6 reasons why you need a robust enterprise-wide AML/CTF risk assessment

In the dynamic landscape of global business, organisations face escalating compliance regulations. As a result, enterprise-wide money laundering risk assessments are more important than ever for regulated businesses, regardless of their size, industry sector or geographic location.

Why your business must prioritise enterprise-wide money laundering risk assessments

1. Regulatory compliance

The exponential rise in financial crimes like money laundering, bribery and corruption, fraud, tax evasion and human and wildlife trafficking is seeing a heightened response from global financial crime regulators.

According to Anthony Quinn, Founder and CEO of Arctic Intelligence, many regulators, like the Financial Conduct Authority (FCA) in the UK, are shifting their attention to a closer examination of control effectiveness by setting expectations for the businesses they regulate. Ensuring they have suitable systems, procedures and controls in place to mitigate money laundering risks.

“Navigating the ever-changing landscape of emerging threats, laws, and regulatory expectations can be overwhelming for many businesses”, Anthony says. “But irrespective of the nature and pace of these changes, getting the right approach is fundamental in meeting your compliance obligations while safeguarding your business and the financial system against criminal exploitation.”

By conducting comprehensive enterprise-wide money laundering risk assessments and implementing appropriate anti-money laundering (AML) and counter terrorism financing (CTF) measures, businesses can demonstrate their commitment to compliance, strengthen their defences against exploitation by bad actors and foster credibility with customers, regulators and investors.

2. Reputation and customer trust

Financial crimes like money laundering significantly threaten a business’s reputation, directly affecting customer trust and potentially diminishing business value by impacting the bottom line. A robust AML/CTF compliance program demonstrates a clear intent towards minimising these risks, strengthening operational integrity, instilling confidence, and assuring customers that businesses have comprehensive systems, procedures and controls to combat financial crimes and minimise risk exposure.

According to Anthony, a strong compliance track record presents an opportunity to enhance the value of a business by demonstrating a strong commitment to compliance and risk management. “Organisations that invest in and prioritise financial crime risk management not only protect their organisations, by minimising the potential for their organisations to be used to facilitate the laundering of the proceeds of crime, but can also enhance their reputations for taking the prevention of these crimes seriously,” he says.

Regulators are also increasingly publicising significant breaches and penalties, triggering increased media and shareholder attention and greater public interest in the steps organisations take to prevent money laundering. Such negative publicity can damage reputations and existing customer relationships. Prospective customers can quickly uncover past management and administrative failures online, meaning reputational damage extends beyond immediate losses, potentially creating long-term commercial implications for organisations that fail to act appropriately.

For example, when Danske Bank, Denmark’s largest bank, was hit with fines exceeding USD$2bn following a money laundering scandal in its Estonian branch, it led to a significant loss of customer trust and affected the bank’s long-term market value.

Irrespective of the industry, prioritising effective risk management practices is crucial for preserving a business’s reputation and building customer trust.

3. Financial stability

When criminals engage in illicit activities, they undermine the stability of financial institutions and markets. For instance, recent estimates by the Australian Institute of Criminology show that serious and organised crime cost the Australian community approximately A$60.1 billion in 2020-21, with illicit financing being a major factor in most types of crime. This kind of activity harms businesses and communities and distorts legitimate economic activity and markets.

Money laundering also poses significant risks to local, national, and international financial systems, as criminals exploit vulnerabilities, destabilising financial institutions and markets for personal gain. However, effective implementation of AML/CTF controls can help mitigate these adverse effects and promote market stability.

The International Monetary Fund (IMF) is actively combating money laundering and the financing of terrorism. Their goals include protecting the stability of the international financial system and cutting off resources available to terrorists, making it harder for criminals to profit. Achieving these objectives requires a coordinated effort involving universal membership, surveillance functions, and financial expertise. Individual businesses also play a crucial role by adhering to their region’s AML/CTF laws, which Anthony says can be easily accomplished with the right systems in place.

“It’s important to consider your customers, the products or services your business offers, the geographical areas where your business operates, and your delivery channels,” Anthony says. He strongly advocates for organisations adopting a technology-enabled, human-led approach to help identify vulnerabilities per global regulations and the FATF guidelines. This approach helps keep your business safe from financial crimes and contributes to financial stability in the markets where you operate.

