Is It Possible to Dodge Liability for Anti-Money Laundering?

Dodge, duck, dip, dive, and… dodge. Unfortunately, these five rules apply not only to dodgeball players but also to employees attempting to evade detection as they engage in money laundering and other financial crimes. As unlawful behavior becomes more sophisticated and covert, organizations need to establish adequate controls to detect and eradicate illicit activity. Unfortunately, many financial companies have yet to do so, as a recent report from one Hong Kong regulatory agency revealed.

Over the last year, Hong Kong’s Securities and Futures Commission (SFC) has ramped up its inspections of anti-money laundering controls at major investment banks, brokers, and asset managers. As a result, the agency recently announced a 91 percent year-over-year spike in anti-money laundering rule breaches in its Annual Report 2015-16. The spike surfaced amid heightened scrutiny from the SFC, which is facing pressure to crack down on illegal money transfers in the wake of a series of high-profile cases involving firms based in Hong Kong.

In auditing financial institutions, the SFC found two key shortcomings that apply to all organizations, not just to those based in Hong Kong. First, the SFC noted “deficiencies in the evaluation and reporting of suspicious transactions.” Second, the agency cited “failures to conduct enhanced customer due diligence and the appropriate level of transaction monitoring for high-risk customers.”

Given that U.S. banking and securities regulators have noted similar gaps and are cracking down on corruption, organizations now have an even greater incentive to establish a risk mitigation plan. Taking three steps can serve as a strong foundation for shoring up required controls and staving off potential liability.

Conduct compliance transaction reviews.
Organizations can study their data to assess the risk of every historical transaction in context. Through look-back analysis, counsel can spot high-risk financial activity that typical security measures cannot detect. In addition, they can look for gaps to predict areas of risk worth exploring—and do all of this within minutes rather than the months it has taken in the past, reducing compliance analytic cycle times.
Monitor data proactively.
With advanced data analytics tools that can assess up to billions of prior document classifications made by attorneys, organizations can predict which documents have the potential to become a compliance hazard and take earlier steps to mitigate risk. Going forward, counsel can use what they learn to set up systems that alert them when a document or conversation contains indicia of suspicious activity.
Establish a local presence.
Organizations can also covertly monitor their employees and their data by establishing an on-site presence with a local data center or a mobile unit (also called a “backpack”). All data will remain at the corporate premises, and a small review team can be deployed to quickly and discreetly collect, filter, and review data directly on the eDiscovery platform.

It can be difficult to uncover evidence of financial crimes hidden amidst data that on the surface seems to indicate nothing extraordinary. But today’s eDiscovery tools and techniques are capable of uncovering deeper insights, turning Big Data into actionable intelligence to satisfy compliance requirements, and identifying high-risk transactions.

Source: Lexology