The European Compliance Center together with media partner Risk & Compliance Platform Europe, is pleased to present the launch of a new initiative, the Compliance Cafe. The Compliance Cafe is a series of monthly webinars with outstanding compliance professionals. The aim of these online sessions is to encourage interaction between compliance professionals from different countries to discuss current risk and compliance topics, such as money laundering and de-risking. The first Compliance Cafe webinar was held on January 26, 2022, on the topic of the peculiarities of the transnational fight against illicit money flows – regulations, institutions, and effectiveness.
The guest speaker was Anastasia Savvateeva, a Financial Crime Enigmatologist and AML, Sanctions and Audit Puzzle Solver. She is currently a Deputy Head of Financial Crime Compliance at a global financial institution that provides investment management services.
Financial institution client schemes and old school financial crime
One of the evils within financial crime compliance from a practical point of view according to Ms. Savvateeva is very often a lack of understanding of situations or schemes used by financial institution clients. She gave an example of this by mentioning a scheme used by Russian clients. It consisted of granting private loans between business associates, all of which spiced with complex legal structures and offshore jurisdictions. It had also long been qualified even by the Russian tax authorities as a tax evasion maneuver. In Europe, such a scheme raises questions, but surprisingly very often compliance officers cannot manage to obtain a satisfactory explanation of it from the client or from the relationship manager. They simply stamp the transaction as approved, instead of stopping and investigating further.
She further emphasised that compliance officers may not understand what is happening in a certain situation and may not consider the activity to be illicit. This is how it goes sometimes and how ‘old school’ tax evasion, money laundering or fraud schemes still occur. It also sometimes happens when compliance team members don’t feel confident or supported within their own team or by their own line manager. She stated that sometimes incoming emails from the top management mentioning that the client is a financial institution CEO’s friend, stamps a file as approved even before anyone is able to check it.
Transaction monitoring systems and client data management systems
There are institutions where whistleblowers are still stigmatised as traitors and where raising red flags is seen in a negative light. So, there are multiple sides to this problem, starting from the issues at the very top of AML and anti-financial crime, and going deeper into each financial institution. We also need to admit that most financial institutions try to simply comply with the regulations rather than to implement something that is genuinely efficient for the purpose of fighting financial crime. The regulations and the measures implemented by the financial institutions in response to the anti-financial crime objectives should meet, but this is seldom the case. Perhaps, some companies consider the regulation as some kind of a golden instruction on what-to-do, and they completely forget to perform their own critical assessment of what is important and efficient precisely for their company.
Many compliance officers can say that their transaction monitoring systems or client data management systems could have been better. But these systems comply with the requirements, and they are aimed at achieving this, not to make the lives of compliance officers easier, and the output of these systems more efficient. Ms. Savvateeva noted that this is another issue that could possibly be considered as a reason to the limited efficiency of AML standards.
Unwarranted de-risking and underground financial crime
We can also state with certainty that compliance departments are very often seen as some kind of military checkpoint. For example, we can say that we exclude this type of client, we don’t do business with this country, etc. But, as she stated, we all know that this is not a solution. The European Banking Authority (EBA) alerts on the detrimental impact of unwarranted de-risking. The EBA states that it can cause financial exclusion of legitimate customers, which Ms. Savvateeva agreed with. But she noticed another problem here.
If we were to de-risk completely and without applying any logical assessment, then financial crime will move completely underground. It is there already with the dark web and with other criminal networks, for example. But they are only partially underground; they still attempt to access legitimate financial systems. However, even today with all the risk-based approaches and precautions we take when accepting a new customer, we still have some of them that turn out to be financial criminals. So, she stated that if we were to start some kind of wild de-risking, then we may possibly lose any chance to spot financial crime and to prevent it from occurring.
The balance between commercial and compliance pressures
Shen then moved on to discuss the balance between commercial and compliance pressures and stated that there is no unique solution to this. While this is an issue at the top-level, it is also an issue at each business development manager or relationship manager. There can be relationship managers that cooperate with compliance and others that use and abuse every means to achieve their goal from verbal aggression, psychological influence, to pure violence.
Conclusion
To conclude Ms. Savvateeva’s talk, she discussed financial institution client schemes and gave an excellent example of a Russian scheme that involved granting private loans between business partners. Furthermore, she touched upon how compliance officers don’t always feel supported within their team. She also interestingly mentioned how oftentimes, financial institutions focus on simply putting in place measures and tools that are required by regulations without any critical assessment with regard to their particular situation, rather than focusing on meeting the initial goals of fighting financial crime and doing it with genuine efficiency.
She also spoke about de-risking and how if we were to de-risk completely, that criminal networks would move to conducting their activities entirely underground. Finally, she briefly talked about the balance between commercial and compliance pressures, stating that some relationship managers work alongside compliance, while others abuse it for their own gain.
