P R E S E N T E D B Y

Pandemics to Recession: Finding AML and ABC Synergies in Tough TimesApril 21, 2020

MICHELLE GOODSIR

Managing Director

mgoodsir@k2intelligence.com

JOANNE TAYLOR

Managing Director

jtaylor@k2intelligence.com

2

Biographies

Joanne Taylor, a managing director at K2 Intelligence Financial Integrity Network,

has 20 years of legal, investigations and financial crime compliance experience,

which includes fraud risk management, anti-bribery and corruption, regulatory

enforcement and fraud investigations experience working within the financial and

legal services industries. Joanne has in depth experience with global anti-fraud,

bribery, and corruption (ABC) strategy, programmes and framework efforts,

including governance, policy, remediation, training and awareness, risk

assessment, reporting and whistleblowing, as well as fraud detection and

monitoring strategy. She has handled global whistleblowing programs and cross-

border investigations relating to fraud, bribery and corruption. Joanne has also led

cross-border AML investigations, working directly with organisations’ senior

management and regulators.

Michelle Goodsir, a managing director at K2 Intelligence Financial Integrity

Network, has 25 years of financial crime compliance experience which includes

fraud risk management, anti-bribery and corruption, corporate security and

investigations, sanctions and anti-money laundering (AML) programme experience

working within the financial services industry and the US government. She is a

strong compliance professional with focus on program build, operations, analytics,

and business intelligence. Michelle focuses on providing clients strategic advice on

fraud risk management to international financial institutions. This includes how to

structure a second line of defence fraud program, defining fraud risk taxonomy and

risk appetite, enhancing risk assessment and control capabilities, and developing

strong stakeholder engagement models across an organisation. She also

leverages her expertise in AML and sanctions to lead large projects involving

global banks facing regulatory scrutiny or penalty.

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Agenda

Increasing Risks in Emergency Situations1

Reducing Financial Crime Risk by Leveraging Compliance Resources2

Customizing Technology for Broader Use3

Expanding the Use and Capabilities of Analytical Teams4

Leveraging Staff Location and Skillset for Cross-Training 5

Identifying Opportunity6

4

Increasing Risks in

Emergency Situations

5

Increasing Risks in Emergency Situations

- Financial crime risk

has potential to

increase during this

time

- Revenue targets and

tightening economies

can breed bad

behaviors

• Fraud scams rise as the COVID-19 outbreak

surged, including CEO frauds against corporates,

phishing incidents, fraudulent scams involving

government stimulus packages.

• Anticipation that international trade will be an

increased channel for money laundering, potentially

facilitated by bribes to officials.

• Organizations, particularly those on the front line of

the pandemic, will face an increased fraud and

bribery risk, including in the supply chain.

• During the 2008 financial crisis, there were

reports of consumer scams, increased

cyberthreats, fraudulent ‘safe’ investments in gold,

precious metals, and certificates of deposits.

6

Increasing Risks in Emergency Situations

Source: Stanford Law School FCPA Clearinghouse

0

2

4

6

8

10

12

14

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual AML/KYC/Sanctions Fines in USD Billions

Source: https://go.fenergo.com/global-regulatory-fines-2018

Increasing enforcement actions demonstrate increasing regulatory oversight and historical higher risk tolerance.

o During the last twelve years, financial institutions worldwide have been fined $36 billion for anti-money laundering,

KYC and sanctions violations, some for activity occurring during and shortly after 2008.

o AML/KYC/Sanctions enforcement actions have been up and down year over year, however the trend line shows a

slight increase during a ten-year period.

o FCPA enforcement actions have shown a rising trend through 2018.

7

Increasing Risks in Emergency Situations

o SAR filings are a good indication of financial crime risk

1,659,123

1,812,665

1,975,6382,034,406

2,171,173

2,301,163

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2014 2015 2016 2017 2018 2019

US Yearly Count of Suspicious Activity Reports

Source: Financial Crimes Enforcement Network

423,304

463,938

478,437

390,000

400,000

410,000

420,000

430,000

440,000

450,000

460,000

470,000

480,000

490,000

2016-2017 2017-2018 2018-2019

UK Yearly Count of Suspicious Activity Reports

Source: NCA UK Financial Intelligence Unit - Suspicious Activity

Reports Annual Reports

8

Increasing Risks in Emergency Situations

Source: 2019 report of Transparency International’s Most Corrupt Nations

o Many markets which

present business

opportunities continue to

retain high corruption

indices

o No substantial regional

progress noted in anti-

corruption efforts or results

o In 2019, Asia Pacific

collectively scored 45 and

the Americas collectively

scored 43, with a noted

drop in historically stronger

countries including

Australia and Canada

9

Regulatory Expectations in Emergency Situations

o Regulators caution against certain schemes during emergency situations and expect banks to uphold financial crime compliance as laws and

regulations remain.

▪ On April 3, 2020 FinCEN issued an advisory to assist financial institutions in complying with Bank Secrecy Act (BSA) obligations during

the COVID-19 pandemic. In the guidance, FinCEN expects financial institutions to remain compliant and continue to follow a risk-based

approach. Earlier guidance released on March 16, 2020 noted emerging fraud trends involving imposter scams, investment scams,

product scams, and insider trading.

▪ FinCEN issued guidance in October 2017 to flag certain fraud schemes following significant natural disasters, specifically warning

against benefits fraud, charities fraud, and cyber-related fraud. Guidance included use of key terms in the SAR narrative and reiterated

bank requirements to file Suspicious Activity Reports.