4. Avoiding penalties and legal consequences

Failure to comply with AML regulations can lead to severe penalties, fines, and legal trouble. Recent data shows a significant increase in global fines over the past year to prevent money laundering and financial crime, with many organisations, especially those based in the UK and the US, being repeat offenders.

Specific sectors, such as gambling, cryptocurrency, banking, trading, and asset management, appeared more prone to non-compliance. Common issues include:

inadequate customer due diligence processes
insufficient monitoring of politically exposed persons (PEPs) and high-risk entities
understaffing in compliance programs
insufficient source of wealth (SOW) checks

Anthony recommends that businesses proactively implement risk assessment and AML practices to minimise the risk of penalties and consequences. And given the time-sensitive and data-intensive nature of financial investigations, automated systems and data analytics can be valuable tools for identifying suspicious activities.

“At Arctic Intelligence, we’re innovating and transforming financial crime risk assessments in an accessible and affordable way for all. We have developed two multi-award-winning enterprise-wide risk assessment platforms, AML Accelerate, which is designed for small and medium-sized businesses in over 30 industry sectors and over 30 countries looking for a guided approach to their ML/TF risk assessment and AML/CTF Program Manual development and the Risk Assessment Platform, designed for larger enterprises that want complete configurability over their financial crime and non-financial crime risk assessments” Anthony says.

Aside from financial penalties, businesses that fail to assess and mitigate money laundering risks effectively may face increased regulatory scrutiny and legal action. And there’s a growing focus on individual accountability, with legal actions against individuals becoming more common. So even without personal fines, the impact on individual careers and future prospects can be significant, making it even more important to create robust systems that protect individuals from being implicated in AML violations.

5. Enhanced operational efficiency

Implementing risk assessment and AML practices can significantly enhance operational efficiency for businesses of all sizes, whether just starting their compliance journey or helping to mature and strengthen the financial crime control frameworks.

By utilising the right solutions, businesses can effectively address challenges, identify areas of high risk, and efficiently manage gaps or weaknesses. For example, shifting from manual, time-consuming processes to dynamic and automated real-time assessments enables compliance teams to streamline workflows, minimise disruptions, and allocate resources more effectively. As a result, businesses can achieve more accurate, consistent, and reliable outcomes.

This approach leads to significant cost savings and improves overall performance by providing evidence-based support for business decisions. Anthony says, “An enterprise-wide money laundering risk assessment must be conducted at least annually and in some countries quarterly and is a critical element in being able to identify vulnerabilities in an organisation in order to take proactive steps to mitigate and manage them.”

6. Operating internationally

For businesses operating globally, whether through transactions or partnerships with local companies, understanding and complying with the regulations of each country helps avoid potential reputational risks and legal issues.

“Over 200 countries have adopted AML regulations that align with international standards set by the FATF,” Anthony explains. “These standards establish an effective system to combat money laundering and terrorist financing, but some countries, like Australia, are falling way behind on the international stage with its continued failure to regulate lawyers, accountants, real estate agents and high-value dealers.”

These recommendations provide a comprehensive and consistent framework that countries can use to tackle money laundering and terrorist financing. This framework is valuable because each country has different financial systems and varying legal, administrative, and operational frameworks. Therefore, applying the same measures universally to counter these threats is impossible.

The power of RegTech

Developing a mature approach to risk management is crucial for businesses to manage a wide range of risks, including strategic, financial, operational, and regulatory risks that are constantly changing. But, according to Anthony, with the technology available today, there’s no excuse for not managing risks effectively and avoiding unnecessary vulnerabilities.

“Real-time assessment enables businesses to be proactive, meet compliance obligations, and inform strategic decision-making promptly”, he says, “allowing businesses to respond quickly to changes in organisations, regulators, and laws.”

Arctic Intelligence is a recognised expert in financial crime regulatory technology (RegTech) and offers two award-winning financial crime risk assessment platforms: AML Accelerate Platform, designed for small-medium sized businesses with easy action plan tracking in a cloud-based environment, and Risk Assessment Platform, tailored for larger businesses with full customisation and real-time dashboard reports.

If you want to discover more about our products, book your demo now and try them for yourself.

Request a demo

Twitter