Financial Crime: Taking Control of a Moving Target


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Claire Henry

Senior Associate 

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Monday 4 May 2020


Corporations are under extreme pressure from a multitude of parties (Regulators, Auditors, Compliance, and Quality Testing functions, to name a few) to identify and truly “know their customer”. This pressure stems from a global effort to stop financial crime, the transfer of criminal proceeds and to prevent any potential facilitation of terrorist organisations.


However, firms are facing several operational-level challenges:

  • Insufficient resources to perform timely and accurate due diligence on new and existing customers

  • Inadequate quality resulting in further time, money and resources to remediate to the appropriate standard

  • Ineffective IT infrastructure and tools.

Two of the above operational challenges resulted in recent sanctions violations by Apple Inc., who paid a $466,912 settlement in November 2019[1]. Inadequate data quality and ineffective sanctions screening tools failed to alert a name and address match of a sanctioned entity due to differences between uppercase letters and characters in the entity’s legal form - ‘SIS d.o.o’ vs. ‘SIS DOO’. The owner of the company, a sanctioned individual, was listed on OFAC (U.S. Treasury Department’s sanctions list) as a significant narcotics trafficker and was an active client of Apple for more than two years; which emphasises that even the largest, most advanced companies in the world are vulnerable to being inadvertently used for criminal purposes.


Is Financial Crime on the rise?

The term ‘Financial Crime’ can consist of a variety of offences, including money laundering, fraud, terrorist financing, market abuse, insider dealing and corruption. There is an increasing spotlight on financial crime, not only by financial regulators, but also global organisations, news agencies, and several online streaming services, such as Netflix and Amazon Prime, with both the latter having created their own original series to outline the level of corruption and money laundering activities that are rife in today’s global economy.


According to Transparency International (“TI”), an independent organisation set up in 1993 to focus on the fight against corruption, “a staggering number of countries are showing little to no improvement in tackling corruption”[2].


TI publishes an annual Corruption Perceptions Index (“CPI”) score whereby countries are rated by experts, with the score reflecting their ‘perceived level of corruption’ due to susceptibility to corruption as a result of poor legal enforcement or lack of regulation, with 100 considered as a ‘clean’ score vs. 0 being indicative of a highly corrupt country. The countries with the highest 2019 CPI score (i.e. considered least corrupt) are shown below.


Comparing present-day CPI scores with those in 2015, countries have lower CPI scores, indicating that the level of corruption has increased in these countries in the past five years.


EU Recent Actions

The EU has recognised the rise in financial crime and, in response to the 2016 Panama Papers and 2017 Paradise Papers leaks and terror attacks in Europe, they amended the 4th Anti-Money Laundering Directive by introducing the or “Compromise Text” in January 2020.

The EU has adopted 5AMLD in order to improve transparency and to minimise the likelihood of terrorists taking advantage of different approaches within member states.

Below are the key factors which are required under 5AMLD:


  • Virtual Currencies - introducing the monitoring and reporting of suspicious activity for digital currencies (also known as cryptocurrencies)

  • Pre-Paid Cards - further reducing the transaction limit and amount which can be stored on the card to €150 (4AMLD had reduced the limit to €250) and extending customer verification requirements

  • Beneficial Ownership Registers - requiring all EU member states to ensure that information held on a centralised, publicly available ownership register is accurate and complete

  • EU financial intelligence units - improving information sharing among EU FIUs

  • Adopting a consistent approach within the EU towards High Risk countries - introducing additional requirements for ‘higher risk third countries’ which have deficiencies in AML and CTF (Counter-Terrorist Financing) controls. This list of ‘higher risk third countries’ has been considered controversial due to the divergence from the country risk analysis conducted by the Financial Action Task Force (“FATF”: an international organisation founded by the G7 to combat money laundering and terrorist financing).


KYC AML Control Framework

Financial institutions need to remain vigilant in the fight against financial crime and, to provide assurance of this, firms can leverage the First or Second Line of Defence (“1LOD / 2LOD”) function within their KYC AML program by maintaining a number of preventative and detective controls. These controls effectively mitigate the risk of non-compliance with regulation, internal policy or procedures, before any regulatory breaches could occur.


Independent Quality Assurance (“IQA”) forms the foundation of a KYC AML control framework, whereby a quality review is conducted on a customer to ensure the accuracy of the due diligence performed by the operational KYC staff (KYC file analysts, KYC quality checkers). IQA is typically performed on a sample basis and analyses key risk factors and various criteria of the customer profile to ensure the quality is of an acceptable standard.


In addition to IQA, firms also opt for “targeted” controls to supplement the wider scope of IQA. Targeted controls are often utilised to identify any specific knowledge, IT, infrastructure and/or resourcing gaps within the KYC program which result in poor quality. Control design varies from organisation to organisation but often focuses on a fundamental aspect of KYC/AML (e.g. sanctions exposure, customer risk ratings, etc.) to pinpoint any areas of concern.


Adopting a consistent approach to IQA and targeted control testing is essential, with methodologies of testing execution, quality findings, disputes and remedial actions clearly documented.


Given the fluid regulatory environment with its new developments and requirements, KYC policies and procedures are far from stagnant, meaning that the robustness of a financial institution’s KYC Framework lies in their change management culture and ability to adapt to transformation. Change management capabilities are underpinned by strong communication lines between KYC operational staff, IQA and Controls, Compliance, Risk and Legal functions.


Conclusion - How FinTrU can assist

With an ever-changing regulatory landscape and several financial crime cases evident in the news at any given point in time, it is no surprise that financial institutions are under pressure with KYC efforts to prevent becoming the next reported scandal. However, KYC should not be viewed as an administrative burden, but rather an opportunity and key component of preventing financial crime, and FinTrU can provide assistance in addressing the aforementioned challenges.

FinTrU has an extensive KYC and AML service offering, with experience in performing due diligence and investigation focused EDD reviews, negative news and sanctions screening, quality assurance, testing and execution of KYC AML controls, consulting on effectiveness of firm’s KYC programs and project management of KYC remediation efforts.

At FinTrU we understand the importance of corporate integrity when dealing with clients’ customer data and, as part of our KYC services, we offer:

  • Cost-effective solutions - with competitive low-cost, talented employees and a team billing structure unique to each organisation

  • Quality - we adopt a ‘Right First Time’ approach with internal KYC file Quality Assurance reviewers in place to meet regulatory and client expectations

  • Global Presence - strategic time-zone location to assist with real-time KYC file completion efforts, avoiding undue delays, and experience in performing KYC reviews across a variety of jurisdictional KYC programs

  • Scalability - bespoke to each organisation’s KYC/AML needs

  • Flexibility - we have a depth of experience in performing business-as-usual ongoing KYC reviews in addition to targeted KYC remediations

  • Transparency - with regular communication on output, prospective blocking points and enhancement of management reporting metrics

  • Process Improvement - our team is focused on maximising efficiencies and demonstrating value-add to each of our clients.







About FinTrU


Founded in December 2013, FinTrU is a multi-award winning Financial Services company that is committed to giving local talent the opportunity to work on a global stage with the largest international investment banks. FinTrU provides its clients with high quality, cost-effective, near-shore resourcing solutions. FinTrU’s products are: Legal, Risk, Compliance, KYC, Operations and Consultancy. Its clients are all Tier 1 Investment Banks based in London, New York, Tokyo, Frankfurt and Paris. FinTrU currently employs 480 staff at its two Belfast city centre offices and Derry/Londonderry.