The lowdown on laundering

FST talks to Dan Soto, Advisory Board Co-Chair of the Association of Certified Anti-Money Laundering Specialists (ACAMS).

Dan Soto was recently elected as the new Chief Compliance Officer of RBC Centura. Before joining RBC, he was responsible for overseeing anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) compliance activities in Bank of America’s worldwide operations. Soto also worked as bank examiner with the FDIC and the Federal Reserve and helped develop the Fed’s AML examination policies. He is recognized as an expert in the international laundering compliance field.

FST. Just how serious is the problem of money laundering in the US right now? Has it improved or deteriorated over the years?
DS. Judging by the figures quoted in the various conferences or publications I’ve either heard or read, I’d say it amounts up to several trillion dollars – pretty serious stuff. But as far as having an understanding of what the full cost of money laundering is – both globally and in the US – it’s a number that’s unknown right now.

Whether there have been improvements, I can’t really answer that. I’m not privy to the actual figures regarding the amount of money related to money laundering that has been seized by the government. A more important metric is to look at how well we are doing in identifying or reporting suspicious activity that potentially involves money laundering – and I think in this regard there have definitely been signs of improvement.

FST. To what extent are financial institutions charged with the responsibility of defeating money launderers?
DS. The Bank Secrecy Act regulations in the United States are the primary set of regulations financial institutions are charged with following – regulations that were enhanced with the passing of the USA Patriot Act.

Financial institutions today receive a great deal of attention from US regulators in the AML compliance area. While there are certainly other laws and regulations that firms must follow, consumer-related laws, anti-money laundering laws and regulations have certainly received a lot of attention from the regulators.

In terms of the overall compliance landscape, money-laundering represents one of the top priorities of the government and the financial industry as a whole. For financial institutions, failure to follow the rules from a compliance standpoint can lead to enforcement actions, fines and penalties and can also lead to restrictions on a financial institution’s ability to grow its business through mergers and acquisitions. Of course, should the enforcement action become public, the consequences can become reputation-related as well.

FST. Do you think there’s sufficient understanding among institutions about how to respond to money laundering?
DS. My involvement with various compliance organizations, some of them global (such as ACAMS), indicates to me that financial institutions are certainly taking their responsibility seriously; most of the financial institutions appear to be spending more resources – both financial and human – to comply with the anti-money laundering rules and regulations.

I guess some of the struggles involve compliance with the laws and regulations – such as, for example, putting in place and monitoring processes to ensure that the identity of clients is being verified, or what steps to take when conducting enhanced due diligence. It seems to be more focused around the compliance processes that a financial institution has to take to meet the specifics of the rules and regulations. But I think the bigger struggles for a financial institution involve decision-making – such as how to risk-rank its customer base, its products and its services or the regions in which it operates.

FST. How are financial institutions tackling the money laundering issue?
DS. Through my own discussions with various financial institutions across the world (but in the US in particular), I’d say firms are trying to address money-laundering concerns through the development of sound policies and procedures. Lately there’s been much more emphasis on determining client risks and attempting to eliminate that risk by either stopping all business with high-risk clients – or what are deemed to be high-risk clients – or placing more controls over those risks, or in some cases stopping business in certain high-risk jurisdiction. As for the effectiveness of the process, I’d say emphasis on sound compliance programs seems to be improving.

FST. From your perspective, what more could be done?
DS. In my opinion, the financial industry has continued to place a great deal of emphasis on the detection and prevention of money laundering. In the US, there’s been a great deal of emphasis placed on cooperative efforts between financial institutions, as well as with various government agencies, to just amplify the discussion surrounding money laundering concerns. I believe that these cooperative efforts must continue so that ideas and experiences can be shared. Ultimately, valuable resources must be placed on accounts and transactions where there is a strong belief that they involve money laundering.

FST. Are there any emerging technologies or initiatives currently in development that will help combat money laundering better in the future? How effective have these been?
DS. We’ve certainly witnessed a great deal of technology-related efforts that have sprung up around money laundering detection and prevention, ranging from technology to assist financial institutions in identifying politically exposed persons in their customer database, to alerting financial institutions to potentially suspicious transactions, and ranging further to technology to help train employees.

As long as financial institutions understand that technology is just a tool and not the solution to defeating money launderers, then technology can be effective. I think the emphasis should continue to focus on what technology can do within a financial institution to aid employees in understanding potentially suspicious activities and how to make sound decisions involving those activities.