses. According to the current FATF recommendations, the financial institutions should take appropriate action to identify the politically exposed persons, or are related to such persons. Every bank according to the FAFT recommendations must take measures to prevent harm to business, the financial system, and the profession by politically exposed persons. In addition, the bank is required to identify potential misconduct.

The appropriate Anti-Money Laundering procedure should have been that each of the politically exposed persons should have been screeded through reliable data sources. In addition, the database of politically exposed persons should be updated regularly to provide the bank with up-to-date data. In addition, there should also be batch screening and improved efficiency by uploading bulk files of the names to be scanned. If possible the large bank should have a dashboard that allows the bank to perform scans of politically exposed persons, check scanning history, and view credit requests all in one place Moreover, the bank should perform due diligence by assigning risks, and recording decisions relating to politically exposed persons in one place.

The large bank should have been vigilant to the application of criminal laws by the government. Besides in the case of politically exposed persons the bank should have increased the application of its know your customer's policies to prevent money laundering. (2) In the case of politically exposed persons the bank should have monitored the clients and understood the types of transactions that raise red flags The large bank can also implement software on politically exposed person accounts that can raise red flags. In addition, the large bank must also analyze the holding period of politically exposed persons so that the banks can identify risks associated with money being moved for laundering. Also, all politically exposed persons should be monitored using new technology that can identify suspicious activity related to money laundering.

c) Given the approach of the large bank with the politically exposed persons, the culture in the bank has poor internal communication, If there was good internal communication, adequate customer due diligence would have been done for each politically exposed person. Also, micromanagement is an integral part of bank culture where screening of every politically exposed person is not done. Also, in a large bank, there is likely to be hyper-competition among branches, managers, and functions.

Measures that might be taken to remedy any perceived deficiencies are that every politically exposed person that the bank has should be processed with searches from technology and the results should be recorded. . There should be regular cross-communication within the bank to identify money laundering transactions of politically exposed persons. Further, data analytics should be used on the transactions of politically exposed persons to recognize money laundering patterns. Also, the systems of the large bank should be standardized so that the politically exposed persons do not perceive any obvious opportunity for money laundering. These measures should also be documented. Finally, the bank employees should be provided structured training to scrutinize the politically exposed persons' accounts/transactions for spotting money laundering.

2. The new compliance officer finds inconsistencies in the way suspicious activity has been dealt with. Also, the officer cannot find any record of any action having been taken. First, the compliance officer has to assume that there is no further action has been taken. According to the US Supreme Court knowing and intentional transportation or transfer of monetary proceeds is money laundering according to the Money Laundering Control Act of 1986. (See: Whitfield v. the United States, 574 U.S. 265)

The new compliance officer must set up a four-point program for strengthening the internal control of the clients about whom he can find no ...

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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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