▪ On April 7, 2020 the OCC issued a bulletin to support FinCEN’s April 3 notice and encourage banks to notify examiners regarding delay.

▪ In March 2020, the Federal Reserve announced near term focus on continuing monitoring of institutions’ operations, liquidity, capital

and asset quality and consumer impact. In general, Federal Reserve SR 13-6 provides guidance to banking organizations during the

time when POTUS declares major disaster or emergency. Banks are advised to maintain BSA/AML customer identification requirements

and to be alert to indications of ‘fraud or criminal activities and report suspicious activity in accordance with existing protocols”.

▪ In April 2020, the SEC issued an Investor Alert and Bulletin to warn investors about investment fraud involving COVID-19 claims.

▪ The UK’s Financial Conduct Authority recently released information related to COVID-19 that firms are expected to support

customers, manage financial resiliency and liquidity.

▪ The UK’s National Crime Agency released information on fraud schemes associated with COVID-19.

10

Reducing Financial Crime

Risk by Leveraging

Compliance Resources

11

Poll Question

How much collaboration does your company have between

bribery/corruption functions and other financial crimes compliance programs

on a scale from 1 (no collaboration) to 5 (direct and consistent

collaboration)?

12

Challenges in the Financial Crime Compliance Field

Financial crimes compliance professionals face many challenges which they must regularly address:

o Regulatory expectations and oversight, often involving various regulatory regimes

o Smaller organizations are challenged with the expense of compliance, limited resources

o Compliance is an overhead expense, and compliance enforcement actions can add to the financial burden

o Enforcement actions can hinder business, further leading to cost challenges

o Operationalizing compliance programs to meet regulatory requirements, which are not prescriptive

o Changing risk landscapes

13

Benefits from More Holistic Approach to Resources

Organizations, large and small, can benefit from leveraging compliance resources more holistically:

o Increased effectiveness across compliance teams, breaking down silos and sharing information

o Broader risk categorization for client risk ratings

o Comprehensive assessments of financial crime risk

o Greater responsiveness; support need for surge capability

o Training to help employees understand financial crime risk holistically rather than in parts

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Reducing Financial Crime Risk by Leveraging Compliance Resources

There are several ways in which compliance resources can be cross-utilized for financial crime compliance:

Technology:

o Workflow/case management

o Data analytics and data lakes

o Risk rating engines

o Screening tools

People:

o KYC analysts and due diligence reviews

- Negative news screening

o Alert review teams

o Investigations covering ABC and AML

o Transactional advisory staff

15

Customizing Technology

for Broader Use

16

Customizing Technology for Expanded Use

Workflow/Case Management Tools

• Customize to track ABC advisory

• Record third party due diligence and store documentation

Data Analytics Tools

• Extract information from case management to build metrics reporting & trending

• Monitoring capabilities for Gifts/Entertainment

Data Lakes

• Support analysis by combining information from AML, sanctions, fraud and ABC sources

Risk Rating Engines

• Can be customized as risk rating engines for third party risk.

Screening Tools

• Lists within those tools can aid ABC monitoring needs.

• Screen for PEPs upon hire and routinely; PEP and sanctions screening for G&E

17

Expanding the Use and

Capabilities of Analytical

Teams

18

Expanding the Use and Capabilities of Analytical Teams

KYC Analysts- Due Diligence

o Due diligence should incorporate all financial crime risk perspectives to complete onboarding

o Similar processes should be leveraged to consider AML, ABC, sanctions and fraud risk for client

periodic reviews and event driven reviews

Alert Review Teams

o Those dedicated to clearing Level 1 PEP screening could be leveraged to clear first level alerts for ABC

purposes

Investigative Resources

o Client related bribery reviews/investigations can benefit from partnering with AML investigations to

consider transactional data for suspicious activity

Transactions Advisory Teams

o AML/KYC, ABC, and sanctions teams can partner on deal-related advisory; unified compliance voice

19

Leveraging Staff Location

and Skillset for Cross-

Training

20

Leveraging Staff Location and Skillset for Cross-Training

o ABC and AML professionals assigned to regional teams can be leveraged to support each other (as allowed by data privacy

restrictions)

▪ To mitigate capacity strain, surge requests, or a backlog

▪ Consider partnering on client outreach and risk management for consistent approach, and risk rating decisioning across

regions

▪ Co-operation on policy and process coordination, strategic initiatives, technology development, and customization

o Testing Teams

▪ Single independent team responsible for establishing testing parameters, and undertaking periodic tests of KYC/AML

and ABC programs

21

Identifying Opportunity

22

Identifying Opportunity

o Where in the organization do the AML and ABC teams currently sit?

▪ If the AML and ABC teams report to different departments, some organizational restructuring may help to align interests.

o Does the organization have different risk ratings for customers based on their geography, industry, and so on?

▪ Differences in risk ratings can signal a need to create a clear set of guidelines and risk appetites for AML and ABC teams.

o Does the organization have a systemic method to track anti-bribery and corruption issues?

▪ Failure to track issues and restrictions put in place can be risky for institutions from a compliance perspective, besides being a missed

opportunity to analyze the effectiveness of their ABC programs.

o Are the institution’s ABC processes largely manual or technology-enabled?

▪ Many AML teams use tools and technologies to perform transaction monitoring, alert management, and implement KYC programs

and assess risks. ABC teams can benefit from using many of those same tools but require customization and training to use them

effectively.

o Can the institution leverage people more effectively to manage budget and cost pressures?

▪ Consider resources with the greatest capability and knowledge base to support broader needs and objectives.

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