Financial Crime Compliance: A Growing Challenge for Corporates
By Jutta Demant, Franz-Xaver Puy Michl and Thomas Woelk, Members of the Cash & Liquidity Ressort of VDT e.V. and of the EACT – Fraud working group
Financial crime incorporates many types of activity, including fraud, bribery and corruption, insider dealing, terrorist financing and money laundering. Tackling these illicit activities is a major concern for regulators, and is reflected in new legislation like the EU Fourth Anti-Money Laundering Directive. The focus on financial crime has also resulted in banks – and, increasingly, corporates – incurring large fines.
While stringent regulations are vital to building a financial system in which all participants can have confidence, the associated compliance requirements can bring a heavy administrative burden and additional costs, as well as delaying corporate banking activities such as opening bank accounts. As a result, there is a clear need for companies to work proactively with their banks and adopt best practices to overcome these challenges.
Need to know
Companies should be aware of a number of developments and initiatives relating to corporate compliance. In 2017 alone, the following guidelines and directives were released, among others:
Compliance pain points
Today most corporates – at least those active in international trade – are expected to have an internal compliance programme in place. Driven by export controls, and particularly the need to monitor exports of arms, military equipment and dual-use goods, firms need compliance policies and procedures in place, including the screening of all aspects of an export. For example, the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies states that client and end-user verification against international sanctions lists is crucial.
Such controls fulfil an important need in tackling financial crime. However, the adoption of financial crime screening also brings internal compliance programmes to a new level – not least because treasurers were only marginally involved in this area in the past.
For one thing, complying with the rules results in a heavier administrative workload, which treasurers must handle on top of their previous responsibilities. Aside from the largest multinationals, many companies have small corporate treasury departments. Freeing up suitable resources to focus on this topic can therefore be a challenge.
Screening the names of suppliers and customers during the on-boarding process may not be sufficient. In order to avoid sanctions violations, companies may also need to screen their payments and trade messages against sanctions lists. In the context of the Fourth Anti-Money Laundering Directive it might even be necessary to screen against PEP (politically exposed persons) and other lists.
This is not a one-off exercise: sanctions and PEP lists can change on a daily basis, so customer and supplier databases need to be screened regularly. However, corporates may lack the in-house expertise and tools needed to do this. Maintaining the necessary screening and control systems may also have considerable cost implications.
Regulatory compliance can also result in considerable delays to corporate banking activities. For example, the process of simply opening a bank account can take many weeks. In this climate, a bank’s ability to react quickly can be a powerful differentiator.
The relationship between banks and their corporate customers may also be affected in other ways. For example, banks need to request KYC information from customers in order to fulfil their own regulatory obligations – but if this is not done in a standardised way, corporates will have to send variations on the same information to multiple banks.
Addressing the challenges
Compliance may bring a number of challenges, but these are not insurmountable. There is plenty that companies and their treasurers can do to ensure compliance with the necessary rules, despite the many pain points.
For one thing, it is important to address the challenges proactively. This might include putting suitable training in place across the organisation. Companies may also need to appoint a compliance officer, or give another individual in the company responsibility for compliance topics.
Communicate and educate
While compliance may be a more significant part of the treasurer’s workload, others within the organisation also need to be kept informed about this topic. Where appropriate, companies should facilitate cross-departmental collaboration involving such departments as legal, tax, compliance, financial reporting, purchasing and IT.
 The DoJ paper, publication date 8th Feb 2017
 Trade Finance Principles, publication date 24th Jan 2017
 EU Money Laundering Directive, in place since 26th June 2017