Along with spiking the demand for capital and prioritizing the focus on balance sheets, the global financial crisis has spawned a “Perfect Storm” for Bank Secrecy Act compliance and money laundering risks. As CFOs struggle to preserve capital and manage costs of capital, BSA/AML failures can result in significant unbudgeted costs. An inherent consequence of these failures is negative publicity. The prospects of unbudgeted, significant expenses and the potential increased costs of obtaining capital during a period of reputational challenge are worthy of senior management’s attention.
The “Perfect Storm” consists of prosecutorial challenges, regulatory challenges and the challenges of the tracking the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Prosecutorial risks are being driven by a significant increase in criminal investigations. In November 2009 President Obama issued an Executive Order that created the Financial Fraud Enforcement Task Force to investigate criminal activities that contributed to the credit crises. This is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to pursue financial crimes. The number of criminal subpoenas served on financial institutions will increase as a result. Each criminal subpoena tests the effectiveness of your company’s AML Program.
The regulatory challenge consists of heightened regulatory priorities relating to BSA/AML compliance. In 2010 FINRA issued its new FINRA Rule 3310 on money laundering and released its “Updated Small Firm Template” relating to AML Programs. In its 2010 Annual Examination Priorities Letter LIMRA identified fraud detection and anti-money laundering as priorities; and, announced the formation of an “Office of Fraud Detection and Market Intelligence”.
The Federal Financial Institutions Examination Council released its updated BSA/AML Examination Manual in April 2010 that includes several significant updates and additions regarding regulatory expectations for AML Programs.
The Dodd-Frank law has been estimated to require regulators to create 242 rules, conduct 67 studies and issue 22 periodic reports. It requires a GAO study to determine the need for a self-regulatory agency for private funds to be completed within a year.
The law also provides the SEC with the authority to pay whistle blowers millions of dollars for information regarding misconduct by registered firms. This has immediate implications for registered hedge funds.
We have once again entered into a period of high risk for BSA compliance and money laundering.
The unbudgeted costs of non-compliance and accompanying publicity challenges raise this issue to the executive and board levels.
CFO Consulting Partners has the knowledge, skills and ability to assist your company during this heightened risk environment.
Contact us to explore what we can do for you.