Systems for spotting money laundering 'neither efficient, nor effective' at a third of financial institutions, new survey says

Out-Law News | 30 Jan 2014 | 5:32 pm | 1 min. read

The systems used to monitor transactions and identify money laundering activity are not up to the job at more than a third of banks and financial institutions, according to a new survey by KPMG.

Of 317 anti-money laundering and compliance professionals within banks and other financial instructions in 48 different countries surveyed in November 2013, 35% said their companies' transaction monitoring were "neither efficient, nor effective".

Nearly half those surveyed also said that the systems used by their companies were able to monitor transactions across different businesses and jurisdictions.

The survey charted a rise in the seriousness with which money laundering matters were being considered within bank boardrooms, with 88% of the professionals surveyed stating that such issues were "back at the top of the agenda in their organisation". In 2011 just 62% said money laundering issues were being treated as importantly.

In addition, 84% of respondents to the November survey said that money laundering ranks as a "major concern" within the risk assessments undertaken by their organisations. The same percentage of respondents said there was "major concern" at boardroom level within their businesses over the need to comply speedily with different sets of anti-money laundering rules around the world.

KPMG said that the survey also showed that many banks and financial institutions outsource or offshore anti-money laundering compliance duties to others.

"To date, 31% of respondents had outsourced and 46% had off-shored some of their anti-money laundering functions," it said. "This is despite senior management concerns regarding a perceived lack of control and oversight, data confidentiality concerns or a lack of cost savings."

KPMG also said that banks and other financial institutions may be underestimating how much money they spend on complying with their anti-money laundering duties.

"Despite some positive steps and evident strides in coming to grips with the 21st century challenges posed by money laundering threats, the risk of lagging behind today’s globally connected money launderers remains very real," Brian Dilley, global head of KPMG's anti-money laundering practice, said. "It is essential that regulators implement a consistent regulatory approach, but also foster a closer working relationship with industry professionals in order to leverage each other’s resources, aligning mutual interests in order to ensure that money laundering doesn’t pay off."

EU anti-money laundering legislation is currently the subject of reform proposals.

Last February the European Commission published a new draft Anti-Money Laundering Directive in a bid to update existing rules. Under its plans all cash payments of €7,500 or more would trigger checks into those financial transactions. The scope of existing rules would also be extended to cover "new threats and vulnerabilities", such as an explicit reference to tax crimes. It would also fully cover transactions in the gambling sector, expanding the current rules which only apply to casinos.

At the time the Commission also published a draft Regulation governing the information that must accompany fund transfers.