A culture of compliance

Part I:

A culture of compliance

Global Compliance Solutions recently held a series of anti-money laundering workshops over two days aimed at polishing up the skills of management, administrative staff, compliance officers and MLROs alike.  Business Editor Lindsey Turnbull was in attendance and reports in this second of a series of articles.
The world of compliance is ever-changing and always evolving as new legislation, regulations and guidance notes appear to be issued on a regular basis. What was sufficient knowledge for an organisation that falls under compliance and money laundering legislation a year ago may be outdated now. Thus regularly keeping abreast of any changes to the system is a vital aspect of the job for any compliance officer or money laundering reporting officer.
However, simply keeping up with all the new information is also insufficient; that knowledge must be imparted to all staff members, from the directors and management to all staff. The skill of a successful MLRO or CO is to provide that information in as clear a mode as possible, so that absolutely everyone in an organisation is completely familiar with the drill (and the possible consequences should procedures not be properly adhered to), should the reporting of an issue relating to compliance or money laundering have to take place.  
Stuart Carson, a Barrister from the UK runs Strategic Business Compliance and was the invited guest presenter during the two day’s worth of sessions and he shared his considerable expertise in international regulatory, compliance and anti-money laundering requirements with attendees to the workshops.

Carson urged MLROs and COs to ensure that the importance of disclosure was clearly stated at the very beginning of an organisation’s compliance manual.
“Do you at present have it in such wooly wording that it does not stand out?” he questioned. “Staff need to know and it is important to include the fact that non-disclosure is a criminal offence punishable by imprisonment.”
He went on to say that everyone in the organisation, from the Board and the Chief Executive Officer downwards, ought to be fully aware of their responsibilities and take them seriously.
Carson then went on to cite a recent example of a lawyer in the UK sentenced to 18 months imprisonment because he failed to disclose certain information about his client which turned out to be money laundering offences. He also noted a BVI trust company which was forced to close down due to the same issue.
“Regulatory authorities have increased powers behind them now,” he confirmed. “If a reporting officer fails to disclose something which they believe could possibly be linked to money laundering there is no reason why CIMA or the police cannot come along and prosecute the individual.”

Training and procedures

According to Carson, compliance ought to be a two-way street. Once an individual has signed their company’s compliance manual to say they will abide by its content, Carson urged that individual to then ensure that no comeback could fall upon them if something happened that was not properly covered in the compliance manual. This is why MLROs and COs have a duty to ensure that the compliance manual was as up-to-date, comprehensive and easily understood as possible, he said.
“You need to assess how efficiently you are passing the message on,” he added.
The CIMA, under its Guidance Notes, has the ability to look at the company’s training records to determine whether a person has complied.
When a suspicious activity needs to be reported internally within an organisation, Carson urged attendees to ensure that procedures were properly in place not only for the correct method of reporting the incident but also afterwards, to ensure that the individual could not be accused of tipping off the client.
“The compliance manual should have a standard template so that individuals know exactly how to report anything suspicious,” he said. “But there ought also to be procedures in place once that suspicious activity has been internally reported, because that is the danger time as that is when the individual thinks they are off the hook, having made the disclosure. In reality the danger has just begun.”
The best method of approach following the signing off of an internal suspicious activity report is for the staff member to also write against their name that they understand that they must not discuss the issue with anyone else apart from their MLRO or CO.
“This protects both the member of staff and the MLRO because it shows that they understand the procedures to be followed,” Carson explained. “Otherwise the maximum penalty for tipping off is five years imprisonment for both.”
Carson said that there must also be clearly defined procedures for staff members to follow when they are talking with the client on whom they have filed the internal suspicious activity report.
“Staff need to be very careful what they say to the client to ensure that they do not tip them off that the client is under suspicion,” he said.
Staff also need to appreciate when to file a suspicious activity report and when not to, especially in the case of a client who is unwilling to provide personal information.
“If a staff member is ever unsure they should turn to their MLRO or CO,” he confirmed. “And the MLRO ought to look at the case in question, use their judgment and not allow this reluctance to carry on for any length of time.”

More training: terrorist funding vs. money laundered funds
Staff also needed to be aware of the difference between funds used by money launderers and those used by terrorists, as the Terrorism Law (2009 Revisions) was also a piece of legislation which governed regulated financial institutions.
“Terrorist funding may well have come from legitimate sources but they will want to hide their cash; money laundered funds are always tainted from the offset but once laundered, the criminals want to broadcast the fact that their cash is “clean”,” he said.
“The key to recognising a suspicious activity is to run with your natural instinct: if something just doesn’t feel right it should be reported,” he added.
Carson went on to say that if an MLRO or CO finds they are spending more than a couple of hours trying to analyse whether the reported activity really is suspicious or not then they should be reporting externally it to the Financial Reporting Unit.
“It should not take more than a couple of hours to decipher whether an activity is suspicious or not,” he stated.

Training requirements – an ongoing process
Training is key, according to Carson, who urged the audience to ensure that their staff were properly trained in accordance with sections 6.7 to 6.18 of the Guidance Notes. The MLRO or CO ought then to be able to fully demonstrate the type of training received by staff members through careful documentation of all training practices.
Training should take place much more frequently than once a year and should involve MLROs and COs providing constant updates to staff about new rules and regulations.
“Training can take place electronically if your firm has the correct infrastructure or it could take the form of small groups getting together or workshops,” Carson stated. “The most important aspect of training is to make it relevant to your organisation and staff members. Use examples of recent possible suspicious activity (change the details) so that staff can appreciate what they are up against.” 
New staff members need particular training as soon as they join the organisation to ensure that they are up-to-speed as soon as possible.
“Don’t leave this to the HR department,” Carson urged. “The MLRO or CO ought to be spending an hour or two ensuring that the new staff member is completely au fit with compliance procedures. Failing to have proper training is actually a defence that can be used in Court.”
Carson summed up: “You cannot protect your firm or your staff if you have not made the aware of the extensive AML and combating the financing of terrorism requirements, standards and procedures to follow.”


Karen O’Brien Managing Director of Global Compliance Solutions and Stuart Carson a Barrister from the UK who runs Strategic Business Compliance