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62% of the bank managers are considering the fight against money laundering as a high priority matter


According to a global study on money laundering by KPMG

the financial crisis induced that this kind of programs are now remaining in the background. The costs caused by the proper compliance of the legislation for preventing money laundering increased by 45%.
The option of externalizing some aspects of this kind of programs may suppose cost savings for the financial institutions.

The global study of 2011 on Money Laundering by KPMG highlights that 62% of the managers of the banking sector are considering money laundering as a high priority matter. However the financial crisis caused that the boards of the banks left this aspect in the background and attach greater importance to other priorities.
Enric Olcina, the person in charge for EMA for money laundering prevention of KPMG said “Despite the fact that it is comprehensible that because of the financial crisis the boards have focused mainly on their own survival, it is necessary that they also assure that the fight against money laundering will continue to be a priority, since otherwise they are risking to be subject to several sanctions and business interruptions.”

The study also points out that the operational costs of this kind of fraud increased by an average of 45% since 2007, and during the next 3 years an additional increase of 28% is expected. Nevertheless many experts specialized in this field usually underestimate the cost estimates for the future. In 2007 less than one of every five participants (a 17%) estimated an increase of 51% or more, and almost the third part (31%) confirmed that their costs actually increased by 51% or even more.

For Enric Olcina “It is very important that in an environment characterized by solvency problems the experts specialized in money laundering are providing the boards with realistic figures: Not only because of the important risks which have to be managed, but also for appearing credible in the eyes of the boards, which are not very happy with new applications for funding.”

Despite of the increase of this kind of costs, only 10% of the respondents outsourced or subcontracted some of their money laundering prevention functions, and 80% not even considered that option. It is possible that the financial institutions are losing cost saving opportunities because of not outsourcing some of the lower risk aspects of their money laundering prevention programs.

In this last study was included the option: “Activities of fighting against bribery and corruption” and it was classified by the participants as the third important cost area. This fact highlights the extraterritorial scope of the UK Bribery Act of 2010 and the US Foreign Corrupt Practices Act (FCPA), and the growing regulatory expectations associated with them.

Increased control over politically exposed persons

The priority given to the analysis of politically exposed persons (PEP) has been intensified after the recent events in the Middle East and North of Africa. Since our last study in 2007 the number of participants which are counting with formal proceedings for the identification and control of politically exposed persons (PEP) incremented from 71 % to 88%. The EU third Anti Money Laundering Directive, which was implemented in 2007 requiring the banks to carry out a monitoring process of PEPs, had an important impact and the number of European entities which adopted this type of proceedings incremented from 65% in 2007 to 94% in 2011.

“The riots in Arab countries are continuing beyond the summer and it is interesting to observe that the financial institutions all across the globe had been farsighted and adopted a risk based approach to know their customers. By now the majority of the entities (96%) are considering political exposed persons as a risk factor”, Enric Olcina added.
“Now in some cases the challenge for the banks is that overnight the PEPs became undesirable persons or sanctioned-parties and the authorities have been investigating former transactions with PEPs, which in the past used to promote business.”

“The banks should make sure that they can justify their relations with PEPs, above all keeping in mind a possible change of their political position in the future. They have to ask and investigate the origin of the PEPs’ funds and they should be prepared to explain the aim of the transaction they are carrying out.” Olcina continued.

Note to editors: For the elaboration of this study 197 financial performance managers and bank directors of 69 different countries were interviewed at the end of 2010.

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