Payments Painkiller – Tackling Compliance Headaches

Now more than ever, treasurers need to take action to reduce the risks around payments – especially when it comes to sanctions compliance. Here, Joerg Wiemer, CEO, Treasury Intelligence Solutions (TIS) GmbH explains how centralising sanctions screening, and integrating it into the payment process, can help to keep corporates safe from compliance breaches.

Eleanor Hill, TMI (EH): Why are treasurers losing sleep over payments? What pain points do they typically face?

Joerg Wiemer, TIS (JW): As I learnt in my former life as a corporate treasurer, orchestrating a payments process is surprisingly painful. Generally speaking, the costs are relatively high, as are the risks, and transparency is low. Although initiatives such as SWIFT gpi are addressing some of these issues, the risk element is still causing headaches for many treasurers.  

Before treasury pays a supplier, it has to make sure the beneficiary has been thoroughly screened. This is not a one-off process; it’s continual – government-imposed embargoes and sanctions on who companies can trade with and how, are changing almost daily. What’s more, regulations in this area are increasing, with the EU and US, among others, issuing tough legislation to control money laundering and terrorist financing. The treasurer, together with the CFO, is therefore becoming personally responsible for any compliance breaches relating to payments.

EH: Could you outline some of the consequences of non-compliance? What are the risks?

JW: Along with the personal risks, which could see individuals incarcerated, the financial penalties for non-compliance are a major cause of sleepless nights, especially since regulators have imposed heavy fines in recent years (see Fig. 1).

In addition to fines and prison sentences, a breach could lead to significant reputational damage, which could in turn impact future profitability. Bank funding arrangements are also potentially at stake. Breaches can result in banks terminating business relationships, cancelling loans, or leaving funds frozen in escrow accounts for many years. Suppliers and buyers may also choose to take their business elsewhere if they feel the company is not doing enough to ensure its payment processes are compliant.

Worryingly for treasurers, regulators consider that not having adequate systems in place to run sanction and Anti Money Laundering (AML) compliance programmes is in fact comparable to non-compliance and misconduct. So, even without a breach, the implications of not being on top of payments compliance are extremely serious.

Fig 1 - Recent fines handed out by regulators

EH: What are the major sources of compliance risks around payments? What challenges do treasurers face when trying to keep on top of these risks?

JW: Any growing company is at risk, since the number of business partners, especially suppliers, that the business interacts with will be increasing rapidly. To keep on top of the new legislation, supplier data needs to be checked regularly against sanction lists such as that produced by the Office of Foreign Assets Control (OFAC). However, these sanctions lists change on a daily basis, which makes it hard to stay compliant without a tool to help shoulder the workload and make sure that the latest data is being used to perform checks.

Another hurdle is ensuring that subsidiaries are screening their suppliers correctly and that they are adhering to standardised processes for invoices that cannot be paid due to sanctions issues. Think about a group of companies with 50 subsidiaries worldwide – having visibility and control over the screening process used by all of those subsidiaries is extremely tough, especially if each subsidiary is using a different ERP system. Companies that have gone through acquisitions also often face significant visibility and consistency issues. What’s called for is a standardised sanctions workflow which is embedded right across the company’s systems and allows the Compliance Officer to gain a better insight into the overall company’s risk exposure to sanction violations.  

EH: Given all of these challenges, what has TIS developed to help treasurers manage sanctions screening more efficiently?

JW: We were keen to create a solution that would give end-to-end control over the payments process, from the ERP system to the bank (see Fig. 2), and enable treasurers to be compliant – quickly, easily and reliably. So, we built TIS Sanction Screening which is a risk-based customisable, centralised cloud solution for payment screening and compliance case management. I like to think of it as an online safety net – the solution is fully comprehensive and guarantees effective screened results. It supports numerous international and local payment formats and offers seamless integration with all payment systems and all ERPs using the TIS Agent. 

Fig 2 - Standard payment flow to the bank

TIS Sanction Screening can also be fully integrated with TIS Bank Account Manager to deliver central, unified management of all company-wide bank and account information, with sanction screening built in. Nevertheless, the solution also works as a standalone, so it can be customised to fit different business models and risk profiles.

Since it is cloud-based, TIS Sanction Screening always has the most up-to-date data, including global watchlists (such as EU & OFAC). Users can also create customised blacklists, and even whitelist trusted entities to help reduce false positives.

EH: How is TIS Sanction Screening different from other solutions in the market? And what are the tangible benefits for treasurers?

JW: Of course, there are competitor solutions, but as a consequence of most corporates’ fragmented IT landscapes and a multitude of applicable payment processes (i.e. STP-payments, manual payments and file uploads), only parts of the outgoing payments are screened using competitor solutions.  With the integration into TIS’ payments module, TIS Sanction Screening offers the possibility for a 100% coverage of all outgoing payments, including manual payments and payments made by third parties such as payroll providers. 

From an audit perspective, having 100% coverage of payments is invaluable. For treasurers, the solution saves time and money by streamlining compliance processes and reducing manual workloads. As explained, it also provides all business units with a single screening tool that is accessible through one centralised cloud solution. This software-as-a-service (SaaS) model means that no intrusive IT project is required to implement the solution. There’s no open-heart surgery! It’s a plug-and-play service that works right out of the box.

It’s also very user-friendly. Any time there is a potential sanctions issue, the system blocks the payment and creates a payment status notification, using a scoring system to denote the level of risk. The compliance department can then review the payment and see why it was stopped and follow a workflow to either release the payment or notify the supplier. In addition, this means that the treasurer and cash manager know about the payment – and its status – already, so can act upon that information as necessary.

EH: What other new-to-market benefits might treasurers see from such an investment? 

JW: Well, it’s also a great tool for supplier selection. While the main aim of the solution is to automate sanction screening, workflows can be performed manually when the supplier isn’t on the system. This means that procurement can essentially vet suppliers before the company agrees to engage with them, which can solve a lot of issues up front. It also demonstrates good governance, which is becoming increasingly important as part of corporate social responsibility, as well as for regulators, auditors and investors.

EH: And what about the price tag? How can treasurers justify investment in such a solution?

JW: Ultimately, the long-term damage of a non-compliance incident is likely to prove more costly than the investment required for an effective compliance programme. Moreover, tools like this are a form of insurance. They are quickly becoming essential for proper risk management in an era of heightened focus on sanctions. And since TIS Sanction Screening is a fixed-price solution, there’s no extra charge-per-payment – it’s very transparent in terms of the pricing and the value on offer. 

Let’s not forget the personal liability angle I mentioned earlier, either. Going to prison is not only a worry for CFOs, but also for any treasurer running a payments factory ‘on behalf of’. TIS Sanction Screening adds an additional security layer that acts as a backstop in case your colleagues in subsidiaries are not as diligent as they should be when it comes to sanction screening. And peace of mind is hard to put a price on!