The recent international crackdown on rogue capital in the wake of the war in Ukraine have shined a glaring and very public light on Anti Money Laundering (AML) and Countering the Financing of Terror (CFT) regulations and compliance.
The increasing complexity of KYC/KYB regulations, combined with tightening regulatory scrutiny over all sectors, is making today’s regulatory climate particularly challenging. With the risks of noncompliance already severe, market analysts expect the screws to tighten even further.
In this post, we’ll take a look at how companies are turning to regulatory web data to enhance their AML/CFT compliance and mitigate liability.
AML/CFT primer
Anti-money laundering (AML) refers to the activities organizations undertake in order to comply with their legal requirements to actively monitor for and report suspicious activities and fraud. CFT regulations have the same purpose, but with regards to the funding of terrorist organizations.
According to the International Monetary Fund (IMF), AML/CFT controls were conceived to both curtail criminal economic activity and strengthen and stabilize financial markets. To this end, AML/CFT regimes work closely with international and local law enforcements, governmental institutions and the regulated entities themselves to ensure that financial propriety is maintained across all transactions.
In the past decade, there has been a notable shift in governmental attitude towards AML compliance, CFT compliance, and KYC compliance. Whereas these types of regulatory compliance were once seen as internal company matters, in recent years civil enforcement actions, civil penalties, and even criminal prosecutions have become increasingly common. Governments today view AML/CFT regulations as part of the national security infrastructure – and act accordingly.
What’s at risk?
From a risk management perspective, AML/CFT risks play a huge role in today’s business arena. AML/CFT noncompliance can affect multiple risk categories, including:
- Business/strategic risk which affects (or is created by) the organization’s strategic objectives or business strategy.
- Market risk which can endanger the organization’s financial condition owing to a negative impact on market, interest or foreign exchange rates, price fluctuations, or equity prices.
- Credit risk originating from the potential for default on the part of partners or borrowers.
- Liquidity risk if the organization becomes unable to meet its obligations or cannot easily offset exposures without significantly affecting its balance sheet.
- Operational risk because of failed internal processes, people, and systems or from external events.
- Legal risk owing to unenforceable contracts, lawsuits, or adverse judgments.
- Reputational risk from negative publicity regarding business practices that can cause customer churn, litigation, or lower revenues.
The biggest risk: compliance
The most serious of all the risks facing AML/CFT regulations is compliance with AML/CFT regulations themselves. This risk includes legal penalties, financial forfeiture and material loss because of noncompliance.
In recent years, compliance enforcement has become more stringent, while sanctions and penalties for noncompliance have grown far steeper. How much steeper? Recent research found that the number of AML fines assessed against financial institutions alone was the highest in six years during 2021, totaling some $1.6 billion globally.
Notably in 2021, the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) fined Capital One $390 million for KYC-related violations. The bank failed to report suspicious activity of customers with known criminal backgrounds, and also didn’t file appropriate reports for over 50,000 transactions with a total value of $16 billion.
Another massive AML penalty ($700 million) was paid by Malaysia-based AmBank, following its role in hiding the embezzled assets of disgraced former Malaysian prime minister Najib Razak. Both Deloitte and Goldman Sachs also paid steep fines in this case, too.
The fuel powering compliance: data
While the big-name financial sector cases like those above catch headlines, the threat of smaller (yet significant) fines and penalties from a wide range of regulatory entities is keeping companies in all sectors on their toes. Yet with so many regulations from so many national and international agencies, evolving so rapidly – the compliance game has changed dramatically in recent years.
Governance, Risk Management, and Compliance (GRC) is one of the world’s fastest-growing domains, as companies move from a reactive to a proactive stance on achieving and maintaining compliance. The risks of noncompliance are simply too great. Companies are investing heavily in GRC software to shore up their compliance war chests, in human resources to power those tools, and in myriad other technological and business solutions to ensure that compliance is not only achieved, but also maintained over time.
Yet there’s one compliance energy source that – despite its centrality to GRC – is often overlooked. It’s the fuel that powers proactive compliance, because without it compliance efforts are often mis-focused and fall short. We’re talking about web data: the correct and up-to-the-minute information that empowers compliance stakeholders to laser-focus their activities.
In an age where there is so much data, so publicly available – the need for curated regulatory web data can seem counter-intuitive at first glance. Yet regulatory stakeholders understand how difficult it is to collect and manage quality, reliable, and real time data from – for example – KYC/KYB watchlists, Politically Exposed Person (PEP) lists, Money Laundering and Terrorist Funding (ML/TF) lists, sanction lists, screening lists and many other watchlists. Yet it is this data that is key to compliance, in a very real way.
Webz.io can help
To meet the unique needs of compliance regimes, Webz.io offers a feed of the latest governmental rules, regulations, ESG data, sanction lists, and corporate filings. We crawl, collect and structure real-time data from worldwide government sites every day – delivering a single unified data feed that includes multiple languages and historical data, too. With unparalleled latency, Webz.io automatically discovers and classifies new sources of relevant data, too.
Talk to one of our data experts today to explore how our Gov Data API can help you provide your customers with a real-time, reliable data feed that facilitates compliance and mitigates the risk of AML/CFT and KYC/KYB liability.
